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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: September 30, 2010

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________to _____________

Commission File Number: 000-52899

NUTRASTAR INTERNATIONAL
INC.(Exact Name of Registrant as Specified in Its Charter)

|Nevada                          | 80-0264950               
|------------------------------- | -------------------------
|(State or other jurisdiction of | (I.R.S. Empl. Ident. No.)
|incorporation or organization)  |                          

7/F Jinhua Mansion41 Hanguang StreetNangang District, Harbin 150080Peoples Republic of China(Address of principal executive offices, Zip Code)

(86) 451-82287746-------------------------------------------------- (Registrants
telephone number, including area code)

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 Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).

Yes [  ]  No [  ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):

Large accelerated filer
[  ]                                                                                                  
            Accelerated
filer [  ]

Non-accelerated filer [  ] (Do not check if a smaller
reporting
company)                           
Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

The number of shares outstanding of each of the issuers
classes of common equity, as of November 12, 2010 is as follows:

|Class of Securities              | Shares Outstanding             
|-------------------------------- | -------------------------------
|-------------------------------- | -------------------------------
|Common stock, $0.001 par value   | 14,332,731                     

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TABLE OF CONTENTS

| | PART I  FINANCIAL INFORMATION | Page
| | ------------------------------ | ----

|Item 1. | Financial Statements                                                                        | 2 
|------- | ------------------------------------------------------------------------------------------- | --
|Item 2. | Managements Discussion and Analysis of
      Financial Condition and Results of Operations | 32
|Item 3. | Quantitative and Qualitative
      Disclosures About Market Risk                            | 42
|Item 4. | Controls and Procedures                                                                     | 42

PART II  OTHER INFORMATION

|Item 1.  | Legal Proceedings                                                 | 43
|-------- | ----------------------------------------------------------------- | --
|Item 1A. | Risk Factors                                                      | 43
|Item 2.  | Unregistered Sales of Equity
      Securities and Use of Proceeds | 43
|Item 3.  | Defaults Upon Senior Securities                                   | 43
|Item 4.  | [Removed and Reserved]                                            | 43
|Item 5.  | Other Information                                                 | 43
|Item 6.  | Exhibits                                                          | 43

1

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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(AMOUNTS EXPRESSED IN
US DOLLARS)

|                                                                                                                                                                                                                                                                                                                                           |   | September 30 |  |   | December 31 | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------ |  | - | ----------- | 
|                                                                                                                                                                                                                                                                                                                                           |   | 2010         |  |   | 2009        | 
|                                                                                                                                                                                                                                                                                                                                           |   | (Unaudited)  |  |   |             | 
|                                                                                                                                                                                                                                                                                                                                           |   |              |  |   |             | 
|ASSETS                                                                                                                                                                                                                                                                                                                                     |   |              |  |   |             | 
|CURRENT ASSETS                                                                                                                                                                                                                                                                                                                             |   |              |  |   |             | 
|Cash and cash
      equivalents                                                                                                                                                                                                                                                                                                            | $ | 35,815,681   |  | $ | 20,115,677  | 
|Restricted cash                                                                                                                                                                                                                                                                                                                            |   | 231,025      |  |   | -           | 
|Accounts receivable                                                                                                                                                                                                                                                                                                                        |   | 391,212      |  |   | 215,486     | 
|Inventories                                                                                                                                                                                                                                                                                                                                |   | 760,281      |  |   | 616,073     | 
|Prepayments and other
      receivables                                                                                                                                                                                                                                                                                                    |   | 335,393      |  |   | 251,235     | 
|Total current assets                                                                                                                                                                                                                                                                                                                       |   | 37,533,592   |  |   | 21,198,471  | 
|OTHER ASSETS                                                                                                                                                                                                                                                                                                                               |   |              |  |   |             | 
|Intangible assets, net                                                                                                                                                                                                                                                                                                                     |   | 2,463,575    |  |   | 2,747,402   | 
|Property, plant and
      equipment, net                                                                                                                                                                                                                                                                                                   |   | 10,166,240   |  |   | 10,396,507  | 
|                                                                                                                                                                                                                                                                                                                                           |   |              |  |   |             | 
|Total
      assets                                                                                                                                                                                                                                                                                                                         | $ | 50,163,407   |  | $ | 34,342,380  | 
|LIABILITIES AND SHAREHOLDERS'
      EQUITY                                                                                                                                                                                                                                                                                                 |   |              |  |   |             | 
|CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                        |   |              |  |   |             | 
|Accounts payable                                                                                                                                                                                                                                                                                                                           | $ | 120,316      |  | $ | 863         | 
|Other payables and
      accruals                                                                                                                                                                                                                                                                                                          |   | 456,967      |  |   | 453,504     | 
|Payable for intangible assets                                                                                                                                                                                                                                                                                                              |   | -            |  |   | 878,709     | 
|Income tax payable                                                                                                                                                                                                                                                                                                                         |   | 524,194      |  |   | 319,873     | 
|Due to related parties                                                                                                                                                                                                                                                                                                                     |   | 50,738       |  |   | 49,794      | 
|Preferred stock
      dividend payable                                                                                                                                                                                                                                                                                                     |   | 97,464       |  |   | -           | 
|Acquisition payable                                                                                                                                                                                                                                                                                                                        |   | 8,902,545    |  |   | 8,736,833   | 
|Warrants liabilities                                                                                                                                                                                                                                                                                                                       |   | 704,166      |  |   | -           | 
|                                                                                                                                                                                                                                                                                                                                           |   |              |  |   |             | 
|Total
      liabilities                                                                                                                                                                                                                                                                                                                    | $ | 10,856,390   |  | $ | 10,439,576  | 
|                                                                                                                                                                                                                                                                                                                                           |   |              |  |   |             | 
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                              |   |              |  |   |             | 
|                                                                                                                                                                                                                                                                                                                                           |   |              |  |   |             | 
|SHAREHOLDERS'
      EQUITY                                                                                                                                                                                                                                                                                                                 |   |              |  |   |             | 
|Preferred Stock, $0.001 par value,
      1,000,000 shares authorized, 197,706 shares and none shares issued and
      outstanding, respectively; aggregate liquidation preference amount:
      $5,535,768 and $nil, plus accrued but unpaid dividend of $97,464 and $nil,
      at September 30, 2010 and December 31, 2009, respectively |   | 4,554,406    |  |   | -           | 
|Common stock, $0.001
      par value, 190,000,000 shares authorized, 14,332,731 and 14,297,731 shares
      issued and outstanding, at September 30, 2010 and December 31, 2009,
      respectively                                                                                                                                        |   | 14,333       |  |   | 14,298      | 
|Additional paid-in capital                                                                                                                                                                                                                                                                                                                 |   | 6,482,690    |  |   | 4,715,891   | 
|Statutory reserves                                                                                                                                                                                                                                                                                                                         |   | 1,348,036    |  |   | 1,341,687   | 
|Retained earnings                                                                                                                                                                                                                                                                                                                          |   | 25,214,857   |  |   | 16,858,012  | 
|Accumulated other
      comprehensive income                                                                                                                                                                                                                                                                                               |   | 1,692,695    |  |   | 972,916     | 
|Total shareholders' equity                                                                                                                                                                                                                                                                                                                 |   | 39,307,017   |  |   | 23,902,804  | 
|                                                                                                                                                                                                                                                                                                                                           |   |              |  |   |             | 
|Total liabilities and
      shareholders' equity                                                                                                                                                                                                                                                                                           | $ | 50,163,407   |  | $ | 34,342,380  | 

See accompanying notes to condensed consolidated financial
statements

2

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME(UNAUDITED)(AMOUNTS EXPRESSED IN US DOLLARS)

|                                                     |   | For the Three
      Months |   |   | For the Nine
      Months |  
|---------------------------------------------------- | - | -------------------------- | - | - | ------------------------- | -
|                                                     |   | Ended September
      30,  |   |   | Ended September
      30, |  
|                                                     |   | 2010                       |   |   | 2009                      |  
|                                                     |   |                            |   |   |                           |  
|Revenue                                              | $ | 6,461,523                  |   | $ | 3,565,961                 |  
|                                                     |   |                            |   |   |                           |  
|Cost of goods sold                                   |   | (1,177,739                 | ) |   | (793,101                  | )
|                                                     |   |                            |   |   |                           |  
|Gross profit                                         |   | 5,283,784                  |   |   | 2,772,860                 |  
|                                                     |   |                            |   |   |                           |  
|Selling expenses                                     |   | (305,151                   | ) |   | (87,901                   | )
|General and administrative expenses                  |   | (545,533                   | ) |   | (330,660                  | )
|                                                     |   |                            |   |   |                           |  
|Income from operations                               |   | 4,433,100                  |   |   | 2,354,299                 |  
|                                                     |   |                            |   |   |                           |  
|Other income (expenses):                             |   |                            |   |   |                           |  
|Interest income                                      |   | 24,971                     |   |   | 18,507                    |  
|Exchange loss                                        |   | (88,023                    | ) |   | (3,709                    | )
|Change in fair
      value of warrants               |   | 302,113                    |   |   | -                         |  
|Other                                                |   | -                          |   |   | 13                        |  
|Total other
      income(expenses)                   |   | 239,061                    |   |   | 14,811                    |  
|                                                     |   |                            |   |   |                           |  
|Income before income tax                             |   | 4,672,161                  |   |   | 2,369,110                 |  
|                                                     |   |                            |   |   |                           |  
|Provision for income tax                             |   | (605,967                   | ) |   | (340,056                  | )
|                                                     |   |                            |   |   |                           |  
|Net income                                           |   | 4,066,194                  |   |   | 2,029,054                 |  
|                                                     |   |                            |   |   |                           |  
|Other comprehensive income:                          |   |                            |   |   |                           |  
|Foreign currency translation
      adjustment        |   | 541,692                    |   |   | 25,251                    |  
|                                                     |   |                            |   |   |                           |  
|Total comprehensive income                           | $ | 4,607,886                  |   | $ | 2,054,305                 |  
|                                                     |   |                            |   |   |                           |  
|Earnings per share:                                  |   |                            |   |   |                           |  
|Basic                                                | $ | 0.28                       |   | $ | 0.15                      |  
|Diluted                                              | $ | 0.25                       |   | $ | 0.15                      |  
|                                                     |   |                            |   |   |                           |  
|Weighted average number of shares
      outstanding: |   |                            |   |   |                           |  
|Basic                                                |   | 14,332,731                 |   |   | 13,297,731                |  
|Diluted                                              |   | 16,435,334                 |   |   | 13,297,731                |  

See accompanying notes to condensed consolidated financial
statements.

3

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDARIESCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010(UNAUDITED)(AMOUNTS EXPRESSED IN US DOLLARS)

|                                                                                                                                                   |  |                 |  |   |              |  |  |            |  |   |        |  |   |           |   |   |           |  |   |            |   |   | Accumulated   |  |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- |  | - | ------------ |  |  | ---------- |  | - | ------ |  | - | --------- | - | - | --------- |  | - | ---------- | - | - | ------------- |  | - | ---------- | -
|                                                                                                                                                   |  | Preferred Stock |  |   | Common Stock |  |  | Additional |  |   |        |  |   |           |   |   | Other     |  |   |            |  
|                                                                                                                                                   |  | Number          |  |   |              |  |  | Number     |  |   |        |  |   | Paid-in   |   |   | Statutory |  |   | Retained   |   |   | Comprehensive |  |   |            |  
|                                                                                                                                                   |  | of Shares       |  |   | Amount       |  |  | of Shares  |  |   | Amount |  |   | Capital   |   |   | Reserves  |  |   | Earnings   |   |   | Income        |  |   | Total      |  
|                                                                                                                                                   |  |                 |  |   |              |  |  |            |  |   |        |  |   |           |   |   |           |  |   |            |   |   |               |  |   |            |  
|Balance at
      January 1, 2010                                                                                                                   |  | -               |  | $ | -            |  |  | 14,297,731 |  | $ | 14,298 |  | $ | 4,715,891 |   | $ | 1,341,687 |  | $ | 16,858,012 |   | $ | 972,916       |  | $ | 23,902,804 |  
|Net income                                                                                                                                         |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | -         |   |   | -         |  |   | 10,202,897 |   |   | -             |  |   | 10,202,897 |  
|Foreign
      currency translation adjustment                                                                                                      |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | -         |   |   | -         |  |   |            |   |   | 719,779       |  |   | 719,779    |  
|Issue preferred stock and
      warrants                                                                                                           |  | 197,706         |  |   | 4,554,406    |  |  | -          |  |   | -      |  |   | -         |   |   | -         |  |   |            |   |   | -             |  |   | 4,554,406  |  
|Beneficial
      conversion feature of convertible preferred stock                                                                                 |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | 1,742,239 |   |   | -         |  |   |            |   |   | -             |  |   | 1,742,239  |  
|Amortization of preferred stock
      discount resulting from accounting for a beneficial conversion feature,
      deemed analogous to a dividend |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | -         |   |   | -         |  |   | (1,742,239 | ) |   | -             |  |   | (1,742,239 | )
|Fair value of
      placement agent warrant liabilities                                                                                            |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | (45,493   | ) |   | -         |  |   |            |   |   | -             |  |   | (45,493    | )
|Issuance fees and costs                                                                                                                            |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | (162,361  | ) |   | -         |  |   |            |   |   | -             |  |   | (162,361   | )
|Preferred stock
      dividend                                                                                                                     |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | -         |   |   | -         |  |   | (97,464    | ) |   | -             |  |   | (97,464    | )
|Appropriation of statutory
      reserves                                                                                                          |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | -         |   |   | 6,349     |  |   | (6,349     | ) |   | -             |  |   | -          |  
|Issue IR
      warrants                                                                                                                            |  |                 |  |   |              |  |  |            |  |   |        |  |   | 89,435    |   |   |           |  |   |            |   |   |               |  |   | 89,435     |  
|Share-based payment                                                                                                                                |  | -               |  |   | -            |  |  | 35,000     |  |   | 35     |  |   | 142,979   |   |   | -         |  |   |            |   |   | -             |  |   | 143,014    |  
|At September
      30, 2010 (Unaudited)                                                                                                            |  | 197,706         |  | $ | 4,554,406    |  |  | 14,332,731 |  | $ | 14,333 |  | $ | 6,482,690 |   | $ | 1,348,036 |  | $ | 25,214,857 |   | $ | 1,692,695     |  | $ | 39,307,017 |  

See accompanying notes to condensed consolidated financial
statements.

