**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-K**





x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 For the fiscal year ended - MARCH 31, 2007


OR


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





Commission
      file number 000-50601





**SYNUTRA
      INTERNATIONAL, INC.**





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





2275
      RESEARCH BLVD. SUITE 500


ROCKVILLE,
      MARYLAND 20850


301-840-3888





Securities
      registered pursuant to Section 12(b) of the Act: None





Securities
      registered pursuant to Section 12(g) of the Act: Common Stock $0.0001 Par
      Value





Indicate
                by check mark if the registrant is a well-known seasoned issuer,
                as
                defined in Rule 405 of the Securities Act. YesoNoxIndicate
                by check mark if the registrant is not required to file reports pursuant
                to Section 13 or Section 15(d) of the Exchange Act. YesoNoxIndicate
                by check mark whether the registrant (1) has filed all reports required
                to
                be filed by Section 13 or 15(d) of the Securities Exchange Act 1934
                during
                the preceding 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. YesxNooIndicate
                by check mark if disclosure of delinquent filers in response to Item
                405
                of Regulation S-K is not contained herein, and will not 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-K
                or any
                amendment to this Form 10-K.x
              
              Indicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer, or a non-accelerated filer. See definition of
                “accelerated filer and large accelerated filer” in Rule 12b-2 of the
                Exchange Act. (Check one):
              Large
                accelerated fileroAccelerated
                fileroNon-accelerated
                filerxIndicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act).
              YesoNox




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant based on the average closing sale price of
      the
      registrant’s common stock for 20 trading days before September 29, 2006 (the
      last business day of the registrant’s most recently completed second fiscal
      quarter) was $67,401,030





As
      of
      June 18, 2007, there were 54,000,713 shares of the registrant’s Common Stock
      outstanding.





**TABLE
      OF CONTENTS**




PAGEPART
                IITEM
                1.
            BUSINESS
            2ITEM
                1A.
            RISK
                FACTORS
            12ITEM
                1B.
            UNRESOLVED
                STAFF COMMENTS
            20ITEM
                2.
            PROPERTIES
            20ITEM
                3.
            LEGAL
                PROCEEDINGS
            20ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            20PART
                IIITEM
                5.
            MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS
              AND
                ISSUER PURCHASES OF EQUITY SECURITIES
            21ITEM
                6.
            SELECTED
                FINANCIAL DATA
            22ITEM
                7.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND
                RESULTS OF OPERATION
            22ITEM
                7A.
            QUANTITATIVE
                AND QUALITATIVE DISCLOUSRES ABOUT MARKET RISK
            37ITEM
                8.
            FINANCIAL
                STATEMENTS AND SUPPLEMENTARY DATA
            38ITEM
                9.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND
                FINANCIAL DISCLOSURE
            39ITEM
                9A.
            CONTROLS
                AND PROCEDURES
            39ITEM
                9B.
            OTHER
                INFORMATION
            39PART
                IIIITEM
                10.
            DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
            40ITEM
                11.
            EXECUTIVE
                COMPENSATION
            43ITEM
                12.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT
                AND RELATED STOCKHOLDER MATTERS
            46ITEM
                13.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE
            48ITEM
                14.
            PRINCIPAL
                ACCOUNTING FEES AND SERVICES
            49PART
                IVITEM
                15.
            EXHIBITS,
                FINANCIAL STATEMENT SCHEDULES
            50SIGNATURES
            
            51









**PART
      I**





**ITEM
      1. BUSINESS**






**GENERAL
      DEVELOPMENT OF BUSINESS**





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 eight companies in the People’s Republic of China,
      (“China” or the “PRC”) described below, 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 77% of the revenue for the fiscal year ended March
      31,
      2007 was from pediatric nutritional products and the rest from adult and other
      products. Synutra also produces and sells retail packaged rice cereals, which
      extends its diary based nutritional product lines. As supplemental foods to
      infant and children formula products, management believes that rice cereal
      products possess significant market potential. In the fiscal year ended March
      31, 2007, the Company continued to experience significant growth in the newly
      launched premium infant formula products and line extensions. These 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
      continued to make and sell non-fat dry milk as well as anhydrous milk-fat.
      During fiscal year 2007, Synutra saw its production capacities nearly double
      with the commissioning of a modern spray-drying facility in Zhangjiakou, Hebei
      province. The Company also acquired new dairy processing assets in Inner
      Mongolia for both milk powder operations and for other dairy-protein
      products.





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
      ST George Dairy Co., Ltd. is engaged in the production, packaging, shipping
      and
      distribution of all of Synutra’s products.





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.





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.





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





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 at the
      time (the “Exchange”). As a result of this Exchange, Synutra Illinois became a
      wholly owned subsidiary of the Company.





On
      April
      12, 2007, the Company’s Common Stock was listed on the NASDAQ Global
      Market.





On
      November 6, 2006, the Company consummated a transaction with the Department
      of
      Finance of Zheng Lan Qi (County) of Inner Mongolia in which the Company acquired
      certain assets including approximately $256,000 in land use rights and
      $5,635,000 in plant and buildings under construction. In connection with the
      acquisition, the Company established a wholly owned company, the Inner Mongolia
      Sheng Yuan Food Co., Ltd., to produce milk fat and other diary-based food
      ingredients.




2




In
      November 2006, Zhangjiakou Sheng Yuan Co., Ltd., one of the Company’s operating
      subsidiaries, entered into an agreement with the shareholders of Inner Mongolia
      Meng Yuan Food Co., Ltd. (“Meng Yuan”) to acquire 100% of the equity interest in
      Meng Yuan for a consideration of about $900,000. At the close of the
      transaction, Meng Yuan transferred assets under its control to Zhangjiakou
      which
      included land use rights, plant equipment and plant buildings under
      construction. The Meng Yuan project is anticipated to be put in service in
      late
      2007 and is designed to produce 7,200 tons per year of infant formula products.





