U.S.
Securities and Exchange Commission


Washington,
D.C. 20549









FORM
10-K







[X]
            Annual
      Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934
      for the Fiscal Year Ended December 31,
2008





[
       ]
            Transition
      Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934
      for the Transition Period from _______ to
  _______




Commission
File Number: 1-10559







CHINA FRUITS
CORP.


(Exact
name of small business issuer as specified in its charter)







Nevada
              58-2027283(State
      or other jurisdiction of
              (IRS
      Employer Identification No.)incorporation
      or organization)




Fu
Xi Technology & Industry Park, Nan Feng County


Jiang Xi Province, P. R.
China


(Address
of principal executive offices)





(86794)
326-6199


(Issuer's
telephone number)







Securities
registered under Section 12(b) of the Act:




Title of each class
              
              Name
      of each exchange
                on which registeredNone
              
              Not
      Applicable




Securities
registered under Section 12(g) of the Exchange Act:




Common
Stock, $.001 par value


(Title
of Class)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.


Yes
[x]               
No [  ]





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 if
Regulation S-K (229.405 of this Chapter) is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K.


Yes
[  ]               
No [x]




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
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large
      accelerated filer
            oNon-accelerated
      filer
            o(Do not check if
      a smaller reporting company)Accelerated
      filer
            oSmaller
      reporting company
            x





Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the exchange act).


Yes
[  ]                                No
[X]





The
Registrant’s revenues for its fiscal year ended December 31, 2008 were
$2,320,213.





The
aggregate market value of the voting stock on April 10, 2009 (consisting of
Common Stock, $0.001 par value per share) held by non-affiliates was
approximately $242,943 based upon the most recent sales price for such Common
Stock on said date ($0.041) April 10, 2009, there were 36,129,689 shares of our
Common Stock issued and outstanding, of which approximately 7,193,725 shares
were held by non-affiliates.





Number of
shares of common stock, par value $.001, outstanding as of April 10, 2009:
36,129,689









Table of Contents




DOCUMENTS
INCORPORATED BY REFERENCE





None











CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION




The
discussion contained in this 10-K under the Securities Exchange Act of 1934, as
amended, contains forward-looking statements that involve risks and
uncertainties. The issuer's actual results could differ significantly from those
discussed herein. These include statements about our expectations, beliefs,
intentions or strategies for the future, which we indicate by words or phrases
such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the
Company believes," "management believes" and similar language, including those
set forth in the discussions under "Notes to Financial Statements" and
"Management's Discussion and Analysis or Plan of Operation" as well as those
discussed elsewhere in this Form 10-K. We base our forward-looking statements on
information currently available to us, and we assume no obligation to update
them. Statements contained in this Form 10-K that are not historical facts are
forward-looking statements that are subject to the "safe harbor" created by the
Private Securities Litigation Reform Act of 1995.




2




TABLE OF CONTENTS




PART
      I:4Item
      1.
                                                                                          Business
                                                                                          7Item
      1A.
                                                                                          Risk Factors
                                                                                          11Item
      1B.
                                                                                          Unresolved Staff Comments
                                                                                          11Item
      2.
                                                                                          Properties
                                                                                          11Item
      3
                                                                                          Legal Proceedings
                                                                                          11Item
      4.
                                                                                          Submission of Matters to a Vote of Security
      Holders
                                                                                          11PART II:Item
      5.
                                                                                          Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
                                                                                          11Item
      6.
                                                                                          Selected Financial Data
                                                                                          13Item
      7.
                                                                                          Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                                                                                          13Item
      7A.
                                                                                          Quantitative and Qualitative Disclosures About Market
      Risk
                                                                                          17Item
      8.
                                                                                          Financial Statements and Supplementary Data
                                                                                          18Item
      9.
                                                                                          Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
                                                                                          39Item
      9A.
                                                                                          Controls and Procedures
                                                                                          39Item
      9A(T).
                                                                                          Controls and Procedures
                                                                                          40Item
      9B.
                                                                                          Other Information
                                                                                          41PART III:Item
      10.
                                                                                          Directors, Executive Officers and Corporate
      Governance
                                                                                          42Item
      11.
                                                                                          Executive Compensation
                                                                                          44Item
      12.
                                                                                          Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
                                                                                          45Item
      13.
                                                                                          Certain Relationships and Related Transactions, and Director
      Independence
                                                                                          46Item
      14.
                                                                                          Principal Accounting Fees and Services
                                                                                          46PART IV:Item
      15.
                                                                                          Exhibits, Financial Statement Schedules
                                                                                          47SIGNATURES:
                                                                                          
                                                                                          48




3
 Table of Contents




ITEM 1. BUSINESS





History





As used
herein the terms "We", the "Company", "CHFR", the "Registrant," or the "Issuer"
refers to China Fruits Corporation, its subsidiary and predecessors, unless
indicated otherwise. We were incorporated in the State of Delaware on January 6,
1993, as Vaxcel, Inc. On December 19, 2000, we changed our name to eLocity
Networks Corporation. On August 6, 2002, we changed our name to Diversified
Financial Resources Corporation. In May 2006, our board decided to redomicile
from the State of Delaware to the State of Nevada. Their decision was approved
by the holders of a majority of the voting rights and common stock. On August
18, 2006, we changed our name to China Fruits Corporation.





We began
operating as a holding company in 2005. The primary objectives involved creating
and managing a comprehensive portfolio of companies in key industry sectors. We
did not meet our primary objectives in 2005.  As a result, during 2005
we decided to try and sell all of our real estate properties, and discontinued
the operations of all of our subsidiaries. In the first quarter of 2006, our
operations from continuing activities consisted of its investment in an oil and
gas property in Texas, which was disposed during the second quarter of
2006.





As of
April 1, 2006, we entered into a Plan of Exchange (the “Agreement”), between and
among us, Jiang Xi Tai Na Guo Ye You Xian Gong Si, a corporation organized and
existing under the laws of the Peoples’ Republic of China, which changed its
corporate name to Jiangxi Taina Nanfeng Orange Co., Ltd. in February of
2007 (collectively referred to herein as “Tai Na”), the shareholders of Tai Na
(the “Tai Na Shareholders”) and our Majority Shareholder.




Pursuant
to the terms of the Agreement, two simultaneous transactions were consummated at
closing, as follows: (i) our Majority Shareholder delivered 13,150 of our
convertible Series A preferred shares and 12,100,000 non-convertible Series B
preferred shares to the Tai Na Shareholders in exchange for total payments of
$500,000 in cash and (ii) we issued to the Tai Na Shareholders an amount equal
to 30,000,000 new investment shares of our common stock pursuant to Regulation S
under the Securities Act of 1933, as amended, in exchange for all of their
shares of registered capital of Tai Na. Upon completion of the exchange, Tai Na
became our wholly-owned subsidiary. All of these conditions to closing have been
met, and we, Tai Na, the Tai Na Shareholders and our Majority Shareholders
declared the exchange transaction consummated on May 31, 2006. The transaction
was treated for accounting purposes as a capital transaction and
recapitalization by the accounting acquirer and as a re-organization by the
accounting acquiree.





Business
Description of the Issuer





Since the
reverse merger was consummated, we have continued operations of Tai Na, a
company which is principally engaged in manufacturing, trading and distributing
fresh tangerine, non-alcoholic and alcoholic beverages in the PRC. Tai Na is
located in Nan Feng County, Jiang Xi Province, the well known agricultural area
for tangerines in China. The geographic advantage benefits us with respect to
the control of manufacturing cost and product quality. We have two self-owned
one-story plants at the same location, total area of which is approximately
45,800 square feet. We expect the production capacity will reach 6,000 tons in
2009. In order to assist in further expansion in the tangerine markets, we
acquired the assets of Royal NanFeng Orange Science & Technology Co., Ltd.
("Royal"), our former tangerine supplier, in 2007.





In 2008,
we planned to expand our sales network by setting up the franchise retail stores
for fresh fruits and related products. In order to create our brand identity
efficiently, we planned to acquire or joint venture with an existing profitable
and middle-size retail stores. We planned to open up to 10 franchise retail
stores by May of 2008 located in Beijing, Haining, Hangzhou, Dongguan and
Humen.  By the end of 2008, we set up a total of 9 retail stores in
Beijing, Haining, and Dongguan. On August 27, 2008 and August 29, 2008, we
established a strategic alliance with Hangzhou Qunfeng Fruit Chain Management
Co., Ltd and China National Green Food Industrial Limited Company.




4
 Table of Contents





Overview
of Our Market Area




China's
citrus industry currently experiences transition from quantity concentration to
quality concentration, from production only to diversified business segments
covering pre-production to post-production. Citrus production in China has the
following features:




v
            Changes in Market
      Shares. Before the 1990s, approximately 70% of total citrus output
      was tangerine, 20% of the total were oranges. The percentages were changed
      to 55% for tangerine and 30% for orange in the past decade due to the
      improved quality of oranges with respect to size, outlook and
      taste.




v
            Concentration on Chinese
      Market. Citrus products are primarily marketed in China.
      Approximately 2% of total citrus products are exported to different
      countries.




v
            Increasing Fresh Fruits
      Consumption. Currently, the average consumption for fresh fruit is
      61.4 kg per person per year in the world, of which fruit consumption of
      55.4 kg per person per year in the developing countries, and 83.3 kg per
      person per year in the developed countries. In China, the average fruit
      consumption is 45.6 kg per person per year, deceased by 18% and 45%,
      compared to the developing countries and developed countries,
      respectively. Therefore, the fresh fruit market in China is still
      growing.




v
            Preference to Fresh
      Fruits. 95% of citrus products in China are consumed as fresh
      fruit. Fruit manufacturing is not popular in China, most of which is for
      export only. In addition, the orange juices on Chinese markets are
      primarily made from concentrated or non-concentrated juices imported from
      Brazil and the United States.




In
general, citrus output increased tremendously in China in the past decades due
to the increases in orchards. However, compared to the world's market, the
citrus industry in China is undeveloped in terms of quality, output, manufacture
and efficiency. There are four barriers in China's citrus industry: a) small
manufacturing magnitude, primarily based on household; b) lack of technology
input, primarily based on nature growth; c) undeveloped commercial systems,
particularly in storage and transportation; d) no clear segments in the
industry, particular in household base. It is a long-term goal to rid us of all
these barriers. After China entered the World Trade Organization ("WTO"), the
sales channels for citrus products should be more facilitated due to the open
markets. In the long run, the export of Chinese citrus will increase constantly,
for both fresh fruits and processed products.




Marketing
Strategies




Seeking
for Opportunities to Develop International Markets




Our
tangerines, well known as "Nan Feng tangerine", is popular in the market due to
the high quality, benefitting from the natural resources in Nan Feng County,
which is a well known agricultural area for tangerines in China. Currently, we
primarily market in China and hold a leading position in the Chinese market.
However, this position is challenged since China’s accession to WTO in 2001. We
believe the open-market policies will lower the barriers to entry, both in
Chinese markets and global markets. WTO membership brought with it the
opportunity to take advantage of new market access opportunities and new
protections now available to China under the rules-based system of the WTO. When
China was a non-member of the WTO, China found that exports were often the
subject of discriminatory treatment in overseas markets. In addition, as a
country with a planned economy to one with marketing economy, China often saw
its exporting enterprises were subject to anti-dumping acts. All changed under
the protection of WTO. Therefore, we take advantage of the fair markets
regulated by WTO and seek for opportunities to develop international
markets.




5
 Table of Contents




Creating
Franchise for Retail Fruit Stores




In 2009,
we plan to expand our sales network by setting up more franchise retail stores
for fresh fruits and related products. In order to create our brand identity
efficiently, we plan to acquire or joint venture with the existing profitable
and middle-size retail stores. We will provide the stores with management,
supplies, as well as the remodeling in connection with display, color and sign
to match the franchise requirements. The first franchise store was opened in
Beijing in November of 2007. Our short-term goal is to open 100 franchise retail
stores in our target markets located in North China, East China and South China.
The franchise retail stores will help build the direct channel between the end
users and us, which will facilitate the process from our plants to the markets,
benefitting us in our business strategies when markets change.




Seeking
for Strategic partners




For Nan
Feng tangerine, other fresh fruit and certain related products, we intend to
enter into collaborative arrangements with third parties. These collaborations
may be necessary in order for us to:





•
            Enhance
      manufacturing capacities;




•
            
            Setup
      franchise retail stores in our target markets located in North China, East
      China and South China;




•           Diversify
the fresh fruit sold in the franchise stores;




•           Expand
the sales network;




•           Increase
sales revenue; and




•           Successfully
build brand identity.





(i)
            On August 27, 2008, Tai Na International Fruits (Beijing) Co., Ltd
      ("Tai Na International") and Hangzhou Qunfeng Fruit Chain Management Co.,
      Ltd ("Qunfeng") signed a strategic alliance framework agreement. Pursuant
      to the agreement, the two parties established a strategic alliance
      partnership by reaching a preliminary consent on mutual visits between
      high-level leaders, a distribution alliance, a franchise store alliance,
      an authorized regional agent and a reorganization of franchise stores and
      distribution centers. The signing of this agreement will facilitate Tai Na
      International in further exploring the East China market, expanding market
      share of its products, increasing brand awareness and achieving management
      interoperability and complementary business
  practices.





(ii)
            On
      August 29, 2008, Tai Na International Fruits (Beijing) Co. Ltd. ('Tai Na
      International') and the China National Green Food Industrial Limited
      Company ('Green Industry') signed a letter of intent, pursuant to which,
      the two parties reached a preliminary consent on issues such as building a
      base for place-of-origin fruit, distribution of the base products in
      Beijing, store sharing and cooperative operation, as well as the
      acquisition of certain Green Industry assets by Tai Na International. This
      agreement is conducive for Tai Na International to further explore the
      North China market, expand Tai Na product's market share and increase its
      brand awareness, while providing a powerful guarantee for 'Tai Na
      International' fruits, which are 'green, pollution-free, organic and
      healthy.





Enhancing
Manufacture Capacity




The acquisition of Royal is one of our strategies to enhance
manufacturing capacity. Royal has been engaged in the citrus industry since
2002. Subsequent to the acquisition, we now have an additional two-story plant
with total area of 66,003 square feet, and a one-story plant with total area of
9,125 square feet. In addition, we invested approximately $300,000 in machinery,
office equipment, transportation facilities and other equipment, 90% of which is
for a fruit wine production line. We also invested approximately $220,000 in two
one-story new plants with total area of 45,800 square feet. The construction was
completed in March of 2007. As of December 31, 2007, the assets acquired from
Royal included equipment of approximately $290,000, building of approximately
$535,000 and land of approximately $368,000. We expect to purchase additional
assets during 2009.




6
 Table of Contents




Increasing
Expenses in Marketing




We plan
to increase the budget in advertising to support our franchise retail stores,
which will cover our target markets including Beijing - North China, Haining,
Hangzhou - East China, and Dongguang, Humen - South China. In addition, we
retain professional consultants to integrate our marketing strategies. We
believe their expertise will benefit us in connection with target markets
definition, corporate image, brand identity and media preference.




