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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
  Washington, 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: June 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   [   ]                       | Smaller reporting company [X]                       
|(Do not check if
      a smaller reporting company) |                                                     

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 August 13, 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

|                                     |                                                                                             | **Page**
|------------------------------------ | ------------------------------------------------------------------------------------------- | --------
|                                     |                                                                                             |         
|PART I 
      FINANCIAL INFORMATION |                                                                                            
|                                     |                                                                                             |         
|Item 1.                              | Financial Statements                                                                        | 1       
|Item 2.                              | Managements Discussion and Analysis
      of Financial Condition and Results of Operations | 26      
|Item 3.                              | Quantitative and Qualitative
      Disclosures About Market Risk                            | 35      
|Item 4.                              | Controls and Procedures                                                                     | 36      
|                                     |                                                                                             |         
|PART II  OTHER INFORMATION          |                                                                                            
|                                     |                                                                                             |         
|Item 1.                              | Legal Proceedings                                                                           | 37      
|Item 1A.                             | Risk Factors                                                                                | 37      
|Item 2.                              | Unregistered Sales of Equity Securities
      and Use of Proceeds                           | 37      
|Item 3.                              | Defaults Upon Senior Securities                                                             | 37      
|Item 4.                              | [Removed and Reserved]                                                                      | 37      
|Item 5.                              | Other Information                                                                           | 37      
|Item 6.                              | Exhibits                                                                                    | 37      

i

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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)

|                                                                                                                                                                                                                                                                                                                                                           |   | June 30     |  |   | December 31 | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- |  | - | ----------- | 
|                                                                                                                                                                                                                                                                                                                                                           |   | 2010        |  |   | 2009        | 
|                                                                                                                                                                                                                                                                                                                                                           |   | (Unaudited) |  |   |             | 
|ASSETS                                                                                                                                                                                                                                                                                                                                                     |   |             |  |   |             | 
|CURRENT ASSETS                                                                                                                                                                                                                                                                                                                                             |   |             |  |   |             | 
|Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                  | $ | 32,262,243  |  | $ | 20,115,677  | 
|Restricted cash                                                                                                                                                                                                                                                                                                                                            |   | 350,000     |  |   | -           | 
|Accounts receivable                                                                                                                                                                                                                                                                                                                                        |   | 279,564     |  |   | 215,486     | 
|Inventories                                                                                                                                                                                                                                                                                                                                                |   | 704,502     |  |   | 616,073     | 
|Due from related party                                                                                                                                                                                                                                                                                                                                     |   | 51,000      |  |   | -           | 
|Prepayments and other receivables                                                                                                                                                                                                                                                                                                                          |   | 209,733     |  |   | 251,235     | 
|Total current assets                                                                                                                                                                                                                                                                                                                                       |   | 33,857,042  |  |   | 21,198,471  | 
|OTHER ASSETS                                                                                                                                                                                                                                                                                                                                               |   |             |  |   |             | 
|Intangible assets, net                                                                                                                                                                                                                                                                                                                                     |   | 2,541,496   |  |   | 2,747,402   | 
|Property, plant and equipment, net                                                                                                                                                                                                                                                                                                                         |   | 10,174,213  |  |   | 10,396,507  | 
|                                                                                                                                                                                                                                                                                                                                                           |   |             |  |   |             | 
|Total assets                                                                                                                                                                                                                                                                                                                                               | $ | 46,572,751  |  | $ | 34,342,380  | 
|                                                                                                                                                                                                                                                                                                                                                           |   |             |  |   |             | 
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                                                                                                                                                                       |   |             |  |   |             | 
|CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                        |   |             |  |   |             | 
|Accounts payable                                                                                                                                                                                                                                                                                                                                           | $ | 55,214      |  | $ | 863         | 
|Other payables and accruals                                                                                                                                                                                                                                                                                                                                |   | 380,184     |  |   | 453,504     | 
|Payable for intangible assets                                                                                                                                                                                                                                                                                                                              |   | 883,535     |  |   | 878,709     | 
|Income tax payable                                                                                                                                                                                                                                                                                                                                         |   | 241,032     |  |   | 319,873     | 
|Due to related parties                                                                                                                                                                                                                                                                                                                                     |   | 551,665     |  |   | 49,794      | 
|Preferred stock dividend payable                                                                                                                                                                                                                                                                                                                           |   | 13,748      |  |   | -           | 
|Acquisition payable                                                                                                                                                                                                                                                                                                                                        |   | 8,784,821   |  |   | 8,736,833   | 
|Total current liabilities                                                                                                                                                                                                                                                                                                                                  |   | 10,910,199  |  |   | 10,439,576  | 
|Warrants liabilities                                                                                                                                                                                                                                                                                                                                       |   | 1,006,279   |  |   | -           | 
|                                                                                                                                                                                                                                                                                                                                                           |   |             |  |   |             | 
|Total liabilities                                                                                                                                                                                                                                                                                                                                          |   | 11,916,478  |  |   | 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    $13,748 and $nil, at June 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                                                                                                                                                                                                                      |   | 14,333      |  |   | 14,298      | 
|Additional paid-in capital                                                                                                                                                                                                                                                                                                                                 |   | 6,356,116   |  |   | 4,715,891   | 
|Statutory reserves                                                                                                                                                                                                                                                                                                                                         |   | 1,345,894   |  |   | 1,341,687   | 
|Retained earnings                                                                                                                                                                                                                                                                                                                                          |   | 21,234,521  |  |   | 16,858,012  | 
|Accumulated other comprehensive income                                                                                                                                                                                                                                                                                                                     |   | 1,151,003   |  |   | 972,916     | 
|Total shareholders' equity                                                                                                                                                                                                                                                                                                                                 |   | 34,656,273  |  |   | 23,902,804  | 
|                                                                                                                                                                                                                                                                                                                                                           |   |             |  |   |             | 
|Total liabilities and
      shareholders' equity                                                                                                                                                                                                                                                                                                           | $ | 46,572,751  |  | $ | 34,342,380  | 