In
      November 2006, the Company obtained government approval to form a business
      venture, Mei Tai Technology (Qingdao) Co., Ltd., with three principals of Mei
      Hua Company and its affiliate who are engaged in developing, manufacturing,
      and
      exporting chondroitin sulfate, or cartilage, a nutraceutical supplement
      ingredient for distribution and sale in North American markets. The Company
      has
      been a business partner with these individuals for the past year in financing
      exports of the nutraceutical products which generated other income for the
      company. In the business venture, the Company has made an initial investment
      of
      $7.5 million to acquire a 70% stake in the resulting business, while the three
      individuals involved hold the remaining 30% of the business, with their
      contribution of technologies, know-how, marketing and sales effort, and client
      access valued accordingly. Part of the cash investment is being used to finance
      plant construction and equipment procurement to achieve a capacity of 700 tons
      per year of chondroitin sulfates and 2,000 tons per year of high grade
      polypeptide collagen protein in 12 months. It is expected that the collagen
      protein, as a by-product of the cartilage manufacturing processes, will become
      a
      key revenue source for the Company’s operations, including in specially
      formulated milk powder products for women, in dairy-based protein bars, and
      as a
      main ingredient in new meal replacement products for women, in addition to
      direct export of the protein product to North America. The consummation of
      this
      transaction was contingent upon the injection of investment capital by the
      Company into the business within 6 months from the date of approval by the
      government authorities.





**THE
      INDUSTRY**





China’s
      baby food industry, dominated by infant formula, is a multi-billion dollar
      business and has experienced double-digit growth rate yearly in the past five
      years. The growth is a result of the rising demand from the increased affluence
      of the Chinese population and the penetration of milk formula into the rural
      market as well as a growing female working population. Along with rising income,
      Chinese parents are expected to spend more on infant formula as they demand
      higher quality and greater variety. From the perspective of dairy products,
      China’s per capita dairy consumption is still relatively low which implies ample
      room for growth. In 2005, China’s per capita dairy intake was only 21.7kg, about
      20% of the global average. Milk consumption in China is unbalanced, with the
      majority of consumption in large cities and economically developed regions,
      whereas the consumption of the rural population is 1/10 of that of the urban
      population. The disparity represents a substantial opportunity in the rural
      regions.





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 300,000 tons in 2006. Therefore, management
      believes that there is 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$2
      billion during 2006 ,
      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.




3




The
      year
      2007 is marked as the “Year of the Golden Pig” in China, a desirable occurrence
      in a 60-year cycle in the traditional Chinese calendar that spurs higher birth
      rate. According to media reports and management estimates, a 30% increase in
      the
      number of birth is expected in the 2007 baby boom, expanding the market size
      of
      infant nutritional products and providing a unique growth opportunity for the
      Company.





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
      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. According to an official WHO presentation
      in
      August, 2006, the breastfeeding rate in China has been decreasing in recent
      years, with certain cities and regions dipping to around 61% of the nursing
      mothers.





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 are 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 continues its dynamic growth, the associated rise in income and wealth
      is expected to continue as well. The growth in the demand and sales of baby
      food
      is expected to remain strong, mainly because parents are expected to spend
      more
      on baby food along with demand for higher quality and greater variety products
      for their child. Total baby food sales is expected to reach about RMB24.5
      billion by 2010.





In
      recent
      years, there has been increasing demand in China for high-end/premium infant
      formula products due to increasing consumer awareness in brand image and
      nutritional value of the products and services offered by the producers. In
      addition to generic food industry regulations, the Chinese government has
      implemented 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.





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$1.5
      billion in sales during 2004. Management 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.





Increased
      income levels and higher standards of living typically lead to greater health
      awareness among the population and demand for better quality and more
      sophisticated food products. This is the so-called “wealth effect” whereby the
      growth of consumer spending on health and nutrition far out-paces spending
      in
      other areas as the general population becomes richer. This trend is expected
      to
      drive growth in both the pediatric and adult dairy-based nutritional products
      going forward.





4




**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 healthcare professionals.





Synutra’s
      pediatric nutritional products 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.




According
      to a McBaby study commissioned by Nomura in 2006, Synutra’s infant formula brand
      was ranked number 5 in China among all manufacturers (including multinationals)
      in terms of brand recognition and consumer preference and number 1 among Chinese
      manufacturers (based on the same study). In terms of market share of product
      sales, Synutra products were found to rank number 4 among all manufacturers,
      including multinational companies, and number 2 among all recognizable domestic
      Chinese manufacturers as of March 2007 (source: CIC, Ministry of
      Commerce).





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.





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.





During
      the current fiscal year ended March 31, 2007, Synutra made extensive adjustments
      to its product portfolio, upgrading product lines, and adding new products
      or
      line extensions to respond to market needs. The Super series added a Super
      Children’s Growth Formula for 3-7 year olds, a series of Super Special Purpose
      Formulas for preemies/low birth weight babies, for babies with diarrhea, and
      a
      lactose free formula, in addition to soy-based formulas for both infants and
      toddlers. The U-Smart series upgraded the entire product line with product
      concept, nutritional profile, packaging, as well as pricing. In addition to
      a
      successful launch of its Gold Package in early 2006, the Company also plans
      to
      add easy-to-use, single-serving packages (for more sophisticated consumers)
      in
      2007 to the U-Smart line. The U-Strong series further refined its product stages
      with new line extensions to meet consumer expectations. In the meantime, the
      series also went through a complete upgrade in product concept, packaging,
      and
      pricing.




5




Synutra
      sells formulated milk powder products that are marketed for the elderly and
      women, students, and young adults under the Sheng Yuan label, with the brand
      designation of “U-Love.” 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.





Under
      the
      label of U-Love, Synutra’s milk powder products for adults, women, and young
      adults also went through upgrades to further clarify the health and nutrition
      message and product image.





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. In current reporting fiscal year, Synutra’s
      adult milk powder products grew in proportion to the dairy-based pediatric
      product growth.





In
      the
      current fiscal year ended March 31, 2007, Synutra continued to improve its
      rice
      cereal products as supplemental and functional foods to infants and children’s
      diary-based formula products. These improvements included upgrades to packaging
      as well as new additions in the line with new functionalities, new tastes and
      flavors, and new protein sources such as fish and chicken.





