UNITED STATES
SECURITIES 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: September 30, 2010

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

For the transition period from ____________to _____________

Commission File Number: 000-52899

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

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

7/F Jinhua Mansion
41 Hanguang Street
Nangang District, Harbin 150080
People’s Republic of China
(Address of principal executive offices, Zip Code)

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

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

Yes [X] No [  ] 

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

Yes [  ]  No [  ] 

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

Large accelerated filer [  ]                                                                                                               Accelerated filer [  ]

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

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

Yes [  ] No [X]

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

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

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION Page

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

PART II – OTHER INFORMATION

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

1

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

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

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

See accompanying notes to condensed consolidated financial statements

2

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

		For the Three Months						For the Nine Months
		Ended September 30,						Ended September 30,
		2010			2009			2010			2009
Revenue	$	6,461,523		$	3,565,961		$	16,688,070 $			11,549,244
Cost of goods sold		(1,177,739	)		(793,101	)		(3,122,669	)		(3,733,026	)
Gross profit		5,283,784			2,772,860			13,565,401			7,816,218
Selling expenses		(305,151	)		(87,901	)		(710,179	)		(281,025	)
General and administrative expenses		(545,533	)		(330,660	)		(1,522,650	)		(943,903	)
Income from operations		4,433,100			2,354,299			11,332,572			6,591,290
Other income (expenses):
Interest income		24,971			18,507			91,767			50,150
Exchange loss		(88,023	)		(3,709	)		(103,292	)		(7,218	)
Change in fair value of warrants		302,113			-			433,201			-
Other		-			13			-			165
Total other income(expenses)		239,061			14,811			421,676			43,097
Income before income tax		4,672,161			2,369,110			11,754,248			6,634,387
Provision for income tax		(605,967	)		(340,056	)		(1,551,351	)		(891,220	)
Net income		4,066,194			2,029,054			10,202,897			5,743,167
Other comprehensive income:
Foreign currency translation adjustment		541,692			25,251			719,779			20,940
Total comprehensive income	$	4,607,886		$	2,054,305		$	10,922,676		$	5,764,107
Earnings per share:
Basic	$	0.28		$	0.15		$	0.58		$	0.44
Diluted	$	0.25		$	0.15		$	0.58		$	0.44
Weighted average number of shares outstanding:
Basic		14,332,731			13,297,731			14,326,138			12,989,613
Diluted		16,435,334			13,297,731			14,383,936			12,989,613

See accompanying notes to condensed consolidated financial statements.

3

NUTRASTAR INTERNATIONAL INC. AND SUBSIDARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
(AMOUNTS EXPRESSED IN US DOLLARS)

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

See accompanying notes to condensed consolidated financial statements.

4

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

		For the Nine Months
		Ended September 30,
		2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,202,897		$	5,743,167
Adjustments to reconcile net income to cash provided by operating activities:
Change in fair value of warrants		(433,201	)		-
Amortization of warrants		29,812			-
Share-based compensation expense		143,014			25,000
Depreciation and amortization		761,512			756,396
(Increase) decrease in assets:
Accounts receivable		(168,972	)		(78,790	)
Prepayments and other receivables		(23,607	)		2,693
Inventories		(130,463	)		537,483
Increase (decrease) in liabilities:
Accounts payable		117,579			117,710
Other payables and accruals		(4,862	)		11,498
Income tax payable		195,172			(36,400	)
Trade payable due to related parties		-			6,751
Net cash provided by operating activities		10,688,881			7,085,508
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(9,984	)		-
Payment of acquisition payable		-			(50,269	)
Net cash used in investing activities		(9,984	)		(50,269	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Private Placement		5,483,919			-
Increase in restricted cash		(231,025	)		-
Repayment of payables for intangible asset		(881,459	)		(878,207	)
Advances from (repayments to) related parties		(41,966	)		61,621
Net cash provided by (used in) financing activities		4,329,469			(816,586	)
Foreign currency translation adjustment		691,638			17,569
INCREASE IN CASH AND CASH EQUIVALENTS		15,700,004			6,236,222
CASH AND CASH EQUIVALENTS, at the beginning of the period		20,115,677			9,198,243
CASH AND CASH EQUIVALENTS, at the end of the period	$	35,815,681		$	15,434,465
NON-CASH ACTIVITIES:
Share-based payments to officer under equity incentive plan	$	143,014		$	-
SUPPLEMENTAL DISCLOSURE INFORMATION
Income taxes paid	$	1,540,789		$	593,008

See accompanying notes to condensed consolidated financial statements.