See accompanying notes to condensed consolidated financial
statements

1

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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 Six Months |  
|---------------------------------------------- | - | -------------------- | - | - | ------------------ | -
|                                               |   | Ended June 30,       |   |   | Ended June 30,     |  
|                                               |   | 2010                 |   |   | 2009               |  
|                                               |   |                      |   |   |                    |  
|Revenue                                        | $ | 5,458,152            |   | $ | 3,339,762          |  
|                                               |   |                      |   |   |                    |  
|Cost of goods sold                             |   | (888,415             | ) |   | (1,183,805         | )
|                                               |   |                      |   |   |                    |  
|Gross profit                                   |   | 4,569,737            |   |   | 2,155,957          |  
|                                               |   |                      |   |   |                    |  
|Selling expenses                               |   | (233,310             | ) |   | (81,574            | )
|General and administrative expenses            |   | (547,331             | ) |   | (354,696           | )
|                                               |   |                      |   |   |                    |  
|Income from operations                         |   | 3,789,096            |   |   | 1,719,687          |  
|                                               |   |                      |   |   |                    |  
|Other income (expenses):                       |   |                      |   |   |                    |  
|Interest income                                |   | 33,719               |   |   | 39,849             |  
|Exchange loss                                  |   | (15,698              | ) |   | (5,109             | )
|Change in fair value of warrants               |   | 131,088              |   |   | -                  |  
|Other                                          |   | -                    |   |   | -                  |  
|Total other income (expenses)                  |   | 149,109              |   |   | 34,740             |  
|                                               |   |                      |   |   |                    |  
|Income before income tax                       |   | 3,938,205            |   |   | 1,754,427          |  
|                                               |   |                      |   |   |                    |  
|Provision for income tax                       |   | (522,564             | ) |   | (254,620           | )
|                                               |   |                      |   |   |                    |  
|Net income                                     |   | 3,415,641            |   |   | 1,499,807          |  
|                                               |   |                      |   |   |                    |  
|Other comprehensive income:                    |   |                      |   |   |                    |  
|Foreign currency translation adjustment        |   | 169,229              |   |   | 13,628             |  
|                                               |   |                      |   |   |                    |  
|Total comprehensive income                     | $ | 3,584,870            |   | $ | 1,513,435          |  
|                                               |   |                      |   |   |                    |  
|Earnings per share:                            |   |                      |   |   |                    |  
|Basic                                          | $ | 0.12                 |   | $ | 0.12               |  
|Diluted                                        | $ | 0.12                 |   | $ | 0.12               |  
|                                               |   |                      |   |   |                    |  
|Weighted average number of shares outstanding: |   |                      |   |   |                    |  
|Basic                                          |   | 14,332,731           |   |   | 12,874,654         |  
|Diluted                                        |   | 14,342,168           |   |   | 12,874,654         |  

See accompanying notes to condensed consolidated financial
statements.

2

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NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYFOR THE SIX MONTHS ENDED JUNE 30, 2010(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                                                                                                                                         | -                     |  |                    | -         |  | -               |  |   | -      |  |   | -         |   |   | -         |  |   | 6,136,703  |   |   | -                 |  |   | 6,136,703  |  
|                                                                                                                                                   |                       |  |                    |           |  |                 |  |   |        |  |   |           |   |   |           |  |   |            |   |   |                   |  |   |            |  
|Foreign currency translation adjustment                                                                                                            | -                     |  |                    | -         |  | -               |  |   | -      |  |   | -         |   |   | -         |  |   | -          |   |   | 178,087           |  |   | 178,087    |  
|                                                                                                                                                   |                       |  |                    |           |  |                 |  |   |        |  |   |           |   |   |           |  |   |            |   |   |                   |  |   |            |  
|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                                                                                                                           | -                     |  |                    | -         |  | -               |  |   | -      |  |   | -         |   |   | -         |  |   | (13,748    | ) |   | -                 |  |   | (13,748    | )
|Appropriation of statutory reserves                                                                                                                | -                     |  |                    | -         |  | -               |  |   | -      |  |   | -         |   |   | 4,207     |  |   | (4,207     | ) |   | -                 |  |   | -          |  
|Share-based payment                                                                                                                                | -                     |  |                    | -         |  | 35,000          |  |   | 35     |  |   | 105,840   |   |   | -         |  |   | -          |   |   | -                 |  |   | 105,875    |  
|                                                                                                                                                   |                       |  |                    |           |  |                 |  |   |        |  |   |           |   |   |           |  |   |            |   |   |                   |  |   |            |  
|At June 30, 2010 (Unaudited)                                                                                                                       | 197,706               |  | $                  | 4,554,406 |  | 14,332,731      |  | $ | 14,333 |  | $ | 6,356,116 |   | $ | 1,345,894 |  | $ | 21,234,521 |   | $ | 1,151,003         |  | $ | 34,656,273 |  

See accompanying notes to condensed consolidated financial
statements.

3

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

|                                                                                    |   | For the Six Months |  
|----------------------------------------------------------------------------------- | - | ------------------ | -
|                                                                                    |   | Ended June 30,     |  
|                                                                                    |   | 2010               |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                               |   |                    |  
|Net income                                                                          | $ | 6,136,703          |  
|Adjustments to reconcile net income to
      cash provided by operating activities: |   |                    |  
|Change in fair value of warrants                                                    |   | (131,088           | )
|Share-based compensation
      expense                                              |   | 105,875            |  
|Depreciation and amortization                                                       |   | 506,125            |  
|(Increase) decrease in assets:                                                      |   |                    |  
|Accounts receivable                                                                 |   | (62,578            | )
|Prepayments and
      other receivables                                             |   | 41,662             |  
|Inventories                                                                         |   | (84,617            | )
|Increase (decrease)
      in liabilities:                                           |   |                    |  
|Accounts payable                                                                    |   | 54,073             |  
|Other payables and
      accruals                                                   |   | (75,431            | )
|Income tax payable                                                                  |   | (80,193            | )
|Trade payable due
      to related parties                                          |   | -                  |  
|Net cash provided by operating activities                                           |   | 6,410,531          |  
|                                                                                    |   |                    |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                               |   |                    |  
|Purchase of property, plant and equipment                                           |   | (8,246             | )
|Net cash used in investing activities                                               |   | (8,246             | )
|                                                                                    |   |                    |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                               |   |                    |  
|Proceeds from Private Placement                                                     |   | 5,483,919          |  
|Increase in restricted cash                                                         |   | (350,000           | )
|Repayment of acquisition payable                                                    |   | -                  |  
|Advances from related parties                                                       |   | 436,047            |  
|Net cash provided
      by financing activities                                     |   | 5,569,966          |  
|                                                                                    |   |                    |  
|Foreign currency translation adjustment                                             |   | 174,315            |  
|                                                                                    |   |                    |  
|INCREASE IN CASH AND CASH EQUIVALENTS                                               |   | 12,146,566         |  
|                                                                                    |   |                    |  
|CASH AND CASH EQUIVALENTS, at the beginning
      of the period                     |   | 20,115,677         |  
|                                                                                    |   |                    |  
|CASH AND CASH EQUIVALENTS, at the end of the
      period                           | $ | 32,262,243         |  
|                                                                                    |   |                    |  
|NON-CASH INVESTING AND FINANCING ACTIVITIES:                                        |   |                    |  
|Share-based payments to officer under equity incentive
      plan                   | $ | 105,875            |  
|                                                                                    |   |                    |  
|SUPPLEMENTAL DISCLOSURE INFORMATION                                                 |   |                    |  
|Income taxes paid                                                                   | $ | 980,764            |  

See accompanying notes to condensed consolidated financial
statements.

