**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




______________




**FORM
      10-KSB**


______________





x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 For the fiscal year ended - MARCH 31,
                2006


OR


o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 For the transition period from




Commission
      file number 000-50601




**SYNUTRA
      INTERNATIONAL, INC.**


(Name
      of
      Issuer in Its Charter)





DELAWARE
              (State
                or Other jurisdiction
              of
                Incorporation or Organization)
            13-4306188
              I.
                R. S. Employer Identification No.





15200
      SHADY GROVE ROAD, SUITE 350


ROCKVILLE,
      MARYLAND 20850


(Address
      of Principal Executive Offices, including zip code.)




301-840-3888


(Issuer’s
      Telephone Number, Including Area Code)





Securities
      registered pursuant to Section 12(b) of the Act:





TITLE
                OF EACH CLASS
            
            NAME
                OF EACH
              EXCHANGE
                ON WHICH REGISTEREDNONE
            
            NONE





Securities
      registered pursuant to Section 12(g) of the Act:





TITLE
                OF EACH CLASS
            COMMON
                STOCK




Indicate
                by check mark if the registrant is not required to file reports pursuant
                to Section 13 or Section 15(d) of the Exchange Act. Yes o
                No xIndicate
                by check mark whether the issuer (1) filed all reports required to
                be
                filed by Section 13 or 15(d) of the Exchange Act during the past
                12 months
                (or for such shorter period that the registrant was required to file
                such
                reports) and (2) has been subject to such filing requirements for
                the past
                90 days. Yes x
                No oIndicate
                by check mark if no disclosure of delinquent filers in response to
                Item
                405 of Regulation S-B is not contained in this form, and no disclosure
                will be contained, to the best of registrant’s knowledge, in definitive
                proxy or information statements incorporated by referenced in Part
                III of
                this Form 10-KSB or any amendment to this Form 10-KSB. xIndicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act). Yes o
                No x


State
      issuer’s revenues for its most recent fiscal year March 31, 2006: $103.19
      million.




State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity as of June 15,
      2006: $435 million.




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity:
      50,000,713 shares as of June 15, 2006.








**TABLE
      OF CONTENTS**


PART
                  IITEM
                  1.
              DESCRIPTION
                  OF BUSINESSITEM
                  2.
              DESCRIPTION
                  OF PROPERTYITEM
                  3.
              LEGAL
                  PROCEEDINGSITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERSPART
                  IIITEM
                  5.
              MARKET
                  FOR COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES
                  OF
                  EQUITY SECURITIESITEM
                  6.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONITEM
                  7.
              FINANCIAL
                  STATEMENTSITEM
                  8.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSUREITEM
                  8A.
              CONTROLS
                  AND PROCEDURESITEM
                  8B.
              OTHER
                  INFORMATIONPART
                  IIIITEM
                  9.
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16 (a) OF THE EXCHANGE ACTITEM
                  10.
              EXECUTIVE
                  COMPENSATIONITEM
                  11.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERSITEM
                  12.
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONSITEM
                  13.
              EXHIBITSITEM
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICESSIGNATURES


-i-
  **PART
      I**




**ITEM
      1. DESCRIPTION OF BUSINESS**




**Overview**




Through
      its wholly owned subsidiary, Synutra Inc., an Illinois corporation (“Synutra
      Illinois”), Synutra International, Inc. (the “Company” or “Synutra”) owns all of
      the equity interests of six companies in the People’s Republic of China,
      (“China” or the “PRC”), each engaged in different stages of the production,
      marketing, packaging and development of dairy based nutritional products in
      China for infants, children, pregnant women and nursing mothers, and other
      adults under the brand names of Super, U-Smart, U-Strong, and National
      Standards. Approximately 90% of the revenue for the fiscal year ended March
      31,
      2006 was from pediatric products and the rest from adult and other products.
      In
      September 2005, Synutra launched a new rice cereal product line, and in March
      2006 the Company launched new premium infant formula products and line
      extensions. As supplemental foods to infant and children formula products,
      management believes that rice cereal products possess significant market
      potential. The new premium products and line extensions were designed to capture
      the fastest growing segment of the infant formula market in China. At the same
      time, Synutra also began to make and sell non-fat dry milk as well as anhydrous
      milk-fat.




Qingdao
      Sheng Yuan Dairy Co., Ltd. is engaged in the sales and marketing of dairy based
      nutritional products for infants, children and adults under its brand names
      of
      Super, U-Smart, U-Strong, and National Standards. Qingdao Sheng Yuan Dairy
      Co.,
      Ltd. was formed in January 1998 by Beijing Honnete Dairy Co., Ltd., an affiliate
      of Mr. Liang Zhang, the Company’s Chief Executive Officer. In December 2003,
      Beijing Honnete Dairy Co.,Ltd transferred 40% of his ownership to Synutra
      Illinois, and then transferred the balance of the ownership to Synutra Illinois
      in February 2005.




Qingdao
      ST George Dairy Co., Ltd. is engaged in the packaging, shipping and distribution
      of all of Synutra’s products. Qingdao ST George Dairy Co., Ltd. was formed in
      September 2001 by Synutra Illinois. In March 2004 Synutra Illinois transferred
      75% of Qingdao St George Dairy Co., Ltd ownership to Sheng Zhi Da Dairy
      Corporation and Synutra Illinois retained 25% of the company. In February 2005
      Sheng Zhi Da Dairy Corporation transferred all of its ownership in Qingdao
      St.
      George Dairy Co., Ltd. (75%) to Synutra Illinois, resulting in a 100% ownership
      of Qingdao St. George Dairy Co., Ltd by Synutra Illinois.




Beian
      Yi
      Pin Dairy Co., Ltd. (“Beian”) is engaged in the production and processing of
      adult dairy based nutritional products and various milk powder products. In
      June
      2004, Mr. Liang Zhang acquired 100% of the interest of Beian Olisong Dairy
      Co.,
      Ltd. which changed its name to Beian. In January 2005, Mr. Zhang transferred
      100% of his ownership in Beian to Synutra Illinois.




Luobei
      Sheng Yuan Dairy Co., Ltd. (“Loubei”) is engaged in the production and
      processing of Synutra’s products for infants and children under the brand names
      U-Smart, U-Strong, and National Standards under the “Sheng Yuan” label. Loubei
      was formed in April 2001 by Mr. Liang Zhang. In June 2003, Mr. Zhang transferred
      33% of his ownership to Synutra Illinois and then transferred the balance of
      the
      ownership to Synutra Illinois in January 2005.




Qingdao
      Mother and Infant Nutrition Research Company Limited is engaged in the research
      and development of various nutritional products for both infants and children
      as
      well as pregnant and lactating women. Quindao Mother and Infant Nutrition
      Research Company Limited was formed in April 2004 by Mr. Liang Zhang. In May
      2005, Mr. Zhang transferred 100% of ownership to Synutra Illinois.




Zhangjiakou
      Sheng Yuan Dairy Co., Ltd. (“Zhangjiakou”) is engaged in the production and
      processing of all of Synutra’s products under the brand names Super, U-Smart,
      U-Strong, and National Standards. Zhangjiakou Sheng Yuan Dairy Co., Ltd. was
      formed in March 2004 by Chaibei Sheng Yuan Diary Co., Ltd., an affiliate of
      Mr.
      Zhang, and Synutra Illinois as a joint venture. In August 2005, Chaibei Sheng
      Yuan Diary Co., Ltd. was merged into Zhangjiakou resulting in Synutra Illinois
      owing 100% of Zhangjiakou.







On
      July
      15, 2005, pursuant to a Share Exchange Agreement dated as of June 14, 2005
      among
      the Company, Thomas Braun, Beams Power Investment Limited, Strong Gold Finance
      Ltd and Synutra Illinois, the Company issued 48,879,500 shares of its common
      stock in exchange for all of the issued and outstanding shares of Synutra
      Illinois that owned all the registered capital of the six subsidiaries (the
      “Exchange”). As a result of this Exchange, Synutra Illinois became a wholly
      owned subsidiary of the Company.




On
      September 9, 2005 the Company changed its name to Synutra International, Inc.




**THE
      INDUSTRY**




There
      are
      about 18 million new babies born each year in China according to the National
      Statistics Bureau of the PRC. Synutra’s management initially estimated that an
      average infant in China consumes approximately 30 kilograms per year of dairy
      products and that infants generally consume dairy based formula products for
      approximately 2.5 years. Therefore Synutra’s management has estimated the
      potential market demand for infant formula products per year in China to be
      approximately 1.35 million tons. Based on Chinese industry statistics,
      management has calculated that the actual production volume of infant formula
      dairy products was more than 260,000 tons in 2005. Therefore, management
      believes that there is still potential for growth in demand for infant formula
      dairy products in China. Synutra’s management estimates that the total market
      size of dairy based nutritional products for infants and children in terms
      of
      sales in China was about US$1.8 billion during 2005, representing a 5% growth
      rate over the past year. Currently, the sales growth has been mainly derived
      from increasing demand from medium size urban areas.




The
      alternative to using infant formula is the choice to breastfeed. Synutra’s
      management believes that Chinese woman generally only breastfeed babies for
      the
      first six months of an infant’s life. After the first 6 months, management of
      Synutra believes that there are several reasons why mothers may choose to use
      infant formula over breastfeeding: first, many mothers have to go back to work
      after 6 months making breastfeeding harder to manage, and second, the current
      infant formula products available in the Chinese market do provide adequate
      nutritional value and, therefore, mothers are more likely to be comfortable
      using formula as an adequate breast milk substitute.




In
      addition, China’s consumer market has rapidly developed in recent years and this
      has created a greater demand for more modern food products. Increased income
      levels have allowed consumers to buy better quality and more sophisticated
      food
      products, particularly in the baby food sector. Because of the One Child Policy,
      where most Chinese families are only allowed by the state to have a single
      child, parents and extended families tend to lavish a great deal of time, money
      and attention on the child. The demand for better quality products has come
      from
      parents being able to afford to spend more on feeding their babies and for
      better quality of products and a greater variety of foods, in order to give
      the
      child a better balanced diet. This demand is also leading to the development
      of
      more products containing added nutrients, including various essential fatty
      acids, vitamins and minerals.




According
      to China’s National Statistics Bureau, about 70% of the 18 million babies per
      year are born in rural areas where access to and availability of infant formula
      products are limited or these products were less affordable. In 2004 the milk
      powder market in rural China was estimated at about $500 million, representing
      a
      20% per annum growth, largely due to increases in rural income. As the Chinese
      economy progresses, Synutra’s management estimates that the total infant formula
      market could reach 4 million tons per year in the next decade, representing
      significant increases in the market.




According
      to a study by A.C. Nielson, a U.S. market research organization, in 2004 the
      top
      ten producers sold about 90% (by revenue) of the products sold in China, among
      which the foreign producers sold approximately 67% (by revenue) of the products,
      with the balance by Chinese producers. In recent years, there has been
      increasing demand in China for high-end/premium infant formula products due
      to
      increasing consumer awareness on brand image and nutritional value of the
      products and services offered by the producers. In
      addition to generic food industry regulations, the Chinese government introduced
      in 2003 regulations for infant and child food manufacturers, specifying
      standards of company size and scale of production, technical expertise and
      suitability of production facilities (such
      as the
      good
      manufacturing practice standards). As
      such,
      the barrier to entry in the infant formula industry has increased, and Synutra’s
      management believes that many small scale infant formula producers have ceased
      operations in light of the new regulations.


-2-


There
      is
      no available market study for the adult dairy based nutritional products.
      According to management of Synutra, the current estimated market size of adult
      dairy based nutritional products is about 500,000 tons in volume and
      US$1.5billion in sales during 2004. The management of Synutra estimates that
      approximately 70% of the current manufacturers in this market were originally
      milk powder manufacturers, with the rest of the market consisting of infant
      formula manufacturers who have expanded their manufacturing into adult dairy
      nutritional products. Management of Synutra believes that infant formula
      manufacturers may have better technology, know-how, brand image and compliance
      capability to expand into the adult market compared to those solely milk powder
      producers.




**SYNUTRA
      PRODUCTS**




**Products**




Synutra
      products include a broad line of pediatric and adult nutritionals. These
      products are mostly sold through distributors, or directly to consumers,
      sometimes on the recommendation of physicians or other health care
      professionals .




Synutra’s
      pediatric nutritional products which accounted for about 90% of Synutra’s 2005
      revenue, are marketed and sold under the “Sheng Yuan” label with brand
      designations including Super, U-Smart, U-Strong , and
      National Standard. Synutra’s pediatric nutritional product lines, which include
      infant formulas as well as rice cereal products, cover the full range of pricing
      tiers in the China marketplace. Synutra’s premium product line of Super series
      was launched in mid 2005 and has experienced the fastest growth among all
      Synutra pediatric product lines. The U-Smart series products form Synutra’s
      flagship product line and are priced and marketed as the mid-to-high end infant
      formula segment of the Chinese market in terms of its quality and pricing.
      The
      U-Strong and National Standard brands among the pediatric lines target the
      mid
      to lower priced market segment, largely in less developed markets. Synutra
      also
      sells and markets adult dairy based nutritional products under the “Sheng Yuan”
label, which accounted for about 10% of its 2005 revenue.




In
      2004,
      Synutra’s infant formula products were ranked number 8 in China among all
      manufacturers in terms of revenue (based on market study conducted by
      A.C.Nielson) and number 3 among only Chinese manufacturers (based on the same
      study).




Among
      Synutra’s pediatric lines, the Super series premium infant formula product
      contains DHA/ARA, (docosahexanoic acid and arachidonic) acid, long-chain
      poly-unsaturated fatty acids found in breast milk that may aid in the
      development of an infant’s brain, eyes and nervous system. Studies have
      suggested that DHA- and ARA-fortification can bring some of the nutritional
      benefits of breast milk to formula-fed babies. Synutra’s mainstay “U-Smart”
formula product line also contains DHA/ARA fortification and is priced slightly
      lower than the premium Super series product. Synutra sells a “U-Strong”
specialty formula for infant and children that contains calcium fortification
      and is moderately priced. Finally, Synutra sells a “National Standard” infant
      and child formula that meets national regulatory standards in formulation and
      nutritional value which is sold at a lower and more affordable
      price.


-3-




Following
      its fast-growing Super high-end product line, Synutra launched in March 2006
      the
      U-Smart Gold series to capitalize on the broad U-Smart brand appeal while
      capturing the fastest growing premium product sector.




Each
      of
      the “Super,” “U-Smart,” “U-Strong” and “National Standard” lines have multiple
      stages of formulation designed to meet nutritional requirements in various
      stages of babies and children’s lives that help to promote healthy development.
“U-Smart, Stage 1,” for example, is designed for newborns up to 6 months of age;
“U-Smart, Stage 2,” for babies of 6 to 18 months; and “U-Smart, Stage 3” is for
      toddlers of 1 to 3 years of age. The “Super,” “U-Strong,” and “National
      Standard” products have the similar stages of product formulations. A Stage Zero
      product in the Super or U-Smart line is a formula that caters to pregnant women
      and lactating mothers with a special formulation designed to help meet the
      demanding nutritional requirements during pregnancy and nursing
      periods.




Synutra
      sells formulated milk powder products that are marketed for the elderly and
      women, students, and young adults under the Sheng Yuan label. These products
      come in formulations that are developed to address health concerns of various
      age group consumers, such as those of middle-aged and elderly consumers in
      cardiologic health, diabetic conditions, and calcium deficiency. Synutra also
      has a product specially designed for young adults to address their needs in
      calcium and other nutrients fortifications. In the adult formulated milk powder
      area, Synutra offers a range of products in whole milk powder, calcium plus,
      and
      a sweet powder, targeting a broader market.




Management
      of Synutra believes that the market for adult formulated milk powder will be
      a
      growth area for the Company as it leverages its existing sales and marketing
      channels for its infant formula, brand recognition and expertise in Synutra’s
      infant formula business to grow sales and increase the number of product lines
      in the adult nutrition business.




The
      bulk
      of Synutra pediatric and adult nutritional products comes in three type of
      retail packaging: a tin canister, a standup/display pouch, or a sealed pack
      in a
      box. All packaging labels carry compliant product information, nutritional
      profile, user instructions, product tracing data and shelf life date, product
      certification status, quality control and assurance remarks, manufacturer
      contact information, as well as customer service information. Select pediatric
      and adult products are also retail-packaged in single use sizes.




Although
      most of the company’s sales consist of its branded products, it also pursues
      private-label opportunities for certain like kind products. Synutra works with
      its private-label customers to develop customized formulations of products
      on an
      as needed basis. Synutra also utilizes excess capacity to provide toll packaging
      and toll drying services to OEM customers.




**Production
      and Processing**




*Raw
      Materials* . Synutra’s
      business depends on obtaining adequate raw
      materials. A
      key
      ingredient is fresh
      fluid milk. The Company has met its needs by purchasing fluid
      milk on
      the
      open market in established dairy regions in northern and northeastern China. Synutra
      negotiates the purchase price of milk with many dairy farmers and cooperatives
      on the basis of milk quality and other terms and conditions. In
      certain cases, Synutra has worked in partnership with local government economic
      development and poverty reduction programs available to fresh milk suppliers
      to
      help finance portions of their herd. Synutra provides targeted loans to
      suppliers who are located in the regions where Synutra’s manufacturing plants
      are located.. Currently about 30% of Synutra’s fresh milk suppliers take
      advantage of these financing programs. As such, these loans sustain the
      suppliers through demand fluctuations and therefore add to stability and
      availability of its fresh milk supply. Through this ongoing public-private
      partnership program, Synutra had extended financing to over 100 qualified dairy
      farmers in the Chabei ranch region of Hebei province. The aggregate amount
      of
      such loans by Synutra is currently at approximately RMB 9 million (USD $1.2
      million).




-4-




The
      other
      key ingredient used in
      manufacturing infant formula products is de-mineralized whey protein powder
      that
      is used to reconstitute dairy-based formula to make it more like human milk.
      Synutra obtains all
      of it s
      supply
      of whey protein powder on an arm’s
      length terms from
      Beijing Honnete Dairy Co., Ltd., a
      large volume
      trader of processed dairy products in China.  Beijing
      Honnete Dairy Co., Ltd., a company controlled by Liang Zhang, the Company’s
      Chief Executive Officer, currently
      supplies about 70% of China’s whey protein powder.




Synutra
      has entered into a licensing agreement with Martek Biosciences Corporation
      to
      supply Synutra with Martek’s formulation of the DHA and ARA fatty acids for
      incorporation into Synutra’s products. As noted above, these fatty acids are
      considered beneficial to infant brain and vision development. Martek’s fatty
      acids are the only FDA approved products on the market that are considered
      to be
      safe for use in infant formulas. This
      licensing agreement provides Synutra with rights to market its products (infant
      formulas fortified with Martek DHA and ARA fatty acids) with label reference
      to
      their FDA GRAS status of such, at a given purchasing price, and with periodic
      royalty payments with rates that diminish over 25 years to end up with no
      royalty due at the end of that period.




*Processing* . Three
      of
      Synutra’s subsidiaries, Zhangjiakou, Luobei, and Beian, currently process and
      manufacture the full range of formula ted milk
      powder products that are designed and marketed as infant and child formulas,
      and
      other adult nutritional supplements. Synutra continuously monitors its inventory
      and product mix against forecasted demand and schedules production processing
      accordingly. Synutra has established processing systems that employ advanced
      and
      up-to-date procedures and formulation schemes. A typical Synutra manufacturing
      process includes collection and preparation of fresh milk, and
      mixing **** in
      the
      whey protein and other nutrients to the specifications of product formulas.
      The
      mixture is then sterilized, condensed and spray-dried. Then the resulting powder
      will be checked to ensure proper granule size. Extensive quality control testing
      occurs before,
      during, and after the manufacturing process as
      described in “Research and Development” below. Synutra
      uses commercial strength 25KG poly kraft bags for packaging before shipping
      the
      formula products to its retail packaging and distribution facilities. Synutra
      maintains cold storage facilities at each of these three manufacturing
      subsidiaries to store fluid milk for specified durations. All of Synutra’s
      manufacturing plants are equipped with in house laboratories for production
      and
      quality assurance and quality control purposes. Synutra’s Zhangjiakou plant has
      an installed annual production capacity of 22,000 tons; the Luobei plant has
      a
      capacity of 3,000 tons a year; and Beian, another 3,000 tons. Synutra believes
      it has sufficient capacity for manufacturing its products for the foreseeable
      future.




*Packaging* . One
      of
      Synutra’s subsidiaries, Qingdao ST George Dairy Co., Ltd., currently serves as
      the main packaging plant which receives from Synutra’s manufacturing facilities
      commercially packaged products and repackages them into retail size container
      tins or stand-up display pouches. This packaging facility currently also
      provides inventory control and logistics management, as well as product quality
      monitoring and product development assistance. The packaging plant also
      maintains certain dry blending capabilities whereby certain pre-packaging
      product modification and formulation adjustments can be performed to address
      its
      private label customer needs. The packaging plant currently has an installed
      capacity of 20,000 tons per year.




