UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  
  Form
10-K/A
 Amendment
No. 3
  
 (Mark
One)
 x
              ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the fiscal year ended December 31, 2007
  o
              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)
  
 Table of Contents
   Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.):    Yes  o   No  x
  Check
whether the issuer (1) 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.
    YesxNoo
  Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
  The
Registrant’s revenues for its fiscal year ended December 31, 2007 were
$1,896,887.
 
 The
aggregate market value of the voting stock on April 4, 2008 (consisting of
Common Stock, $0.001 par value per share) held by non-affiliates was
approximately $1,768,449 based upon the most recent sales price for such Common
Stock on said date ($0.05). On April 4, 2008, there were 36,129,689 shares of
our Common Stock issued and outstanding, of which approximately 35,368,979
shares were held by non-affiliates.
 
 Number of
shares of common stock, par value $.001, outstanding as of April 4, 2008:
36,129,689
 
 Number of
shares of preferred stock outstanding as of April 4, 2008:
 Series A,
par value $.001 -      13,150
 Series B,
par value $.001 - 12,100,000
  Transitional
Small Business Disclosure Format (check one):    oYesxNo
  CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
 
 The
discussion contained in this 10-K/A under the Securities Exchange Act of 1934,
as amended, (the "Exchange Act") 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 discussion under "Description of
Business," including the "Risk Factors" described in that section, and
"Management's Discussion and Analysis or Plan of Operation" as well as those
discussed elsewhere in this Form 10-K/A. 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/A 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.
 
 Table of Contents
  TABLE OF CONTENTS
 PART
      IIt     
      1
                                                Description
      of Business
                                                
                                                4It     
      2
                                                Description
      of Property
                                                
                                                6It     
      3
                                                Legal
      Proceedings
                                                
                                                6I      
      4
                                                Submissions
      of Matters to a Vote of Security Holders
                                                
                                                6PART III      
      5
                                                Market
      for Common Equity, Related Stockholder Matters And Small Business Issuer
      Purchases of Equity Securities
                                                
                                                7I      
      6
                                                Management’s
      Discussion and Analysis or Plan of Operation
                                                
                                                8I      
      7
                                                Financial
      Statements
                                                
                                                9I      
      8
                                                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                
                                                23I      
      8A
                                                Controls
      and Procedures
                                                
                                                23I      
      8B
                                                Other
      Information
                                                
                                                23PART IIII       9
                                                Directors, Executive Officers, Promoters and Control Persons; Compliance
      With Section 16(a) of the Exchange Act
                                                
                                                24I      
      10
                                                Executive
      Compensation
                                                
                                                24I    
        11
                                                Security
      Ownership of Certain Beneficial Owners and Management
                                                
                                                24I      
      12
                                                Certain
      Relationships and Related Transactions
                                                
                                                24I      
      13
                                                Exhibits,
      Lists and Reports on Form 8-K
                                                
                                                25I    
        14
                                                Principal
      Accountant Fees and Services
                                                
                                                26
 
 3
 Table of Contents
  Explanatory
Note: We are
amending this Form 10-K to respond to the small revision of the audited
consolidated statement of cash flow for the year ended December 31,
2007.
 
 PART
I
  Item 1. Description of 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 tangerine 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
2008. 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. 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 2008.
 
 In 2008,
we plan to expand our sales network by setting up the franchise retail stores
for fresh fruits and related products. Accordingly, we relocate our headquarters
to Beijing, which we believe will have a positive effect on our corporate image
and marketing strategy. 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. We plan to open up to 10 franchise retail stores by May of 2008 located in
Beijing, Haining, Hangzhou, Dongguan and Humen. The franchise retail stores
build up the direct channel between the end users and us, which will facilitate
the process from our plants to the markets, benefit us in adjusting our business
strategies when market changes.
 
 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 total was orange. The percentages were changed to
      55% for tangerine and 30% for orange in the past decade due to the
      improved quality of orange with respect to size, outlook and
      taste.
  v
              Concentration on Chinese
      Market. Citrus products are primarily marketing in China. There is
      only approximately 2% of total 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
      up.
  v
              Preference to Fresh
      Fruits. 95% of citrus products in China are consumed as fresh
      fruit. Fruits manufacture is not popular in China, most of which is for
      export only. In addition, the orange juice on Chinese market is primarily
      made from the concentrated or non-concentrated juice imported from Brazil
      and the United States.
  In
general, citrus output increases 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
manufacture 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 should be long-term projects to get
rid of all these barriers. It is anticipated that after China enters 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.
  4
 Table of Contents
   Marketing
Strategies
  Seeking
for Opportunities to Develop International Markets
  Our
tangerine, well known as "Nan Feng tangerine", is popular in the market due to
the high quality, benefited from the natural resource in Nan Feng County, which
is a well known agricultural area for tangerine in China. Currently, we are
primarily marketing in China and hold a leading position in Chinese market.
However, this position will be challenged since China’s accession to WTO in
2001. We believe the open-market policies will lower the barriers to market
entry, both Chinese market 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 its exports were often the
subject of discriminatory treatment in overseas markets. In addition, as a
country with planned economy to one with marketing economy, China often saw its
exporting enterprises were subjected to anti-dumping acts. All will be changed
under the protection of WTO. Therefore, we expect to take advantages of the fair
markets regulated by WTO and seek for opportunities to develop international
markets.
  Creating
Franchise for Retail Fruit Stores
  In 2008,
we plan 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 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. We plan to open up to 10 franchise retail stores by
May of 2008 located in Beijing, Haining, Hangzhou, Dongguan and Humen. 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
build up the direct channel between the end users and us, which will facilitate
the process from our plants to the markets, benefit us in adjusting our business
strategies when market changes.
  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
      the 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
      the sales revenue; and•
              successfully
      build up the brand identity.
 
 (i)
              On
      February 6, 2007, we entered into a sales agreement with Liaoning Shenyang
      Yunpeng Fruits Limited ("Yunpeng") for the sale of our brand name
      tangerines. Pursuant to the sales agreement, Yunpeng is our exclusive
      distributor of brand name tangerines within three provinces in Northeast
      China. As of December 31, 2007, the sales of Nan Feng tangerine were 2,600
      tons through Yunpeng.
 