4

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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 current 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 Amendments is stated in the Companys Form 8-K dated
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 June 30, 2010, details of the subsidiaries of the Company
are as follows:

Domicile and
    
    
    
    Percentagedate of
    
    
    
    of effectiveSubsidiaries
      names
    
    incorporation
    
    Paid-up capital
    
    ownership
    
    Principal activitiesNew Zealand WAYNES New Resources
      Development Co., Ltd (New Resources)
    
    British Virgin Islands March
      13, 2008
    
    $50,000
    
    100%
    
    Holding company of the other
      subsidiariesHeilongjiang 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 holdingDaqing Shuaiyi Biomass Technology 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 medicineHarbin Shuaiyi Green and Specialty Food
      Trading LLP. (Harbin Shuaiyi)
    
    PRC May 18, 2001
    
    RMB1,500,000
    
    100%
    
    Sales of agricultural products


5

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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 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
following (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 six months ended June 30, 2010 and 2009, research and development costs were
$29,977 and $18,139, 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 $23,061 and $1,098 for the six months ended June 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 six months ended June 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:-

|                                                       | June
      30, 2010         |  | December 31, 2009
|------------------------------------------------------ | --------------------------- |  | -----------------
|Balance sheet items, except for equity accounts        | US$1=RMB 6.7909             |  | US$1=RMB6.8282   
|                                                       | Three months ended June 30,
|                                                       | 2010                        |  | 2009             
|Items in the statements of income and cash flows       | US$1=RMB 6.8235             |  | US$1=RMB 6.8299  
|                                                       | Six months ended June 30,  
|                                                       | 2010                        |  | 2009             
|Items in the statements of income and cash
      flows | US$1=RMB 6.8252             |  | US$1=RMB6.8328   

6

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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.

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.

7

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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
      
      
      June 30,
      
      
      December2010
      
      
      31, 2009Liabilities:Derivative instruments  Warrants
      $
      
      
      $
      1,006,279
      
      $
      
      
      $
      1,006,279
      
      $
      Total
      $
      
      
      $
      1,006,279
      
      $
      
      
      $
      1,006,279
      
      $
      


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 June 30, 2010 and December 31, 2009.

8

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

NOTE 5RESTRICTED CASH

As of June 30, 2010, $350,000 in total was held in escrow
arising from agreements in conjunction with the Private Placement, which are
further disclosed in Note 14.

Restricted cash consisted of the following:

|                                                                      |   | June 30     |  |   | December 31 | 
|--------------------------------------------------------------------- | - | ----------- |  | - | ----------- | 
|                                                                      |   | 2010        |  |   | 2009        | 
|                                                                      |   | (Unaudited) |  |   |             | 
|                                                                      |   |             |  |   |             | 
|                                                                      |   |             |  |   |             | 
|Special fund for distribution to Investor
      Relations Firms       | $ | 100,000     |  | $ | -           | 
|Compensation for a yet-to-be-determined Chief Financial
      Officer |   | 250,000     |  |   | -           | 
|Total                                                                 | $ | 350,000     |  | $ | -           | 

NOTE 6ACCOUNTS RECEIVABLE, NET

Accounts receivable consisted of the following:

|                                   |   | June 30     |  |   | December 31 | 
|---------------------------------- | - | ----------- |  | - | ----------- | 
|                                   |   | 2010        |  |   | 2009        | 
|                                   |   | (Unaudited) |  |   |             | 
|                                   |   |             |  |   |             | 
|Accounts receivable                | $ | 279,564     |  | $ | 215,486     | 
|Less: Allowance for doubtful debts |   | -           |  |   | -           | 
|Accounts receivable                | $ | 279,564     |  | $ | 215,486     | 

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:

|                 |   | June 30     |  |   | December 31 | 
|---------------- | - | ----------- |  | - | ----------- | 
|                 |   | 2010        |  |   | 2009        | 
|                 |   | (Unaudited) |  |   |             | 
|                 |   |             |  |   |             | 
|                 |   |             |  |   |             | 
|Raw materials    | $ | 192,287     |  | $ | 183,934     | 
|Work in progress |   | 298,057     |  |   | 294,983     | 
|Finished goods   |   | 214,158     |  |   | 137,156     | 
|Total            | $ | 704,502     |  | $ | 616,073     | 

9

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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:

|                  |   | June 30     |  |   | December 31 | 
|----------------- | - | ----------- |  | - | ----------- | 
|                  |   | 2010        |  |   | 2009        | 
|                  |   | (Unaudited) |  |   |             | 
|                  |   |             |  |   |             | 
|                  |   |             |  |   |             | 
|Prepayments       | $ | 750         |  | $ | 12,812      | 
|Other receivables |   | 208,983     |  |   | 238,423     | 
|                  | $ | 209,733     |  | $ | 251,235     | 

NOTE 9INTANGIBLE ASSETS, NET

Intangible assets, net consisted of the following:

|                                              |   | June 30     |   |   | December 31 |  
|--------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                              |   | 2010        |   |   | 2009        |  
|                                              |   | (Unaudited) |   |   |             |  
|                                              |   |             |   |   |             |  
|                                              |   |             |   |   |             |  
|Computer software, cost                       | $ | 1,462       |   | $ | 1,454       |  
|Exclusive right to use a secret process, cost |   | 4,419,451   |   |   | 4,395,309   |  
|Less: Accumulated amortization                |   | (1,879,417  | ) |   | (1,649,361  | )
|                                              | $ | 2,541,496   |   | $ | 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 six months ended June 30, 2010
and 2009 were $219,885 and $219,641, respectively.

NOTE
10PROPERTY, PLANT AND
EQUIPMENT, NET

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

|                               |   | June 30     |   |   | December 31 |  
|------------------------------ | - | ----------- | - | - | ----------- | -
|                               |   | 2010        |   |   | 2009        |  
|                               |   | (Unaudited) |   |   |             |  
|Cost:                          |   |             |   |   |             |  
|Buildings                      | $ | 11,736,579  |   | $ | 11,672,404  |  
|Office equipment               |   | 23,573      |   |   | 15,264      |  
|Machinery                      |   | 128,990     |   |   | 128,286     |  
|Motor vehicles                 |   | 55,143      |   |   | 54,842      |  
|Total cost                     |   | 11,944,285  |   |   | 11,870,796  |  
|Less: Accumulated depreciation |   | (1,770,072  | ) |   | (1,474,289  | )
|Net book value                 | $ | 10,174,213  |   | $ | 10,396,507  |  

Depreciation expenses for the six months ended June 30, 2010
and 2009 were $286,240 and $285,231, respectively.

10

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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:

|                    |   | June 30     |  |   | December 31 | 
|------------------- | - | ----------- |  | - | ----------- | 
|                    |   | 2010        |  |   | 2009        | 
|                    |   | (Unaudited) |  |   |             | 
|                    |   |             |  |   |             | 
|Accrued staff costs | $ | 372,407     |  | $ | 370,395     | 
|Other taxes payable |   | 2,302       |  |   | 25,030      | 
|Other payables      |   | 5,475       |  |   | 58,079      | 
|                    | $ | 380,184     |  | $ | 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 following table presents the amounts payable for the next
five years and thereafter:

|                                           |   | (Unaudited) | 
|------------------------------------------ | - | ----------- | 
|Remainder of year ending December 31, 2010 | $ | 883,535     | 
|2011 and thereafter                        |   | -           | 
|Total                                      |   | 883,535     | 
|Current portion                            |   | 883,535     | 
|Non-current portion                        | $ | -           | 

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 Note 19(b).