*Distribution* . Synutra’s
      packaging subsidiary also serves as its national distribution center in China.
      Synutra employs trucking companies locally and nationally to distribute retail
      packaged products to various regional and provincial distribution centers. Synutra
      is currently only distributing its products in China. Synutra has not finalized
      any plans to grow the business and sales outside of China but it is currently
      considering future distribution of its products to countries in South Asia
      and
      Southeast Asia.




**RESEARCH
      AND DEVELOPMENT**




All
      of
      Synutra’s product formulations have been developed internally and are
      proprietary. Synutra currently owns and manages 8 **** registered
      trademarks of its brand names in China, 1 registered trademark in Hong Kong,
      and **** 1 **** registered
      trademark in the U.S., in addition to another 8 trademark applications that
      are
      pending approval. **** Key
      employees of Synutra who have access to proprietary formulations are required
      to
      sign non-disclosure agreements. Synutra uses internal procedures and safeguards
      to protect the confidentiality of its information. In
      fiscal
      year 2006, Synutra spent an estimated RMB 5 million on research and
      development.


-5-




Synutra
      places primary importance on quality and has established a quality control
      system and food safety managing systems for the purchase of raw materials,
      fresh
      milk checks, production, packaging, storing, transporting, as well as after
      sales service. Synutra places testing equipment or
      implements control procedures at
      each
      stage of production including at the purchase of raw materials to ensure the
      highest ingredients
      and product quality as well as product safety .
      Every
      step of production, transportation and storage has strict internal regulation
      and is consistently monitored by highly trained employees. Each employee has
      been specifically trained for quality control purposes. Synutra has been
      increasing its investment in quality control equipment and training. During
      fiscal year 2006, Synutra spent approximately RMB 1 million in quality control
      equipment and training.




Synutra
      engages in constant product refinement and new product development for dairy
      based formulations, as well as other forms of foods and nutritional supplements.
      One key aspect of product refinement, for example, is prolonging product
      shelf-life and improvement in product sensory profile. Synutra’s research and
      development team has developed micro-encapsulations of various fatty acids
      that
      helps to slow the fatty acid’s oxidation in the products that reduces shelf-life
      and gives stale tastes. In new product development, Synutra seeks to extend
      its
      new product pipeline well into the next 3 to 5 years with formulations and
      product concepts in dairy based formula products as well as other nutritional
      food products and supplements. Synutra has developed a variety of delivery
      systems such as orally delivered supplements in a pill format and single use
      packages which provide the formula in easy to use single packages that are
      easy
      to carry instead of a canister that provides multiple servings of formula and
      is
      relatively bulky.




**SALES
      AND** **MARKETING**




Synutra
      generally sells nutritional products directly to retailers and wholesalers,
      in
      addition to health care facilities and government agencies. Currently, primary
      marketing efforts for nutritional products are directed at extending retail
      coverage in terms of geography and market tiers. Additional efforts are made
      toward securing the recommendation of Synutra's brand of products by physicians
      or other health care professionals. In addition, certain nutritional products
      are also promoted through direct to consumer marketing efforts. Super and
      U-Smart retail products are also promoted directly to the public by consumer
      advertising. These products are generally sold directly to retailers and
      wholesalers.




Synutra
      has a sales network throughout 24 provinces and municipalities, covering 259
      regional cities, more than 800 counties, and close to 13,000 townships. The
      sales group is divided into 2 sub-national regions, Southern and Northern China.
      The Southern China region covers in the aggregate 10 provincial sales regions,
      including Hubei, An’hui, Yuedong, Yuexi, Sichuan, Chongqing, Hunan, Jiangxi,
      Yungui and Fujian. The Northern China region covers Heiji, Liaoning, Jinji,
      Henan, Ludong, Luxi, Xibei, Jiangsu, Zhejiang, and Beijing. Each provincial
      sales region covers 8 to 20 city sales areas which act as an operation unit,
      while each city sales area covers 3 to 20 county sales areas which act as an
      operation unit. The sales team consists of a regional manager for each of the
      Northern and Southern China sales regions, plus an additional 20 provincial
      and
      200 city managers throughout China. In addition, Synutra hires for each city
      sales manager approximately 25 temporary consultants who are located at retail
      stores throughout China. Synutra hires and trains these consultants to work
      at
      specific stores for a limited period of time to provide specific information
      about its products directly to the consumers. Synutra uses a “portfolio” sales
      approach so that all sales personnel have the ability to sell Synutra’s entire
      product line. As of March 2006, Synutra retain a total sales force of
      approximately to 1400 employees with a layered management structure, along
      with
      about 7,000 commissioned field nutrition consultants or retail site
      promoters.




Synutra
      works with 388 first tier regional and city distributors, about 800 second
      tier
      sub-distributors, and more than 46,000 retail shops or points of sale that
      work
      directly with Synutra’s sales team. The first tier distributors normally have
      exclusive distribution rights in the respective regions and cities to distribute
      Synutra products, and are also responsible for developing the second tier
      sub-distributors in their own region and cities. Synutra typically signs an
      annual contract with each of its distributors, which establish a range of sales
      obligations for the individual distributors and the respective pricing range.
      The retail sales personnel located at the store level are engaged on a short
      term basis and are compensated based on commissions for sales. Synutra intends
      to expand its sales organization into additional provinces, cities and
      municipalities that it does not currently serve.


-6-




Synutra
      maintains and plans to grow a specialized marketing and sales team of close
      to
      400 trained employees to work in areas of brand promotion, medical promotion
      and
      hospital brand recognition for its products (except for products for infants
      of
      less than 6 months of age). Synutra has established a national customer service
      call center providing live and toll-free information support to customers and/or
      potential customers in prenatal, nursing, baby care education, product
      information, and complaint and dispute resolution.




Synutra’s
      principal customers are supermarkets and retail stores. No single Synutra
      customer accounts for more than 10% of Synutra’s sales.




Synutra’s
      marketing efforts include advertisements though TV, consumer magazines, radio,
      catalogue, and the internet, as well as field promotion activities with
      supermarket chains, and entertainment companies targeting the children’s market.
      These included a 2005 campaign in partnership with the Walt Disney company
      that
      was targeted to 100,000 consumers, and a 2006 Super Baby Photo Contest in
      conjunction with the nationally recognized internet portal company Sohu.com
      that
      was targeted to 200,000 consumers. The total marketing expense for year 2005
      was
      more than 10% of gross revenue.




**GOVERNMENT
      REGULATION**




A
      number
      of key local and national government agencies are involved in approval for
      manufacturers in the infant formula market in China, including the Industry
      and
      Commerce Management and Administration (ICMA) Bureau, the Taxation Registration
      Office, Health and Hygiene Permitting Office (HHP), and the State Food and
      Drug
      Administration Bureau (SFDA).




In
      2003,
      the State Food and Drug Administration Bureau promulgated regulations requiring
      that all infant formula manufacturers and distributors must obtain SFDA permits
      before engaging in business activities involving nutritional products for infant
      and children. There are a number of criteria that include employees must be
      certified and qualified by the SFDA, the production facilities must have
      adequate equipment and facility space, the facilities must have a certain level
      of technology advancement, and the facilities must meet with the good
      manufacturing practice (GMP) standard.




SFDA
      field offices are charged with review and approval of all nutritional products
      of manufacturers intended for infant and children. In order to manufacture,
      sell
      and market infant formula in China, each manufacturer must have a Product
      Registration Number (ICMA), the Health and Hygiene Permit Number (HHP) and
      the
      Infant and Children Food Production Permit Number (SFDA). Synutra has complied
      with all applicable regulations and permits for each of its products ,
      and all
      of Synutra’s products carry certification marks issued by SFDA and other
      relevant government agencies.




In
      1981,
      the World Health Organization (WHO) and the United Nations Children’s Fund
      (UNICEF) jointly established the *International
      Code of Marketing of Breast-milk Substitutes* ,
      in
      order to sustain and encourage more breastfeeding of infants. The Code has
      set
      clear guidelines and restrictions on the marketing of infant formulas (defined
      as breast-milk substitute formulated for infants up to and between 4 and 6
      months of age). As a member state to both organizations, China ascribes to
      the
      Code and the government promulgated in 1991 the *China
      Code of Marketing of Breast-milk Substitutes (Draft)* ,
      which
      places strict limitations on ways of advertising, promoting, and marketing
      infant formulas (as defined by WHO) in China. These restrictions specifically
      prevent manufacturers, distributors, and marketers of infant formulas from
      giving free samples, promotional discounts, donating equipment, funding, and
      information to healthcare and medical organizations under conditions that serve
      promotional purposes, and from advertising in a broad range of media outlets.
      The practice of these codes and rules are aimed at stemming the decline in
      the
      population’s breastfeeding rate. In the years since it entered the business,
      Synutra has strived to stay compliant with these codes and restrictions. All
      Synutra infant formula products are labeled and accompanied with instructional
      materials that disclose in prominent fashions that “breastfeeding is always your
      best choice for you and your baby,” and that “we recommend you to breastfeed
      whenever appropriate and possible.” Synutra abides by all other guidelines and
      restrictions against marketing infant formula products outside of the
      established codes and rules.


-7-




**COMPETITION**




Competition
      for Synutra’s products is generally other diversified consumer and health care
      manufacturers. Competitive factors include consumer advertising, formulation,
      packaging, scientific innovation, and price. There are many brands that hold
      significant market share, individually or in the aggregate in the market.
      Synutra’s principal competitors can be classified generally into three groups.
      The first are foreign manufacturers which concentrate mainly on the food
      business with a wide selection of product lines, including Nestle, a Swiss
      manufacturer and distributor of starter and follow-up formulas, milk, cereals,
      oral supplements and performance foods marketed under Nestlé brands such as
      Carnation. Another competitor of this type is Numico, a Dutch manufacturer
      of
      baby foods, whose infant formula products are marketed in China under the brand
      name of Dumex. The second group includes foreign manufacturers who come into
      the
      China market with their parent companies’ pharmaceutical businesses, such as Bristol
      Meyers Squib’s Mead
      Johnson, a US manufacturer and distributor of the
      Enfami l
      family
      of formulas, Abbot Laboratories’ Ross Products Division, a US manufacturer and
      distributor of infant
      formulas marketed under the brand
      names of Similac and Enfalac
      family of formulas, and Wyeth, a US manufacturer and distributor of infant formula
      sold under private label brands. The third group consists of domestic
      manufacturers who generally focus on agricultural product processing, including
      Sanlu, a Chinese manufacturer and distributor of dairy products under the Anmum
      brand, and Yili, a Chinese manufacturer and distributor of liquid and powdered
      milk under the Yili brand. Both Sanlu and Yili are competitors in the lower
      priced products.




**EMPLOYEES**




Synutra
      currently employs approximately 1890 full-time personnel in all its facilities,
      with about 80 management staff and research and development personnel, about
      500
      production personnel and more than 1,300 sales and marketing personnel. An
      additional approximately 7,000 part-time workers provide their services on
      a
      commission basis and are located at retail customer sites. Synutra’s employees
      are not represented by a labor organization or covered by a collective
      bargaining agreement. Synutra has not experienced work stoppages and believes
      that its relationship with its employees is good.




**PRODUCTION
      FACILITIES AND** **PROPERTY**




Currently,
      there are three production facilities and one packaging facility located in
      different areas of China. The total production areas encompass about 40,000
      square meters, with total production capacity of 30,000 tons of dairy products
      per year, and 20,000 tons of installed and 30,000 tons of potentially available
      packaging capacity.




All
      the
      production facilities are built based on the GMP standard, with advanced
      equipment imported from Europe. All of Synutra’s manufacturing facilities have
      passed ISO9000, ISO14000, HACCP series qualification.




Synutra’s
      headquarters are located at Qingdao with over 1600 square meters of owned office
      space. It also has leased office space at Beijing of around 1000 square meters.
      Synutra Illinois leases an executive office in Rockville, Maryland,
      USA.


-8-




**DOING
      BUSINESS IN CHINA**




**CHINA’S
      ECONOMY**




Management
      believes that an important factor in understanding the Company’s business is
      China’s rapid economic growth. According to China’s Statistics Bureau, China’s
      GDP growth rate for 2003, 2004 and 2005 was 9.3%, 9.5% and 9.4% respectively.




Looking
      forward, GDP growth in China is forecasted between 8% and 9% in 2006. According
      to the National Statistics Bureau, real GDP growth in the first quarter of
      2006
      was 10.2%. 2006 is the first year of Chinese government’s “Eleventh Five-Year
      Plan”, during which period China’s national economy is expected to maintain its
      high growth rate. Over the long term, China’s accession to the World Trade
      Organization (WTO) has accelerated the capital flow to China from other
      developed countries.




**ECONOMIC
      REFORM ISSUES**




Although
      the Chinese government owns the majority of productive assets in China, in
      the
      past several years the government has implemented economic reform measures
      that
      emphasize decentralization and encourage private economic activity. Because
      these economic reform measures may be inconsistent or ineffectual, there are
      no
      assurances that:




·
            We
                will be able to capitalize on economic
                reforms;




·
            The
                Chinese government will continue its pursuit of economic reform
                policies;




·
            The
                economic policies, even if pursued, will be
                successful;




·
            Economic
                policies will not be significantly altered from time to time;
                and




·
            Business
                operations in China will not become subject to the risk of
                nationalization.




Negative
      impact upon economic reform policies or nationalization could result in a total
      investment loss in our common stock.




Since
      1979, the Chinese government has reformed its economic systems. Because many
      reforms are unprecedented or experimental, they are expected to be refined
      and
      improved. Other political, economic and social factors, such as political
      changes, changes in the rates of economic growth, unemployment or inflation,
      or
      in the disparities in per capita wealth between regions within China, could
      lead
      to further readjustment of the reform measures. This refining and readjustment
      process may negatively affect our operations.




To
      date
      reforms to China’s economic system have not adversely impacted our operations
      and are not expected to adversely impact operations in the foreseeable future;
      however, there can be no assurance that the reforms to China’s economic system
      will continue or that we will not be adversely affected by changes in China’s
      political, economic, and social conditions and by changes in policies of the
      Chinese government, such as changes in laws and regulations, measures which
      may
      be introduced to control inflation, changes in the rate or method of taxation,
      imposition of additional restrictions on currency conversion and remittance
      abroad, and reduction in tariff protection and other import
      restrictions.


-9-




**RISK
      FACTORS**




Our
      business faces many risks. The risks described below may not be the only risks
      we face. Additional risks that we do not yet know of, or that we currently
      think
      are immaterial, may also impair our business operations or financial results.
      If
      any of the events or circumstances described in the following risks actually
      occurs, our business, financial condition or results of operations could suffer
      and the trading price of our common stock could decline.




**Risks
      Related to Our Business**




**Synutra
      is subject to intense competition in which it may not be able to compete
      effectively.**




Synutra’s
      business is subject to intense competition, changes in consumer preferences
      and
      local economic conditions. Most of these competitors have longer operating
      histories and significantly greater financial, technical, marketing and other
      resources than Synutra has any may be able to respond more quickly than it
      scan
      to new or changing opportunities and customer requirements. Increased
      competition can reduce sales for Synutra. To be successful, it must continue
      to:




·
            promote
                its brands successfully;


·
            anticipate
                and respond to new consumer trends;


·
            develop
                new products and markets and to broaden brand portfolios in order
                to
                compete effectively with lower priced products;


·
            improve
                productivity; and


·
            respond
                effectively to changing prices for their raw materials.





The
      willingness of consumers to purchase Synutra’s brands depends in part on local
      economic conditions. In periods of economic uncertainty, consumers tend to
      purchase more private label and other economy brands, and the volume of its
      products could suffer accordingly.




**Mothers
      may not use Synutra’s infant formula products and elect to breastfeed their
      babies.**




Synutra’s
      results of operations will be affected by the number of mothers who choose
      not
      to use its products and choose to breastfeed their babies. There is data
      available that suggests that breastfeeding a baby has many health benefits
      for
      the baby. Breastfeeding in infancy is likely to reduce the risk of
      cardiovascular disease-in adult life as well as helping a baby develop a strong
      immune system. Mother’s milk has all the nutrients that a baby requires and some
      babies may have difficulty absorbing the nutrients from infant formula and
      may
      suffer side effects from the supplemental nutrients provided in formula. Some
      mothers may have trouble breastfeeding and therefore infant formula is the
      next
      best alternative. However, to the extent that popular literature, cultural
      pressure and medical advice advocate that mothers breastfeed their babies,
      there
      could be a reduced demand for Synutra’s products and its revenues could be
      adversely affected.




**Strengthening
      brand portfolios through increased education and awareness.**




One
      element of the growth strategy of Synutra is to strengthen its brand portfolios
      through active programs of consumer education and awareness of its products.
      Synutra intends to improve communications to its customers about the nutritional
      value and quality of its products. There can be no assurance that it will be
      successful in this growth strategy and that sales volume will be increased.




**Synutra
      must identify changing consumer preferences and develop and offer products
      to
      meet their preferences.**




Consumer
      preferences evolve over time and the success of Synutra’s products depends on
      Synutra’s ability to identify the tastes and nutritional needs of its customers
      and to offer products that appeal to their preferences. Synutra introduces
      new
      products and improved products from time to time and incurs significant
      development and marketing costs. If Synutra’s products fail to meet consumer
      preference, then Synutra’s strategy to grow sales and profits with new products
      will be less successful.


-10-




**If
      Synutra does not achieve the appropriate cost structure in the highly
      competitive industry, its profitability could decrease.**




Synutra’s
      success depends in part on its ability to achieve the appropriate cost structure
      and be efficient in a highly competitive industry. Synutra’s products are
      marketed in the premium branded market, however, it may not be successful in
      marketing these products at a higher price point. Synutra is currently
      implementing profit-enhancing initiatives that impact its marketing, sales,
      operations and information systems functions. These initiatives include:
      elimination of duplicative costs and overhead; consolidation of selected plants
      and support functions; efforts to streamline and improve Synutra’s ability to do
      business with its customers, and distributors and brokers. If Synutra does
      not
      continue to manage costs and achieve additional efficiencies, its
      competitiveness and profitability could decrease.




**Synutra
      may be subject to product liability claims and product recalls, which could
      negatively impact its profitability.**




Synutra
      sells products for human consumption, which involves risks such as product
      contamination or spoilage, product tampering and other adulteration of its
      products. Synutra may be subject to liability if the consumption of any of
      its
      products causes injury, illness or death. In addition, Synutra will voluntarily
      recall products in the event of contamination or damage. A significant product
      liability judgment or a widespread product recall may negatively impact
      Synutra’s profitability for a period of time depending on product availability,
      competitive reaction and consumer attitudes. Even if a product liability claim
      is unsuccessful or is not fully pursued, the negative publicity surrounding
      any
      assertion that Synutra’s products caused illness or injury could adversely
      affect Synutra’s reputation with existing and potential customers and its
      corporate and brand image. Synutra does not have liability insurance with
      respect to product liability claims. Any product liabilities claims could have
      a
      material adverse effect on its business, operating results and financial
      condition.




**Commodity
      price increases will increase operating costs and may reduce
      profits.**




Synutra
      uses many different commodities including fresh milk, whey protein powder and
      energy. Commodities are subject to price volatility caused by commodity market
      fluctuations, supply and demand, currency fluctuations, and changes in
      governmental agricultural programs. Commodity price increases will result in
      increases in raw material costs and operating costs. Synutra may not be able
      to
      increase its product prices to offset these increased costs; and increasing
      prices may result in reduced sales volume and profitability. It does not fully
      hedge against changes in commodity prices and its hedging strategies may not
      work as planned.




**Synutra
      may not be able to sustain market acceptance for its services and products.**




Synutra
      has established limited brand recognition in China. Failure to establish a
      brand
      and presence in the marketplace on a timely basis could adversely affect its
      financial condition and operating results. Moreover, Synutra cannot be sure
      that
      it will successfully complete the development and introduction of new products
      or product enhancements or that any new products developed will achieve
      acceptance in the marketplace. It may also fail to develop and deploy new
      products and product enhancements on a timely basis. In addition, currently
      Synutra only sells its products in China. It may seek to expand its distribution
      to India and Southeast Asia. There can be no assurance that Synutra will be
      able
      to expand its distribution in the future or that any such expansion will be
      successful. Furthermore, there can be no assurance that any expansion will
      not
      have a material adverse effect on the operating results of Synutra, particularly
      while it is implementing such expansion and the costs associated with any
      expansion.


-11-




**If
      Synutra fails to comply with the many laws applicable to its business, it may
      incur significant fines and penalties.**




Synutra’s
      facilities and products are subject to many laws and regulations administered
      by
      the Industry and Commerce Management and Administration (ICMA) Bureau, the
      Taxation Registration Office, Health and Hygiene Permitting Office (HHP), and
      the State Food and
      Drug Administration Bureau (SFDA) relating to the processing, packaging,
      storage, distribution, advertising, labeling, quality, and safety of food
      products. Synutra’s failure to comply with applicable laws and regulations could
      subject it to administrative penalties and injunctive relief, civil remedies,
      including fines, injunctions and recalls of its products. It is possible that
      change to such laws, more rigorous enforcement of such laws or Synutra’s current
      or past practices, could have a material adverse effect on Synutra’s business,
      operating results and financial condition. Further, additional environmental,
      health or safety issues relating to matters that are not currently known to
      management may result in unanticipated liabilities and
      expenditures.




