Attached files

file filename
EX-23.1 - EXHIBIT 23.1 - Nutrastar International Inc.exhibit23-1.htm

As filed with the Securities and Exchange Commission on September 9, 2010

Registration No. 333 -168773

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________

AMENDMENT NO. 1
TO FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

NUTRASTAR INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)

Nevada 2000 80-0264950
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

7/F Jinhua Mansion
41 Hanguang Street
Nangang District, Harbin, 150080
People’s Republic of China
(86) 451-82287746

(Address and telephone number of principal executive offices)
____________________________

  Copies of Correspondence to:
CSC Services of Nevada, Inc.  
502 East John Street Scott C. Kline, Esq.
Carson City, NV 89706 Qixiang Sun, Esq.
(775) 882-3072 Pillsbury Winthrop Shaw Pittman LLP
  Suite 4201, Bund Center, 222 Yan An Road East,
(Names, addresses and telephone Shanghai, 200002 China
numbers of agents for service) +86-21-6137-7999
   

____________________________

Approximate date of commencement of proposed sale to public: From time to time after the effective date of this Registration Statement, as determined by market conditions and other factors.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]

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

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


CALCULATION OF REGISTRATION FEE

Title of securities
to be registered

Amount to be registered(1)

Proposed maximum offering
price per share(2)

Proposed maximum aggregate
offering price(2)

Amount of
registration fee

Common stock, $0.001 par value per share underlying Series A Preferred Stock, $0.001par value per share (4)

1,977,060

$2.80

$5,535,768

$395

Common stock underlying Series C Warrants exercisable at $3.40 per share

988,501(5)

$3.40(3)

$3,360,904

$240

Total

 2,965,561

 

$8,896,672

$635(6)

(1) In accordance with Rule 416(a), the Registrant is also registering hereunder an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.
(2) Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee based on the average of the bid and asked prices reported on the OTCQB market on August 9, 2010.
(3) Calculated in accordance with Rule 457(g) based upon the exercise price of the Series C Warrants held by selling stockholders named in this registration statement.
(4) Represents shares of the Registrant’s common stock underlying shares of Series A Preferred Stock being registered for resale that have been issued to the selling stockholders named in this registration statement.
(5) Represents shares of common stock issuable upon exercise of three-year warrants to purchase shares of common stock held by selling stockholders named in this registration statement.
(6) The registration fee of $635 was previously paid on August 11, 2010.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.


The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

PROSPECTUS 

Subject to completion, dated September 9, 2010 
 
2,965,561 Shares 
 
 
 
 NUTRASTAR INTERNATIONAL INC.
 
 
 Common Stock, par value $0.001 per share
_________________________
 

This prospectus relates to 2,965,561 shares of common stock of Nutrastar International Inc. that may be sold from time to time by the selling stockholders named in this prospectus, which includes:

 

º

1,977,060 shares of common stock underlying series A preferred stock, par value $0.001 per share, or the Series A Preferred Stock; and

 

º

988,501 shares of common stock issuable to the selling stockholders upon the exercise of Series C Warrants.

 

We will not receive any proceeds from the sales of outstanding shares of common stock by the selling stockholders, but we will receive funds from the exercise of Series C Warrants held by the selling stockholders, if exercised for cash.

 

Our common stock is quoted on the OTCQB market under the symbol “NUIN.” The closing price for our common stock on September 7, 2010 was $2.98 per share, as reported on the OTCQB market. You are urged to obtain current market quotations of our common stock before purchasing any of the shares being offered for sale pursuant to this prospectus.

 

The shares of our common stock offered under this prospectus are being registered to permit the selling stockholders to sell the shares from time to time in the public market. The selling stockholders may sell the shares through ordinary brokerage transactions or through any other means described in the section titled “Plan of Distribution.” We do not know when or in what amount the selling stockholders may offer the shares for sale. The selling stockholders may sell any, all or none of the shares offered by this prospectus.

 

Investing in the shares being offered pursuant to this prospectus involves a high degree of risk. You should carefully read and consider the information set forth in the section of this prospectus titled “Risk Factors,” beginning on page 7, when determining whether to purchase any of these shares.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 
The date of this prospectus is                        , 2010.


TABLE OF CONTENTS

  Page
PROSPECTUS SUMMARY 1
RISK FACTORS 7
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 18
USE OF PROCEEDS 18
BUSINESS 18
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 26
HISTORY AND CORPORATE STRUCTURE 35
MANAGEMENT 38
EXECUTIVE COMPENSATION 42
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS; CORPORATE GOVERNANCE 44
CHANGE IN ACCOUNTANTS 45
SELLING STOCKHOLDERS 46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 51
DESCRIPTION OF SECURITIES 53
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS 55
SHARES ELIGIBLE FOR FUTURE SALE 57
PLAN OF DISTRIBUTION 58
LEGAL MATTERS 60
EXPERTS 60
WHERE YOU CAN FIND MORE INFORMATION 60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1

You should rely only on the information provided in this prospectus. Neither we nor the selling stockholders have authorized anyone to provide you with additional or different information. The selling stockholders are not making an offer of these securities in any jurisdiction where the offer is not permitted. You should assume that the information in this prospectus is accurate only as of the date on the front of the document.

i


PROSPECTUS SUMMARY

The items in the following summary are described in more detail later in this prospectus. You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering, including “Risk Factors” and our consolidated financial statements and related notes, included elsewhere in, or incorporated by reference into, this prospectus.

In this prospectus, unless indicated otherwise,

  • “we,” “us,” “our company,” “our” and “Nutrastar” refer to the combined business of Nutrastar International Inc. and/or its consolidated subsidiaries, as the case may be;

  • “New Resources” refers to New Zealand WAYNE’s New Resources Development Co., Ltd., our direct, wholly-owned subsidiary, a BVI company;

  • “Heilongjiang Shuaiyi” refers to Heilongjiang Shuaiyi New Energy Development Co., Ltd. our indirect, wholly-owned subsidiary, a Chinese company;

  • “Daqing Shuaiyi” refers to Daqing Shuaiyi Biotech 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, a Chinese company;

  • “BVI” refers to the British Virgin Islands;

  • “China,” “Chinese” and “PRC,” refer to the People’s Republic of China and for the purpose of this prospectus, do not include Taiwan and the special administrative regions of Hong Kong and Macau;

  • “Renminbi” and “RMB” refer to the legal currency of China;

  • “U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States;

  • “SEC” refers to the United States Securities and Exchange Commission;

  • “Securities Act” refers to the Securities Act of 1933, as amended; and

  • “Exchange Act” refers to the Securities Exchange Act of 1934, as amended.

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

The Company

Overview of Our Business

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

Our primary product is Chinese Golden Grass, which is developed from Cordyceps Militaris. Cordyceps Militaris is a species of parasitic fungus that is typically found in north-eastern mountainous China. It is a precious ingredient in traditional Chinese medicine, as Cordyceps Militaris is widely believed in China to offer high medical and health benefits by nourishing the yin, boosting the yang, and invigorating the meridians of the lungs and kidneys.

1


We generated 91.0% and 78.7% of our revenues from Chinese Golden Grass for the six months ended June 30, 2010 and the fiscal year of 2009, respectively. We believe that we own 19% of the world wide market share in the cultivated Chinese Golden Grass industry. We plan to continue to focus on Chinese Golden Grass, which is our fastest growing product line with the greatest market demand and a significantly high profit margin. We also sell organic and specialty food products through our subsidiary, Harbin Shuaiyi, which was formed in 2001. After years of development, we believe that we have become the largest wholesale distributor of organic and specialty food in Heilongjiang Province, China.

Our Competitive Strengths

We believe that our success to date and potential for future growth can be attributed to a combination of our strengths, including the following:

  • High-end niche products. We sell organic and specialty food products and Chinese Golden Grass products that the followers of traditional Chinese medicine believe have high nutrient concentration, potential health benefits and high value. Our products are positioned in the high-end market as premium healthy food and are distinguished from the common nutraceutical products in the market.

  • Leading market position and significantly high margin. We believe we have established ourselves as a dominant player in China’s Chinese Golden Grass industry. By successfully commercializing our Cordyceps Militaris planting technology, we believe that we have achieved economies of scale and accordingly significantly high margin that no other major competitor can match in the near future.

  • Leading-edge R&D team. Our research and development team has a strong and extensive technology background and has been an early participant in the Chinese Golden Grass market. Currently we have 21 technicians in our R&D department, led by Mr. Lichen Wang who is a lead expert in the field of edible fungus in China.

  • Experienced management team with a strong track record. Our management team has extensive operating experience and industry knowledge. We believe that our management team’s experience and capabilities have contributed greatly to our significant growth in the past three years.

Our Growth Strategy

As a leading nutraceutical producer in China, we believe we are well positioned to capitalize on future industry growth in China. We are dedicated to providing healthy and high nutritional products to our consumers. We will implement the following strategic plans to take advantage of industry opportunities and our competitive strengths:

  • Focus on brand development. With intense price competition among many similar or identical products in the industry, we believe that building brand awareness is the primary means to generate and sustain profitable growth in the future. We believe that developing close cooperative relationships with research centers of well-known universities in China and globally is key to building brand equity. We also market our products through an integrated marketing program that includes advertising in relevant media outlets, attending trade shows and offering seminars and lectures to local communities regarding the products and their heath benefits.

  • Introducing new products. We constantly evaluate our products and seek to adapt to changing market conditions by updating our products to reflect new trends in consumer preferences. We endeavor to expand our market presence by introducing additional competitive nutraceutical products to our product offerings. Our new products under development include specialty beverage products.

  • Increase production capacity. Our existing production lines of Chinese Golden Grass have been running at close to full capacity while the market demand for our existing products continues to increase. In order to meet the raw material needs of our products and to expand sales of small packages of our Golden Grass products, we plan to add 10 plants to our production line, of which three plants are expected to begin operating during the second half of 2010. We anticipate that the entire project will be completed in 2012. Annual production capacity of Golden Grass is expected to increase to 72 tons in 2010, up from 55 tons in 2009. We will convert more buildings into biotechnologically controlled cultivation plants to grow and process Cordyceps Militaris in the future.

2


  • Further expand our distribution network to increase the prevalence of our products nationwide. We plan to expand our distribution network by selling our small-pack products through drug stores, supermarkets and franchise stores. We have one-year contracts with our major distributors which normally extend for one more year by the end of the contracts. We maintain constant communications with these distributors to keep us informed regarding consumer preferences and market trends in order to develop new products. We also organize monthly product promotion meetings with the distributors to increase the sales of small package products.

  • Technology innovation. We believe that the development of new technology is critical to our success. We will continuously improve the quality of our existing and future products through new technologies. We intend to maintain our long-term partnership with Chinese universities and research institutes in order to develop new technologies.

Our Background and History

We were originally incorporated in the State of Nevada on December 22, 2002. Following incorporation, we engaged in the business of developing software which allowed us to act as an application service provider acting as a conduit between retailers and financial institutions. Because this business was not successful, we were focused on the identification of suitable businesses with which to enter into a business opportunity or business combination until December 23, 2008, when we completed our reverse acquisition of New Resources. As a result of our reverse acquisition of New Resources, we are no longer a shell company and active business operations were revived.

On May 19, 2009, we filed amended and restated articles of incorporation with the Nevada Secretary of State to amend our articles of incorporation to, among other things, (1) change our name from “YzApp International Inc.” to “Shuaiyi International New Resources Development Inc.,” (2) increase the total number of shares of common stock that we have the authority to issue from 50,000,000 to 190,000,000 shares and (3) effect a 1-for-114.59 reverse split of our outstanding common stock.

On January 11, 2010, we changed our name to Nutrastar International Inc. to more accurately reflect our marketing and branding strategy and products.

On May 27, 2010, we entered into a securities purchase agreement, or the 2010 Securities Purchase Agreement with certain investors, pursuant to which, we agreed to issue and sell up to an aggregate of 250,000 Units at a purchase price of $28.56 per Unit, for an aggregate purchase price of up to $7,140,000, or 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, or the 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, and (ii) warrants to purchase five shares of common stock at an exercise price of $3.40 per share, or the Series C Warrants. In addition, Gilford Securities Incorporated, as the placement agent of this transaction, received from the investors a fee equal to 2% of the Aggregate Purchase Price and Series C 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 2010 Securities Purchase Agreement are convertible into.

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

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

Corporate Information

The following chart reflects our organizational structure as of the date of this prospectus.

3



Our corporate headquarters are located at 7/F Jinhua Mansion, 41 Hanguang Street, Nangang District, Harbin 150080, China. Our telephone number is (86) 451-82287746. We maintain a website at http://www.nutrastarintl.com that contains information about us, but that information is not a part of this prospectus.

4


The Offering

Common stock offered by selling stockholders

 

2,965,561 shares, consisting of 1,977,060 shares of common stock underlying Series A Preferred Stock owned by selling stockholders and 988,501 shares of common stock issuable upon the exercise of Series C Warrants held by the selling stockholders. This number represents 17.1% of our current outstanding common stock, on a fully diluted basis(1) .

 

Common stock outstanding before the offering

 

14,332,731 shares

 

Common stock outstanding after the offering, assuming all the shares of Series A Preferred Stock are converted into common stock and the Series C Warrants are exercised for cash.

 

17,298,292 shares

 

Proceeds to us

 

We will not receive any proceeds from the sale of common stock covered by this prospectus. We will, however, receive approximately $3.36 million from the exercise of the warrant held by the selling stockholder, if exercised for cash.

 

Trading Symbol

 

NUIN

(1) Based on 14,332,731 shares of our common stock issued and outstanding as of September 7, 2010.

Risk Factors

In operating our business, we have faced and will continue to face significant challenges. Our ability to successfully operate our business is subject to numerous risks as discussed more fully in the section titled “Risk Factors.” For example:

  • Our current business is significantly based on a single product, Chinese Golden Grass;

  • Our inability to grow and harvest sufficient Cordyceps Militaris to satisfy our production requirements could reduce our sales and negatively affect our results of operations;

  • Evaluating our business and prospects based only on our past results may be difficult; and

  • We are subject to risks of conducting business in China.

Any of the above risks could materially and adversely affect our business, financial position and results of operations. An investment in our common stock involves risks. You should carefully read and consider the information set forth in “Risk Factors” and all other information set forth in this prospectus before investing in our common stock.

5


Summary Consolidated Financial Information

The following summary consolidated statement of income data for the years ended December 31, 2009 and 2008 and the consolidated balance sheet data as of December 31, 2009 and 2008 are derived from our audited consolidated financial statements included in this prospectus. The summary consolidated statement of income data for the periods ended June 30, 2010 and 2009 and the consolidated balance sheet data as of June 30, 2010 are derived from our unaudited consolidated financial statements included in this prospectus. Such unaudited financial information includes all adjustments, consisting of only normal recurring accruals, which our management considers necessary for the fair presentation of our financial position and results of operations for such interim periods. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of our results for any future periods.

STATEMENT OF
INCOME
Six Months Ended
June 30,
Years Ended
December 31,

2010
(Unaudited)
2009
(Unaudited)
2009
2008
Revenues $10,226,547 $7,983,039 $15,332,445 $12,989,760
Operating expenses 1,382,145 851,330 1,864,086 1,643,671
Operating income 6,899,472 4,191,958 8,904,394 6,741,141
Income taxes 945,384 570,838 1,235,210 974,653
Net income $6,136,703 $3,670,347 $7,741,716 $3,719,049
Earnings Per Share        
Basic $0.31 $0.29 $0.59 $0.31
Diluted $0.30 $0.29 $0.58 $0.31

BALANCE SHEET DATA As of June 30,                    As of December 31,

2010
(Unaudited)

2009

2008
Working capital $22,946,843 $10,758,895 $402,853
Current assets 33,857,042 21,198,471 10,664,249
Total assets 46,572,751 34,342,380 24,751,220
Current liabilities 10,910,199 10,439,576 10,261,396
Total liabilities 11,916,478 10,439,576 11,139,282
Stockholders’ equity $34,656,273 $23,902,804 $13,611,938

6


RISK FACTORS

The shares of our common stock being offered for resale by the selling stockholders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the following factors relating to our business and prospects. You should pay particular attention to the fact that we conduct all of our operations in China and are governed by a legal and regulatory environment that in some respects differs significantly from the environment that may prevail in the U.S. and other countries. If any of the following risks actually occurs, our business, financial condition or operating results will suffer, the trading price of our common stock could decline, and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

The global economic crisis could further impair our business, limit demand for our products and affect the overall availability and cost of external financing for our operations.

The continuation or intensification of the global economic crisis and turmoil in the global financial markets may adversely impact our business and our potential sources of capital financing. Our ability to access the capital markets may be restricted at a time when we would like, or need, to raise capital, which could have an impact on our flexibility to react to changing economic and business conditions. In addition, these economic conditions also impact levels of consumer spending, which have recently deteriorated significantly and may remain depressed for the foreseeable future. Consumer purchases of discretionary items, including our Chinese Golden Grass, generally decline during recessionary periods and other periods where disposable income is adversely affected. If demand for our products fluctuates as a result of economic conditions or otherwise, our revenue and gross margin could be harmed. Presently, it is unclear whether and to what extent the economic stimulus measures and other actions taken or contemplated by the Chinese government and other governments throughout the world will mitigate the effects of the crisis on the agricultural and nutraceutical industries and other industries that affect our business. Although these conditions have not presently impaired our ability to access credit markets and finance our operations, the impact of the current crisis on our ability to obtain capital financing in the future, and the cost and terms of same, is unclear.

Our current business is significantly based on a single product, Chinese Golden Grass, which currently accounts for approximately 90 percent of our revenues, and we may not be able to general significant revenue if this product fails.

Approximately 91.0% of our sales for the six months ended June 30, 2010 comes from a single product, Chinese Golden Grass, and our business may suffer a material adverse impact if this product fails. If we experience difficulties or obstacles in the manufacture and sale of Chinese Golden Grass, we may not be able to generate significant revenues, our business may fail and you would lose all or part of your investment in our company.

We may not be able to grow and harvest sufficient Cordyceps Militaris to satisfy our production requirements and any decline in the amount or quality of Cordyceps Militaris could reduce our sales and negatively affect our results of operations, financial condition and business prospects.

Our Chinese Golden Grass business and financial results significantly depend on maintaining a consistent and cost-effective supply of Cordyceps Militaris. The availability, size and quality of Cordyceps Militaris for the production of our products are subject to risks inherent to growing, such as size, quality, and yield fluctuation caused by technical problems of growing, pest and disease problems, and other factors beyond our control. Because all Cordyceps Militaris used to produce our Chinese Golden Grass products are grown by us, we may not be able to locate in a timely manner any third party suppliers who could provide us with sufficient materials to meet our production needs when our self-supply faces significant fluctuations in the availability of Cordyceps Militaris. Therefore, any interruptions to or decline in the amount or quality of our Cordyceps Militaris supply could materially disrupt our production and adversely affect our business and financial condition and financial prospects.

7


Our sales and reputation may be affected by product liability claims, litigation, product recalls, or adverse publicity in relation to our products.

The sale of products for human consumption involves an inherent risk of injury to consumers. We face risks associated with product liability claims, litigation, or product recalls, if our products cause injury, or become adulterated or misbranded. Our products are subject to product tampering, and to contamination risks, such as mold, bacteria, insects, and other pests, and off-flavor contamination during the various stages of the procurement, production, transportation and storage processes. If any of our products were to be tampered with, or become tainted in any of these respects and we were unable to detect this, our products could be subject to product liability claims or product recalls. We cannot predict what impact such product liability claims or resulting negative publicity would have on our business or on our brand image. The successful assertion of product liability claims against us could result in potentially significant monetary damages, diversion of management resources and require us to make significant payments and incur substantial legal expenses. We do not have product liability insurance and have not made provisions for potential product liability claims. Therefore, we may not have adequate resources to satisfy a judgment if a successful claim is brought against us. Even if a product liability claim is not successfully pursued to judgment by a claimant, we may still incur substantial legal expenses defending against such a claim. Finally, serious product quality concerns could result in governmental action against us, which, among other things, could result in the suspension of production or distribution of our products, loss of certain licenses, or other governmental penalties. A widespread product recall could result in significant loss due to the cost of conducting a product recall including destruction of inventory and the loss of sales resulting from the unavailability of the product for a period of time. In addition. product liability claims and product recalls could have a material adverse effect on the demand for our products and on our business goodwill and reputation. Adverse publicity could result in a loss of consumer confidence in our products.

We compete in an industry that is brand-conscious, and unless we are able to establish and maintain brand name recognition our sales may be negatively impacted.