11

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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 majority holders of Series A Preferred Stock on
July 14, 2010 and the Company filed the Registration Statement on Form S-1 on
August 11, 2010. The Registration Statement needs to be declared effective by
the Securities and Exchange Commission ("SEC") within approximately 150 days
after the filing to avoid the liquidated damages under the Securities Purchase
Agreement.

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. The Company also agreed that an additional
$250,000 will remain in escrow and will be used as compensation for a
yet-to-be-determined Chief Financial Officer of the Company.

12

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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 Preferred Shares 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 Preferred Shares, 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 Preferred Shares 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 Preferred Stock at June 30,
      2010                                               | $ | 2,834,398  |  
|Expenses related to private placement                                                            |   | (114,567   | )
|Convertible Preferred Stock (net of fees
      and expenses) at June 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 Preferred Stock at June 30,
      2010                                               | $ | 1,720,008  |  
|Expenses related to private placement                                                            |   | (47,794    | )
|Convertible Preferred Stock (net of fees
      and expenses) at June 30, 2010                    | $ | 1,672,214  |  

In accordance with ASC Topic 470-20-30-6, the discount on the
Preferred Shares resulting from the accounting for a beneficial conversion
feature was amortized and charged to retained earnings, because the Preferred
Shares 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.

13

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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,
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 Securities and
Exchange Commission (the "Commission") 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.

14

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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 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 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 Preferred Shares are not subject to redemption (except on
liquidation) and the holders of the Preferred Shares are entitled to vote
together with common stock holders on an as-converted basis. The Preferred
Shares, 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 Preferred Shares, 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 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.

15

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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 June 30, 2010, the fair value of these outstanding Series
C Warrants was determined to be $1,006,279, accordingly, the Company recorded
$131,088 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 3) from January 1, 2010 to June 30, 2010:

|                                                       |   | Warrant liabilities |  
|------------------------------------------------------ | - | ------------------- | -
|Balance at January 1, 2010 and at March 31,
      2010 | $ | -                   |  
|Issuance of warrants                                   |   | 1,137,367           |  
|Change in fair value included in earnings              |   | (131,088            | )
|Balance at June 30, 2010                               | $ | 1,006,279           |  

16

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

Warrants issued and outstanding at June 30, 2010, and changes
during the six 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                                        |  | 988,501    |  |   | 3.40     |  |  | 3.00             | 
|Forfeited                                      |  | -          |  |   | -        |  |  | -                | 
|Exercised                                      |  | -          |  |   | -        |  |  |                  | 
|Outstanding at June 30,
      2010 (Unaudited) |  | 1,488,501  |  | $ | 3.48     |  |  | 2.78             | 
|                                               |  |            |  |   |          |  |  |                  | 
|Exercisable at June 30,
      2010 (Unaudited) |  | 1,488,501  |  | $ | 3.48     |  |  | 2.78             | 

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.

17

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

No expense has been recognized related to the Options which
were forfeited because the requisite service for the Options has not been
rendered.

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   

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.

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.

18

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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 six months ended June 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 scarcely
been traded. 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.

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 six months | 
|------------------------------------------------------------------------ | - | -------------------- | - | - | ------------------ | 
|                                                                         |   | Ended June 30,       |   |   | Ended June 30,     | 
|                                                                         |   | 2010                 |   |   | 2009               | 
|                                                                         |   | (Unaudited)          |   |   | (Unaudited)        | 
|Income available to common shareholders:                                 |   |                      |   |   |                    | 
|- Net income                                                             | $ | 3,415,641            |   | $ | 1,499,807          | 
|Less: Preferred stock dividend                                           |   | (13,748              | ) |   | -                  | 
|Less: Beneficial conversion feature of convertible preferred
      stock |   | (1,742,239           | ) |   | -                  | 
|Income available to common shareholders (Basic
      and diluted)        | $ | 1,659,654            |   | $ | 1,499,807          | 
|                                                                         |   |                      |   |   |                    | 
|Weighted average number of shares:                                       |   |                      |   |   |                    | 
|- Basic                                                                  |   | 14,332,731           |   |   | 12,874,654         | 
|- Effect of dilutive warrants and options                                |   | 9,437                |   |   | -                  | 
|- Diluted                                                                |   | 14,342,168           |   |   | 12,874,654         | 
|                                                                         |   |                      |   |   |                    | 
|Net income per share                                                     |   |                      |   |   |                    | 
|- Basic                                                                  | $ | 0.12                 |   | $ | 0.12               | 
|- Diluted                                                                | $ | 0.12                 |   | $ | 0.12               | 

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 Company has one category of dilutive
potential common shares: the Series C Warrants issued in connection with the
Preferred Shares financing described in Note 14. The Warrants are assumed to
have been converted into common shares and the calculation is done to determine
the number of shares that could have been acquired at fair value (determined as
the average annual market share price of the Companys common stock) based on
the monetary value of the subscription rights attached to outstanding Warrants.
The Preferred Shares as converted to common stock have been excluded from the
diluted earnings per share because to do so would be anti-dilutive. The number
of shares calculated as above is compared with the number of shares that would
have been issued assuming the exercise of the Warrants.

19

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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 Six Months | 
|------------------------ | - | -------------------- |  | - | ------------------ | 
|                         |   | Ended June 30,       |  |   | Ended June 30,     | 
|                         |   | 2010                 |  |   | 2009               | 
|                         |   | (Unaudited)          |  |   | (Unaudited)        | 
|                         |   |                      |  |   |                    | 
|Current income tax  PRC | $ | 522,564              |  | $ | 254,620            | 
|Deferred                 |   | -                    |  |   | -                  | 
|                         |   |                      |  |   |                    | 
|Income tax expenses      | $ | 522,564              |  | $ | 254,620            | 

The Company had deferred tax assets as follows:

|                                     |   | June 30     |   |   | December 31 |  
|------------------------------------ | - | ----------- | - | - | ----------- | -
|                                     |   | 2010        |   |   | 2009        |  
|                                     |   | (Unaudited) |   |   |             |  
|                                     |   |             |   |   |             |  
|Net operating losses carried forward | $ | 350,039     |   | $ | 355,212     |  
|Less: Valuation allowance            |   | (350,039    | ) |   | (355,212    | )
|                                     |   |             |   |   |             |  
|Net deferred tax assets              | $ | -           |   | $ | -           |  

As of June 30, 2010 and December 31, 2009, the Company has
$1,029,527 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 can not 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 June 30, 2010 and December 31, 2009, the Company did not
have any other significant temporary differences and carry forwards that may
result in deferred tax.

