form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2010

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the Transition Period From ____to _____

Commission File Number: 000-22373

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)

Indicate by check mark if the registrant is a well-know seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [x]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act

Yes [ ] No [x]

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

Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

Yes [ ] No [ ]

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

Yes [ ] No [x]

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

Large accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)
Accelerated filer	¨
Smaller reporting company	x

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

Yes [ ] No [x]

Number of shares of common stock, par value $.001, outstanding as of August 9, 2010: 38,779,689

Number of shares of preferred stock outstanding as of August 9, 2010:

Series A, par value $.001 - 13,150

Series B, par value $.001 - 12,100,000

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-Q. 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-Q 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

PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS	3

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	10

ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK	12

ITEM 4. CONTROLS AND PROCEDURES	12

ITEM 4T. CONTROLS AND PROCEDURES	12

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	13

ITEM 1A. RISK FACTORS	13

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	13

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	13

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	13

ITEM 5. OTHER INFORMATION	13

ITEM 6. EXHIBITS	13

SIGNATURES	14

INDEX TO EXHIBITS	15

ITEM 1.FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

	Page

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009	4

Unaudited Condensed Consolidated Statements of Operations - For the Three and Six Months Ended June 30, 2010 and 2009	5

Unaudited Condensed Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2010 and 2009	6

Notes to Unaudited Condensed Consolidated Financial Statements	7

CHINA FRUITS CORPORATION
Condensed Consolidated Balance Sheet
As of June 30, 2010 and December 31, 2009
(Expresed in US Dollars, except for number of shares)

ASSETS	Unaudited			Audited
	June 30. 2010			December 31. 2009
CURRENT ASSETS
Cash and cash equivalents	$	205,385		$	453,831
Accounts receivable, trade		2,945			361,369
Receivable from third parties		1,162,539			729,328
Inventories		67,740			127,368
Prepayment		322,096			477,862
Refundable VAT tax		192,288			3,742
Refundable income tax		-			974
TOTAL CURRENT ASSETS		1,952,993			2,154,474

PLANT AND EQUIPMENT, NET		2,034,157			1,961,465

OTHER ASSETS		8,720			15,751


TOTAL ASSETS	$	3,995,870		$	4,131,690

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	-		$	163,163
Loan and related party payable		95,716			95,194
Notes payable-current portion		441,768			439,354
Customer deposit		209,341			83,111
Income Taxes Payable		-			-
Accrued liabilities and payroll tax liabilities		70,089			231,273
TOTAL CURRENT LIABILITIES		816,914			1,012,095

LONG-TERM LIABILITIES
Note Payable-Long term		463,856			461,322
Due to stockholders		437,146			335,146
TOTAL LONG-TERM LIABILITIES		901,002			796,468

STOCKHOLDERS' EQUITY
Preferred stock, 200,000,000 shares authorized, designated as Series A and Series B
Series A; par value $.001; 2,000,000 shares authorized,
13,150 shares issued and outstanding		13			13
Series B; par value $0.001, voting; 50,000,000 shares authorized,
12,100,000 shares issued and outstanding		12,100			12,100
Common stock, par value $.001, 100,000,000 shares authorized,
38,779,689 shares issued and outstanding		38,779			37,879
Additional paid-in capital		3,465,866			3,286,790
Statutory reserve		16,805			16,805
Accumulated other comprehensive income (loss)		188,685			173,854
Accumulated deficit		(1,444,294	)		(1,204,314	)
TOTAL STOCKHOLDERS' EQUITY		2,277,954			2,323,127

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,995,870		$	4,131,690


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

CHINA FRUITS CORPORATION
Unaudited Condensed Consolidated Statements of Operations
Three And Six Months Ended June 30, 2010 and 2009
(Expresed in US Dollars, except for number of shares)

		Six months ended						Three months ended
		6/30/2010			6/30/2009			6/30/2010			6/30/2009
REVENUES:
Sales		$	927,192		$	850,984		$	147,951		$	294,887
Cost of goods sold			(857,771	)		(573,987	)		(133,036	)		(184,614	)
GROSS PROFIT			69,421			276,997			14,915			110,273

OPERATING EXPENSES:
Selling and marketing			99,900			115,490			43,445			71,445
Professional and legal expenses			41,869			41,464			21,319			20,914
General and administrative			231,496			241,768			120,055			177,339
TOTAL OPERATING EXPENSES			373,265			398,722			184,819			269,698