 (ii)
              On
      February 8, 2007, we entered into a sales agreement with Inner Mongolian
      Manchuria Menglin Fruits Limited ("Menglin") for the sale of our brand
      name tangerines. Pursuant to the sales agreement, Menglin is our general
      distributor in the Russian market and will export 3,000 tons of our brand
      name tangerines to Russia in 2007. As of December 31, 2007, the sales of
      Nan Feng tangerine were 760 tons through Menglin. The failure to meet the
      contract requirement was primarily attributable to the difficulty in
      shipping caused by the snow storm. The contract will be extended to the
      end of 2008.
  (iii)
              On
      February 19, 2007, we entered into an agreement with Royal to acquire the
      assets of Royal to assist in further expansion in the tangerine markets.
      As of December 31, 2007, the assets acquired from Royal included
      equipments of approximately $290,000, building of approximately $535,000
      and land of approximately $368,000.
  Enhancing Manufacture Capacity
  The acquisition of Royal is one of our strategies to enhance the
manufacture capacity. Royal was engaged in citrus industry since 2002. After
acquisition, we have additional two-story plant with total area of 66,003 square
feet, and 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 equipments, 90% of which for 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.
  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. The total budget for
advertising is approximately $800,000, of which 50% on television channel, 20%
on newspaper, 5% on magazine, 5% on event base promotion, and 20% on others. We
believe the intensive advertisement will increase our brand recognition. 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 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
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 promotion programs, product innovation, increased
efficiency in production techniques, the introduction of new packaging, new
vending and dispensing equipment, and brand and 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 its efforts to marketing will be successful.
  5
 Table of Contents
   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, 2007, we had 91 full-time employees, including 2
office executives, 32 specialists in researching and developing the quality of
tangerine and related products, and 15 employees devoted to the marketing for
franchise retail stores. Approximately 9.59% of the employees have bachelor
degrees or above. All employees are working in our subsidiary located in
China.
 
 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.
  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
      the manufacturing capacities;•
              Diversify
      the fresh fruit sold in the franchise stores;•
              Expand
      the sales network;•
              Increase
      the sales revenue; and•
              successfully
      build up the brand name.
 
 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.
  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.
 
 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.
  Item 2.
Description of Property.
 
 Our main
operation is located at 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 are not aware of any pending or threatened legal proceedings,
in which we are involved. In addition, we are not aware of any pending or
threatened legal proceedings in which entities affiliated with our officers,
directors or beneficial owners are involved.
  Item 4.
Submission of Matters to a Vote of Security Holders.
  None.
  6
 Table of Contents
   PART
II
  Item 5. Market for Common Equity, Related Stockholder Matters and
Small Business 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.
  Year
      Ended December 31, 2006:
                                          High
                                          
                                          Low3/31
      3/31/2006
                                          
                                          $
                                          2.13
                                          
                                          
                                          $
                                          1.506/30/2006
                                          
                                          $
                                          1.26
                                          
                                          
                                          $
                                          1.269/309/30/2006
                                          
                                          $
                                          0.55
                                          
                                          
                                          $
                                          0.5512/312/31/2006
                                          
                                          $
                                          0.56
                                          
                                          
                                          $
                                          0.40Year
      Ended December 31, 2007:
                                          High
                                          
                                          Low3/313/31/2007
                                          
                                          $
                                          0.41
                                          
                                          
                                          $
                                          0.376/306/31/2007
                                          
                                          $
                                          0.23
                                          
                                          
                                          $
                                          0.239/309/30/2007
                                          
                                          $
                                          0.12
                                          
                                          
                                          $
                                          0.1212/312/31/2007
                                          
                                          $
                                          0.09
                                          
                                          
                                          $
                                          0.07Year
      Ended December 31, 2008:
                                          High
                                          
                                          Low3/313/31/2008
                                          
                                          $
                                          0.05
                                          
                                          
                                          $
                                          0.04
  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.
 
 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.
  Number
of Holders
  As of
April 8, 2008, we had 3,715 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.
  7
 Table of Contents
  Item 6.
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 and acquisition strategy, our
ability to achieve operating efficiencies, our dependence on network
infrastructure, capacity, telecommunications carriers and other suppliers,
industry pricing and technology 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 manufacture, sell and distribute Nan Feng
tangerine, non-alcoholic and alcoholic beverage 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.
 
 CRITICAL
ACCOUNTING POLICIES
 
 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.
  Starting
from October 2006, the Company commenced the trading of tangerine in the
PRC.
  (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, 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.  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, 2007, the Company 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 valuePlant
      and machinery
                    10-12
      years
                    
                    
                    5
                    %Furniture,
      fixture and equipment
                    5-6
      years
                    
                    
                    5
                    %
  Expenditure
for maintenance and repairs is expensed as incurred.
  Revenues
 
 Gross
revenues were $1,896,887 and $1,242,705 for the years ended December 31, 2007
and 2006, 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 collectibility is reasonably assured. Our sales arrangements
are not subject to warranty. We did not record any product returns for the year
ended December 31, 2007. The increase in gross revenues by $654,182 in 2007 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 2008 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 loss of $310,146 and $792,052 for the years ended December 31, 2007 and
2006, respectively. The decrease by $481,906 in net loss in 2007 was due
primarily to the decrease in non-cash consulting expenses, which was $361,666
and $752,584 for the years ended December 31, 2007 and 2006, 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.
 
 We expect
to incur losses from operations during fiscal year 2008 until the dramatic
increase in sales revenue resulting from the maturity of our franchise retail
stores. 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, 2007 and 2006 were $956,326 and
$1,045,297, respectively. The decrease in 2007 was due primarily to the decrease
in non-cash consulting expenses, which was $361,666 and $752,584 for the years
ended December 31, 2007 and 2006, respectively, resulting from the issuance of
3,900,000 shares of common stock for services in connection with general
management consulting and advisory 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.
 
 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% of sales revenue, none of which from related party.
During the year ended December 31, 2006, we had $967,834 in cost of goods sold,
or 78% of sales revenue, of which $354,005 from related party. The lower cost of
goods sold during 2007 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.
  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 $270,399 for the year ended December
31, 2007, compared to cash flows of $143,554 used in operating activities for
the year ended December 31, 2006. 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. Contrarily,
negative cash flows from operations in 2006 were due primarily to the net loss
of $792,050, the increase in accounts receivable by $254,397, partially offset
by the increase in accounts payable to related party of $110,029.
 
 Cash
flows used in investing activities were $1,230,006 and $524,036 for the years
ended December 31, 2007 and 2006, respectively, which were due primarily to the
purchase of property and equipment in both years.
 