5

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1      DESCRIPTION OF BUSINESS AND ORGANIZATION

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

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

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

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

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

6

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2      BASIS OF PRESENTATION

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

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

Research and development costs

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

Advertising costs

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

Shipping and handling costs

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

Foreign currency

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

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

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

7

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES 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 3      RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncement

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

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

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

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

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

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

8

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4      FAIR 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 at
Financial instruments		Level 1		Level 2		Level 3		September 30,		December 31,
								2010		2009
Liabilities:
Derivative instruments −	$	—	$	704,166	$	—	$	704,166	$	—
Warrants
Total	$	—	$	704,166	$	—	$	704,166	$	—

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

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

9

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5      RESTRICTED CASH

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

Restricted cash consisted of the following:

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

NOTE 6      ACCOUNTS RECEIVABLE

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

NOTE 7      INVENTORIES

Inventories by major categories are summarized as follows:

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

10

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8      PREPAYMENTS AND OTHER RECEIVABLES

Prepayments and other receivables consist of the following:

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

NOTE 9     INTANGIBLE ASSETS, NET

Intangible assets, net consisted of the following:

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

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

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

NOTE 10      PROPERTY, PLANT AND EQUIPMENT, NET

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

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

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

11

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11      OTHER PAYABLES AND ACCRUALS

Other payables and accruals consisted of the following:

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

NOTE 12      PAYABLE FOR INTANGIBLE ASSETS

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

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

NOTE 13      ACQUISITION PAYABLE

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

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

12

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14     SHAREHOLDERS’ EQUITY

Private Placement

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

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

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

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

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

Escrow Agreement

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

13

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14      SHAREHOLDERS’ EQUITY (CONTINUED)

Allocation of Proceeds in the Private Placement (continued)

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

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

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

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

14

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14      SHAREHOLDERS’ EQUITY (CONTINUED)

Preferred Stock

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

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

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

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

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

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

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

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

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

15

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14      SHAREHOLDERS’ EQUITY (CONTINUED)

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

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

Accounting for Series A Preferred Stock

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

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

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

Common Stock Purchase Warrants

Series C Warrants

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

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

16

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14      SHAREHOLDERS’ EQUITY (CONTINUED)

Common Stock Purchase Warrants (continued)

Series C Warrants (continued)

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

Accounting for Warrants

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

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

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

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

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

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

17

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14      SHAREHOLDERS’ EQUITY (CONTINUED)

Common Stock Purchase Warrants (continued)

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

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

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

NOTE 15      STATUTORY RESERVES

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

18

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16      SHARE-BASED COMPENSATION

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

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

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

The Restricted Shares vest under the following schedule:

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

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

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

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

19

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16      SHARE-BASED COMPENSATION (CONTINUED)

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

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

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

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

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

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

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

20

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 16      SHARE-BASED COMPENSATION (CONTINUED)

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

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

The Restricted Shares vest under the following schedule:

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

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

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

21

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17      EARNINGS PER SHARE

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

		For the three months					For the nine months
		Ended September 30,					Ended September 30,
		2010			2009		2010			2009
		(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
Income available to common shareholders:
- Net income	$	4,066,194		$	2,029,054	$	10,202,897		$	5,743,167
Less: Preferred stock dividend		(83,716	)		-		(97,464	)		-
Less: Beneficial conversion feature of convertible preferred stock		-			-		(1,742,239	)		-
Income available to common shareholders (Basic)	$	3,982,478		$	2,029,054	$	8,363,194		$	5,743,167
Add: Preferred stock dividend		83,716			-		-			-
Income available to common shareholders (Diluted)	$	4,066,194			2,029,054		8,363,194			5,743,167
Weighted average number of shares:
- Basic		14,332,731			13,297,731		14,326,138			12,989,613
- Effect of diluted convertible preferred stock		1,977,060			-		-			-
- Effect of dilutive warrants, options and restricted stock units		125,543			-		57,798			-
- Diluted		16,435,334			13,297,731		14,383,936			12,989,613
Net income per share
- Basic	$	0.28		$	0.15	$	0.58		$	0.44
- Diluted	$	0.25		$	0.15	$	0.58		$	0.44