4

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(AMOUNTS EXPRESSED IN US DOLLARS)

|                                                                                    |   | For the Nine Months |  
|----------------------------------------------------------------------------------- | - | ------------------- | -
|                                                                                    |   | Ended September 30, |  
|                                                                                    |   | 2010                |  
|                                                                                    |   |                     |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                               |   |                     |  
|Net income                                                                          | $ | 10,202,897          |  
|Adjustments to reconcile net income to cash
      provided by operating activities: |   |                     |  
|Change in fair value of warrants                                                    |   | (433,201            | )
|Amortization of warrants                                                            |   | 29,812              |  
|Share-based compensation expense                                                    |   | 143,014             |  
|Depreciation and amortization                                                       |   | 761,512             |  
|(Increase) decrease in assets:                                                      |   |                     |  
|Accounts
      receivable                                                           |   | (168,972            | )
|Prepayments and other
      receivables                                             |   | (23,607             | )
|Inventories                                                                         |   | (130,463            | )
|Increase (decrease) in liabilities:                                                 |   |                     |  
|Accounts payable                                                                    |   | 117,579             |  
|Other payables and accruals                                                         |   | (4,862              | )
|Income tax
      payable                                                            |   | 195,172             |  
|Trade payable due to related
      parties                                          |   | -                   |  
|Net cash provided by
      operating activities                                     |   | 10,688,881          |  
|                                                                                    |   |                     |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                               |   |                     |  
|Purchase of property, plant and equipment                                           |   | (9,984              | )
|Payment of acquisition payable                                                      |   | -                   |  
|Net cash used in investing activities                                               |   | (9,984              | )
|                                                                                    |   |                     |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                               |   |                     |  
|Proceeds from Private Placement                                                     |   | 5,483,919           |  
|Increase in restricted cash                                                         |   | (231,025            | )
|Repayment of payables for intangible asset                                          |   | (881,459            | )
|Advances from (repayments to) related parties                                       |   | (41,966             | )
|Net cash provided by
      (used in) financing activities                           |   | 4,329,469           |  
|                                                                                    |   |                     |  
|Foreign currency translation adjustment                                             |   | 691,638             |  
|                                                                                    |   |                     |  
|INCREASE IN CASH AND CASH EQUIVALENTS                                               |   | 15,700,004          |  
|                                                                                    |   |                     |  
|CASH AND CASH EQUIVALENTS, at the beginning
      of the period                     |   | 20,115,677          |  
|                                                                                    |   |                     |  
|CASH AND CASH EQUIVALENTS, at the end of
      the period                           | $ | 35,815,681          |  
|                                                                                    |   |                     |  
|NON-CASH ACTIVITIES:                                                                |   |                     |  
|Share-based payments to officer under equity incentive plan                         | $ | 143,014             |  
|                                                                                    |   |                     |  
|SUPPLEMENTAL DISCLOSURE INFORMATION                                                 |   |                     |  
|Income taxes paid                                                                   | $ | 1,540,789           |  

See accompanying notes to condensed consolidated financial
statements.

5

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1DESCRIPTION OF BUSINESS AND ORGANIZATION

Nutrastar International Inc. (Nutrastar or the Company) was
incorporated in the State of Nevada on December 22, 2002. On December 23, 2008,
the Company completed a reverse acquisition with New Zealand WAYNES New
Resources Development Co., Ltd. (New Resources). As a result of the reverse
acquisition with New Resources, the Company is no longer a shell company and
active business operations have been revived. Nutrastar together with its
subsidiaries are referred to as the Company.

On May 19, 2009, the Company filed Amended and Restated
Articles of Incorporation with the Nevada Secretary of State to amend the
Companys Articles of Incorporation to, among other things, (1) change the name
of the Company from YzApp International Inc. to Shuaiyi International New
Resources Development Inc., (2) increase the total number of shares of common
stock that the Company has the authority to issue from 50,000,000 to 190,000,000
shares and (3) effect a one for 114.59 reverse split of the Companys
outstanding common stock (the Reverse Split). The detailed description of the
amendment was provided in the Companys Form 8-K filed on May 26, 2009.

On January 11, 2010, the Company filed a Certificate of
Amendment to its Articles of Incorporation with the Secretary of State of the
State of Nevada, pursuant to which the Company further changed its name from
"Shuaiyi International New Resources Development Inc." to "Nutrastar
International Inc.".

As of September 30, 2010, details of the subsidiaries of the
Company are as follows:

|                                                                                    |  |  | Domicile and                                           |  |  |                 |  |  | Percentage   |  |  |                                                                                                                                        | 
|----------------------------------------------------------------------------------- |  |  | ------------------------------------------------------ |  |  | --------------- |  |  | ------------ |  |  | -------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                    |  |  | date of                                                |  |  |                 |  |  | of effective |  |  |                                                                                                                                        | 
|Subsidiaries
      names                                                           |  |  | incorporation                                          |  |  | Paid-up capital |  |  | ownership    |  |  | Principal activities                                                                                                                   | 
|                                                                                    |  |  |                                                        |  |  |                 |  |  |              |  |  |                                                                                                                                        | 
|New Zealand WAYNES New Resources
      Development Co., Ltd (New Resources)      |  |  | British Virgin Islands
      March 13, 2008            |  |  | $50,000         |  |  | 100%         |  |  | Holding company of the other
      subsidiaries                                                                                        | 
|Heilongjiang Shuaiyi New Energy Development Co., Ltd
      (Heilongjiang Shuaiyi) |  |  | Peoples Republic of China (PRC) July 11,
      2006 |  |  | RMB60,000,000   |  |  | 100%         |  |  | Principally engaged in investment holding                                                                                              | 
|Daqing Shuaiyi Biotech Co., Ltd. (Daqing
      Shuaiyi)                           |  |  | PRC August 8, 2005                                     |  |  | RMB10,000,000   |  |  | 100%         |  |  | Growing and sales of Chinese
      Golden Grass, which is widely used for Chinese medicine                                             | 
|Harbin Shuaiyi Green & Specialty Food Trading LLC.
      (Harbin Shuaiyi)         |  |  | PRC May 18, 2001                                       |  |  | RMB1,500,000    |  |  | 100%         |  |  | Sales of agricultural products                                                                                                         | 
|Oriental Global Holdings Limited                                                    |  |  | Hong Kong May 28, 2010                                 |  |  | -               |  |  | 100%         |  |  | Holding company of the other
      subsidiaries                                                                                        | 
|Harbin Baixin Biotech Development Co., Ltd                                          |  |  | PRC July 13, 2010                                      |  |  | -               |  |  | 100%         |  |  | Chinese Golden Grass cultivation technology
      research and development, services and Chinese Golden Grass products
      wholesale | 

6

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2BASIS OF
PRESENTATION

These interim condensed consolidated financial statements are
unaudited. In the opinion of management, all material adjustments and
disclosures necessary for a fair presentation of these interim condensed
consolidated financial statements have been included. The results reported in
the condensed consolidated financial statements for any interim periods are not
necessarily indicative of the results that may be reported for the entire year.
The (a) condensed consolidated balance sheet as of December 31, 2009, which was
derived from audited financial statements, and (b) the unaudited interim
condensed consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information not misleading. These unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and accompanying footnotes of the Company for
the year ended December 31, 2009.

These condensed consolidated financial statements include the
financial statements of Nutrastar and its subsidiaries. All significant
inter-company balances or transactions have been eliminated on consolidation.

Research and development costs

Research and development costs are expensed as incurred. For
the nine months ended September 30, 2010 and 2009, research and development
costs were $ 45,087 and $26,923, respectively.

Advertising costs

The Company expenses all advertising costs as incurred. The
total amount of advertising costs charged to selling, general and administrative
expense were $38,416 and $1,098 for the nine months ended September 30, 2010 and
2009, respectively.

Shipping and handling costs

Costs of shipping and handling of products to customers are
included in selling, general and administrative expense. Shipping and handling
costs for the nine months ended September 30, 2010 and 2009 were insignificant.

Foreign currency

The Company uses the United States dollars (U.S. Dollar or
US$ or $) for financial reporting purposes. The PRC subsidiaries within the
Company maintain their books and records in their functional currency, Chinese
Renminbi (RMB), being the lawful currency in the PRC. Assets and liabilities
of the PRC subsidiaries are translated from RMB into US Dollars using the
applicable exchange rates prevailing at the balance sheet date. Items on the
statement of operations are translated at average exchange rates during the
reporting period. Equity accounts are translated at historical rates.
Adjustments resulting from the translation of the Companys financial statements
are recorded as accumulated other comprehensive income.

The exchange rates used to translate amounts in RMB into U.S.
Dollars for the purposes of preparing the consolidated financial statements are
based on the rates as published on the website of Peoples Bank of China and are
as follows:-

|                                                 |  | September 30, 2010               |  |  | December 31, 2009 | 
|------------------------------------------------ |  | -------------------------------- |  |  | ----------------- | 
|Balance sheet items, except for equity accounts  |  | US$1=RMB6.7011                   |  |  | US$1=RMB6.8282    | 
|                                                 |  |                                  |  |  |                   | 
|                                                 |  | Three months ended September 30, | 
|                                                 |  | 2010                             |  |  | 2009              | 
|Items in the statements of income and cash flows |  | US$1=RMB6.7725                   |  |  | US$1=RMB6.8310    | 
|                                                 |  |                                  |  |  |                   | 
|                                                 |  | Nine months ended September 30,  | 
|                                                 |  | 2010                             |  |  | 2009              | 
|Items in the statements of income and cash flows |  | US$1=RMB6.8069                   |  |  | US$1=RMB6.8321    | 

7

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2      BASIS OF PRESENTATION
(CONTINUED)

No representation is made that the RMB amounts could have been,
or could be, converted into U.S. dollars at the above rates. The value of RMB
against U.S. dollars and other currencies may fluctuate and is affected by,
among other things, changes in Chinas political and economic conditions. Any
significant revaluation of RMB may materially affect the Companys financial
condition in terms of U.S. dollar reporting.

NOTE 3RECENT
ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncement

Effective January 1, 2010, the Company adopted the provisions
in ASU 2010-06, Fair Value Measurements and Disclosures (ASC Topic 820):
Improving Disclosures about Fair Value Measurements, which requires new
disclosures related to transfers in and out of levels 1 and 2 and activity in
level 3 fair value measurements, as well as amends existing disclosure
requirements on level of disaggregation and inputs and valuation techniques. The
adoption of the provisions in ASU 2010-06 did not have an impact on the
Companys consolidated financial statements.

In February 2010, the Financial Accounting Standards Board
(FASB) issued authoritative guidance that amends the disclosure requirements
related to subsequent events. This guidance includes the definition of a
Securities and Exchange Commission filer, removes the definition of a public
entity, redefines the reissuance disclosure requirements and allows public
companies to omit the disclosure of the date through which subsequent events
have been evaluated. This guidance is effective for financial statements issued
for interim and annual periods ending after February 2010. This guidance did not
materially impact the Companys results of operations or financial position, but
did require changes to the Companys disclosures in its financial statements.

In April 2010, the FASB issued ASU No.
2010-13CompensationStock Compensation (Topic 718), which addresses the
classification of an employee share-based payment award with an exercise price
denominated in the currency of a market in which the underlying equity security
trades. This Update provides amendments to Topic 718 to clarify that an employee
share-based payment award with an exercise price denominated in the currency of
a market in which a substantial portion of the entitys equity securities trades
should not be considered to contain a condition that is not a market,
performance, or service condition. Therefore, an entity would not classify such
an award as a liability if it otherwise qualifies as equity. The amendments in
this Update are effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010. The Company expects that
the adoption of the amendments in this Update will not have any significant
impact on its financial position and results of operations.

In May 2010, the FASB issued ASU 2010-19, Foreign Currency
(Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates.
The amendments in this Update are effective as of the announcement date of March
18, 2010. The adoption of this update did not have a material effect on the
financial position, results of operations or cash flows of the Company.

In July 2010, the FASB issued ASU 2010-20, Receivables (Topic
310): Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses. This ASU amends Topic 310 to improve the
disclosures that an entity provides about the credit quality of its financing
receivables and the related allowance for credit losses. As a result of these
amendments, an entity is required to disaggregate by portfolio segment or class
certain existing disclosures and provide certain new disclosures about its
financing receivables and related allowance for credit losses. For public
entities, the disclosures as of the end of a reporting period are effective for
interim and annual reporting periods ending on or after December 15, 2010. The
disclosures about activity that occurs during a reporting period are effective
for interim and annual reporting periods beginning on or after December 15,
2010. Except for the expanded disclosure requirements, the adoption of this ASU
is not expected to have a material impact on the Companys consolidated
financial statements.

Other accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the Companys
Consolidated Financial Statements upon adoption.

8

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4FAIR
VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

ASC Topic 820, Fair Value Measurement and Disclosures,
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. This topic also establishes a fair
value hierarchy which requires classification based on observable and
unobservable inputs when measuring fair value. The fair value hierarchy
distinguishes between assumptions based on market data (observable inputs) and
an entitys own assumptions (unobservable inputs). The hierarchy consists of
three levels:

| | Level one    | Quoted market prices in active markets for
      identical assets or liabilities;                                                                                                        
| | ------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level two    | Inputs other than level one inputs that are
      either directly or indirectly observable; and                                                                                          
| | Level three  | Unobservable inputs developed
      using estimates and assumptions, which are developed by the reporting
      entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within
the hierarchy requires significant judgment. The Company evaluates its hierarchy
disclosures each quarter.

Assets and liabilities measured at fair value on a recurring
basis are summarized as follows:

Fair value measurement using
      inputs
    
    
    Carrying amount atFinancial instruments
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    September 30,
    
    
    December 31,2010
    
    
    2009Liabilities:Derivative instruments −
    $
    
    
    $
    704,166
    
    $
    
    
    $
    704,166
    
    $
    WarrantsTotal
    $
    
    
    $
    704,166
    
    $
    
    
    $
    704,166
    
    $
    


The carrying values of cash and cash equivalents, trade and
other receivables and payables approximate their fair values due to the short
maturities of these instruments.

There was no asset or liability measured at fair value on a
non-recurring basis as of September 30, 2010 and December 31, 2009.

9

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5RESTRICTED CASH

As of September 30, 2010, $231,025 in total was held in escrow
arising from agreements in conjunction with the private placement transaction
consummated in June 2010, which is further disclosed in Note 14.

Restricted cash consisted of the following:

|                                         |   | September 30 |  |   | December 31 | 
|---------------------------------------- | - | ------------ |  | - | ----------- | 
|                                         |   | 2010         |  |   | 2009        | 
|                                         |   | (Unaudited)  |  |   |             | 
|                                         |   |              |  |   |             | 
|Compensation for Chief Financial Officer | $ | 231,025      |  | $ | -           | 
|Total                                    | $ | 231,025      |  | $ | -           | 

NOTE 6ACCOUNTS
RECEIVABLE

No allowance has been established as management has determined
that all accounts receivable are deemed collectible.