**Synutra’s
      quarterly revenues, operating results and profitability will vary from quarter
      to quarter, which may result in volatility of its stock price.**




Synutra’s
      quarterly revenues, operating results and profitability have varied in the
      past
      and are likely to vary significantly from quarter to quarter. This may lead
      to
      volatility in its stock price. The factors that are likely to cause these
      variations may include the introduction of new products or services by Synutra
      or its competitors and a combination of the other adverse developments as
      discussed in these risk factors.




**Nondisclosure
      agreements with employees and others may not adequately prevent disclosure
      of
      trade secrets and other proprietary information.**




In
      order
      to protect Synutra’s proprietary technology and processes, it also relies in
      part on nondisclosure agreements with its employees, licensing partners,
      consultants, agents and other organizations to which it discloses its
      proprietary information. These agreements may not effectively prevent disclosure
      of confidential information and may not provide an adequate remedy in the event
      of unauthorized disclosure of confidential information. In addition, others
      may
      independently discover trade secrets and proprietary information, and in such
      cases it could not assert any trade secret rights against such party. Costly
      and
      time-consuming litigation could be necessary to enforce and determine the scope
      of its proprietary rights, and failure to obtain or maintain trade secret
      protection could adversely affect its competitive business position. Since
      Synutra relies on trade secrets and nondisclosure agreements, in addition to
      patents, to protect some of its intellectual property (such as its infant
      formula), there is a risk that third parties may obtain and improperly utilize
      its proprietary information to its competitive disadvantage.




**Synutra
      does not have long term contracts with its fresh milk
      suppliers.**




Synutra
      typically has not entered into written long terms agreements with its fresh
      milk
      suppliers. As a result, suppliers may, without notice or penalty, terminate
      their relationship with Synutra at any time. Synutra typically purchases fresh
      milk from multiple dairy farmers and cooperatives without long term contract
      arrangements. Failure to receive fresh milk in a timely manner could have a
      material adverse effect on Synutra’s business, operating results and financial
      condition.




**Synutra
      does not have long term contracts with its customers.**




Synutra
      typically has not entered into written long terms agreements with customers.
      As
      a result, customers may, without notice or penalty, terminate their relationship
      with Synutra at any time. In addition, even if customers should decide to
      continue their relationship with Synutra, there can be no guarantee that they
      will purchase the same amounts of products as in the past. Any loss of a
      customer, or decrease in the volume of products purchased by a customer could
      have a material adverse effect on Synutra’s business, operating results and
      financial condition.


-12-




**Loss
      of key executives and failure to attract qualified management could limit growth
      and negatively impact operations.**




Synutra
      depends highly upon its senior management team. It will continue to depend
      on
      operations management personnel with industry experience. At this time, Synutra
      does not know the availability of such experienced management personnel or
      how
      much it may cost to attract and retain such personnel. The loss of the services
      of any member of senior management or the inability to hire experienced
      operations management personnel could have a material adverse effect on the
      operations and financial condition of Synutra.




**The
      lack of public company experience of Synutra’s management could impair its
      ability to comply with legal and regulatory requirements.**




Synutra’s
      management team has historically operated its business as a privately-owned
      company. The individuals who now constitute Synutra’s senior management have
      never had responsibility for managing a publicly-traded company. Such
      responsibilities will include complying with federal securities laws and making
      required disclosures on a timely basis. There can be no assurance that its
      management will be able to effectively and timely implement programs and
      policies that adequately respond to such increased legal, regulatory compliance
      and reporting requirements.




**Failure
      to effectively respond to product and business crises could negatively impact
      brand image, business reputation, and results.**




In
      times
      of possible market crisis involving any of Synutra’s products, Synutra
      management may not be able to respond to such events in a timely and effective
      manner. Such failure and/or inadequacy could occur due to the growth of
      management and having many layers of management within Synutra’s management
      structure as the company grows. For example, one of Synutra’s competitors did
      not respond quickly to a localized consumer complaint over a test result of
      out-of-spec iodine levels has resulted in damage to this brand image and may
      have had a material adverse effect on its results of operations. If Synutra’s
      management does not respond quickly and appropriately to any quality control
      issues or customer complaints, it could have a material adverse effect on its
      results of operations and financial condition.




**RISKS
      ASSOCIATED WITH DOING BUSINESS IN CHINA**




**The
      Chinese Legal System.**




The
      practical effect of the People's Republic of China legal system on Synutra’s
      business operations in China can be viewed from two separate but intertwined
      considerations. First, as a matter of substantive law, the Foreign Invested
      Enterprise laws provide significant protection from government interference.
      In
      addition, these laws guarantee the full enjoyment of the benefits of corporate
      articles and contracts to Foreign Invested Enterprise participants. These laws,
      however, do impose standards concerning corporate formation and governance,
      which are not qualitatively different from the general corporation laws of
      the
      several provinces. Similarly, the accounting laws of the People's Republic
      of
      China mandate accounting practices that are not entirely consistent with US
      Generally Accepted Accounting Principles. The Chinese accounting laws require
      that an annual "statutory audit" be performed in accordance with the People's
      Republic of China accounting standards and that the books of account of Foreign
      Invested Enterprises be maintained in accordance with Chinese accounting laws.
      Article 14 of the People's Republic of China Wholly Foreign-Owned Enterprise
      Law
      requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal
      reports and statements to designated financial and tax authorities, at the
      risk
      of business license revocation.




Second,
      while the enforcement of substantive rights may appear less clear than United
      States procedures, the Foreign Invested Enterprises and Wholly Foreign-Owned
      Enterprises are Chinese registered companies which enjoy the same status as
      other Chinese registered companies in business-to-business dispute resolution.
      Therefore, as a practical matter, although no assurances can be given, the
      Chinese legal infrastructure, while different in operation from its United
      States counterpart, should not present any significant impediment to the
      operation of Foreign Invested Enterprises.


-13-




**Changes
      in the laws and regulations in The Peoples Republic of China may adversely
      affect Synutra’s ability to conduct its business.**




As
      Chinese corporations, all of Synutra’s operating subsidiaries are subject to the
      Company Law of The Peoples Republic of China and more specifically to the
      Foreign Company provisions of the Company Law and the Law on Foreign Capital
      Enterprises of the People's Republic of China. Additionally, as a food
      manufacturing company, Synutra is subject
      to the laws and regulations from Health and Hygiene Permitting Office (HHP),
      and
      the State Food and
      Drug Administration Bureau (SFDA). Changes
      in existing laws or new interpretations of such laws may have a significant
      impact on our methods and costs of doing business. For example, new legislative
      proposals for product pricing, approval criteria and manufacturing requirements
      may be proposed and adopted. Such new legislation or regulatory requirements
      may
      have a material adverse effect on our financial condition, results of operations
      or cash flows. In addition, we will be subject to varying degrees of regulation
      and licensing by governmental agencies in The Peoples Republic of China. There
      can be no assurance that the future regulatory, judicial and legislative changes
      will not have a material adverse effect on Synutra’s Chinese operating
      subsidiaries, that regulators or third parties will not raise material issues
      with regard to its Chinese subsidiaries or its compliance or non-compliance
      with
      applicable laws or regulations or that any changes in applicable laws or
      regulations will not have a material adverse effect on our operations.




**Economic
      reform issues may have an adverse impact on the business.**




Although
      the Chinese government owns the majority of productive assets in China, in
      the
      past several years the government has implemented economic reform measures
      that
      emphasize decentralization and encourage private economic activity. Because
      these economic reform measures may be inconsistent or ineffectual, there are
      no
      assurances that:




·
            Synutra
                will be able to capitalize on economic
                reforms;




·
            The
                Chinese government will continue its pursuit of economic reform
                policies;




·
            The
                economic policies, even if pursued, will be
                successful;




·
            Economic
                policies will not be significantly altered from time to time;
                and




·
            Business
                operations in China will not become subject to the risk of
                nationalization.




Negative
      impact upon economic reform policies or nationalization could result in a total
      investment loss in Synutra’s common stock.




Since
      1979, the Chinese government has reformed its economic systems. Because many
      reforms are unprecedented or experimental, they are expected to be refined
      and
      improved. Other political, economic and social factors, such as political
      changes, changes in the rates of economic growth, unemployment or inflation,
      or
      in the disparities in per capita wealth between regions within China, could
      lead
      to further readjustment of the reform measures. This refining and readjustment
      process may negatively affect Synutra's operations.




Over
      the
      last few years, China's economy has registered a high growth rate. Recently,
      there have been indications that rates of inflation have increased. In response,
      the Chinese government recently has taken measures to curb this excessively
      expansive economy. These measures have included restrictions on the availability
      of domestic credit, reducing the purchasing capability of certain of its
      customers, and limited re-centralization of the approval process for purchases
      of some foreign products. These austerity measures alone may not succeed in
      slowing down the economy's excessive expansion or control inflation, and may
      result in severe dislocations in the Chinese economy. The Chinese government
      may
      adopt additional measures to further combat inflation, including the
      establishment of freezes or restraints on certain projects or
      markets.


-14-




To
      date
      reforms to China's economic system have not adversely impacted Synutra's
      operations and are not expected to adversely impact operations in the
      foreseeable future; however, there can be no assurance that the reforms to
      China's economic system will continue or that Synutra will not be adversely
      affected by changes in China's political, economic, and social conditions and
      by
      changes in policies of the Chinese government, such as changes in laws and
      regulations, measures which may be introduced to control inflation, changes
      in
      the rate or method of taxation, imposition of additional restrictions on
      currency conversion and remittance abroad, and reduction in tariff protection
      and other import restrictions.




**Synutra
      may have difficulty establishing adequate management, legal and financial
      controls in The Peoples Republic of China.**




The
      People’s Republic of China historically has been deficient in Western style
      management and financial reporting concepts and practices, as well as in modern
      banking, computer and other control systems. Synutra may have difficulty in
      hiring and retaining a sufficient number of qualified employees to work in
      The
      Peoples Republic of China. As a result of these factors, it may experience
      difficulty in establishing management, legal and financial controls, collecting
      financial data and preparing financial statements, books of account and
      corporate records and instituting business practices that meet Western
      standards.




**Capital
      outflow policies in The Peoples Republic of China may hamper Synutra’s ability
      to remit income to the United States.**




The
      People’s Republic of China has adopted currency and capital transfer
      regulations. These regulations may require that Synutra comply with complex
      regulations for the movement of capital. In order to comply with these
      regulations it may have to revise or change the banking structure of the company
      or its subsidiaries Although management believes that Synutra is currently
      in
      compliance with these regulations, should these regulations or the
      interpretation of them by courts or regulatory agencies change it may not be
      able to remit all income earned and proceeds received in connection with its
      operations to the U.S.




**It
      will be extremely difficult to acquire jurisdiction and enforce liabilities
      against Synutra’s officers, directors and assets based in The Peoples Republic
      of China.**




Because
      all of directors and most of Synutra’s executive officers, including Liang
      Zhang, the chairman of the Board of Directors and Chief Executive Officer,
      are
      Chinese citizens and reside in China it may be difficult, if not impossible,
      to
      acquire jurisdiction over these persons in the event a lawsuit is initiated
      against Synutra and/or its officers and directors by a stockholder or group
      of
      stockholders in the U.S. Furthermore, because the majority of its assets are
      located in The Peoples Republic of China it would also be very difficult to
      access those assets to satisfy an award entered against Synutra in U.S. court.




**Synutra
      may face obstacles from the political system in The Peoples Republic of China.**




Foreign
      companies conducting operations in The Peoples Republic of China face
      significant political, economic and legal risks. The political system in The
      Peoples Republic of China, including a strong bureaucracy, may hinder Western
      investment. Another obstacle to foreign investment is corruption. There is
      no
      assurance that Synutra will be able to obtain recourse, if desired, through
      The
      Peoples Republic of China’s less developed judicial systems.


-15-




**RISKS
      RELATED TO THE COMPANY’S COMMON STOCK**




**The
      Company’s stock is thinly traded, so you may be unable to sell your shares at or
      near the quoted bid prices if you need to sell a significant number of your
      shares.**




The
      shares of the Company’s common stock are thinly-traded on the OTC Bulletin
      Board, meaning that the number of persons interested in purchasing its common
      shares at or near bid prices at any given time may be relatively small or
      non-existent. This situation is attributable to a number of factors, including
      the fact that the Company is a small company which is relatively unknown to
      stock analysts, stock brokers, institutional investors and others in the
      investment community that generate or influence sales volume, and that even
      if
      it came to the attention of such persons, they tend to be risk-averse and may
      be
      reluctant to follow the Company. As a consequence, there may be periods of
      several days or more when trading activity in the shares is minimal or
      non-existent, as compared to a seasoned issuer which has a large and steady
      volume of trading activity that will generally support continuous sales without
      an adverse effect on share price. The Company cannot give you any assurance
      that
      a broader or more active public trading market for its common shares will
      develop or be sustained, or that current trading levels will be sustained.
      Due
      to these conditions, the Company can give you no assurance that you will be
      able
      to sell your shares at or near bid prices or at all if you need money or
      otherwise desire to liquidate your shares.




**You
      may have difficulty selling the Company’s shares because they are deemed “penny
      stocks”.**




Since
      the
      Company’s common stock is not currently listed on the Nasdaq Stock Market, if
      the trading price of its common stock remains below $5.00 per share, trading
      in
      its common stock will be subject to the requirements of certain rules
      promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”), which require additional disclosure by broker-dealers in connection with
      any trades involving a stock defined as a penny stock (generally, any non-Nasdaq
      equity security that has a market price of less than $5.00 per share, subject
      to
      certain exceptions). Such rules require the delivery, prior to any penny stock
      transaction, of a disclosure schedule explaining the penny stock market and
      the
      risks associated therewith and impose various sales practice requirements on
      broker-dealers who sell penny stocks to persons other than established customers
      and accredited investors (generally defined as an investor with a net worth
      in
      excess of $1,000,000 or annual income exceeding $200,000 individually or
      $300,000 together with a spouse). For these types of transactions, the
      broker-dealer must make a special suitability determination for the purchaser
      and have received the purchaser’s written consent to the transaction prior to
      the sale. The broker-dealer also must disclose the commissions payable to the
      broker-dealer, current bid and offer quotations for the penny stock and, if
      the
      broker-dealer is the sole market-maker, the broker-dealer must disclose this
      fact and the broker-dealer’s presumed control over the market. Such information
      must be provided to the customer orally or in writing before or with the written
      confirmation of trade sent to the customer. Monthly statements must be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks. The additional burdens
      imposed upon broker-dealers by such requirements could discourage broker-dealers
      from effecting transactions in the Company’s common stock, which could severely
      limit the market liquidity of the common stock and the ability of holders of
      the
      common stock to sell their shares.




**Anti-takeover
      provisions in the Company’s certificate of incorporation could affect the value
      of its stock.**




The
      Company’s certificate of Incorporation contain certain provisions that could be
      an impediment to a non-negotiated change in control. In particular, without
      stockholder approval, the Company can issue up to 20,000,000 shares of preferred
      stock with rights and preferences determined by the Company’s Board of
      Directors. These provisions could make a hostile takeover or other
      non-negotiated change in control difficult, so that stockholders would not
      be
      able to receive a premium for their common stock.


-16-




**Potential
      issuance of additional common and preferred stock could dilute existing
      stockholders.**




The
      Company is authorized to issue up to 250,000,000 shares of common stock. To
      the
      extent of such authorization, the Company’s Board of Directors has the ability,
      without seeking stockholder approval, to issue additional shares of common
      stock
      in the future for such consideration as the Board of Directors may consider
      sufficient. The issuance of additional common stock in the future will reduce
      the proportionate ownership and voting power of the common stock offered hereby.
      The Company is also authorized to issue up to 20,000,000 shares of preferred
      stock, the rights and preferences of which may be designated in series by the
      Board of Directors. Such designation of new series of preferred stock may be
      made without stockholder approval, and could create additional securities which
      would have dividend and liquidation preferences over the common stock offered
      hereby. Preferred stockholders could adversely affect the rights of holders
      of
      common stock by:




·
            exercising
                voting, redemption and conversion rights to the detriment of the
                holders
                of common stock;




·
            receiving
                preferences over the holders of common stock regarding or surplus
                funds in
                the event of its dissolution or
                liquidation;




·
            delaying,
                deferring or preventing a change in control of the Company;
                and




·
            discouraging
                bids for its common stock.




**The
      Company’s existing directors, executive officers and principal stockholders hold
      a substantial amount of its common stock and may be able to prevent other
      stockholders from influencing significant corporate decisions.**




As
      of
      June 15, 2006, the Company’s directors and executive officers and their
      affiliates beneficially own approximately 92% of its outstanding common stock,
      based on the most recent filings by such parties with the Securities and
      Exchange Commission as of that date. These stockholders, if they act together,
      may be able to direct the outcome of matters requiring approval of the
      stockholders, including the election of its directors and other corporate
      actions such as:




·
            its
                merger with or into another company;




·
            a
                sale of substantially all of its assets; and




·
            amendments
                to its certificate of incorporation.




The
      decisions of these stockholders may conflict with its interests or those of
      the
      Company’s other stockholders.




**Substantial
      sales of common stock could cause stock price to fall** **.**




As
      of
      June 15, 2006, the Company had outstanding 50,000,713 shares of common stock,
      of
      which approximately 48,907,415 shares were “restricted securities” (as that term
      is defined under Rule 144 promulgated under the Securities Act of 1933, as
      amended). Only approximately 1,093,298 shares are currently freely tradable
      shares. These 48,907,415 shares of restricted stock are eligible for public
      resale under Rule 144. Although Rule 144 restricts the number of shares that
      any
      one holder can sell during any three-month period under Rule 144, because more
      than one stockholder holds these restricted shares, a significant number of
      shares could legally be sold commencing in one year. No prediction can be made
      as to the effect, if any, that sales of the shares subject to Rule 144 sales
      commencing in one year, or the availability of such shares for sale, will have
      on the market prices prevailing from time to time. Nevertheless, the possibility
      that substantial amounts of common stock may be sold in the public market may
      adversely affect prevailing market prices for its common stock and could impair
      its ability to raise capital through the sale of its equity
      securities.


-17-




**The
      market price of the Company’s stock may be adversely affected by market
      volatility.**




The
      market price of the Company’s common stock is likely to be volatile and could
      fluctuate widely in response to many factors, including:




·
            announcements
                of technological innovations by the Company or its
                competitors;




·
            announcements
                of new products or new contracts by the Company or its
                competitors;




·
            actual
                or anticipated variations in its operating results due to the level
                of
                expenses and other factors;




·
            changes
                in financial estimates by securities analysts and whether its earnings
                meet or exceed such estimates;




·
            conditions
                and trends in the baby food and other
                industries;




·
            new
                accounting standards;




·
            general
                economic, political and market conditions and other factors;
                and




·
            the
                occurrence of any of the risks described in this
                8-K.


.


**ITEM
      2. DESCRIPTION OF PROPERTY**




Our
      administrative, manufacturing, and packaging facilities are located in various
      places including Qingdao, Beijing, Chabei, Luobei, Beian in China, and Rockville
      Maryland in the United States. These facilities include approximately 43,000
      square meters of offices, plants, and warehouse spaces. The annual rent is
      approximately US $272,230.At the production facilities, the Company has
      production equipment, which is imported from manufacturers in Europe, as well
      as
      from mainland China.




**ITEM
      3. LEGAL PROCEEDINGS**




We
      are
      not a party to any pending litigation and none is contemplated or
      threatened.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**




There
      were no matters submitted to the stockholders in the fourth quarter of
      2005.




**PART
      II**




**ITEM
      5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUERS PURCHASES
      OF EQUITY SECURITIES**




Our
      shares are quoted on the Over-The-Counter Bulletin Board. Our trading symbol
      is
“SYUT.OB.” The table shows the high and low bid price of our stock for 2004-2005
      and 2005-March 31, 2006. These prices represent prices between dealers; they
      do
      not include retail markup, markdown or commission. These are bid prices only
      and
      do not represent actual transactions and are adjusted for dividends and
      splits.


-18-




**QUARTER
                ENDED**
            
            **HIGH**
            
            **LOW****2004
                - 2005**June
                30, 04
            
            
            0.259
            
            
            0.10September
                30, 04
            
            
            0.50
            
            
            0.259December
                31, 04
            
            
            0.75
            
            
            0.40March
                31, 05
            
            
            2.00
            
            
            0.55**2005
                - 2006**June
                30, 05
            
            
            1.75
            
            
            1.02September
                30, 05
            
            
            2.75
            
            
            1.25December
                31, 05
            
            
            2.10
            
            
            0.80March
                31, 06
            
            
            5.52
            
            
            1.70





**Stockholders**




At
      June 15, 2006, we had approximately 70 registered stockholders of record of
      our common stock. This number does not include shares held by brokerage clearing
      houses, depositories or otherwise in unregistered form.