Our business is substantially dependent upon awareness and market acceptance of our products and brand by our targeted consumers. In addition, our business depends on acceptance by our suppliers and consumers of our brand. Although we believe that we have made progress towards establishing market recognition for our brand “帅亿东方神” in the Chinese Golden Grass products industry, it is too early in the product life cycle of the brand to determine whether our products and brand will achieve and maintain satisfactory levels of acceptance by our customers.

We compete in an industry characterized by rapid changes in consumer preferences, so our inability to continue developing new products to satisfy our consumers' changing preferences would have a material adverse effect on our sales volumes.

Our success depends on our ability to anticipate, gauge and react in a timely and effective manner to changes in consumer spending patterns and product preferences. We must continually work to develop, produce and market new products, maintain and enhance the recognition of our brands, achieve a favorable mix of products, and refine our approach as to how and where we market and sell our products. While we plan to devote considerable effort and resources to shape, analyze and respond to consumer preferences, consumer spending patterns and preferences cannot be predicted with certainty and can change rapidly. Our failure to adapt our product offering to respond to such changes may result in reduced demand and lower prices for our products, resulting in a material adverse effect on our sales volumes, sales and profits.

Our current market distribution and penetration is limited as compared with the potential market and so our initial views as to customer acceptance of a particular product can be erroneous, and there can be no assurance that true market acceptance will ultimately be achieved. In addition, customer preferences are also affected by factors other than taste. If we do not adjust to respond to these and other changes in customer preferences, our sales may be adversely affected.

Expansion of our business may put added pressure on our management and operational infrastructure impeding our ability to meet any potential increased demand for the products that we sell and possibly hurting our future operating results.

Our business plan is to significantly grow our operations to meet anticipated growth in demand for the products that we sell, and by the introduction of new product offerings. Growth in our business may place a significant strain on our personnel, management, financial systems and other resources. The evolution of our business also presents numerous risks and challenges, including:

  • our ability to successfully and rapidly expand sales to potential new distributors in response to potentially increasing demand;

8


  • the costs associated with such growth, which are difficult to quantify, but could be significant; and

  • rapid technological change.

To accommodate any such growth and compete effectively, we may need to obtain additional funding to improve information systems, procedures and controls and expand, train, motivate and manage our employees, and such funding may not be available in sufficient quantities, if at all. If we are not able to manage these activities and implement these strategies successfully to expand to meet any increased demand, our operating results could suffer.

Due to our rapid growth in recent years, our past results may not be indicative of our future performance and evaluating our business and prospects may be difficult.

Our business has grown and evolved rapidly in recent years as demonstrated by our growth in net income for the fiscal year ended December 31, 2009 to $7.7 million, from $3.7 million for the fiscal year ended December 31, 2008. We may not be able to achieve similar growth in future periods, and our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects. Moreover, our ability to achieve satisfactory production results at higher volumes is unproven. Therefore, you should not rely on our past results or our historical rate of growth as an indication of our future performance.

We depend heavily on key personnel, and turnover of key employees and senior management could harm our business.

Our future business and results of operations depend in significant part upon the continued contributions of our key technical and senior management personnel, including Lianyun Han, our chief executive officer and chairperson, and Robert Tick, our chief financial officer. The expertise of management and technical innovation of the company give it a strong competitive advantage. We do not maintain key person insurance on these individuals. The loss of any of these key employees’ services or any of our other management poses a risk to our business. We may not be able to attract or retain qualified management on acceptable terms in the future due to the intense competition for qualified personnel in our industry and as a result, our business could be adversely affected.

We may have to pay liquidated damages to our investors in the recent private placement if the registration statement of which this prospectus is a part is not effective within the time periods specified.

In connection with the recent private placement described above, on May 27, 2010, we entered into the 2010 Securities Purchase Agreement with certain investors, pursuant to which, we granted registration rights to holders of registrable securities, which include shares of common stock issuable upon conversion of shares of the Series A Preferred Stock and shares of common stock issuable upon exercise of the Series C Warrants. Under the terms of the 2010 Securities Purchase Agreement, if this registration statement is not declared effective by the SEC within the time period specified in the 2010 Securities Purchase Agreement, then we are required to pay the investors, as liquidated damages, 1.0% of the amount invested for each 30-day period during which such failure continues, for up to a maximum of 8% of each investor’s investment pursuant to the 2010 Securities Purchase Agreement, except that we will not be obligated to pay any such fee if we are unable to fulfill our registration obligations as a result of rules, regulations, positions or releases issued or actions taken by the SEC with respect to Rule 415 of the Securities Act, so long as we register at such time the maximum number of securities permissible by the SEC. There can be no assurance that the registration statement of which this prospectus is a part will be declared effective by the SEC for the time period necessary to avoid payment of liquidated damages.

Our inability to protect our trademarks, patent and trade secrets may prevent us from successfully marketing our products and competing effectively.

Failure to protect our intellectual property could harm our brands and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual property rights, including our trademarks, patents, copyrights, know how and trade secrets, could result in the expenditure of significant financial and managerial resources. We produce, market and sell our products using the brand “帅亿东方神” We regard our intellectual property, particularly our trademark, know how and trade secrets to be of considerable value and importance to our business and our success. We rely on a combination of patent, trademark, trade secrecy laws, and contractual provisions to protect our intellectual property rights. There can be no assurance that the steps taken by us to protect these proprietary rights will be adequate or that third parties will not infringe or misappropriate our patent, trademark, trade secrets or similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement claims against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could be costly and we may lack the resources required to defend against such claims. In addition, any event that would jeopardize our proprietary rights or any claims of infringement by third parties could have a material adverse affect on our ability to market or sell our brands, and profitably exploit our products.

9


We may be exposed to potential risks relating to our internal controls over financial reporting.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-K. Under current law, we are subject to this requirement beginning with our annual report for the fiscal year ended December 31, 2007. A report of our management is included under Item 9A(T) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, or the Annual Report, in which our management concluded that our internal controls over our financial reporting were effective for the period covered by the Annual Report. However, in the future, our management may conclude that our internal controls over our financial reporting are not effective due to the identification of one or more material weaknesses. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements.

We do not carry any business interruption insurance, third-party liability insurance for our production facilities or insurance that covers the risk of loss of our products in shipment.

Operation of our facilities involves many risks, including equipment failures, natural disasters, industrial accidents, power outages, labor disturbances and other business interruptions. Furthermore, if any of our products are faulty, then we may become subject to product liability claims or we may have to engage in a product recall. We do not carry any business interruption insurance, product recall or third-party liability insurance for our production facilities or with respect to our products to cover claims pertaining to personal injury or property or environmental damage arising from defects in our products, product recalls, accidents on our property or damage relating to our operations. As a result, we may be required to pay for financial and other losses, damages and liabilities, including those caused by natural disasters and other events beyond our control, out of our own funds, which could have a material adverse effect on our business, financial condition and results of operations.

We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practice Act, or the FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We have operations, agreements with third parties and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants, sales agents or distributors of our company, because these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. Also, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have limited protections against related party transactions, conflicts of interest and similar matters.

Since our common stock is not listed for trading on a national securities exchange, we are not subject to certain of the corporate governance requirements established by the national securities exchanges pursuant to the Sarbanes-Oxley Act of 2002. These include rules relating to independent directors, and independent director nominating, audit and compensation committees. While we are currently seeking independent directors for our board of directors, we do not presently have such directors. As a result, we have not established independent audit, compensation, or nominating committees of our board of directors. In the absence of a majority of independent directors, our officers and directors could establish policies and enter into transactions without independent review and approval. In certain circumstances, management may not have the same interests as the shareholders and conflicts of interest may arise. Notwithstanding the exercise of their fiduciary duties as directors and executive officers and any other duties that they may have to us or our shareholders in general, these persons may have interests different than yours which could adversely affect your investment.

10


There are limitations on the liability of our directors, and we may have to indemnify our officers and directors in certain instances.

Our bylaws provide that we will indemnify our officers and directors and may indemnify our employees and other agents. The Company may also have contractual indemnification obligations under its agreements with its executive officers and directors. The foregoing indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which the Company may be unable to recoup. These provisions and resultant costs may also discourage the Company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by the Company’s stockholders against the Company’s directors and officers even though such actions, if successful, might otherwise benefit the Company and its stockholders.

RISKS RELATED TO DOING BUSINESS IN CHINA

Adverse changes in political and economic policies of the PRC government could impede the overall economic growth of China, which could reduce the demand for our products and damage our business.

We conduct substantially all of our operations and generate all of our revenue in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects, including:

  • a higher level of government involvement;

  • a early stage of development of the market-oriented sector of the economy;

  • a rapid growth rate;

  • a higher level of control over foreign exchange; and

  • the allocation of resources.

As the PRC economy has been transitioning from a planned economy to a more market-oriented economy, the PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. While these measures may benefit the overall PRC economy, they may also have a negative effect on us.

Although the PRC government has in recent years implemented measures emphasizing the utilization of market forces for economic reform, the PRC government continues to exercise significant control over economic growth in China through the allocation of resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways.

Any adverse change in economic conditions or government policies in China could have a material adverse effect on the overall economic growth in China, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our business and prospects.

Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.

We conduct substantially all of our business through our operating subsidiaries in the PRC. Our operating subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. In addition, all of our executive officers and all of our directors are residents of China and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to affect service of process in the United States or to enforce a judgment obtained in the United States against our Chinese operations and subsidiaries.

11


If we are found to have failed to comply with applicable laws, we may incur additional expenditures or be subject to significant fines and penalties.

Our operations are subject to PRC laws and regulations applicable to us. However, many PRC laws and regulations are uncertain in their scope, and the implementation of such laws and regulations in different localities could have significant differences. In certain instances, local implementation rules and/or the actual implementation are not necessarily consistent with the regulations at the national level. Although we strive to comply with all the applicable PRC laws and regulations, we cannot assure you that the relevant PRC government authorities will not later determine that we have not been in compliance with certain laws or regulations. Our failure to comply with applicable PRC laws and regulations could subject us to administrative penalties and injunctive relief, as well as civil remedies, including fines, injunctions and recalls of our products. It is possible that changes to such laws or more rigorous enforcement of such laws or with respect to our current or past practices could have a material adverse effect on our business, operating results and financial condition.

The PRC government exerts substantial influence over the manner in which we must conduct our business activities.

The PRC government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

Restrictions on currency exchange may limit our ability to receive and use our sales revenue effectively.

All our sales revenue and expenses are denominated in RMB. Under PRC law, the RMB is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, our PRC operating subsidiaries may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, the relevant PRC government authorities may limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenue will be denominated in RMB, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in RMB to fund our business activities outside China that are denominated in foreign currencies.

Foreign exchange transactions by our PRC operating subsidiaries under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with PRC government authorities, including SAFE. In particular, if our PRC operating subsidiaries borrow foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance the subsidiaries by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the Ministry of Commerce, or MOFCOM, or their respective local counterparts. These limitations could affect their ability to obtain foreign exchange through debt or equity financing.

12


Fluctuations in exchange rates could adversely affect our business and the value of our securities.

The value of our common stock will be indirectly affected by the foreign exchange rate between U.S. dollars and RMB and between those currencies and other currencies in which our sales may be denominated. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue in the future as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the People's Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Restrictions under PRC law on our PRC subsidiaries' ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our businesses.

Substantially all of our revenues are earned by our PRC subsidiaries. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to its offshore parent company. PRC legal restrictions permit payments of dividend by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of our annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

Under the New EIT Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.

China passed a new Enterprise Income Tax Law, or the New EIT Law, and its implementation regulations, both of which became effective on January 1, 2008. Under the New EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese domestic enterprise for enterprise income tax purposes. The implementing rules of the New EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the New EIT Law and its implementation with respect to non-Chinese enterprises or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. A resident enterprise would be generally subject to the uniform 25% enterprise income tax rate as to its worldwide income. Substantially all of our management is currently based in China. Therefore, we may be treated as a Chinese resident enterprise for enterprise income tax purposes. The tax consequences of such treatment are currently unclear, as they will depend on how local tax authorities apply or enforce the New EIT Law or the implementation regulations.

13


In addition, under the New EIT Law and implementation regulations, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises” (and that do not have an establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business) to the extent that such dividends have their source within the PRC unless there is an applicable tax treaty between the PRC and the jurisdiction in which an overseas holder resides which reduces or exempts the relevant tax. Similarly, any gain realized on the transfer of shares by such investors is also subject to the 10% PRC income tax if such gain is regarded as income derived from sources within the PRC. If we are considered a PRC “resident enterprise”, it is unclear whether the dividends we pay with respect to our shares, or the gain you may realize from the transfer of our shares, would be treated as income derived from sources within the PRC and be subject to PRC tax. If we are required under the New EIT Law to withhold PRC income tax on our dividends payable to our foreign shareholders, or if you are required to pay PRC income tax on the transfer of your shares, the value of your investment in our shares may be materially and adversely affected.

We face uncertainty from China’s Circular on Strengthening the Administration of Enterprise Income Tax on Non-Resident Enterprises' Share Transfer, or Circular 698, that was released in December 2009 with retroactive effect from January 1, 2008.

The Chinese State Administration of Taxation (SAT) released a circular (Guoshuihan No. 698 – Circular 698) on December 15, 2009 that addresses the transfer of shares by nonresident companies. Circular 698, which is effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in China. Circular 698, which provides parties with a short period of time to comply with its requirements, indirectly taxes foreign companies on gains derived from the indirect sale of a Chinese company. Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5% or where the offshore income of his, her, or its residents is not taxable, the foreign investor is required to provide the tax authority in charge of that Chinese resident enterprise with the relevant information within 30 days of the transfers. Moreover, where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise through an abuse of form of organization and there are no reasonable commercial purposes such that the corporate income tax liability is avoided, the PRC tax authority will have the power to re-assess the nature of the equity transfer in accordance with PRC’s “substance-over-form” principle and deny the existence of the offshore holding company that is used for tax planning purposes. There is uncertainty as to the application of Circular 698. For example, while the term "indirectly transfer" is not defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax in the country or jurisdiction and to what extent and the process of the disclosure to the tax authority in charge of that Chinese resident enterprise. In addition, there are not any formal declarations with regard to how to decide “abuse of form of organization” and “reasonable commercial purpose,” which can be utilized by us to balance if our Company complies with the Circular 698. As a result, we may become at risk of being taxed under Circular 698 and we may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations.

If the China Securities Regulatory Commission, or CSRC, or another PRC regulatory agency determines that CSRC approval is required in connection with the reverse acquisition of New Resources, the reverse acquisition may be unwound, or we may become subject to penalties.

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006. The M&A Rule, among other things, requires that an offshore company controlled by PRC companies or individuals that have acquired a PRC domestic company for the purpose of listing the PRC domestic company's equity interest on an overseas stock exchange must obtain the approval of the CSRC prior to the listing and trading of such offshore company's securities on an overseas stock exchange. On September 21, 2006, the CSRC, pursuant to the M&A Rule, published on its official web site procedures specifying documents and materials required to be submitted to it by offshore companies seeking CSRC approval of their overseas listings.

14


We do not believe that the M&A Rule concerning the CSRC approval for acquisition of a PRC domestic company by an offshore company controlled by PRC companies or individuals applies to our reverse acquisition of New Resources because neither Nutrastar International Inc. nor New Resources was a “Special Purpose Vehicle” or an “offshore company controlled by PRC companies or individuals” as defined in the M&A Rule. If the CSRC or another PRC governmental agency subsequently determines that we must obtain CSRC approval prior to the completion of the reverse acquisition, the reverse acquisition may be unwound and we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China and limit our operating privileges in China, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our shares.

If we do not fulfill our obligation to pay the transfer price for the equity interest of Heilongjiang Shuaiyi, then we may be subject to fines and prohibitions imposed by relevant PRC authorities that could have a material adverse effect on our business.

On July 28, 2008, our subsidiary, New Resources entered into an equity transfer agreement with the founders of Heilongjiang Shuaiyi to acquire all of their equity interests in Heilongjiang Shuaiyi for RMB 60 million (approximately $8.8 million). On November 24, 2008, Heilongjiang Shuaiyi obtained the Certificate of Approval for Establishment of Enterprises of Foreign Investment issued by Heilongjiang Provincial Government and a new business license was issued to Heilongjiang Shuaiyi on December 1, 2008. According to the M&A Rule, 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, we may apply to the relevant PRC regulatory agency 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. On March 10, 2009, we obtained the approval from the relevant PRC regulatory agency allowing us to make the payment by December 1, 2009. On January 4, 2010, the relevant PRC regulatory agency 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. However, if we are unable to make the transfer payment in full by the December 31, 2010 deadline we may subject to fines or penalties imposed by the PRC regulatory agency. In addition, we 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 our financial statements, both of which result would have a material adverse effect on our business.

The M&A Rule establishes more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

The M&A Rule establishes additional procedures and requirements that could make some acquisitions of Chinese companies by foreign investors more time-consuming and complex, including requirements in some instances that the PRC Ministry of Commerce be notified in advance of any change-of-control transaction and in some situations, require approval of the PRC Ministry of Commerce when a foreign investor takes control of a Chinese domestic enterprise. In the future, we may grow our business in part by acquiring complementary businesses, although we do not have any plans to do so at this time. The M&A Rule also requires PRC Ministry of Commerce anti-trust review of any change-of-control transactions involving certain types of foreign acquirers. Complying with the requirements of the M&A Rule to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the PRC Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

The implementation of the new PRC employment contract law and increases in the labor costs in China may hurt our business and profitability.

A new employment contract law became effective on January 1, 2008 in China. It imposes more stringent requirements on employers in relation to entry into fixed-term employment contracts, recruitment of temporary employees and dismissal of employees. In addition, under the newly promulgated Regulations on Paid Annual Leave for Employees, which also became effective on January 1, 2008, employees who have worked continuously for more than one year are entitled to paid vacation ranging from 5 to 15 days, depending on the length of the employee’s service. Employees who waive such vacation entitlements at the request of the employer will be compensated for three times their normal daily salaries for each vacation day so waived. As a result of the new law and regulations, our labor costs may increase. There is no assurance that disputes, work stoppages or strikes will not arise in the future.

15


Increases in the labor costs or future disputes with our employees could damage our business, financial condition or operating results.

Any outbreak of the Swine Flu (H1N1), severe acute respiratory syndrome, or SARS, the Avian Flu, or another widespread public health problem in the PRC could adversely affect our operations.

There have been recent outbreaks of the highly pathogenic Swine Flu, caused by the H1N1 virus, in certain regions of the world, including parts of China, where all of our manufacturing facilities are located and where all of our sales occur. Our business is dependent upon our ability to continue to manufacture and distribute our products, and an outbreak of the Swine Flu, or a renewed outbreak of SARS, the Avian Flu, or another widespread public health problem in China, could have a negative effect on our operations. Any such outbreak could have an impact on our operations as a result of:

  • quarantines or closures of our manufacturing or distribution facilities or the retail outlets, which would severely disrupt our operations,
  • the sickness or death of our key officers and employees, and
  • a general slowdown in the Chinese economy.

Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our operations.

You may have difficulty enforcing judgments against us.

We are a Nevada holding company and most of our assets are located outside of the United States. Most of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security or the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.

RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY

Our common stock is quoted on the OTCQB market which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTCQB market. The OTCQB market is a significantly more limited market than the New York Stock Exchange or Nasdaq system. The quotation of our shares on the OTCQB market may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you may want to sell your holdings.

The market price of our common stock is volatile, and this volatility may continue. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. In addition to market and industry factors, the price and trading volume for our common stock may be highly volatile for specific business reasons. Factors such as variations in our revenues, earnings and cash flow, announcements of new investments, cooperation arrangements or acquisitions, and fluctuations in market prices for our products could cause the market price for our shares to change substantially.

16


Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources.

Moreover, the trading market for our common stock will be influenced by research or reports that industry or securities analysts publish about us or our business. If one or more analysts who cover us downgrade our common stock, the market price for our common stock would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price for our common stock or trading volume to decline.

Furthermore, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.

We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. If our common stock becomes a “penny stock”, we may become subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

Certain provisions of our Articles of Incorporation may make it more difficult for a third party to effect a change-of-control.

Our Articles of Incorporation authorizes our board of directors to issue up to 1,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

The conversion of preferred stock or exercise of warrants we issued in our previous private placements may result in dilution to the holders of our common stock and cause the price of our common stock to decline.