NOTE 7INVENTORIES

Inventories by major categories are summarized as follows:

|                 |   | September 30 |  |   | December 31 | 
|---------------- | - | ------------ |  | - | ----------- | 
|                 |   | 2010         |  |   | 2009        | 
|                 |   | (Unaudited)  |  |   |             | 
|                 |   |              |  |   |             | 
|Raw materials    | $ | 188,730      |  | $ | 183,934     | 
|Work in progress |   | 295,915      |  |   | 294,983     | 
|Finished goods   |   | 275,636      |  |   | 137,156     | 
|Total            | $ | 760,281      |  | $ | 616,073     | 

10

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8PREPAYMENTS AND OTHER RECEIVABLES

Prepayments and other receivables consist of the following:

|                  |   | September 30 |  |   | December 31 | 
|----------------- | - | ------------ |  | - | ----------- | 
|                  |   | 2010         |  |   | 2009        | 
|                  |   | (Unaudited)  |  |   |             | 
|                  |   |              |  |   |             | 
|Prepayments       | $ | 126,290      |  | $ | 12,812      | 
|Other receivables |   | 209,103      |  |   | 238,423     | 
|                  | $ | 335,393      |  | $ | 251,235     | 

NOTE 9INTANGIBLE
ASSETS, NET

Intangible assets, net consisted of the following:

|                                              |   | September 30 |   |   | December 31 |  
|--------------------------------------------- | - | ------------ | - | - | ----------- | -
|                                              |   | 2010         |   |   | 2009        |  
|                                              |   | (Unaudited)  |   |   |             |  
|                                              |   |              |   |   |             |  
|Computer software, cost                       | $ | 1,482        |   | $ | 1,454       |  
|Exclusive right to use a secret process, cost |   | 4,478,675    |   |   | 4,395,309   |  
|Less: Accumulated amortization                |   | (2,016,582   | ) |   | (1,649,361  | )
|                                              | $ | 2,463,575    |   | $ | 2,747,402   |  

In April 2006, the Company purchased from a third party a
ten-year exclusive right to use a secret process and method in the cultivation
and growing of Chinese Golden Grass, which is widely used for Chinese medicine,
for a cash consideration of RMB30,000,000, payable over five years. The
exclusive right is amortized over its term of ten years using the straight-line
method.

Amortization expenses for the nine months ended September 30,
2010 and 2009 were $330,715 and $329,495, respectively.

NOTE 10PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the
following:

|                               |   | September 30 |   |   | December 31 |  
|------------------------------ | - | ------------ | - | - | ----------- | -
|                               |   | 2010         |   |   | 2009        |  
|                               |   | (Unaudited)  |   |   |             |  
|                               |   |              |   |   |             |  
|Cost:                          |   |              |   |   |             |  
|Buildings                      | $ | 11,893,795   |   | $ | 11,672,404  |  
|Office equipment               |   | 25,694       |   |   | 15,264      |  
|Machinery                      |   | 130,719      |   |   | 128,286     |  
|Motor vehicles                 |   | 55,882       |   |   | 54,842      |  
|Total cost                     |   | 12,106,090   |   |   | 11,870,796  |  
|Less: Accumulated depreciation |   | (1,939,850   | ) |   | (1,474,289  | )
|Net book value                 | $ | 10,166,240   |   | $ | 10,396,507  |  

Depreciation expenses for the nine months ended September 30,
2010 and 2009 were $430,797 and $426,901, respectively.

11

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11OTHER
PAYABLES AND ACCRUALS

Other payables and accruals consisted of the following:

|                    |   | September 30 |  |   | December 31 | 
|------------------- | - | ------------ |  | - | ----------- | 
|                    |   | 2010         |  |   | 2009        | 
|                    |   | (Unaudited)  |  |   |             | 
|                    |   |              |  |   |             | 
|Accrued staff costs | $ | 429,916      |  | $ | 370,395     | 
|Other taxes payable |   | 21,689       |  |   | 25,030      | 
|Other payables      |   | 5,362        |  |   | 58,079      | 
|                    | $ | 456,967      |  | $ | 453,504     | 

NOTE 12PAYABLE
FOR INTANGIBLE ASSETS

As described in Note 9, the Company purchased an exclusive
right from an independent party for a secret process and method for a stated
value of RMB30,000,000 payable over 5 years from the date of purchase. The
agreement provides that all payments by the Company for the secret process and
method will be refundable if the secret process and method prove ineffective.
Under ASC Subtopic 835-30, Imputation of Interest (formerly APB 21, Interest
on Receivables and Payables), the payable for intangibles are stated without
imputed interest as the noninterest factor fairly represents the warranty for
performance.

The intangible assets have been fully paid for as of September
30, 2010.

NOTE 13ACQUISITION PAYABLE

The acquisition payable represents the transfer price of
RMB60,000,000, equivalent to USD 8,736,833, payable by New Resources for the
acquisition of 100% equity interest in Heilongjiang Shuaiyi, as further
discussed in Note 21, the acquisition payable is due for payment in full on or
before December 31, 2010 by New Resources to the Shuaiyi Founders who are also
shareholders of the Company. See Notes 19(b) and 21.

On October 22, 2010, the Company consummated a restructuring
plan whereby the Shuaiyi Founders obtained from New Resources 100% equity
interest in Heilongjiang Shuaiyi. As a result of the restructuring, the Company
is no longer obligated for the outstanding acquisition payable of $8.9 million.
See Note 23(c).

12

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14SHAREHOLDERS
EQUITY

Private Placement

On May 27, 2010, the Company entered into a securities purchase
agreement (the "Securities Purchase Agreement") with certain investors, pursuant
to which, the Company agreed to issue and sell up to an aggregate of 250,000
units at a purchase price of $28.56 per unit, for an aggregate purchase price of
up to $7,140,000 (the "Aggregate Purchase Price"). Each unit consists of (i) one
share of a newly designated series A preferred stock, par value $0.001 per share
("Series A Preferred Stock"), with an initial one-to-ten conversion ratio into
shares of the Companys common stock, par value $0.001 per share ("Common
Stock"), and (ii) warrants to purchase five shares of Common Stock at an
exercise price of $3.40 per share ("Warrants", together with the shares of
Series A Preferred Stock, the "Securities"). In addition, the Company and the
investors agreed, that the placement agent of this transaction, will receive
from the investors a fee equal to 2% of the Aggregate Purchase Price and
Warrants to purchase 2% of the aggregate number of shares of Common Stock that
shares of Series A Preferred Stock to be issued under the Securities Purchase
Agreement are convertible into.

Pursuant to the Securities Purchase Agreement, the Company also
granted registration rights to holders of registrable securities, which include
shares of Common Stock issued or issuable upon conversion of shares of the
Series A Preferred Stock and shares of Common Stock issuable upon exercise of
the Warrants (the "Registrable Securities"). Holders holding a majority of the
Securities then outstanding may request the Company to file a registration
statement to register the Registrable Securities within a pre-defined period
(the "Registration Statement"). The Company may be subject to liquidated damages
in the amounts prescribed by the Securities Purchase Agreement if it is unable
to file the Registration Statement timely or maintain its effectiveness as
required by the Securities Purchase Agreement.

On June 7, 2010, the Company effected the first closing of a
private placement transaction and issued approximately 123,403 units at a
purchase price of $28.56 per unit for gross proceeds of $3,524,342.

On June 28, 2010, the Company effected the second closing of a
private placement transaction and issued approximately 74,303 Units at a
purchase price of $28.56 per unit for gross proceeds of $2,121,938.

Pursuant to the Securities Purchase Agreement, a written
request was received from the Preferred Stock holders on July 14, 2010 and the
Company filed the Registration Statement on August 11, 2010. The Registration
Statement was declared effective by the Securities and Exchange Commission
(SEC) on September 15, 2010.

Escrow Agreement

In connection with the Securities Purchase Agreement, the
Company entered into an escrow agreement (the "Escrow Agreement") pursuant to
which the parties agreed to deposit the investment amount received from the
investors into escrow to be released upon the occurrence of the events set forth
in the Escrow Agreement. In addition, the Company agreed that $100,000 out of
the investment amount will remain in escrow and will be disbursed to an investor
relations firm hired by the Company, all of which has been released to investor
relations firm during the third quarter of 2010. The Company also agreed that an
additional $250,000 will remain in escrow and will be used as compensation for
the Chief Financial Officer of the Company, of which $18,975 has been released
during the third quarter of 2010 and the rest of $231,025 will remain in escrow
(See Note 5).

13

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14      SHAREHOLDERS EQUITY
(CONTINUED)

Allocation of Proceeds in the Private Placement (continued)

The guidance provided in ASC 470-20-30-5 has been applied to
the amount allocated to the convertible Preferred Stock, and the effective
conversion price has been used, to measure the intrinsic value, if any, of the
embedded conversion option. The fair value of the embedded conversion feature of
the Series A Preferred Stock of $1,114,444 and $627,795 were calculated using
the intrinsic value model in accordance with the guidance provided in ASC Topic
470-20-30-6 (formerly EITF 00-27, Application of Issue No. 98-5 to Certain
Convertible Instruments), limited to the amount of the proceeds allocated to
the convertible instrument on June 7, 2010 and June 28, 2010, respectively. The
intrinsic value of the beneficial conversion feature was calculated by comparing
the effective conversion price, which was determined based on the proceeds from
the private placement allocated to the convertible Series A Preferred Stock, and
the market price of the Companys common stock of $3.2 and $3.16 on June 7, 2010
and June 28, 2010, respectively. The fair value of $1,114,444 and $627,795 of
the beneficial conversion feature has been recognized as a reduction to the
carrying amount of the convertible Series A Preferred Stock and an addition to
paid-in capital.

The following table sets out the allocation of the proceeds
from the Private Placement:

|Proceeds of the private placement on June
      7, 2010                                          | $ | 3,524,342  |  
|------------------------------------------------------------------------------------------------ | - | ---------- | -
|Allocation of proceeds to Warrants                                                               |   | (689,944   | )
|Allocation of proceeds to beneficial
      conversion feature                                    |   | (1,114,444 | )
|Amortization of discount resulting from the accounting for
      a beneficial conversion feature |   | 1,114,444  |  
|Convertible Series A Preferred Stock at
      September 30, 2010                                 | $ | 2,834,398  |  
|Expenses related to private placement                                                            |   | (114,567   | )
|Convertible Series A Preferred Stock (net
      of fees and expenses) at September 30, 2010      | $ | 2,719,831  |  
|                                                                                                 |   |            |  
|Proceeds of the private placement on June
      28, 2010                                         | $ | 2,121,938  |  
|Allocation of proceeds to Warrants                                                               |   | (401,930   | )
|Allocation of proceeds to beneficial
      conversion feature                                    |   | (627,795   | )
|Amortization of discount resulting from the accounting for
      a beneficial conversion feature |   | 627,795    |  
|Convertible Series A Preferred Stock at
      September 30, 2010                                 | $ | 1,720,008  |  
|Expenses related to private placement                                                            |   | (47,794    | )
|Convertible Series A Preferred Stock (net
      of fees and expenses) at September 30, 2010      | $ | 1,672,214  |  

In accordance with ASC Topic 470-20-30-6, the discount on the
Series A Preferred Stock resulting from the accounting for a beneficial
conversion feature was amortized and charged to retained earnings, because the
Series A Preferred Stock are immediately convertible upon issuance and have no
stated redemption date. Amortization of the discount resulting from the
accounting for a beneficial conversion feature is considered analogous to a
return to holders of perpetual preferred stock and has been accounted for as a
reduction to net income available to common stockholders for the purpose of
calculation of earnings per share.

14

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14      SHAREHOLDERS EQUITY
(CONTINUED)

Preferred Stock

The following are the principal terms of the Series A Preferred
Stock:

Rank:The Series A Preferred Stock ranks senior to the
Companys common stock, but junior to all indebtedness of the Company.

Dividend:Holders of the Series A Preferred Stock are
entitled to a cumulated dividend at an annual rate of 6% of the Series A
Preferred Stock, payable in additional shares of Series A Preferred Stock, shall
compound quarterly, and shall be payable upon the occurrence of a Liquidation
Event, Conversion, Mandatory Conversion or from time-to-time at the discretion
of the Board. When dividends on the Series A Preferred Stock are paid, each such
additional share of Series A Preferred Stock shall be valued at the Original
Series A purchase price, which may be adjusted from time to time pursuant to a
split, subdivision, combination or other similar events.

Optional Conversion: Shares of the Series A Preferred
Stock are optionally convertible into fully paid and non-assessable shares of
Common Stock at a conversion rate calculated by dividing (i) $28.00 per share
plus any declared, accrued but unpaid dividends by (ii) the conversion price
(the Conversion Price), which is initially $2.80 per share, subject to
adjustment as provided in the Certificate. Initially, each share of Series A
Preferred Stock is convertible into 10 shares of Common Stock.

Mandatory Conversion: All outstanding shares of the
Series A Preferred Stock will automatically convert to shares of Common Stock,
subject to the conversion restrictions set forth in the Certificate (the
"Mandatory Conversion"), at the earlier to occur of (i) the Companys shares of
Common Stock being listed on the New York Stock Exchange, the NYSE Amex, the
NASDAQ Global Market, the NASDAQ Global Select Market or the NASDAQ Capital
Market (each, a "National Stock Exchange") and the registration statement on
Form S-1 or such other appropriate form promulgated by the SEC registering the
Common Stock underlying the Securities pursuant to the Securities Purchase
Agreement being declared effective by the Commission, and (ii) 12 months from
the date that the Company's shares of Common Stock are first listed on a
National Stock Exchange.

Adjustment to Conversion Price: If the Company shall
issue any additional stock without consideration or for consideration per share
less than the Conversion Price in effect immediately prior to the issuance of
such Additional Stock, then such Conversion Price in effect immediately prior to
such issuance shall be adjusted to a price determined by multiplying such
Conversion Price by a fraction:

Sum of (x) the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional stock plus (y) the number
of shares of Common Stock that the aggregate consideration received by the
Company for the total number of such additional stock so issued would purchase
at Conversion Price (divided by) (x) the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional stock plus (y)
the number of shares of such additional stock so issued.

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

Liquidation Preference:The Series A Preferred Stock has
a preference over the Companys common stock on the Companys liquidation,
dissolution or winding up equal to $28 per share of the Series A Preferred Stock
plus any accrued but unpaid dividends thereon, as of the date of liquidation.

15

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14      SHAREHOLDERS EQUITY
(CONTINUED)

Registration Rights: The holders of Series A Preferred
Stock have the right to request the Company to file a Registration Statement to
register Registrable Securities (which include the common stock into which the
Series A Preferred Stock and Warrants are convertible). Upon such request, no
later than 30 days upon receipt of such request (the Required Filing Date) the
Company should use its commercially reasonable efforts to register the Common
Stock underlying the Registrable Securities and have the Registration Statement
declared effective by the SEC which is not later than the earlier of (x) 150
calendar days after the Required Filing Date, or (y) if the Registration
Statement is not reviewed by the SEC, 5 business days after oral or written
notice to the Company or its counsel from the SEC that there will not be a
review.