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 loan guarantees
      to suppliers who are located in the regions where Synutra’s manufacturing plants
      are located. About 30% of Synutra’s fresh milk suppliers took 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 has
      extended financing to over 100 dairy farmers in the Chabei ranch region of
      Hebei
      province.





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 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.




6





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 , at a given purchase
      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 formulated 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
      has a total installed production capacity of 28,000 tons per year for infant
      formulas and like products and anticipates to add another 22,200 tons per year
      in the near future. Synutra believes it has sufficient capacity for
      manufacturing its products for the foreseeable future.




**Synutra’s
      Infant Formula Production Capacities:**





**Name
                of Facility**
            
            **Installed
                Capacity**
              **Tons/year**
            
            **Planned
                Expansion**
              **By
                end of 2007**
            
            **Future
                Capacity**Zhagjiakou
            
            
            22,000
            
            
            
            
            
            22,000Luobei
            
            
            3,000
            
            
            15,000
            
            
            18,000Bei’an
            
            
            3,000
            
            
            
            
            
            3,000Meng
                Yuan
            
            
            
            
            
            7,200
            
            
            7,200**Totals**
            
            
            **28,000**
            
            
            **22,200**
            
            
            **50,200**




*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. In the fiscal year ended March 31, 2007, a new
      Indosa (Swiss) high speed steel can packaging machine was put in service, in
      addition to 2 new Wolf (German) high speed pouch packaging lines. The Company’s
      packaging plant currently has an installed capacity of 60,000 tons per year.





*Distribution* .
      Synutra’s packaging subsidiary, Qingdao ST George Dairy Co., Ltd, 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.




7




**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. The primary subjects of
      the
      Company’s R&D activities involved new product formulation, new ingredients,
      and new methods to incorporate certain nutrients the Synutra products, and
      ways
      to improve product tastes and ingredients’ shelf stabilities.





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 ended March 31, 2007, Synutra spent approximately $0.5 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
      help 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.





We
      have
      devoted between 0.3% and 0.6% of revenues to research and development during
      each of the three years ended March 31, 2007, 2006, and 2005. Research and
      development expenses were $0.7 million, $0.5 million, and $0.4 million, for
      fiscal years ended March 31, 2007, 2006, and 2005, respectively.





**SALES
      AND MARKETING**





Synutra
      generally sells nutritional products directly to various distributors and some
      retailers , in addition to healthcare facilities and government agencies. The
      main approach of Company’s marketing efforts for nutritional products had been
      directed at extending retail coverage in terms of geography and market tiers.
      Over the fiscal year ended March 31, 2007, the Company has adopted an integrated
      sales and marketing approach that brought together advertising, brand-building,
      securing the recommendation of Synutra's brand of products by physicians or
      other healthcare professionals, as well as store-level promotions. Working
      with
      the integrated database sales and marketing platform is a professional sales
      team of more than 400 to acquire, process, and manage targeted customer
      information. According to management data, Synutra has over a million individual
      customers, of which 810,000 individual user profiles are maintained by Synutra’s
      databases as of March 31, 2007.




8




Synutra
      has a sales network throughout 24 provinces and municipalities, covering 264
      regional cities, and more than 1320 counties. 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 31, 2007, Synutra
      retained a total sales force of approximately 2,100 employees with a layered
      management structure, along with about 11,000 commissioned field nutrition
      consultants or retail site promoters.





Synutra
      works with more than 500 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.





As
      part
      of integrated sales and marketing approach, Synutra has built a team of more
      than 400 trained employees with medical or healthcare background 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).
      These sales and marketing team members work directly with more than 5,000
      hospitals in over 300 counties throughout the country to provide maternity
      and
      infant nutrition and health education programs. As of December, 2006, the
      Synutra team had run more than 5,000 new mother or mother-to-be sessions.
      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
      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.





In
      the
      fiscal year ended March 31, 2007, Synutra greatly expanded its nationwide
      television advertising coverage. In addition to other media such as newspapers,
      child-raising and medical periodicals, and internet portals and spaces, Synutra
      increased spending in advertising by many folds, securing prime time placements
      with China Central Television and other premium regional or satellite
      properties.





**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), Administration of Quality
      Supervision, Inspection and Quarantine (AQSIQ) and the State Food and Drug
      Administration Bureau (SFDA).




9




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
      December, 2006, the Chinese General Administration of Quality Supervision,
      Inspection and Quarantine (AQSIQ) issued a new regulation regarding “Special
      Purpose Formulated Milk Powder” and updated the “Implementation Rules for
      Permitting Production of Formulated Milk Powder for Infant and Children.” These
      new and updated regulations and rules will help standardize manufacturing
      requirements and will help enhance market competition.





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 fashion 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.





**COMPETITION**





Competition
      for Synutra’s products is generally other diversified consumer and healthcare
      industry 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
      Enfamil 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 and consumer products marketing, including Sanlu, a Chinese
      manufacturer and distributor of dairy products under the Anmum brand, Yili,
      a
      Chinese manufacturer and distributor of liquid and powdered milk under the
      Yili
      brand, and Yashili, a consumer brand marketer which sells a line of infant
      formula products under the brand of Yashili.




10




In
      the
      past year, the competitive landscape in China’s infant formula market has
      undergone significant changes. According to CIC data, the top ten brands
      accounted for 77.6% of total infant formulas sold in China in the year 2006.
      The
      market share of top brand products decreased to 11.6% as compared to more than
      20% three years ago. The percentage separation of the top five companies is
      less
      than 1 point. Among the top ten participants in the infant formula market,
      domestic companies are now on a par with international companies, in contrast
      to
      the situation a few years ago when foreign brands dominated the
      marketplace.





In
      terns
      of market tiers, the market share of international companies such as Numico
      and
      Mead Johnson over domestic Chinese companies in the well developed “first tier”
markets like Shanghai and Beijing is eroding. In the vast mid tier markets,
      domestic Chinese companies such as Synutra, Yili, and Yashili are clear market
      leaders and foreign brands no longer have any advantage. In the lower tier
      markets, lower end product companies such as Yili are well ahead of other
      domestic companies in terms of market share, while international companies
      have
      minimal presence.