Dilution of the per share value of our common stock could result from the conversion of our outstanding Series A Preferred Stock issued to the investors in the recent private placement and the exercise of outstanding warrants that we issued in connection with our previous private placement transactions. As of September 7, 2010, there were 197,706 shares of our Series A Preferred Stock outstanding, which may be converted into our common stock at the option of the holders of the Series A Preferred Stock in whole or in part at any time at an initial conversion ratio of 1-for-10. In addition, as of September 7, 2010, there were outstanding warrants to purchase 1,588,501 shares of our common stock. When the conversion price of the Series A Preferred Stock or the exercise price of the warrants is less than the trading price of our common stock, the conversion of Series A Preferred Stock or the exercise of the warrants would have a dilutive effect on our shareholders. The possibility of the issuance of shares of our common stock upon the conversion of Series A Preferred Stock or exercise of the warrants could cause the trading price of our common stock to decline as well.

17


We may use these proceeds in ways with which you may not agree.

While we currently intend to use the proceeds from this offering for working capital and general corporate purposes, we have considerable discretion in the application of the proceeds. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used in a manner agreeable to you. You must rely on our judgment regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not immediately improve our profitability or increase the price of our shares.

We do not intend to pay dividends for the foreseeable future.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their shares of common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of these terms, and other comparable terminology, although not all forward-looking statements contain these identifying words. These forward-looking statements, which are subject to risks, uncertainties, and assumptions, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance, or achievements to differ materially from the results, level of activity, performance, or achievements expressed or implied by the forward-looking statements. Those factors include, but are not limited to, the highly competitive nature of the markets in which we sell our products, changes in demand for our products and services, our ability to develop new products and services, competitive pressures, changes in laws and regulations governing our business and the other factors discussed under the caption “Risk Factors.”

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.

USE OF PROCEEDS

We will not receive proceeds from the sales by the selling stockholders. If the warrants are exercised for cash, then we will receive the proceeds of payable by the selling stockholders upon exercise of the warrants. We will use these proceeds, if received, for general working capital purposes.

18


BUSINESS

Business Overview

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

Our primary product is Chinese Golden Grass, which is developed from Cordyceps Militaris. Cordyceps Militaris is a species of parasitic fungus that is typically found in north-eastern mountainous China. It is a precious ingredient in traditional Chinese medicine, as Cordyceps Militaris is widely believed in China to offer high medical and health benefits by nourishing the yin, boosting the yang, and invigorating the meridians of the lungs and kidneys. According to Georges Halpern's Healing Mushrooms, certain research has shown that Cordyceps Militaris may boost our immune system, and can be used as a supplement for the purposes of combating certain effects of fatigue and aging, as well as reducing blood pressure, the occurrences of certain tumors, and combating arteriosclerosis and certain gastrointestinal disorders. In addition, Cordyceps Militaris has significantly high economic values. According to Halpern, wild Cordyceps Militaris can cost as much as $10,000 per kilogram. Due to the extremely sensitive growing conditions of Cordyceps Militaris, it is very difficult to grow the plant in a man-made environment. Through several years of laboratory tests, we developed the technology to commercially grow and produce Cordyceps Militaris in 2006. We generated 91.0% and 78.7% of our revenues from Chinese Golden Grass for the six months ended June 30, 2010 and the fiscal year of 2009, respectively. We believe that we own 19% of the world wide market share in the cultivated Chinese Golden Grass industry. We plan to continue to focus on Chinese Golden Grass, which is our fastest growing product line with the greatest market demand and a significantly high profit margin.

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

Our Industry

The nutraceutical industry is currently made up of many small- and medium-sized companies that manufacture and distribute products generally intended to, or marketed for the purpose of maintaining, and sometimes improving, health and general well being. According to China Enterprises Association, there are currently over 3,000 manufacturers of nutraceutical products in China, with an annual production value of over $6.25 billion. Of these manufacturers, large enterprises with registered capital of over $12.5 million only account for 1.45%; medium-sized enterprises with registered capital under $12.5 million, but over $6.25 million, make up 38%; and workshop-style enterprises with registered capital below $12,500 make up 12.5% of the total number of manufacturers.

19


Widespread economic development in China has not only increased the disposable income of Chinese consumers, it has also lead to an increase in consumer awareness of the risks of dietary imbalances and the importance of maintaining appropriate levels of vitamins and minerals in the human body. Along with a growing middle class, all of these facts have rapidly increased China’s 480 million urban consumers’ demand for nutraceutical products. According to China Personal Health & Supplemental Industry Survey 2005, the sales of nutraceutical products in China are expected to reach RMB 70 billion (approximately $8.75 billion) in 2009, with a compounded annual growth rate of 15.24% . We believe that the next era of nutrition will focus on naturally occurring properties provided from plants, fruits, and vegetables, which support good health.

Because of the rarity and high prices of the wild collected variety, attempts have long been made to cultivate Cordyceps Militaris. By the mid-1980s, the majority of Cordyceps Militaris available in the worldwide marketplace were artificially cultivated. Because of the development of modern biotechnology-based cultivation methods, the availability of this previously rare health supplement has greatly increased in the last 20 years. The demand for Cordyceps Militaris has also compounded exponentially, in this same time frame, partly because of the opening of China to trade with the West in the 1970s, exposing many more people around the world to the concepts and practices of traditional Chinese medicine. As Cordyceps Militaris has always been highly revered in traditional Chinese medicine, we believe that with increased exposure to traditional Chinese medicine, the demand for this plant has also increased. Such an increase has lead to overharvesting of the wild stocks and a subsequent shortage of wild collected varieties of Cordyceps Militaris. International markets for Cordyceps Militaris are mainly in the United States, Canada, Japan, Korea, Hong Kong and Southeast Asia. The European and Australian markets are also emerging. According to Market Survey of Cordyceps Militaris 2008, published by China Market Monitoring Center in 2008, the current international market demand for Cordyceps Militaris is about 1,000 tons a year, while the Chinese domestic market demand is about 500 tons a year with an annual growth rate of over 13%. With about 50 Cordyceps Militaris manufacturers in China having an aggregate production capacity of only 250 tons a year, there is a big gap between supply and demand and therefore a great potential for our Chinese Golden Grass market.

Our Competitive Strengths

We believe that our success to date and potential for future growth can be attributed to a combination of our strengths, including the following:

  • High-end niche products. We sell organic and specialty food products and Chinese Golden Grass products that the followers of traditional Chinese medicine believe have high nutrient concentration, potential health benefits and high value. Our products are positioned in the high-end market as premium healthy food and are distinguished from the common nutraceutical products in the market.

  • Leading market position and significantly high margin. We believe we have established ourselves as a dominant player in China’s Chinese Golden Grass industry. We believe that we currently own approximately 19% of world market of Chinese Golden Grass. By successfully commercializing our Cordyceps Militaris planting technology, we believe that we have achieved economies of scale and accordingly significantly high margin that no other material competitor can match in the near future.

  • Leading-edge R&D team. Our research and development team has a strong and extensive technology background and has been an early participant in the Chinese Golden Grass market. Currently we have 21 technicians in our R&D department. The head of our research and development team, Mr. Lichen Wang, is a lead expert in the field of edible fungus in China. Mr. Wang graduated with a Bachelor’s degree in edible fungus and has served as the deputy director of several research institutes of edible fungus in Northeast China.

  • Experienced management team with a strong track record. Our management team has extensive operating experience and industry knowledge. Lianyun Han, our founder and chief executive officer, has more than 10 years experience in operational management and business development. Robert Tick, our chief financial officer, has over 16 years experience in accounting and finance. We believe that our management team’s experience and capabilities have contributed greatly to our significant growth in the past three years.

20


Our Growth Strategy

As a leading nutraceutical producer in China, we believe we are well positioned to capitalize on future industry growth in China. We are dedicated to providing healthy and high nutritional products to our consumers. We will implement the following strategic plans to take advantage of industry opportunities and our competitive strengths:

  • Focus on brand development. With intense price competition among many similar or identical products in the industry, we believe that building brand awareness is the primary means to generate and sustain profitable growth in the future. We believe that developing close cooperative relationships with research centers of well-known universities in China and globally is key to building brand equity. We also market our products through an integrated marketing program that includes advertising in relevant media outlets, attending trade shows such as Harbin International Fair for Trade and Economic Corporation and Beijing Agriculture Exposition and offering seminars and lectures to local communities regarding the products and their heath benefits.

  • Introducing new products. We constantly evaluate our products and seek to adapt to changing market conditions by updating our products to reflect new trends in consumer preferences. We endeavor to expand our market presence by introducing additional competitive nutraceutical products to our product offerings. Our new products under development include specialty beverage products.

  • Increase production capacity. Our existing production lines of Chinese Golden Grass have been running at close to full capacity while the market demand for our existing products continues to increase. In order to meet the raw material needs of our products and to expand sales of small packages of our Golden Grass products, we plan to add 10 plants to our production line, of which three plants are expected to begin operating during the second half of 2010. We anticipate that the entire project will be completed in 2012. Annual production capacity of Golden Grass is expected to increase to 72 tons in 2010, up from 55 tons in 2009. We will convert more buildings into biotechnologically controlled cultivation plants to grow and process Cordyceps Militaris in the future.

  • Further expand our distribution network to increase the prevalence of our products nationwide. Our current sales depend heavily on the sales of our large-pack products to pharmaceutical companies. To support our rapid growth in sales, we plan to further expand our distribution network by selling our small-pack products through drug stores, supermarkets and franchise stores. We have one-year contracts with our major distributors which normally extend for one more year by the end of the contracts. We maintain constant communications with these distributors to keep us informed regarding consumer preferences and market trends in order to develop new products. We also organize monthly product promotion meetings with the distributors to increase the sales of small package products.

  • Technology innovation. We believe that the development of new technology is critical to our success. We will continuously improve the quality of our existing and future products through new technologies. We expect to maintain our long-term partnership with Chinese universities and research institutes in order to develop new technologies.

Our Products and Production Process

Chinese Golden Grass

Our primary product is Chinese Golden Grass, which is developed from Cordyceps Militaris. Cordyceps Militaris is a species of parasitic fungus that is typically found in the north-eastern mountainous regions of China. As a precious ingredient in traditional Chinese medicine, Cordyceps Militaris is widely believed in China to offer high medical and health benefits by nourishing the yin, boosting the yang, and invigorating the meridians of the lungs and kidneys. Due to the extremely sensitive growing conditions of Cordyceps Militaris, it is very difficult to grow the plants in man-made environments. Through several years laboratory tests, we developed the technology to commercially grow and produce Cordyceps Militaris in 2006. Our production process primarily includes planting, purifying and packaging.

21


Our present production capacity of Chinese Golden Grass is approximately 55 tons annually. We generated 91.0% and 78.7% of our revenues from Chinese Golden Grass for the six months ended June 30, 2010 and the fiscal year of 2009, respectively. We believe that we own approximately 19% worldwide market share in the entire cultivated Chinese Golden Grass industry. We plan to continue to focus on Chinese Golden Grass, which is our fastest growing product with the greatest market demand and a significantly high profit margin. To achieve this end, we plan to increase our annual production capacity of 72 tons by the end of 2010.

Organic and Specialty Food

Growth in domestic demand for organic products has been driven by rising incomes in China. Through our indirect subsidiary, Harbin Shuaiyi, we act as either a sales agent or a distributor to market and sell organic and specialty food products supplied by third-party producers. These products mainly include Northeast Peculiar Rice. Northeast Peculiar Rice is grown in accordance with organic product standards established by the Chinese Ministry of Agriculture. To qualify as “organic,” food must be produced in an environment which relies upon natural resources, without the use of conventional pesticides, artificial fertilizers, in an appropriate ecological environment, and must undergo a series of scientific and technological quality control processes. Our Northeast Peculiar Rice is rich in protein, fiber fats, amino acids and calcium, iron, zinc, selenium and other elements and vitamins. After years of development, we believe we have become the largest wholesale distributor of organic and specialty food in Heilongjiang Province, China.

New products under development

We plan to further diversify our Cordyceps Militaris based product mix to cater to different customer tastes and preferences. Currently, we have the following products under development. In 2010, we will be targeting mass consumer markets by introducing specialty beverage products with the health benefits of enhancing immunity, reducing fatigue, enhancing circulations, among other benefits derived from our Cordyceps Militaris.

  • Specialty Beverage Products. This convenient and delicious Chinese traditional healthcare cereal beverage has various nutritional ingredients of Cordyceps Militaris, including Cordycepin and polysaccharides. We expect to begin manufacturing and selling this product by the second half of 2010.

Marketing and Sales

Currently, we have 132 experienced marketing personnel who are responsible for market research, promotion and advertisement. We strengthen our market presence by employing various types of marketing strategies. We participate in trade shows such as Harbin International Fair for Trade and Economic Cooperation and Beijing Agriculture Exposition and offer seminars and lectures to local communities regarding the health benefits of our products. These activities help to promote our reputation and name recognition in the industry.

Our sales depend heavily on the sales of our large-pack products to pharmaceutical companies. To support our rapid growth in sales, we plan to further expand our distribution network by selling our small-pack products through drug stores, supermarkets and franchise stores.

Raw Materials and Suppliers

While all Cordyceps Militaris used to produce our Chinese Golden Grass products are grown by us, the raw materials of our organic and specialty food products primarily consist of carbamide, wheat, glucose, citric acid, bitter salt, peptone, and pupa powder. The price for such material fluctuates depending upon market conditions. However, since we have long-term suppliers and clients, the influence of material price fluctuation is not currently material to the Company.

We have established long-term relationships with our key suppliers. However, we do not have long term supply contracts and we do not exclusively rely on our key suppliers. We have adopted a dual supplier system for raw materials. Therefore, if our primary suppliers cannot supply us with our raw material for any reason, we are able to acquire raw material from another supplier. All of our suppliers must meet our quality standards and delivery requirements consistently in order to remain on our approved supplier list. If deliveries are delayed repeatedly, we terminate the partnership with such supplier.

22


The flexible sourcing arrangements are designed to ensure the stable supply of raw materials and promote healthy competition among our suppliers. We believe our supplier arrangements encourage our suppliers to provide high quality raw materials timely and efficiently.

Our Major Suppliers in 2009

The following table lists top suppliers of our raw materials in 2009:

      Purchasing Value    
Rank Company Name Unit (Kg) in 2009 ($) Location Material
           
1 Heilongjiang Xianfeng Agricultural Goods 77,500 428,409 Harbin Plastic film
  Trading Market Co., Ltd. 9,010     Disinfectant
    46,000     Plastic bag
    4,100     Carton


117,819


Small packing
boxes


117,819


Small package
bag
2 Harbin Zhenfengyuan Bio-technology Co., Ltd. 32,472 369,218 Harbin Peptone
    191,270     Vitamin-C
3 Nehe Laocai Grain Depot 452,320 165,539 Nehe Wheat
4 Daqing Qingzhong Seed Co., Ltd. 79,500 19,785 Daqing Potato
5 Harbin Jiancheng Fine Chemical Plant 14,900 13,670 Harbin Glucose
    1,420     Citric Acid
    2,150     Bitter Salt

Our Major Customers

The following table provides information on our major clients in fiscal year 2009.

      Sales  
      (in Thousands Percentage
      of of
Rank Name Description of Client US Dollars) Total Sales
1 Lai En Century Co. Ltd. Trading company in China 2,249 14.7%
2
Zhejiang Wanfeng Group
Pharmaceutical Co., Ltd.
Pharmaceutical Products Producer
in China
1,430
9.3%
3
Disha Pharmaceutical Co., Ltd.
Pharmaceutical Products Producer
in China
1,347
8.8%
4
Zhejiang Yinlong Trading
Company
Trading company in China
1,192
7.8%
5
Hangzhou KangYuanTang
Ganoderma Lucidum Co., Ltd.
Health Products Producer in China
1,190
7.8%
6 Si Chuan Ai Da Biotech Co. Ltd.  Health Products Producer in China 1,153 7.5%
7
Xi’an Yizhiliu Pharmaceutical
Co., Ltd
Pharmaceutical Products Producer
in China
1,146
7.5%
8
Beijing Ruichenboji Technology
Development Co., Ltd.
Trading company in China
794
5.2%
9
Shenzhan Beilixin Biotech Co.,
Ltd
Health Products Producer in China
240
1.6%
10
General Hospital of Shandong
CAPF
Pharmaceutical Products Producer
in China
96
0.6%

23


Our Competition

Most of our competitors for sales of Chinese Golden Grass products are small-sized local producers and generally have a much lower production capacity. Compared to these competitors, we believe we have a much higher production capacity and more advanced growing and production technology. Our major competitors in China include Heilongjiang Xinyisheng Pharmaceutical Co., Ltd., Liangshan County Ganoderma and Cordyceps Sci-Tech Development Co., Ltd., Jiangsu Xuzhou Kangyuan Cordyceps Biology Co., Ltd., Xuzhou Baofu Cordyceps Co., Ltd. and Jinzhou Cordyceps Militaris Co., Ltd.

Research and Development

Our research and development activities focus on developing new products and new technologies. We currently have 21 employees dedicated to research and development. Since 2003, we have also maintained a close cooperation relationship with China Institute of Science, one of the most prestigious academic institutions of scientific and technological research in China, to improve commercially growing Cordyceps Militaris.

As described below, on April 10, 2006, we spent RMB 30 million (approximately $4.4 million) in acquiring the technologies of Cordyceps Militaris cultivation from Mr. Runjiao Wang. In 2009 and 2008, our research and development expenses were insignificant.

Intellectual Property

We currently have the following patents pending approval:

    Patent No. / Expiration  
Patent Name Patent type  Application No. Date Status
Technology of Using Plastic Ware to Cultivate
Cordyceps Militaris
Invention
200810064305.3
N/A
Pending
Planting Cordyceps militaris by the method of making
liquid spawn.
Invention
200810064705.4
N/A
Pending
Formulation of Cordyceps Militaris and Green Bean
Paste Beverage
Invention
200810064387.1
N/A
Pending
Formulation of Cordyceps Militaris and Corn Beverage  Invention 200810064389.0 N/A Pending
Formulation of Cordyceps Militaris and Millet Beverage  Invention 200810064390.3 N/A Pending
Formulation of Cordyceps Militaris and Red Bean Paste
Beverage
Invention
200810064388.6
N/A
Pending

On April 10, 2006, Daqing Shuaiyi entered into an exclusive licensing agreement with Mr. Runjiao Wang, pursuant to which Mr. Wang agreed to grant Daqing Shuaiyi an exclusive right to use the cultivation technology of Cordyceps Militaries that Mr. Wang developed. According to this licensing agreement, Daqing Shuaiyi is allowed to use this technology exclusively in China for ten years beginning on April 10, 2006. In consideration of the rights granted to Daqing Shuaiyi under this licensing agreement, Daqing Shuaiyi agreed to pay Mr. Wang a licensing fee in an amount of RMB 30 million (approximately $4.4 million). In addition, Daqing Shuaiyi has the right of first refusal with respect to the cultivation technology when the licensing agreement expires.

We have applied for the trademark of “帅亿东方神” with the Trademark Office of the State Administration for Industry and Commerce of China. Under Chinese laws, we are allowed to use “帅亿东方神” for the sales and marketing of our products even if our trademark application is still pending. Once our application is approved, the trademark will have a term of ten years and may be continually renewed thereafter.

We rely on trade secret protection and confidentiality agreements to protect our proprietary information and knowhow. Our management and each of our research and development personnel have entered into a standard confidentiality agreement, which includes a clause acknowledging that all inventions, designs, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property, and assigning to us any ownership rights that they may claim in those works. Despite our precautions, it may be possible for third parties to obtain and use, without our consent, intellectual property that we own or are licensed to use. Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business. See Item 1A, “Risk factors—Risks Related to Our Business—Failure to adequately protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.”

24


Regulation

Because our operating subsidiaries are located in the PRC, we are regulated by the national and local laws of the PRC. Currently only the general rules of commerce in China are applicable to us.

We are also subject to the PRC’s foreign currency regulations. The PRC government has controlled Renminbi reserves primarily through direct regulation of the conversion of Renminbi into other foreign currencies. Although foreign currencies, which are required for “current account” transactions, can be bought freely at authorized PRC banks, the proper procedural requirements prescribed by PRC law must be met. At the same time, PRC companies are also required to sell their foreign exchange earnings to authorized PRC banks and the purchase of foreign currencies for capital account transactions still requires prior approval of the PRC government.

Our Employees

As of June 30, 2010, we employed a total of 302 full-time employees. The following table sets forth the number of our employees by function as of June 30, 2010.

FUNCTION NUMBER OF EMPLOYEES
   
Capital Department 5
Sales Department 132
Production Department 121
R&D Department 21
Financial Department 13
Administrative Office 10
TOTAL 302

Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages.

We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the after-tax profit. In addition, we are required by the PRC law to cover employees in China with various types of social insurance. We believe that we are in material compliance with the relevant PRC laws.

Seasonality

The production and sale of our primary product, Chinese Golden Grass, historically have not been subject to seasonal variations.