Effect of failure to file and obtain and maintain
effectiveness of Registration Statement  the Company shall pay to each
holder of Registrable Securities an amount in cash equal to 1% of the aggregate
purchase price of the Securities owned by such holder as liquidated damages, but
in no event shall liquidated damages exceed 8% of the Purchase Price

Accounting for Series A Preferred Stock

The Company has evaluated the terms of the Series A Preferred
Stock and determined that the Series A Preferred Stock, without embodying an
obligation for the Company to repurchase or to settle by transferring assets, is
not a liability in accordance with the guidance provided in ASC Topic 480,
Distinguishing Liabilities from Equity.

Also, the Series A Preferred Stock has no redemption clause at
all, it is not a mezzanine equity (out of permanent equity) in accordance with
the requirement of ASC 480-10-S99.

The Series A Preferred Stock is not subject to redemption
(except on liquidation) and the holders of the Series A Preferred Stock are
entitled to vote together with common stock holders on an as-converted basis.
The Series A Preferred Stock, excluding the embedded conversion option, are
considered to be an equity instrument and accordingly, the embedded conversion
option has not been separated and accounted for as a derivative instrument
liability.

Common Stock Purchase Warrants

Series C Warrants

In conjunction with the issuance of the Series A Preferred
Stock, the Company issued Series C Warrants to the investors and the placement
agent in aggregate to purchase up to 617,008 shares and 371,493 shares of Common
Stock on June 7, 2010 and June 28, 2010, respectively, at an exercise price of
$3.40 per share issued and outstanding. The Series C Warrants have a term of
exercise expiring 3 years from the issuance date. The Series C Warrants at the
option of the holder, may be exercised by cash payment of the exercise price or,
the holder may satisfy its obligation to pay the exercise price through a
"cashless exercise."

The Company will not receive any additional proceeds to the
extent that the Series C Warrants are exercised by cashless exercise.

16

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14      SHAREHOLDERS EQUITY
(CONTINUED)

Common Stock Purchase Warrants (continued)

Series C Warrants (continued)

The exercise price and number of shares of Common Stock
issuable upon exercise of the Series C Warrants may be adjusted for: 1) upon
issuance of additional stock lower than the exercise price. 2) upon subdivision
or combination of common stocks 3) rights upon distribution of assets and other
dilutive events.

Accounting for Warrants

Series A and Series B Warrants issued to certain investors to
purchase 500,000 shares of the Companys common stock remained outstanding at
December 31, 2009 had a term of three years and exercise prices of $3.25 and
$4.00 per share, respectively. These warrants contain standard anti-dilution
provisions for stock dividends, stock splits, stock combination,
recapitalization and a change of control transaction. Because these warrants do
not contain any contingent exercise provisions and their settlement amount will
equal the difference between the fair value of a fixed number of the Companys
equity shares and a fixed strike price, these warrants, which are freestanding
instruments, qualify for the scope exception under the guidance provided in ASC
815-40-15-5 through 815-40-15-8, and are considered indexed to the Companys own
stock. Accordingly, Series A and Series B Warrants have been classified as
equity.

Since the Series C Warrants issued to the investors and the
placement agent in June 2010 contain reset exercise price provisions, the
Company had determined to classify these warrants as derivative liabilities. The
reset exercise provisions of the warrants issued to the investors and the
placement agent in June 2010 were recorded at their relative fair values at
issuance of $1,137,367 and will continue to be recorded at fair value at each
subsequent balance sheet date. Any change in value between reporting periods
will be recorded as other income (expense). These warrants will continue to be
reported as a liability until such time when they are exercised or expire. The
fair value of these warrants is estimated using Monte-Carlo simulation methods.

As of September 30, 2010, the fair value of these outstanding
Series C Warrants was determined to be $754,395, accordingly, the Company
recorded $382,972 in other income related to the change in the fair value of the
Series C Warrants. There is no cash flow impact for the warrant liability until
the Series C Warrants are exercised.

The following table presents a reconciliation of the warrant
liabilities measured at fair value on a recurring basis using significant
unobservable input (Level 2) from January 1, 2010 to September 30, 2010:

|                                          |   | Warrant liabilities |  
|----------------------------------------- | - | ------------------- | -
|Balance at January 1, 2010                | $ | -                   |  
|Issuance of warrants                      |   | 1,137,367           |  
|Change in fair value included in earnings |   | (131,088            | )
|Balance at June 30, 2010                  | $ | 1,006,279           |  
|Change in fair value included in earnings |   | (302,113            | )
|Balance at September 30, 2010             | $ | 704,166             |  

On May 27, 2010, the Company entered into an investor relations
agreement with a consultant in which the consultant would provide certain
consulting services to the Company for a term of one year. In exchange for the
consulting services provided, the consultant should receive (i) a cash fee of
$100,000 and (ii) 100,000 warrants (the IR Warrants) at an exercise price of
$3.80. The above 100,000 IR Warrants was issued on July 1, 2010. The grant-date
fair value of each of these IR warrants was estimated at $89,435 using
Black-Scholes valuation model.

17

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14      SHAREHOLDERS EQUITY
(CONTINUED)

Common Stock Purchase Warrants (continued)

Warrants issued and outstanding at September 30, 2010, and
changes during the nine months then ended, are as follows:

|                                                    |  |            |  |   | Weighted |  |  | Average          | 
|--------------------------------------------------- |  | ---------- |  | - | -------- |  |  | ---------------- | 
|                                                    |  | Number of  |  |   | Average  |  |  | Remaining        | 
|                                                    |  | underlying |  |   | Exercise |  |  | Contractual Life | 
|                                                    |  | shares     |  |   | Price    |  |  | (years)          | 
|                                                    |  |            |  |   |          |  |  |                  | 
|Outstanding at December 31, 2009                    |  | 500,000    |  | $ | 3.63     |  |  | 2.96             | 
|Granted                                             |  | 1,088,501  |  |   | 3.44     |  |  | 3.00             | 
|Forfeited                                           |  | -          |  |   | -        |  |  | -                | 
|Exercised                                           |  | -          |  |   | -        |  |  |                  | 
|Outstanding at September 30, 2010
      (Unaudited) |  | 1,588,501  |  | $ | 3.50     |  |  | 2.54             | 
|Exercisable at September 30, 2010 (Unaudited)       |  | 1,588,501  |  | $ | 3.50     |  |  | 2.54             | 

The market value of the Companys common stock at September 30,
2010 was $2.59. The outstanding warrants had no intrinsic value at September 30,
2010.

NOTE 15STATUTORY RESERVES

In accordance with the PRC Companies Law, the Companys PRC
subsidiaries were required to transfer 10% of their profits after tax, as
determined in accordance with accounting standards and regulations of the PRC,
to the statutory surplus reserve and a percentage of not less than 5%, as
determined by management, of the profits after tax to the public welfare fund.
However, the Companys PRC subsidiaries were not required to transfer any profit
after tax to the statutory surplus reserve only after the accumulated statutory
surplus reserves reached 50% of registered capital of the Companys PRC
subsidiaries. The statutory surplus reserve is non-distributable.

18

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16SHARE-BASED COMPENSATION

On January 1, 2010, the Company entered into a stock option
agreement with Mr. Daniel K. Lee (Mr. Lee), the then Chief Financial Officer
of the Company, under the Companys 2009 Equity Incentive Plan. Pursuant to the
terms of the Stock Option Agreement, Mr. Lee was granted options (the Options)
to purchase an aggregate 250,000 shares of common stock of the Company, among
which, an option to purchase 100,000 shares will be vested in 2011 with an
exercise price of $7.00 per share, an option to purchase 100,000 shares will be
vested in 2012 with an exercise price of $10.00 per share and an option to
purchase 50,000 shares will be vested in 2013 with an exercise price of $10.00
per share. Each of the Options expires three years after its respective vesting
date.

According to the Stock Option Agreement, in the event Mr. Lees
employment with the Company is terminated for any reason except for death or
disability, he may exercise the Options only to the extent that the Options
would have been exercisable on the termination date and no later than three
months after the termination date. If Mr. Lees employment is terminated because
of his death or disability, the Options may be exercised only to the extent that
such Options would have been exercisable by Mr. Lee on the termination date and
must be exercised by Mr. Lee no later than twelve months after the termination
date. If Mr. Lee is terminated for cause, the Options will terminate
immediately. In no event will the Options be exercised later than December 31,
2015.

On January 1, 2010, the Company also entered into a restricted
shares grant agreement (the Restricted Shares Grant Agreement) under the
Companys 2009 Equity Incentive Plan with Mr. Lee. Pursuant to the terms of the
Restricted Shares Grant Agreement, the Company granted to Mr. Lee 140,000
restricted shares of the Companys common stock subject to the vesting schedule
therein. If Mr. Lees service with the Company ceases for any reason other than
Mr. Lees (a) death, (b) Disability, (c) Retirement, or (d) termination by the
Company without cause, any nonvested restricted shares will be automatically
forfeited to the Company.

The Restricted Shares vest under the following schedule:

|Number of Shares | Vesting Date   
|---------------- | ---------------
|15,000           | January 1, 2010
|20,000           | April 1, 2010  
|35,000           | July 1, 2010   
|35,000           | January 1, 2011
|35,000           | July 1, 2011   

On May 5, 2010, Mr. Lee resigned as the Chief Financial Officer
and Treasurer of the Company, effectively immediately.

As a result of the resignation of Mr. Lee, his employment
agreement with the Company, dated November 16, 2009, the stock option agreement
with the Company, dated January 1, 2010, and the restricted shares grant
agreement with the Company, dated January 1, 2010 were terminated, effective on
May 5, 2010. In addition, upon his resignation, the unvested 105,000 restricted
shares and the unvested options to purchase 250,000 shares of the Companys
common stock granted to Mr. Lee were cancelled. No expense has been recognized
related to the Options which were forfeited because the requisite service for
the Options has not been rendered.

The Company recognizes compensation cost for an award with only
service conditions that has a graded vesting schedule on a straight-line basis
over the requisite service period for the entire award, provided that the
compensation cost recognized at any date must at least equal the portion of the
grant-date value of the award that is vested at that date. No compensation cost
is recognized for instruments that employees forfeit because a service condition
or a performance condition is not satisfied.

19

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16      SHARE-BASED
COMPENSATION (CONTINUED)

Accordingly, the Company recognized compensation expense of
$105,875, related to the restricted shares granted to Mr. Lee, which vested
before his resignation, for the nine months ended September 30, 2010, based on
the estimated grant-date fair value of $3.025 of the Companys common stock.

Before January 1, 2010, the Companys common stock had been
traded on a limited basis. The Company has determined the fair value of its
common stock as of January 1, 2010 based on the volume weighted average of the
fair value of the Companys common stock issued in the private placement of
shares and warrants to unaffiliated investors on December 17, 2009 and the
closing prices of Companys common stock traded during January 2010.

On July 16, 2010, the Company entered into a stock option
agreement with Mr. Robert Tick (Mr. Tick), the Chief Financial Officer of the
Company, under the Companys 2009 Equity Incentive Plan. Pursuant to the terms
of the Stock Option Agreement, Mr. Tick was granted options (the CFO Options)
to purchase an aggregate 150,000 shares of common stock of the Company,
consisting of, an option to purchase 75,000 shares that will vest in 2011 with
an exercise price of $5.00 per share, and an option to purchase 75,000 shares
that will vest in 2012 with an exercise price of $7.00 per share. Each of the
CFO Options expires three years after their respective vesting dates.

According to the Stock Option Agreement, in the event Mr.
Ticks employment with the Company is terminated for any reason except for death
or disability, he may exercise the CFO Options only to the extent that the CFO
Options would have been exercisable on the termination date and no later than
three months after the termination date. If Mr. Ticks employment is terminated
because of his death or disability, the CFO Options may be exercised only to the
extent that such CFO Options would have been exercisable by Mr. Tick on the
termination date and must be exercised by Mr. Tick no later than twelve months
after the termination date. If the employment is terminated for Cause as defined
in the Stock Option Agreement, the CFO Options will terminate immediately. In no
event will the CFO Options be exercised later than December 31, 2015.

Summary of CFO Options issued and outstanding at September 30,
2010 and the movements during the nine months then ended are as follows:

|                                                    |  |            |  |   |                |  |   |               |  |  | Average      | 
|--------------------------------------------------- |  | ---------- |  | - | -------------- |  | - | ------------- |  |  | ------------ | 
|                                                    |  |            |  |   | Weighted-      |  |   |               |  |  | Contractual  | 
|                                                    |  | Number of  |  |   | Average        |  |   | Aggregate     |  |  | Life         | 
|                                                    |  | underlying |  |   | Exercise Price |  |   | Intrinsic     |  |  | Remaining in | 
|                                                    |  | shares     |  |   | Per Share      |  |   | **Value (1)** |  |  | Years        | 
|                                                    |  |            |  |   |                |  |   |               |  |  |              | 
|Outstanding at December 31,
      2009              |  | -          |  | $ | -              |  | $ | -             |  |  | -            | 
|Granted                                             |  | 150,000    |  |   | 5.00           |  |   | -             |  |  | 5.50         | 
|Exercised                                           |  | -          |  |   | -              |  |   | -             |  |  | -            | 
|Expired                                             |  | -          |  |   | -              |  |   | -             |  |  | -            | 
|Forfeited                                           |  | -          |  |   | -              |  |   | -             |  |  | -            | 
|Outstanding at September 30, 2010
      (Unaudited) |  | 150,000    |  | $ | 5.00           |  | $ | -             |  |  | 5.25         | 
|Exercisable at
      September 30, 2010 (Unaudited) |  | -          |  | $ | -              |  | $ | -             |  |  | -            | 

|(1) | The market value of the Companys common stock at
      September 30, 2010 was $2.59. The outstanding CFO Options had no intrinsic
      value at September 30, 2010.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 16      SHARE-BASED
COMPENSATION (CONTINUED)

In accordance with the guidance provided in ASC Topic 718,
Stock Compensation, the compensation costs associated with these options are
recognized, based on the grant-date fair values of these options, over the
requisite service period, or vesting period. Accordingly the Company recognized
compensation expense of $5,472 for the nine months ended September 30, 2010.

On the same date, the Company also entered into a restricted
shares grant agreement (the "Restricted Shares Grant Agreement") under the
Companys 2009 Equity Incentive Plan with Mr. Tick. Pursuant to the terms of the
Restricted Shares Grant Agreement, the Company granted to Mr. Tick 150,000
restricted shares (the Restricted Shares) of the Companys common stock
subject to the vesting schedule therein. If Mr. Ticks service with the Company
ceases for any reason other than Mr. Ticks (a) death, (b) Disability, (c)
Retirement, or (d) termination by the Company without cause, any unvested
restricted shares will be automatically forfeited to the Company.