 Cash
flows provided by financing activities were $935,180 and $609,373 for the years
ended December 31, 2007 and 2006, respectively. Cash flows from financing
activities in 2007 due primarily to a loan of $136,900 from a related party and
advance of $576,000 from a third party, partially offset by the payments of
$614,545 to the shareholder loans, the principal of which were $994,917
unsecured, non-interest bearing and repayable over 12 months. Cash flows from
financing activities in 2006 due primarily to shareholder loans of $994,917,
which are unsecured, non-interest bearing and repayable over 12 months, offset
by the addition in due from a third party of $576,000, which is unsecured,
non-interest bearing and repayable within 12 months. Additionally, we infused
$190,456 as additional paid-in capital contributed by our two
shareholders.
  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 2008 and $700,000 for the two years thereafter.
  Overall,
we have funded our cash needs from inception through December 31, 2007 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 $27,695 on hand and a working capital deficit of $564,059 as of December
31, 2007. 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.
  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.
   8
 Table of Contents
  Item 7.
Financial Statements.
  The
consolidated financial statements include the accounts of Tai Na, our wholly
owned subsidiary. The following selected financial data for the years ended
December 31, 2007 and 2006 is derived from our consolidated financial
statements, and should be read in conjunction with the consolidated financial
statements and related notes presented as a separate section commencing on page
F-1.
  December 31,2007
                                          
                                          
                                          2006Bal  
      Balance SheetTot 
      Total Assets
                                          
                                          $
                                          1,905,437
                                          
                                          
                                          $
                                          1,429,202Tot 
      Total Liabilities
                                          
                                          
                                          781,092
                                          
                                          
                                          
                                          1,190,926Tot 
      Total Stockholders’ Equity
                                          
                                          
                                          1,124,345
                                          
                                          
                                          
                                          238,276Tot 
      Total Liabilities and Stockholders’ Equity
                                          
                                          
                                          1,905,437
                                          
                                          
                                          
                                          1,429,202Sta  
      Statements of OperationsFor
      years endedDecember 31,2007
                                          
                                          
                                          2006Rev
      Revenue
                                          
                                          $
                                          1,896,887
                                          
                                          
                                          $
                                          1,242,705Op
      eOperating Expenses
                                          
                                          
                                          956,326
                                          
                                          
                                          
                                          1,045,297Oth
       Other Income
                                          
                                          
                                          28,518
                                          
                                          
                                          
                                          4,583Net
       Net Loss
                                          
                                          
                                          (310,146
                                          )
                                          
                                          
                                          (792,052
                                          )Net
       Net Loss per Common Share
                                          
                                          
                                          (0.01
                                          )
                                          
                                          
                                          (0.03
                                          )Wei
      Weighted Average Common Shares Outstanding
                                          
                                          
                                          36,006,401
                                          
                                          
                                          
                                          30,525,000
  9
 Table of Contents
   CHINA
FRUITS CORPORATION
 (Formerly
Diversified Financial Resources Corporation)
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  PageReport
      of Independent Registered Public Accounting
      Firm
                  
                  
                  11Consolidated
      Balance Sheets
                  
                  
                  13Consolidated
      Statements of Operations And Comprehensive Loss
                  
                  
                  14Consolidated
      Statements of Cash Flows
                  
                  
                  15Consolidated
      Statements of Stockholders’ Equity
                  
                  
                  16Notes
      to Consolidated Financial Statements
                  
                  
                  17
  10
 Table of Contents
   REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  The Board
of Directors and Stockholders of
 China
Fruits Corporation
 (Formerly
Diversified Financial Resources Corporation)
  We have
audited the accompanying consolidated balance sheets of China Fruits Corporation
and Subsidiaries (“the Company”) as of December 31, 2006 and 2005 and the
related consolidated statements of operations and comprehensive loss,
stockholders’ equity and cash flows for the years ended December 31, 2006
and 2005. 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 audits include 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
(formerly Diversified Financial Resources Corporation) as of December 31, 2006
and 2005 and the results of operations and cash flows for the years ended
December 31, 2006 and 2005 and in conformity with accounting principles
generally accepted in the United States of America.
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has incurred substantial losses which raise
substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 2. These
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
  /s/ Zhong Yi (Hong
Kong) C.P.A. Company Limited
 Zhong Yi
(Hong Kong) C.P.A. Company Limited
 Certified
Public Accountants
 Hong
Kong, China
 April 12,
2007
  11
 Table of Contents
  
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board
of Directors and Stockholders of
 China
Fruits Corporation
 (Formerly
Diversified Financial Resources Corporation)
 
 We have
audited the accompanying consolidated balance sheets of China Fruits Corporation
and Subsidiaries (“the Company”) as of December 31, 2007 and the related
consolidated statements of operations and comprehensive loss, stockholders’
equity and cash flows for the years ended December 31, 2007. The financial
statements as of December 31, 2006 and for the year ended December 31, 2006 were
audited by other auditors whose report dated April 12, 2007 expressed an
unqualified opinion on those statements. 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
(formerly Diversified Financial Resources Corporation) as of December 31, 2007
and the results of operations and cash flows for the year ended December 31,
2007 in conformity with accounting principles generally accepted in the United
States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has incurred substantial losses which raise
substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 2. These
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 
 /s/
Lake & Associates CPA’s LLC
 Lake
& Associates CPA’s LLC
 Boca
Raton, Florida
 March 25,
2008
 "Except
for Footnotes 4 and 13, which were dated July 7, 2008”
 “Except
for Footnote  12 which was dated February 16, 2009”
  20283
State Road 7
 Suite 300
 Boca
Raton, Florida 33498
  Phone:
561.982.9874
 Fax:
561.982.7985
  12
 Table of Contents
 CHINA
      FRUITS CORPORATIONConsolidated
      Balance SheetAs
      of December 31, 2007(Expresed
      in US Dollars, except for number of shares)ASSETSDecember 31, 2007
                                                                                                                        December 31,2006CURRENT ASSETSCash
      and cash equivalents
                                                                                                                        $
                                                                                                                        27,695
                                                                                                                        
                                                                                                                        $                                29,069Accounts
      receivable, trade
                                                                                                                        
                                                                                                                        23,777
                                                                                                                        
                                                                                                                        253,125Receivable
      from a third party
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        576,000Inventories
                                                                                                                        
                                                                                                                        83,564
                                                                                                                        
                                                                                                                        35,353TOTAL
      CURRENT ASSETS
                                                                                                                        
                                                                                                                        135,036
                                                                                                                        
                                                                                                                        911,593PLANT AND EQUIPMENT, NET
                                                                                                                        
                                                                                                                        1,770,401
                                                                                                                        
                                                                                                                        517,609TOTAL
      ASSETS
                                                                                                                        $
                                                                                                                        1,905,437
                                                                                                                        
                                                                                                                        $                          1,429,202LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT LIABILITIESAccounts
      payable, related party
                                                                                                                        $
                                                                                                                        5,415
                                                                                                                        
                                                                                                                        $                             110,029Note
      Payable-related party
                                                                                                                        
                                                                                                                        538,017
                                                                                                                        
                                                                                                                        -Income
      Taxes Payable
                                                                                                                        
                                                                                                                        49,306
                                                                                                                        
                                                                                                                        -Other
      payables and accrued liabilities
                                                                                                                        
                                                                                                                        106,357
                                                                                                                        
                                                                                                                        85,980TOTAL
      CURRENT LIABILITIES
                                                                                                                        
                                                                                                                        699,095
                                                                                                                        
                                                                                                                        196,009LONG-TERM LIABILITIESLoan
      due to stockholders
                                                                                                                        
                                                                                                                        81,997
                                                                                                                        
                                                                                                                        994,917TOTAL
      LONG_TERM LIABILITIES
                                                                                                                        
                                                                                                                        81,997
                                                                                                                        
                                                                                                                        994,917STOCKHOLDERS' 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
                                                                                                                        
                                                                                                                        33,129Additional
      paid-in capital
                                                                                                                        
                                                                                                                        2,324,053
                                                                                                                        
                                                                                                                        1,515,558Deferred
      compensation
                                                                                                                        
                                                                                                                        (193,750)
                                                                                                                        