Insurance

We do not have any business liability, interruption or litigation insurance coverage for our operations in China. Insurance companies in China offer limited business insurance products. While business interruption insurance is available to a limited extent in China, we have determined that the risks of interruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Therefore, we are subject to business and product liability exposure. See “Risk Factors – We do not carry any business interruption insurance, third-party liability insurance for our production facilities or insurance that covers the risk of loss of our products in shipment.”

25


Litigation

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. 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. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

Our primary product is Chinese Golden Grass, which is developed from Cordyceps Militaris. We sell our products through an extensive nationwide sales and distribution network covering four provinces and eight cities in China. Our Chinese Golden Grass products are grown and processed by our indirect, wholly-owned subsidiary, Daqing Shuaiyi, and are mainly sold to pharmaceutical companies for further processing into drugs and nutraceutical products. We generated approximately 91.0% of our revenues from sales of Chinese Golden Grass during the six months ended June 30, 2010. We believe that we own approximately 19% worldwide market share in the entire cultivated Chinese Golden Grass industry.

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

Our revenues increased approximately $2.24 million, or 28.1%, to approximately $10.23 million for the six months ended June 30, 2010, from approximately $7.98 million for the same period in 2009. In the fiscal year ended December 31, 2009, our revenues were approximately $15.3 million, which represents an increase of 18.0% from approximately $13.0 million for 2008. Our gross margin was 81.0% and 70.2% for the six months ended June 30, 2010 and the fiscal year ended December 31, 2009, respectively.

Industry Wide Factors that are Relevant to Our Business

We expect several key demographic, healthcare, and lifestyle trends to drive the growth of our business in the coming future:

  • Increased Focus on Healthy Living: Our management believes that as China becomes more affluent, its citizens are becoming more health conscious. They are leading more active lifestyles and becoming increasingly focused on healthy living, nutrition, and supplementation. According to the Nutrition Business Journal, a higher percentage of today’s global population is involved to some degree in health and wellness than a few years ago. We believe that growth in the health supplements industry will continue to be driven by consumers who increasingly embrace health and wellness as a critical part of their lifestyles.

  • Aging Population: The average age of the Chinese population is increasing. According to World Population Prospects: The 2004 Revision (2005), the percentage of elderly persons in China is projected to triple between 2006 and 2050, from 8 percent to 24 percent, a total of 322 million people. We believe that these consumers are significantly more likely to use health supplements than younger persons and have higher levels of disposable income to pursue healthy lifestyles.

26


  • Rising Healthcare Costs and Use of Preventive Measures: Healthcare related costs have increased substantially in China. A research released by Chinese Academy of Social Sciences in 2007 indicated that the out-of-pocket health expenditures in China increased by 1,900% from 1990 to 2004. To reduce medical costs and avoid the complexities of dealing with the healthcare system, and given increasing incidence of medical problems and concern over the use and effects of prescription drugs, many consumers take preventive measures, including alternative medicines and nutritional supplements.

Taxation

United States

Nutrastar International Inc. is subject to United States tax at a tax rate of 34%. No provision for income taxes in the United States has been made as Nutrastar International Inc. had no income taxable in the United States.

British Virgin Islands

New Resources was incorporated in the BVI. Under the current law of the BVI, New Resources is not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the BVI.

PRC

In 2007, the PRC government promulgated the New EIT Law, and the relevant implementation rules, which became effective on January 1, 2008. Under the New EIT Law and its implementation rules, all domestic and foreign investment companies will be subject to a uniform enterprise income tax at the rate of 25%. As a result, our PRC subsidiaries are subject to enterprise income tax at the rates of 25% in 2008, 2009 and 2010.

Under the New EIT Law, dividends from PRC subsidiaries to their non-PRC shareholders will be subject to a withholding tax at a rate of 20%, which is further reduced to 10% by the implementation rules, if the non-PRC shareholder is considered to be a non-PRC tax resident enterprise without any establishment or place within China or if the dividends payable has no connection with the non-PRC shareholder’s establishment or place within China, unless any such non-PRC shareholder’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

In addition, pursuant to the New EIT Law, enterprises established under the laws of non-PRC jurisdictions, but whose “de facto management body” is located in the PRC, should be treated as resident enterprises for PRC tax purposes. However, it is currently uncertain whether we may be deemed a resident enterprise, or how to interpret whether any income or gain is derived from sources within China. See Item 1A, “Risk Factors - Under the New EIT Law, we may be classified as a ‘resident enterprise’ of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.” If we, as a Nevada company with substantially all of our management located in China, were treated as a resident enterprise for PRC tax purposes, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which would have an impact on our effective tax rate.

Business Segment Information

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

For the six months ended June 30, 2010, our sales revenue from our Chinese Golden Grass was approximately $9.31 million, and our sales revenue from our other agricultural products was approximately $0.92 million. In 2009, our sales revenue from our Chinese Golden Grass was approximately $12.07 million, and our sales revenue from our other agricultural products was approximately $ 3.26 million.

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

27


Additional information regarding our products can be found in the notes of our consolidated financial statements contained elsewhere in this prospectus.

Results of Operations

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

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

    Six Months Ended     Six Months Ended  
    June 30, 2010     June 30, 2009  
          As a           As a  
          percentage           percentage  
    In     of     In     of  
    Thousands     revenues     Thousands     revenues  
                         
Revenues $  10,227     100%   $  7,983     100%  
Cost of goods sold   (1,945 )   (19.0)%     (2,940 )   (36.8)%  
                         
Gross Profit   8,282     81.0 %     5,043     63.2%  
                         
Selling expenses   (405 )   (4.0)%     (193 )   (2.4)%  
General and administrative expenses   (978 )   (9.6)%     (658 )   (8.2)%  
                         
Income from operations   6,899     67.5%     4,192     52.5%  
                         
Other income and (expenses)                        
      Interest income   67     0.7%     53     0.7%  
           Exchange gain (loss)   (15 )   (0.1)%     (4 )   (0.1)%  
           Change in fair value of warrants   131     1.3%     -     -%  
      Other income   -     -%     -     -%  
         Total other income (expenses)   183     1.8%     49     0.6%  
                         
Income before income tax   7,082     69.2%     4,241     53.1%  
                         
Provision for income tax   (945 )   (9.2)%     (571 )   (7.2)%  
                         
Net income $  6,137     60.0%   $  3,670     46.0%  

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

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

28


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


    Six Months Ended June 30,       Percent    
 Components of Sales Revenue   2010       2009     Change   
                   
Chinese Golden Grass $  9,309   $  5,439     71.2%  
Other agricultural products   918     2,544     (63.9)%  
Total revenues $  10,227   $  7,983     28.1%  

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

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

Selling Expenses . Our selling expenses increased approximately $0.21 million, or 109.7%, to approximately $0.41 million for the six months ended June 30, 2010 from approximately $0.19 million during the same period in 2009. As a percentage of revenues, selling expenses increased to 4.0% for the six months ended June 30, 2010 from 2.4% for the same period in 2009. The increase in the amount and percentage of selling expenses was mainly attributable to the increase of salaries and travelling expenses of our sales representatives and more marketing activities to promote our products.

General and Administrative Expenses . General and administrative expenses increased approximately $0.32 million, or 48.5%, to approximately $0.98 million for the six months ended June 30, 2010 from approximately $0.66 million for the same period in 2009. As a percentage of revenues, general and administrative expenses increased to 9.6% for the six months ended June 30, 2010 from 8.2% for the same period in 2009. The increase in the amount and percentage of general and administrative expenses was mainly attributable to the increase of services expenses associated with legal and audit services.

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

Income Taxes. Income tax increased approximately $0.37 million to approximately $0.95 million for the six months ended June 30, 2010 from approximately $0.57 million for the same period in 2009. We paid more tax in 2010 because of the increase in sales and taxable income.

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

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

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

29


   
 (All amounts, other than percentage, in thousands of US dollars)  
    Year Ended December 31, 2009       Year Ended December 31, 2008    
          As a           As a    
    In       Percentage      In       Percentage    
    Thousands      of Revenue       Thousands       of Revenue    
Sales Revenue $  15,332     100%   $  12,990     100%  
Cost of goods sold   (4,564 )   (29.8% )   (4,605 )   (35.5% )
Gross Profit   10,768     70.2%     8,385     64.5%  
Selling expenses   (508 )   (3.3% )   (196 )   (1.5% )
General and administrative expenses   (1,356 )   (8.8% )   (1,416 )   (10.9% )
Loss on disposal of fixed assets               (31 )   (0.2% )
Income from operations   8,904     58.1%     6,741     51.9%  
Other income and (expenses)                        
           Interest income   82     0.5%     30     0.2%  
           Other income   6     -%     12     0.1%  
           Interest expenses                        
           Exchange loss   (15 )   (0.1% )   (20 )   (0.2% )
           Merger costs               (2,068 )   (15.9% )
Income before income tax   8,977     58.6%     4,694     36.1%  
Provision for income tax   (1,235 )   (8.1% )   (975 )   (7.5% )
Net income $  7,742     50.5%   $  3,719     28.6%  

Sales Revenue. Revenues increased approximately $2.3 million, or 18.0%, to approximately $15.3 million in fiscal year 2009 from approximately $13.0 million for 2008. This increase was mainly attributable to the increase of our sales of our core product, Chinese Golden Grass, driven by the continued increase in market demand for our products as well as the sales of our small package Chinese Golden Grass products, which consisted a larger portion of our total revenues in 2009 as compared to last year.

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)

    Year Ended December 31,     Percent  
    2009     2008     Change  
Components of Sales Revenue                  
Chinese Golden Grass $  12,074   $  8,893     35.77%  
Other agricultural products   3,258     4,097     (20.46% )
Total revenues $  15,332   $  12,990     18.04%  

Cost of Goods Sold. Our cost of goods sold decreased by $40,983, or 0.9%, to approximately $4.56 million in 2009 from approximately $4.60 million in 2008. This decrease was mainly due to improved production process and economy of scale. As a percentage of revenues, the cost of goods sold decreased to 29.8% in 2009 from 35.5% in 2008. Such increase of gross margin was mainly attributable to the fact that a larger portion of our total revenues was generated from our small package Chinese Golden Grass products with higher unit selling price as compared to 2008. Because the gross margin of small package products is higher than that of larger package products, the percentage of cost of sales to total sales revenue decreased during 2009.

Gross Profit. Our gross profit increased approximately $2.4 million, or 28%, to approximately $10.8 million in 2009 from approximately $8.4 million in 2008. Gross profit as a percentage of revenues was 70.2% in 2009, an increase of 570 basis points from 64.5% in 2008. Such percentage increase was mainly due to continued product mix shift towards Chinese Golden Grass and the increased sales of our higher margin small package Chinese Golden Grass products.

Selling Expenses. Selling expenses increased approximately $0.31 million, or 159%, to $0.51 million in 2009 from $0.20 million in 2008. As a percentage of revenues, selling expenses increased to 3.3% in 2009 from 1.5% in 2008. The increase in the amount and percentage of selling expenses was mainly attributable to the increase of salaries and travelling expenses of our sales representatives and more marketing activities to promote our products.

General and Administrative Expenses. General and administrative expenses decreased by $60,000, or 4%, to approximately $1.36 million in 2009 from approximately $1.42 million in 2008. As a percentage of revenues, general and administrative expenses decreased to 8.8% in 2009 from 10.9% in 2008. The decrease in the amount of general and administrative expenses was mainly attributable to tight cost control during 2009.

30


Merger Cost. We incurred expenses related to our merger during 2008 of approximately $2.07 million. In accordance with the requirements of and guidance in Staff Accounting Bulletin No. 107 and SFAS 123(R), we charged $1,693,326 to merger costs based on the grant-date fair value of the 91,088 shares of Series A Preferred Stock transferred by our majority shareholder to our consultants in the merger. On December 23, 2008, the Company also entered into a subscription agreement with Tan Zhen Investment Limited, pursuant to which the Company issued and sold to such investor 20,168 shares of our Series A Preferred Stock for $375,000, or $18.59 per share, which was expended on payment of merger costs.

Income Before Income Tax. Income before income tax increased approximately $4.3 million, or 91%, to approximately $9.0 million in 2009 from approximately $4.7 million in 2008. As a percentage of revenues, income before income tax increased to 58.6% in 2009 from 36.1% in 2008. The increase in income before income tax is mainly attributable to the increase in our gross profit as a result of the increase in our sales.

Income Tax. Income tax increased approximately $0.3 million to approximately $1.2 million in 2009 from approximately $1.0 million in 2008. We paid more tax in 2009 because of the increase in sales and taxable income.

Net Income. Net income increased approximately $4.0 million, or 108%, to $7.7 million in 2009 from approximately $3.7 million in 2008, as a result of the factors described above.

Liquidity and Capital Resources

As of June 30, 2010, we had cash and cash equivalents (excluding restricted cash) of approximately $32.26 million. The following table provides detailed information about our net cash flow for all financial statement periods presented in this prospectus.

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

    Six Months Ended June 30,     Year Ended December 31,  
    2010     2009     2009     2008  
Net cash provided by operating activities $ 6,411   $ 4,657   $ 9,324   $ 6,466  
Net cash provided by (used in) investing activities   (8 )   -     (49 )   744  
Net cash provided by (used in) financing activities   5,570     11     1,621     (438 )
Foreign currency translation adjustment   174     8     21     277  
Net cash flow   12,147     4,676     10,917     7,050  

Operating Activities

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

Net cash provided by operating activities was approximately $9.3 million in fiscal year ended December 31, 2009, an increase of approximately $2.9 million from approximately $6.5 million net cash provided by operating activities in fiscal year ended December 31, 2008. The increase of the cash provided by operating activities was mainly attributable to increased sales.

Investing Activities

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

31


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

Net cash used by investing activities was approximately $0.05 million in fiscal year 2009, a decrease of approximately $0.8 million from approximately $0.74 million provided by investing activities in fiscal year 2008. The decrease in net cash provided by investing activities was mainly attributable to the increase in our purchase of property, plan and equipment, or PPE, in 2009 while at the same time there was no sale of PPE by us.

Financing Activities

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

Net cash provided by financing activities for the fiscal year ended December 31, 2009 was approximately $1.6 million as compared to approximately $0.44 million used in financing activities in fiscal year 2008. The increase of the net cash provided by financing activities was mainly attributable to the $2.5 million capital raising in December 2009.

On December 17, 2009, we completed a private placement transaction and sold 1,000,000 shares of our common stock to certain accredited investors at $2.50 per share for a total of $2.5 million pursuant to a securities purchase agreement, or the Securities Purchase Agreement. In addition, we issued to each of the investors two warrants to purchase in aggregate 500,000 shares of our common stock, including a Series A warrant having a term of three years with an exercise price of $3.25 per share and a Series B warrant having a term of three years with an exercise price of $4.00 per share, both of which are subject to the usual adjustments for certain corporate events.

On June 7 and June 28, 2010, the Company consummated two closings of a private placement transaction and issued in aggregate approximately 197,706 Units to certain investors at a purchase price of $28.56 per unit for gross proceeds of approximately $5.65 million. Each unit consists of one share of Series A Preferred Stock with an initial one-to-ten conversion ratio into shares of the Company's common stock and a warrant to purchase five shares of common stock at an exercise price of $3.40 per share.

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

Effects of Inflation

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

Off Balance Sheet Arrangements

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

32


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 with indefinite lives are evaluated at least annually for impairment by comparing the asset’s estimated fair value with its carrying value, based on cash flow methodology.

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

33


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

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

New accounting pronouncement to be adopted

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

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

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

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

34


HISTORY AND CORPORATE STRUCTURE

General

We were originally incorporated in the State of Nevada on December 22, 2002. On October 15, 2003, we acquired all the outstanding common stock of YzApp Solutions Inc., a company under common control. We sold our ownership in YzApp Solutions Inc. on December 3, 2008. Following incorporation, we engaged in the business of developing software which allowed us to act as an application service provider acting as a conduit between retailers and financial institutions. Because this business was not successful, we were focused on the identification of suitable businesses with which to enter into a business opportunity or business combination until December 23, 2008, when we completed our reverse acquisition of New Resources. As a result of our reverse acquisition of New Resources, we are no longer a shell company and active business operations were revived.

On May 19, 2009, we filed amended and restated articles of incorporation with the Nevada Secretary of State to amend our articles of incorporation to, among other things, (1) change our name from “YzApp International Inc.” to “Shuaiyi International New Resources Development Inc.,” (2) increase the total number of shares of common stock that we have the authority to issue from 50,000,000 to 190,000,000 shares and (3) effect a 1-for-114.59 reverse split of our outstanding common stock.

On January 11, 2010, we changed our name to Nutrastar International Inc. to more accurately reflect our marketing and branding strategy and products. Our common stock is currently quoted on the OTCQB market under the symbol NUIN.

Background and History of New Resources and Heilongjiang Shuaiyi

New Resources is a holding company, which was incorporated in the BVI under the BVI Business Company Act on March 13, 2008. New Resources was wholly-owned by New Zealand WAYNE's Investment Holdings Co., Ltd., or the Shareholder, a BVI company, before we acquired New Resources on December 23, 2008.

Heilongjiang Shuaiyi was established on July 11, 2006 under the laws of the PRC. Heilongjiang Shuaiyi has two wholly-owned subsidiaries, Daqing Shuaiyi and Harbin Shuaiyi. On July 28, 2008, pursuant to a restructuring plan intended to ensure compliance with regulatory requirements of the PRC, the nine original shareholders of Heilongjiang Shuaiyi, or the Founders, including our chairperson and chief executive officer, Lianyun Han, entered into an equity transfer agreement, or the Equity Transfer Agreement with New Resources, pursuant to which the Founders transferred all of their equity interests in Heilongjiang Shuaiyi to New Resources for a purchase price of RMB 60 million (approximately $8.8 million). As a result, New Resources became the 100% owner of Heilongjiang Shuaiyi and, indirectly, Daqing Shuaiyi and Harbin Shuaiyi. On November 24, 2008, Heilongjiang Shuaiyi obtained the Certificate of Approval for Establishment of Enterprises of Foreign Investment issued by Heilongjiang Provincial Government and a new business license was issued to Heilongjiang Shuaiyi on December 1, 2008.

On September 12, 2008, the Shareholder entered into separate Earn-In Agreements with the Founders of Heilongjiang Shuaiyi, which entitle the Founders to acquire a majority interest in the Shareholder upon the satisfaction of the conditions set forth in the Earn-In Agreements. Pursuant to the Earn-In Agreements, each Founder has an option to purchase shares of the Shareholder’s ordinary shares at a purchase price of $0.01 per share (the par value of the Shareholder’s ordinary shares), provided that the aggregate price with respect to the shares eligible to be purchased relating to the satisfaction of condition (4) below is the sum of $0.01 per share, multiplied the number of such shares, plus $1,000, upon the satisfaction of each of the following conditions: (1) six months have expired since the date of the Share Exchange Agreement, provided that on or before that date, the Founder and Heilongjiang Shuaiyi have entered into a binding employment agreement and the Founder is employed by Heilongjiang Shuaiyi pursuant to that agreement on such date; (2) the SEC has declared a registration statement filed by the Company under the Securities Act effective, or investors who purchased common stock from the Company pursuant to a securities purchase agreement being able to sell their common stock under Rule 144; (3) Heilongjiang Shuaiyi and its subsidiaries have achieved not less than $1,560,000 in after-tax net income, as determined under United States generally accepted accounting principals, or US GAAP, for the six months ended June 2009; and (4) Heilongjiang Shuaiyi has achieved not less than $3,900,000 in pre-tax profits, as determined under US GAAP for the fiscal year ending 2009. Notwithstanding the foregoing, for purposes of determining whether or not the financial thresholds described above have been achieved, the purchase of the shares by the Founder or any other person designated by the Founder shall not be deemed to be an expense, charge, or other deduction from revenues of the Company even though US Earn-In Agreements, or the First Amendment, to amend the definition of the first condition. As a result, pursuant to the First Amendment, in order to satisfy the first condition for each Founder, only Ms. Lianyun Han needs to enter into a binding employment agreement with Heilongjiang Shuaiyi within six months after the share exchange transaction dated December 23, 2008. GAAP may require contrary treatment. On February 12, 2009, each Founder and the Shareholder entered into an amendment to the

35


Each Founder may purchase 25% of the total number of shares that he or she is eligible to purchase under his or her Earn-In Agreement, as amended, upon the satisfaction of each condition described above. The aggregate number of shares eligible for purchase by all of the Founders under the Earn-In Agreements is 100,000. Therefore, upon purchase of the above shares by the Founders, the total number of outstanding shares of the Shareholder will be 100,001 and the Founders will be the controlling shareholders of the Shareholder.