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

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

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

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

22

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18      INCOME TAXES

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

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

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

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

The Company’s income tax expense consisted of:

		For the Three Months						For the Nine Months
		Ended September 30,						Ended September 30,
		2010			2009			2010			2009
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Current income tax – PRC	$	(605,967	)	$	(340,056	)	$	(1,551,351	)	$	(891,220	)
Deferred		-			-			-			-
Income tax expenses	$	(605,967	)	$	(340,056	)	$	(1,551,351	)	$	(891,220	)

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

		Ended September 30,						Ended September 30,
		2010			2009			2010			2009
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Pre-tax income	$	4,672,161		$	2,369,110		$	11,754,248		$	6,634,387
United States federal corporate income tax rate		34%			34%			34%			34%
Income tax computed at United States statutory
Corporate income tax rate		(1,588,535	)		(805,497	)		(3,996,444	)		(2,255,692	)
Impact of tax holiday of Daqing Shuaiyi		589,954			301,697			1,515,874			835,479
Loss not recognized as deferred tax assets		(43,540	)		(15,466	)		(100,475	)		(58,418	)
Change in fair value of warrants		102,718			-			147,288			-
Rate differential for PRC earnings		341,973			212,279			895,409			597,515
Non-deductible expenses and non-taxable income		(8,537	)		(33,069	)		(13,003	)		(10,104	)
Effective tax (expense) benefit	$	(605,967	)	$	(340,056	)	$	(1,551,351	)	$	(891,220	)

23

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18      INCOME TAXES (CONTINUED)

The Company had deferred tax assets as follows:

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

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

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

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

24

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19      RELATED PARTY TRANSACTIONS

(a) Due from(to) related parties

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

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

(b) Acquisition payable

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

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

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

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

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

25

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19      RELATED PARTY TRANSACTIONS (CONTINUED)

(c) Purchase of goods

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

(d) Lease of land

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

NOTE 20      CONCENTRATION OF CREDIT RISK

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

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

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

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

26

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21      COMMITMENTS AND CONTINGENCIES

(a) Operating leases

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

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

(b) PRC employee costs

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

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

(c) Transfer price for equity interest in Heilongjiang Shuaiyi

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

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

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

27

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22      SEGMENT INFORMATION

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

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

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

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

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

28

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22      SEGMENT INFORMATION (CONTINUED)

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

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

NOTE 23      SUBSEQUENT EVENTS

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

29

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23      SUBSEQUENT EVENTS (CONTINUED)