**Dividends**




We
      have
      not declared any cash dividends, nor do we intend to do so. We are not subject
      to any legal restrictions respecting the payment of dividends, except that
      they
      may not be paid to render us insolvent.




**Securities
      Authorized For Issuance Under Equity Compensation Plans**




The
      Company has not yet implemented an equity compensation plan.







**RECENT
      SALES OF UNREGISTERED SECURITIES**




None.





**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**




The
      following is management’s discussion and analysis of certain significant factors
      that have affected our financial position and operating results during the
      periods included in the accompanying consolidated financial statements, as
      well
      as information relating to the plans of our current management. This report
      includes forward-looking statements. Generally, the words “believes,”
“anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable
      terminology are intended to identify forward-looking statements. Such statements
      are subject to certain risks and uncertainties, including the matters set forth
      in this report or other reports or documents we file with the Securities and
      Exchange Commission from time to time, which could cause actual results or
      outcomes to differ materially from those projected. Undue reliance should not
      be
      placed on these forward-looking statements that speak only as of the date
      hereof. We undertake no obligation to update these forward-looking
      statements.




The
      following discussion and analysis should be read in conjunction with our
      consolidated financial statements and the related notes thereto and other
      financial information contained elsewhere in this Form 10-KSB.


-19-




**SELECTED
      UNAUDITED QUARTERLY RESULTS OF OPERATIONS**




In
      the
      opinion of management, the accompanying unaudited quarterly financial
      information presented below includes all adjustments which management considers
      necessary to present fairly the results of its operations for the periods
      presented below in conformity with accounting principles generally accepted
      in
      the United States of America. This quarterly financial information has been
      prepared consistently with the accounting policies described in the accompanying
      audited consolidated financial statements for the year ended March 31,
      2006. The results of operations for the periods presented below are not
      necessarily indicative of the results of operations to be expected in the
      future.




**Fiscal
                Quarters Ended****Fiscal
                Year 2006**
            
            **Fiscal
                Year 2005**(in
                thousands of US dollars except per share data
            
            **Jun-05**
            
            **Sep-05**
            
            **Dec-05**
            
            **Mar-06**
            
            **Jun-04**
            
            **Sep-04**
            
            **Dec-04**
            
            **Mar-05**Revenue
            
            $
            17,402
            
            $
            25,213
            
            $
            29,887
            
            $
            30,686
            
            $
            9,513
            
            $
            12,707
            
            $
            16,472
            
            $
            17,268Gross
                Profit
            
            
            8,946
            
            
            14,247
            
            
            16,018
            
            
            17,435
            
            
            4,301
            
            
            6,491
            
            
            7,696
            
            
            9,502Operating
                expenses
            
            
            (7,932
            )
            
            (12,174
            )
            
            (11,531
            )
            
            (12,097
            )
            
            (6,042
            )
            
            (6,475
            )
            
            (4,510
            )
            
            (6,253
            )Income(loss)
                from operations
            
            
            1,014
            
            
            2,073
            
            
            4,487
            
            
            5,338
            
            
            (1,742
            )
            
            16
            
            
            3,187
            
            
            3,249Interest
                income (expense), net
            
            
            (416
            )
            
            (304
            )
            
            (299
            )
            
            1,256
            
            
            (256
            )
            
            (304
            )
            
            (380
            )
            
            1,084Other
                income(loss)
            
            
            1,152
            
            
            414
            
            
            (201
            )
            
            (1,465
            )
            
            (42
            )
            
            (230
            )
            
            603
            
            
            (1,231
            )Pre-tax
                income(loss)
            
            
            1,750
            
            
            2,183
            
            
            3,987
            
            
            5,129
            
            
            (2,040
            )
            
            (518
            )
            
            3,410
            
            
            3,103Income
                tax benefit
            
            
            (26
            )
            
            (279
            )
            
            (209
            )
            
            (932
            )
            
            (15
            )
            
            (23
            )
            
            (19
            )
            
            (31
            )Net
                income (loss) before minority interest
            
            
            1,724
            
            
            1,904
            
            
            3,778
            
            
            4,197
            
            
            (2,055
            )
            
            (540
            )
            
            3,391
            
            
            3,071Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,339
            
            
            (885
            )
            
            (2,564
            )
            
            1,499other
                transfer
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (134
            )
            
            -
            
            
            -net
                income (loss)
            
            $
            1,724
            
            $
            1,904
            
            $
            3,778
            
            $
            4,197
            
            
            ($716
            )
            
            ($1,560
            )
            $
            827
            
            $
            4,570Net
                income per share, diluted
            
            $
            0.03
            
            $
            0.04
            
            $
            0.08
            
            $
            0.08
            
            
            ($0.02
            )
            
            ($0.03
            )
            $
            0.02
            
            $
            0.09





**OVERVIEW**




**Overview**




Through
      its wholly owned subsidiary, Synutra Inc., an Illinois corporation (“Synutra
      Illinois”), Synutra International, Inc. (the “Company” or “Synutra”) owns all of
      the equity interests of six companies in the People’s Republic of China,
      (“China” or the “PRC”), each engaged in different stages of the production,
      marketing, packaging and development of dairy based nutritional products in
      China for infants, children, pregnant women and nursing mothers, and other
      adults under the brand names of Super, U-Smart, U-Strong, and National
      Standards. Approximately 90% of the revenue for the fiscal year ended March
      31,
      2006 was from pediatric products and the rest from adult and other products.
      In
      September 2005, Synutra launched a new rice cereal product line, and in March
      2006 the Company launched new premium infant formula products and line
      extensions. As supplemental foods to infant and children formula products,
      management believes that rice cereal products possess significant market
      potential. The new premium products and line extensions were designed to capture
      the fastest growing segment of the infant formula market in China. At the same
      time, Synutra also began to make and sell non-fat dry milk as well as anhydrous
      milk-fat.




-20-




Qingdao
      Sheng Yuan Dairy Co., Ltd. is engaged in the sales and marketing of dairy based
      nutritional products for infants, children and adults under its brand names
      of
      Super, U-Smart, U-Strong, and National Standards, etc. Qingdao Sheng Yuan Dairy
      Co., Ltd. was formed in January 1998 by Beijing Honnete Dairy Co., Ltd., an
      affiliate of Mr. Liang Zhang, the Company’s Chief Executive Officer. In December
      2003, Beijing Honnete Dairy Co., Ltd transferred 40% of his ownership to Synutra
      Illinois, and then transferred the balance of the ownership to Synutra Illinois
      in February 2005.




Qingdao
      ST George Dairy Co., Ltd. is engaged in the packaging, shipping and distribution
      of all of Synutra’s products. Qingdao ST George Dairy Co., Ltd. was formed in
      September 2001 by Synutra Illinois. In March 2004 Synutra Illinois transferred
      75% of Qingdao St George Dairy Co., Ltd ownership to Sheng Zhi Da Dairy
      Corporation and Synutra Illinois retained 25% of the company. In February 2005
      Sheng Zhi Da Dairy Corporation transferred all of its ownership in Qingdao
      St.
      George Dairy Co., Ltd. (75%) to Synutra Illinois, resulting in a 100% ownership
      of Qingdao St. George Dairy Co., Ltd by Synutra Illinois.




Beian
      Yi
      Pin Dairy Co., Ltd. (“Beian”) is engaged in the production and processing of
      adult dairy based nutritional products and various milk powder products. In
      June
      2004, Mr. Liang Zhang acquired 100% of the interest of Beian Olisong Dairy
      Co.,
      Ltd. which changed its name to Beian. In January 2005, Mr. Zhang transferred
      100% of his ownership in Beian to Synutra Illinois.




Luobei
      Sheng Yuan Dairy Co., Ltd. (“Loubei”) is engaged in the production and
      processing of Synutra’s products for infants and children under the brand names
      U-Smart, U-Strong, and National Standards. Loubei was formed in April 2001
      by
      Mr. Liang Zhang. In June 2003, Mr. Zhang transferred 33% of his ownership to
      Synutra Illinois and then transferred the balance of the ownership to Synutra
      Illinois in January 2005.




Qingdao
      Mother and Infant Nutrition Research Company Limited is engaged in the research
      and development of various nutritional products for both infants and children
      as
      well as pregnant and lactating women. Quindao Mother and Infant Nutrition
      Research Company Limited was formed in April 2004 by Mr. Liang Zhang. In May
      2005, Mr. Zhang transferred 100% of his ownership to Synutra
      Illinois.




Zhangjiakou
      Sheng Yuan Dairy Co., Ltd. (“Zhangjiakou”) is engaged in the production and
      processing of all of Synutra’s products under the brand names Super, U-Smart,
      U-Strong, and National Standards. Zhangjiakou Sheng Yuan Dairy Co., Ltd. was
      formed in March 2004 by Chaibei Sheng Yuan Diary Co., Ltd., an affiliate of
      Mr.
      Zhang, and Synutra Illinois as a joint venture. In August 2005, Chaibei Sheng
      Yuan Diary Co., Ltd. was merged into Zhangjiakou resulting in Synutra Illinois
      owing 100% of Zhangjiakou.




On
      July
      15, 2005, pursuant to a Share Exchange Agreement dated as of June 14, 2005
      among
      the Company, Thomas Braun, Beams Power Investment Limited, Strong Gold Finance
      Ltd and Synutra Illinois, the Company issued 48,879,500 shares of its common
      stock in exchange for all of the issued and outstanding shares of Synutra
      Illinois that owned all the registered capital of the six subsidiaries (the
      “Exchange”). As a result of this Exchange, Synutra Illinois became a wholly
      owned subsidiary of the Company.




-21-




Immediately
      prior to the Exchange, the Company had 2,638,713 outstanding shares of common
      stock and no outstanding shares of preferred stock. The Company’s Certificate of
      Incorporation provides for authorized capital of two hundred and seventy million
      shares (270,000,000) of which two hundred and fifty million (250,000,000) are
      $0.0001 par value common stock and twenty million (20,000,000) are $0.0001
      par
      value preferred stock. Prior to the Exchange, Thomas Braun, the sole director
      and officer of the Company, and his affiliates owned 2,200,000 shares of the
      Company common stock. Pursuant to the Exchange, the Company cancelled
      approximately 1,517,500 shares of common stock owned by Mr. Braun and his
      affiliates reducing their ownership to 682,500 shares, resulting in the total
      issued and outstanding shares of the Company common stock equaling 1,121,213
      shares.




Pursuant
      to the Exchange, the Company issued 46,000,000 shares of its common stock in
      exchange for all of the outstanding capital stock of Synutra Illinois held
      by
      Beams Power Investment Limited and Strong Gold Finance Ltd., 2,844,500 shares
      were issued to various financial consultants and/or their designees and 35,000
      shares to a finder. Therefore, the total issued and outstanding shares of the
      Company’s common stock was 50,000,713 shares after giving effect to the
      Exchange.




As
      a
      result of the Exchange, the stockholders of the Company immediately prior to
      the
      Exchange owned approximately 1,121,213 shares, or approximately 2% of the issued
      and outstanding shares of the Company’s common stock and the Company is now
      controlled by the former stockholders of Synutra Illinois.




The
      Share
      Exchange Agreement was determined through arms’-length negotiations between the
      Company and Synutra Illinois.




Immediately
      following the completion of the Exchange, all of the existing members of the
      Company’s board of directors and all of its executive officers resigned and new
      appointees were elected to the Company’s board of directors.




On
      September 9, 2005 the Company changed its name to Synutra International, Inc.
      (OTCBB: SYUT).




Although
      the Company acquired Synutra Illinois pursuant to the Exchange, the Exchange
      was
      treated as a “reverse merger” whereby Synutra Illinois is considered to be the
      accounting acquirer. As such, the results of operations are those of Synutra
      Illinois.




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




The
      Company prepares its financial statements in accordance with accounting
      principles generally accepted in the United States of America. The preparation
      of these financial statements requires the use of estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and the disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amount of revenues and expenses during the reporting period.
      Management periodically evaluates the estimates and judgments made. Management
      bases its estimates and judgments on historical experience and on various
      factors that are believed to be reasonable under the circumstances. Actual
      results may differ from these estimates as a result of different assumptions
      or
      conditions.





The
      following critical accounting policies affect the more significant judgments
      and
      estimates used in the preparation of the Company’s financial statements.





For
      certain of the Company's financial instruments, including cash and cash
      equivalents, trade receivables and payables, prepaid expenses, deposits and
      other current assets, short-term bank borrowings, and other payables and
      accruals, the carrying amounts approximate fair values due to their short
      maturities.





-22-




A
      related
      party is generally defined as (i) any person that holds 10% or more of the
      Company's securities and their immediate families, (ii) the Company's
      management, (iii) someone that directly or indirectly controls, is controlled
      by
      or is under common control with the Company, or (iv) anyone who can
      significantly influence the financial and operating decisions of the Company.
      A
      transaction is considered to be a related party transaction when there is a
      transfer of resources or obligations between related parties.




**ACCOUNTING
      METHOD**




The
      Company uses the accrual method of accounting which recognizes revenues when
      earned and expenses when incurred.




**ACCOUNTS
      RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS**




The
      Company presents accounts receivable, net of allowance for doubtful accounts.
      The allowance is calculated based on review of individual customer
      accounts.




**INVENTORIES**




Inventories
      are stated at the lower of cost or net realizable value. Cost is calculated
      on
      the moving-average basis and includes all costs to acquire and other costs
      incurred in bringing the inventories to their present location and condition.
      The Company evaluates the net realizable value of its inventories on a regular
      basis and records a provision for loss to reduce the computed weighted-average
      cost if it exceeds the net realizable value. Net
      realizable value is the estimated selling price in the ordinary course of
      business less the estimated costs of completion and the estimated costs
      necessary to make the sale.




**PROPERTY,
      PLANT AND EQUIPMENT**




Property,
      plant and equipment are stated at cost less accumulated depreciation and
      impairment losses. The initial cost of the asset comprises its purchase price
      and any directly attributable costs of bringing the asset to its working
      condition and location for its intended use. Depreciation is provided using
      the
      straight-line method over the assets estimated useful life for periods ranging
      from five to fifty years. Significant improvements and betterments are
      capitalized where it is probable that the expenditure resulted in an increase
      in
      the future economic benefits expected to be obtained form the use of the asset
      beyond its originally assessed standard of performance. Routine repairs and
      maintenance are expensed when incurred. Gains and losses on disposal of fixed
      assets are recognized in the income statement based on the net disposal proceeds
      less the carrying amount of the assets.




**INCOME
      TAXES**




Income
      taxes of the Company’s subsidiaries are calculated in accordance with taxation
      principles currently effective in the PRC. For Synutra Illinois, applicable
      U.S.
      tax laws are followed. Deferred tax assets and liabilities are recognized for
      the future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax bases. Deferred tax assets and liabilities are measured using
      enacted tax rates expected to apply to taxable income in the years in which
      those temporary differences are expected to be recovered or settled. The effect
      on deferred tax assets and liabilities of a change in tax rates is recognized
      as
      income in the period that includes the enactment date. A valuation allowance
      is
      provided for the amount of deferred tax assets and liabilities that, based
      on
      available evidence, are not expected to be realized.




A
      company
      registered in the PRC is subject to state and local income taxes within the
      PRC
      at the applicable tax rate on the taxable income as reported in their PRC
      statutory financial statements in accordance with relevant income tax laws.
      According to applicable tax laws regarding foreign direct investment entities,
      some of the consolidated companies are exempted from income taxes in the PRC
      for
      2 years beginning in their first profitable year.





-23-




**REVENUE
      RECOGNITION**




In
      accordance with the provisions of Staff Accounting Bulletin No. 103, revenue
      is
      recognized when merchandise is shipped and title passes to the customer and
      collectibility is reasonably assured. Revenues consist of the invoice value
      of
      the sale of goods and services net of value added tax, rebates and
      discounts.




**CONCENTRATION
      OF CREDIT RISK**




Financial
      instruments that potentially subject the Company to significant concentrations
      of credit risk consist primarily of accounts receivable. The Company performs
      ongoing credit evaluations with respect to the financial condition of its
      creditors, but does not require collateral. In order to determine the value
      of
      the Company’s accounts receivable, the Company records a provision for doubtful
      accounts to cover probable credit losses. Management reviews and adjusts this
      allowance periodically based on historical experience and its evaluation of
      the
      collectibility of outstanding accounts receivable. The
      Company is exposed to the following risk factors:





(i)
      Credit risks - The Company has policies in place to ensure that sales of
      products are made to customers with an appropriate credit history. The Company
      also has a concentration of credit risk due to geographic sales as a majority
      of
      its products are marketed and sold in the PRC.





(ii)
      Liquidity risks - Prudent liquidity risk management implies maintaining
      sufficient cash, the availability of funding through an adequate amount of
      committed credit facilities and ability to close out market positions.





(iii)
      Interest rate risk - The interest rate and terms of repayments of short-term
      and
      long-term bank borrowings are approximately 5% per annum. The Company's income
      and cash flows are substantially independent of changes in market interest
      rates. The Company has no significant interest-bearing assets. The Company's
      policy is to maintain all of its borrowings in fixed rate
      instruments.




**RESULTS
      OF OPERATIONS**




**Year
      Ended March 31, 2006 Compared to Year Ended March 31, 2005**




**Sales**




Sales
      for
      the year ended March 31, 2006 increased by $47,226,777 or 84.4% to $103,186,647
      from $55,959,870 for the year ended March 31, 2005. Sales increased due to
      greater market penetration as a result of various measures including changes
      made by management to incentive programs and policies affecting the Synutra
      sales force. Such changes strengthened promotional efforts in the medium-sized
      city markets and rural markets of China by modifying sales force incentive
      programs through aligning bonuses with sales performance.





Volume
      of
      products sold increased in the year ended March 31, 2006 by 49.11% while the
      average selling price went up by 23.66%. These 2 factors were responsible for
      all the approximately $47.2 million increase in sales revenues for the year.





-24-




Management
      believes that the overall infant formula industry in China has grown faster
      than
      its traditional natural growth due to increased consumer recognition and
      acceptance of the products, especially Synutra’s name-brand products. Management
      believes Synutra name brand product lines have gained recognition in the
      marketplaces where it operates and thus has captured a greater portion of the
      increased growth experienced by the industry. In addition, management believes
      premium products with a higher margin have grown faster in the period across
      the
      industry.





**Cost
      of Sales**





Cost
      of
      sales for the year ended March 31, 2006 increased to $46,541,796 from
      $27,969,736 for the year ended March 31, 2005. The 66.4% increase in cost of
      sales of $18,572,060 was a result of increases in purchases of raw materials
      and
      other ingredients, as well as increases in processing expenses, all in
      proportion to the production volume increases.





**Gross
      Profit**





Gross
      profit was $56,644,852 or 54.9% of sales for the year ended March 31, 2006,
      compared to $27,990,135 or 50.02% of sales for the year ended March 31, 2005.
      It
      was an increase of $28,654,717 or 102.7%. With sales increasing in 2006 compared
      to 2005, the Company experienced an increase in both gross profit and gross
      margin. This increase was primarily a result of increased volume of products
      sold and the average sales price during the year. Due to implementation of
      targeted sales incentive programs, sales of the higher margin lines of products
      increased more, contributing to the increase in gross margin.





**Selling
      and Distribution Expenses**





Selling
      and distribution expenses increased by $4,224,746 or 37.5% to $15,494,007 for
      the year ended March 31, 2006, as compared to $11,269,262 for the year ended
      March 31, 2005. The increase in selling and distribution expenses in 2006 as
      compared to 2005 was a result of increased transportation expenses due to the
      increase in sales volume, in addition to increases in other major components
      of
      such expenses such as wages, supermarket expenses and service
      expenses. ** The
      increase in total compensation to the sales force constitutes most of the
      increase in selling and distribution expenses.





**Advertising
      and Sales Promotion**





Advertising
      and sales promotion increased by $13,363,733 or 145.63% to $22,540,472 for
      the
      year ended March 31, 2006, as compared to $9,176,739 for the year ended March
      31, 2005 as a result of increased advertising and promotional activity expenses.
      The major components of advertising and sales promotion are placement of
      advertisements with major media outlets and points of sale and community
      promotional activities.





**Year
                ended March 31, 2006**
            
            **Year
                ended March 31, 2005**
            
            **change
                in $**
            
            **change
                in %**Advertising
            
            $
            6,038,236
            
            $
            2,556,608
            
            $
            3,481,628
            
            
            136.18
            %Sales
                promotion
            
            
            16,502,236
            
            
            6,620,131
            
            
            9,882,105
            
            
            149.27
            %**Totals**
            
            **$**
            **22,540,472**
            
            **$**
            **9,176,739**
            
            **$**
            **13,363,733**
            
            
            **145.63**
            **%**






-25-




**General
      and Administrative Expenses**





General
      and administrative expenses increased by $2,862,789 or 101.0% to $5,697,969
      for
      the year ended March 31, 2006, as compared to $2,835,180 for the year ended
      March 31, 2005. The major increases of general and administrative expenses
      were
      for staff salaries, management expenses and expenses relating to the Company’s
      public status.