                                                                                                                        (555,416)Statutory
      reserve
                                                                                                                        
                                                                                                                        16,805
                                                                                                                        
                                                                                                                        5,408Accumulated
      other comprehensive income (loss)
                                                                                                                        
                                                                                                                        48,850
                                                                                                                        
                                                                                                                        25,796Accumulated
      deficits
                                                                                                                        
                                                                                                                        (1,119,855)
                                                                                                                        
                                                                                                                        (798,312)TOTAL
      STOCKHOLDERS' EQUITY
                                                                                                                        
                                                                                                                        1,124,345
                                                                                                                        
                                                                                                                        238,276TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                                                                        $
                                                                                                                        1,905,437
                                                                                                                        
                                                                                                                        $                        1,429,202The
      accompanying notes are an integral part of
      these consolidated financial statements
  13
 Table of Contents
  CHINA
      FRUITS CORPORATIONConsolidated
      Statement of OperationsFor
      The Years Ended December 31, 2007 and 2006(Expresed
      in US Dollars, except for number of shares)Years
      Ended2007
                                                          
                                                          
                                                          2006REVENUES:Sales
                                                          
                                                          $
                                                          1,896,887
                                                          
                                                          
                                                          $
                                                          1,242,705Cost
      of goods sold - third party
                                                          
                                                          
                                                          (1,222,193
                                                          )
                                                          
                                                          
                                                          (613,829
                                                          )Cost
      of goods sold - related party
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (354,005
                                                          )Total
      Cost of Revenues
                                                          
                                                          
                                                          (1,222,193
                                                          )
                                                          
                                                          
                                                          (967,834
                                                          )GROSS
      PROFIT
                                                          
                                                          
                                                          674,694
                                                          
                                                          
                                                          
                                                          274,871OPERATING EXPENSES:Selling
      and marketing
                                                          
                                                          
                                                          205,955
                                                          
                                                          
                                                          
                                                          83,355Professional
      and legal expenses
                                                          
                                                          
                                                          424,121
                                                          
                                                          
                                                          
                                                          884,699General
      and administrative
                                                          
                                                          
                                                          326,250
                                                          
                                                          
                                                          
                                                          77,243TOTAL
      OPERATING EXPENSES
                                                          
                                                          
                                                          956,326
                                                          
                                                          
                                                          
                                                          1,045,297OPERATING
      LOSS
                                                          
                                                          
                                                          (281,632
                                                          )
                                                          
                                                          
                                                          (770,426
                                                          )OTHER INCOME:Interest
      income
                                                          
                                                          
                                                          1,041
                                                          
                                                          
                                                          
                                                          3,102Government
      grant
                                                          
                                                          
                                                          27,477
                                                          
                                                          
                                                          
                                                          -Other
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          1,481TOTAL
      OTHER INCOME (EXPENSES)
                                                          
                                                          
                                                          28,518
                                                          
                                                          
                                                          
                                                          4,583(LOSS)
      INCOME FROM OPERATIONS
                                                          
                                                          $
                                                          (253,114
                                                          )
                                                          
                                                          $
                                                          (765,843
                                                          )Income
      tax expense
                                                          
                                                          
                                                          57,032
                                                          
                                                          
                                                          
                                                          26,209NET
      (LOSS) INCOME
                                                          
                                                          $
                                                          (310,146
                                                          )
                                                          
                                                          $
                                                          (792,052
                                                          )Other
      comprehensive income-
      Foreign currency translation gain
                                                          
                                                          $
                                                          23,054
                                                          
                                                          
                                                          $
                                                          25,796COMPREHENSIVE
      (LOSS) INCOME
                                                          
                                                          $
                                                          (287,092
                                                          )
                                                          
                                                          $
                                                          (766,256
                                                          )Net
      income per common share - basic and diluted
                                                          
                                                          $
                                                          (0.01
                                                          )
                                                          
                                                          $
                                                          (0.03
                                                          )Net
      income per common share - diluted
                                                          
                                                          $
                                                          (0.01
                                                          )
                                                          
                                                          $
                                                          (0.03
                                                          )Weighted
      average number of shares outstanding during the period - basic an
      diluted
                                                          
                                                          
                                                          36,006,401
                                                          
                                                          
                                                          
                                                          30,525,000Weighted
      average number of shares outstanding during the period -
      diluted
                                                          
                                                          
                                                          36,006,401
                                                          
                                                          
                                                          
                                                          30,525,000The
      accompanying notes are an integral part of these consolidated financial
      statements
  14
 Table of Contents
  CHINA
      FRUITS CORPORATIONConsolidated
      Statement of Cash FlowsFor
      The Years Ended December 31, 2007 and 2006Years
      Ended2007
                                                                  
                                                                  
                                                                  2006CASH FLOWS FROM OPERATING
      ACTIVITIES:Net
      income
                                                                  
                                                                  $
                                                                  (310,146
                                                                  )
                                                                  
                                                                  $
                                                                  (792,050
                                                                  )Adjustments
      to reconcile net income to netcash
      provided by (used in) operating activities:Depreciation
                                                                  
                                                                  
                                                                  44,863
                                                                  
                                                                  
                                                                  
                                                                  6,427Stock
      based compensation
                                                                  
                                                                  
                                                                  361,666
                                                                  
                                                                  
                                                                  
                                                                  752,584Allowance
      for Doubtful Accounts
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  1,272(Increase)
      decrease in operating assets:Accounts
      receivable
                                                                  
                                                                  
                                                                  252,681
                                                                  
                                                                  
                                                                  
                                                                  (254,397
                                                                  )Inventories
                                                                  
                                                                  
                                                                  (43,933
                                                                  )
                                                                  
                                                                  
                                                                  (35,353
                                                                  )Vat
      and Income tax recoverable
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  (18,046
                                                                  )Increase
      (decrease) in operating liabilities:Accounts
      payable, related party
                                                                  
                                                                  
                                                                  (110,027
                                                                  )
                                                                  
                                                                  
                                                                  110,029Other
      payables and accrued liabilities
                                                                  
                                                                  
                                                                  23,017
                                                                  
                                                                  
                                                                  
                                                                  85,980Income
      tax payable
                                                                  
                                                                  
                                                                  44,216
                                                                  
                                                                  
                                                                  
                                                                  -Value
      added tax payable
                                                                  
                                                                  
                                                                  8,061
                                                                  
                                                                  
                                                                  