INCOME(LOSS) FROM CONTINUING OPERATIONS			(303,844	)		(121,725	)		(169,904	)		(159,425	)

OTHER INCOME (EXPENSE):
Interest income			554			278			329			240
Interest expenses			(12,981	)		(7,830	)		(6,564	)		(3,604	)
Gain on disposal(PPE)			1,654			-			1,654			-
Government & other grant			73,259			93,798			30,780			32,227
Other			8,137			-			588			-
TOTAL OTHER INCOME (EXPENSES)			70,623			86,246			26,787			28,863

INCOME(LOSS) FROM CONTINUING OPERATIONS BEFOR INCOME TAXES		$	(233,221	)	$	(35,479	)	$	(143,117	)	$	(130,562	)

Income tax expense			6,759			6,492			6,759			6,492

NET INCOME(LOSS) FROM CONTINUING OPERATIONS		$	(239,980	)	$	(41,971	)		(149,876	)		(137,054	)

NET INCOME(LOSS) FROM DISCONTINUED OPERATIONS		$	-		$	1,582		$	-		$	71,673

NET INCOME		$	(239,980	)	$	(40,389	)	$	(149,876	)	$	(65,381	)

Other comprehensive income
- Foreign currency translation gain			14,831			975		$	14,420			1,441

COMPREHENSIVE (LOSS) INCOME		$	(225,149	)	$	(39,414	)	$	(135,456	)	$	(63,940	)

Earnings(loss) per common share:
Continuing opeartions - basic & diluted			**			**			**			**

Discontinued operations- basic & diluted			**			**			**			**

Weighted average number of shares outstanding during the period - basic & diluted			38,724,689			36,129,689			38,779,689			36,129,689

**	Less than $0.01
The accompanying notes are an integral part of these consolidated financial statements

CHINA FRUITS CORPORATION
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2010 and 2009

	For the six months ended
	6/30/2010			6/30/2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(239,980	)		(40,389	)
(Add) deduct (loss) earnings from discontinued operations		-			1,582
Net income (loss) from continuing operations		(239,980	)		(41,971	)

Adjustments to reconcile net income to net
Cash provided by (used in) operating activities:
Depreciation		79,439			10,181
(Increase) decrease in operating assets:
Accounts receivable		358,603			308,913
Inventories		60,024			250,200
Other assets		7,083			(38,861	)
Prepaid expenses and other current assets		(43,330	)		(628,484	)
Increase (decrease) in operating liabilities:
Accounts payable		(163,237	)		9,669
Other payables and accrued liabilities		543			(328,665	)
Tax payable		(32,252	)		171,844
Operating cash flow from discontinued operations		-			(349,666	)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES		26,893			(636,840	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(141,047	)		-
Proceeds from disposal of property and equipment					331,048
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES		(141,047	)		331,048

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payment) from related party		102,000			180,493
Proceeds (Payments) on third party Loans		(417,576	)		131,718
Proceeds from issuance of shares		180,000
Addition in paid-in capital		-			-
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		(135,576	)		312,211

Foreign currency translation adjustment		1,284			38

NET INCREASE IN CASH AND CASH EQUIVALENTS		(248,446	)		6,457

CASH AND CASH EQUIVALENTS:
Beginning of period	$	453,831		$	97,961

End of period	$	205,385		$	104,418

Supplemental disclosures of cash flow information:
Cash paid for interest	$	12,981		$	7,830
Cash paid for income taxes	$	6,759		$	6,492


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

CHINA FRUITS CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Expressed in USD)

1.BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the years ended December 31, 2009 and 2008 thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2009.

2. 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, 2008, 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 Nanfeng tangerine, and operating franchise retail stores for fresh fruits through its wholly-owned subsidiary, Tai Na International Fruits (Beijing) Co. Ltd.

The stock exchange transaction involved two simultaneous transactions:

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;

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”).

CHINA FRUITS CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Expressed in USD)

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Fair Value Measurements and Disclosures

(Accounting Standards Update (“ASU”) 2010-06)

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements.” ASU 2010-06 requires new disclosures regarding transfers in and out of the Level 1 and 2 and activity within Level 3 fair value measurements and clarifies existing disclosures of inputs and valuation techniques for Level 2 and 3 fair value measurements. ASU 2010-06 also includes conforming amendments to employers’ disclosures about postretirement benefit plan assets. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure of activity within Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. The adoption of this statement is not expected to have a material impact on our consolidated financial position or results of operation.