**Income
      from Operations**





Based
      on
      the sales increase of $47.2 million or 84.4% and the cost of sales increase
      of
      $18.5 million or 66.4% for the year ended March 31, 2006, gross profit was
      up by
      almost $29 million or 102.7% compared to March 2005. In the meantime,
      operational expenses also increased by approximately $20 million for the year.
      As a result, income from operations was $12,912,404 for the year ended March
      31,
      2006, as compared to $4,708,954 for the year ended March 31, 2005, an increase
      of $8,203,449 or 174.2%





**Finance
      costs**




Finance
      costs increased by $245,933 or 21.0% to $1,414,565 for the year ended March
      31,
      2006, as compared to $1,168,632 for the year ended March 31, 2005. The increase
      is mainly from interest charged for various bank loans. In addition to increases
      in notes payable, short-term loan interest rate also went up during the
      reporting period.





**Subsidy
      income**




Subsidy
      income from local governments increased by $463,256 to $734,035 for the year
      ended March 31, 2006 as compared to $270,779 for the year ended March 31, 2005.
      These subsidies were provided to the Company as economic incentives to secure
      business commitments and no repayment by the Company is required.





**Other
      Income (Expenses)**





Other
      income was $579,221 for the year 2006, as compared to other expenses of $859
      for
      the year ended March 31, 2005. The Company generated other income from
      manufacturing and selling nutritional supplement ingredients, anhydrous milk
      fat, non-fat dry milk, as well as providing toll packaging and blending for
      OEM
      customers.





**Provision
      for Income Taxes**





The
      provision for income taxes, which is computed on a per subsidiary basis, was
      $1,445,677 and $88,355 for the years ended March 31, 2006 and 2005,
      respectively. The difference in income tax provisions was due to changes in
      the
      status of tax holidays and abatement treatment for the year 2006 for some of
      the
      operating subsidiaries.





**Net
      Income Attributed to Shareholders**





Net
      income attributable to shareholders for the year ended March 31, 2006 increased
      by $8,479,944 to $11,601,912 from $3,121,968 for the year ended March 31, 2005
      due to the factors discussed above.




**Earnings
      Per Share**




Basic
      and
      diluted Earnings Per Share were $0.23 at March 31, 2006 and $0.06 at March
      31,
      2005




-26-




**FINANCIAL
      CONDITION**




**LIQUIDITY
      AND CAPITAL RESOURCES**




**Cash**




The
      cash
      balance increased by $6,048,466 to $22,133,869 at March 31, 2006, as compared
      to
      $16,085,403 at March 31, 2005. The increase was mainly attributable to cash
      flow
      from operations in 2005 which amounted to $11,102,458, being offset by cash
      spent in construction projects on plant and acquisition of fixed assets which
      amounted to$7,731,403 and cash used in financing activities which amounted
      to
      $1,403,855. The remaining $1,273,555 was the effect of exchange rate changes
      on
      cash items.





Cash
      flow
      generated from operations was$11,102,458 for the fiscal the year ended March
      31,
      2006. Trade receivables increased by $786,224 and advances to suppliers
      decreased by $367,572. Expanded scale of operations from the increase in sales
      revenues in 2006 resulted in additional demand on working capital. Therefore,
      we
      experienced increased account receivables and inventories to support our
      increased sales revenues and production activities. Also, expansion of
      operations resulted in significant increases in accounts payable and customer
      deposits, resulting in $8,004,946 in cash flow. A
      reduction of approximately $5 million in cash flow was due to advances to
      related parties  in
      prepayment in order to secure key ingredient supplies.





Cash
      flows used in investing activities amounted to $7,731,403. During the year,
      we
      used around $7 million for the construction of a new factory plant and
      facilities. The facilities are expected to be completed in mid 2006 *.* We also
      spent around $669,447 for new machinery and equipment.





Cash
      flows generated from financing activities was $1,403,855. The net increase
      in
      bank loans was approximately $930,000.





**Working
      Capital**




Working
      capital increased by $6.6 million to negative $9.3 million at March 31, 2006,
      as
      compared to negative $15.9 million at March 31, 2005. The increase in working
      capital reflects current ratios of 83.73% and 69.23%, respectively.




Although
      the Company continues to have a working capital deficit, since 2004, growth
      of
      the Company’s pretax earnings continues to outpace by an average factor of about
      10 times the interest payments over current liabilities, demonstrating the
      Company’s ability to meet interest payment of current liabilities with cash from
      operations. In addition, management believes much of the bank loans and notes
      payables booked as current liabilities can be readily extended on a revolving
      bases.





The
      Company currently generates its cash flow through operations which it believes
      will be sufficient to sustain operations for at least the next twelve months.
      During the fiscal year ending March 31, of 2007, we intend to continue to work
      to expand our product lines and product mix, as well as our product distribution
      throughout China. We plan to use our working capital for such
      purposes.




-27-




Contractual
      Obligations


A
        summary
        of the Company's contractual Obligations at March 31, 2006 is as
        follows:




Payments
                due by periodLess
                Than
            
            1
                to 3
            
            3
                to 5
            
            More
                ThanContractual
                Obligations
            
            Total
            
            1
                Year
            
            Years
            
            Years
            
            5
                YearsLong-Term
                Debt Obligations
            
            $
            4,932,182
            
            
            
            
            
            4,932,182Capital
                Lease Obligations
            
            $Operating
                Lease Obligations
            
            $
            453,488
            
            
            272,230
            
            
            181,258Other
                Long-Term Liabilities Reflected onthe
                Company to Balance Sheet Under GAAPTotal
            
            $
            5,385,670
            
            
            272,230
            
            
            5,113,440







**QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




The
      Company does not have any market risk with respect to such factors as commodity
      prices, equity prices, and other market changes that affect market risk
      sensitive investments. A 10 point basis change in the Company’s average debt
      interest rate would not have a material effect on the Company’s results of
      operations.




With
      respect to foreign currency exchange rates, the Company does not believe that
      a
      devaluation or fluctuation of the RMB against the USD would have a detrimental
      effect on the Company’s operations, since the Company conducts virtually all of
      its business in China, and the sale of its products and the purchase of raw
      materials and services are settled in RMB. The effect of a devaluation or
      fluctuation of the RMB against the USD would affect the Company’s results of
      operations, financial position and cash flows, when presented in USD (based
      on a
      current exchange rate) as compared to RMB.




As
      the
      Company’s debt obligations are primarily short-term in nature, with fixed
      interest rates, the Company does not have any risk from an increase in market
      interest rates. However, to the extent that the Company arranges new borrowings
      in the future, an increase in market interest rates would cause a commensurate
      increase in the interest expense related to such borrowings.




**ITEM
      7.** **FINANCIAL
      STATEMENTS**




Financial
      statements are set forth at the end of this report after ITEM 14.





-28-




**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**




Not
      applicable.




**ITEM
      8A. CONTROLS AND PROCEDURES**




As
      of
      March 31, 2006, the end of the period covered by this report, our Chief
      Executive Officer and our Chief Financial Officer reviewed and evaluated the
      effectiveness of our disclosure controls and procedures (as defined in Exchange
      Act Rule 13a-15(e) and 15d-15(e)), which are designed to ensure that
      material information we are required to disclose in our reports filed or
      submitted under the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”) is recorded, processed, summarized, and reported within required time
      periods. Disclosure controls and procedures include, without limitation,
      controls and procedures designed to ensure that information required to be
      disclosed is accumulated and communicated to the Company’s management including
      its Chief Executive Officer and Chief Financial Officer as appropriate to allow
      timely decision regarding required disclosures. We have concluded, based on
      that
      evaluation, that as of the end of the period covered by this report, our
      disclosure controls and procedures were effective to ensure that material
      information required to be disclosed by us in reports that we file or submit
      under the Exchange Act is accumulated, recorded, processed, summarized and
      reported within the required time periods and is communicated to our Chief
      Executive Officer and Chief Financial Officer as appropriate to allow timely
      decisions regarding required disclosure.




**CHANGES
      IN INTERNAL CONTROL OVER FINANCIAL REPORTING**




There
      was
      no change in our internal controls over financial reporting that occurred during
      the fourth fiscal quarter of the fiscal year covered by this Annual Report
      on
      Form 10-KSB that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial reporting.




**ITEM
      8B. OTHER INFORMATION.**




None.




**ITEM
      9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT**




The
      following table sets forth our executive officers, directors and key employees,
      their ages and the positions they held as of March 31, 2006.




Name
            
            Age
            
            PositionLiang
                Zhang
            
            46
            
            Chairman
                of the Board and Chief Executive OfficerSteve
                R. Champion
            
            60
            
            Director
                (1) (2)Jinrong
                Chen
            
            47
            
            Director
                (1) (2)Mei
                Liu
            
            52
            
            Director
                (1) (2)Jibin
                Zhang
            
            42
            
            Chief
                Financial OfficerWeiguo
                Zhang
            
            48
            
            President
                and Chief Operating OfficerWillie
                Wu
            
            45
            
            Director,
                Vice President





*Liang
      Zhang.* Mr.
      Liang
      Zhang has been Chairman of the Board and Chief Executive Officer of Synutra
      since 2000. Mr. Liang Zhang has been Chairman and General Manager of Sheng
      Yuan
      Dairy Co., Ltd. since 2000. Mr. Liang Zhang has a BA from Nanjing International
      Relations Institute *.*




-29-




*Steve
      R. Champion.* Mr.
      Champion was elected a director of the Company on June 27, 2006. Since 2003,
      Mr.
      Champion has been CEO, President and Portfolio Manager for the Taiwan Greater
      China Fund (NYSE: TFC) - a diversified closed end fund that offers optimal
      exposure to the Greater China capital markets by investing primarily in
      Taiwan-listed companies which have a significant business presence in China.
      From 2001 to 2003, Mr. Champion held several senior management or portfolio
      officer positions with various banking and investment companies, including
      Bank
      of Hawaii, Aetna International, Bank of America, etc.




*Jinrong
      Chen.* Ms.
      Chen
      was elected a director of the Company on June 27, 2006. Ms. Chen has been
      associate professor at the School of Economics and Management of Tsinghua
      University in Beijing since 2001, specializing in corporate finance management,
      security analysis, financial operations, corporate governance and controls.
      In
      addition to her academic career with top business schools in China, Ms. Chen
      also advises public companies and private businesses in China.




*Mei
      Liu.* Mr.
      Liu
      was elected a director of the Company on June 27, 2006. Mr. Liu has been Vice
      President of InterContinental Hotels Group (China) since 2005. Prior to his
      current position, Mr. Liu has been legal advisor to a number of multi-national
      corporations working in China, Asia, and the U.S., including Warner Brothers,
      Tyco Electronics, Bristol Myers Squibb Company, Duke Power Company, and Phillips
      Petroleum Company since the 1990s. Mr. Liu received his law degree from Cornell
      University Law School.




*Jibin
      Zhang.* Mr.
      Jibin
      Zhang has been the Chief Financial Officer of Synutra since 2004. Mr. Jibin
      Zhang joined the Sheng Yuan Dairy Co., Ltd. in 2004 where he serves as the
      Comptroller and Director of Finance. From 2001 to 2003, Mr. Zhang served as
      the
      Deputy General Manager of Qingdao Sheng Yuan Dairy Co., Ltd. From 1999 to 2001,
      Mr. Zhang served as the Vice President of the Quingdao Development Zone Branch
      of the China Construction Bank. Mr. Zhang received a BS from the School of
      Economics and Finance at Shandong Poly Techniques University.




*Weiguo
      Zhang.* Mr.
      Weiguo Zhang has been the Chief Operating Officer and President of Synutra
      since
      2001. Mr. Zhang founded Bambridge International, Ltd. in 1995 where he has
      been
      Managing Director. Mr. Zhang received a BA from the Nanjing International
      Relations Institute and received a MA from the School of Advanced International
      Studies at John Hopkins University.




*Willie
      Wu.* Mr. Wu
      joined the Company as Vice President of Marketing and Sales in December 2005
      and
      is currently a member of the Board of Directors. Before his current position,
      Mr. Wu worked as a member of the senior management on sales, marketing, and
      market research with Bristol Myers Squibb (China) since 2001, and, prior to
      that, with BMS, Merck, and other sales and marketing organizations in the U.S.
      Mr. Wu received his Ph.D in sociology from University of North Carolina, Chapel
      Hill. **




(1)  Member
      of
      Audit Committee




(2)  Member
      of
      Compensation Committee




All
      directors have a term of office expiring at the next annual general meeting,
      unless re-elected or earlier vacated in accordance with the Bylaws. All officers
      have a term of office lasting until their removal or replacement by the Board
      of
      Directors.




**Certain
      Relationships and Related Party Transactions**




Synutra’s
      Chairman of the Board and Chief Executive Officer, Liang Zhang, controls one
      of
      Synutra’s whey protein powder suppliers, Beijing Honnete Dairy Co., Ltd. Beijing
      Honnete Dairy Co., Ltd. has supplied products in amounts of approximately US
      $5
      million to Synutra’s operating subsidiaries for each of the past two fiscal
      years. The transaction occurred in the normal course of business and pursuant
      to
      Synutra’s established standard purchasing policies and practices and was on
      terms that management believes are arms’-length. See, also, Item 12, “Certain
      Relationships and Related Party Transactions.”




-30-




**Committees
      of the Board of Directors**




*Audit
      Committee* .
      The
      members of our audit committee are Steve Champion, Jinrong Chen, and Mei Liu.
      Mr. Champion chairs the audit committee. Our audit committee assists our board
      of directors in its oversight of:




·
            the
                integrity of our financial
                statements;




·
            our
                independent auditors’ qualifications and independence;
                and




·
            the
                performance of our independent
                auditors.




The
      audit
      committee has the sole and direct responsibility for appointing, evaluating
      and
      retaining our independent auditors and for overseeing their work. All audit
      services and all non-audit services, other than de minimis non-audit services,
      to be provided to us by our independent auditors must be approved in advance
      by
      our audit committee. We believe that the composition of our audit committee
      meets the requirements for independence under the current Nasdaq Capital Market
      and SEC rules and regulations. We believe that the functioning of our audit
      committee complies with the applicable requirements of the Nasdaq National
      Market and SEC rules and regulations. We intend to comply with future
      requirements as applicable.




*Compensation
      Committee* .
      The
      members of our compensation committee are Messrs. Jinrong Chen, Steve R.
      Champion, and Mei Liu. Ms. Chen chairs the compensation committee. The purpose
      of our compensation committee is to discharge the responsibilities of our board
      of directors relating to compensation of our executive officers. Specific
      responsibilities of our compensation committee include:




·
            reviewing
                and recommending approval of compensation of our executive
                officers;




·
            administering
                our stock incentive and employee stock purchase plans;
                and




·
            reviewing
                and making recommendations to our board with respect to incentive
                compensation and equity plans.




**Director
      Compensation**




Directors
      are reimbursed for travel, lodging and other reasonable out-of-pocket expenses
      incurred in attending meetings of our board of directors and for meetings of
      any
      committees of our board of directors on which they serve. Our directors do
      not
      currently receive cash or equity compensation for attending board or committee
      meetings however we will be evaluating providing compensation to our board
      and
      committee members.




**Compensation
      Committee Interlocks and Insider Participation**




As
      noted
      above, the compensation committee of our board of directors consists
      of Steve R. Champion, Jinrong Chen and Mei Liu. None of our executive
      officers serve as a member of the board of directors or compensation committee
      of any entity that has one or more executive officers who serve on our board
      of
      directors or compensation committee.




-31-




**COMPLIANCE
      WITH SECTION 16(a) OF THE EXCHANGE ACT**




Based
      solely upon a review of Forms 3 and 4 forwarded to us pursuant to Rule 16a-3(e)
      of the Exchange Act during our most recent fiscal year, all officers, directors
      and owners of 10% or more of our outstanding shares have filed all forms
      required by Section 16(a) of the Exchange Act.




**ITEM
      10. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT**




**EXECUTIVE
      COMPENSATION**




Because
      of the significant interest in the Company held by Liang Zhang, the Company’s
      Chief Executive Officer, he has elected not to receive any form of compensation,
      monetary or otherwise. No other executive officer received compensation in
      excess of $100,000 for the fiscal year ended March 31, 2006. Accordingly,
      no tabular presentation of executive compensation is included in this
      report.




**Stock
      Option Grant Exercises**




None
      of
      our named executive officers received any grants of options or other stock
      compensation during the fiscal year ended March 31, 2006. Additionally, none
      of
      our named executive officers exercised any stock options or other rights to
      stock compensation in the year.




**Employment
      Agreements**




The
      Company maintains employment relations with a number of its executive officers
      through a set of standard labor contract or employment agreement. The terms
      and
      conditions of these employment agreements are determined via negotiations
      between the employee parties and the Company, and the framework and structure
      of
      the agreements are in compliance with applicable Chinese laws governing labor
      contract.




**Severance
      and Change of Control Arrangements**




There
      are
      no severance or change of control arrangements.




**Limitation
      of Liability and Indemnification of Officers and Directors**




As
      permitted by Delaware law, we have adopted provisions in our amended and
      restated certificate of incorporation and bylaws, both of which will become
      effective upon the closing of this offering, that limit or eliminate the
      personal liability of our directors and officers to the fullest extent permitted
      by Delaware law, as it now exists or may in the future be amended, and against
      all expenses and liabilities reasonably incurred in connection with their
      service for or on behalf of the Company. In addition, certificate of
      incorporation provides that our directors will not be personally liable for
      monetary damages to us for breaches of their fiduciary duty as directors, unless
      they violated their duty of loyalty to us or our stockholders, acted in bad
      faith, knowingly or intentionally violated the law, authorized illegal dividends
      or redemptions or derived an improper personal benefit from their action as
      directors.




At
      present, we are not aware of any pending or threatened litigation or proceeding
      involving any of our directors, officer, employees or agents in which
      indemnification would be required or permitted. We believe provisions in our
      certificate of incorporation and indemnification agreements are necessary to
      attract and retain qualified persons as directors and officers.




-32-




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**




The
      following table sets forth certain information known to us regarding beneficial
      ownership of our common stock as of March 31, 2006 and as adjusted to
      reflect the sale of the shares of common stock in this offering and the
      conversion of all outstanding shares of our convertible preferred stock
      by:




·
            each
                person known by us to be the beneficial owner of more than 5% of
                any class
                of our voting securities;




·
            our
                named executive officers;




·
            each
                of our directors; and




·
            all
                executive officers and directors as a
                group.




Beneficial
      ownership is determined according to the rules of the SEC and generally means
      that a person has beneficial ownership of a security if he or she possesses
      sole
      or shared voting or investment power of that security, and includes options
      and
      warrants that are currently exercisable within 60 days. Information with respect
      to beneficial ownership has been furnished to us by each director, executive
      officer or 5% or more stockholder, as the case may be. Unless otherwise
      indicated, to our knowledge, each stockholder possesses sole voting and
      investment power over the shares listed, except for shares owned jointly with
      that person’s spouse.




This
      table lists applicable percentage ownership based on 50,000,713 shares of common
      stock outstanding as of March 31, 2006.




Unless
      otherwise indicated, the address for each of the stockholders in the table
      is
      c/o of the Company. _____________________________________________.




**Name
                and Address of Beneficial Owner**
            
            **Amount
                and Nature of Beneficial Ownership**
            
            **Percent
                of Class (1)****Officers
                and Directors**Liang
                Zhang, Chief Executive Officer (2)
              103
                Dong Lu Yuan
              Tongzhou
                District
              Beijing,
                China 101101
            
            
            43,654,100
            
            
            87.3Jibin
                Zhang, Chief Financial Officer
              103
                Dong Lu Yuan
              Tongzhou
                District
              Beijing,
                China 101101
            
            
            -
            
            
            -Weiguo
                Zhang, President and Chief Operating Officer
              15200
                Shady Grove Road, Suite 350
              Rockville,
                Maryland 20850
            
            
            -
            
            
            -Steve
                R. Champion, Director
              7
                Westwood Road
              West
                Hartford, CT 06117
            
            
            -
            
            
            -Jinrong
                Chen, Director
              No.
                316 Wei Lun Lou Bei
              School
                of Economics and Management
              Tsinghua
                University
              Beijing
                100084 China
            
            
            -
            
            
            -Mei
                Liu, Director
              S-23
                Tomson Golf Villas
              No.
                1 Longdong Avenue, Pudong
              Shanghai
                201203 China
            
            
            -
            
            
            -Willie
                Wu, Director, Vice President
              3
                Guang Qu Men Wai Da Jie
              C9-301
                Fuli Cheng
              Beijing
                100022 China
            
            
            -
            
            
            -All
                Officers and directors as a group of seven (7) persons
            
            
            43,654,100
            
            
            87.3
            %






-33-







*
      Less
      than 1%





(1)
            Based
                on 50,000,713 shares of the Company’s common stock outstanding as of
                June 15, 2006.




(2)
            Includes
                36,000,000 shares owned by Beams Power Investment Limited (“Beams”), a
                British Virgin Islands company. Mr. Liang Zhang, is the controlling
                stockholder and Chairman of Beams.