20

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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

|                                                                            |   |   | June 30     |  |   | December 31 | 
|--------------------------------------------------------------------------- | - | - | ----------- |  | - | ----------- | 
|                                                                            |   |   | 2010        |  |   | 2009        | 
|                                                                            |   |   | (Unaudited) |  |   |             | 
|Due from related parties:                                                   |   |   |             |  |   |             | 
|Due from Ms. Yuehong Luan, shareholder of the Company                       | a | $ | 51,000      |  | $ | -           | 
|                                                                            |   |   |             |  |   |             | 
|Due to related parties:                                                     |   |   |             |  |   |             | 
|Due to Ms. Lianyun Han, Chairperson, CEO
      and President of the Company | b | $ | 551,665     |  | $ | 49,794      | 

|a. | The amount due from Ms. Yuehong Luan was non-interest
      bearing and unsecured. The amount was subsequently repaid by Ms. Yuehong
      Luan in July 2010. As of June 30, 2010, the acquisition payable due to Mr
      Yuehong Luan is $411,727 (see note19(b)).
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                     
|b. | 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 June 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:

|                                                                                               |   | June 30     |  |   | December 31 | 
|---------------------------------------------------------------------------------------------- | - | ----------- |  | - | ----------- | 
|                                                                                               |   | 2010        |  |   | 2009        | 
|                                                                                               |   | (Unaudited) |  |   |             | 
|Ms. Lianyun Han, Chairperson, CEO and
      President of the Company                           | $ | 5,984,014   |  | $ | 5,951,326   | 
|Ms. Nana Jiang, director of the Company                                                        |   | 280,081     |  |   | 278,551     | 
|Mr. Chunming Zhang , director of the
      Company                                             |   | 353,414     |  |   | 351,484     | 
|Mr. Weihan Zhang, director of a subsidiary of the Company
      and the son of Ms. Lianyun Han |   | 441,768     |  |   | 439,354     | 
|Family members of Ms. Lianyun Han                                                              |   | 883,535     |  |   | 878,708     | 
|Ms. Yuehong Luan                                                                               |   | 411,727     |  |   | 409,478     | 
|Other Shuaiyi Founders                                                                         |   | 430,282     |  |   | 427,932     | 
|Total                                                                                          | $ | 8,784,821   |  | $ | 8,736,833   | 

21

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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 six months ended June 30, 2010 and 2009, the Company
purchased rice amounting to $Nil and $655,032, respectively, from Heilonjiang
Shuaiyi Technology Development Co., Ltd. (Shuaiyi Technology). Shuaiyi
Technology and the Company are under common control and management.

(d)      Lease of land

For the six months ended June 30, 2010 and 2009, the Company
paid rental expense of $4,505 and $4,500 for land to Shuaiyi Technology.

NOTE 20CONCENTRATION
  OF CREDIT RISK

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

Except for one customer who accounted for 40% of the Companys
revenue for the six months ended June 30, 2010, there was no other single
customer who accounted for more than 10% of the Companys revenue for either the
six months ended June 30, 2010 or 2009.

As of June 30, 2010, five customers accounted for 29%, 19%, 14%,
  13% and 12% 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 June 30, 2010 or December
  31, 2009.

22

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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 June 30, 2010 are
as follows:

|                                                        |   | (Unaudited) | 
|------------------------------------------------------- | - | ----------- | 
|Remainder of fiscal year ending December
      31, 2010 | $ | 16,014      | 
|Fiscal year ending December 31, 2011                    |   | 9,056       | 
|Fiscal year ending December 31, 2012                    |   | 9,056       | 
|Fiscal year ending December 31, 2013                    |   | 9,056       | 
|Fiscal year ending December 31, 2014                    |   | 9,056       | 
|Thereafter                                              |   | 117,731     | 
|Total                                                   | $ | 169,969     | 

(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. The Company has engaged financial
advisors with a view to raising additional capital for the Company. The Company
believes that it will be able to make the payment for the transfer price within
the time allowed by the relevant PRC business bureau and therefore has not
accrued any amount related to this contingency. However, there can be no
assurance that the Company will be successful in raising sufficient capital for
the purpose of the payment of the transfer price to the Shuaiyi Founders.

23

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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 six months ended June 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 six months
ended June 30, 2010 and 2009 are as follows:

|                                           |  |   |              |  |   | Other        |  |   |             |   |   |              | 
|------------------------------------------ |  | - | ------------ |  | - | ------------ |  | - | ----------- | - | - | ------------ | 
|                                           |  |   | Chinese      |  |   | Agricultural |  |   | Corporate   |   |   |              | 
|Six months
      ended June 30, 2010       |  |   | Golden Grass |  |   | Products     |  |   | unallocated |   |   | Consolidated | 
|                                           |  |   | (Unaudited)  |  |   | (Unaudited)  |  |   | (Unaudited) |   |   | (Unaudited)  | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment revenue from external customers    |  | $ | 9,308,592    |  | $ | 917,955      |  | $ | -           |   | $ | 10,226,547   | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment profit (loss)                      |  | $ | 7,394,331    |  | $ | 73,025       |  | $ | (385,269    | ) | $ | 7,082,087    | 
|Income from operations before income taxes |  |   |              |  |   |              |  |   |             |   | $ | 7,082,087    | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment assets                             |  | $ | 34,130,009   |  | $ | 1,173,790    |  | $ | 11,268,952  |   | $ | 46,572,751   | 
|Total assets                               |  |   |              |  |   |              |  |   |             |   | $ | 46,572,751   | 
|Other segment information:                 |  |   |              |  |   |              |  |   |             |   |   |              | 
|Depreciation and amortization              |  | $ | 501,293      |  | $ | 2,890        |  | $ | 1,942       |   | $ | 506,125      | 
|Expenditure for segment assets             |  | $ | 7,956        |  | $ | -            |  | $ | 290         |   | $ | 8,246        | 

|                                           |  |   |              |  |   | Other        |  |   |             |   |   |              | 
|------------------------------------------ |  | - | ------------ |  | - | ------------ |  | - | ----------- | - | - | ------------ | 
|                                           |  |   | Chinese      |  |   | Agricultural |  |   | Corporate   |   |   |              | 
|Six months
      ended June 30, 2009       |  |   | Golden Grass |  |   | Products     |  |   | unallocated |   |   | Consolidated | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment revenue from external customers    |  | $ | 5,439,084    |  | $ | 2,543,955    |  | $ | -           |   | $ | 7,983,039    | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment profit (loss)                      |  | $ | 3,848,617    |  | $ | 558,983      |  | $ | (166,415    | ) | $ | 4,241,185    | 
|Income from operations before income taxes |  |   |              |  |   |              |  |   |             |   | $ | 4,241,185    | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment assets                             |  | $ | 24,955,981   |  | $ | 1,097,455    |  | $ | 2,392,756   |   | $ | 28,446,192   | 
|Total assets                               |  |   |              |  |   |              |  |   |             |   | $ | 28,446,192   | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Other segment information:                 |  |   |              |  |   |              |  |   |             |   |   |              | 
|Depreciation and amortization              |  | $ | 499,571      |  | $ | 3,926        |  | $ | 1,375       |   | $ | 504,872      | 
|Expenditure for segment assets             |  | $ | -            |  | $ | -            |  | $ | -           |   | $ | -            | 