Competition





The
domestic and international markets for the citrus industry are intensely
competitive and require us to compete against some companies possessing greater
financial, marketing and other resources than ours. In addition, we compete in
the nonalcoholic beverages segment of the commercial beverages industry. The
nonalcoholic beverages segment of the commercial beverages industry is highly
competitive, consisting of numerous firms. These include firms that compete in
multiple geographic areas as well as firms that are primarily local in their
operation. Competitive products include numerous nonalcoholic sparkling
beverages; various water products, including packaged water; juices and nectars;
fruit drinks and dilutables (including syrups and powdered drinks); coffees and
teas; energy and sports drinks; and various other nonalcoholic beverages. These
competitive beverages are sold to consumers in both ready-to-drink and
not-ready-to-drink form. Competitive factors impacting our business include
pricing, advertising, sales promotions, product innovation, increased efficiency
in production techniques, the introduction of new packaging, new vending and
dispensing equipment, and brand/trademark development and
protection.




Our
competitive strengths include good quality with a high level of consumer
acceptance; a national distribution network; sophisticated marketing
capabilities; and a talented group of dedicated employees. However, we cannot be
certain that efforts in marketing will be successful.





Government
Regulation





The
production, distribution and sale in the Chinese market of our products are
subject to the PRC State Food, Drug, and Cosmetic Act, state consumer protection
laws, the Occupational Safety and Health Act, various environmental statutes;
and various other state and local statutes and regulations applicable to the
production, transportation, sale, safety, advertising, labeling and ingredients
of such products.





Employees




As of
December 31, 2008, we had 123 full-time employees, many of whom joined us in
2008 as experienced franchising management personnel and fruit
salespeople.





ITEM 1A. RISK FACTORS





In addition to the other information set forth in
this report, you should carefully consider the following factors, which could
materially affect our business, financial condition or future results. The risks
described below are not the only risks facing us. Additional risks and
uncertainties not currently known to us or that we currently deems to be
immaterial also may materially adversely affect our business, financial
condition or results of operations.




7
 Table of Contents




Water scarcity and poor quality could negatively impact
our production costs and capacity




Water is
the main ingredient in substantially all of our beverage products. It is also a
limited resource in many parts of the world, facing unprecedented challenges
from overexploitation, increasing pollution and poor management. As demand for
water continues to increase in China and as the quality of available water
deteriorates, our system may incur increasing production costs or face capacity
constraints which could adversely affect our profitability or net operating
revenues in the long run.




Changes
in the nonalcoholic beverages business environment could impact our financial
results




The
nonalcoholic beverages business environment is rapidly evolving as a result of,
among other things, changes in consumer preferences, changes in consumer
lifestyles, increased consumer information and competitive product and pricing
pressures. If we are unable to successfully adapt to this rapidly changing
environment, our net income, share of sales and volume growth could be
negatively affected.




Increased
competition could hurt the our business




The
nonalcoholic beverages segment of the commercial beverages industry is highly
competitive. We compete with major international beverage companies that operate
in multiple geographic areas, as well as numerous firms that are primarily local
in operation. Our ability to gain or maintain share of sales or gross margins in
the Chinese markets and ability to grow the business in global market may be
limited as a result of actions by competitors.




We
rely on its strategic partners for a significant portion of its business. If we
are unable to maintain good relationships with its strategic partners, our
business could suffer




For Nan
Feng tangerine, other fresh fruit and certain related products, we intend to
enter into collaborative arrangements with third parties. These collaborations
may be necessary in order for us to:





•           Enhance
manufacturing capacities;




•
            Setup
      franchise retail stores in our target markets located in North China, East
      China and South China;




•           Diversify
the fresh fruit sold in the franchise stores;




•           Expand
the sales network;




•           Increase
sales revenue; and




•           Successfully
build brand identity.





We cannot
assure that we will be able to enter into collaborative agreements with partners
on terms favorable to us, or at all, and any future agreement may expose us to
risks that our partner might fail to fulfill its obligations and delay
commercialization of our products. We also could become involved in disputes
with partners, which could lead to delays in or terminations of our development
and commercialization programs and time consuming and expensive litigation or
arbitration. Our inability to enter into additional collaborative arrangements
with other partners, or our failure to maintain such arrangements, would limit
the number of product candidates which we could develop and ultimately, decrease
our sources of any future revenues.




8
 Table of Contents




Increase in cost, disruption of supply or shortage of raw
materials could harm our business.




The
output of tangerine significantly relies on the local climate. The shortage of
tangerine would increase our operating costs and could reduce our profitability.
Increases in the prices of our finished products resulting from higher raw
material costs could affect affordability in some markets and reduce our sales.
An increase in the cost or a sustained interruption in the supply or shortage of
the tangerine that may be caused by natural disasters could negatively impact
our net revenues and profits.




Adverse
weather conditions could reduce the demand for our products.




The sales
of our products are influenced to some extent by weather conditions in the
markets in which we operate. Unusually cold weather during the summer months may
have a temporary effect on the demand for our products and contribute to lower
sales, which could have an adverse effect on our results of operations for those
periods.





If
we are unable to maintain brand identity and product quality, our business may
suffer.




Our
success depends on our ability to maintain brand identity for our "Nan Feng
Tangerine". We cannot assure you, however, that additional expenditures and our
renewed commitment to advertising and marketing will have the desired impact on
our products' brand image and on consumer preferences. Product quality issues,
real or imagined, or allegations of product contamination, could tarnish the
image of the affected brands and may cause consumers to choose other
products.




Changes
in accounting standards and taxation requirements could affect our financial
results.




New
accounting standards or pronouncements that may become applicable to us from
time to time, or changes in the interpretation of existing standards and
pronouncements, could have a significant effect on our reported results for the
affected periods. We are also subject to income tax in China in which we
generate net operating revenues. In addition, our products are subject to sales
and value-added taxes in China. Increases in income tax rates could reduce our
after-tax income from affected jurisdictions, while increases in indirect taxes
could affect our products' affordability and therefore reduce demand for our
products.




If
we are not able to achieve our overall long term goals, the value of an
investment in us could be negatively affected.




We have
established and publicly announced certain long-term growth objectives. These
objectives were based on our evaluation of our growth prospects, which are
generally based on the increase in our investment, and on an assessment of
potential level or mix of product sales. There can be no assurance that we will
achieve the required volume or revenue growth or mix of products necessary to
achieve our growth objectives.




Our assets
are located in China and its revenues are derived from its operations in
China





In terms
of industry regulations and policies, the economy of China has been
transitioning from a planned economy to market oriented economy. Although in
recent years the Chinese government has implemented measures emphasizing the
utilization of market forces for economic reforms, the reduction of state
ownership of productive assets and the establishment of sound corporate
governance in business enterprises, a substantial portion of productive assets
in China are still owned by the Chinese government. For example, all lands are
state owned and are leased to business entities or individuals through
governmental granting of State-owned Land Use Rights. The granting process is
typically based on government policies at the time of granting and it could be
lengthy and complex. This process may adversely affect our future manufacturing
expansions. The Chinese government also exercises significant control over
China’s economic growth through the allocation of resources, controlling payment
of foreign currency and providing preferential treatment to particular
industries or companies. Uncertainties may arise with changing of governmental
policies and measures. At present, our development of research and development
technologies and products is subject to approvals from the relevant government
authorities in China. Such governmental approval processes are typically lengthy
and complex, and never certain to be obtained.




9
 Table of Contents




Political
and economic risks
 
 China is
a developing country with a young market economic system overshadowed by the
state. Its political and economic systems are very different from the more
developed countries and are still in the stage of change. China also faces many
social, economic and political challenges that may produce major shocks and
instabilities and even crises, in both its domestic arena and in its
relationship with other countries, including but not limited to the United
States. Such shocks, instabilities and crises may in turn significantly and
adversely affect our performance.




Risks
related to interpretation of China laws and regulations which involves
significant uncertainties





China’s
legal system is based on written statutes and their interpretation by the
Supreme People’s Court. Prior court decisions may be cited for reference but
have limited value as precedents. Since 1979, the Chinese government has been
developing a comprehensive system of commercial laws, and considerable progress
has been made in introducing laws and regulations dealing with economic matters
such as foreign investment, corporate organization and governance, commerce,
taxation and trade. However, because these laws and regulations are relatively
new, and because of the limited volume of published cases and judicial
interpretation and their lack of force as precedents, interpretation and
enforcement of these laws and regulations involve significant uncertainties. In
addition, as the Chinese legal system develops, we cannot assure that changes in
such laws and regulations, and their interpretation or their enforcement will
not have a material adverse effect on our business operations.




Fluctuations
in the exchange rate could have a material adverse effect upon our
business.




We
conduct our business in the Renminbi. The value of the Renminbi against the U.S.
dollar and other currencies may fluctuate and is affected by, among other
things, changes in political and economic conditions. On July 21, 2005, the PRC
government changed its decade old policy of pegging its currency to the U.S.
currency. Under the current policy, the Renminbi is permitted to fluctuate
within a narrow and managed band against a basket of certain foreign currencies.
This change in policy has resulted in an approximately 6.5% appreciation of the
Renminbi against the U.S. dollar between July 21, 2005 and August 31, 2007.
However, there remains significant international pressure on the PRC government
to adopt an even more flexible currency policy, which could result in a further
and more significant appreciation of the RMB against the U.S. dollar. To the
extent our future revenues are denominated in currencies other the United States
dollars, we would be subject to increased risks relating to foreign currency
exchange rate fluctuations which could have a material adverse affect on our
financial condition and operating results since our operating results are
reported in United States dollars and significant changes in the exchange rate
could materially impact our reported earnings.





Declining
economic conditions could negatively impact our business




Our
operations are affected by local, national and worldwide economic
conditions.  Markets in the United States and elsewhere have been
experiencing extreme volatility and disruption for more than 12 months, due in
part to the financial stresses affecting the liquidity of the banking system and
the financial markets generally.  In recent weeks, this volatility and
disruption has reached unprecedented levels.  The consequences of a
potential or prolonged recession may include a lower level of economic activity
and uncertainty regarding energy prices and the capital and commodity markets.
While the ultimate outcome and impact of the current economic conditions cannot
be predicted, a lower level of economic activity might result in a decline in
energy consumption, which may adversely affect the price of oil, liquidity and
future growth.  Instability in the financial markets, as a result of
recession or otherwise, also may affect the cost of capital and our ability to
raise capital.




10
 Table of Contents




ITEM 1B. UNRESOLVED STAFF
COMMENTS





None.





ITEM 2. PROPERTIES





Our main
operation is located in the Fu Xi Technology & Industry Park, Nan Feng
County, Jiang Xi Province, People’s Republic of China, which is self-owned
property with a total area of 120,928 square feet, including the two self-owned
one-story plants of approximately 45,800 square feet completed in March of 2007.
This space is adequate for our present operations. No other businesses operate
from this office.




There is
no private ownership of land in China; all land ownership is held by the
government of China, its agencies and collectives. Land use rights are obtained
from government for periods ranging from 50 to 70 years, and are typically
renewable. Land use rights can be transferred upon approval by the land
administrative authorities of China (State Land Administration Bureau) upon
payment of the required transfer fee.





ITEM 3.LEGAL
PROCEEDINGS




We may be
subject to, from time to time, various legal proceedings relating to claims
arising out of our operations in the ordinary course of our business. We are not
currently a party to any legal proceedings, the adverse outcome of which,
individually or in the aggregate, would have a material adverse effect on the
business, financial condition, or results of operations of the
Company.





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




We did
not submit any matters to a vote of security holders during the fourth quarter
of fiscal year 2008.





PART II




ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES





Trading
Market for Common Equity




Our
common stock is quoted on the Electronic Bulletin Board under the symbol,
CHFR.OB (formerly DVFN.OB, DFRL.OB, DFRC.OB and ELOC.OB). Trading in the common
stock in the over-the-counter market has been limited and sporadic and the
quotations set forth below are not necessarily indicative of actual market
conditions. Further, these prices reflect inter-dealer prices without retail
mark-up, mark-down, or commission, and may not necessarily reflect actual
transactions. The following tables set forth the high and low sale prices for
our common stock as reported on the Electronic Bulletin Board for the periods
indicated.




Dividends





We have
never paid a cash dividend on our common stock. The payment of dividends may be
made at the discretion of our Board of Directors, and will depend upon, among
other things, our operations, capital requirements, and overall financial
condition. There are no contractual restrictions on our ability to declare and
pay dividends.




11
 Table of Contents





Preferred
Stock





On
September 16, 2004, we filed with the Delaware Secretary of State a
Certificate of Designation of the Rights and Preferences of Preferred Stock of
Diversified Financial Resources Corporation, n/k/a China Fruits Corporation.
This designation created 200,000,000 shares, no stated par value, of Series A
and Series B Convertible Preferred Stock. On May 18, 2006, we filed with
the Nevada Secretary of State an Articles of Exchange to redomicile from
Delaware State to Nevada State, the designation regarding the Rights and
Preferences of Preferred Stock remains unchanged except that the par value of
Preferred Stock was changed to $.001.





The
Series A Convertible Preferred Stock has the following rights and
privileges:





1.
            The
      shares are convertible at the option of the holder at any time into common
      shares, at a conversion rate of one share of Series A Convertible
      Preferred Stock for 100 shares of common stock for a period of 10 years
      from the issuance date.





2.
            Requires
      two-thirds voting majority to authorize changes to
  equity.





3.
            Redemption
      provision at option of directors for $10 per share plus the greater of $3
      per share or 50% of market capitalization divided by
      2,000,000.





4.
            The
      holders of the shares are entitled to one hundred (100) votes for each
      share held.





5.
            Upon
      our liquidation, the holders of the shares will be entitled to receive $10
      per share plus redemption provision before assets distributed to other
      shareholders.





6.
            The
      holders of the shares are entitled to dividends equal to common share
      dividends.





The
Series B Convertible Preferred Stock has the following rights and
privileges:





1.
            The
      shares are not convertible into any other class or series of
      stock.





2.
            The
      holders of the shares are entitled to five hundred (500) votes for each
      share held. Voting rights are not subject to adjustment for splits that
      increase or decrease the common shares
  outstanding.





3.
            Upon
      our liquidation, the holders of the shares will be entitled to receive
      $.001 per share plus redemption provision before assets distributed to
      other shareholders.





4.
            The
      holders of the shares are entitled to dividends equal to common share
      dividends.





5.
            Once
      any shares of Series B Convertible Preferred Stock are outstanding, at
      least two-thirds of the total number of shares of Series B Convertible
      Preferred Stock outstanding must approve the following
      transactions:





a)
            Alter
      or change the rights, preferences or privileges of the Series B Preferred
      Stock.


b)
            Create
      any new class of stock having preferences over the Series B Preferred
      Stock.


c)
            Repurchase
      any of our common stock.


d)
            Merge
      or consolidate with any other company, except our wholly-owned
      subsidiaries.


e)
            Sell,
      convey or otherwise dispose of , or create or incur any mortgage, lien, or
      charge or encumbrance or security interest in or pledge of, or sell and
      leaseback, in all or substantially all of our property or
      business.


f)
            Incur,
      assume or guarantee any indebtedness maturing more than 18 months after
      the date on which it is incurred, assumed or guaranteed by us, except for
      operating leases and obligations assumed as part of the purchase price of
      property.