                                                                  -NET
      CASH PROVIDED BY OPERATING ACTIVITIES
                                                                  
                                                                  
                                                                  270,399
                                                                  
                                                                  
                                                                  
                                                                  (143,554
                                                                  )CASH FLOWS FROM INVESTING
      ACTIVITIESPurchase
      of property and equipment
                                                                  
                                                                  
                                                                  (1,230,006
                                                                  )
                                                                  
                                                                  
                                                                  (524,036
                                                                  )NET
      CASH USED IN INVESTING ACTIVITIES
                                                                  
                                                                  
                                                                  (1,230,006
                                                                  )
                                                                  
                                                                  
                                                                  (524,036
                                                                  )CASH FLOWS FROM FINANCING
      ACTIVITIESProceeds
      (Payments) on Officer Loans
                                                                  
                                                                  
                                                                  25,330
                                                                  
                                                                  
                                                                  
                                                                  994,917Repayment
      of shareholder note payable
                                                                  
                                                                  
                                                                  (614,545
                                                                  )Issuance
      of Notes Payable-related party
                                                                  
                                                                  
                                                                  136,900Advance
      (from) to a third party
                                                                  
                                                                  
                                                                  576,000
                                                                  
                                                                  
                                                                  
                                                                  (576,000
                                                                  )Capital
      distribution
                                                                  
                                                                  
                                                                  (256,348
                                                                  )
                                                                  
                                                                  
                                                                  -Addition
      in paid-in capital
                                                                  
                                                                  
                                                                  1,067,843
                                                                  
                                                                  
                                                                  
                                                                  190,456NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                                                                  
                                                                  
                                                                  935,180
                                                                  
                                                                  
                                                                  
                                                                  609,373Foreign
      currency translation adjustment
                                                                  
                                                                  
                                                                  23,054
                                                                  
                                                                  
                                                                  
                                                                  25,796NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                                                                  
                                                                  
                                                                  (1,374
                                                                  )
                                                                  
                                                                  
                                                                  (32,421
                                                                  )CASH AND CASH EQUIVALENTS:Beginning
      of year
                                                                  
                                                                  
                                                                  29,069
                                                                  
                                                                  
                                                                  
                                                                  61,490End
      of period
                                                                  
                                                                  $
                                                                  27,695
                                                                  
                                                                  
                                                                  $
                                                                  29,069135,036
                                                                  
                                                                  
                                                                  
                                                                  (149,258
                                                                  )Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Cash
      paid for income taxes
                                                                  
                                                                  $
                                                                  17,134
                                                                  
                                                                  
                                                                  $
                                                                  29,864Supplemental
      disclosures of non-cash transactions:Foreign
      translation adjustment - comprehensive income
                                                                  
                                                                  $
                                                                  23,053
                                                                  
                                                                  
                                                                  $
                                                                  25,796Common
      stock issued for services
                                                                  
                                                                  $
                                                                  361,666
                                                                  
                                                                  
                                                                  $
                                                                  752,584The
      accompanying notes are an integral part of these consolidated financial
      statements
  15
 Table of Contents
  CHINA
      FRUITS CORPORATIONConsolidated
      Statements of Stockholders EquityFor
      the years ended December 31, 2007 and 2006Expressed
      in USDNumber
                                
                                
                                Par
                                
                                
                                Series
      "A"
                                
                                
                                Number
                                
                                
                                Par
                                
                                
                                Series
      "B"
                                
                                
                                Number
                                
                                
                                Par
                                
                                
                                Common
                                
                                
                                Additional
                                
                                
                                Deferred
                                
                                
                                Accumulated
      deficit/
                                
                                
                                Statutory
                                
                                
                                
                                
                                
                                Totalof
      shares
                                
                                
                                Value:
                                
                                
                                Preferred
      Stock
                                
                                
                                of
      shares
                                
                                
                                Value:
                                
                                
                                Preferred
      Stock
                                
                                
                                of
      shares
                                
                                
                                Value:
                                
                                
                                stock
                                
                                
                                Paid-in
      Capital
                                
                                
                                compensation
                                
                                
                                retained
      earnings
                                
                                
                                reserve
                                
                                
                                AOCI(L)
                                
                                
                                EquityBalance
      as of December 31, 2005
                                
                                
                                13,150
                                
                                
                                
                                0
                                
                                
                                
                                13
                                
                                
                                
                                12,100,000
                                
                                
                                
                                0
                                
                                
                                
                                12,100
                                
                                
                                
                                30,000,000
                                
                                
                                
                                0
                                
                                
                                
                                30,000
                                
                                
                                
                                20,231
                                
                                
                                
                                -
                                
                                
                                
                                (854
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                61,490-Stocks
      issued to complete reverse acquisition
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                229,689
                                
                                
                                
                                0.001
                                
                                
                                
                                229
                                
                                
                                
                                (1,000,229
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (1,000,000
                                )-
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Stocks
      issued to settle liabilities
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2,000,000
                                
                                
                                
                                0.001
                                
                                
                                
                                2,000
                                
                                
                                
                                998,000
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1,000,000Capital
      contribution from owners of Taina
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                190,456
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                190,456-Deferred
      compensation
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                930,000
                                
                                
                                
                                (555,416
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                374,584-Stocks
      issued for service
                                
                                
                                
                                
                                
                                
                                0.001
                                
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                0.001
                                
                                
                                
                                -
                                
                                
                                
                                900,000
                                
                                
                                
                                0.001
                                
                                
                                
                                900
                                
                                
                                
                                377,100
                                
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                378,000-Foreign
      currency adjustment
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                25,796
                                
                                
                                
                                25,796-Net
      loss for the year
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (792,050
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (792,050
                                )-Transfer
      of retained earnings to statutory reserve
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (5,408
                                )
                                
                                
                                5,408
                                
                                
                                
                                
                                
                                
                                
                                --Balance
      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
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                --Paid-in
      capital distribution
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (256,348
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (256,348
                                )-Additional
      paid-in capital
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1,067,843
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1,067,843Amortization
      of deferred compensation
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                361,666
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                361,666-Foreign
      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
                                
                                
                                $
                                1,124,345The
      accompanying notes are an integral part of these consolidated financial
      statements
 16
 Table of Contents
 CHINA
FRUITS CORPORATION
 (Formerly
Diversified Financial Resources Corporation)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 (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:
 
 (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.         GOING
CONCERN UNCERTAINTIES
 
 These
consolidated financial statements have been prepared assuming that Company will
continue as a going concern, which contemplates the realization of assets and
the discharge of liabilities in the normal course of business for the
foreseeable future.
 