The Restricted Shares vest under the following schedule:

|Number of Shares | Vesting Date     
|---------------- | -----------------
|25,000           | December 31, 2010
|25,000           | June 30, 2011    
|25,000           | December 31, 2011
|25,000           | June 30, 2012    
|25,000           | December 31, 2012
|25,000           | June 30, 2013    

The Company recognizes compensation cost for an award with only
service conditions that has a graded vesting schedule on a straight-line basis
over the requisite service period for the entire award, provided that the
compensation cost recognized at any date must at least equal the portion of the
grant-date value of the award that is vested at that date. No compensation cost
is recognized for instruments that employees forfeit because a service condition
or a performance condition is not satisfied.

Accordingly, the Company recognized compensation expense of
$31,667, related to the restricted shares granted to Mr. Tick for the nine
months ended September 30, 2010, based on the estimated grant-date fair value of
the Companys common stock of $3.00.

21

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17EARNINGS
PER SHARE

The following table is a reconciliation of the net income and
the weighted average shares used in the computation of basic and diluted
earnings per share for the periods presented:

|                                                                         |   | For the three months |   |   | For the nine months | 
|------------------------------------------------------------------------ | - | -------------------- | - | - | ------------------- | 
|                                                                         |   | Ended September 30,  |   |   | Ended September 30, | 
|                                                                         |   | 2010                 |   |   | 2009                | 
|                                                                         |   | (Unaudited)          |   |   | (Unaudited)         | 
|Income available to common shareholders:                                 |   |                      |   |   |                     | 
|- Net income                                                             | $ | 4,066,194            |   | $ | 2,029,054           | 
|Less: Preferred stock dividend                                           |   | (83,716              | ) |   | -                   | 
|Less: Beneficial conversion feature of convertible
      preferred stock |   | -                    |   |   | -                   | 
|Income available to common shareholders
      (Basic)                    | $ | 3,982,478            |   | $ | 2,029,054           | 
|Add: Preferred stock dividend                                            |   | 83,716               |   |   | -                   | 
|Income available to common shareholders
      (Diluted)                  | $ | 4,066,194            |   |   | 2,029,054           | 
|                                                                         |   |                      |   |   |                     | 
|Weighted average number of shares:                                       |   |                      |   |   |                     | 
|- Basic                                                                  |   | 14,332,731           |   |   | 13,297,731          | 
|- Effect of diluted convertible preferred
      stock                    |   | 1,977,060            |   |   | -                   | 
|- Effect of dilutive warrants, options and restricted stock
      units  |   | 125,543              |   |   | -                   | 
|- Diluted                                                                |   | 16,435,334           |   |   | 13,297,731          | 
|                                                                         |   |                      |   |   |                     | 
|Net income per share                                                     |   |                      |   |   |                     | 
|- Basic                                                                  | $ | 0.28                 |   | $ | 0.15                | 
|- Diluted                                                                | $ | 0.25                 |   | $ | 0.15                | 

As discussed in Note 1, the Company effected a 1-for-114.59
Reverse Split of its common stock. The weighted average number of shares for the
purposes of calculating the earnings per share has been retroactively adjusted
as if the Reverse Split took effect as of the beginning of the earliest period
presented.

Diluted earnings per share is calculated by adjusting the
weighted average number of common shares outstanding to assume conversion of all
dilutive potential common shares.

The diluted earnings per share calculation for the three months
ended September 30, 2010 did not include the warrants and CFO options to
purchase up to 1,588,501 and 150,000 shares of common stock respectively,
because their effect was anti-dilutive.

The diluted earnings per share calculation for the nine months
ended September 30, 2010 did not include the warrants and CFO options to
purchase up to 350,000 and 150,000 shares of common stock respectively and the
effect of convertible preferred stock, because their effect was anti-dilutive.

22

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18INCOME
TAXES

The Companys PRC subsidiaries are subject to PRC enterprise
income tax (EIT). Before January 1, 2008, the PRC EIT rate was generally 33%.
In March 2007, the PRC government enacted a new PRC Enterprise Income Tax Law,
or the New EIT Law, and promulgated, Implementation Regulations for the PRC
Enterprise Income Tax Law. The New EIT Law and Implementation Regulations became
effective January 1, 2008. The NEW EIT Law, among other things, imposes a
unified income tax rate of 25% for both domestic and foreign invested
enterprises registered in the PRC.

The New EIT Law provides a grandfathering on tax holidays which
were granted under the then effective tax laws and regulations. Therefore, one
of the Company's subsidiaries, Daqing Shuaiyi, being engaged in growing and
sales of agricultural products, has continued to be entitled to a preferential
tax treatment: an EIT holiday for each of the two years ended December 31, 2006
and 2007 and a 50% reduction on the EIT rate for each of the three years ended
December 31, 2008, 2009 and 2010.

Harbin Shuaiyi has been subject to an EIT rate of 25% for the
years ended December 31, 2010 and 2009.

No provision for other overseas taxes is made as neither
Nutrastar or New Resources has any taxable income in the U.S. or British Virgin
Islands, respectively.

The Companys income tax expense consisted of:

|                         |   | For the Three Months |   |   | For the Nine Months |  
|------------------------ | - | -------------------- | - | - | ------------------- | -
|                         |   | Ended September 30,  |   |   | Ended September 30, |  
|                         |   | 2010                 |   |   | 2009                |  
|                         |   | (Unaudited)          |   |   | (Unaudited)         |  
|                         |   |                      |   |   |                     |  
|Current income tax  PRC | $ | (605,967             | ) | $ | (340,056            | )
|Deferred                 |   | -                    |   |   | -                   |  
|                         |   |                      |   |   |                     |  
|Income tax expenses      | $ | (605,967             | ) | $ | (340,056            | )

A reconciliation of the provision for income taxes determined
at the local income tax to the Companys effective income tax rate is as
follows:

|                                                      |   | Ended September 30, |   |   | Ended September 30, |  
|----------------------------------------------------- | - | ------------------- | - | - | ------------------- | -
|                                                      |   | 2010                |   |   | 2009                |  
|                                                      |   | (Unaudited)         |   |   | (Unaudited)         |  
|                                                      |   |                     |   |   |                     |  
|Pre-tax income                                        | $ | 4,672,161           |   | $ | 2,369,110           |  
|                                                      |   |                     |   |   |                     |  
|United States federal corporate income tax
      rate |   | 34%                 |   |   | 34%                 |  
|Income tax computed at United States statutory        |   |                     |   |   |                     |  
|Corporate income tax rate                             |   | (1,588,535          | ) |   | (805,497            | )
|Impact of tax holiday of Daqing Shuaiyi               |   | 589,954             |   |   | 301,697             |  
|Loss not recognized as deferred tax assets            |   | (43,540             | ) |   | (15,466             | )
|Change in fair value of warrants                      |   | 102,718             |   |   | -                   |  
|Rate differential for PRC earnings                    |   | 341,973             |   |   | 212,279             |  
|Non-deductible expenses and non-taxable income        |   | (8,537              | ) |   | (33,069             | )
|                                                      |   |                     |   |   |                     |  
|Effective tax (expense) benefit                       | $ | (605,967            | ) | $ | (340,056            | )

23

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18      INCOME TAXES
(CONTINUED)

The Company had deferred tax assets as follows:

|                                     |   | September 30 |   |   | December 31 |  
|------------------------------------ | - | ------------ | - | - | ----------- | -
|                                     |   | 2010         |   |   | 2009        |  
|                                     |   | (Unaudited)  |   |   |             |  
|                                     |   |              |   |   |             |  
|Net operating losses carried forward | $ | 292,170      |   | $ | 355,212     |  
|Less: Valuation allowance            |   | (292,170     | ) |   | (355,212    | )
|Net deferred tax assets              | $ | -            |   | $ | -           |  

As of September 30, 2010 and December 31, 2009, the Company had
$ 859,323 and $1,044,740, net operating loss carryforwards available to reduce
future taxable income which will expire in various years through 2029. It is
more-likely-than-not that the deferred tax assets cannot be utilized in the
future because there will not be significant future earnings from the entity
which generated the net operating loss. Therefore, the Company recorded a full
valuation allowance on its deferred tax assets.

As of September 30, 2010 and December 31, 2009, the Company has
no material unrecognized tax benefits which would favorably affect the effective
income tax rate in future periods and does not believe that there will be any
significant increases or decreases of unrecognized tax benefits within the next
twelve months. No interest or penalties relating to income tax matters have been
imposed on the Company during the nine month periods ended September 30, 2010
and 2009, and no provision for interest and penalties is deemed necessary as of
September 30, 2010 and December 31, 2009.

According to the PRC Tax Administration and Collection Law, the
statute of limitations is three years if the underpayment of taxes is due to
computational errors made by the taxpayer or its withholding agent. The statute
of limitations extends to five years under special circumstances, which are not
clearly defined. In the case of a related party transaction, the statute of
limitation is ten years. There is no statute of limitation in the case of tax
evasion.

24

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19RELATED
PARTY TRANSACTIONS

|(a) | Due from(to) related
parties
|--- | ----------------------------

|                                                                            |   | September 30 |  |   | December 31 | 
|--------------------------------------------------------------------------- | - | ------------ |  | - | ----------- | 
|                                                                            |   | 2010         |  |   | 2009        | 
|                                                                            |   | (Unaudited)  |  |   |             | 
|                                                                            |   |              |  |   |             | 
|Due to related parties:                                                     |   |              |  |   |             | 
|Due to Ms. Lianyun Han, Chairperson, CEO and President of
      the Company | $ | 50,738       |  | $ | 49,794      | 

The amount due to Ms. Lianyun Han was non-interest bearing,
unsecured and without fixed repayment date.

|(b) | Acquisition payable
|--- | -------------------

The acquisition payable arose from the Equity Transfer
Agreement which formed part of the restructuring of Heilongjiang Shuaiyi in July
2008, pursuant to which New Resources acquired 100% equity interest in
Heilongjiang Shuaiyi from Ms. Lianyun Han, Chairperson, CEO and President of the
Company, and other individual shareholders (collectively the Shuaiyi
Founders).

As part of the restructuring plan, Heilongjiang Shuaiyi entered
into separate loan agreements dated December 8, 2008, as amended on February 12,
2009, and promissory notes with the Shuaiyi Founders, pursuant to which, the
Shuaiyi Founders have agreed to lend to Heilongjiang Shuaiyi a loan in the
aggregate amount of RMB60,000,000 (approximately $8.8 million, Subordinated
Loan). The amount of the Subordinated Loan exactly equals to the transfer price
payable to the Shuaiyi Founders by New Resources for the acquisition of
Heilongjiang Shuaiyi in compliance with regulatory requirements of the PRC. The
Subordinated Loan ranks behind all other debts of Heilongjiang Shuaiyi, bears no
interest and is only repayable after 10 years, in successive equal yearly
payments beginning on the tenth anniversary of the Notes, December 8, 2018, and
within the first month of each year thereafter. The final payment will be due on
January 1, 2028.

According to the PRC rules and regulations, New Resources is
required to settle the transfer price for acquisition of Heilongjiang Shuaiyi by
way of remittance of the RMB60,000,000 to Shuaiyi Founders within three months
from the issue of the new business license. However, New Resources has obtained
the approval of the relevant business bureau for the extension of the time to
one year until December 1, 2009. On January 4, 2010, the relevant PRC regulatory
agency further extended the payment due date to June 30, 2010. On July 12, 2010,
the relevant PRC regulatory agency further extended the payment due date to
December 31, 2010. As of September 30, 2010, New Resources had only paid $50,269
of the transfer price and, accordingly, the corresponding Subordinated Loan has
not been drawn yet. The acquisition payable due to the Shuaiyi Founders
comprised:

|                                                                                               |   | September 30 |  |   | December 31 | 
|---------------------------------------------------------------------------------------------- | - | ------------ |  | - | ----------- | 
|                                                                                               |   | 2010         |  |   | 2009        | 
|                                                                                               |   | (Unaudited)  |  |   |             | 
|                                                                                               |   |              |  |   |             | 
|Ms. Lianyun Han, Chairperson, CEO and
      President of the Company                           | $ | 6,064,204    |  | $ | 5,951,326   | 
|Ms. Nana Jiang                                                                                 |   | 283,834      |  |   | 278,551     | 
|Mr. Chunming Zhang , director of the
      Company                                             |   | 358,150      |  |   | 351,484     | 
|Mr. Weihan Zhang, director of a subsidiary of the Company
      and the son of Ms. Lianyun Han |   | 447,688      |  |   | 439,354     | 
|Family members of Ms. Lianyun Han                                                              |   | 895,376      |  |   | 878,708     | 
|Ms. Yuehong Luan                                                                               |   | 417,245      |  |   | 409,478     | 
|Other Shuaiyi Founders                                                                         |   | 436,048      |  |   | 427,932     | 
|Total                                                                                          | $ | 8,902,545    |  | $ | 8,736,833   | 

See Note 23 for the restructuring of the equity interest in
Heilongjiang Shuaiyi consummated in October 2010.

25

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19      RELATED PARTY
TRANSACTIONS (CONTINUED)

|(c) | Purchase of goods
|--- | -----------------

For the nine months ended September 30, 2010 and 2009, the
Company purchased rice amounting to $Nil and $655,099, respectively, from
Heilongjiang Shuaiyi Technology Development Co., Ltd. (Shuaiyi Technology).
Shuaiyi Technology and the Company are under common control and management.

|(d) | Lease of land
|--- | -------------

For the nine months ended September 30, 2010 and 2009, the
Company paid rental expense of $6,776 and $6,751 for land to Shuaiyi Technology.

NOTE 20CONCENTRATION OF CREDIT RISK

As of September 30, 2010 and December 31, 2009, 100% of the
Companys cash included cash on hand and deposits in accounts maintained within
the PRC where there is currently no rule or regulation in place for obligatory
insurance to cover bank deposits in the event of bank failure. However, the
Company has not experienced any losses in such accounts and believes it is not
exposed to any risks on its cash in bank accounts.

For the nine months ended September 30, 2010 and 2009, all of
the Companys sales arose in the PRC. In addition, all accounts receivable as of
September 30, 2010 and December 31, 2009 also arose in the PRC.

Except for one customer who accounted for 34% of the Companys
revenue for the nine months ended September 30, 2010, there was no other single
customer who accounted for more than 10% of the Companys revenue for either the
nine months ended September 30, 2010 or 2009.

As of September 30, 2010, six customers accounted for 23%, 21%,
19%, 11%, 10% and 10% of total accounts receivable of the Company. As of
December 31, 2009, five customers accounted for 18%, 13%, 12%, 12% and 12% of
accounts receivable of the Company. Except as disclosed, no other customer
accounted for 10% or more of the Companys accounts receivable as of September
30, 2010 or December 31, 2009.