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 no allowance was considered necessary as of June 30, 2010 and December 31, 2009, respectively.


	June 30, 2010		December 31, 2009

Accounts receivable, gross	$	2,945	$	361,369

Less: allowance for doubtful accounts		-0-		-0-
Accounts receivable, net	$	2,945	$	361,369

5. RECEIVABLE FROM THIRD PARTIES

The company advances money to several third parties during business operation. These receivables bear no interest and due on demand, except otherwise noted. As of June 30, 2010 and December 31, 2009, the balances of receivable from third parties are:


	June 30, 2010		December 31, 2009

Third party advances	$	1,000,557	$	685,393

Loan to a third party (6 months, 1% monthly interest)		117,805

Bank security deposit		44,177		43,935
Receivable from third parties	$	1,162,539	$	729,328

6. INVENTORIES

Inventories as of June 30, 2010 and December 31, 2009 consist of the following:


	June 30, 2010		December 31, 2009


Raw materials	$	59,388	$	58,255
Finished goods		8,352		69,113
	$	67,740	$	127,368

For the year ended June 30, 2010 and December 31, 2009, no provision for obsolete inventories was recorded by the Company.

7. Prepayment

As of June 30, 2010 and December 31, 2009, the Company had prepayment of $322,096, consists of the following:

	June 30, 2010		December 31, 2009
Paid in advance (production)	$	267,000	$	463,591
Prepaid expenses (services)		25,000		-
Prepaid rent		30,096		14,271
Plant and equipment, net	$	322,096	$	477,862

8. PLANT AND EQUIPMENT, NET

Plant and equipment, net as of June 30, 2010 and December 31, 2009 consists of the following:

	June 30, 2010			December 31, 2009
Plant and machinery	$	2,375,347		$	2,217,568
Construction in progress		-			3,821
Furniture, fixture and equipment		40,477			40,256
		2,415,824			2,261,645
Less: accumulated depreciation		(381,667	)		(300,180	)
Plant and equipment, net	$	2,034,157		$	1,961,465

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, 2009, represents buildings under construction.

CHINA FRUITS CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Expressed in USD)

9. OTHER PAYABLES AND ACCRUED LIABILITIES

Other payables and accrued liabilities as of June 30, 2010 and December 31, 2009 consist of following:

	June 30, 2010		December 31, 2009


Salary and welfare payable		27,295		64,100

Accrued expenses		42,794		167,173
	$	70,089	$	231,273

10. RECEIVED IN ADVANCE

As of June 30, 2010, the Company had customer deposits of $209,341, representing payments received for orders not yet shipped. The Company expects to ship these orders in the third quarter of 2010.

11. NOTE PAYABLE TO THIRD PARTIES

As of June 30, 2010, the balance of loan from a local bank is $441,768.

As of June 30, 2010, the total balance of four loans from local government is $463,856.

12. NOTE PAYABLE- RELATED PARTY

As of June 30, 2010, the total balance of two loans from one related party is $95,716.

13. AMOUNT DUE TO STOCKHOLDERS

The balances due to stockholders represented unsecured advances which are interest-free and repayable in next twelve months. As of June 30, 2010 and December 31, 2009, the balances of due to stockholders are $437,146 and $335,146.

14. CAPITAL TRANSACTIONS

In January, 2010, the Company issued 900,000 shares at a purchase price of $0.20 per share (aggregate sum of $180,000) pursuant to an Offshore Subscription Agreement between the Company and an individual.

15. GOVERNMENT & OTHER GRANTS

From January to June, 2010, the company received grants from local government and other resources in total amount of $73,259 (500,000RMB). These grants are interest-free and bear no repayment requirements.

16. 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 June 30, 2010, the Company had an accumulated deficit of $1,444,294. 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 June 30, 2010. 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. SUBSEQUENT EVENTS

We evaluated subsequent events through the date and time our financial statements were issued on August 18, 2010. There are no subsequent events through August 18, 2010.

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPE RATION

Forward Looking Statements

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

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-storey plants at the same location, total area of which is approximately 45,800 square feet. We expect the production capacity will reach 6,200 tons in 2010. In order to assist in further expansion in the tangerine markets, we acquired the assets of Royal Nan Feng Orange Science & Technology Co., Ltd. ("Royal"), our former tangerine supplier, in 2007. The transaction was completed in July of 2008. As of September 30, 2008, the assets acquired from Royal included equipment of approximately $290,000, building of approximately $535,000 and land of approximately $368,000. During the three months ended September 30, 2008, we acquired additional building of approximately $151,000 from Royal.