**SEASONALITY
      OF BUSINESS**


In
      the
      ordinary course of business, demand for our products may be influenced by the
      timing of holidays and other annual or special events, weather conditions,
      or
      changes in seasons. Historically, our diary products sales are relatively higher
      during the cooler months and lower during the warmer months. In general,
      seasonality does not have a material impact on our business.





**WORKING
      CAPITAL PRACTICES**


There
      are
      no special or unusual practices relating to our working capital items. We
      generally require advance payments as deposits and full payment prior to product
      shipment for
      our
      traditional dairy-based nutritional products for infants, children and adults.
      In our export operations for nutritional supplement ingredients, varying payment
      terms are used and trade receivable are recorded.





**FINANCIAL
      INFORMATION ABOUT SEGMENTS AND GEOGRAPHIC AREAS**





We
      operate our business in one reportable segment. Please refer to Note 16 to
      the
      Consolidated Financial Statements for
      further discussion about segments and geographic areas.





**EMPLOYEES**





Synutra
      currently employs approximately 3,580 full-time personnel in all its facilities,
      with about 120 management staff and research and development personnel, about
      1,360 production personnel and more than 2,100 sales and marketing personnel.
      An
      additional approximately 11,000 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.





Compared
      with the previous fiscal year, full-time employees increased by 790, of which
      30
      are management and R&D personnel, 390 are production workers, and 370 are in
      sales and marketing. The number of part-time workers at retail customer sites
      increased by about 2,600.





**PRODUCTION
      FACILITIES**





Currently,
      there are a number of production facilities and one packaging facility located
      in different areas of China. The total production areas encompass about 85,000
      square meters, with a total installed production capacity of 28,000 tons per
      year and an expected total capacity of 50,200 tons per year by the end of 2007
      of spray-dried dairy products, and 60,000 tons of installed packaging capacity.





11




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.





**AVAILABLE
      INFORMATION**





Our
      Internet website address is *www.synutra.com* .
      We make
      available at this address, free of charge, our annual report on Form 10-K,
      quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments
      to those reports as soon as reasonably practicable after such material is
      electronically filed with or furnished to the SEC. Information available on
      our
      website is not incorporated by reference in and is not deemed a part of this
      Form 10-K.





**ITEM
      1A. 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, Synutra 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 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.





12




**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.





**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.




13




**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 South 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.




**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),
      Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), 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.




14





**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.




**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.





**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.




15





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.





**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), Administration of Quality
      Supervision, Inspection and Quarantine (AQSIQ), 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.




16




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.





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.




17




**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 currently thinly-traded on the Nasdaq
      Global Market, 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 to mid cap 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.





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





The
      Company’s Certificate of Incorporation contains 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.





**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




18




·
            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
      March 31, 2007, the Company’s directors and executive officers and their
      affiliates beneficially own approximately 87.31% 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 18, 2007, the Company had outstanding 54,000,713 shares of common stock,
      of
      which approximately 52,907,415 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 52,906,875 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.





**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;




19




·
            new
                accounting standards;·
            general
                economic, political and market conditions and other factors; and·
            the
                occurrence of any of the risks described in this Form 10-K.





**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





None.




**ITEM
      2. PROPERTIES**





Our
      administrative, manufacturing, and packaging facilities are located in various
      places including Qingdao, Beijing, Zhangjiakou, Inner Mongolia, Chabei, Luobei,
      Beian in China, and Rockville Maryland in the United States. These facilities
      include approximately 86,000 square meters of offices, plants, and warehouse
      spaces. Our headquarters are located at Qingdao with over 1600 square meters
      of
      owned office space. We also have leased office space at Beijing of around 3,100
      square meters. Synutra Illinois leases an executive office in Rockville,
      Maryland, USA.


We
      believe that our facilities are suitable for our current operations and any
      increase in production in the near term will not require additional
      space.





**ITEM
      3. LEGAL PROCEEDINGS**




There
      are
      no pending legal proceedings to which we are a party or of which any of our
      properties is the subject.




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




There
      were no matters submitted to a vote of security holders in the fourth quarter
      of
      fiscal 2007.




20




**PART
      II**




**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND
      ISSUER PURCHASES OF EQUITY SECURITIES**




Our
      stock
      was quoted on the Over-The-Counter Bulletin Board under the trading symbol
      “SYUT.OB” up to April, 2007. As of April 12, 2007, Common Stock has been listed
      on the NASDAQ Global Market under "SYUT”





The
      following table shows the high and low bid price of our stock for the last
      two
      fiscal years. 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.





**Fiscal Year 2007**
            
            **Fiscal Year 2006****High**
            
            **Low**
            
            **High**
            
            **Low**First
                Quarter
            
            $
            9.00
            
            $
            5.00
            
            $
            1.75
            
            $
            1.02Second
                Quarter
            
            
            12.75
            
            
            8.60
            
            
            2.75
            
            
            1.25Third
                Quarter
            
            
            13.00
            
            
            10.91
            
            
            2.10
            
            
            0.80Fourth
                Quarter
            
            
            12.51
            
            
            10.25
            
            
            5.52
            
            
            1.70





**Stockholders**




At
      June 18, 2007, we had approximately 50 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 or shares held by a
      custodian for the benefit of our employees.




**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, although the
      Company has deposited with a custodian 2,345,900 shares for the benefit of
      approximately 1400 employees all without any dilution to the existing
      shareholders.





**Recent
      Sales Of Unregistered Securities**




None.




21




**ITEM 6.
      SELECTED FINANCIAL DATA**





The
      following selected consolidated financial data should be read in conjunction
      with the Consolidated Financial Statements and Notes thereto and “Management’s
      Discussion and Analysis of Financial Condition and Results of Operation”
appearing elsewhere in this report.