24

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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 June 30, 2010     |  |   | Golden Grass |  |   | Products     |  |   | unallocated |   |   | Consolidated | 
|                                           |  |   | (Unaudited)  |  |   | (Unaudited)  |  |   | (Unaudited) |   |   | (Unaudited)  | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment revenue from external customers    |  | $ | 5,043,549    |  | $ | 414,603      |  | $ | -           |   | $ | 5,458,152    | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment profit (loss)                      |  | $ | 4,094,283    |  | $ | 24,772       |  | $ | (180,850    | ) | $ | 3,938,205    | 
|Income from operations before income taxes |  |   |              |  |   |              |  |   |             |   | $ | 3,938,205    | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment assets                             |  | $ | 34,130,009   |  | $ | 1,173,790    |  | $ | 11,268,952  |   | $ | 46,572,751   | 
|Total assets                               |  |   |              |  |   |              |  |   |             |   | $ | 46,572,751   | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Other segment information:                 |  |   |              |  |   |              |  |   |             |   |   |              | 
|Depreciation and amortization              |  | $ | 250,830      |  | $ | 1,430        |  | $ | 973         |   | $ | 253,233      | 
|Expenditure for segment assets             |  | $ | 3,430        |  | $ | -            |  | $ | -           |   | $ | 3,430        | 

|                                           |  |   |              |  |   | Other        |  |   |             |   |   |              | 
|------------------------------------------ |  | - | ------------ |  | - | ------------ |  | - | ----------- | - | - | ------------ | 
|                                           |  |   | Chinese      |  |   | Agricultural |  |   | Corporate   |   |   |              | 
|Three months
      ended June 30, 2009     |  |   | Golden Grass |  |   | Products     |  |   | unallocated |   |   | Consolidated | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment revenue from external customers    |  | $ | 2,538,083    |  | $ | 801,679      |  | $ | -           |   | $ | 3,339,762    | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment profit (loss)                      |  | $ | 1,779,350    |  | $ | 62,597       |  | $ | (87,520     | ) | $ | 1,754,427    | 
|Income from operations before income taxes |  |   |              |  |   |              |  |   |             |   | $ | 1,754,427    | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Segment assets                             |  | $ | 24,955,981   |  | $ | 1,097,455    |  | $ | 2,392,756   |   | $ | 28,446,192   | 
|Total assets                               |  |   |              |  |   |              |  |   |             |   | $ | 28,446,192   | 
|                                           |  |   |              |  |   |              |  |   |             |   |   |              | 
|Other segment information:                 |  |   |              |  |   |              |  |   |             |   |   |              | 
|Depreciation and amortization              |  | $ | 249,694      |  | $ | 1,963        |  | $ | 688         |   | $ | 252,345      | 
|Expenditure for segment assets             |  | $ | -            |  | $ | -            |  | $ | -           |   | $ | -            | 

25

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION ANDRESULTS 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 never 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,

- 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 the case may be;
- New Resources refers to New Zealand WAYNEs New Resources Development
  Co., Ltd., our direct, wholly-owned subsidiary, a BVI corporation;
- Heilongjiang Shuaiyi refers to Heilongjiang Shuaiyi New Energy
  Development Co., Ltd. our indirect, wholly-owned subsidiary, a Chinese
  corporation;
- Daqing Shuaiyi refers to Daqing Shuaiyi Biotech Co., Ltd., our indirect,
  wholly-owned subsidiary, a Chinese corporation;
- Harbin Shuaiyi refers to Harbin Shuaiyi Green & Specialty Food
  Trading LLC, our indirect, wholly-owned subsidiary, a Chinese corporation;
- BVI refers to the British Virgin Islands;
- China, Chinese and PRC, refer to the Peoples Republic of China;
- Renminbi and RMB refer to the legal currency of China;
- U.S. dollars, dollars and $ refer to the legal currency of the
  United States;
- SEC refers to the United States Securities and Exchange Commission;
- Securities Act refers to the Securities Act of 1933, as amended; and
- Exchange Act refers to the Securities Exchange Act of 1934, as amended.

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.

Overview of Our Business

We are a holding company that operates through our indirectly
owned subsidiary Heilongjiang Shuaiyi, a leading grower and producer of
Cordyceps Militaris, or Chinese Golden Grass in China. We specialize in
developing, processing, marketing and distributing a variety of agricultural and
nutraceutical products consisting of Chinese Golden Grass, organic and specialty food products. In addition,
we plan to produce and market other products developed from Cordyceps Militaris
within the coming months and years, including specialty beverage products.

26

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Our primary product is Chinese Golden Grass, which is developed
from Cordyceps Militaris. Cordyceps Militaris is a species of parasitic fungus
that is typically found in north-eastern mountainous China. It is a precious
ingredient in traditional Chinese medicine, 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 and kidneys. Through several years of laboratory tests, we developed the
technology to commercially grow and produce Cordyceps Militaris in 2006. We
generated 92% and 76% of our revenues from Chinese Golden Grass for the three
months ended June 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 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
subsidiary, 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.

Second Quarter Financial Performance Highlights

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

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

- Revenues: Our revenues were approximately $5.46 million for the second
  quarter of 2010, an increase of 63.4% from the same quarter of last year.
- Gross Margin: Gross margin was 83.7% for the second quarter of 2010, as
  compared to 64.6% for the same period in 2009.
- Operating Profit: Operating profit was approximately $3.79 million for the
  second quarter of 2010, an increase of 120.3% from $1.72 million of the same
  period last year.
- Net Income: Net income was approximately $3.42 million for the second
  quarter of 2010, an increase of 127.7% from the same period of last year.
- Fully diluted earnings per share was $0.12 for the second quarter of 2010.

On May 27, 2010, we entered into a securities purchase
agreement, or the Securities Purchase Agreement with certain investors, pursuant
to which, we agreed to issue and sell up to an aggregate of 250,000 Units at a
purchase price of $28.56 per Unit. Each Unit consists of (i) one share of a
newly designated series A preferred stock, par value $0.001 per share, or 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, or Common Stock, and
(ii) warrants to purchase five shares of Common Stock at an exercise price of
$3.40 per share, or Warrants. In addition, the Company and the investors agreed,
that Gilford Securities Incorporated, as 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, we 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.

In connection with the Securities Purchase Agreement, we filed
a Certificate of Designation of Series A Preferred Stock with the Secretary of
State of the State of Nevada, or the Certificate, on May 27, 2010, which became
effective upon filing. Pursuant to the Certificate, there are 300,000 shares of
Series A Preferred Stock authorized.