12
 Table of Contents




Number
of Holders




As of
April 9, 2009, we had 3,659 common shareholders of record.




Securities
Authorized for Issuance Under Equity Compensation Plans




As of the
date of this Report, we have not authorized any equity compensation plan, nor
has our Board of Directors authorized the reservation or issuance of any
securities under any equity compensation plan.




Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities




None.





Purchases
of Equity Securities by the Small Business Issuer and Affiliated
Purchasers




None.




Transfer
Agent




Our transfer agent is Guardian Registrar & Transfer, Inc.
located at 7951 SW 6th Street, Suite 216, Plantation, Florida
33324.





ITEM 6. SELECTED FINANCIAL
DATA




If the registrant qualifies as a smaller reporting company as defined
byRule
229.10(f)(1), it is not required to provide the information required by
this Item.




ITEM 7.MANAGEMENT’S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION





Forward
Looking Statements




Certain
statements in this report, including statements of our expectations, intentions,
plans and beliefs, including those contained in or implied by "Management's
Discussion and Analysis" and the Notes to Consolidated Financial Statements, are
"forward-looking statements", within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
subject to certain events, risks and uncertainties that may be outside our
control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”,
“will”, and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they are made. We undertake no obligation to
update or revise any forward-looking statements. These forward-looking
statements include statements of management's plans and objectives for our
future operations and statements of future economic performance, information
regarding our expansion and possible results from expansion, our expected
growth, our capital budget and future capital requirements, the availability of
funds and our ability to meet future capital needs, the realization of our
deferred tax assets, and the assumptions described in this report underlying
such forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a number
of factors, including, without limitation, those described in the context of
such forward-looking statements, our expansion strategy, our ability to achieve
operating efficiencies, our dependence on distributors, capacity, suppliers,
industry pricing and industry trends, evolving industry standards, domestic and
international regulatory matters, general economic and business conditions, the
strength and financial resources of our competitors, our ability to find and
retain skilled personnel, the political and economic climate in which we conduct
operations and the risk factors described from time to time in our other
documents and reports filed with the Securities and Exchange Commission (the
"Commission"). Additional factors that could cause actual results to differ
materially from the forward-looking statements include, but are not limited to:
1) our ability to successfully develop, manufacture and deliver our magazines on
a timely basis and in the prescribed condition; 2) our ability to compete
effectively with other companies in the same industry; 3) our ability to raise
sufficient capital in order to effectuate our business plan; and 4) our ability
to retain our key executives.




13
 Table of Contents





Critical
Accounting Policies





Revenue
recognition





We derive
revenues from the resale of non-alcoholic and alcoholic beverages and
tangerine purchased from third parties, net of value added taxes (“VAT”).
 We are subject to VAT which is levied on the majority of the products of
Tai Na at the rate of 17% on the invoiced value of sales.  Output VAT
is borne by customers in addition to the invoiced value of sales and input VAT
is borne by using additions to the invoiced value of purchases to the extent not
refunded for export sales.





In
accordance with the SEC’s Staff Accounting Bulletin No. 104, Revenue Recognition, we
recognize revenue when persuasive evidence of an arrangement exists, transfer of
title has occurred or services have been rendered, the selling price is fixed or
determinable and collectibility is reasonably assured. Our sales
arrangements are not subject to warranty.





Starting
from October 2006, we commenced the trading of tangerine in the
PRC.





(a)      Sale
of products





We
recognize revenue from the sale of products upon delivery to the customers and
the transfer of title and risk of loss. We did not record any product returns
for the years ended December 31, 2008 and 2007.





(b)      Interest
income





Interest
income is recognized on a time apportionment basis, taking into account the
principal amounts outstanding and the interest rates applicable.





Inventory





Inventories consist
of finished goods and are valued at lower of cost or market value, cost being
determined on the first-in, first-out method. We periodically review historical
sales activity to determine excess, slow moving items and potentially obsolete
items and also evaluates the impact of any anticipated changes in future demand.
We provide inventory allowances based on excess and obsolete inventories
determined principally by customer demand. As of December 31, 2008, we did not
record an allowance for obsolete inventories, nor have there been any
write-offs.





Property, Plant, and
Equipment





Plant and
equipment are stated at cost less accumulated depreciation and accumulated
impairment losses, if any. Depreciation is calculated on the straight-line basis
over the following expected useful lives from the date on which they become
fully operational and after taking into account their estimated residual
values:





Depreciable
life                                           Residual
value


Plant and
machinery                          10-12
years                                          
            5%


Furniture,
fixture and equipment   
       5-6
years                                            
            5%





Expenditure
for maintenance and repairs is expensed as incurred.




14
 Table of Contents




RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007





Revenues





Gross
revenues were $2,320,213 and $1,896,887 for the years ended December 31, 2008
and 2007, respectively, due primarily to sales of tangerine, non-alcoholic and
alcoholic beverages. We recognize revenue when persuasive evidence of a sale
exists, transfer of title has occurred, the selling price is fixed or
determinable and collectability is reasonably assured. Our sales arrangements
are not subject to warranty. We did not record any product returns for the year
ended December 31, 2008. The increase in gross revenues by $423,326 in 2008 was
due primarily to collaboration with the strategic partners. We designated
exclusive distributors in different regions. For example, Liaoning Shenyang
Yunpeng Fruits Limited ("Yunpeng") is our exclusive distributor within three
provinces in Northeast China, through which we sold 2,600 ton tangerines. We
expect sales to increase during 2009 as our moves toward implementing our
business plan, including the increase in franchise retail stores, the increase
in marketing budgets.





Income /
Loss




We had a
net income (loss) of $161,902 and $(310,146) for the years ended December 31,
2008 and 2007, respectively. The increase by $472,048 in net income in 2008 was
due primarily to the government grant we received for $325,088 and $0 and to the
decrease in non-cash consulting expenses, which was $0 and $361,666 for the
years ended December 31, 2008 and 2007, respectively. The non-cash consulting
expenses were the result of the issuance of 3,900,000 shares of common stock for
services in connection with general management consulting and advisory services
including, but not limited to, the following:




-
            Advise
      on matters relating to our structure, management, operation and
      subsidiaries;-
            The
      preparation and implementation of a new business plan and a future growth
      strategy;-
            Our
      corporate image design and website construction;-
            Advertisements-
            Advise
      on procedures, regulations, and compliance of a public listed
      company;-
            Legal
      advise on procedures, regulations, and compliance in
  China;-
            Assistance
      with preparation of applicable filings with the SEC;-
            Assistance
      with preparation of financial statements;-
            EDGAR
      services





The
shares were valued based on the market price on the date of the stock grant or
the specific terms of the applicable consulting agreements and booked pro rata
due to the service periods, which was completed as of December 31,
2007.





There can
be no assurance that we will achieve or maintain profitability, or that any
revenue growth will take place in the future.





Expenses





Operating
expenses for the years ended December 31, 2008 and 2007 were $996,120 and
$956,326, respectively. The increase in 2008 was due primarily to the increase
in selling and marketing and the increase in general and administrative
expenses.





Cost of Goods
Sold





Cost of
goods sold included expenses directly related to the manufacturing and selling
our products. Product delivery and direct labor would be examples of cost of
goods sold items. During the year ended December 31, 2007, we had $1,222,193 in
cost of goods sold, or 64.4% of sales revenue, none of which from related party.
During the year ended December 31, 2008, we had $1,490,398 in cost of goods
sold, or 64.2% of sales revenue, of which $0 was from related party. The
slightly lower cost of goods sold during 2008 was the result of the commencement
of the new plant, through which we had the capacity to manufacture and store
many of our own items. In addition, we reduced the risk of concentration by
collaborating with more non-related suppliers.




15
 Table of Contents




Impact of
Inflation





We
believe that inflation has had a negligible effect on operations during this
period. We believe that we can offset inflationary increases in the cost of
sales by increasing sales and improving operating efficiencies.





Liquidity and Capital
Resources




Cash
flows provided by operating activities were $38,447 and $270,398 for the years
ended December 31, 2008 and 2007, respectively. Positive cash flows from
operations in 2008 were due primarily to the net income of $161,902, plus the
non-cash expenses, including depreciation of $179,340, and stock based
compensation of $193,750, partially offset by the increase in accounts
receivable by $299,612, increase in inventories by $179,242 and increase in
refundable value-added taxes by $213,242. Positive cash flows from operations in
2007 were due primarily to the net loss offset by stock based compensation of
$361,666 and the collection of accounts receivable of $252,681.
 
 Cash
flows used in investing activities were $397,844 and $1,299,960 for the years
ended December 31, 2008 and 2007, respectively, which were due primarily to the
purchase of property and equipment in both years.
 
 Cash
flows provided by financing activities were $426,701and $935,180 for the years
ended December 31, 2008 and 2007, respectively. Cash flows from financing
activities in 2008 due primarily to officer loans of $140,085, which are
unsecured, non-interest bearing and repayable over 12 months, offset by the
payment of due to related party of $565,633, and the advance from a third party
of $309,443, which is unsecured, non-interest bearing and repayable within 12
months. Additionally, we infused $621,965 as additional paid-in capital. Cash
flows from financing activities in 2007 due primarily an advance of $576,000
from a third party and the capital infusion of $1,067,843.




We
project that we will need additional capital to fund operations over the next 12
months. We anticipate we will need an additional $500,000 in working capital
during 2009 and $700,000 for the two years thereafter.




Overall,
we have funded our cash needs from inception through December 31, 2008 with a
series of debt and equity transactions, primarily with related parties. If we
are unable to receive additional cash from our related parties, we may need to
rely on financing from outside sources through debt or equity transactions. Our
related parties are under no legal obligation to provide us with capital
infusions. Failure to obtain such financing could have a material adverse effect
on operations and financial condition.




We had
cash of $97,961 on hand and a working capital of $306,941 as of December 31,
2008. Currently, we have enough cash to fund our operations for about six
months. This is based on current cash flows from financing activities and
projected revenues. Also, if the projected revenues fall short of needed capital
we may not be able to sustain our capital needs. We will then need to obtain
additional capital through equity or debt financing to sustain operations for an
additional year. Our current level of operations would require capital of
approximately $500,000 to sustain operations through year 2008 and approximately
$700,000 per year thereafter. Modifications to our business plans may require
additional capital for us to operate. For example, if we are unable to raise
additional capital in the future we may need to curtail our number of product
offers or limit our marketing efforts to the most profitable geographical areas.
This may result in lower revenues and market share for us. In addition, there
can be no assurance that additional capital will be available to us when needed
or available on terms favorable to us.




16
 Table of Contents




On a
long-term basis, liquidity is dependent on continuation and expansion of
operations, receipt of revenues, and additional infusions of capital and debt
financing. Our current capital and revenues are insufficient to fund such
expansion. If we choose to launch such an expansion campaign, we will require
substantially more capital. The funds raised from this offering will also be
used to market our products and services as well as expand operations and
contribute to working capital. However, there can be no assurance that we will
be able to obtain additional equity or debt financing in the future, if at all.
If we are unable to raise additional capital, our growth potential will be
adversely affected and we will have to significantly modify our plans. For
example, if we unable to raise sufficient capital to develop our business plan,
we may need to:





• Curtail
new product launches





• Limit
our future marketing efforts to areas that we believe would be the most
profitable.





Demand
for the products and services will be dependent on, among other things, market
acceptance of our products, citrus market and beverage market in general, and
general economic conditions, which are cyclical in nature. Inasmuch as a major
portion of our activities is the receipt of revenues from the sales of our
products, our business operations may be adversely affected by our competitors
and prolonged recession periods.





Our success will be dependent upon
implementing our plan of operations and the risks associated with our business
plans. We manufacture, trade and distribute fresh tangerine, non-alcoholic and
alcoholic beverages to retail consumers and wholesale buyers. We plan to
strengthen our position in these markets. We also plan to expand our operations
through aggressively marketing our products and our concept.




ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK




We do not use
derivative financial instruments in our investment portfolio and has no foreign
exchange contracts. Our financial instruments consist of cash and cash
equivalents, trade accounts receivable, accounts payable and long-term
obligations. We consider investments in highly liquid instruments purchased with
a remaining maturity of 90 days or less at the date of purchase to be cash
equivalents. However, in order to manage the foreign exchange risks, we may
engage in hedging activities to manage our financial exposure related to
currency exchange fluctuation. In these hedging activities, we might use
fixed-price, forward, futures, financial swaps and option contracts traded in
the over-the-counter markets or on exchanges, as well as long-term structured
transactions when feasible.





Foreign
Exchange Rates





All of
our sales are denominated in Renminbi (“RMB”). As a result, changes in the
relative values of U.S. Dollars and RMB affect our reported levels of revenues
and profitability as the results are translated into U.S. Dollars for reporting
purposes. Fluctuations in exchange rates between the U.S. dollar and RMB
affect our gross and net profit margins and could result in foreign exchange and
operating losses.





Our
results of operations and cash flow are translated at average exchange rates
during the period, and assets and liabilities are translated at the unified
exchange rate as quoted by the People’s Bank of China at the end of the period.
Translation adjustments resulting from this process are included in accumulated
other comprehensive income in our statement of shareholders’ equity. We recorded
net foreign currency gains of $115,089 in fiscal 2008. We have not used any
forward contracts, currency options or borrowings to hedge our exposure to
foreign currency exchange risk. We cannot predict the impact of future exchange
rate fluctuations on our results of operations and may incur net foreign
currency losses in the future.





Our
financial statements are expressed in U.S. dollars but the functional
currency of our operating subsidiary is RMB. The value of your investment in our
stock will be affected by the foreign exchange rate between U.S. dollars
and RMB. To the extent we hold assets denominated in U.S. dollars,
including the net proceeds to us from this offering, any appreciation of the RMB
against the U.S. dollar could result in a change to our statement of
operations and a reduction in the value of our U.S. dollar denominated
assets. On the other hand, a decline in the value of RMB against the
U.S. dollar could reduce the U.S. dollar equivalent amounts of our
financial results, the value of your investment in our company and the dividends
we may pay in the future, if any, all of which may have a material adverse
effect on the price of our stock.




The
exchange rates used to translate amounts in RMB into U.S. Dollars for the
purposes of preparing the consolidated financial statements or otherwise stated
in this MD&A were as follows:
  2008
                                  2007Balance
      sheet items, except for the registered and paid-up capital as of December
      31, 2008 and 2007
                                  USD
      0.147:RMB 1
                                  USD
      0.137:RMB 1Amounts
      included in the statement of operations, statement of changes in
      stockholders’ equity and statement of cash flows for the years ended
      December 31, 2008 and 2007
                                  USD 0.144:RMB 1
                                  USD
      0.135:RMB
1


17
 Table of Contents





ITEM 8.FINANCIAL STATEMENTS





Financial
Summary Information





Because
this is only a financial summary, it does not contain all the financial
information that may be important to you. It should be read in conjunction with
the consolidated financial statements and related notes presented in this
section.