**Year
                Ended March 31,**(In
                thousands, except per share amounts)
            
            **2007**
            
            **2006**
            
            **2005****Statement
                of Income Data:**Sales
            
            $
            219,404
            
            $
            132,692
            
            $
            63,452Income
                from operations
            
            
            24,006
            
            
            13,537
            
            
            4,999Net
                income
            
            
            25,731
            
            
            11,035
            
            
            3,122Net
                income per Share - basic and diluted
            
            
            0.51
            
            
            0.23
            
            
            0.07





**March
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2005****Balance
                Sheet Data:**Working
                Deficit
            
            $
            (4,374
            )
            $
            (9,308
            )
            $
            (15,920
            )Total
                Assets
            
            
            128,574
            
            
            83,009
            
            
            64,193Short-Term
                Debt
            
            
            53,622
            
            
            32,246
            
            
            32,121Long-Term
                Liabilities
            
            
            -
            
            
            4,932
            
            
            4,833Shareholders’
                Equity (Deficit)
            
            
            48,665
            
            
            20,951
            
            
            (218
            )







**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND REUSULTS 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-K.




**MANAGEMENT
      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 eight 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 77% of the revenue for the fiscal year ended March
      31,
      2007 was from pediatric nutritional products and the rest from adult and other
      products. Synutra also produces and sells retail packaged rice cereals, which
      extends its diary based nutritional product lines. As supplemental foods to
      infant and children formula products, management believes that rice cereal
      products possess significant market potential. In the fiscal year ended March
      31, 2007, the Company continued to experience significant growth in the newly
      launched premium infant formula products and line extensions. These 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
      continued to make and sell non-fat dry milk as well as anhydrous milk-fat.
      During fiscal year 2007, Synutra saw its production capacities nearly double
      with the commissioning of a modern spray-drying facility in Zhangjiakou, Hebei
      province. The Company also acquired new dairy processing assets in Inner
      Mongolia for both milk powder operations and for other dairy-protein
      products.




22




On
      November 6, 2006, the Company consummated a transaction with the Department
      of
      Finance of Zheng Lan Qi (County) of Inner Mongolia in which the Company acquired
      certain assets owned by them including approximately $256,000 in land use rights
      and $5,635,000 in plant and buildings under construction. In connection with
      the
      acquisition, the Company established a wholly owned company, the Inner Mongolia
      Sheng Yuan Food Co., Ltd, to produce milk fat and other diary-based food
      ingredients.





In
      November 2006, Zhangjiakou Sheng Yuan Co., Ltd., one of the Company’s operating
      subsidiaries, entered into an agreement with the shareholders of Inner Mongolia
      Meng Yuan Food Co., Ltd. (“Meng Yuan”) to acquire 100% of the equity interest in
      Meng Yuan for a consideration of about $900,000. At the close of the
      transaction, Meng Yuan transferred assets under its control to Zhangjiakou
      which
      included land use rights, plant equipment and plant buildings under
      construction. The Meng Yuan project is anticipated to be put in service in
      late
      2007 and is designed to produce 7,200 tons per year of infant formula products.





In
      November 2006, the Company obtained government approval to form a business
      venture, Mei Tai Technology (Qingdao) Co., Ltd., with three principals of Mei
      Hua Company and its affiliate who are engaged in developing, manufacturing,
      and
      exporting chondroitin sulfate, or cartilage, a nutraceutical supplement
      ingredient for distribution and sale in North American markets. The Company
      has
      been a business partner with these individuals for the past year in financing
      exports of the nutraceutical products which generated other income for the
      company. In the business venture, the Company has made an initial investment
      of
      $7.5 million to acquire a 70% stake in the resulting business, while the three
      individuals involved hold the remaining 30% of the business, with their
      contribution of technologies, know-how, marketing and sales effort, and client
      access valued accordingly. Part of the cash investment is being used to finance
      plant construction and equipment procurement to achieve a capacity of 700 tons
      per year of chondroitin sulfates and 2,000 tons per year of high grade
      polypeptide collagen protein in 12 months. It is expected that the collagen
      protein, as a by-product of the cartilage manufacturing processes, will become
      a
      key revenue source for the Company’s operations, including in specially
      formulated milk powder products for women, in dairy-based protein bars, and
      as a
      main ingredient in new meal replacement products for women, in addition to
      direct export of the protein product to North America. The consummation of
      this
      transaction was contingent upon the injection of investment capital by the
      Company into the business within 6 months from the date of approval by the
      government authorities.




**RESULTS
      OF OPERATIONS**




**Year
      Ended March 31, 2007 Compared to Year Ended March 31, 2006**





**Sales**





Sales
      for
      the year ended March 31, 2007 increased by $86.7 million or 65% to $219.4
      million from $132.7 million for the year ended March 31, 2006. Increase in
      volume of products sold was due in part to greater market penetration as a
      result of various measures including changes made by management to incentive
      programs and policies affecting the Synutra sales system. Such change enhanced
      sales force productivity through targeted resource allocation down to the store
      level, and strengthened promotional efforts in the medium sized city markets
      and
      rural markets of China by aligning bonuses with sales performance.




23




The
      sales
      of traditional main products, such as the dairy based nutritional products
      for
      infants, children and adults under its brand names of Super, U-Smart, U-Strong,
      and National Standards, increased by $74.9 million, or 79% to $170.3 million
      for
      the fiscal year ended March 31, 2007 from $95.4 million for the fiscal year
      ended March 31, 2006, principally as a result of the following
      factors:





a.
            The
                tons sold of traditional main products increased to 28,160 tons in
                the
                year ended March 31, 2007 from 19,240 tons in the year ended March
                31,
                2006, resulting in an increase of $44.2 million in gross
                sales




b.
            Higher
                average selling price also contributed to the increase of gross sales.
                For
                the year ended March 31, 2007, the average selling price of the Company’s
                traditional main products increased from $4,956 to $6,047 per ton,
                resulting in an increase of $21 million in gross sales.




c.
            Sales
                growth attributable to combined factor of the increase of the volume
                and
                the price was $9.7 million.





Sales
      of
      nutritional supplement ingredients were $16.4 million and $ 3.9 million for
      the
      year ended March 31, 2007 and 2006 respectively, an increase of $12.5 million
      or
      323%. The large amount of sales increase was because production of these
      products started in the fourth quarter of fiscal year 2006 and in fiscal year
      2007 it was for the entire year. The toll drying, blending, and packaging
      services generated $10.5 million and $4.2 million for the year ended March
      31,
      2007 and 2006 respectively, an increase of $6.3 million or 148% due to the
      Company’s adding new production capacities during the year ended March 31, 2007.