(b)	Also on October 5, 2010, the Company entered into an indemnification agreement with its chief financial officer (the “CFO”) pursuant to which the Company agreed to indemnify the CFO against expenses, judgments, fines, penalties or other amounts actually and reasonably incurred by the CFO in connection with any proceeding if the CFO acted in good faith and in the best interests of the Company.
(c)	On October 22, 2010, New Resources, a wholly-owned British Virgin Islands subsidiary of the Company, entered into an equity transfer agreement with the Shuaiyi Founders of Heilongjiang Shuaiyi, pursuant to which New Resources transferred all of its equity interests in Heilongjiang Shuaiyi, a wholly-owned Chinese subsidiary of New Resources, to Shuaiyi Founders for free (the “Equity Transfer”).
	In connection with the Equity Transfer, the Shuaiyi Founders, the Company’s indirectly wholly-owned Chinese subsidiary incorporated on July 13, 2010 , Harbin Baixin Biotech Development Co., Ltd. (“Harbin Baixin”) and Heilongjiang Shuaiyi entered into the following commercial arrangements (the “Contractual Arrangement” and together with the Equity Transfer, the “Restructuring”), pursuant to which the Company has contractual rights to control and operate the businesses of Heilongjiang Shuaiyi and Heilongjiang's two Chinese subsidiaries, Daqing Shuaiyi and Harbin Shuaiyi and together with Heilongjiang Shuaiyi and Daqing Shuaiyi, the “VIEs”:
		Pursuant to a technical service agreement, entered into by and between Harbin Baixin and Heilongjiang Shuaiyi, Harbin Baixin will provide certain exclusive technical services to Heilongjiang Shuaiyi in exchange for the payment by Heilongjiang Shuaiyi of a service fee that is calculated based on the market price in light of the particulars of the service and the time of such service provided by Harbin Baixin;
		Pursuant to an exclusive purchase option agreement, entered into by and among Harbin Baixin, the Shuaiyi Founders and Heilongjiang Shuaiyi, the Shuaiyi Founders granted to Harbin Baixin an option to purchase at any time during the term of this agreement, all or part of the equity interests in Heilongjiang Shuaiyi (the “Equity Interests”), at the exercise price equal to the lowest possible price permitted by Chinese laws;
		Pursuant to a voting rights proxy agreement, entered into by and among Harbin Baixin, the Shuaiyi Founders and Heilongjiang Shuaiyi, each of the Shuaiyi Founders irrevocably entrusted Harbin Baixin and any entities or individuals designated by Harbin Baixin to, among others, exercise its voting rights and other rights as a shareholder of Heilongjiang Shuaiyi; and
		Pursuant to an equity pledge agreement, entered into by and among Harbin Baixin, the Shuaiyi Founders and Heilongjiang Shuaiyi, the Shuaiyi Founders pledged all of the Equity Interests to Harbin Baixin to secure the full and complete performance of the obligations and liabilities on the part of the Shuaiyi Founders and Heilongjiang Shuaiyi under this and above contractual arrangements (the Pledge Agreement together with the Service Agreement, the Option Agreement, the Voting Rights Agreement and the Equity Transfer Agreement, the “Restructuring Documents”).
		As a result of the Restructuring, the Company transferred all of its indirect equity interests in Heilongjiang Shuaiyi back to the Shuaiyi Founders, among whom, Ms. Lianyun Han became a majority shareholder of Heilongjiang Shuaiyi by owning 68.3% equity interest in Heilongjiang Shuaiyi. At the same time, through the Contractual Arrangement, the Company maintains substantial control over the VIEs’ daily operations and financial affairs, election of their senior executives and all matters requiring shareholder approval. As the primary beneficiary of the VIEs, the Company is entitled to consolidate the financial results of the VIEs in its own consolidated financial statements under Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics related to the consolidation of variable interest entities (collectively, “ASC Topic 810”).

30

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23      SUBSEQUENT EVENTS (CONTINUED)

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

31

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

Special Note Regarding Forward Looking Statements

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

Certain Terms

Except as otherwise indicated by the context,

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

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

32

Overview of Our Business

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

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

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

Third Quarter Financial Performance Highlights

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

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

• Revenues: Our revenues were approximately $6.46 million for the third quarter of 2010, an increase of 81.2% from the same quarter of last year.

• Gross Margin: Gross margin was 81.8% for the third quarter of 2010, as compared to 77.8% for the same period in 2009.

• Operating Profit: Operating profit was approximately $4.43 million for the third quarter of 2010, an increase of 88.3% from $2.35 million of the same period last year.

• Net Income: Net income was approximately $4.07 million for the third quarter of 2010, an increase of 100.4% from the same period of last year.

• Fully diluted earnings per share was $0.25 for the third quarter of 2010.

Recent Development

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

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

33

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

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

RESULTS OF OPERATIONS

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

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

	Three Months Ended				Three Months Ended
	September 30, 2010				September 30, 2009
			As a				As a
			percentage of				percentage of
	In Thousands		revenues		In Thousands		revenues
Revenues	6,462		100	%	3,566		100	%
Cost of goods sold	(1,178	)	(18.2	)%	(793	)	(22.2	)%
Gross Profit	5,284		81.8	%	2,773		77.8	%
Selling expenses	(305	)	(4.7	)%	(88	)	(2.4	)%
General and administrative expenses	(546	)	(8.4	)%	(331	)	(9.3	)%
Income from operations	4,433		68.6	%	2,354		66.0	%
Other income and (expenses)
Interest income	25		0.4	%	19		0.5	%
Change in fair value of warrants	302		4.7	%	-		-	%
Exchange loss	(88	)	(1.4	)%	(4	)	(0.1	)%
Income before income tax	4,672		72.3	%	2,369		66.4	%
Provision for income tax	(606	)	(9.4	)%	(340	)	(9.5	)%
Net income	4,066		62.9	%	2,029		56.9	%