**ITEM
      12.** **CERTAIN
      RELATIONSHIPS AND RELATED PARTY TRANSACTIONS**




**Capital
      Stock Issuances in the Reverse Acquisition**




Pursuant
      to the reverse acquisition, Mr. Liang Zhang, our Chief Executive Officer
      received 43,654,100 shares representing 87.3% of our outstanding
      shares.




Synutra’s
      Chairman of the Board and Chief Executive Officer, Liang Zhang, controls one
      of
      Synutra’s whey protein powder suppliers, Beijing Honnete Dairy Co., Ltd. Beijing
      Honnete Dairy Co., Ltd. has supplied products in amounts of approximately US
      $5
      million to Synutra’s operating subsidiaries for each of the past two fiscal
      years. The transaction occurred in the normal course of business and pursuant
      to
      Synutra’s established standard purchasing policies and practices and was on
      terms that management believes are arms-length.




**Sales
        to related companies**
 
 **2006**
              
              **2005**Beijing
                  Kelqin Dairy Co. Ltd
              
              $
              2,259,810
              
              $
              384,118Sheng
                  Zhi Da Dairy Group Corporation
              
              
              376,324
              
              
              1,037,714Heilongjiang
                  Baoquanling Shen Yuan Dairy Co. Ltd
              
              
              3,541,592
              
              
              2,788,588Beijing
                  Honnete Dairy Corporation Ltd
              
              
              13,155,447
              
              
              -St.
                  Angel (Beijing Business Service)
              
              
              1,047,813
              
              
              323,837Beijing
                  Ao Naier Feed Stuff LLC
              
              
              75,410
              
              
              16,522Beijing
                  Ludin Xueyuan Trading Co. Ltd
              
              
              526,853
              
              
              270,075Total
              
              $
              20,983,249
              
              $
              4,820,854




**Purchases
      from related companies**


**2006**
              
              **2005**Beijing
                  Kelqin Dairy Co. Ltd
              
              $
              955,386
              
              $
              904,075Sheng
                  Zhi Da Dairy Group Corporation
              
              
              2,145,168
              
              
              2,213,535Heilongjiang
                  Baoquanling Sheng Yuan Dairy Co. Ltd
              
              
              11,987,277
              
              
              7,246,611Beijing
                  Honnete Dairy Corporation Ltd
              
              
              6,655,093
              
              
              4,561,794Beijing
                  Sheng Long Media Co. Ltd
              
              
              57,915
              
              
              31,524Total
              
              $
              21,800,839
              
              $
              14,957,539


In
      the
      fiscal years ended March 31, 2006 and 2005, the Company’s sales to the related
      parties included anhydrous milk fat and Non-Fat Dry Milk to Beijing Kelgin
      Dairy
      Co., Ltd. and Beijing Honnete Dairy Corporation, Ltd.; formulation ingredients
      to Sheng Zhi Da Dairy Group Corporation, Beijing Ao Naier Feed Stuff LLC, and
      Heilongjiang Baoquanling Sheng Yuan Dairy Co., Ltd.; and the Company’s name
      brand products to St Angel (Beijing Business Service) and Luding Xueyuan for
      direct sales, catalogue sales, and regional retail outlets distribution. Terms
      of all the sales are at market price.





In
      the
      fiscal year ended March 31, 2006 and 2005, the Company’s purchases from related
      parties included whey protein powders from Beijing Kelgin Dairy Co. Ltd. and
      Beijing Honnete Dairy Corporation Ltd; various ingredients and materials
      (packaging, etc.) from Sheng Zhi Da Dairy Group Corporation; spray-dried milk
      powder from Heilongjiang Baoquanling Sheng Yuan Dairy Co. Ltd.; and catalogues,
      brochures, and marketing materials from Beijing Sheng Long Media Co., Ltd.
      Terms
      of these transactions are all done at market prices.





-34-




All
      of
      the above related parties are owned and controlled by Liang Zhang, Chairman
      and
      Chief Executive Officer of the Company.




**ITEM
      13. EXHIBITS**




**EXHIBIT
                NO.**
            
            **DOCUMENT
                DESCRIPTION**3.1
            
            Articles
                of Incorporation (1)3.2
            
            Bylaws
                (1)10.1
            
            Share
                Exchange Agreement dated as of June 14, 2005 (2)10.2
            
            License
                and Supply Agreement dated as of September 1st,
                2003, entered into Synutra, Inc., f.k.a., American St. George
                Biological Technology Corporation31.1
            
            Certification
                of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
                promulgated under the Securities and Exchange Act of 1934, as
                amended.31.2
            
            Certification
                of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
                promulgated under the Securities and Exchange Act of 1934, as
                amended.32.1
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive
                Officer).32.2
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial
                Officer).








(1)
            Incorporated
                herein by reference from the Registrant’s form 10SB12G filed with the
                Securities and Exchange Commission on June 15, 2005.




(2)
            Incorporated
                herein by reference from the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on July 21,
                2005.




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




Rotenberg
      & Co. LLP, Certified Public Accountants, was the Registrant’s independent
      registered public accounting firm engaged to examine the financial statements
      of
      the Registrant for the fiscal years ended March 31, 2006 and 2005. Rotenberg
      & Co. LLP performed the following services and has been paid the following
      fees.




-35-




**FISCAL
      YEAR ENDED MARCH 31, 2006 and 2005**




**AUDIT
      FEES**




Rotenberg
      & Co. LLP was paid aggregate fees of approximately $190,000 for the fiscal
      year ended March 31, 2006, and $120,000 for the fiscal year ended March 31,
      2005 for professional services rendered for the audit of the Registrant’s annual
      financial statements and for the reviews of the financial statements included
      in
      the Registrant’s quarterly reports on Form 10-QSB.




**AUDIT-RELATED
      FEES**




Rotenberg
      & Co. LLP was not paid additional fees for the fiscal years ended
      March 31, 2006 and 2005 for assurance and related services reasonably
      related to the performance of the audit or review of the Registrant’s financial
      statements.




**TAX
      FEES**




Rotenberg
      & Co. LLP was not paid any fees for the fiscal years ended March 31,
      2006 and 2005 for professional services rendered for tax compliance, tax advice
      and tax planning. This service was not provided.




**ALL
      OTHER FEES**




Rotenberg
      & Co. LLP was paid no other fees for professional services during the fiscal
      years ended March 31, 2006 and 2005.




**AUDIT
      COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES**




Our
      Audit
      Committee’s policy is to pre-approve all audit and permissible non-audit
      services provided by our independent auditors. These services may include audit
      services, audit-related services, tax services and other services. Pre-approval
      is generally provided for up to one year and any pre-approval is detailed as
      to
      the particular service or category of services. The independent auditor and
      management are required to periodically report to the Audit Committee regarding
      the extent of services provided by the independent auditor in accordance with
      this pre-approval.


-36-




**ITEM
      8. FINANCIAL STATEMENTS**




**SYNUTRA
      INTERNATIONAL, INC. AND SUBSIDIARIES**


**(INCORPORATED
      IN THE STATE OF DELAWARE**


**WITH
      LIMITED LIABILITY)**




**CONSOLIDATED
      FINANCIAL STATEMENTS**




**MARCH
      31, 2006 AND 2005**




**INDEX
      TO FINANCIAL STATEMENTS**




Independent
                Auditors' Report
            F-2Consolidated
                Balance Sheets as of March 31, 2006 and 2005
            F-3
                - F-4Consolidated
                Statements of Income for the years ended March 31, 2006 and
                2005
            F-5Consolidated
                Statements of Changes in Equity for the years ended March 31, 2006
                and
                2005
            F-6Consolidated
                Statement of Cash Flows for the years ended March 31, 2006 and
                2005
            F-7
                - F-8Notes
                to Consolidated Financial Statements
            F-9
                - F-22













REPORT
          OF
          INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To
          the
          Board of Directors
 and
          Stockholders
 Synutra
          International, Inc. and Subsidiaries
 Rockville,
          Maryland
  We
          have
          audited the accompanying consolidated balance sheets of Synutra International,
          Inc. and Subsidiaries as of March 31, 2006 and 2005, and the related
          consolidated statements of income, changes in equity, and cash flows for
          each of
          the two years in the period ended March 31, 2006 and 2005. 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 audits to obtain reasonable assurance about whether the
          consolidated financial statements are free of material misstatement. An
          audit
          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 consolidated 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 financial position of the Company as of March
          31,
          2006 and 2005, and the results of its operations and its cash flows for
          each of
          the two years in the period ended March 31, 2006 and 2005, in conformity
          with
          accounting principles generally accepted in the United States of
          America.
 
 /s/
          Rotenberg & Co., llp
 
 Rotenberg
          & Co., llp
 Rochester,
          New York
 May
          5,
          2006
  F-2
  **SYNUTRA
          INTERNATIONAL, INC. AND SUBSIDIARIES**
 **(INCORPORATED
          IN THE STATE OF DELAWARE**
 **WITH
          LIMITED LIABILITY)**
  **CONSOLIDATED
          BALANCE SHEETS**
 **AS
          OF MARCH 31, 2006 AND 2005**
  **ASSETS**
 
 **March
                    31, 2006**
                
                **March
                    31, 2005****ASSETS****Current
                    Assets**Cash
                    and cash equivalents
                
                $
                22,133,869
                
                $
                16,085,403Short
                    term investment - at market
                
                
                42,557
                
                
                45,237Notes
                    receivables
                
                
                -
                
                
                27,790Trade
                    receivables, net of provisions
                
                
                2,539,717
                
                
                1,968,235Inventories,
                    net of provisions
                
                
                11,789,433
                
                
                6,757,021Advances
                    to suppliers
                
                
                354,052
                
                
                721,623Other
                    receivables, net of provisions
                
                
                2,229,869
                
                
                1,745,985Due
                    from related parties
                
                
                8,602,363
                
                
                8,082,451Deferred
                    expenses
                
                
                125,931
                
                
                383,869**Total
                    current assets**
                
                
                **47,817,791**
                
                
                **35,817,613****Property,
                    plant and equipment, net**
                
                
                **13,727,873**
                
                
                **13,887,012****Other
                    Assets**Intangible
                    assets, net
                
                
                264,562
                
                
                334,392Construction
                    in progress
                
                
                21,198,431
                
                
                14,152,518**TOTAL
                    ASSETS**
                
                **$**
                **83,008,658**
                ****
                **$**
                **64,191,535**
  The
          accompanying notes are in integral part of the consolidated financial statements
  F-3
  **SYNUTRA
          INTERNATIONAL, INC. AND SUBSIDIARIES**
 **(INCORPORATED
          IN THE STATE OF DELAWARE**
 **WITH
          LIMITED LIABILITY)**
  **CONSOLIDATED
          BALANCE SHEETS**
 **AS
          OF MARCH 31, 2006 AND 2005**
  **LIABILITIES
          AND SHAREHOLDERS' EQUITY**
  **March
                    31, 2006**
                
                **March
                    31, 2005****Current
                    Liabilities**Bank
                    loans
                
                $
                13,133,534
                
                $
                12,299,885Notes
                    payable
                
                
                19,112,823
                
                
                19,821,180Trade
                    payables
                
                
                12,579,942
                
                
                4,966,997Advance
                    from customers
                
                
                932,843
                
                
                540,843Other
                    payables
                
                
                4,555,012
                
                
                4,400,128Accrued
                    expenses
                
                
                496,286
                
                
                293,640Tax
                    payables
                
                
                1,996,789
                
                
                605,915Due
                    to related parties
                
                
                4,301,137
                
                
                8,808,904**Total
                    current liabilities**
                
                **$**
                **57,108,365**
                ****
                **$**
                **51,737,492****Long
                    term debt**
                
                
                **4,932,182**
                
                
                **4,832,961****Total
                    liabilities**
                
                **$**
                **62,040,548**
                ****
                **$**
                **56,570,453****Minority
                    interest**
                
                
                **-**
                
                
                **(576**
                **)****Shareholders'
                    equity**Preferred
                    stock-$.0001 par value; 20,000,000Authorized;
                    0 issued and outstanding
                
                
                **-**
                
                
                **-**Common
                    Stock-$.0001 par value; 250,000,000authorized;
                    50,000,713 issued and outstanding
                
                
                5,000
                
                
                5,000Additional
                    paid-in capital
                
                
                7,676,394
                
                
                7,205,409Reserves
                
                
                45,804
                
                
                45,804Retained
                    earnings
                
                
                12,185,515
                
                
                583,603Accumulated
                    other comprehensive income/(loss)
                
                
                1,055,397
                
                
                (218,158
                )**Total
                    shareholders' equity**
                
                **$**
                **20,968,110**
                ****
                **$**
                **7,621,658****TOTAL
                    LIABILITIES AND****SHAREHOLDERS'
                    EQUITY**
                
                **$**
                **83,008,658**
                ****
                **$**
                **64,191,535**
 
 The
          accompanying notes are in integral part of the consolidated financial statements
  F-4
  **SYNUTRA
          INTERNATIONAL, INC. AND SUBSIDIARIES**
 **(INCORPORATED
          IN THE STATE OF DELAWARE**
 **WITH
          LIMITED LIABILITY)**
 
 **CONSOLIDATED
          STATEMENTS OF INCOME**
 **FOR
          THE YEARS ENDED MARCH 31, 2006 AND 2005**
  **Year
                    ended**
                
                **Year
                    ended****March
                    31, 2006**
                
                **March
                    31, 2005****Sales**
                
                **$**
                **103,186,647**
                ****
                **$**
                **55,959,870**Cost
                    of sales
                
                
                46,541,796
                
                
                27,969,736**Gross
                    profit**
                
                
                **56,644,852**
                
                
                **27,990,135**Selling
                    & distribution expenses
                
                
                15,494,007
                
                
                11,269,262Advertising
                    costs and promotion
                
                
                22,540,472
                
                
                9,176,739General
                    & administrative expenses
                
                
                5,697,969
                
                
                2,835,180**Income
                    from operations**
                
                
                **12,912,404**
                
                
                **4,708,954**Finance
                    costs
                
                
                (1,414,565
                )
                
                (1,168,632
                )Subsidy
                    Income
                
                
                734,035
                
                
                270,779Interest
                    income
                
                
                237,070
                
                
                144,458Other
                    income/(expenses)
                
                
                579,221
                
                
                (859
                )**Income
                    before tax**
                
                
                **13,048,165**
                
                
                **3,954,700**Corporation
                    income tax - current
                
                
                1,445,677
                
                
                88,355**Net
                    income before minority interests**
                
                
                **11,602,488**
                
                
                **3,866,345**Minority
                    interests
                
                
                (576
                )
                
                (744,377
                )**Net
                    income attributable to shareholders**
                
                
                **11,601,912**
                
                
                **3,121,968**Other
                    Comprehensive income/(loss)-
                    Foreign currency translation
                
                
                1,273,555
                
                
                (109,805
                )**Comprehensive
                    income**
                
                
                **12,875,468**
                
                
                **3,012,163****Earning
                    per share**Basic
                    and diluted
                
                $
                0.23
                
                $
                0.06**Weighted
                    average common share outstanding**Basic
                    and diluted
                
                
                50,000,713
                
                
                50,000,713
                    (1
                )
  The
          accompanying notes are in integral part of the consolidated financial
          statement.
  (1)
          All
          shares and additional paid-in capital have been restated to reflect
          recapitalization on July 15, 2005.
  F-5


**SYNUTRA
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 **(INCORPORATED
        IN THE STATE OF DELAWARE**
 **WITH
        LIMITED LIABILITY)**
  **CONSOLIDATED
        STATEMENTS OF CHANGES IN EQUITY**
 **FOR
        THE YEARS ENDED MARCH 31, 2006 AND 2005**
  Common
                  Stock Outstanding (1)
              
              Common
                  Stock (1)
              
              Additional
                paid-in
                  capital (1)
              
              Reserves
              
              Retained
                  earnings
              
              Accumulated
                  other
                comprehensive
                  income(loss)
              
              TotalBalance
                  at April 1, 2004
              
              
              50,000,713
              
              $
              5,000
              
              $
              7,000,739
              
              $
              29,149
              
              $
              (2,521,710
              )
              $
              (108,353
              )
              $
              4,404,825Capital
                  contribution during the year
              
              
              
              
              
              
              
              
              204,670
              
              
              
              
              
              
              
              
              
              
              
              204,670Net
                  income for the year
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              3,121,968
              
              
              -
              
              
              3,121,968Transfer
                  to reserves
              
              
              
              
              
              
              
              
              
              
              
              16,655
              
              
              (16,655
              )
              
              -
              
              
              -Other
                  comprehensive income/(loss)
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              (109,805
              )
              
              (109,805
              )Balance
                  at March 31, 2005
              
              
              50,000,713
              
              
              5,000
              
              
              7,205,409
              
              
              45,804
              
              
              583,603
              
              
              (218,158
              )
              
              7,621,658Capital
                  contribution during the year
              
              
              
              
              
              
              
              
              470,985
              
              
              
              
              
              
              
              
              
              
              
              470,985Excess
                  in capital contribution
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  income for the year
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              11,601,912
              
              
              -
              
              
              11,601,912Other
                  comprehensive income/(loss)
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,273,555
              
              
              1,273,555Balance
                  at March 31, 2006
              
              
              50,000,713
              
              $
              5,000
              
              $
              7,676,394
              
              $
              45,804
              
              $
              12,185,515
              
              $
              1,055,397
              
              $
              20,968,110
  (1)
        All
        shares and additional paid-in capital have been restated to reflect
        recapitalization on July 15, 2005.
  The
        accompanying notes are in integral part of the consolidated financial statements
  F-6
  **SYNUTRA
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 **(INCORPORATED
        IN THE STATE OF DELAWARE**
 **WITH
        LIMITED LIABILITY)**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOW**
 **FOR
        THE YEARS ENDED MARCH 31, 2006 AND 2005**
 
 **Year
                  ended**
                **March
                  31, 2006**
              
              **Year
                  ended**
                **March
                  31, 2005****Cash
                  Flows from Operating Activities:**Net
                  income
              
              $
              11,601,912
              
              $
              3,121,968Adjustments
                  to reconcile net income tonet
                  cash provided by operating activities:Depreciation
                  and amortization
              
              
              914,456
              
              
              1,320,410Bad
                  Debt Expenses
              
              
              214
                  ,742
              
              
              98,123Gain
                  on short term investment
              
              
              2,680
              
              
              26,315Minority
                  interest
              
              
              576
              
              
              744,376Changes
                  in operating assets and liabilities:Notes
                  receivable
              
              
              27,790
              
              
              172,993Trade
                  receivable
              
              
              (786,224
              )
              
              (759,617
              )Inventories
              
              
              (5,032,412
              )
              
              (327,256
              )Advances
                  to suppliers
              
              
              367,572
              
              
              86,514Other
                  receivable
              
              
              (483,884
              )
              
              10,916,178Deferred
                  expenses
              
              
              257,939
              
              
              (58,492
              )Due
                  from related parties
              
              
              (519,911
              )
              
              (5,592,687
              )Due
                  to related parties
              
              
              (4,507,769
              )
              
              (817,332
              )Notes
                  payable
              
              
              (708,358
              )
              
              7,738,778Trade
                  payable
              
              
              7,612,945
              
              
              417,910Advances
                  from customers
              
              
              392,000
              
              
              (320,458
              )Other
                  payable & accrued expenses
              
              
              357,531
              
              
              (2,566,741
              )Tax
                  payable
              
              
              1,390,874
              
              
              91,328**Net
                  Cash Provided by Operating Activities**
              
              
              **11,102,458**
              
              
              **14,292,311****Cash
                  Flows from Investing Activities:**Acquisition
                  of property, plant and equipment
              
              
              (669,447
              )
              
              (1,379,998
              )Cash
                  used for construction in progress
              
              
              (7,045,914
              )
              
              (13,224,460
              )Purchases
                  of intangible assets
              
              
              (16,042
              )
              
              (334,392
              )**Net
                  Cash Used in Investing Activities**
              
              
              **(7,731,403**
              **)**
              
              **(14,938,852**
              **)**
  The
        accompanying notes are in integral part of the consolidated financial statements
  F-7
  **SYNUTRA
        INTERNATIONAL, INC. AND SUBSIDIARIES**
 **(INCORPORATED
        IN THE STATE OF DELAWARE**
 **WITH
        LIMITED LIABILITY)**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOW (CONTINUED)**
 **FOR
        THE YEARS ENDED MARCH 31, 2006 AND 2005**
 
 **Year
                  ended**
              
              **Year
                  ended****March
                  31, 2006**
              
              **March
                  31, 2005****Cash
                  Flows from Financing Activities:**Inception
                  of bank loans, net
              
              
              932,870
              
              
              6,524,497Repayment
                  of bank loans, net
              
              
              
              
              
              (3,624,721
              )(Excess
                  of)/ capital contribution
              
              
              470,985
              
              
              204,670**Net
                  Cash Used in Financing Activities**
              
              
              **1,403,855**
              
              
              **3,104,446****Net
                  Change in Cash and Cash Equivalents**
              
              
              **4,774,911**
              
              
              **2,457,905**Effect
                  of Exchange Rate Changes on Cash and Cash Equivalents
              
              
              1,273,555
              
              
              (109,805
              )Cash
                  and cash equivalents, beginning of year
              
              
              16,085,403
              
              
              13,737,303**Cash
                  and cash equivalents, end of year**
              
              **$**
              **22,133,869**
              
              **$**
              **16,085,403****Supplementary
                  Cash Flows Disclosures**Interest
                  paid
              
              $
              1,414,565
              
              $
              1,168,632Income
                  taxes paid
              
              $
              1,026,266
              
              $
              95,451
  The
        accompanying notes are in integral part of the consolidated financial
        statements.
  F-8


**SYNUTRA
      INTERNATIONAL, INC. AND SUBSIDIARIES**


**(INCORPORATED
      IN THE STATE OF DELAWARE**


**WITH
      LIMITED LIABILITY)**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2006 AND 2005**




**1.
      ORGANIZATION AND PRINCIPAL ACTIVITIES**





Qingdao
      Sheng Yuan Dairy Co., Ltd. is engaged in the sales and marketing of dairy based
      nutritional products for infants, children and adults under the brand names
      Super, U-Smart, U-Strong, and National Standards. Qingdao Sheng Yuan Dairy
      Co.,
      Ltd. was formed in January 1998 by Beijing Honnete Dairy Co., Ltd., an affiliate
      of Mr. Liang Zhang. In December 2003, Beijing Honnete Dairy Co.,Ltd transferred
      40% of his ownership to Synutra, and then transferred the balance of the
      ownership to Synutra Illinois in February 2005.