Pursuant to the Earn-in Agreement, as amended, the Shareholder further agrees, among others, that throughout the exercise period of the Earn-in Agreement, without the prior written approval of the Founders:

  • it will not increase the number of authorized shares of the Shareholder’s common stock, or any increased authorized shares will be deemed as part of the option shares that the Founders are entitled to acquire under the Earn-In Agreements;

  • (ii) keeps available the services of current officers and employees of the Shareholder and Heilongjiang Shuaiyi; and

  • (iii) New Resources and Heilongjiang Shuaiyi will not declare or pay any dividend or make any other distribution, nor do they repurchase, redeem or otherwise reacquire any equity of shares of capital stock or other securities.

The sole purpose of the Earn-In Agreements is to enable Founders to reacquire ultimate controlling legal ownership of Heilongjiang Shuaiyi in compliance with regulatory requirements of China.

On December 8, 2008, Heilongjiang Shuaiyi entered into separate loan agreement and promissory notes, or the Notes, with the Founders, pursuant to which Heilongjiang Shuaiyi borrowed an aggregate of RMB 60 million (approximately $8.8 million) from the Founders, which amount is exactly equal to the proceeds that they are entitled to receive for the transfer of their ownership of Heilongjiang Shuaiyi under the Equity Transfer Agreement. The Notes bear no interest and are payable 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 is due on January 1, 2028. On February 12, 2009, Heilongjiang Shuaiyi and the Founders amended the Notes, pursuant to which the Founders subordinate any right to receive any payment with respect to this loan to the payment or provision for payment in full of all claims of all present and future creditors of Heilongjiang Shuaiyi. During and after this restructuring plan, there has been no change to the composition of the board of directors of Heilongjiang Shuaiyi. Heilongjiang Shuaiyi’s board of directors, chaired by Ms. Han, has continued to comprise representatives of the Founders. Therefore, Heilongjiang Shuaiyi is still under the same operating and management control of the Founders. Through this subordinated loan, the Founders will not receive any cash amount, nor will there be any cash flow out of the combined entity during the whole period from the date of the Equity Transfer Agreement though the expiry of the Earn-in Agreements, at which time it is expected that the Founders will have reacquired the ultimate legal controlling ownership of Heilongjiang Shuaiyi.

The loan to Heilongjiang Shuaiyi by the Founders is an integral and inseparable part of the restructuring plan and has the sole purpose of achieving the restructuring in compliance with PRC regulations. Furthermore, by providing the subordinated loan to Heilongjiang Shuaiyi and obtaining the Shareholder’s agreement on not declaring any dividend throughout the exercise period of the Earn-in Agreements without the prior written approval of the Founders, the Founders continue to bear the residual risks and rewards relating to Heilongjiang Shuaiyi. As a result, this restructuring plan will be accounted for as a recapitalization of Heilongjiang Shuaiyi with no adjustment to the historical basis of the assets and liabilities of Heilongjiang Shuaiyi. New Resources’ financial statements for the subsequent period in which the restructuring occurred will report Heilongjiang Shuaiyi’s results of operation will be consolidated from the beginning of the first period presented in New Resources’ financial statements as if the restructuring had occurred as of the beginning of that period.

The following charts demonstrate the ownership information of the relevant entities before and after the consummation of the restructuring plan:

36


Before the Equity Transfer Agreement:

After the consummation of the restructuring plan

Acquisition of New Resources

On December 23, 2008, pursuant to a share exchange agreement, or Share Exchange Agreement, we completed a reverse acquisition transaction of New Resources whereby we issued to the Shareholder 689,390 shares of our Series A Preferred Stock, constituting approximately 94% of our issued and outstanding capital stock on a fully-diluted basis, in exchange for all of the issued and outstanding capital stock of New Resources. New Resources thereby became our wholly owned subsidiary and the Shareholder became our controlling stockholder.

Immediately following closing of the reverse acquisition of New Resources, the Shareholder transferred 176,529 of the 689,390 shares issued to it under the share exchange to 14 individuals and entities, pursuant to a securities allocation agreement that the Shareholder entered into with these people on December 23, 2008. Among them, ten individuals and entities received 91,088 shares from the Shareholder for providing consulting services to New Resources and its subsidiaries in assisting them to consummate the share exchange transaction contemplated by the Share Exchange Agreement prior to December 23, 2008. The remaining 85,441 shares were gifted from the Shareholder to four individuals and entities who did not provide services to New Resources or its subsidiaries.

37


Upon the closing of the reverse acquisition, Eugene M. Weiss, our then sole director and officer, submitted a resignation letter pursuant to which he resigned from all offices that he held effective immediately and from his position as our director that became effective on January 12, 2009. Lianyun Han was appointed to our board of directors effective as of the closing of the reverse acquisition on December 23, 2008. In addition, our board of directors on December 23, 2008 increased the size of our board of directors to five (5) and appointed Nana Jiang, Chunming Zhang, John Jing Zhang and Xi Zhu to fill the vacancies created by such increase, which appointments became effective upon the effectiveness of the resignation of Mr. Weiss on January 12, 2009. In addition, our executive officers were replaced by the New Resources executive officers upon the closing of the reverse acquisition as indicated in more detail below.

For accounting purposes, the share exchange transaction was treated as a reverse acquisition with New Resources as the acquiror and the Company as the acquired party. Unless the context suggests otherwise, when we refer in this report to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of our subsidiary Heilongjiang Shuaiyi because Heilongjiang Shuaiyi currently conducts all our business operations.

The following chart reflects our organizational structure as of the date of this prospectus:


MANAGEMENT

Directors and Executive Officers

The following sets forth information about our directors and executive officers as of the date of this prospectus:

38



Name Age Position
Lianyun Han 52 Chairperson, CEO and President
Robert Tick 41 Chief Financial Officer and Treasurer
Hongbing Hua 42 Chief Marketing Officer
Nana Jiang 31 Director
Chunming Zhang 39 Director
John Jing Zhang 37 Director
Xi Zhu 26 Director

Lianyun Han. Ms. Han has extensive experience in operational management and business development. Ms. Han is the founder of our company and has been our Chief Executive Officer, President and the chairperson of our board of directors since the completion of the reverse acquisition of New Resources on December 23, 2008. Ms. Han has been the chairman and chief executive officer of our subsidiary Heilongjiang Shuaiyi since its formation in 2006. From 1998 to 2006, Ms. Han was the president of Heilongjiang Shuaiyi Technology Development Co., Ltd., a company that is engaged in the business of developing, manufacturing, marketing and selling high-tech agricultural products. Ms. Han holds a Bachelor’s degree in Chinese Language and Literature from Harbin Normal University.

Robert Tick. Mr. Tick has over 16 years experience in accounting and finance. Mr. Tick was the Chief Financial Officer of ANDA Networks, Inc., a telecom equipment provider, from July 2007 to August 2010, Vice President of Finance from October 2005 to July 2007 and Corporate Controller from April 2003 to November 2004. From November 2004 to October 2005, Mr. Tick served as the Controller for T-RAM Semiconductors Inc., a fabless semiconductor company. Mr. Tick is a Certified Public Accountant and holds a B.S. in Accounting and Finance from San Francisco State University and an M.B.A. from Washington State University.

Hongbing Hua. Mr. Hua has over 15 years experience in sales and marketing management. Prior to joining the Company, from 2003 to 2004, Mr. Hua was the Project General Planning Principle of Wanglaoji Herbal Tea, JDB Group, one of the largest herbal tea manufacturers in China. From 1998 to 2001, he was the VP Sales & Marketing of Beijing Huiyuan Beverage and Food Group Co., Ltd., a leading company engaged in the manufacture and sales of juice and other beverage products in China. Mr. Hua holds a Bachelor’s degree in international finance from Tianjin University.

Chunming Zhang. Mr. Zhang has decades of working experience in production management. Mr. Zhang became our director on January 12, 2009. Mr. Zhang joined Heilongjiang Shuaiyi in 2006 as the production manager. From 1998 to 2006, Mr. Zhang was the vice president of Heilongjiang Shuangyasha Boiler Factory. Mr. Zhang holds a Bachelor’s degree in economics from Northeast Agricultural University.

Nana Jiang. Ms. Jiang became our director on January 12, 2009. Ms. Jiang joined Heilongjiang Shuaiyi in 2006 as the managing accountant. From 1998 to 2006, Ms. Jiang was the managing accountant of Heilongjiang Shuaiyi Technology Development Co., Ltd., a company that is engaged in the business of developing, manufacturing, marketing and selling high-tech agricultural products. Ms. Jiang holds a Bachelor’s degree in English from Harbin Normal University.

John Jing Zhang. Mr. Zhang became our director on January 12, 2009. Mr. Zhang currently serves as the chief executive officer of JC Global Capital Partners, LLC, a financial consulting firm located in Shanghai, China that specializes in cross-border capital market transactions. Prior to funding JC Global Capital Partners, LLC in September 2006, from September 2003 to August 2006, Mr. Zhang was the Managing Director of FirsTrust Group, a US merchant bank headquartered in Atlanta, GA, where he was responsible for its entire China operation. Prior to joining FirsTrust Group, Mr. Zhang held senior positions in two U.S. corporations, ASI Computer Technology, Inc. and CTX International, Inc., a company that engages in the business of manufacturing and selling LCD Flat Panel Displays. Mr. Zhang holds an MBA from Emory University.

Xi Zhu. Mr. Zhu became our director on January 12, 2009. Mr. Zhu has years of experience in auditing and financial consulting. Currently he is a Senior Financial Advisor for JINDU Investment, a financial consulting firm that specializes in PIPE deals. Prior to JINDU Investment, Mr. Zhu was an auditor of in the International Business Department at BDO Qingdao Branch. BDO is a world wide network of public accounting firms, serving international clients. Mr. Zhu was an Auditor Assistant of Foreign Investment Service in Shan Dong De Sheng Accounting Firm from 2005 to 2006. Mr. Zhu holds a Bachelor’s degree in Administrative Management from Qingdao University.

39


There are no agreements or understandings for any of our executive officers or director to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.

Directors are elected until their successors are duly elected and qualified.

Director Qualifications

Below is a summary of the qualifications, attributes, skills and experience of each of our directors that led us to the conclusion that such director should serve as a director of our Company, in light of our business and structure.

Ms. Lianyun Han

  • Leadership and Management experience – founder of Heilongjiang Shuaiyi and has been Heilongjiang Shuaiyi’s Chairwoman and Chief Executive Officer since 2006 and the Company’s Chairwoman and Chief Officer since 2008

  • Industry background – president of Heilongjiang Shuaiyi Technology Development Co., Ltd., a company that is engaged in the business of developing, manufacturing, marketing and selling high-tech agricultural products, from 1998 to 2006

Mr. Chunming Zhang

  • Leadership and Management experience –became our director on January 12, 2009 and joined Heilongjiang Shuaiyi in 2006 as the production manager

  • Education background – holds a Bachelor’s degree in economics from Northeast Agricultural University

Ms. Nana Jiang

  • Leadership and Management experience – became our director on January 12, 2009 and joined Heilongjiang Shuaiyi in 2006 as the managing accountant

  • Education background – holds a Bachelor’s degree in English from Harbin Normal University

Mr. John Jing Zhang

  • Leadership and Management experience – became our director on January 12, 2009 and from September 2003 to August 2006, the Managing Director of FirsTrust Group, a US merchant bank headquartered in Atlanta, GA

  • Education background – MBA from Emory University

Mr. Xi Zhu

  • Leadership and Management experience – became our director on January 12, 2009 and is a Senior Financial Advisor for JINDU Investment, a financial consulting firm that specializes in PIPE deals

  • Education background - Bachelor’s degree in Administrative Management from Qingdao University

Board Composition and Committees

The board of directors is currently composed of five members, Ms. Lianyun Han, Ms. Nana Jiang, Mr. Chunming Zhang, Mr. John Jing Zhang and Mr. Xi Zhu. All Board action requires the approval of a majority of the directors in attendance at a meeting at which a quorum is present. We may increase the size of our board of directors in the future but have not determined the approximate time to take such action.

We currently do not have standing audit, nominating or compensation committees. Our board of directors handles the functions that would otherwise be handled by each of the committees. We intend, however, to establish an audit committee, a nominating committee and a compensation committee of the board of directors as soon as practicable. We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditors, evaluating our accounting policies and our system of internal controls. The nominating committee would be primarily responsible for nominating directors and setting policies and procedures for the nomination of directors. The nominating committee would also be responsible for overseeing the creation and implementation of our corporate governance policies and procedures. The compensation committee will be primarily responsible for reviewing and approving our compensation and benefit policies, including compensation of executive officers.

40


Our board of directors has not made a determination as to whether any member of our board is an audit committee financial expert. Upon the establishment of an audit committee, the board will determine whether any of the directors qualify as an audit committee financial expert.

Family Relationships

There is no family relationship among any of our officers or directors.

Code of Ethics

Our board of directors has adopted a code of ethics that applies to Chief Executive Officer, President, Chief Financial Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Controller and persons performing similar functions. The code of ethics addresses, among other things, ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code. A copy of the code of ethics has been filed as Exhibit 14.1 to our Annual Report on Form 10-KSB filed on November 20, 2007. We are in the process of building up the Company website. Once our website is available, we will make the code of ethics available on the website. Thereafter, any amendments or waivers to the code of ethics will be posted on our website within four business days of such amendment or waiver. Until such time, however, any amendments or waivers to our code of ethics will be filed with the SEC in a Current Report on Form 8-K.

Involvement in Certain Legal Proceedings

None of our directors or executive officers has, during the past ten years:

  • been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

  • had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

  • been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

  • been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

  • been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

  • been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

41


EXECUTIVE COMPENSATION

Summary Compensation Table – 2009 and 2008

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. No executive officer received total annual salary and bonus compensation in excess of $100,000 during the fiscal years 2009 and 2008.

    Salary Bonus Total
Name and Principal Position Year ($) ($) ($)
         
 Lianyun Han, 2009 12,000 3,000 15,000
 CEO and President (1) 2008 12,000   3,000 15,000
 
 Eugene M. Weiss, 2009   - - -
 former President and Director(2) 2008   - - -
   
 Joseph Meuse, 2009   - - -
 former President and Director (3) 2008   - - -
   
 Brian Jaggard,        
 former CEO, President, CFO 2009   - -
 and Director (4) 2008   - -

(1)

On December 23, 2008, we acquired New Resources in a reverse acquisition transaction that was structured as a share exchange and in connection with that transaction, Ms. Lianyun Han became our Chief Executive Officer, President and director. Prior to the effective date of the reverse acquisition, Ms. Han served at New Resources’ wholly owned subsidiary Heilongjiang Shuaiyi as its chairperson and chief executive officer. The annual, long term and other compensation shown in this table include the amount Ms. Han received from Heilongjiang Shuaiyi prior to the consummation of the reverse acquisition.

   
(2)

Eugene M. Weiss resigned from all offices he held with us upon the closing of the reverse acquisition of New Resources on December 23, 2008. Mr. Weiss was our director until January 12, 2009.

   
(3)

Joseph Meuse resigned from his position as our President on August 8, 2008 and appointed Eugene Weiss as our sole officer and director.

   
(4)

Brian Jaggard resigned from his position as our President on August 1, 2008 and appointed Joseph Meuse as our sole officer and director.

Employment Agreements

Our indirect subsidiary Heilongjiang Shuaiyi entered into an employment agreement with our CEO and President, Ms. Lianyun Han. Ms. Han’s employment agreement has a five-year term beginning on December 7, 2008 and ending on December 7, 2013. Ms. Han’s employment agreement provides for a monthly salary of approximately $1,000 and an annual bonus of approximately $3,000. Ms. Han is subject to customary non-competition and confidentiality covenants under the agreement. The employment agreement does not entitle Ms. Han to severance payments or payments following a change in control.

On August 18, 2009, Heilongjiang Shuaiyi and Mr. Hongbin Hua entered into an employment agreement. The term of the employment agreement is for five years commencing on August 18, 2009. The employment agreement provides, among other things, that Mr. Hua’s annual base salary will be RMB 1,000,000 (approximately $147,000), or Annual Salary. During the term of the employment agreement, if either party terminates the employment for any reason, the other party will be entitled to the compensation equal to 30% of the Annual Salary from the terminating party. The Employment Agreement also contains covenants prohibiting Mr. Hua from disclosing any confidential information of the Company.

42


On July 16, 2010, we and Mr. Tick entered into an employment agreement. The term of the employment agreement is for three years commencing on July 16, 2010. The employment agreement provides, among other things, that Mr. Tick’s monthly base salary will be $12,650.

During the term of the employment agreement, if either party terminates the employment for any reason, a minimum of sixty (60) days notice must be given in writing to the other party. The employment agreement also contains covenants prohibiting Mr. Tick from competing with the Company during his employment with the Company or disclosing any confidential information of the Company both during his employment and after the termination of employment.

On July 16, 2010, we and Mr. Tick entered into a stock option agreement under the Company’s 2009 Equity Incentive Plan, or the Plan. Pursuant to the terms of the stock option agreement, Mr. Tick was granted options to purchase an aggregate 150,000 shares of common stock of the Company, among which, an option to purchase 75,000 shares will be vested on December 31, 2011 with an exercise price of $5.00 per share, an option to purchase 100,000 shares will be vested on December 31, 2012 with an exercise price of $7.00 per share. Each of the options expires three years after its respective vesting date.

According to the stock option agreement, in the event Mr. Tick’s employment with us 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. Tick’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. 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 options will terminate immediately. In no event will the options be exercised later than December 31, 2015.

On the same date, we also entered into a restricted shares grant agreement under the Plan with Mr. Tick. Pursuant to the terms of the restricted shares grant agreement, we granted to Mr. Tick 150,000 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 nonvested restricted shares will be automatically forfeited to the Company.

Both the options and the restricted shares are also subject to certain acceleration provision provided in the stock option agreement and the restricted shares grant agreement, respectively.

We have not provided retirement benefits (other than a state pension scheme in which all of our employees in China participate) or severance or change of control benefits to our named executive officer.

Outstanding Equity Awards at Fiscal Year End

None of our executive officers received any equity awards, including, options, restricted stock or other equity incentives during the fiscal year ended December 31, 2009.

Compensation of Directors

The table below sets forth the compensation of our directors for the fiscal year ended December 31, 2009:

43


                                     
                      Non-Equity              
                      Incentive Plan     All Other        
    Fees Earned or     Stock Awards     Option Awards     Compensation     Compensation        
Name   Paid in Cash ($)     ($)     ($)     ($)     ($)     Total ($)  
                                     
Lianyun Han(1)   15,000     -     -     -     -     15,000  
 Nana Jiang   3,470     -     -     -     -     3,470  
 Chunming Zhang   -     -     -     -     -      
 John Jing Zhang   -     -     -     -     -      
 Xi Zhu   -     -     -     -     -      

(1) Ms. Han does not receive additional compensation for her service as our director. The compensation disclosed herein is her compensation for serving as our CEO and President as disclosed in the Summary Compensation Table above.

TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS;
CORPORATE GOVERNANCE

Transactions with Related Persons

The following includes a summary of transactions since the beginning of the 2009 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described in the section of “Executive Compensation” above). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

  • On January 10, 2008, Daqing Shuaiyi entered into a land lease agreement with Heilongjiang Shuaiyi Technology Development Co., Ltd., pursuant to which Daqing Shuaiyi leased a land use right for 20 years over a 410,000 square meter tract on which it has nine factory buildings to grow and cultivate Chinese Golden Grass.

  • On October 15, 2007, Heilongjiang Shuaiyi entered into a loan agreement with its wholly-owned subsidiary, Daqing Shuaiyi, pursuant to which Heilongjiang Shuaiyi agreed to loan RMB 35 million (approximately $5.1 million) to Daqing Shuiayi. The loan is non-interest bearing and unsecured. Daqing Shuaiyi is obligated under the loan agreement to pay off RMB 7 million (approximately $1 million) by October 30 each year starting from 2008. The loan matures on October 15, 2012.