27

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On June 7 and June 28, 2010, we consummated two closings of the
private placement transaction contemplated by the Securities Purchase Agreement
and issued in aggregate approximately 197,706 Units to the investors at a
purchase price of $28.56 per unit for gross proceeds of approximately $5.65
million.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2010 Compared to Three Months
Ended June 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 June 30, |   |  | Three Months Ended June 30, | 
|----------------------------------- |  | --------------------------- | - |  | --------------------------- | 
|                                    |  | 2010                        |   |  | 2009                        | 
|                                    |  |                             |   |  | As a                        | 
|                                    |  |                             |   |  | percentage of               | 
|                                    |  | In Thousands                |   |  | revenues                    | 
|                                    |  |                             |   |  |                             | 
|Revenues                            |  | 5,458                       |   |  | 100 %                       | 
|Cost of goods sold                  |  | (888                        | ) |  | (16.3)%                     | 
|                                    |  |                             |   |  |                             | 
|Gross Profit                        |  | 4,570                       |   |  | 83.7 %                      | 
|                                    |  |                             |   |  |                             | 
|Selling expenses                    |  | (233                        | ) |  | (4.3)%                      | 
|General and administrative expenses |  | (548                        | ) |  | (10.0)%                     | 
|                                    |  |                             |   |  |                             | 
|Income from operations              |  | 3,789                       |   |  | 69.4%                       | 
|                                    |  |                             |   |  |                             | 
|Other income and (expenses)         |  |                             |   |  |                             | 
|Interest income                     |  | 34                          |   |  | 0.6%                        | 
|Exchange
      gain (loss)          |  | (16                         | ) |  | (0.3)%                      | 
|Change in fair value of warrants    |  | 131                         |   |  | 2.4%                        | 
|Other income                        |  | -                           |   |  | -%                          | 
|Total other income (expenses)       |  | 149                         |   |  | 2.7%                        | 
|                                    |  |                             |   |  |                             | 
|Income before income tax            |  | 3,938                       |   |  | 72.2%                       | 
|                                    |  |                             |   |  |                             | 
|Provision for income tax            |  | (522                        | ) |  | (9.6)%                      | 
|                                    |  |                             |   |  |                             | 
|Net income                          |  | 3,416                       |   |  | 62.6 %                      | 

Revenues. Revenues increased approximately $2.12
million, or 63.4%, to approximately $5.46 million for the three months ended
June 30, 2010, from approximately $3.34 million for the same period in 2009.
This increase was mainly attributable to the increase of our sales of our core
product, Chinese Golden Grass, driven by the continued increase in market demand
for our products as well as the sales of our small package Chinese Golden Grass
products. In addition, we increased our selling prices for our packaged Chinese
Golden Grass products by 21%.

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:

28

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

|                            |   | Three
      Months Ended June 30, |  |   | Percent | 
|--------------------------- | - | --------------------------------- |  | - | ------- | 
|                            |   | 2010                              |  |   | 2009    | 
|Components of Sales Revenue |   |                                   |  |   |         | 
|Chinese Golden Grass        | $ | 5,044                             |  | $ | 2,538   | 
|Other agricultural products |   | 414                               |  |   | 802     | 
|Total revenues              | $ | 5,458                             |  | $ | 3,340   | 

Cost of Goods Sold.Our cost of goods sold decreased by
$0.29 million, or 25.0%, to approximately $0.89 million for the three months
ended June 30, 2010 from approximately $1.18 million during the same period in
2009. This decrease was mainly due to improved production process and economy of
scale. As a percentage of revenues, the cost of goods sold decreased to 16.3%
for the three months ended June 30, 2010 from 35.4% 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 unit selling
price. Because the gross margin of small package products is higher than big
package products, the percentage of cost of sales to total sales revenue
decreased as our small package products had a higher percentage in the product
mix in the second quarter of 2010.

Gross Profit.Our gross profit increased by approximately
  $2.41 million, or 112.0%, to approximately $4.57 million for the three months
  ended June 30, 2010 from approximately $2.16 million during the same period
  in 2009. Gross profit as a percentage of revenues, or gross margin, was 83.7%
  for the three months ended June 30, 2010, an increase of 19.1% from 64.6% during
  the same period in 2009. Such percentage increase was mainly due to continued
  product mix shift towards Chinese Golden Grass and the increased sales of our
  higher margin small package Chinese Golden Grass products.

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 approximately $0.15 million, or 184.1%, to approximately
$0.23 million for the three months ended June 30, 2010 from approximately $0.08
million during the same period in 2009. As a percentage of revenues, selling
expenses increased to 4.3% for the three months ended June 30, 2010 from 2.5%
for the same period in 2009. The increase in the amount and percentage of
selling expenses was mainly attributable to the increase of salaries and
travelling expenses of our sales representatives and more marketing activities
to promote our products.

General and Administrative Expenses . General and
administrative expenses increased approximately $0.20 million, or 54.8%, to
approximately $0.55 million for the three months ended June 30, 2010 from
approximately $0.35 million for the same period in 2009. As a percentage of
revenues, general and administrative expenses decreased to 10.0% for the three
months ended June 30, 2010 from 10.6% 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 services expenses associated with legal and
audit services.

Income Before Income Tax . Income before income tax
increased approximately $2.18 million, or 124.5%, to approximately $3.94 million
during the three months ended June 30, 2010 from approximately $1.75 million
during the same period in 2009. As a percentage of revenues, income before
income tax increased to 72.2% during the three months ended June 30, 2010 from
52.5% during the same period in 2009. The increase of income before income tax
is mainly attributable to the increase in our gross profit as a result of the
increase in our sales.

Income Taxes.Nutrastar International Inc. is subject to
United States 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. New Resources was incorporated in the BVI and
under the current laws of the BVI, 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.

29

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Under the EIT, newly established high-technology enterprises,
such as our subsidiary 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 approximately $0.27 million to
approximately $0.52 million for the three months ended June 30, 2010 from
approximately $0.25 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
$1.92million, or 127.7% to approximately $3.42 million for the three months
ended June 30, 2010 from approximately $1.50 million for the same period of
2009, as a result of the factors described above.