Audited
Financial Summary Information for the Years Ended December 31, 2008 and
2007





Statements
      of Operations
                                          
                                          For
      the year ended December 31, 2008
                                          
                                          
                                          For
      the year ended December 31, 2007Revenues
                                          
                                          $
                                          2,320,213
                                          
                                          
                                          $
                                          1,896,887Cost
      of Sales
                                          
                                          $
                                          (1,490,398
                                          )
                                          
                                          $
                                          (1,222,193
                                          )Gross
      profit
                                          
                                          $
                                          829,815
                                          
                                          
                                          $
                                          674,694Operating
      expenses
                                          
                                          $
                                          996,120
                                          
                                          
                                          $
                                          956,326(Loss)
      from operations
                                          
                                          $
                                          (166,305
                                          )
                                          
                                          $
                                          (281,632
                                          )Interest
      expense
                                          
                                          $
                                          (136
                                          )
                                          
                                          $
                                          (0
                                          )Net
      (loss)
                                          
                                          $
                                          161,902
                                          
                                          
                                          $
                                          (310,146
                                          )Net
      loss per common share
                                          
                                          
                                          **
                                          
                                          
                                          
                                          **





** Less
than $.01








Balance
      Sheet
                          
                          As
      of December 31, 2008Cash
                          
                          $
                          97,961Total
      current assets
                          
                          $
                          1,286,052Other
      assets
                          
                          $
                          2,124,714Total
      Assets
                          
                          $
                          3,410,766Current
      liabilities
                          
                          $
                          979,111Long
      term liabilities
                          
                          $
                          222,082Stockholders’
      equity
                          
                          $
                          2,209,573Total
      liabilities and stockholders’ equity
                          
                          $
                          3,410,766




18
 Table of Contents


CHINA
FRUITS CORPORATION





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS








PageReport
      of Independent Registered Public Accounting Firm
                  
                  20Consolidated
      Balance Sheets
                  
                  21Consolidated
      Statements of Operations And Comprehensive Loss
                  
                  22Consolidated
      Statements of Cash Flows
                  
                  23Consolidated
      Statements of Stockholders’ Equity
                  
                  24Notes
      to Consolidated Financial Statements
                  
                  25-38








19
 Table of Contents




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board
of Directors and Stockholders of


China
Fruits Corporation





We have
audited the accompanying consolidated balance sheets of China Fruits Corporation
and Subsidiaries (“the Company”) as of December 31, 2008 and 2007
and the related consolidated statements of operations and comprehensive loss,
stockholders’ equity and cash flows for the years ended December 31, 2008 and
2007. The financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting.  Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of China Fruits Corporation as
of December 31, 2008 and 2007 and the results of operations and cash flows for
the years ended December 31, 2008 and 2007 in conformity with accounting
principles generally accepted in the United States of America.








/s/
Lake & Associates CPA’s LLC


Lake
& Associates CPA’s LLC


Boca
Raton, Florida


April 8,
2009





20
 Table of Contents




CHINA
      FRUITS CORPORATIONConsolidated
      Balance SheetAs
      of December 31, 2008 and 2007(Expressed
      in US Dollars, except for number of shares)ASSETSDecember 31, 2008
                                                            
                                                            
                                                            December 31, 2007CURRENT ASSETSCash
      and cash equivalents
                                                            
                                                            $
                                                            97,961
                                                            
                                                            
                                                            $
                                                            27,695Accounts
      receivable, trade
                                                            
                                                            
                                                            322,184
                                                            
                                                            
                                                            
                                                            23,777Receivable
      from a third party
                                                            
                                                            
                                                            314,576
                                                            
                                                            
                                                            
                                                            -Inventories
                                                            
                                                            
                                                            272,991
                                                            
                                                            
                                                            
                                                            83,564Prepayment
                                                            
                                                            
                                                            56,612
                                                            
                                                            
                                                            
                                                            -Employee
      advance
                                                            
                                                            
                                                            819
                                                            
                                                            
                                                            
                                                            -Refundable VAT
      tax
                                                            
                                                            
                                                            216,779
                                                            
                                                            
                                                            
                                                            -Refundable
      income tax
                                                            
                                                            
                                                            4,130
                                                            
                                                            
                                                            
                                                            -TOTAL
      CURRENT ASSETS
                                                            
                                                            
                                                            1,286,052
                                                            
                                                            
                                                            
                                                            135,036PLANT AND EQUIPMENT, NET
                                                            
                                                            
                                                            2,114,278
                                                            
                                                            
                                                            
                                                            1,770,401OTHER ASSETS-Deposit
                                                            
                                                            
                                                            10,436
                                                            
                                                            
                                                            
                                                            -TOTAL
      ASSETS
                                                            
                                                            $
                                                            3,410,766
                                                            
                                                            
                                                            $
                                                            1,905,437LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT LIABILITIESAccounts
      payable
                                                            
                                                            $
                                                            11,352
                                                            
                                                            
                                                            $
                                                            5,415Loan
      and related party payable
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            538,017Notes
      payable
                                                            
                                                            
                                                            548,679
                                                            
                                                            
                                                            
                                                            -Customer
      deposit
                                                            
                                                            
                                                            298,873
                                                            
                                                            
                                                            
                                                            -Income
      taxes payable
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            49,306Accrued
      liabilities and payroll tax liabilities
                                                            
                                                            
                                                            120,207
                                                            
                                                            
                                                            
                                                            106,357TOTAL
      CURRENT LIABILITIES
                                                            
                                                            
                                                            979,111
                                                            
                                                            
                                                            
                                                            699,095LONG-TERM LIABILITIESDue
      to stockholders
                                                            
                                                            
                                                            222,082
                                                            
                                                            
                                                            
                                                            81,997TOTAL
      LONG TERM LIABILITIES
                                                            
                                                            
                                                            222,082
                                                            
                                                            
                                                            
                                                            81,997STOCKHOLDERS' EQUITYPreferred
      stock, 200,000,000 shares authorized, designated as Series A and Series
      BSeries
      A; par value $.001; 2,000,000 shares authorized13,150
      shares issued and outstanding
                                                            
                                                            
                                                            13
                                                            
                                                            
                                                            
                                                            13Series
      B; par value $0.001, voting; 50,000,000 shares authorized12,100,000
      shares issued and outstanding
                                                            
                                                            
                                                            12,100
                                                            
                                                            
                                                            
                                                            12,100Common
      stock, par value $.001, 100,000,000 shares authorized,36,129,689
      shares issued and outstanding
                                                            
                                                            
                                                            36,129
                                                            
                                                            
                                                            
                                                            36,129Additional
      paid-in capital
                                                            
                                                            
                                                            2,938,540
                                                            
                                                            
                                                            
                                                            2,324,053Deferred
      compensation
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (193,750
                                                            )Statutory
      reserve
                                                            
                                                            
                                                            16,805
                                                            
                                                            
                                                            
                                                            16,805Accumulated
      other comprehensive income (loss)
                                                            
                                                            
                                                            163,939
                                                            
                                                            
                                                            
                                                            48,850Accumulated
      deficits
                                                            
                                                            
                                                            (957,953
                                                            )
                                                            
                                                            
                                                            (1,119,855
                                                            )TOTAL
      STOCKHOLDERS' EQUITY
                                                            
                                                            
                                                            2,209,573
                                                            
                                                            
                                                            
                                                            1,124,345TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                            
                                                            $
                                                            3,410,766
                                                            
                                                            
                                                            $
                                                            1,905,437The
      accompanying notes are an integral part of
      these consolidated financial
  statements




21
 Table of Contents




CHINA
      FRUITS CORPORATIONConsolidated
      Statements of OperationsFor
      The Years Ended December 31, 2008 and 2007(Expresed
      in US Dollars, except for number of shares)Years
      Ended12/31/2008
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      12/312007REVENUES:Sales
                                                                                                                      
                                                                                                                      $
                                                                                                                      2,320,213
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      1,896,887Cost
      of goods sold - third party
                                                                                                                      
                                                                                                                      
                                                                                                                      (1,490,398
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (1,222,193
                                                                                                                      )GROSS
      PROFIT
                                                                                                                      
                                                                                                                      
                                                                                                                      829,815
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      674,694OPERATING EXPENSES:Selling
      and marketing
                                                                                                                      
                                                                                                                      
                                                                                                                      261,700
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      205,955Professional
      and legal expenses
                                                                                                                      
                                                                                                                      
                                                                                                                      295,704
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      424,121General
      and administrative
                                                                                                                      
                                                                                                                      
                                                                                                                      438,716
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      326,250TOTAL
      OPERATING EXPENSES
                                                                                                                      
                                                                                                                      
                                                                                                                      996,120
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      956,326OPERATING
      LOSS
                                                                                                                      
                                                                                                                      
                                                                                                                      (166,305
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (281,632
                                                                                                                      )OTHER INCOME:Interest
      income
                                                                                                                      
                                                                                                                      
                                                                                                                      256
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      1,041Interest
      expenses
                                                                                                                      
                                                                                                                      
                                                                                                                      (136
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      -Government
      grant
                                                                                                                      
                                                                                                                      
                                                                                                                      325,088
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      27,477Other
                                                                                                                      
                                                                                                                      
                                                                                                                      2,999
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      -TOTAL
      OTHER INCOME (EXPENSES)
                                                                                                                      
                                                                                                                      
                                                                                                                      328,207
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      28,518(LOSS)
      INCOME FROM OPERATIONS
                                                                                                                      
                                                                                                                      $
                                                                                                                      161,902
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      (253,114
                                                                                                                      )Income
      tax expense
                                                                                                                      
                                                                                                                      
                                                                                                                      -
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      57,032NET
      (LOSS) INCOME
                                                                                                                      
                                                                                                                      $
                                                                                                                      161,902
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      (310,146
                                                                                                                      )Other
      comprehensive income-
      Foreign currency translation gain
                                                                                                                      
                                                                                                                      $
                                                                                                                      115,089
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      23,054COMPREHENSIVE
      (LOSS) INCOME
                                                                                                                      
                                                                                                                      $
                                                                                                                      276,991
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      (287,092
                                                                                                                      )Net
      income per common share - basic and diluted
                                                                                                                      
                                                                                                                      $
                                                                                                                      0.01
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      (0.01
                                                                                                                      )Net
      income per common share - diluted
                                                                                                                      
                                                                                                                      $
                                                                                                                      0.01
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      (0.01
                                                                                                                      )Weighted
      average number of shares outstanding during the period - basic and
      diluted
                                                                                                                      
                                                                                                                      
                                                                                                                      36,129,689
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      36,006,401Weighted
      average number of shares outstanding during the period -
      diluted
                                                                                                                      
                                                                                                                      
                                                                                                                      36,129,689
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      36,006,401The
      accompanying notes are an integral part of these consolidated financial
      statements


22
 Table of Contents





CHINA
      FRUITS CORPORATIONConsolidated
      Statements of Cash FlowsFor
      The Years Ended December 31, 2008 and 2007Years
      Ended12/31/2008
                                                
                                                
                                                12/31/2007CASH FLOWS FROM OPERATING
      ACTIVITIES:Net
      income
                                                
                                                $
                                                161,902
                                                
                                                
                                                
                                                (310,146
                                                )Adjustments
      to reconcile net income to netcash
      provided by (used in) operating activities:Depreciation
                                                
                                                
                                                179,340
                                                
                                                
                                                
                                                44,863Stock
      based compensation
                                                
                                                
                                                193,750
                                                
                                                
                                                
                                                361,666(Increase)
      decrease in operating assets:Accounts
      receivable
                                                
                                                
                                                (299,612
                                                )
                                                
                                                
                                                252,681Inventories
                                                
                                                
                                                (179,242
                                                )
                                                
                                                
                                                (43,933
                                                )Deposit
                                                
                                                
                                                (10,266
                                                )
                                                
                                                
                                                -Refundable
      VAT
                                                
                                                
                                                (213,242
                                                )
                                                
                                                
                                                -Refundable
      income tax
                                                
                                                
                                                (4,063
                                                )
                                                
                                                
                                                -Prepaid
      expenses and other current assets
                                                
                                                
                                                (48,006
                                                )
                                                
                                                
                                                -Employee
      advance
                                                
                                                
                                                (806
                                                )
                                                
                                                
                                                -Increase
      (decrease) in operating liabilities:Accounts
      payable
                                                
                                                
                                                27,488
                                                
                                                
                                                
                                                (110,027
                                                )Other
      payables and accrued liabilities
                                                
                                                
                                                (37,856
                                                )
                                                
                                                
                                                23,017Customer
      deposit
                                                
                                                
                                                269,168
                                                
                                                
                                                
                                                -Accrued
      payroll and tax
                                                
                                                
                                                (109
                                                )
                                                
                                                
                                                44,216Value
      added tax payable
                                                
                                                
                                                -
                                                
                                                
                                                
                                                8,061NET
      CASH PROVIDED BY OPERATING ACTIVITIES
                                                
                                                
                                                38,447
                                                
                                                
                                                
                                                270,398CASH FLOWS FROM INVESTING
      ACTIVITIESPurchase
      of property and equipment
                                                
                                                
                                                (397,844
                                                )
                                                
                                                
                                                (1,230,006
                                                )NET
      CASH USED IN INVESTING ACTIVITIES
                                                
                                                
                                                (397,844
                                                )
                                                
                                                
                                                (1,230,006
                                                )CASH FLOWS FROM FINANCING
      ACTIVITIESProceeds
      (payments) on officer loans
                                                
                                                
                                                140,085
                                                
                                                
                                                
                                                25,330Proceeds
      from notes payable
                                                
                                                
                                                539,726
                                                
                                                
                                                
                                                -Payment
      of due to related party
                                                
                                                
                                                (565,633
                                                )
                                                
                                                
                                                -Payment
      of shareholder note payable
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (614,545
                                                )Issuance
      of notes payable-related party
                                                
                                                
                                                -
                                                
                                                
                                                
                                                136,900Advance
      (from) to a third party
                                                
                                                
                                                (309,443
                                                )
                                                
                                                
                                                576,000Capital
      distribution
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (256,348
                                                )Addition
      in paid-in capital
                                                
                                                
                                                621,965
                                                
                                                
                                                
                                                1,067,843NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                                                
                                                
                                                426,701
                                                
                                                
                                                
                                                935,180Foreign
      currency translation adjustment
                                                
                                                
                                                2,962
                                                
                                                
                                                
                                                23,054NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                                                
                                                
                                                70,266
                                                
                                                
                                                
                                                (1,374
                                                )CASH AND CASH EQUIVALENTS:Beginning
      of period
                                                
                                                
                                                27,695
                                                
                                                
                                                
                                                29,069End
      of period
                                                
                                                $
                                                97,961
                                                
                                                
                                                $
                                                27,695Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                                                
                                                $
                                                136
                                                
                                                
                                                $
                                                -Cash
      paid for income taxes
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                17,134Supplemental
      disclosures of non-cash transactions:Foreign
      translation adjustment - comprehensive income
                                                