  • On September 12, 2008, the Shareholder entered into separate Earn-In Agreements with the Funders of Heilongjiang Shuaiyi, including our chairperson and chief executive officer, Lianyun Han. Pursuant to the Earn-In Agreements, each Founder has an option to purchase shares of the Shareholder’s ordinary shares at a purchase price of $0.01 per share (the par value of the Shareholder’s ordinary shares), provided that the aggregate price with respect to the shares eligible to be purchased relating to the satisfaction of condition (4) below is the sum of $0.01 per share, multiplied the number of such shares, plus $1,000, upon the satisfaction of each of the following conditions: (1) six months have expired since the date of the Share Exchange Agreement, provided that on or before that date, the Founder and Heilongjiang Shuaiyi have entered into a binding employment agreement and the Founder is employed by Heilongjiang Shuaiyi pursuant to that agreement on such date; (2) the SEC has declared a registration statement filed by the Company under the Securities Act effective, or investors who purchased common stock from the Company pursuant to a securities purchase agreement being able to sell their common stock under Rule 144; (3) Heilongjiang Shuaiyi and its subsidiaries have achieved not less than $1,560,000 in after-tax net income, as determined under US GAAP for the six months ended June 2009; and (4) Heilongjiang Shuaiyi has achieved not less than $3,900,000 in pre-tax profits, as determined under US GAAP for the fiscal year ending 2009. Notwithstanding the foregoing, for purposes of determining whether or not the financial thresholds described above have been achieved, the purchase of the shares by the Founder or any other person designated by the Founder shall not be deemed to be an expense, charge, or other deduction from revenues of the Company even though GAAP may require contrary treatment. Each Founder may purchase 25% of the total number of shares that he or she is eligible to purchase under his or her Earn-In Agreement upon the satisfaction of each condition described above and the aggregate number of shares eligible for purchase by all of the Founders under the Earn-In Agreements is 100,000. On February 12, 2009, each Founder and the Shareholder entered into the First Amendment to amend the definition of the first condition. As a result, pursuant to the First Amendment, in order to satisfy the first condition for each Founder, only Ms. Lianyun Han needs to enter into a binding employment agreement with Heilongjiang Shuaiyi within six months after the date of the Share Exchange Agreement.

44


  • On December 8, 2008, Heilongjiang Shuaiyi entered into separate loan agreement and promissory notes, or the Notes, with the Founders, pursuant to which Heilongjiang Shuaiyi borrowed an aggregate of RMB 60 million (approximately $8.8 million) from the Founders, including from our chairperson and chief executive officer. The Notes bear no interest and are payable 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 is due on January 1, 2028. On February 12, 2009, Heilongjiang Shuaiyi and the Founders amended the Notes, pursuant to which the Shuaiyi Founders subordinate any right to receive any payment with respect to this loan to the payment or provision for payment in full of all claims of all present and future creditors of Heilongjiang Shuaiyi.

Except as set forth in our discussion above, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

Promoters and Certain Control Persons

We did not have any promoters at any time during the past five fiscal years.

Parents of the Company

New Zealand WAYNE’s Investment Holdings Co., Ltd. currently owns 54.87% of Nutrastar International Inc.

Director Independence

We currently do not have any independent directors, as the term “independent” is defined by the rules of the Nasdaq Stock Market.

CHANGE IN ACCOUNTANTS

(a)

Dismissal of Previous Independent Registered Public Accounting Firm.

     
i.

Effective July 12, 2010, our Board of Directors approved the dismissal of AGCA, Inc., or AGCA, as the Company's independent registered public accounting firm.

     
ii.

AGCA’s reports on the Company’s financial statements as of and for the fiscal years ended December 31, 2009 and 2008 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

     
iii.

During the Company’s two most recent fiscal years (ended December 31, 2009 and 2008) and during the subsequent interim period through July 12, 2010, there were (1) no disagreements with AGCA on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of AGCA, would have caused AGCA to make reference to the subject matter of the disagreements in connection with its reports, and (2) no events of the type listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K.

     
(b)

Engagement of New Independent Registered Public Accounting Firm

     
i.

Concurrent with the decision to dismiss AGCA as the Company’s independent auditor, the Board approved the engagement of Crowe Horwath (HK) CPA Limited, or Crowe Horwath, as the Company’s new independent registered public accounting firm.

     
ii.

During the Company’s two most recent fiscal years (ended December 31, 2009 and 2008) and through the subsequent interim period to July 12, 2010, the Company did not consult Crowe Horwath with respect to (a) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report was provided to the Company or oral advice was provided that Crowe Horwath concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (b) any matter that was the subject of either a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.

45


We provided AGCA with a copy of this disclosure on July 15, 2010, providing AGCA with the opportunity to furnish us with a letter addressed to the SEC containing any new information, clarification of the Company's expression of its views, or the respect in which AGCA does not agree with the statements contained herein. A letter from AGCA dated July 16, 2010 was attached as Exhibit 16.1 to the Current Report on Form 8-K filed on July 16, 2010.

SELLING STOCKHOLDERS

This prospectus relates to the resale by the selling stockholders named below from time to time of up to a total of 2,965,561 shares of our common stock that were issued or are issuable to selling stockholders pursuant to transactions exempt from registration under the Securities Act. All of the common stock offered by this prospectus is being offered by the selling stockholders for their own accounts.

Private Placement Transaction

On June 28, 2010, we completed a private placement transaction disclosed above and issued to certain investors approximately 197,700 Units at a purchase price of $28.56 per Unit for gross proceeds of $5,646,270. Each Unit consists of (i) one share of Series A Preferred Stock, with an initial one-to-ten conversion ratio into shares of the Company’s common stock, and (ii) Series C Warrants to purchase five shares of common stock at an exercise price of $3.40 per share with a term of three years. As a result, we issued in aggregate 197,706 shares of our Series A Preferred Stock, initially convertible into 1,977,060 shares of our common stock, and Series C Warrants to purchase an aggregate of 988,501 shares of our common stock. The Units were issued in reliance upon exemptions provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering and Regulation D or Regulation S promulgated thereunder.

Gilford Securities Incorporated served as the placement agent in connection with this private placement and as partial compensation for its services, we issued Series C Warrants to it to purchase an aggregate of 39,539 shares of our common stock, representing 2% of the aggregate number of shares of common stock issuable upon conversion of the Series A Preferred Stock purchased by the investors in this transaction. The foregoing issuance was made in reliance upon exemptions provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering and Regulation D promulgated thereunder.

Selling Stockholders

The table below, which was prepared based on information filed publicly or supplied to us by the selling stockholders, sets forth information regarding the beneficial ownership of outstanding shares of our common stock owned by the selling stockholders and the shares that they may sell or otherwise dispose of from time to time under this prospectus. Each of the selling stockholders, or their respective transferees, donees or their successors, may resell, from time to time, all, some or none of the shares of our common stock covered by this prospectus, as provided in this prospectus under the section entitled “Plan of Distribution” and in any applicable prospectus supplement. However, we do not know when or in what amount the selling stockholders may offer their shares for sale under this prospectus, if any.

The number of shares disclosed in the table below as “beneficially owned” are those beneficially owned as determined under the rules of the SEC. Such information is not necessarily indicative of ownership for any other purpose. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. In computing the number of shares beneficially owned by a selling stockholder and the percentage of ownership of that selling stockholder, shares of common stock underlying shares of convertible preferred stock, options or warrants held by that selling stockholder that are convertible or exercisable, as the case may be, within 60 days of September 7, 2010 are included. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other selling stockholder. Each selling stockholder’s percentage of ownership in the following table is based upon 14,332,731 shares of common stock outstanding as of September 7, 2010.

46


Unless otherwise indicated and subject to community property laws where applicable, the selling stockholders named in the following table have, to our knowledge, sole voting and investment power with respect to the shares beneficially owned by them. In addition, none of the selling stockholders has any family relationships with our officers, directors or controlling stockholders. Furthermore, unless otherwise indicated below, no selling stockholder is a registered broker-dealer or an affiliate of a registered broker-dealer.

Information concerning any of the selling stockholders may change from time to time, and any changed information will be presented in a prospectus supplement as necessary. Please carefully read the footnotes located below the table in conjunction with the information presented in the table.

 

Shares of

 

 

Percentage of

 

Common Stock

Shares of

Beneficial

Common Stock

 

Beneficially

Common Stock

Ownership

Beneficially

 

Owned Before

Included in

After the

Owned After

Name and Address

the Offering (1)

Prospectus

Offering**

Offering (2)

ARC China Investment Funds(3)

1,425,077(3)

1,425,077(3)

0

*

 

 

 

 

 

Banque Privée Edmond de Rothschild

 

 

 

 

Europe

 

 

 

 

20, Boulevard Emmanuel Servais

 

 

 

 

L-2535 Luxembourg

 

 

 

 

Wilshire Investments, LLC(4)

38,865(4)

38,865(4)

0

*

 

 

 

 

 

410 17th Street #1705

 

 

 

 

Denver, CO 80224

 

 

 

 

Martin Key

9,028(5)

9,028(5)

0

*

 

 

 

 

 

1003 Cherokee Avenue

 

 

 

 

Arken, SC 29801

 

 

 

 

Hao Xu

51,800(6)

51,800(6)

0

*

 

 

 

 

 

2299 Jinshajiang Road

 

 

 

 

Building 27, Room 1401

 

 

 

 

Shanghai 200333

 

 

 

 

People's Republic of China

 

 

 

 

Jeffrey A. Grossman

52,862(7)

52,862(7)

0

*

 

 

 

 

 

35 Rochelle Dr.

 

 

 

 

New City, NY 10956

 

 

 

 

Ruiyi Sun

51,800(8)

51,800(8)

0

*

 

 

 

 

 

1200 Huaihai Middle Road

 

 

 

 

2nd Floor, No. 25

 

 

 

 

Xuhui District, Shanghai 200031

 

 

 

 

People's Republic of China

 

 

 

 

Gal Shmuel Dymant

196,926(9)

196,926(9)

0

*

 

 

 

 

 

Suite 1806, Building A

 

 

 

 

Oriental Media Centre

 

 

 

 

4 Guanghua Road

 

 

 

 

Chaoyang District, Beijing 100026

 

 

 

 

People's Republic of China

 

 

 

 

Fitel Nominees Limited(10)

24,346(10)

24,346(10)

0

*

 

 

 

 

 

11 St. Jame's Square Manchester, M2,

 

 

 

 

6WH, UK

 

 

 

 

47


Aran Asset Management SA(11)

51,830(11)

51,830(11)

0

*

AAM SA, Bahnhohplatz 6304

 

 

 

 

Zug/Switzerland

 

 

 

 

Sequoia Aggressive Growth Fund(12)

259,114(12)

259,114(12)

0

*

 

 

 

 

 

c/o Nemo Asset Management PO Box

 

 

 

 

60374 Abu Dhabi, U.A.E.

 

 

 

 

Steven B. Berman Revocable Trust

51,815(13)

51,815(13)

0

*

Dated 5/11/09(13)

 

 

 

 

 

 

 

 

 

1930 Harrison Street, Suite 505

 

 

 

 

Hollywood, FL 33020

 

 

 

 

W. Michael Ogie

25,914(14)

25,914(14)

0

*

 

 

 

 

 

6940 Hilton Ct. Columbus, GA 31904

 

 

 

 

Wilds Michael Ogie

25,914(15)

25,914(15)

0

*

 

 

 

 

 

1530 Hilton Ave. Columbus, GA

 

 

 

 

31906

 

 

 

 

Di Zhu ep Chevallier

51,812(16)

51,812(16)

0

*

 

 

 

 

 

Lane 100 Yushan Road, Building 17

 

 

 

 

Room 401 Pudong, 299135,

 

 

 

 

Shanghai, China

 

 

 

 

Moonlight Investments Ltd. (17)

51,828(17)

51,828(17)

0

*

 

 

 

 

 

c/o North Atlantic SAM Le Patio

 

 

 

 

Palace 41 Avenue Hector Otto MC

 

 

 

 

98000 Monaco

 

 

 

 

Cons Family Holdings Inc(18)

51,814(18)

51,814(18)

0

*

 

 

 

 

 

370 Rue des Seigneurs, Montreal

 

 

 

 

Quebec H3J2M9 Canada

 

 

 

 

NBAD Private Bank (Suisse) SA(19)

51,828(19)

51,828(19)

0

*

 

 

 

 

 

Quai de L'lle 5 PO Box 5055 1204

 

 

 

 

Geneva 11 Switzerland

 

 

 

 

Loeb Enterprises II, LLC(20)

90,692(20)

90,692(20)

0

*

 

 

 

 

 

70 East 55th Street, 4th Floor

 

 

 

 

NY, NY 10022-2524

 

 

 

 

Hillside Ventures Investments SA(21)

51,828(21)

51,828(21)

0

*

 

 

 

 

 

12 Carlos Place

 

 

 

 

London W1k 2ET, UK

 

 

 

 

Steven Kruss Living Trust(22)

51,815(22)

51,815(22)

0

*

 

 

 

 

 

2401 SW 145th Avenue,

 

 

 

 

Miramar, FL 33027

 

 

 

 

Anthony Bobulinski

129,544(23)

129,544(23)

0

*

 

 

 

 

 

1801 Century Park West 5th Floor,

 

 

 

 

Los Angeles, CA 90067

 

 

 

 

ARC China Investment Fund, L.P. (24)

77,740(24)

77,740(24)

0

*

 

 

 

 

 

23 on the Bund, Bank of China

 

 

 

 

Building, 14th Floor 23 Zhongshan

 

 

 

 

East No. 1 Road, Shanghai 200002,

 

 

 

 

PRC

       

48



Zachs Family Investment Fund II, 51,830(25) 51,830(25) 0 *
LLC(25)        
         
40 Woodland Street,        
Hartford, CT 06105        
Gilford Securities Incorporated(26) 39,539(26) 39,539(26) 0 *
         
777 3rd Ave, 17th Floor        
New York, NY 10017        
TOTAL 2,965,561 2,965,561    

*

Less than 1%.

**

Assumes that all securities offered are sold.

     
(1)

Represents total ownership with respect to all shares of our common stock underlying the Series C Warrants and Series A Preferred Stock, as a single class and on an “as converted” basis.

     
(2)

As of September 7, 2010, a total of 14,332,731 shares of our common stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each beneficial owner above, any options or warrants exercisable within 60 days have been included in the denominator.

     
(3)

Includes 962,890 shares of our common stock underlying the Series A Preferred Stock and 462,187 shares underlying the Warrants to purchase shares of our common stock. Mr. Adam Roseman is the director of ARC China Investment Funds and has sole voting and investment control over the securities held by ARC China Investment Funds.

     
(4)

Includes 26,260 shares of our common stock underlying the Series A Preferred Stock and 12,605 shares underlying the Warrants to purchase shares of our common stock. Mr. James A. Lustig is the President of Wilshire Investments, LLC and has sole voting and investment control over the securities held by Wilshire Investments, LLC.

     
(5)

Includes 6,100 shares of our common stock underlying the Series A Preferred Stock and 2,928 shares underlying the Warrants to purchase shares of our common stock.

     
(6)

Includes 35,000 shares of our common stock underlying the Series A Preferred Stock and 16,800 shares underlying the Warrants to purchase shares of our common stock.

     
(7)

Includes 35,720 shares of our common stock underlying the Series A Preferred Stock and 17,142 shares underlying the Warrants to purchase shares of our common stock.

     
(8)

Includes 35,000 shares of our common stock underlying the Series A Preferred Stock and 16,800 shares underlying the Warrant to purchase shares of our common stock.

     
(9)

Includes 133,060 shares of our common stock underlying the Series A Preferred Stock and 63,866 shares underlying the Warrant to purchase shares of our common stock.

     
(10)

Includes 16,450 shares of our common stock underlying the Series A Preferred Stock and 7,896 shares underlying the Warrants to purchase shares of our common stock. Mr. Douglas Barlow is the Director of Fitel Nominees Limited and has shared voting and investment control over the securities held by Fitel Nominees Limited.

     
(11)

Includes 35,020 shares of our common stock underlying the Series A Preferred Stock and 16,810 shares underlying the Warrants to purchase shares of our common stock. Mr. Michael C. Thalmann is the Chairman and CEO of Aran Asset Management SA and has sole voting and investment control over the securities held by Aran Asset Management SA.

     
(12)

Includes 175,080 shares of our common stock underlying the Series A Preferred Stock and 84,034 shares underlying the Warrants to purchase shares of our common stock. Mr. Christian Naville is the Director of Sequoia Aggressive Growth Fund and has shared voting and investment control over the securities held by Sequoia Aggressive Growth Fund.

     
(13)

Includes 35,010 shares of our common stock underlying the Series A Preferred Stock and 16,805 shares underlying the Warrants to purchase shares of our common stock. Mr. Steven B. Berman is the Trustee of Steven B. Berman Revocable Trust Dated 5/11/09 and has sole voting and investment control over the securities held by Steven B. Berman Revocable Trust Dated 5/11/09.

49



  (14)

Includes 17,510 shares of our common stock underlying the Series A Preferred Stock and 8,404 shares underlying the Warrant to purchase shares of our common stock.

     
  (15)

Includes 17,510 shares of our common stock underlying the Series A Preferred Stock and 8,404 shares underlying the Warrant to purchase shares of our common stock.

     
  (16)

Includes 35,010 shares of our common stock underlying the Series A Preferred Stock and 16,802 shares underlying the Warrant to purchase shares of our common stock.

     
  (17)

Includes 35,020 shares of our common stock underlying the Series A Preferred Stock and 16,808 shares underlying the Warrants to purchase shares of our common stock. Mr. Diego Lissi is the Director of Moonlight Investments Ltd. and has sole voting and investment control over the securities held by Moonlight Investments Ltd.

     
  (18)

Includes 35,010 shares of our common stock underlying the Series A Preferred Stock and 16,804 shares underlying the Warrants to purchase shares of our common stock. Mr. Ronal P Cons is the President of Cons Family Holdings Inc and has sole voting and investment control over the securities held by Cons Family Holdings Inc.

     
  (19)

Includes 35,020 shares of our common stock underlying the Series A Preferred Stock and 16,808 shares underlying the Warrants to purchase shares of our common stock. Mr. Valerie Anson is the Director of NBAD Private Bank (Suisse) SA and has shared voting and investment control over the securities held by NBAD Private Bank (Suisse) SA.

     
  (20)

Includes 61,280 shares of our common stock underlying the Series A Preferred Stock and 29,412 shares underlying the Warrants to purchase shares of our common stock. Mr. Michael Loeb is the CEO of Loeb Enterprises II, LLC and has shared voting and investment control over the securities held by Loeb Enterprises II, LLC.

     
  (21)

Includes 35,020 shares of our common stock underlying the Series A Preferred Stock and 16,808 shares underlying the Warrants to purchase shares of our common stock. Mr. David Ishag is the Director of Hillside Ventures Investments SA and has sole voting and investment control over the securities held by Hillside Ventures Investments SA.

     
  (22)

Includes 35,010 shares of our common stock underlying the Series A Preferred Stock and 16,805 shares underlying the Warrants to purchase shares of our common stock. Mr. Steven Kruss is the Trustee of Steven Kruss Living Trust and has sole voting and investment control over the securities held by Steven Kruss Living Trust.

     
  (23)

Includes 87,530 shares of our common stock underlying the Series A Preferred Stock and 42,014 shares underlying the Warrants to purchase shares of our common stock.

     
  (24)

Includes 52,530 shares of our common stock underlying the Series A Preferred Stock and 25,210 shares underlying the Warrants to purchase shares of our common stock. Mr. Adam Roseman is the Director of ARC China Investment Fund, L.P. and has sole voting and investment control over the securities held by ARC China Investment Fund, L.P.

     
  (25)

Includes 35,020 shares of our common stock underlying the Series A Preferred Stock and 16,810 shares underlying the Warrants to purchase shares of our common stock. Mr. Eric M. Zachs is the Managing Director of Zachs Family Investment Fund II, LLC and has sole voting and investment control over the securities held by Zachs Family Investment Fund II, LLC.

     
  (26)

Includes 39,539 shares underlying the Warrants to purchase shares of our common stock. Mr. Robert A. Maley is the President of Gilford Securities Incorporated and has sole voting and investment control over the securities held by Gilford Securities Incorporated. Gilford Securities Incorporated is a broker-dealer.

We will not receive any proceeds from the sale of any shares by the selling stockholders but we will receive funds from the exercise of the warrants held by the selling stockholders if and when those warrants are exercised for cash.

50


We have agreed to bear expenses incurred by the selling stockholders that relate to the registration of the shares being offered and sold by the selling stockholders, including the SEC registration fee and legal, accounting, printing and other expenses of this offering.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding beneficial ownership of our common stock as of September 7, 2010 (i) by each person who is known by us to beneficially own more than 5% of our voting securities; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Unless otherwise specified, the address of each of the persons set forth below is in care of Nutrastar International Inc., 7/F Jinhua Mansion, 41 Hanguang Street, Nangang District, Harbin 150080, People’s Republic of China.



