Nutrastar third quarter revenues increase 81.2% to $6.46 million

Nov 15 2010

Nutrastar International Inc. (OTC Bulletin Board: NUIN; "Nutrastar" or the "Company"), a leading producer and supplier of premium branded Traditional Chinese Medicine ("TCM") consumer products, today announced financial results for the three and nine months ended September 30, 2010.

Three Months Ended September 30, 2010

Revenues reached $6.46 million, an increase of approximately $2.90 million, or 81.2% from the same period in 2009. This increase was mainly attributable to the increase in sales of the Company's core product, Chinese Golden Grass, driven by the continued increase in market demand combined with an increase in average selling price ("ASP") of approximately 20% during the three months ended September 30, 2010 compared with the same period in 2009.

Gross profit was $5.28 million, an increase of approximately $2.51 million, or 90.6% as compared to the same period in 2009. Gross margin was 81.8%, an increase of 4.0% from 77.8% during the third quarter of 2009. The increase in gross margin was mainly due to the increase in the ASP of the Company's Chinese Golden Grass for the third quarter of 2010 as well as economy of scale on the fixed cost portion of the cost of goods sold.

Cost of goods sold increased by $0.39 million, or 48.5%, to approximately $1.18 million from approximately $0.79 million during the same period in 2009. This increase was mainly due to the increase in the Company's sales. As a percentage of revenues, the cost of goods sold decreased to 18.2% for the three months ended September 30, 2010 from 22.2% in 2009 mainly due to the increase in their ASP in the third quarter 2010 as well as economy of scale on the fixed cost portion of the cost of goods sold.

Income before income tax was approximately $4.67 million, an increase of $2.30 million, or up 97.2% from the same period of 2009. Operating margin was 72.3% for the third quarter 2010, an increase of 5.90% from 66.4% during the comparable 2009 period.

Net income was $4.07 million, an increase of $2.04 million, or 100.4% from the comparable period of 2009.

Basic EPS for the quarter ended September 30, 2010 was $0.28 based on 14.3 million shares outstanding, an increase of $0.13 per basic share from the same period in 2009 when there were approximately 13.3 million shares outstanding. Diluted EPS was $0.25 for the third quarter based on 16.4 million shares outstanding. This represents an increase of $0.10 per diluted share from the comparable 2009 period when there were approximately 13.3 million shares outstanding.

Nine Months Ended September 30, 2010

Revenues were $16.69 million, an increase of $5.14 million or 44.5% from approximately $11.55 million for the same nine month period in 2009. The increase was primarily as a result of an increase in demand for our core products, Chinese Golden Grass combined with the increase in the ASP of approximately 20% and product mix shift towards smaller packages with higher gross margins during the nine months ended September 30, 2010 compared with the same period in 2009.

Gross profit was $13.57 million, an increase of $5.75 million or 73.6% from approximately $7.82 million during the same period in 2009. Gross margin was 81.3% for the nine months ended September 30, 2010, an increase of 13.6% from 67.7% during the comparable period in 2009.  The increase was a result of continued product mix shift towards smaller packages of the Chinese Golden Grass with higher gross margins combined with improved production process and economy of scale.

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

Income before income tax was approximately $11.75 million, up 77.2% from $6.63 million in the same nine month period of 2009. Operating margin was 70.4% for the first nine months of 2010, an increase of 13.0% from 57.4% recorded in the comparable nine month period of 2009.

Net income was $10.20 million, an increase of 77.7% from $5.74 million in the first nine months of 2009.

Basic and diluted EPS for the nine months ended September 30, 2010 was $0.58 based on 14.3 million and 14.4 million shares outstanding, respectively, an increase of $0.14 per basic and diluted share from the same period in 2009 when there were approximately 13.0 million shares outstanding.

Financial Position as of September 30, 2010

At September 30, 2010, the Company had cash and cash equivalents totaling $35.82 million, total assets of $50.16 million, working capital of $26.68 million and stockholders' equity of $39.31 million.  The Company generated $10.69 million in net cash from operating activities for the nine months ended September 30, 2010.  

Ms. Lianyun Han, President and Chief Executive Officer of Nutrastar commented, "We are very pleased by Nutrastar's most recent three month and nine month financial performance, posting record sales of our golden grass products and earnings for our shareholders. Chinese Golden Grass products, especially our high margin, small packaged products, have seen steady, healthy sales volume and order flow."

Ms. Han continued, "In the third quarter not only did the Company outperform financially, but we have continued to make strides growing our manufacturing capabilities, expanding our TCM consumer product line and geographical reach, and improving our investor relations and corporate governance efforts. As announced early in the quarter, we are in the midst of expanding our production capacity to 72 tons by the end of 2010. We believe we are well on the way to meeting this goal. We announced in July 2010 the signing of a product purchase agreement with Century Brighton Holdings, which will further expand our TCM customer base and penetration into the wealthy Hong Kong market. We have been well received in this market and look forward to continued growth on both the product side and customer side. The development of our Golden Grass wine and oral liquids are on track and is expected to commence trial production in Q1 2011."

Ms. Han further commented, "So far in the fourth quarter, we began the initial rollout of our functional health drink with the signing of a key distributor in Changzhou city. We are very excited to be bringing this TCM based health beverage to the public market and look forward to further expanding its presence in other key areas and cities in China. With our new TCM functional health drink product line and the continued growth of our commercially cultivated Golden Grass product line, we expect to further expand our market position as a leading producer and supplier of premium TCM consumer products."

Recent Events

On October 5, 2010, the Company elected Mr. Henry Ngan, Ms. Virginia P'an and Mr. Jianbing Zhong as independent directors.  As a result, the majority of the Company's board members are now independent.  Each newly elected independent director was also appointed to the newly established Audit Committee, Compensation Committee and Governance and Nominating Committee of the board of directors of the Company.  Mr. Ngan was appointed as the Chair of the Audit Committee, Ms. P'an was appointed as the Chair of the Compensation Committee and Mr. Zhong was appointed as the Chair of the Governance and Nominating Committee.

On October 22, 2010, the Company's subsidiary, New Zealand WAYNE's New Resources Development Co., Ltd. ("New Resources") entered into an equity transfer agreement with nine original shareholders (the "Founders") of the Company's former subsidiary, Heilongjiang Shuaiyi New Energy Development Co., Ltd. ("Heilongjiang Shuaiyi"), pursuant to which New Resources transferred all of its equity interests in Heilongjiang Shuaiyi back to the Founders.  In connection with the equity transfer, the Founders, the Company's subsidiary, Harbin Baixin Biotech Development Co., Ltd. ("Harbin Baixin") and Heilongjiang Shuaiyi also entered into a series of commercial arrangements, pursuant to which the Company obtained contractual rights to control and operate the businesses of Heilongjiang Shuaiyi and its subsidiaries (collectively, the "VIEs"), indirectly through Harbin Baixin.  The Company, accordingly, became the primary beneficiary of the VIEs.  As a result, the Company is allowed to consolidate the financial results of the VIEs into its consolidated financial statements under Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics related to the consolidation of variable interest entities.  Also on October 22, 2010, New Resources entered into a termination agreement with each of the Founders, pursuant to which, the loan agreement and the promissory note, dated December 8, 2008, as amended (the "Loan Agreement"), was terminated and the parties have no further obligations and rights under the Loan Agreement. Subsequent to the above-mentioned restructuring, the Company is no longer obligated for the acquisition payable of $8.9 million.  

For more information regarding Nutrastar's financial performance during the third quarter of 2010, please refer to the Quarterly Report on Form 10-Q to be filed with the Securities and Exchange Commission on November 15, 2010