 As of
December 31, 2007, the Company had a positive operating cash flow of $265,937
and an accumulated deficit of $1,119,855.  Management has taken
certain action and continues to implement changes designed to improve the
Company’s financial results and operating cash flows.  The actions
involve certain cost-saving initiatives and growing strategies, including (a)
reductions in headcount and corporate overhead expenses; and (b) expansion into
new market.  Management believes that these actions will enable the Company
to improve future profitability and cash flow in its continuing operations
through December 31, 2007.  As a result, the financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of the Company’s ability to
continue as a going concern.
  17
 Table of Contents
 CHINA
FRUITS CORPORATION
 (Formerly
Diversified Financial Resources Corporation)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 (Currency
expressed in United States Dollars (“US$”))
  3.        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.
 
 Starting
from October 2006, the Company commenced the trading of tangerine in the
PRC.
 
 (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,
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.
 
 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, 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, 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 Statement of Financial Accounting Standards (“SFAS”) No. 121,
“Accounting for the impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of’, a long-lived assets and
certain identifiable intangible assets held and used by the Company are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  Recoverability of
assets to be held and used is evaluated by a comparison of the carrying amount
of assets to estimated discounted net cash flows expected to be generated by the
assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amounts of the assets
exceed the fair value of the assets.
 
 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.
  18
 Table of Contents
  CHINA
FRUITS CORPORATION
 (Formerly
Diversified Financial Resources Corporation)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 (Currency
expressed in United States Dollars (“US$”))
  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.
 
 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
 
 In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS No. 159”). This
statement permits entities to choose to measure many financial instruments and
certain other items at fair value. Companies should report unrealized gains and
losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date. This statement is effective as of the beginning
of an entity’s first fiscal year that begins after November 15, 2007. The
Company is currently assessing the potential impact, if any, for the adoption of
SFAS No.159 on its consolidated financial statements.
 
 In
December 2007, the 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.
 
 (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.
 
 19
 Table of Contents
  CHINA
FRUITS CORPORATION
 (Formerly
Diversified Financial Resources Corporation)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 (Currency
expressed in United States Dollars (“US$”))
 4.         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. Based upon the aforementioned criteria, management has determined that
an allowance for doubtful accounts of $1,272 is required as of December 31,
2006.  No allowance was considered necessary as of December 31,
2007.
 
 2007
                    
                    
                    2006Accounts
      receivable, gross
                    
                    $
                    23,777
                    
                    
                    $
                    254,397Less:
      allowance for doubtful accounts
                    
                    
                    -0-
                    
                    
                    
                    (1,272
                    )Accounts
      receivable, net
                    
                    $
                    23,777
                    
                    
                    $
                    253,125
 
 
 5.         ADVANCES
TO A THIRD PARTY
 
 The
Company made a temporary advance to a third party company during
2006.  The balance is unsecured, non-interest bearing and repayable
within 12 months.  The balance as of December 31, 2006, was
$448,000.  The advance was repaid to the Company during
2007.
 
 
 6.         INVENTORIES
 
 Inventories
as of December 31, 2007 and 2006 consist of the following:
 2007
                      
                      
                      2006Raw
      materials
                      
                      $
                      54,204
                      
                      
                      $
                      29,507Finished
      goods
                      
                      
                      29,360
                      
                      
                      
                      5,846$
                      83,564
                      
                      
                      $
                      35,353
 
 For the
year ended December 31, 2007 and 2006, no provision for obsolete inventories was
recorded by the Company.
  7.         PLANT
AND EQUIPMENT, NET
  Plant and
equipment, net as of December 31, 2007 and 2006 consists of the
following:
 
 2007
                  
                  
                  2008Plant
      and machinery
                  
                  $
                  1,602,922
                  
                  
                  $
                  520,219Construction
      in progress
                  
                  
                  217,257Furniture,
      fixture and equipment
                  
                  
                  3,817
                  
                  
                  
                  3,8171,823,996
                  
                  
                  
                  524,036Less:
      accumulated depreciation
                  
                  
                  (53,595
                  )
                  
                  
                  (6,427
                  )Plant
      and equipment, net
                  
                  $
                  1,770,401
                  
                  
                  $
                  517,609
 
 Depreciation
expense for the year ended December 31, 2007 and 2006 respectively was $47,168
and $6,427.
 
 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, 2007, represents buildings under construction.
 
 8.         OTHER
PAYABLES AND ACCRUED LIABILITIES
 
 Other
payables and accrued liabilities as of December 31, 2007 and 2006 consist of
following:
 
 2007
                    
                    
                    2006Rental
      payable
                    
                    $
                    -0-
                    
                    
                    $
                    282Government
      levies payable
                    
                    
                    1,221
                    
                    
                    
                    3,119Salary
      and welfare payable
                    
                    
                    29,279
                    
                    
                    
                    12,278Customer
      deposits
                    
                    
                    -0-
                    
                    
                    
                    692Accrued
      expenses
                    
                    
                    72,856
                    
                    
                    
                    69,609$
                    106,356
                    
                    
                    $
                    85,980
  9.         AMOUNT
DUE TO STOCKHOLDERS
 
 The
balances due to stockholders represented unsecured advances which are
interest-free and repayable in next twelve months.
  10.         INCOME
TAXES
 
 The
Company is registered in the United States of America and has operations in 2
tax jurisdictions: the United States of America and the PRC.  The
operation in the United States of America has incurred net operating losses for
income tax purposes.  The Company generated substantially its net
income from its PRC operation and has recorded income tax provision for the
years ended December 31, 2007 and 2006.
  The
components of (loss) income before income taxes separating U.S. and PRC
operations are as follows:
 
 2007
                    
                    
                    2006Loss
      subject to U.S. operation
                    
                    $
                    (424,241
                    )
                    
                    $
                    (843,982
                    )Income
      (loss) subject to PRC operation
                    
                    
                    171,127
                    
                    
                    
                    78,139Loss
      before income taxes
                    
                    $
                    (253,114
                    )
                    
                    $
                    (765,843
                    )
 
 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, 2007, the U.S. operation had $1,268,223 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
2027.  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
Company’s subsidiary, Tai Na is subject to taxes in the PRC.  Pursuant
to the PRC Income Tax Laws, Tai Na is generally subject to enterprise income tax
(“EIT”) at a statutory rate of 33% (30% national income tax plus 3% local income
tax).
 