Name and Address of
Beneficial
Owner




Office, If Any
Shares Beneficially Owned(1)
Common Stock(2) Series A Preferred Stock(3)
% Total
Voting
Power(4)


Shares

% of
Class


Shares

% of
Class
 Directors and Officers   
Lianyun Han
Chairperson, President
and CEO
8,949,424(5)
62.44%
0
*
54.87%
Robert Tick
Chief Financial Officer
and Treasurer
0
*
0
*
*
Hongbin Hua Chief Marketing Officer 0 * 0 * *
Chunming Zhang Director 0 * 0 * *
Nana Jiang Director 0 * 0 * *
John Jing Zhang Director 543,899(6) 3.79% 0 * 3.33%
Xi Zhu Director 0 * 0 * *
All officers and directors
as a group
(7 persons named above)


9,493,323

66.24%

0

*

58.20%

 5% Security Holders   
New Zealand WAYNE’s
Investment Holdings Co.,
Ltd. 4/F, Yushan Plaza
No.51 Yushan Road
Harbin, China 150090 (5)




8,949,424(5)



62.44%



0



*



54.87%



ARC China Investment
Funds(7)

Banque Privée Edmond
de Rothschild Europe
20, Boulevard Emmanuel
Servais
L-2535 Luxembourg






462,187(7)





3.12%





96,289





48.70%





8.50%





Gal Shmuel Dymant

Suite 1806, Building A
Oriental Media Centre
4 Guanghua Road
Chaoyang District,
Beijing 100026
People's Republic of China







63,866(8)






*






13,306






6.73%






1.20%






51



Sequoia Aggressive
Growth Fund(9)
c/o Nemo Asset
Management PO Box
60374 Abu Dhabi, U.A.E.




84,034(9)



*



17,508



8.86%



1.58%



Adam Roseman(10)

c/o ARC China
Investment Funds

Banque Privée Edmond
de Rothschild Europe
20, Boulevard Emmanuel
Servais
L-2535 Luxembourg







487,397(10)






3.29%






101,542






51.36%






8.95%






Lianyun Han
Chairperson, President
and CEO
8,949,424(5)
62.44%
0
*
54.87%

* Less than 1%
   
(1)
Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. For each beneficial owner above, any options exercisable within 60 days have been included in the denominator.
 
(2)
Based on 14,332,731 shares of common stock issued and outstanding as of September 7, 2010.
 
(3)
Based on 197,706 shares of Series A Preferred Stock issued and outstanding as of September 7, 2010. Each share of Series A Preferred Stock is convertible initially into ten (10) shares of common stock (subject to customary adjustments for stock splits, combinations, or equity dividends on common stock). Holders of Series A Preferred Stock vote with the holders of common stock on all matters on an “as converted” basis. See “Description of Securities – Preference Shares” below for more information regarding our Series A Preferred Stock.
 
(4)
Percentage of Total Capital Stock represents total ownership with respect to all shares of our common stock and Series A Preferred Stock, as a single class and on an “as-converted” to common stock basis.
 
(5)
Includes 8,949,424 shares of common stock owned by New Zealand WAYNE’s Investment Holdings Co., Ltd. Pursuant to the Earn-In Agreement, dated September 12, 2008, as amended, the Founders, including Ms. Han, have the options to acquire a majority interest in New Zealand WAYNE’s Investment Holdings Co., Ltd. upon the satisfaction of certain conditions set forth in the Earn-In Agreement. Upon the passage of six months after the date of Share Exchange Agreement, which was entered into among the Company, New Resources, along with the subsidiaries of New Resources, including Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi, and New Zealand WAYNE’s Investment Holdings Co., Ltd., dated December 23, 2008, Ms. Han will own at least a majority ownership of Investment Holdings if she exercises her option pursuant to the Earn-In Agreement. Ms. Han may be deemed to be a beneficial owner of the shares held by Investment Holdings. In addition, pursuant to the Securities Purchase Agreement, dated December 17, 2009, New Zealand WAYNE’s Investment Holdings Co., Ltd., agreed by the Founders, placed a total of 1,000,000 shares held by it into escrow that may be released to the investors in the event we do not meet the performance thresholds for 2010 and 2011. The remaining 7,949,424 shares of common stock owned by New Zealand WAYNE’s Investment Holdings Co., Ltd. are subject to a lock up agreement with ARC China, Inc., dated May 27, 2010 for a 12-month lock up period.
 
(6)
Including 127,978 shares of common stock held by his spouse.
 
(7)
Includes 462,187 shares underlying a warrant to purchase our common stock. Mr. Adam Roseman is the director of ARC China Investment Funds and has sole voting and investment control over the securities held by ARC China Investment Funds.

52



(8)

Includes 63,866 shares underlying a warrant to purchase our common stock.

   
(9)

Includes 84,034 shares underlying a warrant to purchase our common stock. Mr. Christian Naville is the Director of Sequoia Aggressive Growth Fund and has shared voting and investment control over the securities held by Sequoia Aggressive Growth Fund.

   
(10)

Includes (i) 462,187 shares underlying a warrant to purchase our common stock and 96,289 shares of Series A Preferred Stock directly owned by ARC China Investment Funds, and (ii) 25,210 shares underlying a warrant to purchase our common stock and 5,253 shares of Series A Preferred Stock. Mr. Adam Roseman is the Director of both ARC China Investment Funds and ARC China Investment Fund, L.P. and has sole voting and investment control over the securities held by both firms.

DESCRIPTION OF SECURITIES

Common Stock

We are authorized to issue up to 190,000,000 shares of common stock. On May 19, 2009, we amended our articles of incorporation to effect a 1-for-114.59 reverse split of our outstanding common stock.

Each outstanding share of common stock entitles the holder thereof to one vote per share on all matters. Stockholders do not have preemptive rights to purchase shares in any future issuance of our common stock. The holders of shares of our common stock are entitled to dividends out of funds legally available when and as declared by our board of directors. We have never declared or paid cash dividends. Our board of directors does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our PRC operating subsidiaries, from time to time, may be subject to restrictions on its ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions.

All of the issued and outstanding shares of our common stock are duly authorized, validly issued, fully paid and non-assessable. To the extent that additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.

Preferred Stock

We may issue up to 1,000,000 shares of preferred stock, par value $0.001 per share, in one or more classes or series within a class as may be determined by our board of directors, who may establish, from time to time, the number of shares to be included in each class or series, may fix the designation, powers, preferences and rights of the shares of each such class or series and any qualifications, limitations or restrictions thereof. Any preferred stock so issued by our board of directors may rank senior to the common stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up of us, or both.

On December 22, 2008, we filed a Certificate of Designation of Series A Preferred Stock, or the 2008 Certificate with the State of Nevada designating and authorizing the issuance of up to 800,000 shares of our series A voting preferred stock, par value $0.001 per share, or the 2008 Series A Preferred Stock. On December 23, 2008, we issued 689,390 shares of our 2008 Series A Preferred Stock to the Shareholder of New Resources. The total consideration for the 689,390 shares of our 2008 Series A Preferred Stock is 50,000 shares of New Resources, which is all the issued and outstanding capital stock of New Resources. We did not receive any cash consideration in connection with the share exchange. On December 23, 2008, we also issued and sold to ACI 17,962 shares of our 2008 Series A Preferred Stock for $52,530.50, or $2.92 per share. In addition, on December 23, 2008, we issued and sold to Tan Zhen Investment Limited 20,168 shares of our 2008 Series A Preferred Stock for $375,000, or $18.59 per share.

Following effectiveness of the 1-for-114.59 reverse split of our outstanding common stock and in accordance with Section 6(a) of the 2008 Certificate, all issued and outstanding shares of the 2008 Series A Preferred Stock were automatically converted into shares of common stock, on the basis of 17.45 shares of common stock for each one share of 2008 Series A Preferred Stock, effective on May 29, 2009. After the completion of the conversion, we withdrew the 2008 Certificate.

53


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

On June 28, 2010, we completed the private placement transaction and issued to certain investors approximately 197,700 Units at a purchase price of $28.56 per Unit for gross proceeds of $5,646,270. Each Unit consists of (i) one share of Series A Preferred Stock, with an initial one-to-ten conversion ratio into shares of the Company’s common stock, and (ii) Series C Warrants to purchase five shares of common stock at an exercise price of $3.40 per share with a term of three years. As a result, we issued in aggregate 197,706 shares of our Series A Preferred Stock, initially convertible into 1,977,060 shares of our common stock, and Series C Warrants to purchase an aggregate of 988,501 shares of our common stock.

As of the date of this Prospectus, we have 197,706 shares of our Series A Preferred Stock outstanding.

Warrant

In connection with our private placement which was closed on December 17, 2009, we issued to each of the investors two warrants to purchase in aggregate 500,000 shares of our common stock, including a Series A Warrant having a term of three years with an exercise price of $3.25 per share and a Series B Warrant having a term of three years with an exercise price of $4.00 per share, both of which are subject to the usual adjustments for certain corporate events. The shares underlying the warrants are being included in this registration statement, but none of the Series A or Series B Warrants has been exercised.

On June 28, 2010, we closed the private placement transaction as contemplated by the 2010 Securities Purchase Agreement, dated May 27, 2010 and issued to the investors Series C Warrants to purchase an aggregate of 988,501 shares of our common stock. A Series C Warrant has a term of three years with an exercise price of $3.40 per share. None of the Series C Warrants has been exercised.

On July 1, 2010, as partial compensation for its services, we issued to our IR firm, American Capital Adventures, Inc. and its designees, a Series D Warrant to purchase 100,000 shares of our common stock, which has a term of three years with an exercise price of $3.80 per share. None of the Series D Warrant has been exercised.

Anti-takeover Effects of Our Articles of Incorporation and By-laws

Our Articles of Incorporation and Bylaws contain certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party from acquiring control of the Company or changing our board of directors and management. Our Articles of Incorporation provide that our board of directors may issue, without further stockholder approval, up to 1,000,000 shares of preferred stock, par value $0.001 per share, in one or more classes or series within a class. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock. According to our Bylaws and Articles of Incorporation, neither the holders of our common stock nor the holders of our preferred stock have cumulative voting rights in the election of our directors. The combination of the present ownership by a few stockholders of a significant portion of our issued and outstanding capital stock and lack of cumulative voting makes it more difficult for other stockholders to replace our board of directors or for a third party to obtain control of the Company by replacing our board of directors.

Anti-takeover Effects of Nevada Law

Business Combinations

The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, prohibit a Nevada corporation with at least 200 stockholders from engaging in various “combination” transactions with any interested stockholder:

54


  • for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status; or

  • after the expiration of the three-year period, unless:

  • the transaction is approved by the board of directors or a majority of the voting power held by disinterested stockholders, or

  • if the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher.

A “combination” is defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, with an “interested stockholder” having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, or (c) 10% or more of the earning power or net income of the corporation.

In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more of a corporation's voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.

Control Share Acquisitions

The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of the NRS, which apply only to Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly or indirectly in Nevada, prohibit an acquiror, under certain circumstances, from voting its shares of a target corporation's stock after crossing certain ownership threshold percentages, unless the acquiror obtains approval of the target corporation's disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Once an acquiror crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters' rights.

Transfer Agent and Registrar

Our independent stock transfer agent is Interwest Transfer Company, Inc, located in 1981 E. Murray Holladay Road, Suite 100, Salt Lake City, Utah 84117. Their phone number is (801) 272-9294 and facsimile number is (801) 277-3147.

MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted under the symbol “NUIN” on the OTCQB market but had not been traded in the OTCQB market except on a limited and sporadic basis. The CUSIP number is 67060M 107.

The following table sets forth, for the periods indicated, the high and low closing prices of our common stock. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. These prices have been adjusted to give retroactive effect to the 1-for-114.59 reverse split of our common stock that occurred on May 19, 2009. The last reported sale price of our common stock on January 25, 2010 was $3.76 per share.

55



               Closing Bid Prices (1)
  High Low
Year Ended December 31, 2010
1st Quarter $5.00 $3.16
2nd Quarter $3.95 $1.01
3rd Quarter (through September 7, 2010) $3.03 $2.55
Year Ended December 31, 2009
1st Quarter $28.65 $5.73
2nd Quarter $6.25 $5.73
3rd Quarter $6.25 $6.25
4th Quarter $6.25 $6.25
 
Year Ended December 31, 2008
1st Quarter    $13.75 $13.75
2nd Quarter    $13.75 $13.75
3rd Quarter    $13.75 $13.75
4th Quarter    $28.65 $13.75

(1)

The above table sets forth the range of high and low closing bid prices per share of our common stock as reported by www.quotemedia.com for the periods indicated.

Holders

On September 7, 2010, there were approximately 336 stockholders of record of our common stock. The number of record holders does not include persons who held our common stock in nominee or “street name” accounts through brokers.

Dividends

We have never declared or paid a cash dividend. Any future decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our stockholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

On June 3, 2009, our Board of Directors authorized the establishment of the Shuaiyi International New Resources Development Inc. 2009 Equity Incentive Plan, or the Plan, whereby we are authorized to issue shares of our common stock to certain employees, consultants and directors. The maximum aggregate number of shares of our common stock that may be issued under the Plan is 1,000,000 shares. The Plan, was approved by our shareholders on June 3, 2009.

On June 17, 2009, the Company granted to certain employees an aggregate of 500,000 restricted shares pursuant to the Plan.

On January 1, 2010, as disclosed above, pursuant to the Plan, the Company granted options to our former CFO, Mr. Daniel Lee 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.

56


On January 1, 2010, pursuant to the Plan, the Company also granted to Mr. Lee 140,000 restricted shares of the Company’s common stock subject to the vesting schedule therein.

As a result of the resignation of Mr. Lee, effective May 5, 2010, 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.

On July 16, 2010, we and Mr. Tick entered into a stock option agreement under the Plan. Pursuant to the terms of the stock option agreement, Mr. Tick was granted options to purchase an aggregate 150,000 shares of common stock of the Company, among which, an option to purchase 75,000 shares will be vested on December 31, 2011 with an exercise price of $5.00 per share, an option to purchase 100,000 shares will be vested on December 31, 2012 with an exercise price of $7.00 per share. Each of the options expires three years after its respective vesting date.

On the same date, we also entered into a restricted shares grant agreement under the Plan with Mr. Tick. Pursuant to the terms of the restricted shares grant agreement, we granted to Mr. Tick 150,000 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 nonvested restricted shares will be automatically forfeited to the Company.

SHARES ELIGIBLE FOR FUTURE SALE

As of September 7, 2010, 14,332,731 shares of our common stock were issued and outstanding.

Shares Covered by this Prospectus

All of the 2,965,561 shares being registered in this offering may be sold without restriction under the Securities Act, so long as the registration statement of which this prospectus is a part is, and remains, effective.

Rule 144

The SEC has recently adopted amendments to Rule 144 which became effective on February 15, 2008 and apply to securities acquired both before and after that date. Under these amendments, a person who has beneficially owned restricted shares of our common stock or warrants for at least six months is entitled to sell its securities provided that (1) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale, (2) we are subject to the Exchange Act reporting requirements for at least 90 days before the sale and (3) if the sale occurs prior to satisfaction of a one-year holding period, we provide current information at the time of sale.

Persons who have beneficially owned restricted shares of our common stock or warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:

  • 1% of the total number of securities of the same class then outstanding, which will equal approximately 143,327shares immediately after this offering; or

  • the average weekly trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale.

However, since our shares are quoted on the OTCQB market, which is not an “automated quotation system,” our stockholders will not be able to rely on the market-based volume limitation described in the second bullet above. If, in the future, our securities are listed on an exchange or quoted on NASDAQ, then our stockholders would be able to rely on the market-based volume limitation. Unless and until our stock is so listed or quoted, our stockholders can only rely on the percentage based volume limitation described in the first bullet above.

57


Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144. The selling stockholders will not be governed by the foregoing restrictions when selling their shares pursuant to this prospectus.

Historically, the SEC staff has taken the position that Rule 144 is not available for the resale of securities initially issued by companies that are, or previously were, blank check companies, like us. The SEC has codified and expanded this position in the amendments discussed above by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:

  • the issuer of the securities that was formerly a shell company has ceased to be a shell company;
  • the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
  • the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and
  • the least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company.

As a result, it is likely that pursuant to Rule 144 our stockholders, who were stockholders of ours prior to the reverse acquisition of New Resources that concluded on December 23, 2008, were able to sell the their shares of our common stock from and after December 31, 2009 (the one year anniversary of our filing of the Current Report on Form 8-K reporting the reverse acquisition of New Resources) without registration.

PLAN OF DISTRIBUTION

The selling stockholders may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.

The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:

  • ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

  • block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

  • purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

  • an exchange distribution in accordance with the rules of the applicable exchange;

  • privately negotiated transactions;

  • short sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the SEC;

  • through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

  • broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; and

  • a combination of any such methods of sale.

58


The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this Prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.

Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchase of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule.

The broker-dealers or agents that participate in the sale of the common stock or interests therein and the selling stockholders who are affiliates of broker-dealers may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act. We know of no existing arrangements between any of the selling stockholders and any other stockholder, broker, dealer, underwriter, or agent relating to the sale or distribution of the shares, nor can we presently estimate the amount, if any, of such compensation. See “Selling Stockholders” for description of any material relationship that a stockholder has with us and the description of such relationship.

To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this Prospectus.

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states, the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, we will make copies of this Prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act.

59


The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

We have agreed to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this Prospectus.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed upon for us by Holland & Hart LLP, Reno, Nevada.

EXPERTS

The audited consolidated financial statements of Nutrastar International Inc. for the fiscal years ended December 31, 2009 and 2008 included in this prospectus and in the registration statement have been audited by AGCA, Inc., independent registered public accounting firm, to the extent and for the periods sent forth in their respective reports appearing elsewhere herein and in the registration statement, and are included in reliance on such reports, given the authority of said firms as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered in this offering. This prospectus does not contain all of the information set forth in the registration statement. For further information with respect to us and the common stock offered in this offering, we refer you to the registration statement and to the attached exhibits. With respect to each such document filed as an exhibit to the registration statement, we refer you to such exhibit for a more complete description of the matters involved.

You may inspect our registration statement and the attached exhibits and schedules without charge at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of our registration statement from the SEC upon payment of prescribed fees. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.

Our SEC filings, including the registration statement and the exhibits filed with the registration statement, are also available from the SEC’s website at www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

60


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

  Page
   
NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2010 (UNAUDITED)
   
Condensed Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009 F-2
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2010 and 2009 F-3
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Six Months Ended June 30, 2010 F-4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2010 and 2009 F-5
Notes to Condensed Consolidated Financial Statements F-6

NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
   
Reports of Independent Registered Public Accounting Firm F-27
Consolidated Balance Sheets F-28
Consolidated Statements of Income and Comprehensive Income F-29
Consolidated Statements of Stockholders’ Equity F-30
Consolidated Statements of Cash Flows F-31
Notes to Consolidated Financial Statements F-32

F-1


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

    June 30     December 31  
    2010     2009  
    (Unaudited)        
ASSETS            
CURRENT ASSETS            
 Cash and cash equivalents $  32,262,243   $  20,115,677  
 Restricted cash   350,000     -  
 Accounts receivable   279,564     215,486  
 Inventories   704,502     616,073  
 Due from related party   51,000     -  
 Prepayments and other receivables   209,733     251,235  
   Total current assets   33,857,042     21,198,471  
OTHER ASSETS            
 Intangible assets, net   2,541,496     2,747,402  
 Property, plant and equipment, net   10,174,213     10,396,507  
             
   Total assets $  46,572,751   $  34,342,380  
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
CURRENT LIABILITIES            
 Accounts payable $  55,214   $  863  
 Other payables and accruals   380,184     453,504  
 Payable for intangible assets   883,535     878,709  
 Income tax payable   241,032     319,873  
 Due to related parties   551,665     49,794  
 Preferred stock dividend payable   13,748     -  
 Acquisition payable   8,784,821     8,736,833  
   Total current liabilities   10,910,199     10,439,576  
 Warrants liabilities   1,006,279     -  
             
   Total liabilities   11,916,478     10,439,576  
             
COMMITMENTS AND CONTINGENCIES            
             
   SHAREHOLDERS' EQUITY            
Preferred Stock, $0.001 par value, 1,000,000 shares authorized, 197,706 shares 
   and none shares issued and outstanding, respectively; aggregate liquidation 
   preference amount: $5,535,768 and $nil, plus accrued but unpaid dividend of 
   $13,748 and $nil, at June 30, 2010 and December 31, 2009, respectively
  4,554,406     -  
Common stock, $0.001 par value, 190,000,000 shares authorized, 
   14,332,731 and 14,297,731 shares issued and outstanding
  14,333     14,298  
 Additional paid-in capital   6,356,116     4,715,891  
 Statutory reserves   1,345,894     1,341,687  
 Retained earnings   21,234,521     16,858,012  
 Accumulated other comprehensive income   1,151,003     972,916  
   Total shareholders' equity   34,656,273     23,902,804  
             
   Total liabilities and shareholders' equity $  46,572,751   $  34,342,380  

See accompanying notes to condensed consolidated financial statements

F-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 Six Months  
    Ended June 30,     Ended June 30,  
    2010     2009     2010     2009  
                         
Revenue $  5,458,152   $  3,339,762   $  10,226,547   $ 7,983,039  
                         
Cost of goods sold   (888,415 )   (1,183,805 )   (1,944,930 )   (2,939,751 )
                         
Gross profit   4,569,737     2,155,957     8,281,617     5,043,288  
                         
Selling expenses   (233,310 )   (81,574 )   (405,028 )   (193,119 )
General and administrative expenses   (547,331 )   (354,696 )   (977,117 )   (658,211 )
                         
Income from operations   3,789,096     1,719,687     6,899,472     4,191,958  
                         
Other income (expenses):                        
   Interest income   33,719     39,849     66,796     52,584  
   Exchange loss   (15,698 )   (5,109 )   (15,269 )   (3,509 )
   Change in fair value of warrants   131,088     -     131,088     -  
   Other   -     -     -     152  
   Total other income (expenses)   149,109     34,740     182,615     49,227  
                         
Income before income tax   3,938,205     1,754,427     7,082,087     4,241,185  
                         
Provision for income tax   (522,564 )   (254,620 )   (945,384 )   (570,838 )
                         
Net income   3,415,641     1,499,807     6,136,703     3,670,347  
                         
Other comprehensive income:                        
   Foreign currency translation adjustment   169,229     13,628     178,087     9,317  
                         
Total comprehensive income $  3,584,870   $  1,513,435   $  6,314,790    $ 3,679,664  
                         
Earnings per share:                        
   Basic $  0.12   $  0.12   $  0.31   $ 0.29  
   Diluted $  0.12   $  0.12   $  0.30   $ 0.29  
                         
Weighted average number of shares outstanding:                
   Basic   14,332,731     12,874,654     14,322,786     12,836,405  
   Diluted   14,342,168     12,874,654     14,445,374     12,836,405  

See accompanying notes to condensed consolidated financial statements.