                                                $
                                                2,962
                                                
                                                
                                                $
                                                23,053Common
      stock issued for services
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                361,666The
      accompanying notes are an integral part of these consolidated financial
      statements




23
 Table of Contents




CHINA
      FRUITS CORPORATIONConsolidated
      Statements of Stockholders EquityFor
      the years ended December 31, 2008 and 2007Expressed
      in USDNumber
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Par
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Series
      "A"
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Number
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Par
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Series
      "B"
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Number
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Par
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Common
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Additional
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Deferred
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Accumulated
      deficit/
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Statutory
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Accumulated
      other
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Totalof
      shares
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Value:
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Preferred
      Stock
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          of
      shares
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Value:
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Preferred
      Stock
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          of
      shares
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Value:
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          stock
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          Paid-in
      Capital
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          compensation
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          retained
      earnings
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          reserve
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          comprehensive
      income (loss)
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          EquityBalance
      as of December 31, 2006
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          13,150
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          0.001
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          13
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          12,100,000
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          0.001
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          12,100
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          33,129,689
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          0.001
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          33,129
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          1,515,558
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          (555,416
                                                                                                                                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          (798,312
                                                                                                                                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          5,408
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          25,796
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          238,276-Stocks
      issued for service
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          3,000,000
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          0.001
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          3,000
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          (3,000
                                                                                                                                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          -Additional
      paid-in capital
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          811,495
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          811,495Amortization
      of deferred compensation
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          361,666
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          361,666Foreign
      currency adjustment
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          23,054
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          23,054Transfer
      of retained earnings to statutory reserve
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          (11,397
                                                                                                                                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          11,397
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          -Net
      Loss for the year
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          (310,146
                                                                                                                                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          (310,146
                                                                                                                                                                                                                                                                                                                                                                                                                          )Balance
      as of December 31, 2007
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          13,150
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          0.001
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          13
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          12,100,000
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          0.001
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          12,100
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          36,129,689
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          0.001
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          36,129
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          2,324,053
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          (193,750
                                                                                                                                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          (1,119,855
                                                                                                                                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          16,805
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          48,850
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          1,124,345Additional
      paid-in capital
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          614,487
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          614,487Amortization
      of deferred compensation
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          193,750
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          193,750Foreign
      currency adjustment
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          115,089
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          115,089Net
      loss for the year
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          161,902
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          161,902Balances
      as of December 31, 2008
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          13,150
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          0.001
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          13
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          12,100,000
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          0.001
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          12,100
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          36,129,689
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          0.001
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          36,129
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          2,938,540
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          0
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          (957,953
                                                                                                                                                                                                                                                                                                                                                                                                                          )
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          16,805
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          163,939
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                                                                                                                                                                          2,209,573The
      accompanying notes are an integral part of these consolidated financial
      statements




24
 Table of Contents




CHINA
FRUITS CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


(Currency
expressed in United States Dollars (“US$”))







1.            ORGANIZATION
AND BUSINESS BACKGROUND




China
Fruits Corporation (the “Company” or “CHFR”) was incorporated in the
State of Delaware on January 6, 1993 as Vaxcel, Inc. On December 19, 2000,
CHFR changed its name to eLocity Networks Corporation.  On August 6, 2002,
CHFR further changed its name to Diversified Financial Resources Corporation.
 The principal activities of CHFR is seeking and consummating a merger or
acquisition opportunity with a business entity.  On May 12, 2006, CHFR
was re-domiciled to the State of Nevada.





On May
31, 2006, CHFR completed a stock exchange transaction with Jiangxi
Taina Guo Ye Yon Xian Gong Si (“Tai Na”).  Tai Na was incorporated as
a limited liability company in the People’s Republic of China (“PRC”) on October
28, 2005 with its principal place of business in Nanfeng Town, Jiangxi Province,
the PRC.  Tai Na is principally engaged in manufacturing, trading and
distributing of non-alcoholic and alcoholic beverages in the PRC.





The stock
exchange transaction involved two simultaneous transactions:





1)
            the
      majority shareholder of CHFR delivered the 13,150 convertible Series A
      preferred shares and 12,100,000 non-convertible Series B preferred shares
      of CHFR to Tai Na’s owners in exchange for total payments of $500,000 in
      cash and;





2)
            CHFR
      issued to Tai Na’s owners an amount equal to 30,000,000 new
      investment shares of common stock of CHFR pursuant to Regulation S under
      the Securities Act of 1933, as amended, in exchange for all of the
      registered capital of Tai Na.





Upon
completion of the exchange, Tai Na became a wholly-owned subsidiary of CHFR and
the former owners of Tai Na then owned 99% of the issued and outstanding shares
of the Company.





Also in
connection with this stock exchange transaction, CHFR appointed Mr. Chen,
Quanlong as chief executive officer and director and Ms. Zhao, Li Li as director
and Ms. Huang, Xiaoyun as chief financial officer to CHFR. Furthermore,
concurrent with the closing of this transaction, all of the Company’s former
officers resigned from their positions.





On July
12, 2006, CHFR completed a 1 for 12.5 reverse stock split on the common stock
and the par value remains at $0.001 per share. The reverse stock split is not
subject to any condition other than Board of Directors approval under the
Section 78 of the Nevada Revised Statutes. In addition, Certificate of Change
pursuant to NRS 78.209 was filed with the Secretary of State of Nevada in
connection with the decrease in authorized capital. As a result, the total
number of issued and outstanding shares was reduced from 402,866,323 to
32,229,689 shares and par value of its common stock was unchanged at $0.001.
This is inclusive of issuance of 383 shares of common stocks as fractional
shares. All common stock and per share data for all periods presented in these
financial statements have been restated to give effect to the reverse stock
split.





On August
18, 2006, CHFR changed its name to its current name “China Fruits
Corporation”.





The stock
exchange transaction has been accounted for as a reverse acquisition and
recapitalization of the CHFR whereby Tai Na is deemed to be the accounting
acquirer (legal acquiree) and CHFR to be the accounting acquiree (legal
acquirer).  The accompanying consolidated financial statements are in
substance those of Tai Na, with the assets and liabilities, and revenues and
expenses, of CHFR being included effective from the date of stock exchange
transaction.  CHFR is deemed to be a continuation of the business of Tai
Na.  Accordingly, the accompanying consolidated financial statements
include the following:




25
 Table of Contents




CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
 
  1.         ORGANIZATION
AND BUSINESS BACKGROUND (CONTINUED)


(1)
            the
      balance sheet consists of the net assets of the accounting acquirer at
      historical cost and the net assets of the accounting acquiree at
      historical cost;





(2)
            the
      financial position, results of operations, and cash flows of the acquirer
      for all periods presented as if the recapitalization had occurred at the
      beginning of the earliest period presented and the operations of the
      accounting acquiree from the date of stock exchange
      transaction.




CHFR and
Tai Na are hereinafter referred to as (the “Company”).





2.         SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES




l
            Basis
      of presentation





These
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America.





l
            Use
      of estimates





In
preparing these consolidated financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities in
the balance sheets and revenues and expenses during the year reported.
 Actual results may differ from these estimates.





l
            Basis
      of consolidation





The
consolidated financial statements include the financial statements of the
Company and its subsidiary, Tai Na





All
significant inter-company balances and transactions within the Company and
subsidiary have been eliminated upon consolidation.





l
            Revenue
      recognition





The
Company derives revenues from the resale of non-alcoholic and alcoholic
beverages and tangerine purchased from third parties, net of value
added taxes (“VAT”).  The Company is subject to VAT which is levied on
the majority of the products of Tai Na at the rate of 17% on the invoiced value
of sales.  Output VAT is borne by customers in addition to the
invoiced value of sales and input VAT is borne by the Company in addition to the
invoiced value of purchases to the extent not refunded for export
sales.





In
accordance with the SEC’s Staff Accounting Bulletin No. 104, Revenue Recognition, the
Company recognizes revenue when persuasive evidence of an arrangement exists,
transfer of title has occurred or services have been rendered, the selling price
is fixed or determinable and collectability is reasonably
assured.  The Company’s sales arrangements are not subject to
warranty.





(a)
            Sale
      of products





The
Company recognizes revenue from the sale of products upon delivery to the
customers and the transfer of title and risk of loss. The Company did not
record any product returns for the year ended December 31,
2008.





(b)
            Interest
      income





Interest
income is recognized on a time apportionment basis, taking into account the
principal amounts outstanding and the interest rates applicable.




26
 Table of Contents




CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))


2.         SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





l
            Cost
      of revenue





Cost of
revenues consists primarily of material costs, direct labor, depreciation and
overheads, which are directly attributable to the manufacture of products and
the provision of services.





l
            Cash
      and cash equivalents





Cash and
cash equivalents are carried at cost and represent cash on hand, demand deposits
placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.




l
            Accounts
      receivable





Accounts
receivable are recorded at the invoiced amount and do not bear interest. The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and determined based on managements’ assessment of known
requirements, aging of receivables, payment history, the customer’s current
credit worthiness and the economic environment. As of December 31, 2008 and
2007, the Company has not recorded an allowance for uncollectible
accounts.





l
            Inventories





Inventories consist
of finished goods and are valued at lower of cost or market value, cost being
determined on the first-in, first-out method.  The Company
periodically reviews historical sales activity to determine excess, slow moving
items and potentially obsolete items and also evaluates the impact of any
anticipated changes in future demand.  The Company provides inventory
allowances based on excess and obsolete inventories determined principally by
customer demand.  As of December 31, 2008 and 2007, the Company did
not record an allowance for obsolete inventories, nor have there been any
write-offs.





l
            Plant
      and equipment, net





Plant and
equipment are stated at cost less accumulated depreciation and accumulated
impairment losses, if any. Depreciation is calculated on the straight-line basis
over the following expected useful lives from the date on which they become
fully operational and after taking into account their estimated residual
values:





Depreciable life
                        
                        Residual valuePlant
      and machinery
                        10-12
      years
                        
                        5%Furniture,
      fixture and equipment
                        5-6
      years
                        
                        5%





Expenditure
for maintenance and repairs is expensed as incurred.





l
            Impairment
      of long lived assets





In
accordance with SFAS No.144, “Accounting for the Impairment or Disposal of
Long-lived Assets”, the Company assesses long-lived assets, such as property and
equipment and intangible assets subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset group may not be fully recoverable. Recoverability
of asset groups to be held and used in measured by a comparison of the carrying
amount of an asset group to estimated undiscounted future cash flows expected to
be generated by the asset group.  If the carrying amount exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of an asset group exceeds the fair value of the asset
group. The Company evaluated its long-lived assets and no impairment charges
were recorded for any of the periods presented.




27
 Table of Contents


CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
 2.        SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


l
            Comprehensive
      income (loss)





SFAS
No. 130, “Reporting Comprehensive
Income”, establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income as
defined includes all changes in equity during the year from non-owner sources.
Accumulated comprehensive income, as presented in the accompanying consolidated
statement of stockholders’ equity consists of changes in unrealized gains and
losses on foreign currency translation.  This comprehensive income is
not included in the computation of income tax expense or benefit.





l
            Income
      taxes





The
Company accounts for income tax using SFAS No. 109 “Accounting for Income Taxes”,
which requires the asset and liability approach for financial accounting and
reporting for income taxes. Under this approach, deferred income taxes are
provided for the estimated future tax effects attributable to temporary
differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases, and for the expected future tax
benefits from loss carry-forwards and provisions, if any. Deferred tax assets
and liabilities are measured using the enacted tax rates expected in the years
of recovery or reversal and the effect from a change in tax rates is recognized
in the consolidated statement of operations and comprehensive income in the
period of enactment. A valuation allowance is provided to reduce the amount of
deferred tax assets if it is considered more likely than not that some portion
of, or all of the deferred tax assets will not be realized.





l
            Net
      loss per share





The
Company calculates net loss per share in accordance with SFAS No. 128,
“Earnings per
Share”.  Basic loss per share is computed by dividing the net
loss by the weighted-average number of common shares outstanding. Diluted loss
per share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common stock equivalents had been
issued and if the additional common shares were dilutive.





l
            Foreign
      currencies translation





The
reporting currency of the Company is the United States dollar (“U.S.
dollars”).  Transactions denominated in currencies other than U.S.
dollar are calculated at the average rate for the period.  Monetary
assets and liabilities denominated in currencies other than U.S. dollar are
translated into U.S. dollar at the rates of exchange ruling at the balance sheet
date.  The resulting exchange differences are recorded in the other
expenses in the consolidated statement of operations and comprehensive
income.





The
Company’s subsidiary maintains its books and records in its local currency, the
Renminbi Yuan (“RMB”), which is functional currency as being the primary
currency of the economic environment in which its operations are
conducted.  In general, for consolidation purposes, the Company
translates the subsidiary’s assets and liabilities into U.S. dollars using the
applicable exchange rates prevailing at the balance sheet date, and the
statement of operations is translated at average exchange rates during the
reporting period.  Adjustments resulting from the translation of the
subsidiary’s financial statements are recorded as accumulated other
comprehensive income.





l
            Retirement
      plan costs





Contributions
to retirement schemes (which are defined contribution plans) are charged to
general and administrative expenses in the consolidated statements of income and
comprehensive income as and when the related employee service is
provided.




28
 Table of Contents




CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
 2.        SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





l
            Related
      parties





Parties,
which can be a corporation or individual, are considered to be related if the
Company has the ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making financial and
operating decisions. Companies are also considered to be related if they are
subject to common control or common significant influence. A material related
party transaction has been identified in Note 14 in the financial
statements.





l
            Segment
      reporting





SFAS No.
131 “Disclosures about Segments of an
Enterprise and Related Information” establishes standards for reporting
information about operating segments on a basis consistent with the Company’s
internal organization structure as well as information about geographical areas,
business segments and major customers in financial statements. The Company
operates in one reportable segment.





l
            Fair
      value of financial instruments





The
Company values its financial instruments as required by SFAS No. 107, “Disclosures about Fair Value of Financial
Instruments”.  The estimated
fair value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies.  The estimates
presented herein are not necessarily indicative of amounts that the Company
could realize in a current market exchange.





The
Company’s financial instruments primarily include cash and cash equivalents,
accounts receivable, advance to a third party, inventories, VAT and income tax
recoverable, accounts payable, other payables and accrued
liabilities.





As of the
balance sheet date, the estimated fair values of financial instruments were not
materially different from their carrying values as presented due to short
maturities of these instruments.





l
            Equity-based
      compensation





The
Company adopts SFAS No. 123R,“Accounting for Stock-Based Compensation” using the fair value method.
 Under SFAS No. 123R, stock-based compensation expense is
measured at the grant date based on the value of the option or restricted stock
and is recognized as expense, less expected forfeitures, over the requisite
service period, which is generally the vesting period.  See Note 13
for additional information.





l
            Recently
      issued accounting standards





Recently Issued Accounting
Pronouncements


In
December 2007, the Financial Accounting Standards Board ("FASB") issued two new
statements: (a.) SFAS No. 141(revised 2007), “Business Combinations”, and (b.)
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. These statements are
effective for fiscal years beginning after December 15, 2008 and the application
of these standards will improve, simplify and converge internationally the
accounting for business combinations and the reporting of noncontrolling
interests in consolidated financial statements.  The Company is in the
process of evaluating the impact, if any, on SFAS 141 (R) and SFAS 160 and does
not anticipate that the adoption of these standards will have any impact on its
consolidated financial statements.