 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, 2007 and 2006 is as follows:
 
 2007
                    
                    
                    2006Income
      (loss) before income taxes
                    
                    $
                    171,127
                    
                    
                    $
                    78,139Statutory
      income tax rate
                    
                    
                    33
                    %
                    
                    
                    33
                    %56,471
                    
                    
                    
                    25,786Expenses
      not deductible for tax purposes:-
      Provisions
                    
                    
                    561
                    
                    
                    
                    421Effect
      of tax losses
                    
                    
                    -
                    
                    
                    
                    -Income
      tax expense
                    
                    $
                    57,032
                    
                    
                    $
                    26,207
  The
following table sets forth the significant components of the aggregate net
deferred tax assets of the Company as of December 31, 2006:
 
 2007
                    
                    
                    2006Deferred
      tax assets:-
      Net operating loss carryforwards
                    
                    $
                    443,878
                    
                    
                    $
                    295,394Less:
      valuation allowance
                    
                    
                    (443,878
                    )
                    
                    
                    (295,394
                    )Deferred
      tax assets
                    
                    $
                    -
                    
                    
                    $
                    -
 
 For the
year ended December 31, 2007 and 2006, valuation allowances of $443,878 and
$295,394 were provided to the deferred tax assets due to the uncertainty
surrounding their realization.
  20
 Table of Contents
  CHINA
FRUITS CORPORATION
 (Formerly
Diversified Financial Resources Corporation)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 (Currency
expressed in United States Dollars (“US$”))
  11.         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.  Pursuant to stock exchange
transaction on May 31, 2006, the weighted average number of common stocks issued
and outstanding was adjusted to account for the effects of the stock exchange
transaction as a reverse acquisition, as more fully described in Note
1.
 
 The
Company has retrospectively adjusted the weighted average number of common
stocks outstanding by deeming that the one-for-twelve point five (1:12.5)
reverse stock split effected on July 10, 2006 had occurred as of the beginning
of the earliest period presented.
 
 The
following table sets forth the computation of basic and diluted net loss per
share for the year indicated:
 
 2007
                      
                      
                      2006Basis
      and diluted net loss per share calculationNumerator:-
      Net income in computing basic net loss per share
                      
                      $
                      (310,146
                      )
                      
                      $
                      (792,050
                      )Denominator:-
      Weighted average ordinary shares outstanding
                      
                      
                      36,006,401
                      
                      
                      
                      29,625,000-
      Stock issued for services
                      
                      
                      
                      
                      
                      
                      900,000-
      Shares used in computing basic net loss per share
                      
                      
                      36,006,401
                      
                      
                      
                      30,525,000Basic
      and diluted net loss per share
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.03
                      )
 
 There
were no dilutive common stock equivalents as of December 31, 2007 and
2006.
  12.         CAPITAL
TRANSACTIONS
 
 1)
                On
      May 31, 2006, 2006, the Company completed a stock exchange transaction
      with the equity owners of Tai Na and a total of 30,000,000 shares of
      common stock were issued (99% of Company's then outstanding common
      stock).
 
 2)
                On
      June 26, 2006, the Company issued 2,000,000 shares of common stock to
      Diversified Holdings I, Inc., a Nevada corporation ("DHI") to settle the
      $1,000,000 purchase price payable incurred due to the acquisition of
      Wichita Development Corporation in 2003 and any other miscellaneous
      liabilities to DHI, and to release and discharge any and all claims that
      exist between the Company and DHI. The purchase price payable had been
      previously reported in the Company's financial statements in
      2005.
 
 3)
                On
      July 12, 2006, the Company 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.
 
 4)
                On
      March 15, 2007 The company distributed from paid in capital
      $256,348
 
 5)
                On
      March 15, 2007 The company received a contribution to paid in capital of
      $256,348
 
 6)
                On
      August 20, 2007 The company received a contribution to paid in capital of
      $412,322
 
 7)
                On
      November 15, 2007 The company received a contribution to paid in capital
      of $199,988
 
 8)
                On
      December 3, 2007 The company received a contribution to paid in capital of
      199,988
  13.         STOCK
BASED COMPENSATION
 
 On
October 19, 2006, the Company approved a 2006 Non-Qualified Stock Compensation
Plan (the “Plan”) under which directors, officers, employees and consultants of
the Group are eligible to receive grants of stock options and common stock of
the Company.
 
 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
  14.         RELATED
PARTY TRANSACTIONS
 
 During
the year ended December 31, 2007 and 2006, the Company recorded purchases of -0-
and $354,005 respectively 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 and 2006, the trade balance of accounts payable
of $5,415 and $110,029 respectively is due to a related company.  The
transaction is considered conducted at arm’s length.  Notes payable to
related parties are due on April 26, 2008.
  15.         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 $15,844 and $12,700 for the
years ended December 31, 2007 and 2006, respectively.
 
 16.         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, 2007 and 2006, Tai Na contributed $11,395 and $5,408
respectively to statutory reserve.
  21
 Table of Contents
  CHINA
FRUITS CORPORATION
 (Formerly
Diversified Financial Resources Corporation)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 (Currency
expressed in United States Dollars (“US$”))
  17.         CONCENTRATION
AND RISK
 
 (a)         
Major customers and vendors
 
 For the
years ended December 31, 2007 and 2006, 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, 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
  For the
year ended December 31, 2006, customers and vendors who account for 10% or more
of revenues and purchases are presented as follows:
  Customers
                  
                  
                  Revenues
                  
                  
                  
                  
                  
                  
                  Accounts
                    ReceivableCustomer
      A
                  
                  
                  $
                  557,486
                  
                  
                  
                  45
                  %
                  
                  
                  $
                  64,317Customer
      B
                  
                  
                  
                  165,511
                  
                  
                  
                  13
                  %
                  
                  
                  
                  190,080Customer
      C
                  
                  
                  
                  46,175
                  
                  
                  
                  4
                  %
                  
                  
                  
                  -Total:
                  
                  $
                  769,172
                  
                  
                  
                  62
                  %
                  Total:
                  
                  $
                  254,397Vendors
                  
                  
                  Purchases
                  
                  
                  
                  
                  
                  
                  
                  Accounts
                    PayableVendor
      A
                  
                  
                  $
                  354,005
                  
                  
                  
                  37
                  %
                  
                  
                  $
                  110,029
 
 (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.
  18.         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, 2007 are as
follows:
 
 Year
      ending December 31:2008
                    
                    $
                    42,500
 
 For the
years ended December 31, 2007 and 2006, rental expense was $31,549 and
$277.
 
 19.         
SUBSEQUENT EVENT
 
 The
Company received an approval from Chinese government in connection with the
incorporation of a wholly-owned subsidiary, Tai Na International Fruits (Bei
Jing) Co. Ltd. ("Tai Na International"), which is located in Bei Jing, People's
Republic of China.
  Tai Na
International will be devoted to creation of a sales network to facilitate the
Registrant's products throughout China. The registered capital of Tai Na
International is approximately $1,351,000, which will be invested by the Company
as an equity interest in Tai Na International. After completion of the
incorporation, the Company will relocate their headquarters to Bei
Jing.
 22
 Table of Contents
  Item 8.
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 8A
(T). 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.
  The
Certifying Officers have also concluded, based on our evaluation of our controls
and procedures that as of December 31, 2007, 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.
 