F-3


NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(AMOUNTS EXPRESSED IN US DOLLARS)

                                          Accumulated        
  Preferred Stock   Common Stock     Additional                 Other        
  Number         Number           Paid-in     Statutory     Retained      Comprehensive         
  of Shares     Amount   of Shares     Amount     Capital     Reserves     Earnings     Income     Total  
                                                   
Balance at January 1, 2010 -   $ -   14,297,731   $  14,298   $  4,715,891   $ 1,341,687   $ 16,858,012   $ 972,916   $ 23,902,804  
                                                   
Net income -     -   -     -     -     -     6,136,703     -     6,136,703  
                                                   
Foreign currency translation adjustment -     -   -     -     -     -     -     178,087     178,087  
                                                   
Issue preferred stock and warrants 197,706     4,554,406   -     -     -     -     -     -     4,554,406  
Beneficial conversion feature of convertible preferred stock -     -   -     -     1,742,239     -     -     -     1,742,239  
Amortization of preferred stock discount resulting from accounting for a beneficial conversion feature, deemed analogous to a dividend -     -   -     -     -     -     (1,742,239 )   -     (1,742,239 )
Fair value of placement agent warrant liabilities -     -   -     -     (45,493 )   -     -     -     (45,493 )
Issuance fees and                                                  
 costs -     -   -     -     (162,361 )   -     -     -     (162,361 )
Preferred stock dividend -     -   -     -     -     -     (13,748 )   -     (13,748 )
Appropriation of statutory reserves -     -   -     -     -     4,207     (4,207 )   -     -  
Share-based payment -     -   35,000     35     105,840     -     -     -     105,875  
                                                   
At June 30, 2010 (Unaudited) 197,706   $  4,554,406   14,332,731   $  14,333   $ 6,356,116   $ 1,345,894   $ 21,234,521   $ 1,151,003   $ 34,656,273  

See accompanying notes to condensed consolidated financial statements.

F-4


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

    For the Six Months  
    Ended June 30,  
    2010     2009  
CASH FLOWS FROM OPERATING ACTIVITIES:            
 Net income $  6,136,703   $  3,670,347  
 Adjustments to reconcile net income to cash provided by operating activities:            
     Change in fair value of warrants   (131,088 )   -  
     Share-based compensation expense   105,875     25,000  
     Depreciation and amortization   506,125     504,872  
   (Increase) decrease in assets:            
       Accounts receivable   (62,578 )   (57,381 )
       Prepayments and other receivables   41,662     (4,625 )
       Inventories   (84,617 )   543,706  
     Increase (decrease) in liabilities:            
       Accounts payable   54,073     15,950  
       Other payables and accruals   (75,431 )   (60,928 )
       Income tax payable   (80,193 )   14,991  
       Trade payable due to related parties   -     4,500  
       Net cash provided by operating activities   6,410,531     4,656,432  
             
CASH FLOWS FROM INVESTING ACTIVITIES:            
 Purchase of property, plant and equipment   (8,246 )   -  
       Net cash used in investing activities   (8,246 )   -  
             
CASH FLOWS FROM FINANCING ACTIVITIES:            
 Proceeds from Private Placement   5,483,919     -  
 Increase in restricted cash   (350,000 )   -  
 Repayment of acquisition payable   -     (50,269 )
 Advances from related parties   436,047     61,615  
       Net cash provided by financing activities   5,569,966     11,346  
             
Foreign currency translation adjustment   174,315     7,749  
             
INCREASE IN CASH AND CASH EQUIVALENTS   12,146,566     4,675,527  
             
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 $  32,262,243   $  13,873,770  
             
NON-CASH INVESTING AND FINANCING ACTIVITIES:            
 Share-based payments to officer under equity incentive plan $  105,875   $  25,000  
             
SUPPLEMENTAL DISCLOSURE INFORMATION            
 Income taxes paid $  980,764   $  592,947  

See accompanying notes to condensed consolidated financial statements.

F-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 current Articles of Incorporation to, among other things, (1) change the name of the Company from “YzApp International Inc.” to “Shuaiyi International New Resources Development Inc.,” (2) increase the total number of shares of common stock that the Company has the authority to issue from 50,000,000 to 190,000,000 shares and (3) effect a one for 114.59 reverse split of the Company’s outstanding common stock (the “Reverse Split”). The detailed description of the Amendments is stated in the Company’s Form 8-K dated May 26, 2009.

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

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

    Domicile and       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 Biomass Technology Co., Ltd. (“Daqing Shuaiyi”) PRC August 8, 2005 RMB10,000,000 100% Growing and sales of Chinese Golden Grass, which is widely used for Chinese medicine
                 
Harbin Shuaiyi Green and Specialty Food Trading LLP. (“Harbin Shuaiyi”) PRC May 18, 2001 RMB1,500,000 100% Sales of agricultural products

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

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

Research and development costs

Research and development costs are expensed as incurred. For the six months ended June 30, 2010 and 2009, research and development costs were $29,977 and $18,139, respectively.

Advertising costs

The Company expenses all advertising costs as incurred. The total amount of advertising costs charged to selling, general and administrative expense were $23,061 and $1,098 for the six months ended June 30, 2010 and 2009, respectively.

Shipping and handling costs

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

Foreign currency

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

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

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

F-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.

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.

F-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     June 30,     December  
                      2010     31, 2009  
                               
Liabilities:                              
Derivative instruments – Warrants $  —   $  1,006,279   $  —   $  1,006,279   $  —  
Total $  —   $  1,006,279   $  —   $  1,006,279   $  —  

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

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

F-9


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

NOTE 5        RESTRICTED CASH

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

Restricted cash consisted of the following:

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

NOTE 6        ACCOUNTS RECEIVABLE, NET

Accounts receivable consisted of the following:

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

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

NOTE 7        INVENTORIES

Inventories by major categories are summarized as follows:

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

F-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:

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

NOTE 9        INTANGIBLE ASSETS, NET

Intangible assets, net consisted of the following:

    June 30     December 31  
    2010     2009  
    (Unaudited)        
             
             
Computer software, cost $  1,462   $  1,454  
Exclusive right to use a secret process, cost   4,419,451     4,395,309  
Less: Accumulated amortization   (1,879,417 )   (1,649,361 )
  $  2,541,496   $  2,747,402  

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

Amortization expenses for the six months ended June 30, 2010 and 2009 were $219,885 and $219,641, respectively.

NOTE 10      PROPERTY, PLANT AND EQUIPMENT, NET

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

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

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

F-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:

    June 30     December 31  
    2010     2009  
    (Unaudited)        
             
Accrued staff costs $  372,407   $  370,395  
Other taxes payable   2,302     25,030  
Other payables   5,475     58,079  
  $  380,184   $  453,504  

NOTE 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 following table presents the amounts payable for the next five years and thereafter:

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

NOTE 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 Note 19(b).

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

Escrow Agreement

In connection with the Securities Purchase Agreement, the Company entered into an escrow agreement (the "Escrow Agreement") pursuant to which the parties agreed to deposit the investment amount received from the investors into escrow to be released upon the occurrence of the events set forth in the Escrow Agreement. In addition, the Company agreed that $100,000 out of the investment amount will remain in escrow and will be disbursed to an investor relations firm hired by the Company. The Company also agreed that an additional $250,000 will remain in escrow and will be used as compensation for a yet-to-be-determined Chief Financial Officer of the Company.

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

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

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

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

F-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, which is initially $2.80 per share, subject to adjustment as provided in the Certificate. Initially, each share of Series A Preferred Stock is convertible into 10 shares of Common Stock.

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

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

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

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

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

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

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

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

Common Stock Purchase Warrants

Series C Warrants

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

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

F-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 June 30, 2010, the fair value of these outstanding Series C Warrants was determined to be $1,006,279, accordingly, the Company recorded $131,088 in other income related to the change in the fair value of the Series C Warrants. There is no cash flow impact for the warrant liability until the Series C Warrants are exercised.

The following table presents a reconciliation of the warrant liabilities measured at fair value on a recurring basis using significant unobservable input (Level 3) from January 1, 2010 to June 30, 2010:

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

F-17


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

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

          Weighted     Average  
    Number of     Average     Remaining  
    underlying     Exercise     Contractual Life  
    shares     Price     (years)  
Outstanding at December 31, 2009   500,000   $  3.63     2.96  
Granted   988,501     3.40     3.00  
Forfeited   -     -     -  
Exercised   -     -        
Outstanding at June 30, 2010 (Unaudited)   1,488,501   $  3.48     2.78  
                   
Exercisable at June 30, 2010 (Unaudited)   1,488,501   $  3.48     2.78  

NOTE 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.

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

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

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

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

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

The Restricted Shares vest under the following schedule:

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

As a result of the resignation of Mr. Lee, his employment agreement with the Company, dated November 16, 2009, the stock option agreement with the Company, dated January 1, 2010, and the restricted shares grant agreement with the Company, dated January 1, 2010 were terminated, effective on May 5, 2010. In addition, upon his resignation, the unvested 105,000 restricted shares and the unvested options to purchase 250,000 shares of the Company’s common stock granted to Mr. Lee were cancelled.

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

F-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 six months ended June 30, 2010, based on the estimated grant-date fair value of $3.025 of the Company’s common stock.

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

NOTE 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 six months  
    Ended June 30,     Ended June 30,  
    2010     2009     2010     2009  
    (Unaudited)     (Unaudited)       (Unaudited)       (Unaudited)    
Income available to common shareholders:                        
- Net income $  3,415,641   $  1,499,807   $  6,136,703   $  3,670,347  
Less: Preferred stock dividend   (13,748 )   -     (13,748 )   -  
Less: Beneficial conversion feature of convertible preferred stock   (1,742,239 )   -     (1,742,239 )   -  
Income available to common shareholders (Basic and diluted) $  1,659,654   $  1,499,807   $  4,380,716   $  3,670,347  
                         
Weighted average number of shares:                        
- Basic   14,332,731     12,874,654     14,322,786     12,836,405  
- Effect of dilutive warrants and options   9,437     -     122,588     -  
- Diluted   14,342,168     12,874,654     14,445,374     12,836,405  
                         
Net income per share                        
- Basic $  0.12   $  0.12   $  0.31   $  0.29  
- Diluted $  0.12   $  0.12   $  0.30   $  0.29  

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

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

F-20


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 Six Months  
    Ended June 30,     Ended June 30,  
    2010     2009     2010     2009  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
                         
Current income tax – PRC $  522,564   $  254,620   $  945,384   $ 570,838  
Deferred   -     -     -     -  
                         
Income tax expenses $  522,564   $  254,620   $  945,384   $ 570,838  

The Company had deferred tax assets as follows:

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

As of June 30, 2010 and December 31, 2009, the Company has $1,029,527 and $1,044,740, net operating loss carryforwards available to reduce future taxable income which will expire in various years through 2029. It is more-likely-than-not that the deferred tax assets can not be utilized in the future because there will not be significant future earnings from the entity which generated the net operating loss. Therefore, the Company recorded a full valuation allowance on its deferred tax assets.

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

F-21


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

NOTE 19      RELATED PARTY TRANSACTIONS

(a)      Due from (to) related parties

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


a.

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

   
b.

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

(b)      Acquisition payable

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

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

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

The acquisition payable due to the Shuaiyi Founders comprised:

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

F-22


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

NOTE 19      RELATED PARTY TRANSACTIONS (CONTINUED)

(c)      Purchase of goods

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

(d)      Lease of land

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

NOTE 20      CONCENTRATION OF CREDIT RISK

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

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

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

As of June 30, 2010, five customers accounted for 29%, 19%, 14%, 13% and 12% of total accounts receivable of the Company. As of December 31, 2009, five customers accounted for 18%, 13%, 12%, 12% and 12% of accounts receivable of the Company. Except as disclosed, no other customer accounted for 10% or more of the Company’s accounts receivable as of June 30, 2010 or December 31, 2009.

F-23


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 June 30, 2010 are as follows:

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

(b)      PRC employee costs

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

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

(c)      Transfer price for equity interest in Heilongjiang Shuaiyi

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

On March 10, 2009, New Resources obtained the approval from the relevant PRC business bureau for the extension of time allowed for the payment of the transfer price to one year until December 1, 2009. On January 4, 2010, the relevant PRC regulatory agency further extended the payment due date to June 30, 2010. On July 12, 2010, the relevant PRC regulatory agency further extended the payment due date to December 31, 2010. The Company has engaged financial advisors with a view to raising additional capital for the Company. The Company believes that it will be able to make the payment for the transfer price within the time allowed by the relevant PRC business bureau and therefore has not accrued any amount related to this contingency. However, there can be no assurance that the Company will be successful in raising sufficient capital for the purpose of the payment of the transfer price to the Shuaiyi Founders.

F-24


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

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

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


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

F-25


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

NOTE 22      SEGMENT INFORMATION (CONTINUED)

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


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

F-26


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of  Nutrastar International Inc.:

We have audited the accompanying consolidated balance sheets of Nutrastar International Inc. (formerly known as Shuaiyi International New Resources Development Inc., the “Company”) as of December 31, 2009 and 2008 and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nutrastar International Inc. (formerly known as Shuaiyi International New Resources Development Inc., the “Company”) as of December 31, 2009 and 2008, the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 1 and 18 (c), the consolidated financial statements were prepared on the assumption that New Zealand WAYNE’S New Resources Development Co., Ltd. will be able to pay up the investment money related to Heilongjiang Shuaiyi New Energy Development Co., Ltd. on or before June 30, 2010. In case New Zealand WAYNE’S New Resources Development Co., Ltd. fails to pay the amount in full on time, the basis of consolidation may not be appropriate.

/s/AGCA, Inc.

Arcadia, California
March 25, 2010

F-27


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

   

December 31,

 
    2009     2008  
ASSETS    
CURRENT ASSETS            
 Cash and cash equivalents $  20,115,677   $  9,198,243  
 Accounts receivable, net   215,486     283,822  
 Inventories   616,073     1,168,079  
 Prepayments and other receivables   251,235     14,105  
   Total current assets   21,198,471     10,664,249  
OTHER ASSETS            
 Intangible assets, net   2,747,402     3,183,995  
 Property, plant and equipment, net   10,396,507     10,902,976  

   Total assets

$  34,342,380   $  24,751,220  

LIABILITIES AND SHAREHOLDERS' EQUITY 

 
CURRENT LIABILITIES            
 Accounts payable $  863   $  3,206  
 Other payables and accruals   453,504     472,959  
 Payable for intangible asset – Current portion   878,709     877,886  
 Income tax payable   319,873     119,486  
 Due to related parties   49,794     8,998  
 Acquisition payable   8,736,833     8,778,861  
   Total current liabilities   10,439,576     10,261,396  
NON-CURRENT LIABILITIES            
 Payable for intangible asset, net of current portion   -     877,886  
   Total liabilities   10,439,576     11,139,282  

COMMITMENTS AND CONTINGENCIES (Note 18)

           

SHAREHOLDERS' EQUITY

           

Preferred Stock, $0.001 par value, 1,000,000 shares authorized, none and 727,520 shares issued and outstanding

  -     727  

Common stock, $0.001 par value, 190,000,000 shares authorized, 14,297,731 and 11,746,041 shares issued and outstanding

  14,298     11,746  
 Additional paid-in capital   4,715,891     2,192,716  
 Statutory reserves   1,341,687     1,326,239  
 Retained earnings   16,858,012     9,131,744  
 Accumulated other comprehensive income   972,916     948,766  
   Total shareholders' equity   23,902,804     13,611,938  

   Total liabilities and shareholders' equity

$  34,342,380   $  24,751,220  

See accompanying notes to consolidated financial statements

F-28


NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(AMOUNTS EXPRESSED IN US DOLLAR)

    Year Ended December 31,  
    2009     2008  

NET REVENUE

$  15,332,445   $  12,989,760  

Cost of sales

  (4,563,965 )   (4,604,948 )

GROSS PROFIT

  10,768,480     8,384,812  

Selling expenses

  (507,587 )   (196,313 )
General and administrative expenses   (1,356,499 )   (1,416,111 )
Loss on disposal of fixed assets   -     (31,247 )

Income from operations

  8,904,394     6,741,141  

Other income (expenses):

           
   Interest income   81,542     29,741  
   Exchange loss   (15,398 )   (20,376 )
   Merger costs   -     (2,068,326 )
   Other, net   6,388     11,522  
   Total other income (expenses), net   72,532     (2,047,439 )

Income before income taxes

  8,976,926     4,693,702  

Provision for income taxes

  (1,235,210 )   (974,653 )

NET INCOME

  7,741,716     3,719,049  

OTHER COMPREHENSIVE INCOME:

           
Foreign currency translation adjustments   24,150     23,741  

COMPREHENSIVE INCOME

$  7,765,866   $  3,742,790  

Earnings per share

           
   Basic $  0.590   $  0.305  
   Diluted $  0.580   $  0.305  

Weighted average number of shares outstanding

           
   Basic   13,131,521     12,198,913  
   Diluted   13,341,521     12,198,913  

See accompanying notes to consolidated financial statements

F-29


NUTRASTAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(AMOUNTS EXPRESSED IN US DOLLAR)

                     

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, 2008

689,390

$

689

 

-

$

-

$

86,174

$

693,028

$

6,045,906

$

925,025

$

7,750,822

 
                                     

Effect of reverse acquisition

-

 

-

 

11,746,041

 

11,746

 

(14,195

)

-

 

-

 

-

 

(2,449

)
                                 


 

Issue of shares

38,130

 

38

 

-

 

-

 

427,411

 

-

 

-

 

-

 

427,449

 
                                 


 

Share-based payment by shareholders

-

 

-

 

-

 

-

 

1,693,326

 

-

 

-

 

-

 

1,693,326

 
             


 


   







 

Net income

-

 

-

 

-

 

-

 

-

 

-


3,719,049


-


3,719,049

 
                                     

Foreign currency translation adjustment

-

 

-

 

-

 

-

 

-

 

-


-


23,741


23,741

 
                                     

Comprehensive income

           


 


   






3,742,790

 
             


 


   







 

Appropriation of statutory reserves

-

 

-

 

-

 

-

 

-

 

633,211


(633,211

)

-


-

 
             


 


   







 

Balance at December 31, 2008

727,520

 

727

 

11,746,041


11,746

 

2,192,716

 

1,326,239


9,131,744


948,766


13,611,938

 
             


 


   







 

Issue of shares

-

 

-

 

1,000,000

 

1,000

 

2,499,000

 

-


-


-


2,500,000