29
 Table of Contents


CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
 2.         SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)




(a.)  SFAS
No. 141 (R) requires an acquiring entity in a business combination to: (i)
recognize all (and only) the assets acquired and the liabilities assumed in the
transaction, (ii) establish an acquisition-date fair value as the measurement
objective for all assets acquired and the liabilities assumed, and (iii)
disclose to investors and other users all of the information they will need to
evaluate and understand the nature of, and the financial effect of, the business
combination, and, (iv) recognize and measure the goodwill acquired in the
business combination or a gain from a bargain purchase.





(b.) SFAS
No. 160 will improve the relevance, comparability and transparency of financial
information provided to investors by requiring all entities to: (i) report
noncontrolling (minority) interests in subsidiaries in the same manner, as
equity but separate from the parent’s equity, in consolidated financial
statements, (ii) net income attributable to the parent and to the
non-controlling interest must be clearly identified and presented on the face of
the consolidated statement of income, and (iii) any changes in the parent’s
ownership interest while the parent retains the controlling financial interest
in its subsidiary be accounted for consistently.





In February 2008, the FASB issued
Financial Staff Positions (“FSP”) FAS 157-2, “Effective Date of FASB
Statement No. 157”(“FSP FAS 157-2”),
which delays the effective date of SFAS No. 157, “Fair Value
Measurement”(“SFAS 157”), for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). SFAS 157 establishes a framework for measuring fair
value and expands disclosures about fair value measurements. FSP FAS 157-2
partially defers the effective date of SFAS 157 to fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years for
items within the scope of this FSP. FSP FAS 157-2 is effective for us beginning
January 1, 2009. The Company is currently evaluating the potential impact
of the adoption of those provisions of SFAS 157, for which the effectiveness was
delayed by FSP SFAS 157-2, on the Company’s consolidated financial position and
results of operations.





In March
2008, the FASB issued Statement of Financial Accounting Standards ("SFAS") No.
161, "Disclosures about Derivative Instruments and Hedging Activities", an
amendment of FASB Statement No. 133 ("SFAS No. 161"). The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance and cash flows. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. The Company
does not believe that SFAS No. 161 will have a material impact on its
consolidated financial statements.





In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"). SFAS No. 161 requires companies with
derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FASB Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" and how derivative instruments and related hedged items
affect a company's financial position, financial performance and cash flows.
SFAS No. 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The adoption of this
statement is not expected to have a material effect on the Company's future
financial position or results of operations.




In
May 2008, the FASB released SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles.”   SFAS No. 162 identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements of nongovernmental entities that
presented in conformity with generally accepted accounting principles in the
United States of America. SFAS No. 162 will be effective 60 days following the
SEC’s approval of the PCAOB amendments to AU Section 411, “The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles”.  The FASB has stated that it does not expect SFAS No. 162 will
result in a change in current practice. The Company does not believe the
application of SFAS 162 will have a significant impact, if any, on the Company’s
consolidated financial statements.




30
 Table of Contents


CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
 2.         SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)




May 2008,
the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance
Contracts--an interpretation of FASB Statement No. 60" ("SFAS No. 163"). SFAS
No. 163 interprets Statement 60 and amends existing accounting pronouncements to
clarify their application to the financial guarantee insurance contracts
included within the scope of that Statement. SFAS No. 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
December 31, 2009. The Company is currently evaluating the impact of SFAS No.
163 on its financial statements but does not expect it to have an effect on the
Company's financial position, results of operations or cash flows.




In May
2008, the FASB issued FSP APB 14-1, "Accounting for Convertible Debt Instruments
that may be Settled in Cash upon Conversion (Including Partial Cash Settlement)"
("FSP APB 14-1"). FSP APB 14-1 applies to convertibledebt securities that, upon conversion, may be settled by the issuer
fully or partially in cash. FSP APB 14-1 specifies that issuers of such
instruments should separately account for the liability and equity components in
a manner that will reflect the entity's nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for
financial statements issued for fiscal years after December 15, 2008,
and must be applied on a retrospective basis. Early adoption is not
permitted. The Company is assessing the potential impact of this FSP on
theconvertibledebt
issuances.




In June
2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1, "Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions
are participating securities prior to vesting, and therefore need to be included
in the earnings allocation in computing earnings per share under the two-class
method as described in SFAS No. 128, Earnings per Share. Under the guidance of
FSP EITF 03-6-1, unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of
earnings-per-share pursuant to the two-class method. FSP EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008 and all prior-period earnings per share data presented shall
be adjusted retrospectively. Early application is not permitted. The Company is
assessing the potential impact of this FSP on the earnings per share
calculation.





In June
2008, the FASB ratified EITF No. 07-5, "Determining Whether an Instrument (or an
Embedded Feature) is Indexed to an Entity's Own Stock" ("EITF 07-5"). EITF 07-5
provides that an entity should use a two-step approach to evaluate whether an
equity-linked financial instrument (or embedded feature) is indexed to its own
stock, including evaluating the instrument's contingent exercise and settlement
provisions. EITF 07-5 is effective for financial statements issued for fiscal
years beginning after December 15, 2008. Early application is not permitted. The
Company is assessing the potential impact of this EITF 07-5 on the financial
condition and results of operations.





In
October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset in a Market That Is Not Active” (FSP 157-3), which clarifies the
application of SFAS 157 when the market for a financial asset is inactive.
Specifically, FSP 157-3 clarifies how (1) management’s internal assumptions
should be considered in measuring fair value when observable data are not
present, (2) observable market information from an inactive market should be
taken into account, and (3) the use of broker quotes or pricing services should
be considered in assessing the relevance of observable and unobservable data to
measure fair value. The Company adopted the provisions of FSP 157-3, which did
not impact the Company’s financial position or results of
operations.





In
December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities” (“FSP FAS 140-4 and FIN 46(R)-8”). FSP FAS 140-4
and FIN 46(R)-8 amends FAS 140 and FIN 46(R) to require additional disclosures
regarding transfers of financial assets and interest in variable interest
entities. FSP FAS 140-4 and FIN 46(R)-8 is effective for interim or annual
reporting periods ending after December 15, 2008. FSP FAS 140-4 and FIN
46(R)-8 did not have any impact on the Company's financial
statements.




In
January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment
Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets”. FSP EITF 99-20-1 changes the impairment model
included within EITF 99-20 to be more consistent with the impairment model of
SFAS 115. FSP EITF 99-20-1 achieves this by amending the impairment model in
EITF 99-20 to remove its exclusive reliance on “market participant” estimates of
future cash flows used in determining fair value. Changing the cash flows used
to analyze other-than-temporary impairment from the “market participant” view to
a holder’s estimate of whether there has been a “probable” adverse change in
estimated cash flows allows companies to apply reasonable judgment in
assessing whether an other-than-temporary impairment has occurred. The adoption
of FSP EITF 99-20-1, which is effective for annual reporting periods ending
after December 15, 2008, did not have a material impact on our consolidated
financial statements.




31
 Table of Contents


CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))




3.         ACCOUNTS
RECEIVABLE, NET





The
majority of the Company’s sales are on open credit terms and in accordance with
terms specified in the contracts governing the relevant transactions. The
Company evaluates the need of an allowance for doubtful accounts based on
specifically identified amounts that management believes to be uncollectible. If
actual collections experience changes, revisions to the allowance may be
required.  No allowance was considered necessary as of December 31,
2008 and 2007.





2008
                    
                    
                    2007Accounts
      receivable, gross
                    
                    $
                    322,184
                    
                    
                    $
                    23,777Less:
      allowance for doubtful accounts
                    
                    
                    -0-
                    
                    
                    
                    -0-Accounts
      receivable, net
                    
                    $
                    322,184
                    
                    
                    $
                    23,777





4.         INVENTORIES





Inventories
as of December 31, 2008 and 2007 consist of the following:


2008
                  
                  
                  2007Raw
      materials
                  
                  $
                  201,846
                  
                  
                  $
                  54,204Finished
      goods
                  
                  
                  71,145
                  
                  
                  
                  29,360$
                  272,991
                  
                  
                  $
                  83,564





For the
year ended December 31, 2008 and 2007, no provision for obsolete inventories was
recorded by the Company.





5.         PLANT
AND EQUIPMENT, NET




Plant and
equipment, net as of December 31, 2008 and 2007 consists of the
following:





2008
                    
                    
                    2007Plant
      and machinery
                    
                    $
                    2,243,095
                    
                    
                    $
                    1,602,922Construction
      in progress
                    
                    
                    118,591
                    
                    
                    
                    217,257Furniture,
      fixture and equipment
                    
                    
                    3,817
                    
                    
                    
                    3,8172,365,503
                    
                    
                    
                    1,823,996Less:
      accumulated depreciation
                    
                    
                    (251,225
                    )
                    
                    
                    (53,595
                    )Plant
      and equipment, net
                    
                    $
                    2,114,278
                    
                    
                    $
                    1,770,401





Depreciation
expense for the year ended December 31, 2008 and 2007 respectively was $179,340
and $44,863.





Construction
in progress is stated at cost, which includes the cost of construction and other
direct costs attributable to the construction.  No provision for
depreciation is made on construction in progress until such time as the relevant
assets are completed and put into use.  Construction in progress as of
December 31, 2008, represents buildings under construction.




32
 Table of Contents


CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))




6.         OTHER
PAYABLES AND ACCRUED LIABILITIES





Other
payables and accrued liabilities as of December 31, 2008 and 2007 consist of
following:





2008
                    
                    
                    2007Government
      levies payable
                    
                    $
                    -0-
                    
                    
                    $
                    1,221Salary
      and welfare payable
                    
                    
                    52,585
                    
                    
                    
                    29,279Accrued
      expenses
                    
                    
                    67,622
                    
                    
                    
                    72,856$
                    120,207
                    
                    
                    $
                    106,357




7.         AMOUNT
DUE TO STOCKHOLDERS





The
balances due to stockholders represented unsecured advances which are
interest-free and repayable in next twelve months.





8.         NOTE
PAYABLE





The
balance of $219,471 is due on November 20, 2009 along with interest at
6.42%


The
balance of $329,208 is due on December 31, 2014 along with interest at 0.0% This
note is payable to the provincial government of China





Total
Notes Payable of $548,679 as of December 31, 2008





9.         INCOME
TAXES





The
Company conducts all its operating business through its subsidiary in China. The
subsidiary is governed by the income tax laws of the PRC and do not have any
deferred tax assets or deferred tax liabilities under the income tax laws of the
PRC because there are no temporary differences between financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
Company by itself does not have any business operating activities in the United
States and is therefore not subject to United States income tax.




The
Company’s subsidiaries are governed by the Income Tax Law of the People’s
Republic of China (PRC) concerning Foreign Investment Enterprises and Foreign
Enterprises and various local income tax laws (the Income Tax Laws).
 Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law has
replaced the previous laws for Domestic Enterprises (“DEs”) and Foreign Invested
Enterprises (“FIEs”). The new standard EIT rate of 25% has replaced the 33% rate
previously applicable to both DEs and FIEs.




Prior to
2008, under the Chinese Income Tax Laws, FIEs generally were subject to an
income tax at an effective rate of 33% (30% state income taxes plus 3% local
income taxes) on income as reported in their statutory financial statements
after appropriate tax adjustments unless the enterprise was located in specially
designated regions for which more favorable effective tax rates
apply.  Beginning January 1, 2008, China has unified the corporate
income tax rate on foreign invested enterprises and domestic enterprises. The
unified corporate income tax rate is 25%.




The
Company generated substantially its net income from its PRC operation and has
recorded income tax provision for the years ended December 31, 2008 and
2007.




33
 Table of Contents


CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))


9.         INCOME TAXES
(CONTINUED)





The
components of (loss) income before income taxes separating U.S. and PRC
operations are as follows:





2008
                
                
                2007Loss
      subject to U.S. operation
                
                $
                (296,161
                )
                
                $
                (424,241
                )Income
      (loss) subject to PRC operation
                
                
                458,063
                
                
                
                171,127Loss
      before income taxes
                
                $
                161,902
                
                
                $
                (253,114
                )





United
States of America





The
Company is registered in the State of Nevada and is subject to United States of
America tax law.


As of
December 31, 2008, the U.S. operation had $1,564,384 of net operating losses
available for federal tax purposes, which are available to offset future taxable
income.  The net operating loss carry forwards begin to expire in
2028.  The Company has provided for a full valuation allowance for any
future tax benefits from the net operating loss carryforwards as the management
believes it is more likely than not that these assets will not be realized in
the future.





The
PRC





The
reconciliation of income tax rate to the effective income tax rate based on
income before income taxes stated in the consolidated statement of operations
for the year ended December 31, 2008 and 2007 is as follows:





2008
                  
                  
                  2007Income
      (loss) before income taxes
                  
                  $
                  458,063
                  
                  
                  $
                  171,127Statutory
      income tax rate
                  
                  
                  25
                  %
                  
                  
                  33
                  %114,515
                  
                  
                  
                  56,471Government
      tax exemptions
                  
                  
                  (114,515
                  )
                  
                  
                  -Expenses
      not deductible for tax purposes:-
      Provisions
                  
                  
                  -
                  
                  
                  
                  561Effect
      of tax losses
                  
                  
                  -
                  
                  
                  
                  -Income
      tax expense
                  
                  $
                  -
                  
                  
                  $
                  57,032





34
 Table of Contents


CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
 
 9.         INCOME TAXES
(CONTINUED)





The
following table sets forth the significant components of the aggregate net
deferred tax assets of the Company as of December 31, 2008 and
2007:





2008
                
                
                2007Deferred
      tax assets:-
      Net operating loss carryforwards
                
                $
                531,890
                
                
                $
                443,878Less:
      valuation allowance
                
                
                (531,890
                )
                
                
                (443,878
                )Deferred
      tax assets
                
                $
                -
                
                
                $
                -





For the
year ended December 31, 2008 and 2007, valuation allowances of $531,890 and
$443,878 were provided to the deferred tax assets due to the uncertainty
surrounding their realization.




The
following table reconciles the U.S. statutory rate to the Company’s effective
tax rate:




Year
      Ended December 312008
                
                
                2007U.S.
      Statutory rate
                
                
                34
                %
                
                
                34
                %Foreign
      income not recognized in USA
                
                
                (34
                )
                
                
                (34
                )China
      income taxes
                
                
                25
                
                
                
                33China
      exemption
                
                
                (25
                )Total
      provision for income taxes
                
                
                -
                %
                
                
                33
                %





The
Company applies SFAS 109, “Accounting for Income Taxes”, which requires
recognition of deferred income tax liabilities and assets for the expected
future tax consequences of temporary differences between the income tax basis
and financial reporting basis of assets and liabilities. Provision for income
taxes consist of taxes currently due plus deferred taxes. Because the Company
has no operations within the United States, there is no provision for US income
taxes and there are no deferred tax amounts as of December 31, 2008 and
2007.