Qingdao
      ST George Dairy Co., Ltd. is engaged in the packaging, shipping and distribution
      of all of Synutra’s products. Qingdao ST George Dairy Co., Ltd. was formed in
      September 2001 by Synutra Illinois, an affiliate of Mr. Liang Zhang. In March
      2004 Synutra Illinois transferred 75% of Qingdao St George Dairy Co., Ltd
      ownership to Sheng Zhi Da Dairy Corporation and Synutra Illinois retained 25%
      of
      the company. In February 2005 Sheng Zhi Da Dairy Corporation transferred all
      of
      its ownership in Qingdao St. George Dairy Co., Ltd. (75%) to Synutra Illinois,
      resulting in a 100% ownership of Qingdao St. George Dairy Co., Ltd by Synutra
      Illinois.




Beian
      Yi
      Pin Dairy Co., Ltd. (“Beian”) is engaged in the production and processing of
      adult dairy based nutritional products and various milk powder products. In
      June
      2004, Mr. Liang Zhang acquired 100% of the interest of Beian Olisong Dairy
      Co.,
      Ltd. which changed its name to Beian. In January 2005, Mr. Zhang transferred
      100% of his ownership in Beian to Synutra Illinois.




F-9


**1.
      ORGANIZATION AND PRINCIPAL ACTIVITIES**





Luobei
      Sheng Yuan Dairy Co., Ltd. (“Loubei”) is engaged in the production and
      processing Synutra’s products for infants and children under the brand names
      U-Smart, U-Strong, and National Standards. Loubei was formed in April 2001
      by
      Mr. Liang Zhang. In June 2003, Mr. Zhang transferred 33% of his ownership to
      Synutra Illinois and then transferred the balance of the ownership to Synutra
      Illinois in January 2005.




Quindao
      Mother and Infant Nutrition Research Company Limited is engaged in the research
      and development of various nutritional products for both infants and children
      as
      well as pregnant and lactating women. Quindao Mother and Infant Nutrition
      Research Company Limited was formed in April 2004 by Mr. Liang Zhang. In May
      2005, Mr. Zhang transferred 100% of his ownership to Synutra
      Illinois.




Zhangjiakou
      Sheng Yuan Dairy Co., Ltd. (“Zhangjiakou”) is engaged in the production and
      processing of all of Synutra’s products under the brand names Super, U-Smart,
      U-Strong, and National Standards. Zhangjiakou Sheng Yuan Dairy Co., Ltd. was
      formed in March 2004 by Chaibei Sheng Yuan Diary Co., Ltd., an affiliate of
      Mr.
      Zhang, and Synutra Illinois as a joint venture. In August 2005, Chaibei Sheng
      Yuan Diary Co., Ltd. was merged into Zhangjiakou resulting in Synutra Illinois
      owning 100% of Zhangjiakou.





On
      July
      15, 2005, pursuant to a Share Exchange Agreement dated as of June 14, 2005
      among
      the Company, Thomas Braun, Beams Power Investment Limited, Strong Gold Finance
      Ltd and Synutra Illinois, the Company issued 48,879,500 shares of its common
      stock in exchange for all of the issued and outstanding shares of Synutra
      Illinois that owned all the registered capital of the six subsidiaries (the
      “Exchange”). As a result of this Exchange, Synutra Illinois became a wholly
      owned subsidiary of the Company.




Immediately
      prior to the Exchange, the Company had 2,638,713 outstanding shares of common
      stock and no outstanding shares of preferred stock. The Company’s Certificate of
      Incorporation provides for authorized capital of two hundred and seventy million
      shares (270,000,000) of which two hundred and fifty million (250,000,000) are
      $0.0001 par value common stock and twenty million (20,000,000) are $0.0001
      par
      value preferred stock. Prior to the Exchange, Thomas Braun, the sole director
      and officer of the Company, and his affiliates owned 2,200,000 shares of the
      Company common stock. Pursuant to the Exchange, the Company cancelled
      approximately 1,517,500 shares of common stock owned by Mr. Braun and his
      affiliates reducing their ownership to 682,500 shares, resulting in the total
      issued and outstanding shares of the Company common stock equaling 1,121,213
      shares.




Pursuant
      to the Exchange, the Company issued 46,000,000 shares of its common stock in
      exchange for all of the outstanding capital stock of Synutra Illinois held
      by
      Beams Power Investment Limited and Strong Gold Finance Ltd., 2,844,500 shares
      were issued to various financial consultants and/or their designees and 35,000
      shares to a finder. Therefore, the total issued and outstanding shares of the
      Company’s common stock was 50,000,713 shares after giving effect to the
      Exchange.




As
      a
      result of the Exchange, the stockholders of the Company immediately prior to
      the
      Exchange owned approximately 1,121,213 shares, or approximately 2% of the issued
      and outstanding shares of the Company’s common stock and the Company is now
      controlled by the former stockholders of Synutra Illinois.





**2.
      BASIS OF PRESENTATION**





The
      consolidated financial statements include the accounts of the Company (SYUT)
      and
      all its subsidiaries ("The Group"). All material inter-company accounts and
      transactions have been eliminated.





The
      following companies are consolidated for financial statement
      presentation:





**Name
                of subsidiaries**
            
            **Incorporation
                date**Qingdao
                St. George Dairy Co. Ltd
            
            September
                2001Qingdao
                Sheng Yuan Dairy Co. Ltd
            
            January
                1998Heilongjiang
                Loubei Sheng Yuan Food Co. Ltd
            
            April
                2001Bei’an
                Yipin Dairy Co. Ltd
            
            June
                2004Qingdao
                Women and Children Nutrition Research Co. Ltd
            
            April
                2004Zhangjiakou
                Shen Yuan Co. Ltd *
            
            March
                2004




**
        Zhangjiakou completed a merger with Chaibei Sheng Yuan as of August 2005
        and
        Zhangjiakou emerged as the surviving entity from the
        merger.*





The
      consolidated financial statements are prepared in accordance with generally
      accepted accounting principles used in the United States of America.





F-10




**3.
      SUMMARY OF PRINCIPAL ACCOUNTING POLICIES**





**A.
      CASH AND CASH EQUIVALENTS**





The
      Company considers cash and cash equivalents to include cash on hand and demand
      deposits with banks with an original maturity of three months or less.




March
                31, 2006
            
            March
                31, 2005Cash
            
            $
            5,676,616
            
            $
            5,812,340Cash
                restricted
            
            
            16,457,253
            
            
            10,273,063Total
            
            $
            22,133,869
            
            $
            16,085,403





Cash
      restricted is 30%, 50%, or 100% bank demand deposit used as security against
      notes payable. This is used by the Company as a short term instrument to reduce
      financing cost. Cash restricted are called at the same terms of
      notes.





**B.
      INVENTORIES**





Inventories
      are stated at the lower of cost or net realizable value. Cost is calculated
      on
      the moving-average basis and includes all costs to acquire and other costs
      incurred in bringing the inventories to their present location and condition.
      The Company evaluates the net realizable value of its inventories on a regular
      basis and records a provision for loss to reduce the computed weighted-average
      cost if it exceeds the net realizable value. Net
      realizable value is the estimated selling price in the ordinary course of
      business less the estimated costs of completion and the estimated costs
      necessary to make the sale.





**C.
      LAND USE RIGHTS**





According
      to the law of China, the government owns all the land in China. Companies or
      individuals are authorized to possess and use the land only through land use
      rights granted by the Chinese government. Land use rights are being amortized
      using the straight-line method over the lease term of 40 to 50
      years.





**D.
      PROPERTY, PLANT AND EQUIPMENT**





Property,
      plant and equipment are carried at cost. The cost of repairs and maintenance
      is
      expensed as incurred; major replacements and improvements are capitalized.





When
      assets are retired or disposed of, the cost and accumulated depreciation are
      removed from the accounts, and any resulting gains or losses are included in
      income in the year of disposition.





Depreciation
      is calculated on a straight-line basis over the estimated useful lives of the
      assets. The useful lives for property, plant and equipment are as follows:





Buildings
                and leasehold improvement
            40
                - 50 yearsPlant
                and machinery
            5
                -
                10 yearsOffice
                equipment and furnishings
            5
                yearsMotor
                vehicles
            5
                years




**E.
      CONSTRUCTION IN PROGRESS**




Construction
      in progress represents direct costs of construction or acquisition and design
      fees incurred. Capitalization of these costs ceases and the construction in
      progress is transferred to plant and equipment when substantially all the
      activities necessary to prepare the assets for their intended use are completed.
      No depreciation is provided until it is completed and ready for intended use.





The
      capitalized interest accrued up to March 31, 2006 was $481,045 associated with
      construction in progress.





**F.
      INTANGIBLE ASSETS**





Intangible
      assets - Intangible assets represent computer software and applications.
      Intangible assets are measured initially at cost. Intangible assets are
      recognized if it is probable that the future economic benefits that are
      attributable to the asset will flow to the enterprise and the cost of the asset
      can be measured reliably. After initial recognition, Intangible assets -
      Intangible assets represent computer software and applications. Intangible
      assets are measured initially at cost.





The
      gross
      carrying amount of the intangible assets was $264,562
      at March 2006 and $334,392 at March 2005 respectively.




**G.
      ACCOUNT RECEIVABLES**




Trade
      receivables are recognized and carried at the original invoice amount less
      allowance for any uncollectible amounts. An estimate for doubtful accounts
      is
      made when collection of the full amount is no longer probable. Bad debts are
      written off as incurred. The allowance on the doubtful accounts was $417,143
      and
      $202,401 as at March 31, 2006 and 2005, respectively.





**H.
      INCOME TAXES**





Income
      taxes of the Company’s subsidiaries are calculated in accordance with taxation
      principles currently effective in the PRC. For Synutra Illinois, applicable
      U.S.
      tax laws are followed. The Company accounts for income taxes using the liability
      method. Deferred tax assets and liabilities are recognized for the future tax
      consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases. Deferred tax assets and liabilities are measured using enacted tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. The effect on deferred
      tax
      assets and liabilities of a change in tax rates is recognized as income in
      the
      period that includes the enactment date. A valuation allowance is provided
      for
      the amount of deferred tax assets that, based on available evidence, are not
      expected to be realized.





A
      company
      registered in the PRC is subject to state and local income taxes within the
      PRC
      at the applicable tax rate on the taxable income as reported in their PRC
      statutory financial statements in accordance with relevant income tax laws.
      According to applicable tax laws regarding foreign direct investment entities,
      some of the consolidated companies are exempted from income taxes in the PRC
      for
      2 years beginning in their first profitable year.





**H.
      GOVERNMENT SUBSIDIES**





Subsidies
      from the government are recognized at their fair values when received or there
      is reasonable assurance that they will be received, and all attached conditions
      are complied with. The Subsidies from the government were $734,035 and $270,779
      during the years ended March31, 2006 and 2005, respectively. There is no
      interest subsidy involved herein.




**I.
      RELATED PARTIES**





Parties
      are considered to be related if one party has the ability, directly or
      indirectly, to control the other party or exercise significant influence over
      the other party in making financial and operational decisions. Parties are
      also
      considered to be related if they are subject to common control or common
      significant influence. Related parties may be individuals or corporate entities.
      The related parties were excluded from consolidation due to equity structure
      and
      other business reasons.




F-11





**J.
      FOREIGN CURRENCY TRANSLATION**





The
      Company maintains its books and accounting records in Renminbi ("RMB"), the
      PRC's currency, being the functional currency. Transactions denominated in
      foreign currencies are translated into the reporting currency at the exchange
      rates prevailing on the transaction dates. Assets and liabilities denominated
      in
      foreign currencies are translated into the reporting currency at the exchange
      rates prevailing at the balance sheet date. Income and expenditures are
      translated at the average exchange rate of the year.





March
                31,2006Balance
                sheet
            RMB
            8.017
            to
                US
            $1.00Operating
                statement
            RMB
            8.147
            to
                US
            $1.00March
                31,2005Balance
                sheet
            RMB
            8.2765
            to
                US
            $1.00Operating
                statement
            RMB
            8.2765
            to
                US
            $1.00





On
      January 1, 1994, the PRC government introduced a single rate of exchange as
      quoted daily by the People's Bank of China (the "Unified Exchange Rate"). The
      quotation of the exchange rates does not imply free convertibility of RMB to
      other foreign currencies. All foreign exchange transactions continue to take
      place either through the Bank of China or other banks authorized to buy and
      sell
      foreign currencies at the exchange rates quoted by the People's Bank of China.
      Approval of foreign currency payments by the Bank of China or other institutions
      requires submitting a payment application form together with supplier's
      invoices, shipping documents and signed contracts.





In
      July
      2005, the PRC began to value the RMB against a basket of currencies of its
      major
      trading partners, including the U.S. This measure has allowed the RMB yuan
      to
      fluctuate within a narrow band vis a vis the U.S. dollars. Since the adoption
      of
      this managed flexible exchange rate policy, the RMB has been under pressure
      to
      appreciate against the U.S. dollar. This has affected the changes in the foreign
      currency translation as reflected in the other comprehensive income /
      (loss) of $1,273,555 and $(109,805) for the years ended March 31, 2006 and
      2005,
      respectively.





**K.
      USE OF ESTIMATES**





The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States of America requires management to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of revenue and expenses
      during the reporting period. Actual results when ultimately realized could
      differ from those estimates.





**L.
      FAIR VALUE OF FINANCIAL INSTRUMENTS**





The
      carrying value of financial instruments including cash, receivables, accounts
      payable and accrued expenses and debt, approximates their fair value at March
      31, 2006 and 2005 due to the relatively short-term nature of these instruments.




**M.
      REVENUE RECOGNITION**





In
      accordance with the provisions of Staff Accounting Bulletin No. 103, revenue
      is
      recognized when merchandise is shipped and title passes to the customer and
      collectibility is reasonably assured. Revenues consist of the invoice value
      of
      the sale of goods and services net of value added tax, rebates and
      discounts.




F-12


**N.
      SHIPPING AND HANDLING**





All
      shipping and handling are expensed as incurred and outbound freight is not
      billed to customers. Shipping and handling expenses are included in selling
      and
      distribution expenses. The expenses were $2,810,339 and $1,964,855 during the
      years ended March 31, 2006 and 2005 respectively





**O.
      ADVERTISING COSTS AND PROMOTION**





Advertising
      costs and promotion include salaries for all salesmen all over the Mainland
      China and are expensed as incurred. The advertising costs and promotion
      expenses were $22,540,472 and $9,176,739 during the years ended March 31, 2006
      and 2005 respectively.





**P.
      EMPLOYEES' BENEFITS**





Mandatory
      contributions are made to the Government's health, retirement benefit and
      unemployment schemes at the statutory rates in force during the period, based
      on
      gross salary payments. The cost of these payments is charged to the statement
      of
      income in the same period as the related salary cost.





**Q.
      SEGMENTS**





No
      business segment analysis is provided for the years end March 31, 2006 and
      2005,
      as less than 10% of consolidated revenue and less than 10% of consolidated
      income from operations is attributable to the segment other than sales of dairy
      based infant and adult nutritional products.





Further,
      no geographical segment analysis is provided for the years ended March 31,
      2006
      and 2005, as less than 10% of consolidated revenue and less than 10%
      consolidated income from operations is attributable to the segment other than
      the Mainland China.





**R.
      COMPREHENSIVE INCOME/(LOSS)**





The
      Group
      has adopted the provisions of Statement of Financial Accounting Standards No.
      130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
      standards for the reporting and display of comprehensive income, its components
      and accumulated balances in a full set of general-purpose financial statements.
      SFAS No. 130 defines comprehensive income (loss) to include all changes in
      equity except those resulting from investments by owners and distributions
      to
      owners, including adjustments to minimum pension liabilities, accumulated
      foreign currency translation, and unrealized gains or losses on marketable
      securities. The comprehensive income for the year ended March 31, 2006 was
      $1,273,555, while the comprehensive loss for the year ended March 31, 2005
      was
      $109,805.




F-13





**S.
      CONCENTRATION OF CREDIT RISK**





Financial
      instruments that potentially subject the Company to significant concentrations
      of credit risk consist primarily of trade accounts receivable. The Company
      performs ongoing credit evaluations with respect to the financial condition
      of
      its creditors, but does not require collateral. In order to determine the value
      of the Company's accounts receivable, the Company records a provision for
      doubtful accounts to cover probable credit losses. Management reviews and
      adjusts this allowance periodically based on historical experience and its
      evaluation of the collectibility of outstanding accounts
      receivable.





**T.
      RECENT PRONOUNCEMENTS**





In
      November 2004, the FASB issued SFAS No. 151, "Inventory Costs". This Statement
      amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing" to clarify
      the
      accounting for abnormal amounts of idle facility expense, freight, handling
      costs and wasted material (spoilage). In addition, this Statement requires
      that
      allocation of fixed production overhead to the costs of conversion be based
      on
      the normal capacity of the production facilities. The provisions of this
      Statement had been adopted by the Company from 2005.





In
      December 2004, the FASB issued a revised SFAS No. 123R, Accounting for
      Stock-Based Compensation, which supersedes APB opinion No. 25, Accounting for
      Stock Issued to Employees, and its related implementation guidance. This
      statement requires a public entity to recognize and measure the cost of employee
      services it receives in exchange for an award of equity instruments based on
      the
      grant-date fair value of the award (with limited exceptions). These costs will
      be recognized over the period during which an employee is required to provide
      service in exchange for the award - the requisite service period (usually the
      vesting period). This statement also establishes the standards for the
      accounting treatment of these share-based payment transactions in which an
      entity exchanges its equity instruments for goods or services. It addresses
      transactions in which an entity incurs liabilities in exchange for goods or
      services that are based on the fair value of the entity's equity instruments
      or
      that may be settled by the issuance of those equity instruments. This statement
      shall be effective the first interim or annual reporting period that begins
      after December 15, 2005 for small business public entities and nonpublic
      companies. The Company has adopted this accounting standard since January 1,
      2006. The Company has not issued any options pursuant to the 2005 stock
      compensation plan.





In
      December 2004, the FASB issued SFAS No. 152 "Accounting for Real Estate
      Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67"
      (“SFAS 152”). This statement amends FASB Statement No. 66 “Accounting for Sales
      of Real Estate” to reference the financial accounting and reporting guidance for
      real estate time-sharing transactions that is provided in AICPA Statement of
      Position 04-2 “Accounting for Real Estate Time-Sharing Transactions” (“SOP
      04-2”). SFAS 152 also amends FASB Statement No. 67 “Accounting for Costs and
      Initial Rental operations of Real Estate Projects” to state that the guidance
      for incidental operations and costs incurred to sell real estate projects does
      not apply to real estate time-sharing transactions, with the accounting for
      those operations and costs being subject to the guidance in SOP 04-2. The
      provisions of SFAS 152 are effective in fiscal years beginning after June 15,
      2005. As such, the Company is required to adopt these provisions at the
      beginning of the fiscal year ended December 31, 2006. The Company is currently
      evaluating the impact of SFAS 152 on its consolidated financial
      statements.





In
      December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
      -
      an amendment of APB Opinion No. 29" (“SFAS 153”). SFAS 153 replaces the
      exception from fair value measurement in APB Opinion No. 29 for nonmonetary
      exchanges of similar productive assets with a general exception from fair value
      measurement for exchanges of nonmonetary assets that do not have commercial
      substance. A nonmonetary exchange has commercial substance if the future cash
      flows of the entity are expected to change significantly as a result of the
      exchange. SFAS 153 is effective for all interim periods beginning after June
      15,
      2005. As such, the Company is required to adopt these provisions at the
      beginning of the fiscal quarter ended September 30, 2005. The Company is
      currently evaluating the impact of SFAS 153 on its consolidated financial
      statements.