Six Months Ended June 30, 2010 Compared to Six Months
Ended June 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.

|                                    |  | Six Months Ended June 30, |   |  | Six Months Ended June 30, | 
|----------------------------------- |  | ------------------------- | - |  | ------------------------- | 
|                                    |  | 2010                      |   |  | 2009                      | 
|                                    |  |                           |   |  | As a                      | 
|                                    |  |                           |   |  | percentage of             | 
|                                    |  | In Thousands              |   |  | revenues                  | 
|                                    |  |                           |   |  |                           | 
|Revenues                            |  | 10,227                    |   |  | 100 %                     | 
|Cost of goods sold                  |  | (1,945                    | ) |  | (19.0)%                   | 
|                                    |  |                           |   |  |                           | 
|Gross Profit                        |  | 8,282                     |   |  | 81.0 %                    | 
|                                    |  |                           |   |  |                           | 
|Selling expenses                    |  | (405                      | ) |  | (4.0)%                    | 
|General and administrative expenses |  | (978                      | ) |  | (9.6)%                    | 
|                                    |  |                           |   |  |                           | 
|Income from operations              |  | 6,899                     |   |  | 67.5%                     | 
|                                    |  |                           |   |  |                           | 
|Other income and (expenses)         |  |                           |   |  |                           | 
|Interest income                     |  | 67                        |   |  | 0.7%                      | 
|Exchange
      gain (loss)          |  | (15                       | ) |  | (0.1)%                    | 
|Change in fair value of warrants    |  | 131                       |   |  | 1.3%                      | 
|Other income                        |  | -                         |   |  | -%                        | 
|Total other income (expenses)       |  | 183                       |   |  | 1.8%                      | 
|                                    |  |                           |   |  |                           | 
|Income before income tax            |  | 7,082                     |   |  | 69.2%                     | 
|                                    |  |                           |   |  |                           | 
|Provision for income tax            |  | (945                      | ) |  | (9.2)%                    | 
|                                    |  |                           |   |  |                           | 
|Net income                          |  | 6,137                     |   |  | 60.0%                     | 

Revenues. Revenues increased approximately $2.24
million, or 28.1%, to approximately $10.23 million for the six months ended June
30, 2010, from approximately $7.98 million for the same period in 2009. This
increase was mainly attributable to the increase of our sales of our core
product, Chinese Golden Grass, driven by the continued increase in market demand
for our products as well as the sales of our small package Chinese Golden Grass
products. In addition, we increased our selling prices for our packaged Chinese
Golden Grass products by 21%.

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:

30

---

Sales Revenue by Product Segments

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

|                            |   | Six
      Months Ended June 30, |  |   | Percent | 
|--------------------------- | - | ------------------------------- |  | - | ------- | 
|                            |   | 2010                            |  |   | 2009    | 
|Components of Sales Revenue |   |                                 |  |   |         | 
|Chinese Golden Grass        | $ | 9,309                           |  | $ | 5,439   | 
|Other agricultural products |   | 918                             |  |   | 2,544   | 
|Total revenues              | $ | 10,227                          |  | $ | 7,983   | 

Cost of Goods Sold.Our cost of goods sold decreased by
$1.00 million, or 33.8%, to approximately $1.94 million for the six months
ended June 30, 2010 from approximately $2.94 million during the same period in
2009. This decrease was mainly due to improved production process and economy of
scale. As a percentage of revenues, the cost of goods sold decreased to 19.0% for
the six months ended June 30, 2010 from 36.8% 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 unit selling price. Because
the gross margin of small package products is higher than big package products,
the percentage of cost of sales to total sales revenue decreased as our small
package products had a higher percentage in the product mix during the six
months ended June 30, 2010.

Gross Profit.Our gross profit increased by approximately
  $3.24 million, or 64.2%, to approximately $8.28 million for the six months ended
  June 30, 2010 from approximately $5.04 million during the same period in 2009.
  Gross profit as a percentage of revenues, or gross margin, was 81.0% for the
  six months ended June 30, 2010, an increase of 17.8% from 63.2% during the same
  period in 2009. Such percentage increase was mainly due to continued product
  mix shift towards Chinese Golden Grass and the increased sales of our higher
  margin small package Chinese Golden Grass products.

Selling Expenses. Our selling expenses increased
approximately $0.21 million, or 109.7%, to approximately $0.41 million for the
six months ended June 30, 2010 from approximately $0.19 million during the same
period in 2009. As a percentage of revenues, selling expenses increased to 4.0%
for the six months ended June 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 of salaries and travelling expenses of our sales
representatives and more marketing activities to promote our products.

General and Administrative Expenses. General and
administrative expenses increased approximately $0.32 million, or 48.5%, to
approximately $0.98 million for the six months ended June 30, 2010 from
approximately $0.66 million for the same period in 2009. As a percentage of
revenues, general and administrative expenses increased to 9.6% for the six
months ended June 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 services expenses associated with legal and
audit services.

Income Before Income Tax. Income before income tax
increased approximately $2.84 million, or 67.0%, to approximately $7.08 million
during the six months ended June 30, 2010 from approximately $4.24 million
during the same period in 2009. As a percentage of revenues, income before
income tax increased to 69.2% during the six months ended June 30, 2010 from
53.1% during the same period in 2009. The increase of income before income tax
is mainly attributable to the increase in our gross profit as a result of the
increase in our sales.

Income Taxes. Income tax increased approximately $0.37
million to approximately $0.95 million for the six months ended June 30, 2010
from approximately $0.57 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 $2.47
million, or 67.2% to approximately $6.14 million for the six months ended June
30, 2010 from approximately $3.67 million for the same period of 2009, as a
result of the factors described above.

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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 six months ended June 30, 2010, our sales revenue from
our Chinese Golden Grass was approximately $9.31 million, and our sales revenue
from our other agricultural products was approximately $0.92 million.

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

Additional 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 June 30, 2010, we had cash and cash equivalents
(excluding restricted cash) of approximately $32.26 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)

Six Months Ended June 30,2010
      2009Net cash provided by operating activities
      $6,411
      $4,657Net cash used in investing activities
      (8)
      -Net cash provided by financing activities
      5,570
      11Foreign currency translation adjustment
      174
      8Net cash inflow
      12,147
      4,676


Operating Activities

Net cash provided by operating activities was approximately
$6.41 million for the six-month period ended June 30, 2010, which is an increase
of approximately $1.75 million from approximately $4.66 million net cash
provided by operating activities for the same period of 2009. The cash provided
by operating activities during the period was mainly attributable to the
increases in our net income.

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 six-month period
ended June 30, 2010 was approximately $0.01 million, which is an increase of
approximately $0.01 million from net cash used in investing activities of
approximately nil million for the same period of 2009.

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Financing Activities

Net cash provided by financing activities for the six-month
period ended June 30, 2010 was approximately $5.57 million, which is an increase
of approximately $5.56 million from approximately $0.01 million net cash
provided by financing activities for the same period of 2009. The cash provided
by financing activities during the period was mainly due to the $5.48 million
net proceeds from the private placement consummated in June 2010.

On June 7 and June 28, 2010, the Company consummated two
closings of a private placement transaction and issued in aggregate
approximately 197,706 Units to certain investors at a purchase price of $28.56
per unit for gross proceeds of approximately $5.65 million. Each unit consists
of one share of Series A Preferred Stock with an initial one-to-ten conversion
ratio into shares of the Company's 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.

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:

33

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- 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 with indefinite 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.
- 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 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. 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.

34

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- 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.

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.

35

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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 June 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 June 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.

36

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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 June 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.

* Filed herewith.

37

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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: August 16, 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.

* Filed herewith.

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