Nutrastar second quarter revenue increases 40.8% to $7.68 million

Nutrastar International Inc. (OTCBB: NUIN; "Nutrastar" or the "Company"), a leading producer and supplier of premium branded Traditional Chinese Medicine ("TCM") consumer products, today announced record financial results for the three and six months ended June 30, 2011.

Ms. Lianyun Han, CEO of Nutrastar, commented, "We are pleased to report another successful quarter for Nutrastar and its shareholders, characterized by marked increases in both top and bottom line growth and continued expansion of our functional health beverage product line. Revenue recorded increased roughly 40% compared to the same 2010 period, indicative of strong and steady consumer demand for our core product, commercially cultivated Cordyceps Militaris, and growing demand for our beverages. Launched late last year, beverage sales increased significantly, approximately 390%, reaching $1.13 million for the second quarter of 2011, as compared to $0.23 million recorded in the first quarter of 2011. Net income rose 14.2% in the second quarter when compared to the same period of 2010. Overall gross margin for the second quarter was 77.4%."

"On the sales and distribution front, we've made significant yet conservative strides in broadening our channels and expanding our presence in the consumer market. In June, we opened our second specialty product store in a highly populated district of Harbin, further increasing our brand awareness and product availability in that area. In May, we ramped up our beverage distribution in Anhui Province with the signing of a new major distributor, adding over 400 points-of-sale to our distribution network. We are currently in negotiations with additional distributors and anticipate signing with some of these distributors in the future to more effectively and strategically pursue our expansion initiatives. We are preparing to increase our marketing efforts to bring more attention and interest to our functional health drink product line, which will require some capital currently on the balance sheet. As for new products, our recently released entry-level drink "Yang Yang Ba" has seen healthy sales volume since its introduction into the market and we are eager to bring our new exciting, unique Cordyceps-infused alcohol product to the market in the near future."

"Looking ahead into the remainder of 2011, we expect to continue to steadily execute on our focused strategies of growing organically and diversifying our consumer product offerings. Within these initiatives, we'll remain active in further broadening our sales and distribution network and increasing our production capacity in order to better meet the demand of the current consumer market. Currently, we are on track to bring online 3 additional buildings located on our production facility grounds by the end of the year, resulting in a 20% increase in annual capacity for our core product, reaching approximately 87 tons going into 2012. Lastly, based on the current forecast we are comfortable with the revenue guidance given at the beginning of the year," concluded Ms. Han.

Financial Results for Three Months and Six Months Ended June 30, 2011:

Revenue

Revenue generated from sales of Nutrastar products for the three months ended June 30, 2011 was $7.68 million, an increase of $2.23 million or 40.8% from $5.46 million for the same period in 2010. Revenue generated from sales of Nutrastar products for the six months ended June 30, 2011 was $13.48 million, an increase of $3.25 million or 31.8% from $10.23 million for the same period in 2010. This increase was mainly attributable to continued demand for our core product, commercially cultivated Cordyceps Militaris, and increased sales of our functional health beverage products, which were launched in the fourth quarter of 2010.

Revenue by Business Segment

The Company's revenue is categorized into three segments based on our product portfolio. In the three months ended June 30, 2011, revenue from our commercially cultivated Cordyceps Militaris was $6.07 million, representing 79.0% of total revenue; revenue from our organic and specialty food products was $0.48 million, representing 6.3% of total revenue; and revenue from our newly introduced functional health beverage product line was $1.13 million, representing 14.7% of total revenue. In the six months ended June 30, 2011, revenue from our commercially cultivated Cordyceps Militaris was $11.15 million, comprising 82.7% of total revenue; revenue from our organic and specialty food products was $0.97 million, comprising 7.2% of total revenue; and revenue from our newly introduced functional health beverage product line was $1.36 million, comprising 10.1% of total revenue. The functional health beverage product line was introduced in mid-November 2010 and has been rolled out in select cities in Jiangsu and Anhui.