34

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

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

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

		Three Months Ended September 30,			Percent
		2010		2009	Change
Components of Sales Revenue
Chinese Golden Grass	$	6,071	$	3,257	86.4%
Other agricultural products		391		309	26.5%
Total revenues	$	6,462	$	3,566	81.2%

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

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

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

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

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

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

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

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

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

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

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

	Nine Months Ended				Nine Months Ended
	September 30, 2010				September 30, 2009
			As a				As a
			percentage of				percentage of
	In Thousands		revenues		In Thousands		revenues
Revenues	16,688		100	%	11,549		100	%
Cost of goods sold	(3,123	)	(18.7	)%	(3,733	)	(32.3	)%
Gross Profit	13,565		81.3	%	7,816		67.7	%
Selling expenses	(710	)	(4.3	)%	(281	)	(2.4	)%
General and administrative expenses	(1,522	)	(9.1	)%	(944	)	(8.2	)%
Income from operations	11,333		67.9	%	6,591		57.1	%
Other income and (expenses)
Interest income	92		0.6	%	50		0.4	%
Change in fair value of warrants	433		2.6	%	-		-	%

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

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

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

Sales Revenue by Product Segments

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

		Nine Months Ended September 30,			Percent
		2010		2009	Change
Components of Sales Revenue
Chinese Golden Grass	$	15,379	$	8,696	76.9%
Other agricultural products		1,309		2,853	(54.1%	)
Total revenues	$	16,688	$	11,549	44.5%

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

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

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

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

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

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

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

Business Segment Information

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

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

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

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

Liquidity and Capital Resources

General

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

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

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

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Operating Activities

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

Investing Activities

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

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

Financing Activities

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

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

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

Effects of Inflation

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

Off Balance Sheet Arrangements

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

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Seasonality

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

Critical Accounting Policies

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

• Accounts Receivable. The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends.

• Inventories. Inventories are stated at the lower of cost, determined on a weighted average basis, or market. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. The management will write down the inventories to market value if it is below cost. The management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required.

• Impairment. The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets, including goodwill, if any. An impairment loss is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups.

• Property, plant and equipment. The carrying value of property, plant and equipment is assessed annually and when factors indicating impairment is present, the carrying value of the property, plant and equipment is reduced by the amount of the impairment. The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the net asset carrying value. An impairment loss, if exists, is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

• Intangible assets. The Company’s intangible assets include a ten-year exclusive right to use a secret process and computer software. The Company accounts for its intangible assets pursuant to FASB ASC Subtopic 350-30, “General Intangibles Other Than Goodwill”. Under ASC 350-30-35, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms. Intangibles within definite lives are evaluated at least annually for impairment by comparing the asset’s estimated fair value with its carrying value, based on cash flow methodology.

• Revenue Recognition. Revenue is recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Sales revenue is recognized net of value added and sales related taxes, sales discounts and returns at the time when the merchandise is delivered to the customer. Based on historical experience, management estimates that sales returns are immaterial and has not made allowance for estimated sales returns.

40

• Foreign currency translation. The Company uses the United States dollars (“US Dollar” or “US$” or “$”) for financial reporting purposes. The PRC subsidiaries within the Company maintains the books and records intheir functional currency, Chinese Renminbi (“RMB”), being the lawful currency in the PRC. Assets and liabilities of the PRC subsidiaries are translated from RMB into US Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statement of operations are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income. The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the consolidated financial statements are based on the rates as published on the website of People’s Bank of China. The value of RMB against U.S. dollars and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of RMB may materially affect the Company’s results and financial position in terms of U.S. dollar reporting.

• Stock-based Compensation. The Company accounts for share-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period. The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, “Equity-Based Payments to Non-employees”. Under FASB ASC Topic 718 and FASB ASC Subtopic 505-50, stock compensation granted to non-employees has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever is more reliably measured and is recognized as expenses as the goods or services are received.

New accounting pronouncement to be adopted

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

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

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

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

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

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

Changes in Internal Control Over Financial Reporting.

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

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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS

Not applicable.

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. [REMOVED AND RESERVED]

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

EXHIBITS.

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

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SIGNATURES

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

DATED: November 15, 2010

NUTRASTAR INTERNATIONAL INC.

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

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

EXHIBIT INDEX

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