Partially
      offsetting the increase in total sales were the sales to industry customers
      of
      dairy ingredients which was $6.6 million and $7.8 million for the fiscal year
      ended March 31, 2007 and 2006, respectively, a decrease of $1.3 million or
      16%,
      and the sales of industry material-- anhydrous milk-fat, non-fat dry milk which
      was $14.37 million and $19.67 million for fiscal year ended March 31, 2007
      and
      2006, respectively, a decrease of $5.3 million, or 27%, mainly because of the
      scarcity of whey protein in the entire industry and the Company did not have
      extra materials to sell to other industry customers.




In
      the
      fiscal year ended March 31, 2007, the Company achieved approximately 98.88%
      of
      its sales revenue of the $170 million in traditional main products through
      its
      wholesale distributor networks and about 1.12% through the supermarket
      retailers. Of the total $95 million of main products sales generated in the
      12
      months period ended March 31, 2006, about 98.8% were from distributors and
      about
      1.2% from supermarket retailers.





The
      majority of the Company’s products carry shelf lives of 18 to 24 months. Damaged
      and unsold products with expired shelf life are returned and deducted from
      sales
      revenue. Product returns were estimated at approximately $0.1 million, and
      $1.4
      million for the years ended March 31, 2007, and 2006, respectively. These
      amounts were deducted from revenue of the reporting period. The decrease in
      product returns over the reporting periods reflects in part improvements in
      product packaging materials and handling techniques, in addition to overall
      product quality control.





Qualified
      discounts are accrued to larger distributors with a growth-based incentive
      mechanism in the corresponding periods during which the sales growth
      materialized. The cost of this policy is treated as discount and is charged
      against sales revenue of the corresponding period. In the year ended March
      31,
      2007, growth based distributor incentive amounted to approximately $3.7 million,
      compared to about $1.6 million in the fiscal year ended March 31, 2006. It
      is
      anticipated that this growth based distributor incentive program will end in
      fiscal year 2008.





Most
      of
      the Company’s products are shipped to the distributors upon receipt of payment.
      No single customer represented more than 3% of total sales both in the year
      ended March 31, 2007 and 2006.




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, 2007 increased to $109.6 million from $75.4
      million for the year ended March 31, 2006. The 45% increase in cost of sales
      of
      $34.1 million 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.





The
      cost
      of sales for traditional main products increased by $25.2 million, or 63% to
      $64.9 million for the fiscal year ended March 31, 2007 from $39.7 million for
      the fiscal year ended March 31, 2006. The increase of 8,920 tons sold of the
      traditional main products resulted in an $18.4 million increase in cost. Due
      to
      the increase in sales of the premium products, the average cost per unit
      increased by $239 per metric ton, resulting in a $4.6 million increase in cost
      for the year ended March 31, 2007. Additionally, the combined factors of
      production volume and increase of unit cost led to $2.1 million in increased
      cost of products sold.





The
      cost
      of nutritional supplement ingredients was $14.3 million and $3.5 million for
      the
      fiscal year ended March 31, 2007 and 2006, respectively, an increase of $10.8
      million or 310%. The large amount of cost increase was because production of
      these products started in the fourth quarter of fiscal year 2006 and in fiscal
      year 2007 it was for the entire year. The cost of ancillary services for toll
      drying, blending, and packaging was $9.2 million and $4.2 million for the fiscal
      year ended March 31, 2007 and 2006 respectively, an increase of $5.0 million
      or
      118 %.





Partially
      offsetting the increase in cost of sales was the decrease in cost of sales
      to
      industry customers of dairy and other ingredients and packaging materials which
      was $14.1 million and $19.4 million for the fiscal year ended March 31, 2007
      and
      2006, respectively, a decrease of $5.3 million or 27%; and a decrease in the
      cost of sales of industrial materials -- anhydrous milk-fat, and non-fat dry
      milk which was $5.9 million and $6.8 million for the fiscal year ended March
      31,
      2007 and 2006 respectively, a decrease of $967,000 or 14%.





**Gross
      Profit**





Gross
      profit was $109.9 million or 50% of sales for the year ended March 31, 2007,
      compared to $57.3 million or 43% of sales for the year ended March 31, 2006,
      an
      increase of $52.6 million or 92%, primarily due to the sales of traditional
      main
      products which contributed $105.4 million or 96% of gross profits for the year
      ended March 31, 2007, versus $55.6 million or 97% gross profits for the year
      ended March 31, 2006.




In
      the
      year ended March 31, 2007, the Company experienced increases 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 $10.1 million or 65% to $25.6 million
      for
      the year ended March 31, 2007, as compared to $15.5 million for the year ended
      March 31, 2006, as a result of increased transportation and travel expenses
      in
      proportion to the increase in sales volume, in addition to the increases in
      expenses such as wages. ** The
      total
      compensation to the sales force increased by $4.7 million from $4.5 million
      for
      the year ended March 31, 2006 to $9.2 million for the year ended March 31,
      2007.
      In the meantime shipping and handling expenses increased by $1.1 million from
      $2.8 million for the year ended March 31, 2006 to $4.0 million for the year
      ended March 31, 2007; and travel expenses increased by $0.6 million from $1.4
      million for the year ended March 31, 2006 to $2.0 million for the year ended
      March 31, 2007. Other business fees increased by $ 4.2 million from $1.8 million
      for the year March 31, 2006 to $6 million for the year ended March 31, 2007,
      primarily as a result of increases in business activities, including meetings,
      seminars, and conferences, in addition to increased promotional efforts and
      business service charges.




25




Sales
      force compensation increased due to the hiring of additional sales personnel
      in
      response to expanding business and greater market penetration. During the fiscal
      year ended March 31, 2007, the Company increased its marketing effort in rural
      areas with about 800 sales personnel added and reaching into more than 1,000
      additional townships throughout China.