In 2008, we expanded our sales network by setting up the franchise retail stores for fresh fruits and related products. We also relocated 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. As of June 30, 2010, there was one wholly-owned franchise retail store which located in Panjia Garden Beijing. Some franchise stores were discontinued in 2009 due to the global financial crisis. We believe the decrease in the number of franchise stores in the current economy is necessary for us to control our cost and enhance our operating efficiency.

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. In addition to our own products, we also work with our strategic partners to diversify the fruits in our store and ensure the prompt delivery. Even though we are currently suffering economic downturn, we still believe franchise retail stores will benefit us in business expansion. We expect more market shares via brand recognition in the near future.

In addition, in order to focus on the development of our fruit franchising business and establish a Nanfeng Tangerine Industrial Center, we have decided to discontinue our alcoholic beverage production business. Management has decided that in China, alcoholic beverage production is a saturated business with limited growth potential. As a result, on June 8, 2009, we entered into an Equipment and Inventory Sales Agreement (the “Agreement”) with Nanfeng Huaxia Wuqiannian Ecological Wine Village Ltd., a corporation organized and existing under the laws of the Peoples’ Republic of China (“Huaxia”), pursuant to which we have agreed to sell all of its equipment in connection with alcoholic beverage production (the “Equipment”) and the inventory of alcoholic beverage (the "Inventory") to Huaxia in exchange for a payment of approximately $450,000 (RMB 3,080,000). The payments were paid in full by Huaxia on August 31, 2009.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009

Revenues

We had sales of $147,951 and $927,192 for the three and six months ended June 30, 2010, respectively, compared to sales of $294,887 and $850,984 for the comparative periods ended June 30, 2009, respectively. Our sales for the six months ended June 30, 2010 increased by $76,208, or 9%, compared to the same period ended June 30, 2009, due primarily to the sales increase in the first quarter of 2010 as results of the recovery from global financial crisis, which had significant impact on our revenues in 2009. The sales decreased by $146,936, or approximately 50% during the three months ended June 30, 2010, compared to the same period ended June 30, 2009, due primarily to the traffic to our store slowing down since we only have one franchise retail store left located at Panjia Garden, Beijing.

We recognized revenue when persuasive evidence of a sale existed, transfer of title has occurred, the selling price is fixed or determinable and collectability is reasonably assured. Our sales arrangements are not subject to warranty. We did not record any product returns for the three and six months ended June 30, 2010 and 2009, respectively.

Net Income / (Loss)

We had net loss of $149,876 and $239,980 from continuing operations for the three and six months ended June 30, 2010, respectively, compared to the net loss from continuing operations of $137,054 and $41,971 for the three and six months ended June 30, 2009, respectively. The increases in net loss during the three and six months ended June 30, 2010 were due primarily to the significant increase in cost of goods sold, resulting in insufficient gross profit to cover our expenses during the period.

We expect to be profitable during the second half of fiscal year 2010 due to the recovery of current economy, the implementation of our business plan, including the increase in franchise retail stores, and the increase in marketing budgets. However, 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 three and six months ended June 30, 2010 were $184,819 and $373,265 respectively, compared to operating expenses of $269,698 and $398,722 for the comparative periods ended June 30, 2009, respectively. The decrease in operating expenses during both three-month and six-month period in 2010 was attributable to the efficient cost control in our selling, general and administrative expenses. Our selling and marketing expenses decreased by $28,000 and $15,590 for the three and six months ended June 30, 2010, respectively, and our general and administrative expenses decreased by $57,284 and $10,272 for both periods, respectively.

Cost of Revenue

Cost of revenue includes expenses directly related to the manufacturing and selling our products. Product delivery and direct labor would be examples of cost of revenue items. We had $133,036 in cost of revenue, or approximately 89.92% of revenues, and $857,771 in cost of revenue, or approximately 92.51% of revenues, during the three and six months ended June 30, 2010, respectively. Comparably, we had $184,614 in cost of revenue, or approximately 62.60% of revenues, and $573,987 in cost of revenue, or approximately 67.45% of revenues, during the three and six months ended June 30, 2009, respectively.