26

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21COMMITMENTS AND CONTINGENCIES

|(a) | Operating leases
|--- | ----------------

The Company has entered into tenancy agreements for the leases
of an exhibition hall and land with a third party and a related company, Shuaiyi
Technology (see 19(d)), respectively, for the purposes of the operation of its
subsidiaries. The Companys commitments for minimum lease payments under these
operating leases for the next five years and thereafter as of September 30, 2010
are as follows:

|                                                        |   | (Unaudited) | 
|------------------------------------------------------- | - | ----------- | 
|                                                        |   |             | 
|Remainder of fiscal year ending December
      31, 2010 | $ | 8,114       | 
|Fiscal year ending December 31, 2011                    |   | 9,178       | 
|Fiscal year ending December 31, 2012                    |   | 9,178       | 
|Fiscal year ending December 31, 2013                    |   | 9,178       | 
|Fiscal year ending December 31, 2014                    |   | 9,178       | 
|Thereafter                                              |   | 119,309     | 
|Total                                                   | $ | 164,135     | 

|(b) | PRC employee costs
|--- | ------------------

According to the prevailing laws and regulations of the PRC,
the Companys subsidiaries in the PRC are required to cover its employees with
medical, retirement and unemployment insurance programs. Management believes
that due to the transient nature of its employees, they do not need to provide
all employees with such social insurances, and have not paid the social
insurances for all employees.

In the event that any current or former employee files a
complaint with the PRC government, the Company's subsidiaries may be subject to
making up the social insurances as well as administrative fines. As the Company
believes that these fines would not be material, no provision has been made in
this regard.

|(c) | Transfer price for equity interest in Heilongjiang
      Shuaiyi
|--- | ----------------------------------------------------------------

On July 28, 2008, the Companys subsidiary, New Resources
entered into an equity transfer agreement with the Shuaiyi Founders to acquire
all of their equity interests in Heilongjiang Shuaiyi for RMB60,000,000
(approximately $8.8 million). A new business license was issued to Heilongjiang
Shuaiyi on December 1, 2008. According to PRC merger and acquisition rules, the
equity interest transfer price should be paid in full within three months
commencing from the issuance of the new business license to Heilongjiang
Shuaiyi. If the transfer price is not paid by this date, the Company may apply
to the relevant PRC business bureau for an extension of up to one year from the
date of the issuance of the license; provided, however, that 60% of the transfer
price will be required to be paid within six months from such date. However, if
the Company is unable to make the payment for the transfer price by the March 1,
2009 or extended deadline and the relevant PRC business bureau does not grant
the Company additional time to make the payment, the Company may be subject to
fines or penalties imposed by the PRC business bureau. In addition, the Company
may not be permitted to exercise any decision-making rights as a shareholder in
Heilongjiang Shuaiyi or to consolidate Heilongjiang Shuaiyi's financial results
into the Companys financial statements.

On March 10, 2009, New Resources obtained the approval from the
relevant PRC business bureau for the extension of time allowed for the payment
of the transfer price to one year until December 1, 2009. On January 4, 2010,
the relevant PRC regulatory agency further extended the payment due date to June
30, 2010. On July 12, 2010, the relevant PRC regulatory agency further extended
the payment due date to December 31, 2010.

See Note 23 for the restructuring of the equity interest in
Heilongjiang Shuaiyi consummated in October 2010.

27

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22SEGMENT
INFORMATION

The Company operates in two business segments identified by
product, Chinese Golden Grass and other agricultural products. The Chinese
Golden Grass segment consists of the growing and sales of Chinese Golden Grass,
which business is conducted through the Companys subsidiary, Daqing Shuaiyi.
The other agricultural products segment consists of the sales of rice, flour and
silage corn etc, agricultural products which business is mainly conducted
through the Companys subsidiary, Harbin Shuaiyi.

Throughout the nine months ended September 30, 2010 and 2009,
all of the Companys operations were carried out in one geographical segment -
China.

The Companys segment revenue and results for the nine months
ended September 30, 2010 and 2009 are as follows:

|                                           |   |              |  |   | Other        |  |   |             |   |   |              | 
|------------------------------------------ | - | ------------ |  | - | ------------ |  | - | ----------- | - | - | ------------ | 
|                                           |   | Chinese      |  |   | Agricultural |  |   | Corporate   |   |   |              | 
|Nine months
      ended September 30, 2010 |   | Golden Grass |  |   | Products     |  |   | unallocated |   |   | Consolidated | 
|                                           |   | (Unaudited)  |  |   | (Unaudited)  |  |   | (Unaudited) |   |   | (Unaudited)  | 
|                                           |   |              |  |   |              |  |   |             |   |   |              | 
|Segment revenue from external customers    | $ | 15,379,058   |  | $ | 1,309,012    |  | $ | -           |   | $ | 16,688,070   | 
|                                           |   |              |  |   |              |  |   |             |   |   |              | 
|Segment profit (loss)                      | $ | 12,126,991   |  | $ | 89,897       |  | $ | (462,640    | ) | $ | 11,754,248   | 
|Income from operations before income taxes |   |              |  |   |              |  |   |             |   | $ | 11,754,248   | 
|                                           |   |              |  |   |              |  |   |             |   |   |              | 
|Segment assets                             | $ | 37,220,661   |  | $ | 1,205,791    |  | $ | 11,736,955  |   | $ | 50,163,407   | 
|Total assets                               |   |              |  |   |              |  |   |             |   | $ | 50,163,407   | 
|Other segment information:                 |   |              |  |   |              |  |   |             |   |   |              | 
|Depreciation and amortization              | $ | 754,176      |  | $ | 4,412        |  | $ | 2,924       |   | $ | 761,512      | 
|Expenditure for segment assets             | $ | 9,213        |  | $ | -            |  | $ | 771         |   | $ | 9,984        | 

|                                           |   |              |  |   | Other        |  |   |              |   |   |              | 
|------------------------------------------ | - | ------------ |  | - | ------------ |  | - | ------------ | - | - | ------------ | 
|                                           |   | Chinese      |  |   | Agricultural |  |   | Corporate    |   |   |              | 
|Nine months
      ended September 30, 2009 |   | Golden Grass |  |   | Products     |  |   | unallocated  |   |   | Consolidated | 
|                                           |   | (Unaudited)  |  |   | (Unaudited)  |  |   | (Unaudited)) |   |   | (Unaudited)  | 
|                                           |   |              |  |   |              |  |   |              |   |   |              | 
|Segment revenue from external customers    | $ | 8,696,141    |  | $ | 2,853,103    |  | $ | -            |   | $ | 11,549,244   | 
|                                           |   |              |  |   |              |  |   |              |   |   |              | 
|Segment profit (loss)                      | $ | 6,287,874    |  | $ | 578,505      |  | $ | (231,992     | ) | $ | 6,634,387    | 
|Income from operations before income taxes |   |              |  |   |              |  |   |              |   | $ | 6,634,387    | 
|                                           |   |              |  |   |              |  |   |              |   |   |              | 
|Segment assets                             | $ | 25,239,717   |  | $ | 1,182,395    |  | $ | 3,359,748    |   | $ | 29,781,860   | 
|Total assets                               |   |              |  |   |              |  |   |              |   | $ | 29,781,860   | 
|Other segment information:                 |   |              |  |   |              |  |   |              |   |   |              | 
|Depreciation and amortization              | $ | 748,444      |  | $ | 5,889        |  | $ | 2,063        |   | $ | 756,396      | 
|Expenditure for segment assets             | $ | 878,207      |  | $ | -            |  | $ | -            |   | $ | 878,207      | 

28

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22      SEGMENT INFORMATION
(CONTINUED)

|                                            |   |              |  |   | Other        |  |   |             |   |   |              | 
|------------------------------------------- | - | ------------ |  | - | ------------ |  | - | ----------- | - | - | ------------ | 
|                                            |   | Chinese      |  |   | Agricultural |  |   | Corporate   |   |   |              | 
|Three months
      ended September 30, 2010 |   | Golden Grass |  |   | Products     |  |   | unallocated |   |   | Consolidated | 
|                                            |   | (Unaudited)  |  |   | (Unaudited)  |  |   | (Unaudited) |   |   | (Unaudited)  | 
|                                            |   |              |  |   |              |  |   |             |   |   |              | 
|Segment revenue from external customers     | $ | 6,070,466    |  | $ | 391,057      |  | $ | -           |   | $ | 6,461,523    | 
|                                            |   |              |  |   |              |  |   |             |   |   |              | 
|Segment profit (loss)                       | $ | 4,732,660    |  | $ | 16,872       |  | $ | (77,371     | ) | $ | 4,672,161    | 
|Income from operations before income taxes  |   |              |  |   |              |  |   |             |   | $ | 4,672,161    | 
|                                            |   |              |  |   |              |  |   |             |   |   |              | 
|Segment assets                              | $ | 37,220,661   |  | $ | 1,205,791    |  | $ | 11,736,955  |   | $ | 50,163,407   | 
|Total assets                                |   |              |  |   |              |  |   |             |   | $ | 50,163,407   | 
|                                            |   |              |  |   |              |  |   |             |   |   |              | 
|Other segment information:                  |   |              |  |   |              |  |   |             |   |   |              | 
|Depreciation and amortization               | $ | 503,713      |  | $ | 2,952        |  | $ | 1,955       |   | $ | 508,620      | 
|Expenditure for segment assets              | $ | 4,687        |  | $ | -            |  | $ | -           |   | $ | 4,687        | 

|                                            |   |              |  |   | Other        |  |   |             |   |   |              | 
|------------------------------------------- | - | ------------ |  | - | ------------ |  | - | ----------- | - | - | ------------ | 
|                                            |   | Chinese      |  |   | Agricultural |  |   | Corporate   |   |   |              | 
|Three months
      ended September 30, 2009 |   | Golden Grass |  |   | Products     |  |   | unallocated |   |   | Consolidated | 
|                                            |   | (Unaudited)  |  |   | (Unaudited)  |  |   | (Unaudited) |   |   | (Unaudited)  | 
|                                            |   |              |  |   |              |  |   |             |   |   |              | 
|Segment revenue from external customers     | $ | 3,257,025    |  | $ | 308,936      |  | $ | -           |   | $ | 3,565,961    | 
|                                            |   |              |  |   |              |  |   |             |   |   |              | 
|Segment profit (loss)                       | $ | 2,415,268    |  | $ | 19,468       |  | $ | (65,626     | ) | $ | 2,369,110    | 
|Income from operations before income taxes  |   |              |  |   |              |  |   |             |   | $ | 2,369,110    | 
|                                            |   |              |  |   |              |  |   |             |   |   |              | 
|Segment assets                              | $ | 25,239,716   |  | $ | 1,182,396    |  | $ | 3,359,748   |   | $ | 29,781,860   | 
|Total assets                                |   |              |  |   |              |  |   |             |   | $ | 29,781,860   | 
|                                            |   |              |  |   |              |  |   |             |   |   |              | 
|Other segment information:                  |   |              |  |   |              |  |   |             |   |   |              | 
|Depreciation and amortization               | $ | 248,862      |  | $ | 1,962        |  | $ | 688         |   | $ | 251,512      | 
|Expenditure for segment assets              | $ | 878,349      |  | $ | -            |  | $ | -           |   | $ | 878,349      | 

NOTE 23      SUBSEQUENT EVENTS

|(a) | On October 5, 2010, the Company entered into separate
      independent director contracts (the "Director Contracts") and
      indemnification agreements (the "Indemnification Agreements") with each of
      its newly elected independent directors. Pursuant to the Director
      Contracts, the Company granted, under the Companys 2009 Equity Incentive
      Plan, a total of 90,000 restricted shares (together, the "Restricted
      Shares"), as compensation for the services to be provided by them as
      independent directors. Under the terms of the Indemnification Agreements,
      the Company agreed to indemnify the Independent Directors against
      expenses, judgments, fines, penalties or other amounts actually and
      reasonably incurred by the Independent Directors in connection with any
      proceeding if the Independent Directors acted in good faith and in the
      best interests of the Company. The Restricted Shares will vest in equal
      installments on a semi-annual basis over a two-year
  period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23      SUBSEQUENT EVENTS
(CONTINUED)

|(b) | Also on October 5, 2010, the Company entered into an
      indemnification agreement with its chief financial officer (the CFO)
      pursuant to which the Company agreed to indemnify the CFO against
      expenses, judgments, fines, penalties or other amounts actually and
      reasonably incurred by the CFO in connection with any proceeding if the
      CFO acted in good faith and in the best interests of the
Company.                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(c) | On October 22, 2010, New Resources, a wholly-owned
      British Virgin Islands subsidiary of the Company, entered into an equity
      transfer agreement with the Shuaiyi Founders of Heilongjiang Shuaiyi,
      pursuant to which New Resources transferred all of its equity interests in
      Heilongjiang Shuaiyi, a wholly-owned Chinese subsidiary of New Resources,
      to Shuaiyi Founders for free (the Equity Transfer).                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | In connection with the Equity Transfer, the Shuaiyi
      Founders, the Companys indirectly wholly-owned Chinese subsidiary
      incorporated on July 13, 2010 , Harbin Baixin Biotech Development Co.,
      Ltd. (Harbin Baixin) and Heilongjiang Shuaiyi entered into the following
      commercial arrangements (the Contractual Arrangement and together with
      the Equity Transfer, the Restructuring), pursuant to which the Company
      has contractual rights to control and operate the businesses of
      Heilongjiang Shuaiyi and Heilongjiang's two Chinese subsidiaries, Daqing
      Shuaiyi and Harbin Shuaiyi and together with Heilongjiang Shuaiyi and
      Daqing Shuaiyi, the VIEs:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

30

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23      SUBSEQUENT EVENTS
(CONTINUED)

On October 22, 2010, the Company consummated the Restructuring
as contemplated by the Restructuring Documents and as a result, the Shuaiyi
Founders obtained all of the Companys indirect equity interests in the VIEs.
Also on October 22, 2010, Heilongjiang Shuaiyi entered into a termination
agreement with each of the Shuaiyi Founders, pursuant to which, the loan
agreement and the promissory note, dated December 8, 2008, as amended (the Loan
Agreement), was terminated and the parties have no further obligations and
rights under the Loan Agreement. As a result of the Restructuring, the Company
is no longer obligated for the outstanding acquisition payable of $8.9 million.