**Advertising
      and Promotion Expenses**





Advertising
      and promotion increased by $30.9 million or 137% to $53.5 million for the year
      ended March 31, 2007, as compared to $22.5 million for the year ended March
      31,
      2006 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.






(in
                thousands)
            
            **Year
                ended March 31, 2007**
            
            **Year
                ended March 31, 2006**
            
            **change
                in $**
            
            **change
                in %**Advertising
            
            $
            15,286
            
            $
            6,039
            
            $
            9,247
            
            
            153
            %Sales
                promotion
            
            
            38,181
            
            
            16,502
            
            
            21,679
            
            
            131
            %Totals
            
            $
            53,467
            
            $
            22,541
            
            $
            30,926
            
            
            137
            %





**General
      and Administrative Expenses**





General
      and administrative expenses increased by $1.1 million or 20% to $6.8 million
      for
      the year ended March 31, 2007, as compared to $5.7 million for the year ended
      March 31, 2006. The major increases in general and administrative expenses
      were
      for staff salaries and management expenses which accounted for about $0.9
      million of the total increase.





**Income
      from Operations**





Based
      on
      the sales increase of $86.7 million or 65% and the cost of sales increase of
      $34
      million or 45% for the year ended March 31, 2007, gross profit increased by
      $52.6 million or 92% compared to prior fiscal year. In the meantime, operational
      expenses also increased by $42 million for the year. As a result, income from
      operations was $24 million for the year ended March 31, 2007, as compared to
      $13.5 million for the year ended March 31, 2006, an increase of $10.5 million
      or
      77%





**Finance
      costs**





Finance
      costs increased by $137,000 or 7% to $2.1 million for the year ended March
      31,
      2007, as compared to $2.0 million for the year ended March 31, 2006. The
      increase is mainly a result of interest charged for various bank loans. In
      addition to increases in notes payable, the short-term loan interest rate also
      increased during fiscal 2007.




26




**Subsidy
      income**





Subsidy
      income from local governments increased by $4.4 million to $5.2 million for
      the
      year ended March 31, 2007 as compared to $734,000 for the year ended March
      31,
      2006. This increase was primarily a result of the cash incentive program
      associated with the Inner Mongolia Sheng Yuan Food Co., Ltd. acquisition. 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), Net**





Other
      income, net was $120,000 for the year ended March 31, 2007, and other expenses,
      net was $45,000 for the year ended March 31, 2006. The Company incurred these
      other income or expenses mainly as a result of sales and disposal of certain
      assets or fixed assets.





**Provision
      for Income Taxes**





The
      provision for income taxes, which is computed on a per subsidiary basis, was
      $1.8 million and $1.4 million for the years ended March 31, 2007 and 2006,
      respectively. The difference in income tax provisions was due to changes in
      the
      status of tax holidays and abatement treatment for fiscal year 2007 for some
      of
      the operating subsidiaries.





Under
      the
      Provisional Taxation Regulation of the PRC, income tax is payable by enterprises
      at a rate of 33% of their taxable income. Subject to this regime, the Company’s
      aggregate corporate income tax would have been $9.1 million and $4.3 million
      for
      the year ended March 31, 2007 and 2006, respectively. Some of the Company’s
      operating subsidiaries in China currently enjoy reduced tax rates or tax
      holidays which will expire under varying termination schedules. Due to
      application of such preferential tax policy, the actual corporate income tax
      was
      $2.0 million and $1.4 million for the year ended March 31, 2007 and 2006,
      respectively. The reduced tax rates or tax holidays accorded to the Company
      resulted in tax savings of $7.3 million and $2.9 million, respectively. The
      per
      share effect of the total tax savings was $0.14 and $0.05 for the year ended
      March 31, 2007 and 2006, respectively





**Net
      Income Attributed to Shareholders**





Net
      income attributable to shareholders for the year ended March 31, 2007 increased
      by $14.7 million, or 133% to $25.7 million from $11.0 million for the year
      ended
      March 31, 2006 due to the factors discussed above.





**Earnings
      Per Share**





Basic
      and
      diluted Earnings Per Share were $0.51 and $0.23 for the years ended March 31,
      2007 and 2006, respectively, an increase of $0.28, or 128%.





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





**Sales**





Sales
      for
      the year ended March 31, 2006 increased by $69.2 million or 109% to $132.7
      million from $63.5 million for the year ended March 31, 2005. Increase in volume
      of products sold was due in part to greater market penetration as a result
      of
      various measures including changes made by management to incentive programs
      and
      policies affecting the Synutra sales system. Such change enhanced sales force
      productivity through targeted resource allocation down to the store level,
      and
      strengthened promotional efforts in the medium sized city markets and rural
      markets of China by aligning bonuses with sales performance.





The
      sales
      of traditional main products, such as the dairy based nutritional products
      for
      infants, children and adults under its brand names of Super, U-Smart, U-Strong,
      and National Standards, mostly contributed to the increasing trend of revenue.
      The total revenue also included sales generated from processing and packaging
      of
      nutritional supplement ingredients, anhydrous milk-fat, non-fat dry milk, and
      toll packaging and blending services, which amounted to $29.5 million and $7.5
      million for the years ended March 31, 2006 and 2005, respectively.