Gross Profit

For the three months ended June 30, 2011, overall gross profit was $5.95 million, an increase of $1.38 million or 30.1% from $4.57 million during the same period in 2010. Gross margin was 77.4% for the three months ended June 30, 2011, a decrease of 7.5% from 83.7% in 2010. Overall gross profit was $10.37 million for the six months ended June 30, 2011, an increase of $2.09 million or 25.3% from $8.28 million during the same period in 2010. Gross margin was 77.0% for the six months ended June 30, 2011, a decrease of 4.9% from 81.0% in 2010. The decrease was mainly due to a change in product mix and the inclusion of our functional health beverages, which were not offered in the same period of 2010. Our functional health beverage products have a lower gross margin than our commercially cultivated Cordyceps Militaris.

Cost of Goods Sold

Cost of goods sold, comprising costs related to raw materials, labor and overhead, was $1.74 million for the three months ended June 30, 2011, an increase of $0.85 million, or 95.5% from $0.89 million in the prior period of 2010. Cost of goods sold for the six months ended June 30, 2011 was $3.11 million, an increase of $1.16 million or 59.7% from $1.95 million recorded in the same period of 2010. This increase was mainly a result of an increase in sales for our core product, commercially cultivated Cordyceps Militaris, and an increase in production costs associated with our functional health beverages product line, which did not exist in the same period of 2010. As a percentage of revenues, the cost of goods sold increased to 22.6% in the three months ended June 30, 2011 from 16.3% in the same period of 2010. In the six months ended June 30, 2011, cost of goods as a percentage of revenues increased to 23.0% from 19.0% in the comparable 2010 period.

Income before Income Tax

Income before income tax increased $1.26 million, or 32.1% to $5.20 million during the three months ended June 30, 2011 from $3.94 million during the same period in 2010. As a percentage of revenues, income before income tax decreased to 67.7% during the three months ended June 30, 2011 from 72.2% during the same period in 2010. For the six months ended June 30, 2011, income before income tax increased $2.07 million, or 29.2%, to $9.15 million from $7.08 million incurred in the comparable 2010 period. Income before income tax as a percentage of revenues decreased to 67.9% in the six months ended June 30, 2011 from 69.2% recorded in the same six month 2010 period. The decrease of income before income tax as a percentage of revenues is mainly attributable to the increase in costs associated with the production of our functional health beverages and an increase in selling and general and administrative expenses, which outpaced the increase in our total revenues during both the three months and six months ended June 30, 2011. The increase in selling expenses was mainly attributable to the selling and marketing expenses incurred in the rollout of our functional health beverages to additional distribution channels and costs associated with opening of the Company's specialty stores. The increase in general and administrative expenses was mainly due to increased remuneration to our management and service providers.

Net Income

Net income increased by $0.49 million, or 14.2% to $3.90 million for the three months ended June 30, 2011 from $3.42 million for the same period of 2010. For the six months ended June 30, 2011, net income increased by $0.77 million, or 12.6% to $6.91 million from $6.14 million for the same period of 2010.

Earnings Per Share

Basic and diluted EPS for the three months ended June 30, 2011 was $0.26 and $0.24, based on 14.79 million and 16.39 million shares outstanding, respectively, an increase of $0.14 or 116.7% in basic EPS and $0.12 or 100% in diluted EPS from the same period in 2010 when there were approximately 14.33 million basic and 14.34 million diluted shares outstanding. For the six months ended June 30, 2011, basic and diluted EPS was $0.46 and $0.42, based on 14.64 million and 16.31 million shares outstanding, respectively, an increase of $0.15 or 48.4% in basic EPS and $0.12 or 40% in diluted EPS from the comparable 2010 period when there were roughly 14.32 million and 14.45 million shares outstanding.

Financial Position

As of June 30, 2011, the Company had cash and cash equivalents totaling $45.82 million, total assets of approximately $63.66 million, working capital of $45.84 million and stockholders' equity of $60.20 million. The Company generated $6.0 million in net cash from operating activities for the six months ended June 30, 2011.

Outlook

For the year ending December 31, 2011, based on management's current expectations, the Company maintains its revenue guidance given at the beginning of the year.