 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.
  23
 Table of Contents
   PART
III
  Item 9.
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
                  47
                  President,
      Chief Executive Officer and Chairman
                  June
      1, 2006Huang,
      Xiao Yun
                  38
                  Chief
      Financial Officer
                  June
      1, 2006Zhao,
      Li Li
                  35
                  Director
                  June
      22, 2006
 
 Chen,
Quan Long -  President, Chief Executive Officer and
Chairman
 
 Mr. Chen,
Quan Long, 47, 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.
 
 Huang,
Xiao Yun - Chief Financial Officer
 
 Ms.
Huang, Xiao Yun, 38, majored in accounting in Jiang Xi Radio Television
University. She was chief accountant of Fei Huan Group from December 1991 to
December 2001. From January 2002, she became Chief Financial Officer of Fei Huan
Wine, Inc. Ms. Huang’s duties with Fei Huan Group included supervision of the
their financial statement preparation and accounting systems.
 
 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
is presently a deputy general manager for Fei Huan Winery Holding Co. in P. R.
China where she has worked for the past four years. Prior work experience
includes four years at Fei Huan Group where she functioned as a sales
manager.
  Ms. Zhao
gained her Bachelor degree in Jiang Xi Economic Management College for business
management in 1994.
  Family Relationships.
  None.
 
 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/A, any
failure to comply therewith during the fiscal year ended December 2007. 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.
  Item 10.
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, 2007, 2006 and 2005, 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,
      Chief Executive Officer and Chairman
                              2007
                              0
                              0
                              0
                              0
                              0
                              0
                              0
                              02006
                              0
                              0
                              0
                              0
                              0
                              0
                              0
                              02005
                              0
                              0
                              0
                              0
                              0
                              0
                              0
                              0Huang,
      Xiao Yun
                                Chief
      Executive Officer
                              2007
                              0
                              0
                              0
                              0
                              0
                              0
                              0
                              02006
                              0
                              0
                              0
                              0
                              0
                              0
                              0
                              02005
                              0
                              0
                              0
                              0
                              0
                              0
                              0
                              0
 
 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.
  Item 11. Security Ownership of Certain Beneficial Owners and
Management
  As of
December 31, 2007, we had 3,715 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 4, 2008, we had 3,715 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 4, 2008, 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 4,
2008.
 
 OFFICERS,
DIRECTORS AND BENEFICIAL OWNERS, AS OF APRIL 4, 2008
 
 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 (three
persons)
                        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 (three
persons)
                        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
                        Huang,
      Xiao Yun
                          Dormitory
      FeiHuan, NanFeng County, JiangXi
      Province,P.R.China   344500
                        74,448
                        **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
                        All
      directors and executive officers as a group (five 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.
 
 Item 12.
Certain Relationships and Related Transactions.
  As of
December 31, 2007, the assets acquired from the related party included equipment
of approximately $290,000, building of approximately $535,000 and land of
approximately $368,000.
   24
 Table of Contents
  Item 13.
Exhibits.
  (a)
              Financial
      Statements
  1. The
following financial statements of China Fruits Corp. are included in Part II,
Item 7:
 
 Independent
Auditors’ Report..........................................................  14
 Balance
Sheet-December 31, 2007.......................................................  16
 Statements
of Operations - for years ended December 31, 2007 and 2006......17
 Statements
of Cash Flows - for years ended December 31, 2007 and 2006.....18
 Statements
of Stockholders’ Equity - for years ended
 December
31, 2007 and 2006................................................................ 19
 Notes to
Financial Statements............................................................. 20
  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
 10.1  Website
Construction Service Agreement, dated October 27, 2006*
 10.2  Consulting Services
Agreement, dated October 31, 2006*
  * Filed
previously.
  (b)
              Reports
      on Form 8-K
 
 (1)
              On
      February 19, 2007, we filed a current report on Form 8-K to announce that
      we entered into an agreement with Huangjia Nanfeng Tangerine Orange Co.
      Ltd. (“Huangjia Nanfeng”), to acquire the assets and businesses of
      Huangjia Nanfeng to assist in further expansion in the orange
      markets.(2)
              On
      March 12, 2007, we filed a current report on Form 8-K to announce that we
      entered into a winery agreement and a series of sales agreements regarding
      oranges sales in 2007.(3)
              On
      April 12, 2007, we filed an amendment to the 8-K report dated February 19,
      2007 correcting the description of the acquisition.(4)
              On
      September 28, 2007, we filed a current report on Form 8-K to announce the
      resignation of our former principal independent
auditor.(5)
              On
      October 3, 2007, we filed an amendment to the 8-K report dated September
      28, 2007 in connection with the resignation of our former principal
      independent auditor.(6)
              On
      October 26, 2007, we filed a current report on Form 8-K to announce the
      engagement of our current principal independent
auditor.(7)
              On
      January 28, 2008, we filed a current report on Form 8-K to announce an
      approval from Chinese government in connection with the incorporation of a
      wholly-owned subsidiary, Tai Na International Fruits (Bei Jing) Co. Ltd.,
      which is located in Bei Jing, People's Republic of
  China.
  25
 Table of Contents
   Item 14.
Principal Accountant 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, Zhong Yi (Hong Kong) C.P.A.
Company Ltd. (“Zhong Yi”), for our audit of the annual financial statements for
the year ended December 31, 2006. We have changed our independent auditor to
Lake & Associates CPA’s LLC (“Lake”) for our audit of the annual financial
statements for the year ended December 31, 2007. Audit fees and other fees of
auditors are listed as follows:
 
 Year Ended December 31
                      
                      2007
                      
                      
                      
                      2006Lake
                      
                      
                      
                      Zhong
      YiAudit
      Fees (1)
                      
                      $
                      40,000
                      
                      
                      (3)
                      
                      $
                      45,000
                      
                      
                      (2)Audit-Related
      Fees (4)
                      
                      
                      --
                      
                      
                      
                      
                      
                      --Tax
      Fees (5)
                      
                      
                      --
                      
                      
                      
                      
                      
                      --All
      Other Fees (6)
                      
                      
                      --
                      
                      
                      
                      
                      
                      --Total
      Accounting Fees and Services
                      
                      $
                      40,000
                      
                      
                      
                      
                      $
                      45,000
  (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-QSB, and for services that are normally provided in
      connection with statutory and regulatory filings or
      engagements.
  (2)
                The
      amounts shown for Zhong Yi in 2006 relate to (i) the audit of our annual
      financial statements for the fiscal year ended December 31, 2006, and (ii)
      the review of the financial statements included in our filings on Form
      10-QSB for the second and third quarters of
  2006.
  (3)
                The
      amounts shown for Lake 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 third quarter of
2007.
  (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.
 
 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, 2007, 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.
  26
 Table of Contents
   SIGNATURES
  In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
hawse have caused this report to be signed on its behalf by the undersigned
majority of the Board of Directors, thereunto duly authorized.
  China
      Fruits CorporationDate:
      February 19, 2009
                
                /s/ Chen, Quan LongChen,
      Quan LongPresident