The
charge for taxation is based on the results for the year as adjusted for items
that are non-assessable or disallowed. It is calculated using tax rates that
have been enacted or substantively enacted by the balance sheet date. Deferred
taxes are accounted for using the balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of
assets and liabilities in the financial statements and the corresponding tax
basis used in the computation of assessable tax profit.  In principle,
deferred tax liabilities are recognized for all taxable temporary differences,
and deferred tax assets are recognized to the extent that it is probable that
taxable profit will be available against which deductible temporary differences
can be utilized.




Deferred
taxes are calculated at the tax rates that are expected to apply to the period
when the asset is realized or the liability is settled.  Deferred
taxes are charged or credited in the income statement, except when they relate
to items credited or charged directly to equity, in which case the deferred
taxes are also recorded in equity. Deferred tax assets and liabilities are
offset when they relate to income taxes levied by the same taxation authority
and the Company intends to settle its current tax assets and liabilities on a
net basis.




The
Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a
benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than
50% likely of being realized on examination. For tax positions not meeting the
“more likely than not” test, no tax benefit is recorded. The adoption of FIN 48
had no affect on the Company’s financial statements.




35
 Table of Contents


CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))




10.         NET
LOSS PER SHARE





Basic net
loss per share is computed using the weighted average number of the ordinary
shares outstanding during the year.  Diluted net loss per share is
computed using the weighted average number of ordinary shares and ordinary share
equivalents outstanding during the year.





The
following table sets forth the computation of basic and diluted net loss per
share for the year indicated:





2008
                      
                      
                      2007Basis
      and diluted net loss per share calculationNumerator:-
      Net income in computing basic net loss per share
                      
                      $
                      161,902
                      
                      
                      $
                      (310,146
                      )Denominator:-
      Weighted average ordinary shares outstanding
                      
                      
                      36,129,689
                      
                      
                      
                      36,006,401-
      Stock issued for services-
      Shares used in computing basic net loss per share
                      
                      
                      36,129,689
                      
                      
                      
                      36,006,401Basic
      and diluted net loss per share
                      
                      $
                      0.01
                      
                      
                      $
                      (0.01
                      )





There
were no dilutive common stock equivalents as of December 31, 2008 and
2007.





11.         CAPITAL
TRANSACTIONS





1)
            On
      January 11, 2008 The company received a contribution to paid in capital of
      $256,707





2)
            On
      March 18, 2008 The company received a contribution to paid in capital of
      $14,988




12.         STOCK
BASED COMPENSATION





On
October 27, 2006, the Company entered into a business consulting service
agreement with the Consultant A in exchange for 1,500,000 shares of common
stock.  The fair value of the common stock issued is determined using
the fair value of the Company’s common stock on the grant date at $0.31 per
share. The Company calculated a stock based compensation of $465,000 and
recognized $335,834 for the year ended December 31, 2006.  The balance
of $129,166 was expensed during the year ended December 31, 2007





On
October 31, 2006, the Company entered into a website construction service
agreement with the Consultant B in exchange for 1,500,000 shares of common
stock.  The fair value of the common stock issued is determined using
the fair value of the Company’s common stock on the grant date at $0.31 per
share. The Company calculated a stock based compensation of $465,000 and
recognized $38,750 for the year ended December 31, 2006 and $232,500 for the
year ended December 31, 2007. The deferred compensation is amortized on the
straight-line method over 22 months beginning on October 31, 2006.  As
of December 31, 2007, the deferred compensation balance was $193,750 the
balance was expensed during the year ended December 31, 2008.




36
 Table of Contents


CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))


13.         RELATED
PARTY TRANSACTIONS
 
 During
the year ended December 31, 2007, the Company recorded purchases of -0- from a
related company where Mr. Chen Quan Long, the Chief Executive Officer of the
Company, is also the president of the related company. As of December 31, 2007,
the trade balance of accounts payable of $5,415 was due to a related
company.  The transaction is considered conducted at arm’s
length.  No related party transactions occurred during
2008.




14.         CHINA
CONTRIBUTION PLAN





Under the
PRC Law, full-time employees of the Company’s subsidiary, Tai Na are entitled to
staff welfare benefits including medical care, welfare subsidies, unemployment
insurance and pension benefits through a China government-mandated
multi-employer defined contribution plan. Tai Na is required to accrue for these
benefits based on certain percentages of the employees’ salaries. The total
contributions made for such employee benefits were $4,194 and $15,844 for the
years ended December 31, 2008 and 2007, respectively.





15.         STATUTORY
RESERVES





Under PRC
Company Law, the Company’s subsidiary, Tai Na is required to make appropriations
to the statutory reserve based on after-tax net income and determined in
accordance with generally accepted accounting principles of the People’s
Republic of China (the “PRC GAAP”). Appropriation to the statutory reserve
should be at least 10% of the after-tax net income until the reserve is equal to
50% of Tai Na’s registered capital.  The statutory reserve is
established for the purpose of providing employee facilities and other
collective benefits to the employees and is non-distributable other than in
liquidation.





For the
year ended December 31, 2008 and 2007, Tai Na contributed $-0- and $11,395
respectively to statutory reserve.





16.         CONCENTRATION
AND RISK





(a)    Major
customers and vendors





For the
years ended December 31, 2008 and 2007, 100% of the Company’s assets were
located in the PRC and 100% of the Company’s revenues and purchases were derived
from customers and vendors located in the PRC.





For the
year ended December 31, 2008, customers and vendors who account for 10% or more
of revenues and purchases are presented as follows:





Customers
                  
                  
                  
                  Revenues
                  
                  
                  
                  
                  
                  
                  
                  
                  Accounts
                      ReceivableCustomer
      A
                  
                  
                  $
                  606,218
                  
                  
                  
                  26
                  %
                  
                  
                  $
                  234,396Customer
      B
                  
                  
                  
                  143,926
                  
                  
                  
                  6
                  %
                  
                  
                  
                  87,789Customer
      C
                  
                  
                  
                  28,969
                  
                  
                  
                  1
                  %
                  
                  
                  
                  -Total:
                  
                  $
                  779,113
                  
                  
                  
                  33
                  %
                  Total:
                  
                  $
                  322,185




37
 Table of Contents


CHINA
FRUITS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))


16.         CONCENTRATION
AND RISK (CONTINUED)


For the
year ended December 31, 2007, customers and vendors who account for 10% or more
of revenues and purchases are presented as follows:





Customers
                                  
                                  
                                  Revenues
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  Accounts
                                    ReceivableCustomer
      A
                                  
                                  $
                                  682,342
                                  
                                  
                                  
                                  34
                                  %
                                  
                                  
                                  $
                                  15,814Customer
      B
                                  
                                  
                                  260,120
                                  
                                  
                                  
                                  13
                                  %
                                  
                                  
                                  
                                  -Customer
      C
                                  
                                  
                                  132,342
                                  
                                  
                                  
                                  6
                                  %
                                  
                                  
                                  
                                  -Total:
                                  
                                  $
                                  1,077,805
                                  
                                  
                                  
                                  53
                                  %
                                  Total:
                                  
                                  $
                                  15,814





(b)  Credit
risk





Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and trade accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition, but does not require collateral to support such
receivables.




17.         COMMITMENT
AND CONTINGENCIES





The
Company rented a plant and office under a non-cancelable operating lease
agreement.  Based on the current rental lease agreement, the future
minimum rental payments required as of December 31, 2008 are as
follows:





Year
      ending December 31,2009
                
                $
                46,600





For the
years ended December 31, 2008 and 2007, rental expense was $46,600 and
$31,549.




38
 Table of Contents





ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





On
October 20, 2007, our Board of Directors made the decision to retain Lake &
Associates CPA’s LLC as our independent auditor to review our quarterly report
for the third quarter of 2007 and to audit our financial statements for the year
ended December 31, 2007. Zhong Yi (Hong Kong) C.P.A. Company Limited resigned
from its position as our principal independent auditor on September 21, 2007.
Zhong Yi had been retained in that position in July 2006. We do not have an
audit committee.





Prior to
making the decision to retain Lake & Associates CPA’s LLC, We had no prior
relationship with Lake & Associates CPA’s LLC or any of its
members.





Zhong
Yi's audit reports regarding our financial statements for the years ended
December 31, 2006 and 2005, contained no adverse opinion or disclaimer of
opinion nor were they qualified or modified as to the uncertainty, audit scope
or accounting principles, except that their audit report for the year ended
December 31, 2006 contained a going concern qualification.





In
connection with the prior audits for the fiscal years ended December 31, 2006
and 2005, and the review for the interim period up to September 21, 2007, there
have been no disagreements with Zhong Yi on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of Zhong Yi would have caused it to
make reference to the subject matter of the disagreement in connection with its
report on these financial statements for those periods.





ITEM 9A. CONTROLS AND
PROCEDURES





We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934 (“Exchange Act”) is recorded, processed, summarized and reported within the
specified time periods. Our Chief Executive Officer and our Chief Financial
Officer (collectively, the “Certifying Officers”) are responsible for
maintaining our disclosure controls and procedures. The controls and procedures
established by us are designed to provide reasonable assurance that information
required to be disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Commission’s rules and forms.




To
evaluate the effectiveness of our internal controls over financial reporting, we
have adopted the framework prescribed by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).  We believe that this
framework will assist in the provision of reasonable assurance of the
effectiveness and efficiency of operations, the reliability of financial
reporting, and compliance with applicable laws and regulations.  In
adopting the COSO framework, we maintain a control environment, perform
risk assessments, carry out control activities, emphasize quality information
and effective communication, and perform monitoring.  In the
maintenance of a control environment, we are committed to integrity and ethical
values as well as to competence.  We strive to assign authority and
responsibility in a manner that supports our internal controls, and we also
maintain human resources policies and procedures designed to support our
internal controls.  Our risk assessments are designed to ensure the
achievement of company-wide and process-level objectives as well as to identify
and analyze risks while managing change.  We believe that all of these
components together form a foundation for sound internal control through
directed leadership, shared values and a culture that emphasizes accountability
for control.





As of the
end of the period covered by this report, the Certifying Officers evaluated the
effectiveness of our disclosure controls and procedures. Based on the
evaluation, the Certifying Officers concluded that our disclosure controls and
procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the applicable rules and forms, and that it is accumulated
and communicated to our management, including the Certifying Officers, as
appropriate to allow timely decisions regarding required
disclosure.




39
 Table of Contents




The
Certifying Officers have also concluded, based on our evaluation of our controls
and procedures that as of December 31, 2008, our internal controls over
financial reporting are effective and provide a reasonable assurance of
achieving their objective.




Due to
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements under all potential conditions. Therefore,
effective internal control over financial reporting provides only reasonable,
and not absolute, assurance that a restatement of our financial statements would
be prevented or detected.





This
annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this
annual report.





Changes
in Internal Control Over Financial Reporting




There
were no changes in the our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.




This annual report does not include an
attestation report of our registered public accounting firm regarding
internal control over financial reporting. Management's report was not subject
to attestation by our registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit us to
provide only management's report in this annual report.





ITEM
9A(T).CONTROLS
AND PROCEDURES




(a) Conclusions
regarding disclosure controls and procedures. Disclosure controls and
procedures are the Company’s controls and other procedures that are designed to
ensure that information required to be disclosed by the Company in the reports
that the Company files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it files
under the Exchange Act is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting.




Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-14(c) promulgated under the Exchange Act as of December 31, 2008,
and, based on their evaluation, as of the end of such period, the our disclosure
controls and procedures were effective as of the end of the period covered by
the Annual Report,




(b) Management’s
Report On Internal Control Over Financial Reporting. It is management’s
responsibilities to establish and maintain adequate internal controls over the
Company’s financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a
process designed by, or under the supervision of, the issuer’s principal
executive and principal financial officers and effected by the issuer’s
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:




40
 Table of Contents





•           Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the issuer;
and





•
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles and that receipts and expenditures of the issuer are
      being made only in accordance with authorizations of management of the
      issuer; and





•           Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the issuer’s assets that could have a
material effect on the financial statements.





As of the
end of the period covered by the Annual Report, an evaluation was carried out
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our internal control over financial reporting.




Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework.




Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, internal controls over financial
reporting were effective as of the end of the period covered by the
Report.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements may
not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of
the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.




This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Annual
Report.




(c) Changes in
internal control over financial reporting. There were no changes in our
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





ITEM 9B. OTHER INFORMATION





None.





41
 Table of Contents





PART
III





ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT




Directors
and Executive Officers




Our
directors are elected at the annual meeting of shareholders and hold office for
one year and until their successors are elected and qualified. Our officers are
appointed by the Board of Directors and serve at the pleasure of the Board. We
have not entered into any employment agreements with our executive
officers.





Name
                        Age
                        Position
                        Date
      to StartChen,
      Quan Long
                        48
                        President,
      Chief Executive Officer and Chairman
                        June
      1, 2006Wang,
      Zhi Xiong
                        32
                        Chief
      Financial Officer
                        April
      18, 2008Zhao,
      Li Li
                        36
                        Director
                        June
      22,
2006





Chen,
Quan Long - President, Chief Executive Officer and Chairman





Mr. Chen,
Quan Long, 48, obtained a Master of Business Administration degree at Beijing
University. His prior work experience is primarily in corporate. He was chairman
of Fei Huan Group, a corporation organized and existing under the laws of the
Peoples' Republic of China ("Fei Huan Group"), from October 1988 to December
2001. Since January 2002, he was Chairman of Fei Huan Wine, Inc., an affiliate
of Fei Huan Group. Mr. Chen’s duties with Fei Huan Group included management of
their beverage processing and distribution. Mr. Chen is a member of the Chinese
Entrepreneurial Association.





Wang,
Zhi Xiong - Chief Financial Officer





Mr. Wang is a certified accountant in
China and has approximately 10 years of accounting experience in manufacturing
and general corporate management. Mr. Wang is presently and for the past two
years has been the Chief Financial Officer for Zhong Jiao Jian Project
Consulting Co. in the Peoples Republic of China.  Mr. Wang's prior
work experience includes one year at Guo Feng Advertising Co. as an accounting
manager, and five years at Guo Rui Electronic Material Co. Ltd. where he
functioned as a senior accountant. Mr. Wang received his Bachelor degree
in accounting and auditing at Hua Bei Aeronautical College in
1999.





Zhao,
Li Li - Director





Ms. Zhao,
Li Li has approximately 10 years of experience in sales management. Her
experience includes sales management, corporate restructuring, and human
resources management.


Ms. Zhao
was a deputy general manager for Fei Huan Winery Holding Co. in P. R. China
where she had worked for the period from 2003 to 2006. Prior work experience
includes four years at Fei Huan Group where she functioned as a sales
manager. Currently, Ms. Zhao is also the general manager for Jiangxi Taina
Nanfeng Orange Co., Ltd, our wholly-owned subsidiary.