All the cost of revenue was from unrelated parties. The increase in cost of revenue as percentage of sales during the three and six months ended June 30, 2010 was due primarily to the discontinued alcoholic beverage production business in June 2009, which had higher gross margins compared to the gross margin of fresh fruits products typically ranging between 5-10%. In addition, we relocated one of our franchise stores from He Ping Li, Beijing to Pan Jia Yuan, Beijing in January of 2010. In order to build up the traffic of the new store, we provided significant sales discount during the operation testing.

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 $26,893 during the six months ended June 30, 2010, compared to cash flows of $636,840 used in operating activities for the six months ended June 30, 2009. Positive cash flows from operations for the six months ended June 30, 2010 were due primarily to the decrease in accounts receivable in the amount of $358,603, plus the decrease in inventories and other assets by $60,024 and $7,083, respectively, partially offset by the net loss of $239,980 and the decrease in accounts payable and tax payable by $163,237 and $32,252, respectively. Negative cash flows from operations for the six months ended June 30, 2009 were due primarily to the increase in prepaid expenses and other current assets in the amount of $628,484, the decrease in other payables and accrued liabilities in the amount of $328,665, plus the operating cash outflows of $349,666 due to discontinued operations, partially offset by the decrease in accounts receivable and inventories in the amount of $308,913 and $250,200, respectively.

Cash flows used in investing activities were $141,047 during the six months ended June 30, 2010 due to the purchase of property and equipment. Comparably, we had cash flows of $331,048 from investing activities during the six months ended June 30, 2009 solely due to the disposal of property and equipment.

Cash flows used in financing activities were $135,576 for the six months ended June 30, 2010, compared to the cash flows of $312,211 provided by financial activities for the same period ended June 30, 2009. Negative cash flows from financing activities during the six months ended June 30, 2010 were due primarily to repayments to third party loans of $417,576, offset by proceeds of loan from related party of $102,000, and proceeds of $180,000 from sales of shares pursuant to an Offshore Subscription Agreement, dated January 12, 2010, the purchase price of which were twenty cents (US$.20) per share. Positive cash flows from financing activities during the six months ended June 30, 2009 were due primarily to proceeds of loans from related party and third party, which were $180,493 and $131,718, respectively.

We project that we will need additional capital to fund operations over the next 12 months. We anticipate we will need an additional $700,000 for 2010 and 2011.

Overall, we have funded our cash needs from inception through June 30, 2010 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 $205,385 on hand as of June 30, 2010. Currently, we have enough cash to fund our operations for about six months. This is based on current cash flows from operation and projected revenues. However, 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 $700,000 per year starting in 2010. 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 fresh fruits 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 fruits, including our signature tangerine, to retail consumers and wholesale buyers. We plan to strengthen our position in these markets. We also plan to expand our operations through aggressively marketing our products and our concept.

ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information to be reported under this item is not required of smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURE S.

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 its 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.

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 their evaluation of our controls and procedures that as of June 30, 2010, our internal controls over financial reporting are effective and provide a reasonable assurance of achieving their objective.

The Certifying Officers have also concluded that there was no change in our internal controls over financial reporting identified in connection with the evaluation that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 4T. CONTROLS AND PROCEDURES

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

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Exchange Act as of June 30, 2010, and, based on their evaluation, as of the end of such period, the our disclosure controls and procedures were effective as of the end of the period covered by the Quarterly Report,

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

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

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

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

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

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.

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

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

This Quarterly 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 Quarterly Report.

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

The information to be reported under this item has not changed since the previously filed 10K, for the year ended December 31, 2009.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SEC URITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY H OLDERS

None.

ITEM 5. OTHER INFOR MATION

None.

ITEM 6. EXHIBITS

31.1 Certification of Chief Executive Officer

31.2 Certification of Chief Financial Officer

32.1 Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

Reports on Form 8-K filed in the second quarter of 2010

None.

Reports on Form 8-K filed subsequent to the second quarter of 2010

On July 2, 2010, we filed a current report on Form 8-K to announce the resignation of Ms. Zhao Li Li from her position of Director of the Company as approved by the Board of Directors, and effective immediately.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

	CHINA FRUITS CORP.

Date: August 18, 2010	By:	/s/ Chen, Quan Long
		Chen, Quan Long Chief Executive Officer

INDEX TO E XHIBITS

Exhibit No.		Description

31.1		Certification of Chief Executive Officer

31.2		Certification of Chief Financial Officer

32.1		Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002