31

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

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that are based on the beliefs of our
management, and involve risks and uncertainties, as well as assumptions, that, if they ever materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The words
“believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to
identify forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities;
statements regarding market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of
management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; and any statements of belief or intention. As such, they are subject to risks and
uncertainties that could cause our results to differ materially from those expressed or implied by such forward looking statements. Such risks and uncertainties include any of the factors and risks mentioned in the “Risk Factors”
sections of the Quarter Report and our Annual Report on Form 10-K for the year ended December 31, 2009 and subsequent SEC filings, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this
report are based on information available to us on the date of this report. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

Certain Terms

Except as otherwise indicated by the context,

- “BVI” refers to the British Virgin Islands;
- “China,” “Chinese” and “PRC,” refer to the People’s Republic of China;
- “Daqing Shuaiyi” refers to Daqing Shuaiyi Biotech Co., Ltd., our indirect wholly-owned subsidiary at September 30,2010, a Chinese company;
- “Exchange Act” refers to the Securities Exchange Act of 1934, as amended.
- “Harbin Baixin” refers to Harbin Baixin Biotech Development Co., Ltd., our indirect, wholly-owned subsidiary, a Chinese company;
- “Harbin Shuaiyi” refers to Harbin Shuaiyi Green & Specialty Food Trading LLC, our indirect wholly-owned subsidiary at September 30,2010, a Chinese company;
- “Heilongjiang Shuaiyi” refers to Heilongjiang Shuaiyi New Energy Development Co., Ltd. our indirect wholly-owned subsidiary at September 30,2010, a Chinese company;
- “New Resources” refers to New Zealand WAYNE’s New Resources Development Co., Ltd., our direct, wholly-owned subsidiary, a BVI company;
- “Nutrastar,” “we,” “us,” “our company” and “our” refer to the combined business of Nutrastar International Inc., a Nevada corporation, and / or its consolidated subsidiaries as of September
30,2010, as the case may be;
- “Oriental Global” refers to Oriental Global Holdings Limited, our indirect, wholly-owned subsidiary, a Hong Kong company;
- “Renminbi” and “RMB” refer to the legal currency of China;
- “SEC” refers to the United States Securities and Exchange Commission;
- “Securities Act” refers to the Securities Act of 1933, as amended; and
- “U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States.

Effective May 19, 2009, we implemented a 1-for-114.59 reverse stock split of issued and outstanding shares of our common stock. Except where specifically indicated, all common share information (including information related to warrants to purchase
common stock) has been restated to reflect the 1-for-114.59 reverse split.

32

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Overview of Our Business

We are a holding company that operates through our indirect wholly-owned subsidiary at September 30, 2010, or VIE, Heilongjiang Shuaiyi, a leading producer and supplier of premium Traditional Chinese Medicine (“TCM”) consumer products
including commercially cultivated Cordyceps Militaris, or “Chinese Golden Grass” in China. We specialize in developing, processing, marketing and distributing a variety of premium branded TCM consumer products consisting of Chinese
Golden Grass and functional health beverages featuring Chinese Golden Grass as a core ingredient. We also markets and distributes organic and specialty food agricultural and nutraceutical products.

Our primary product is Chinese Golden Grass, also known as Cordyceps Militaris. Cordyceps Militaris is a species of parasitic fungus that is typically found in high mountainous areas of China. It is a precious ingredient in TCM, as Cordyceps
Militaris is widely believed in China to offer high medical and health benefits by nourishing the yin,boosting the yang,and invigorating the meridians of the lungs, livers and kidneys. Through several years of laboratory tests, we
developed the technology to commercially grow and produce Cordyceps Militaris in 2006. We generated 93.9% and 91.3% of our revenues from Chinese Golden Grass for the three months ended September 30, 2010 and 2009, respectively. We believe that we
own 19% of the market share in the cultivated Chinese Golden Grass industry. We plan to continue to focus on premium branded TCM consumer products featuring Chinese Golden Grass, which is our fastest growing product line with the greatest market
demand and a significantly high profit margin.

We also sell organic and specialty food products through our VIE, Harbin Shuaiyi, which was formed in 2001. After years of development, we believe that we have become the largest wholesale distributor of organic and specialty food in Heilongjiang
Province, China.

Third Quarter Financial Performance Highlights

We continued to experience strong demand for our products and services during the third quarter of 2010, which resulted in continued growth in our revenues and net income.

The following are some financial highlights for the third quarter of 2010:

- Revenues: Our revenues were approximately $6.46 million for the third quarter of 2010, an increase of 81.2% from the same quarter of last year.
- Gross Margin: Gross margin was 81.8% for the third quarter of 2010, as compared to 77.8% for the same period in 2009.
- Operating Profit: Operating profit was approximately $4.43 million for the third quarter of 2010, an increase of 88.3% from $2.35 million of the same period last year.
- Net Income: Net income was approximately $4.07 million for the third quarter of 2010, an increase of 100.4% from the same period of last year.
- Fully diluted earnings per share was $0.25 for the third quarter of 2010.

Recent Development

On October 5, 2010, we elected Mr. Henry Ngan, Ms. Virginia P’an and Mr. Jianbing Zhong as directors of the Company. Our board of directors determined that each newly elected director is an "independent director" as defined by Rule 5605(a)(2)
of the NASDAQ Listing Rules. Each newly elected director was also appointed to the newly established Audit Committee, Compensation Committee and Governance and Nominating Committee of the board of directors. Mr. Ngan was appointed as the Chair of
the Audit Committee, Ms. P’an was appointed as the Chair of the Compensation Committee and Mr. Zhong was appointed as the Chair of the Governance and Nominating Committee.

On the same day, we entered into separate independent director contracts and indemnification agreements with each of the new directors pursuant to which we granted, under the Company’s 2009 Equity Incentive Plan, to Mr. Ngan 40,000 restricted
shares of our common stock, to Ms. P’an 30,000 restricted shares and to Mr. Zhong 20,000 restricted shares, as compensation for the services to be provided by them as our
independent directors. For additional information regarding the appointment of
our independent directors, please see our current report on Form 8-K filed on
October 8, 2010 and the exhibits attached thereto.

33

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On October 22, 2010, our subsidiary, New Resources, entered
into an equity transfer agreement with nine original shareholders, or the
Founders, of Heilongjiang Shuaiyi, pursuant to which New Resources transferred
all of its equity interests in Heilongjiang Shuaiyi back to the Founders. As a
result, the equity transfer agreement between New Resources and the Founders,
dated July 28, 2008, was terminated and New Resources obligations to pay off
the transfer price for the equity interest in Heilongjiang Shuaiyi to the
Founders were discharged. In connection with the equity transfer, the Founders,
Harbin Baixin and Heilongjiang Shuaiyi also entered into a series of commercial
arrangements, pursuant to which we obtained contractual rights to control and
operate the businesses of Heilongjiang Shuaiyi and its subsidiaries, or
collectively, the VIEs, indirectly through Harbin Baixin. We, accordingly,
became the primary beneficiary of the VIEs. As a result, we are allowed to
consolidate the financial results of the VIEs into our consolidated financial
statements under Financial Accounting Standards Board Accounting Standard
Codification (ASC) Topic 810 and related subtopics related to the consolidation
of variable interest entities. For more detailed information regarding the
equity transfer and the commercial arrangements, please see our current report
on Form 8-K filed on October 28, 2010 and the exhibits attached thereto. In
connection with the Equity Transfer, a series of contractual arrangements have
been made by the parties, pursuant to which the Company has contractual rights
to control and manage the business of the VIEs indirectly through Harbin Baixin.

On October 22, 2010, Heilongjiang Shuaiyi entered into a
termination agreement with each of the Founders, pursuant to which, the loan
agreement and the promissory note, dated December 8, 2008, as amended, or the
Loan Agreement, was terminated and the parties have no further obligations and
rights under the Loan Agreement.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2010 Compared to Three
Months Ended September 30, 2009

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

|                                       |  | Three Months Ended |   |  | Three Months Ended |   
|-------------------------------------- |  | ------------------ | - |  | ------------------ | --
|                                       |  | September 30, 2010 |   |  | September 30, 2009 |   
|                                       |  |                    |   |  | As a               |   
|                                       |  |                    |   |  | percentage of      |   
|                                       |  | In Thousands       |   |  | revenues           |   
|                                       |  |                    |   |  |                    |   
|Revenues                               |  | 6,462              |   |  | 100                | % 
|Cost of goods sold                     |  | (1,178             | ) |  | (18.2              | )%
|                                       |  |                    |   |  |                    |   
|Gross Profit                           |  | 5,284              |   |  | 81.8               | % 
|                                       |  |                    |   |  |                    |   
|Selling expenses                       |  | (305               | ) |  | (4.7               | )%
|General and administrative expenses    |  | (546               | ) |  | (8.4               | )%
|                                       |  |                    |   |  |                    |   
|Income from operations                 |  | 4,433              |   |  | 68.6               | % 
|                                       |  |                    |   |  |                    |   
|Other income and (expenses)            |  |                    |   |  |                    |   
|Interest income                        |  | 25                 |   |  | 0.4                | % 
|Change in fair
      value of warrants |  | 302                |   |  | 4.7                | % 
|Exchange loss                          |  | (88                | ) |  | (1.4               | )%
|                                       |  |                    |   |  |                    |   
|Income before income tax               |  | 4,672              |   |  | 72.3               | % 
|                                       |  |                    |   |  |                    |   
|Provision for income tax               |  | (606               | ) |  | (9.4               | )%
|Net income                             |  | 4,066              |   |  | 62.9               | % 

34

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Revenues. Our revenues are generated from sales of our
products. Revenues increased by approximately $2.90 million, or 81.2%, to
approximately $6.46 million for the three months ended September 30, 2010, from
approximately $3.57 million for the same period in 2009. This increase was
mainly attributable to the increase in sales of our core product, Chinese Golden
Grass, driven by the continued increase in market demand combined with an
increase in average selling price. Our Chinese Golden Grass average selling
price increased by approximately 20% during the three months ended September 30,
2010 compared with the same period in 2009.

Our business operations can be categorized into two segments
based on the type of products we manufacture and sell, specifically (i) Chinese
Golden Grass, and (ii) other agricultural products. The following table shows
the different segments comprising our total sales revenue:

Sales Revenue by Product Segments(all amounts, other
than percentages, in thousands of U.S. dollars)

|                            |   | Three Months Ended September 30, |  |   | Percent | 
|--------------------------- | - | -------------------------------- |  | - | ------- | 
|                            |   | 2010                             |  |   | 2009    | 
|                            |   |                                  |  |   |         | 
|Components of Sales Revenue |   |                                  |  |   |         | 
|Chinese Golden Grass        | $ | 6,071                            |  | $ | 3,257   | 
|Other agricultural products |   | 391                              |  |   | 309     | 
|Total revenues              | $ | 6,462                            |  | $ | 3,566   | 

Cost of Goods Sold.Our cost of goods sold is primarily
comprised of the costs of our raw materials, labor and overhead. Our cost of
goods sold increased by $0.39 million, or 48.5%, to approximately $1.18 million
for the three months ended September 30, 2010 from approximately $0.79 million
during the same period in 2009. This increase was mainly due to the increase in
our sales. As a percentage of revenues, the cost of goods sold decreased to
18.2% for the three months ended September 30, 2010 from 22.2% in 2009. Such
decrease of cost of goods sold as a percentage of revenues was mainly
attributable to the increase in the average selling price of our Chinese Golden
Grass for the three months ended September 30, 2010 from the same period in 2009
and economy of scale on the fixed cost portion of the cost of goods sold.

Gross Profit.Our gross profit is equal to the
difference between our revenues and cost of goods sold. Our gross profit
increased by approximately $2.51 million, or 90.6%, to approximately $5.28
million for the three months ended September 30, 2010 from approximately $2.77
million during the same period in 2009. Gross profit as a percentage of
revenues, or gross margin, was 81.8% for the three months ended September 30,
2010, an increase of 4% from 77.8% during the same period in 2009. Our gross
profit increase because of the increase in the average selling price our Chinese
Golden Grass for the three months ended September 30, 2010 and economy of scale
on the fixed cost portion of the cost of goods sold.

Selling Expenses. Our selling expenses include sales
commissions, the cost of advertising and promotional materials, salaries and
fringe benefits of sales personnel, and other sales related costs. Selling
expenses increased by approximately $0.22 million, or 247.1%, to approximately
$0.31 million for the three months ended September 30, 2010 from approximately
$0.09 million during the same period in 2009. As a percentage of revenues,
selling expenses increased to 4.7% for the three months ended September 30, 2010
from 2.4% for the same period in 2009. The increase in the amount and percentage
of selling expenses was mainly attributable to the increase in sales commissions
and sales related cost associated with the new product introductions.

General and Administrative Expense. General and
administrative expenses include the costs associated with staff and support
personnel who manage our business activities, depreciation charge for fixed
assets, and professional fees paid to third parties. General and administrative
expenses increased approximately $0.21 million, or 65.0%, to approximately $0.55
million for the three months ended September 30, 2010 from approximately $0.33
million for the same period in 2009. Such increase in the amount of general and
administrative expenses was mainly attributable to the increase of service
related expenses associated with legal and audit fees. As a percentage of
revenues, general and administrative expenses decreased to 8.4% for the three
months ended September 30, 2010 from 9.3% for the same period in 2009. The
decrease in the amount of general and administrative expenses as a percentage of
revenue was mainly attributable to the more significant increase of our
revenues for the three months ended September 30, 2010 compared with the same
period in 2009.

35

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Income Before Income Tax. Income before income tax
increased by approximately $2.30 million, or 97.2%, to approximately $4.67
million during the three months ended September 30, 2010 from approximately
$2.37 million during the same period in 2009. As a percentage of revenues,
income before income tax increased to 72.3% during the three months ended
September 30, 2010 from 66.4% during the same period in 2009. The increase of
income before income tax is mainly attributable to the increase in revenues and
the decrease in cost of goods sold partially offset by the increase in selling,
general and administrative expenses described above.

Income Taxes.Nutrastar International Inc. is subject to
United States federal income tax at a tax rate of 34%. No provision for income
taxes in the United States has been made as Nutrastar International Inc. had no
income taxable in the United States for the three months ended September 30,
2010. New Resources was incorporated in the BVI and under the current laws of
the BVI, is not subject to income taxes. Oriental Global was formed in Hong Kong
and under the current laws of Hong Kong, is not subject to income taxes. Our PRC
subsidiaries are subject to national and local income taxes within China at the
applicable tax rate on the taxable income as reported in their PRC statutory
financial statements in accordance with relevant income tax laws. China passed a
new Enterprise Income Tax Law, or the New EIT Law, and its implementing rules,
both of which became effective on January 1, 2008.

Under the EIT, newly established high-technology enterprises,
such as Daqing Shuaiyi, are entitled to a three-year 50% tax reduction. Daqing
Shuaiyi has been subject to a 12.5% income tax rate since 2008 and Harbin
Shuaiyi was subject to a tax rate of 25% in 2009 and is subject to a tax rate of
25% in 2010.

Income tax increased by approximately $0.27 million to
approximately $0.61 million for the three months ended September 30, 2010 from
approximately $0.34 million for the same period in 2009. We paid more tax in
2010 because of the increase in sales and taxable income.

Net Income. Net income increased by approximately $2.04
million, or 100.4% to approximately $4.07 million for the three months ended
September 30, 2010 from approximately $2.03 million for the same period of 2009,
as a result of the factors described above.