Ms. Zhao
gained her Bachelor degree in Jiang Xi Economic Management College for business
management in 1994. Ms. Zhao was awarded the Fuzhou Excellent Entrepreneur of
the Year 2007.




Family Relationships.




None.




42
 Table of Contents





Legal
Proceedings.





No
officer, director, or persons nominated for such positions and no promoter or
significant employee has been involved in legal proceedings that would be
material to an evaluation of our management.





Audit
Committee





We do not
have a separately designated standing audit committee. Pursuant to Section
3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit
committee for the purpose of overseeing the accounting and financial reporting
processes, and audits of our financial statements. The Commission recently
adopted new regulations relating to audit committee composition and functions,
including disclosure requirements relating to the presence of an "audit
committee financial expert" serving on its audit committee. In connection with
these new requirements, our Board of Directors examined the Commission's
definition of "audit committee financial expert" and concluded that we do not
currently have a person that qualifies as such an expert. We have had minimal
operations for the past two (2) years. Presently, there are only four (4)
directors serving on our Board, and us are not in a position at this time to
attract, retain and compensate additional directors in order to acquire a
director who qualifies as an "audit committee financial expert", but we intend
to retain an additional director who will qualify as such an expert, as soon as
reasonably practicable. While neither of our current directors meets the
qualifications of an "audit committee financial expert", each of our directors,
by virtue of his past employment experience, has considerable knowledge of
financial statements, finance, and accounting, and has significant employment
experience involving financial oversight responsibilities. Accordingly, we
believe that our current directors capably fulfill the duties and
responsibilities of an audit committee in the absence of such an
expert.





Code of
Ethics





We have
adopted a code of ethic (the "Code of Ethics") that applies to our principal
chief executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. The Code of
Ethics is being designed with the intent to deter wrongdoing, and to promote the
following:





•
            Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships


•
            Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that a small business issuer files with, or submits to, the
      Commission and in other public communications made by the small business
      issuer


•           Compliance
with applicable governmental laws, rules and regulations


The
prompt internal reporting of violations of the code to an appropriate person or
persons identified in the code


•           Accountability
for adherence to the code





Section
16(a) Beneficial Ownership Reporting Compliance





Under
Section 16(a) of the Exchange Act, all executive officers, directors, and each
person who is the beneficial owner of more than 10% of the common stock of a
company that files reports pursuant to Section 12 of the Exchange Act, are
required to report the ownership of such common stock, options, and stock
appreciation rights (other than certain cash-only rights) and any changes in
that ownership with the Commission. Specific due dates for these reports have
been established, and we are required to report, in this Form 10-K, any failure
to comply therewith during the fiscal year ended December 2008. We believe that
all of these filing requirements were satisfied by our executive officers,
directors and by the beneficial owners of more than 10% of our common stock. In
making this statement, hawse have relied solely on copies of any reporting forms
received by it, and upon any written representations received from reporting
persons that no Form 5 (Annual Statement of Changes in Beneficial Ownership) was
required to be filed under applicable rules of the Commission.




43
 Table of Contents




ITEM 11. EXECUTIVE
COMPENSATION





The
following table sets forth certain information regarding the annual and
long-term compensation for services in all capacities to us for the prior fiscal
years ended December 31, 2008, 2007, and 2006, of those persons who were
either the chief executive officer during the last completed fiscal year or any
other compensated executive officers as of the end of the last completed fiscal
year, and whose compensation exceeded $100,000 for those fiscal
periods.


SUMMARY
      COMPENSATION TABLEName
      and principal position
                                                                          (a)
                                                                        Year
                                                                          (b)
                                                                        Salary
      ($)
                                                                          (c)
                                                                        Bonus
      ($)
                                                                          (d)
                                                                        Stock
      Awards ($)
                                                                          (e)
                                                                        Option
      Awards ($)
                                                                          (f)
                                                                        Non-Equity
      Incentive Plan Compensation ($)
                                                                          (g)
                                                                        Nonqualified
      Deferred Compensation Earnings ($)
                                                                          (h)
                                                                        All
      Other Compensation ($)
                                                                          (i)
                                                                        Total
      ($)
                                                                          (j)Chen,
      Quan Long
                                                                          President,
      CEO & Chairman
                                                                        2008
                                                                        2,823
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        2,8232007
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        02006
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0Zhao,
      Li Li
                                                                          Director
                                                                        2008
                                                                        2,823
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        2,8232007
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        02006
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0Wang,
      Zhi Xiong Chief Financial Officer
                                                                        2008
                                                                        6,180
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        0
                                                                        6,180
  We have
not entered into any other employment agreements with our employees, Officers or
Directors. We have no standard arrangements to compensate our directors for
their services to us.




Stock
Option Plan




We have
not implemented a stock option plan at this time and since inception, have
issued no stock options, SARs or other compensation. We may decide, at a later
date, and reserve the right to, initiate such a plan as deemed necessary by the
Board.




44
 Table of Contents




ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCK HOLDER MATTERS




As of April 9, 2009, we had 3,659 stockholders of record and
36,129,689 shares of our Common Stock, 13,150 shares of our Series A Preferred
Stock and 12,100,000 Series B Preferred Stock issued and
outstanding.




As of
April 9, 2009, we had 3,659 stockholders of record and 36,129,689 shares of our
Common Stock, 13,150 shares of our Series A Preferred Stock and 12,100,000
Series B Preferred Stock issued and outstanding. The following table sets forth
as of April 9, 2009, certain information with respect to the beneficial
ownership of Common Stock by (i) each of our Director, nominee and executive
officer; (i) each person who owns beneficially more than 5% of the common stock;
and (iii) all Directors, nominees and executive officers as a group. The
percentage of shares beneficially owned is based on there having been 36,129,689
shares of our Common Stock, 13,150 shares of our Series A Preferred Stock and
12,100,000 Series B Preferred Stock issued and outstanding as of April 9,
2009.





OFFICERS,
DIRECTORS AND BENEFICIAL OWNERS, AS OF APRIL 9, 2009





Title
      of Class
                                      Name
      & Address of Beneficial Owner(1)
                                      Amount
      & Nature of Beneficial Owner
                                      %
      of Class(2)Series
      A Preferred Stock, $.001 par value
                                      Chen,
      Quan Long
                                        Room
      503,Building 53,QianXi District, DaDao Road, NanFeng County, JiangXi,
      P.R.China 344500
                                      13,150
                                      100%Series
      A Preferred Stock, $.001 par value
                                      All
      directors and executive officers as a group (one person)
                                      13,150
                                      100%Series
      B Preferred Stock, $.001 par value
                                      Chen,
      Quan Long
                                        Room
      503,Building 53,QianXi District,DaDao Road, NanFeng County,
      JiangXi,P.R.China 344500
                                      12,100,000
                                      100%Series
      B Preferred Stock, $.001 par value
                                      All
      directors and executive officers as a group (one person)
                                      12,100,000
                                      100%Common
      Stock,$.001
      par value
                                      Chen,
      Quan Long
                                        Room
      503,Building 53,QianXi District,DaDao Road, NanFeng County,
      JiangXi,P.R.China 344500
                                      665,416
                                      2%Common
      Stock,$.001
      par value
                                      Zhao,
      Li Li
                                        223
      Xin Zhong St., Xin Jian, Jin Yun County, Zhe Jiang,
    P.R.China
                                      20,846
                                      **Common
      Stock, $.001 par value
                                      All
      directors and executive officers as a group (three
persons)
                                      760,710
                                      2%





** Represents
less than 1%





(1)  Unless
stated otherwise, the business address for each person named is c/o China Fruits
Corp.





(2)  Calculated
pursuant to Rule 13d-3(d) (1) of the Securities Exchange Act of 1934. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants, rights
or conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by a person, but not
deemed outstanding for the purpose of calculating the percentage owned by each
other person listed. We believe that each individual or entity named has sole
investment and voting power with respect to the shares of common stock indicated
as beneficially owned by them (subject to community property laws where
applicable) and except where otherwise noted.





Changes
in Control





None.




45
 Table of Contents





ITEM 13.CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





None.





ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES





Fees
Billed For Audit and Non-Audit Services





The
following table represents the aggregate fees billed for professional audit
services rendered to the independent auditor, Lake & Associates CPA’s LLC
(“Lake”), for our audit of the annual financial statements for the years ended
December 31, 2008 and 2007. Audit fees and other fees of auditors are listed as
follows:





Year Ended December 31
                                  
                                  2008(2)
                                  
                                  
                                  2007(3)Audit
      Fees (1)
                                  
                                  $
                                  64,000
                                  
                                  
                                  $
                                  40,000Audit-Related
      Fees (4)
                                  
                                  
                                  --
                                  
                                  
                                  
                                  --Tax
      Fees (5)
                                  
                                  
                                  --
                                  
                                  
                                  
                                  --All
      Other Fees (6)
                                  
                                  
                                  --
                                  
                                  
                                  
                                  --Total
      Accounting Fees and Services
                                  
                                  $
                                  64,000
                                  
                                  
                                  $
                                  40,000




(1)
            Audit Fees. These are
      fees for professional services for the audit of our annual financial
      statements, and for the review of the financial statements included in our
      filings on Form 10-Q, and for services that are normally provided in
      connection with statutory and regulatory filings or
      engagements.




(2)
            The
      amounts shown in 2008 relate to (i) the audit of our annual financial
      statements for the fiscal year ended December 31, 2008, and (ii) the
      review of the financial statements included in our filings on Form 10-Q
      for the quarters of 2009.




(3)
            The
      amounts shown in 2007 relate to (i) the audit of our annual financial
      statements for the fiscal year ended December 31, 2007, and (ii) the
      review of the financial statements included in our filings on Form 10-QSB
      for the quarters of 2008.




(4)
            Audit-Related Fees.
      These are fees for the assurance and related services reasonably related
      to the performance of the audit or the review of our financial
      statements.




(5)
            Tax Fees. These are
      fees for professional services with respect to tax compliance, tax advice,
      and tax planning.




(6)
            All Other Fees. These
      are fees for permissible work that does not fall within any of the other
      fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
      Fees.





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 Table of Contents




Pre-Approval
Policy for Audit and Non-Audit Services
 
 We do not
have a standing audit committee, and the full Board performs all functions of an
audit committee, including the pre-approval of all audit and non-audit services
before we engage an accountant. All of the services rendered to us by Lake &
Associates CPA’s LLC were pre-approved by our Board of Directors.
 
 We are
presently working with its legal counsel to establish formal pre-approval
policies and procedures for future engagements of our accountants. The new
policies and procedures will be detailed as to the particular service, will
require that the Board or an audit committee thereof be informed of each
service, and will prohibit the delegation of pre-approval responsibilities to
management. It is currently anticipated that our new policy will provide (i) for
an annual pre-approval, by the Board or audit committee, of all audit,
audit-related and non-audit services proposed to be rendered by the independent
auditor for the fiscal year, as specifically described in the auditor's
engagement letter, and (ii) that additional engagements of the auditor, which
were not approved in the annual pre-approval process, and engagements that are
anticipated to exceed previously approved thresholds, will be presented on a
case-by-case basis, by the President or Controller, for pre-approval by the
Board or audit committee, before management engages the auditors for any such
purposes. The new policy and procedures may authorize the Board or audit
committee to delegate, to one or more of its members, the authority to
pre-approve certain permitted services, provided that the estimated
fee for any such service does not exceed a specified dollar amount (to be
determined). All pre-approvals shall be contingent on a finding, by the Board,
audit committee, or delegate, as the case may be, that the provision of the
proposed services is compatible with the maintenance of the auditor's
independence in the conduct of its auditing functions. In no event shall any
non-audit related service be approved that would result in the independent
auditor no longer being considered independent under the applicable rules and
regulations of the Securities and Exchange Commission.
  (a) On
December 31, 2008, our Chief Executive Officer and Chief Financial Officer made
an evaluation of our disclosure controls and procedures. In our opinion, the
disclosure controls and procedures are adequate because the systems of controls
and procedures are designed to assure, among other items, that 1) recorded
transactions are valid; 2) valid transactions are recorded; and 3) transactions
are recorded in the proper period in a timely manner to produce financial
statements which present fairly the financial condition, results of operations
and cash flows for the respective periods being presented. Moreover, the
evaluation did not reveal any significant deficiencies or material weaknesses in
our disclosure controls and procedures.
  (b) There
have been no significant changes in our internal controls or in other factors
that could significantly affect these controls since the last
evaluation.
 
 PART
IV
 
 ITEM
15.EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
 
 (a)
              Financial
      Statements
  1. The
following financial statements of China Fruits Corp. are included in Part II,
Item 8:
 
 Report of
Independent Registered Public Accounting Firm Balance Sheet at December 31,
2008
 Statements
of Operations - for the years endedDecember 31, 2008 and
2007
 Statements
of Cash Flows - for the years ended December 31, 2008 and 2007
 Statements of Stockholders’ Equity -
for the years ended December 31, 2008 and
2007
 Notes to Financial
Statements
  2.
Exhibits


14.1 Code
of Ethics *
 31.1. Rule 13a-14(a)/15d-14(a) Certifications of Chief
Executive Officer
 31.2. Rule 13a-14(a)/15d-14(a) Certifications of Chief
Financial Officer
 32.1. Section 1350 Certifications of Chief Executive
Officer
 32.2. Section 1350 Certifications of Chief Financial
Officer
 
 *Previously
Filed
  (b)
              Reports
      on Form 8-K
 
 (1)
                                      On
      January 28, 2008, we filed a current report on Form 8-K to announce the
      approval from the Chinese government in connection with the incorporation
      of a wholly-owned subsidiary Tai Na International Fruits (Beijing) Co.
      Ltd. ("Tai Na International"), which is located in Beijing, People's
      Republic of China.(2)
                                      On
      April 23, 2008, we filed a current report on Form 8-K to announce the
      appointment of Mr. Wang, Zhi Xiong as Chief Financial Officer and to
      announce the resignation of Ms. Huang, Xiao Tun as Chief Financial
      Officer.(3)
                                      On
      July 11, 2008 and July 17, 2008, we filed a current report amendment on
      Form 8-K to amend an 8-K/A previously filed on April 12, 2007. The terms
      of the acquisitions were modified before closing and set up as an asset
      purchase. Pursuant to the Amended Letter of Intent on Assets
      Reorganization (the “LOI”) with Royal NanFeng Orange Science &
      Technology Co., Ltd. (“Royal”), a corporation organized under the
      laws of the Peoples’ Republic of China and owned by Mr. Chen, Quan Long,
      President of the Registrant, as of December 31, 2007, the assets acquired
      from Royal consisted of equipment of approximately $290,000, building of
      approximately $535,000 and land of approximately
  $368,000.




47
 Table of Contents




SIGNATURES
  In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned majority of the Board of Directors, thereunto duly
authorized.
  China
      Fruits CorporationDate:
      April 9, 2009
                By:
                /s/ Chen,
      Quan LongChen,
      Quan LongPresident










48