In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections
      -
      a replacement of APB Opinion No. 20 and FASB Statement No. 3" (“SFAS 154”). SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in
      accounting principle. These requirements apply to all voluntary changes and
      changes required by an accounting pronouncement in the unusual instance that
      the
      pronouncement does not include specific transition provisions. SFAS 154 is
      effective for fiscal years beginning after December 15, 2005. As such, the
      Company is required to adopt these provisions at the beginning of the fiscal
      year ended December 31, 2006. The Company is currently evaluating the impact
      of
      SFAS 154 on its consolidated financial statements.





In
      February 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“SFAS”) No. 155, "Accounting for
      Certain Hybrid Financial Instruments - an amendment of FASB Statement No. 133
      and 140" (“SFAS 155”). SFAS 155 resolves issues addressed in Statement 133
      Implementation Issue No. D1, “Application of Statement 133 to Beneficial
      Interests in Securitized Financial Assets.” SFAS 155 is effective for all
      financial instruments acquired or issued after the beginning of the first fiscal
      year that begins after September 15, 2006. As such, the Company is required
      to
      adopt these provisions at the beginning of the fiscal year ended December 31,
      2007. The Company is currently evaluating the impact of SFAS 155 on its
      consolidated financial statements.





In
      March
      2006, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standard (“SFAS”) No. 156, "Accounting for Servicing of
      Financial Assets - an amendment of FASB Statement No. 140" (“SFAS 156”). SFAS
      156 amends FASB Statement No. 140 with respect to the accounting for separately
      recognized servicing assets and servicing liabilities. SFAS 156 requires all
      separately recognized servicing assets and servicing liabilities to be initially
      measured at fair value, if practical. SFAS 156 is effective as of the beginning
      of the first fiscal year that begins after September 15, 2006. As such, the
      Company is required to adopt these provisions at the beginning of the fiscal
      year ended December 31, 2007. The Company is currently evaluating the impact
      of
      SFAS 156 on its consolidated financial statements.





F-14







F-15





**4.
      ACCOUNT RECEIVABLES**





The
      Company's trade receivables as at March 31, 2005 and 2004 are summarized as
      follows:





**2006**
            
            **2005**Trade
                receivables
            
            $
            2,956,860
            
            $
            2,170,636Less:
                Allowance for doubtful accounts
            
            
            (417,143
            )
            
            (202,401
            )$
            2,539,717
            
            $
            1,968,235





The
      activity in the Company allowance for doubtful accounts during the years ended
      March 31, 2006 and 2005 is summarized as follows:





**2006**
            
            **2005**Balance
                at beginning of year
            
            $
            202,401
            
            $
            104,278Add:
                Additions during the year
            
            
            214,742
            
            
            98,123Balance
                at end of year
            
            $
            417,143
            
            $
            202,401





F-16




**5.
      PROPERTY, PLANT AND EQUIPMENT**




**2006**
            
            **2005****Cost:**Buildings
                and leasehold improvement
            
            $
            7,313,860
            
            $
            7,694,759Land
                use rights
            
            
            1,659,542
            
            
            1,607,166Plant
                and machinery
            
            
            7,206,411
            
            
            6,117,319Office
                equipment and furnishings
            
            
            988,330
            
            
            832,120Motor
                vehicles
            
            
            1,210,974
            
            
            1,458,30618,379,117
            
            
            17,709,670**Less:
                Accumulated depreciation:**Buildings
                and leasehold improvement
            
            
            1,264,683
            
            
            986,350Land
                use rights
            
            
            113,585
            
            
            75,889Plant
                and machinery
            
            
            2,306,131
            
            
            1,583,481Office
                equipment and furnishings
            
            
            336,235
            
            
            328,398Motor
                vehicles
            
            
            630,610
            
            
            848,5404,651,244
            
            
            3,822,658Property,
                plant and equipment, net
            
            $
            13,727,873
            
            $
            13,887,012





Depreciation
      expenses relating to property, land, plant and equipment was $828,585 and
      $1,320,405 for the years ended March 31, 2006 and 2005, respectively.





**6.
      INVENTORIES**





The
      Company's inventories at March 31, 2006 and 2005 are summarized as follows:





**2006**
            
            **2005**Raw
                materials
            
            $
            1,984,520
            
            $
            981,710Work-in-progress
            
            
            7,586,465
            
            
            2,735,098Finished
                goods
            
            
            2,131,552
            
            
            2,216,386Packing
                materials and other consumables
            
            
            86,896
            
            
            824,827Total
                Inventories
            
            $
            11,789,433
            
            $
            6,757,021






**7.
      DUE FROM/(TO) RELATED PARTIES**





The
      amounts are unsecured, interest-free and have no fixed repayment
      terms.





A.
            Due
                from related parties






**Year
                ended March 31, 2006**
            
            **Year
                ended March 31, 2005**Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            $
            226,383
            
            $
            824,092Sheng
                Zhi Da Dairy Group Corporation
            
            
            (268,349
            )
            
            4,635,779Beijing
                Kelqin Dairy Co. Ltd
            
            
            1,708,230
            
            
            (417,135
            )St.
                Angel (Beijing Business Service)
            
            
            1,761,265
            
            
            -Beijing
                Honnete Dairy Corporation Ltd
            
            
            4,185,149
            
            
            2,765,633Beijing
                Ao Naier Feed Stuff LLC
            
            
            297,892
            
            
            231,466Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            
            691,793
            
            
            42,616Total
                Due from Related Companies
            
            $
            8,602,363
            
            $
            8,082,451





B.
            Due
                to related parties





**Year
                ended March 31, 2006**
            
            **Year
                ended March 31, 2005**Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            $
            705,602
            
            $
            630,130Sheng
                Zhi Da Dairy Group Corporation
            
            
            2,192,892
            
            
            7,457,388Beijing
                Kelqin Dairy Co. Ltd
            
            
            63,909
            
            
            1,246,255St.
                Angel (Beijing Business Service)
            
            
            -
            
            
            (524,869
            )Beijing
                Honnete Dairy Corporation Ltd
            
            
            1,338,734
            
            
            -Beijing
                Ao Naier Feed Stuff LLC
            
            
            -
            
            
            -Total
                Due to Related Companies
            
            $
            4,301,137
            
            $
            8,808,904





**8.
      INTANGIBLES**





Intangible
      assets represent computer software and applications. Intangible assets are
      measured initially at cost. Intangible assets are recognized if it is probable
      that the future economic benefits that are attributable to the asset will flow
      to the enterprise and the cost of the asset can be measured reliably. After
      initial recognition, intangible assets are measured at cost less any impairment
      losses. Intangible assets with definite useful lives are amortized on a
      straight-line basis over their useful lives.





Intangible
      assets consist of the follow:





**Year
                ended March 31, 2006**
            
            **Year
                ended March 31, 2005**Gross
                Carrying Amount
            
            Accumulated
                Amortization
            
            Gross
                Carrying Amount
            
            Accumulated
                AmortizationComputer
                software and applications
            
            
            426,430
            
            
            161,868
            
            $
            408,952
            
            
            74,560**Total
                intangible assets**
            
            
            426,430
            
            
            161,868
            
            
            408,952
            
            
            74,560




Amortization
      expenses for year ended March 31,2006 and 2005 was$87,308and $56,414
      respectively.Estimated amortization expense for each of the five succeeding
      years is as follow:





**Year
                ending March 31,**2007
            
            $
            88,1872008
            
            
            88,1872009
            
            
            88,1872010
            
            
            -2011
            
            
            -








F-17





**7.
      BANK LOANS**





As
      at
      March 31, 2006 and 2005, the Company had short-term loans from banks at the
      amount of $13,113,534 and $12,229,885 bearing interest ranging from 5.576%
      to
      7.488% per annum. Such loans are extendable for not less than one year to March
      2007. The loans were secured by the pledge of certain fixed assets held by
      the
      Group and its subsidiaries.





The
      value
      of equipment pledged were $11.56 million and $9.95million during the year ended
      March 31, 2006 and 2005 respectively.





The
      Company’s long term borrowing includes a RMB 40 million (approximately USD $4.8
      million) bank loan incepted in 2003 with a maturity date before the end of
      year
      2006. This loan carries an interest rate of 2.88% for the first year and 5.76%
      for the second and third years. The Company has the intention to refinance
      the
      loan of $4.8 million on a long-term basis and the previous history has
      demonstrated its ability to consummate the refinancing. There
      are
      no other long term borrowings by the Company at the time of this
      report.





**8.
      INCOME TAXES**





All
      subsidiaries are subject to state and local income taxes within the PRC at
      the
      applicable tax rate as reported in their PRC statutory financial statements
      in
      accordance with the relevant income tax laws applicable to wholly-owned foreign
      enterprises.





During
      the 2005 tax year, the taxation responsibilities of the Company’s subsidiaries
      in China are each described as follows:




Chabei
      Shengyuan Dairy Co. Ltd was not
      liable for income taxes in the years before 2005. Its net income was taxable
      at
      a 33% rate beginning from 2005.





Zhangjiakou
      Shengyuan Co. Ltd was
      subject to 33% of income tax from April 1, 2005 to December 31, 2005, and
      elected to apply for tax holiday treatment for the year of 2006 where the income
      tax rate was 0%.




Heilongjiang
      Luobei Shengyuan Dairy Co. Ltd was
      subject to a 33% income tax rate from April 1, 2004 to June 30, 2005, and a
      30%
      tax rate from June 30, 2005 to December 31, 2005. It has elected to apply for
      tax holiday treatment for 2006 whereby the income tax rate will
      be0%.




Qingdao
      St George Dairy Co. Ltd was
      accorded tax holiday treatment for 2004 and was not subject to any income taxes
      from January 1, 2004 to December 31, 2005. The subsidiary currently enjoys
      a 50%
      income tax abatement at 12% beginning from 2006.




Qingdao
      Shengyuan Dairy Co. Ltd was subject
      to 33% income tax.




Beian
      Yipin Dairy Co. Ltd was subject
      to 33% income tax for the current year.


Qingdao
      Women and Children Nutrition Research Co. Ltd was
      subject to 33% income tax and there would not be any tax holiday or concession
      to this subsidiary.





F-18





The
      Company’s income/(loss) before income taxes was comprised of the following for
      the years ended March 31, 2006 and 2005, respectively:





**2006**
            
            **2005**United
                States
            
            $
            (316,610
            )
            $
            (20,360
            )PRC
            
            
            13,364,775
            
            
            3,975,060$
            13,048,165
            
            $
            3,954,700





Income
      taxes are calculated on a separate entity basis. There currently is no tax
      benefit or burden recorded in the United States.





The
      provisions for income taxes for the years ended March 31, 2006 and 2005,
      respectively, are summarized as follows:





**2006**
            
            **2005**PRC
                only:Current
            
            $
            1,445,677
            
            $
            88,355Deferred
            
            
            -
            
            
            -$
            1,445,677
            
            $
            88,355




**9.
      RESERVES**





The
      reserve fund is comprised of the following:





**2006**
            
            **2005**Statutory
                surplus reserve fund
            
            $
            45,804
            
            $
            45,804








Pursuant
      to the relevant laws and regulations of Wholly Owned Foreign Enterprises, the
      profits of the Company, which are based on their PRC statutory financial
      statements, are available for distribution in the form of cash dividends after
      they have satisfied all the PRC tax liabilities, provided for losses of previous
      years, and made appropriations to reserve funds, as determined by the Board
      of
      Directors in accordance with the PRC accounting standards and
      regulations.





The
      Company did not elect to issue dividends in fiscal years of 2005 and 2006.
      Therefore, there had not been any changes in the reserves over the same period
      of time.





As
      stipulated by the relevant laws and regulations for enterprises operating in
      the
      PRC, all subsidiaries (both wholly-owned foreign enterprises) are required
      to
      make annual appropriations to two reserve funds, consisting of the statutory
      surplus and public welfare funds. In accordance with the relevant PRC
      regulations and the articles of association of the respective companies, the
      companies are required to allocate a certain percentage of their profits after
      taxation, as determined in accordance with the PRC accounting standards
      applicable to the companies, to the statutory surplus reserve until such reserve
      reaches 50% of the registered capital of the companies.





Net
      income as reported in the US GAAP financial statements differs from that as
      reported in the PRC statutory financial statements. In accordance with the
      relevant laws and regulations in the PRC, the profits available for distribution
      are based on the statutory financial statements. If any subsidiary has foreign
      currency available after meeting its operational needs, it may make its profit
      distributions in foreign currency to the extent foreign currency is available.
      Otherwise, it is necessary to obtain approval and convert such distributions
      at
      an authorized bank.




**10.**
            **NET
                INCOME (LOSS) PER SHARE
                (EPS)**





SFAS
      128
“Earnings Per Share” requires the Company to calculate its net income
      (loss) per share based on basic and diluted net income (loss) per
      share, as defined. Basic EPS excludes dilution and is computed by dividing
      net
      income (loss) by the weighted average number of shares outstanding for the
      period. Diluted EPS reflects the potential dilution that could occur if
      securities or other contracts to issue common stock were exercised or converted
      into common stock. The dilutive effect of outstanding options and warrants,
      if
      exist, will be reflected in diluted EPS using the treasury stock method. Under
      the treasury stock method, options and warrants will generally have a dilutive
      effect when the average market price of common stock during the period exceeds
      the exercise price of the options.




**For
                the Year Ended March 312006****Income**
            
            **Shares**
            
            **Per-Share****(Numerator)**
            
            **(Denominator)**
            
            **Amount****Basic
                EPS**Income
                available to common stockholders
            
            
            **11,601,912**
            
            
            **50,000,713**
            
            **$**
            **0.23****Effect
                of Dilutive Securities**Warrants
                and options
            
            
            -
            
            
            -Convertible
                preferred stock
            
            
            -
            
            
            -**Diluted
                EPS**Income
                available to common stockholders + assumed conversions
            
            
            **11,601,912**
            
            
            **50,000,713**
            
            **$**
            **0.23**








F-19


**10.
      RELATED PARTY TRANSACTIONS**





The
      following related party transactions occurred during the years ended March
      31,
      2006 and 2005:





**Sales
      to related companies**





**2006**
            
            **2005**Beijing
                Kelqin Dairy Co. Ltd
            
            $
            2,259,810
            
            $
            384,118Sheng
                Zhi Da Dairy Group Corporation
            
            
            376,324
            
            
            1,037,714Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            
            3,541,592
            
            
            2,788,588Beijing
                Honnete Dairy Corporation Ltd
            
            
            13,155,447
            
            
            -St.
                Angel (Beijing Business Service)
            
            
            1,047,813
            
            
            323,837Beijing
                Ao Naier Feed Stuff LLC
            
            
            75,410
            
            
            16,522Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            
            526,853
            
            
            270,075Total
            
            $
            20,983,249
            
            $
            4,820,854




**Purchases
      from related companies**




**2006**
            
            **2005**Beijing
                Kelqin Dairy Co. Ltd
            
            $
            955,386
            
            $
            904,075Sheng
                Zhi Da Dairy Group Corporation
            
            
            2,145,168
            
            
            2,213,535Heilongjiang
                Baoquanling Sheng Yuan Dairy Co. Ltd
            
            
            11,987,277
            
            
            7,246,611Beijing
                Honnete Dairy Corporation Ltd
            
            
            6,655,093
            
            
            4,561,794Beijing
                Sheng Long Media Co. Ltd
            
            
            57,915
            
            
            31,524Total
            
            $
            21,800,839
            
            $
            14,957,539





In
      the
      fiscal years ended March 31, 2006 and 2005, the Company’s sales to the related
      parties included anhydrous milk fat and Non-Fat Dry Milk to Beijing Kelgin
      Dairy
      Co., Ltd. and Beijing Honnete Dairy Corporation, Ltd.; formulation ingredients
      to Sheng Zhi Da Dairy Group Corporation, Beijing Ao Naier Feed Stuff LLC, and
      Heilongjiang Baoquanling Sheng Yuan Dairy Co., Ltd.; and the Company’s name
      brand products to St Angel (Beijing Business Service) and Luding Xueyuan for
      direct sales, catalogue sales, and regional retail outlets distribution. Terms
      of all the sales are at market price.





In
      the
      fiscal year ended March 31, 2006 and 2005, the Company’s purchases from related
      parties included whey protein powders from Beijing Kelgin Dairy Co. Ltd. and
      Beijing Honnete Dairy Corporation Ltd; various ingredients and materials
      (packaging, etc.) from Sheng Zhi Da Dairy Group Corporation; spray-dried milk
      powder from Heilongjiang Baoquanling Sheng Yuan Dairy Co. Ltd.; and catalogues,
      brochures, and marketing materials from Beijing Sheng Long Media Co., Ltd.
      Terms
      of these transactions are all done at market prices.





F-20


**11.
      COMMITMENTS AND CONTINGENCIES**





**A.
      CAPITAL COMMITMENTS**





As
      of
      March 31, 2006, the Company had no significant capital commitments required
      for
      disclosure. **





**B.
      LEASE COMMITMENTS**





The
      lease
      commitments of the Company as at March 31, 2006 and 2005 were as follows:





**Expiration
                date**
            
            **Monthly
                payment**
            
            **Mar-07**
            
            **Mar-08**
            
            **Mar-09**
            
            **Mar-10**
            
            **Mar-11**Office
                facilities in Beijing(SOHO903)
            
            
            20-Apr-05
            
            -
            14-Dec-07
            
            $
            7,239
            
            $
            86,863
            
            $
            57,909
            
            
            -
            
            
            -
            
            
            -Office
                facilities in Beijing(SOHO2903-2905)
            
            
            15-Dec-04
            
            -
            14-Dec-07
            
            
            10,975
            
            
            131,700
            
            
            87,800
            
            
            -
            
            
            -
            
            
            -Office
                facilities in Beijing
            
            
            1-Jan-06
            
            -
            31-Dec-07
            
            
            3,950
            
            
            47,400
            
            
            35,550
            
            
            -
            
            
            -
            
            
            -Warehouses
                in Qingdao
            
            
            21-Nov-05
            
            -
            20-May-06
            
            
            2,640
            
            
            4,400
            
            
            -
            
            
            -
            
            
            -
            
            
            -Warehouses
                in Qingdao
            
            
            21-Nov-05
            
            -
            10-May-06
            
            
            1,401
            
            
            1,868
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Total
                rent expenses**
            
            
            
            
            -
            
            
            
            
            
            **$**
            **272,230**
            
            **$**
            **181,258**
            
            
            -
            
            
            -
            
            
            -




**C.
      LEGAL PROCEEDINGS**





N/A




**13.
      CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS**





The
      Company faces a number of risks and challenges since its operations are in
      the
      PRC. The Company's operations in the PRC are subject to special considerations
      and significant risks not typically associated with companies in North America
      and Western Europe. The Company's results may be adversely affected by changes
      in the political and social conditions in the PRC, and by changes in
      governmental policies with respect to laws and regulations, anti-inflationary
      measures, currency conversion and remittance abroad, and rates and methods
      of
      taxation, among other things.





F-21




**14.
      SUBSEQUENT EVENTS**





In
      June,
      2006, the Company negotiated a Letter of Intent to acquire Zheng Lan Qi Dairy
      Company, Ltd. of Inner Mongolia, China with a cash payment of RMB 31 million
      (about USD $3.9 million at today’s exchange rate) from the local government of
      Zheng Lan Qi County. The scope of the transaction includes land use rights,
      plant buildings and all plant equipment. With an additional investment of RMB
      19
      million (about USD $ 2.4 million), the Company plans to bring the business
      into
      operation later this year. In consideration of the Company’s business
      commitment, the Zheng Lan Qi County government has agreed to make available
      a
      cash incentive package of RMB 30 million to the Company at the execution of
      a
      definitive project agreement. This agreement is pending approval from the
      Company’s board. The future plant will manufacture protein-based nutrition bars
      and other food and nutritional products for nationwide
      distribution.




F-22





**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities and Exchange Act
      of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized, on this 28th day of June
      2006.




**SYNUTRA
              INTERNATIONAL, INC.**By:
            /s/ Liang
              ZhangLiang
              ZhangChief
                Executive Officer and Chairman




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following person on behalf of the Registrant and in the
      capacities.




**Name**
            
            **Position**
            
            **Date**/s/
                Liang Zhang
            
            Chief
                Executive Officer, and Chairman
            
            June
                28, 2006Liang
                Zhang/s/
                Weiguo Zhang
            
            Chief
                Operating Officer and Director
            
            June
                28, 2006Weiguo
                Zhang/s/
                Jibin Zhang
            
            Chief
                Financial Officer
            
            June
                28, 2006Jibin
                Zhang/s/
                Steve R. Champion
            
            Director
            
            June
                28, 2006Steve
                R. Champion/s/Jinrong
                Chen
            
            Director
            
            June
                28, 2006Jinrong
                Chen/s/
                Mei Liu
            
            Director
            
            June
                28, 2006Mei
                Liu/s/
                Willie Wu
            
            Director,
                Vice President
            
            June
                28, 2006Willie
                Wu