Nine Months Ended September 30, 2010 Compared to Nine
Months Ended September 30, 2009

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

|                                       |  | Nine Months Ended  |   |  | Nine Months Ended  |   
|-------------------------------------- |  | ------------------ | - |  | ------------------ | --
|                                       |  | September 30, 2010 |   |  | September 30, 2009 |   
|                                       |  |                    |   |  | As a               |   
|                                       |  |                    |   |  | percentage of      |   
|                                       |  | In Thousands       |   |  | revenues           |   
|                                       |  |                    |   |  |                    |   
|Revenues                               |  | 16,688             |   |  | 100                | % 
|Cost of goods sold                     |  | (3,123             | ) |  | (18.7              | )%
|                                       |  |                    |   |  |                    |   
|Gross Profit                           |  | 13,565             |   |  | 81.3               | % 
|                                       |  |                    |   |  |                    |   
|Selling expenses                       |  | (710               | ) |  | (4.3               | )%
|General and administrative expenses    |  | (1,522             | ) |  | (9.1               | )%
|                                       |  |                    |   |  |                    |   
|Income from operations                 |  | 11,333             |   |  | 67.9               | % 
|                                       |  |                    |   |  |                    |   
|Other income and (expenses)            |  |                    |   |  |                    |   
|Interest income                        |  | 92                 |   |  | 0.6                | % 
|Change in fair
      value of warrants |  | 433                |   |  | 2.6                | % 

|Exchange loss            |  | (103   | ) |  | (0.6 | )% |  | (7    | ) |  | (0.1 | )%
|------------------------ |  | ------ | - |  | ---- | -- |  | ----- | - |  | ---- | --
|                         |  |        |   |  |      |    |  |       |   |  |      |   
|Income before income tax |  | 11,754 |   |  | 70.4 | %  |  | 6,634 |   |  | 57.4 | % 
|                         |  |        |   |  |      |    |  |       |   |  |      |   
|Provision for income tax |  | (1,551 | ) |  | (9.3 | )% |  | (891  | ) |  | (7.7 | )%
|                         |  |        |   |  |      |    |  |       |   |  |      |   
|Net income               |  | 10,203 |   |  | 61.1 | %  |  | 5,743 |   |  | 49.7 | % 

36

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Revenues. Revenues increased by approximately $5.14
million, or 44.5%, to approximately $16.69 million for the nine months ended
September 30, 2010, from approximately $11.55 million for the same period in
2009. This increase was mainly attributable to the increase in demand of our
core products combined with the increase in average selling price and product
mix shift towards smaller packages with higher gross margins. Our Chinese Golden
Grass average selling price increased by approximately 20% during the nine
months ended September 30, 2010 compared with the same period in 2009.

Our business operations can be categorized into two segments
based on the type of products we manufacture and sell, specifically (i) Chinese
Golden Grass, and (ii) other agricultural products. The following table shows
the different segments comprising our total sales revenue:

Sales Revenue by Product Segments

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

|                            |   | Nine Months Ended September 30, |  |   | Percent | 
|--------------------------- | - | ------------------------------- |  | - | ------- | 
|                            |   | 2010                            |  |   | 2009    | 
|                            |   |                                 |  |   |         | 
|Components of Sales Revenue |   |                                 |  |   |         | 
|Chinese Golden Grass        | $ | 15,379                          |  | $ | 8,696   | 
|Other agricultural products |   | 1,309                           |  |   | 2,853   | 
|Total revenues              | $ | 16,688                          |  | $ | 11,549  | 

Cost of Goods Sold.Our cost of goods sold decreased by
$0.61 million, or 16.4%, to approximately $3.12 million for the nine months
ended September 30, 2010 from approximately $3.73 million during the same period
in 2009. This decrease was mainly due to the improved production process and
economy of scale. As a percentage of revenues, the cost of goods sold decreased
to 18.7% for the nine months ended September 30, 2010 from 32.3% in 2009. Such
decrease of cost of goods sold as a percentage of sales was mainly attributable
to the increase of sales volume of small package products with higher gross
margins.

Gross Profit.Our gross profit increased by
approximately $5.75 million, or 73.6%, to approximately $13.57 million for the
nine months ended September 30, 2010 from approximately $7.82 million during the
same period in 2009. Gross profit as a percentage of revenues, or gross margin,
was 81.3% for the nine months ended September 30, 2010, an increase of 13.6%
from 67.7% during the same period in 2009. Such percentage increase was mainly
due to the change in product mix to smaller packages with higher gross margins
combined with the decrease in cost of goods sold due to the improved production
process and economy of scale.

Selling Expenses. Our selling expenses increased by
approximately $0.43 million, or 152.7%, to approximately $0.71 million for the
nine months ended September 30, 2010 from approximately $0.28 million during the
same period in 2009. As a percentage of revenues, selling expenses increased to
4.3% for the nine months ended September 30, 2010 from 2.4% for the same period
in 2009. The increase in the amount and percentage of selling expenses was
mainly attributable to the increase in sales commission due to our higher
revenues and sales related cost associated with new product introductions.

General and Administrative Expenses. General and
administrative expenses increased by approximately $0.58 million, or 61.3%, to
approximately $1.52 million for the nine months ended September 30, 2010 from
approximately $0.94 million for the same period in 2009. As a percentage of
revenues, general and administrative expenses increased to 9.1% for the nine
months ended September 30, 2010 from 8.2% for the same period in 2009. The
increase in the amount and percentage of general and administrative expenses was
mainly attributable to the increase of service related expenses associated with
legal and audit fees.

37

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Income Before Income Tax. Income before income tax
increased by approximately $5.12 million, or 77.2%, to approximately $11.75
million during the nine months ended September 30, 2010 from approximately $6.63
million during the same period in 2009. As a percentage of revenues, income
before income tax increased to 70.4% during the nine months ended September 30,
2010 from 57.4% during the same period in 2009. The increase of income before
income tax is mainly attributable to the increase in gross profit described
above.

Income Taxes. Income tax increased by approximately
$0.66 million to approximately $1.55 million for the nine months ended September
30, 2010 from approximately $0.89 million for the same period in 2009. We paid
more tax in 2010 because of the increase in sales and taxable income.

Net Income. Net income increased by approximately $4.46
million, or 77.7% to approximately $10.20 million for the nine months ended
September 30, 2010 from approximately $5.74 million for the same period of 2009,
as a result of the factors described above.

Business Segment Information

Our business operations can be categorized into two segments
based on the type of products we manufacture and sell, specifically (i) Chinese
Golden Grass, and (ii) other agricultural products.

For the nine months ended September 30, 2010, our sales revenue
from our Chinese Golden Grass was approximately $15.38 million, and our sales
revenue from our other agricultural products was approximately $1.31
million.

We grow and sell our Chinese Golden Grass through Daqing
Shuaiyi. Harbin Shuaiyi is mainly engaged in the business of selling our other
agricultural products.

Additional segment information regarding our products can be
found at Note 22 in our unaudited consolidated financial statements contained
under Part I, Item I FINANCIAL STATEMENTS above.

Liquidity and Capital Resources

General

As of September 30, 2010, we had cash and cash equivalents
(excluding restricted cash) of approximately $35.82 million. The following table
provides detailed information about our net cash flow for all financial
statement periods presented in this report.

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

Nine Months Ended September
      30,2010
    2009Net cash provided by operating activities
    $10,689
    $7,086Net cash (used in) investing activities
    (10)
    (50)Net cash provided by (used in) financing
      activities
    4,329
    (817)Foreign currency translation adjustment
    692
    17Net cash flow
    15,700
    6,236


38

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Operating Activities

Net cash provided by operating activities was approximately $10.69 million for the nine-month period ended September 30, 2010, which is an increase of approximately $3.60 million from approximately $7.09 million net cash provided by
operating activities for the same period of 2009. Cash provided by operating activities during the period was mainly attributable to the net income of $10.20 million.

Investing Activities

Our primary uses of cash for investing activities are payments for the acquisition of property, plant and equipment.

Net cash used in investing activities for the nine-month period ended September 30, 2010 was approximately $0.01 million, which is a decrease of approximately $0.04 million from net cash used in investing activities of approximately
$0.05 million for the same period of 2009.

Financing Activities

Net cash provided by financing activities for the nine-month period ended September 30, 2010 was approximately $4.33 million, which is an increase of approximately $5.15 million from approximately ($0.82) million net cash used in
financing activities for the same period of 2009. The increase of the cash provided by financing activities was mainly due to gross proceeds of approximately $5.65 million from the capital raising in June 2010.

On June 7 and June 28, 2010, we consummated two closings of a private placement transaction and issued in aggregate 197,700 units at a purchase price of $28.56 per unit for gross proceeds of approximately $5.65 million. Each unit consists of
one share of our Series A Preferred Stock with an initial one-to-ten conversion ratio into shares of our common stock and a warrant to purchase five shares of common stock at an exercise price of $3.40 per share.

We believe that our cash on hand, cash flow from operations as well as the proceeds we received from the recent private placement transactions will meet our expected capital expenditure and working capital for the next 12 months. However, we may in
the future require additional cash resources due to changed business conditions, implementation of our strategy to expand our production capacity or other investments or acquisitions we may decide to pursue. If our own financial resources are
insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence
of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at
all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

Effects of Inflation

Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor the price
change and continually maintain effective cost control in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our securities.

39

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Seasonality

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires our management to make assumptions, estimates and judgments that affect the
amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the most significant judgments and
estimates in the preparation of financial statements, including the following:

- Accounts Receivable. The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances
where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its
current credit-worthiness and current economic trends.
- Inventories. Inventories are stated at the lower of cost, determined on a weighted average basis, or market. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Market
value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. The management will write down the inventories to market value if it is below cost. The
management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required.
- Impairment. The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated
future cash flows on an undiscounted basis are less than the carrying amount of the assets, including goodwill, if any. An impairment loss is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows,
assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups.
- Property, plant and equipment. The carrying value of property, plant and equipment is assessed annually and when factors indicating impairment is present, the carrying value of the property, plant and equipment is reduced by the amount of the
impairment. The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the net asset carrying value. An impairment loss, if exists, is
measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.
- Intangible assets. The Company’s intangible assets include a ten-year exclusive right to use a secret process and computer software. The Company accounts for its intangible assets pursuant to FASB ASC Subtopic 350-30, “General
Intangibles Other Than Goodwill”. Under ASC 350-30-35, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms. Intangibles within definite lives
are evaluated at least annually for impairment by comparing the asset’s estimated fair value with its carrying value, based on cash flow methodology.
- Revenue Recognition. Revenue is recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured.
Sales revenue is recognized net of value added and sales related taxes, sales discounts and returns at the time when the merchandise is delivered to the customer. Based on historical experience, management estimates that sales returns are immaterial
and has not made allowance for estimated sales returns.

40

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- Foreign currency translation. The Company uses the United States dollars (“US Dollar” or “US$” or “$”) for financial reporting purposes. The PRC subsidiaries within the Company maintains the books and
records intheir functional currency, Chinese Renminbi (“RMB”), being the lawful currency in the PRC. Assets and liabilities of the PRC subsidiaries are translated from RMB into US Dollars using the applicable exchange rates prevailing at the
balance sheet date. Items on the statement of operations are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s
financial statements are recorded as accumulated other comprehensive income. The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the consolidated financial statements are based on the rates as
published on the website of People’s Bank of China. The value of RMB against U.S. dollars and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Any significant
revaluation of RMB may materially affect the Company’s results and financial position in terms of U.S. dollar reporting.
- Stock-based Compensation. The Company accounts for share-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions with
employees be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period. The Company accounts for share-based compensation awards to non-employees in
accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, “Equity-Based Payments to Non-employees”. Under FASB ASC Topic 718 and FASB ASC Subtopic 505-50, stock compensation granted to non-employees has been determined as the fair
value of the consideration received or the fair value of equity instrument issued, whichever is more reliably measured and is recognized as expenses as the goods or services are received.

New accounting pronouncement to be adopted

Effective January 1, 2010, the Company adopted the provisions in ASU 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements, which requires new disclosures related to transfers in
and out of levels 1 and 2 and activity in level 3 fair value measurements, as well as amends existing disclosure requirements on level of disaggregation and inputs and valuation techniques. The adoption of the provisions in ASU 2010-06 did not have
an impact on the Company’s consolidated financial statements.

In February 2010, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends the disclosure requirements related to subsequent events. This guidance includes the definition of a Securities and Exchange
Commission filer, removes the definition of a public entity, redefines the reissuance disclosure requirements and allows public companies to omit the disclosure of the date through which subsequent events have been evaluated. This guidance is
effective for financial statements issued for interim and annual periods ending after February 2010. This guidance did not materially impact the Company’s results of operations or financial position, but did require changes to the
Company’s disclosures in its financial statements.

In April 2010, the FASB issued ASU No. 2010-13—Compensation—Stock Compensation (Topic 718), which addresses the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in
which the underlying equity security trades. This Update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the
entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as
equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company expects that the adoption of the amendments in this Update will not have any
significant impact on its financial position and results of operations.

In May 2010, the FASB issued ASU 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates. The amendments in this Update are effective as of the announcement date of March 18, 2010. The adoption of
this update did not have a material effect on the financial position, results of operations or cash flows of the Company.

In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”. This ASU amends Topic 310 to improve the disclosures that an entity
provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing
disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods
ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Except for the expanded disclosure
requirements, the adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

41

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Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s Consolidated Financial
Statements upon adoption.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our chief executive officer and chief financial officer, Ms. Lianyun Han and Mr. Robert Tick, respectively, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure
controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports,
such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including
its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on that evaluation, Ms. Lianyun Han and Mr. Robert Tick
concluded that as of September 30, 2010, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective at the reasonable assurance
level.

Changes in Internal Control Over Financial Reporting.

During the fiscal quarter ended September 30, 2010, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

42

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PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits
and legal proceedings which arise in the ordinary course of business. We are
currently not aware of any legal proceedings or claims that would require
disclosure under Item 103 of Regulation S-K. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business.

ITEM 1A. RISK FACTORS

Not applicable.

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

We have not sold any unregistered equity securities during the
fiscal quarter ended September 30, 2010 that were not previously disclosed in a
current report on Form 8-K that was filed during that period.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. [REMOVED AND RESERVED]

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

EXHIBITS.

|31.1 | Certification of Principal Executive Officer filed
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 | Certification of Principal Financial Officer filed
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|32.1 | Certification of Principal Executive Officer furnished
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
|32.2 | Certification of Principal Financial Officer furnished
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
|99.1 | Form of Termination Agreement, dated October 22,
    2010                                                                                                                   

43

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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 thereunto duly authorized.

DATED: November 15, 2010

NUTRASTAR INTERNATIONAL
INC.

By: /s/ Lianyun
HanLianyun Han Chief Executive Officer (Principal Executive
Officer)

By: /s/ Robert
TickRobert Tick Chief Financial Officer (Principal Financial
Officer)

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EXHIBIT INDEX

|Exhibit
    Number | Description                                                                                                                                                                 
|------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1               | Certification of Principal Executive Officer filed
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|31.2               | Certification of Principal Financial Officer filed
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|32.1               | Certification of Principal Executive Officer furnished
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
|32.2               | Certification of Principal Financial Officer furnished
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
|99.1               | Form of Termination Agreement, dated October 22,
    2010                                                                                                                   

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