27




For
      fiscal year ended March 31, 2006, toll drying, blending, and packaging services
      generated $4.2 million in fees, an increase of $1.8 million or 74% from $2.4
      million for the prior fiscal year ended March 31, 2005. Sales to industry
      customers of dairy and other ingredients and packaging materials amounted to
      $19.7 million for the year ended March 31, 2006, an increase of $16.2 million
      or
      477% from $3.4 million for the previous year. A newly developed nutritional
      supplement ingredient recorded sales of $3.9 million in the year ended March
      31,
      2006. Sales of promotional products and other materials amounted to $1.7 million
      for the year ended March 31, 2006, as compared to $1.6 million for the year
      before. The toll drying, blending, and packaging increased significantly as
      the
      Company added new production capacities in the year ended March 31, 2006. The
      volume of sales in dairy and other ingredients and packaging materials to our
      customers increased significantly for the year because our customers’ business
      activities increased rapidly and transactions between industry customers
      increased significantly as the sector grew over for the same
      period.





a.
            The
                tons sold of traditional main products increased to 19,240 tons in
                the
                year ended March 31, 2006 from 12,903 tons in the year ended March
                31,
                2005, resulting in an increase of $27.5 million in gross
                sales




b.
            Higher
                average selling price also contributed to the increase of gross sales.
                For
                the year ended March 31, 2006, the average selling price of the Company’s
                traditional main products increased from $4,337 to $4,956 per ton,
                resulting in an increase of $8.0 million in gross sales.




c.
            Sales
                growth attributable to combined factor of the increase of the volume
                and
                the price was $3.9 million.




d.
            New
                product launched contributed $7.8 million in gross sales growth.




e.
            Revenue
                generated by ancillary products and services contributed $22.0 million
                to
                the increase in gross sales, which included toll drying, blending,
                and
                packaging services for industry customers when excess production
                capacities are available; ad hoc sales of dairy and other ingredients
                and
                packaging materials to industry customers when excess materials are
                available; sales of a new nutritional supplement ingredient; and
                sales of
                promotional products and other
                materials.





In
      the
      fiscal year ended March 31, 2006, the Company realized and earned close to
      98.8%
      of its sales revenue of the $103.0 million of traditional main products through
      its wholesale distributor networks and about 1.2% through the supermarket
      retailers. Of the total $56.0 million of main products sales earned in the
      12
      months period ended March 31, 2005, about 98.7% was from distributors and about
      1.3% from supermarket retailers.





Majority
      of the Company’s products carry shelf lives of 18 to 24 months. Damaged and
      unsold products with expired shelf life are returned and deducted from sales
      revenue. In the year ended March 31, 2006 product returns were estimated at
      approximately $1.4 million, compared with an estimated $2.2 million in the
      previous year. These amounts were deducted from revenue of the reporting period.
      The decrease in product returns over the reporting periods reflects in part
      improvements in product package, in addition to overall product quality
      control.





Qualified
      discounts are accrued to larger distributors with a growth-based incentive
      mechanism in the corresponding periods during which the sales growth
      materialized. The cost of this policy is treated as discount and is charged
      against sales revenue of the corresponding period. In the year ended March
      31,
      2006, growth based distributor incentive amounted to approximately $1.6 million,
      compared to about $0.9 million the year ended March 31, 2005.




28




Most
      of
      the Company’s products are shipped to the distributors upon receipt of payment
      directly from them, who thus assume title of the products immediately. No single
      customer constitutes a significant distributor to the Company by commanding
      more
      than 3% of its total sales both in the year ended March 31, 2006 and
      2005.





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 $75.4 million from $35.1
      million for the year ended March 31, 2005. The 114%% increase in cost of sales
      of $40.3 million 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.




The
      increase of 6,337 tons sold of the traditional main products resulted in $13.7
      million increase of cost. The average cost per unit decreased by $104 per metric
      ton, resulting in $1.3 million cost reduction for the year ended March 31,
      2006.
      Additionally, the combined factor of production volume and reduction of unit
      cost led to $656,000 decline of cost of products sold. The launch of new
      products accounted for $6.8 million in the total cost of sales for the year
      ended March 31, 2006. The total cost of sales also included costs associated
      with processing and packaging of nutritional supplement ingredients, anhydrous
      milk-fat, non-fat dry milk, and toll packaging and blending
      services.





The
      $104
      average cost per unit decrease for main products was principally due to the
      Company’s continuous effort in improving the formula mix in addition to
      achieving economies of scale. The production volume of the Company’s mainline
      products increased by approximately 8,000 tons or more than 50% during the
      fiscal year ended March 31, 2006 from the previous fiscal year, which
      contributed to a reduction in processing cost per ton of products
      produced.





The
      cost
      of ancillary services rendered in toll drying, blending, and packaging was
      $4.2
      million for the fiscal year ended March 31, 2006, as compared to $2.3 million
      the year before, an increase of $2.0 million or 87%. The cost of sales of dairy
      and other ingredients and packaging materials to industry customers amounted
      to
      $19.4 million for the year ended March 31, 2006 as compared to $3.3 million
      the
      year before, an increase of $16.1 million or 489%. These cost increases, though
      significant, are in proportion to the increases in the sales of these ancillary
      products and services. The cost of sales of promotional products and other
      materials amounted to $1.7 million for the year ended March 31, 2006 as compared
      to $1.6 million for the year before. The cost of sales for the newly developed
      nutritional ingredient was $3.5 million for the reporting period.





**Gross
      Profit**





Gross
      profit was $57.3 million or 43% of sales for the year ended March 31, 2006,
      compared to $28.3 million or 45% of sales for the year ended March 31, 2005.
      It
      was an increase of $29.0 million or 103% in gross profit.





The
      sales
      of traditional main products contributed $55.6 million or 97% of gross profits
      for the year ended March 31, 2006. Such main products sales contributed $28.0
      million or 99% gross profits for the year ended March 31, 2005. The gross profit
      of the ancillary products and services was $625,000 or about 1% of the
      consolidated gross profit for the year ended March 31, 2006, as compared to
      $290,000 or about 1% for the year before.




29




In
      the
      year ended March 31, 2006, the Company experienced increases 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 $4.2 million or 38% to $15.5 million
      for
      the year ended March 31, 2006, as compared to $11.3 million 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 and travel expenses
      in proportion to the increase in sales volume, in addition to increases in
      expenses such as wages. ** The
      total
      compensation to the sales force increased by $2.9 million from $1.6 million
      in
      the year ended March 31, 2005 to $4.5 million in the year ended March 31, 2006.
      In the meantime shipping and handling expenses increased by $845,000 from $2.0
      million in the year ended March 31, 2005 to $2.8 million in the year ended
      March
      31, 2006; and travel expenses increased by $645,000 from $732,000 in the year
      ended March 31, 2005 to $1.4 million in the year ended March 31, 2006. Sales
      force compensation increased due to the hiring of additional sales personnel
      in
      response to expanding business and greater market penetration. During the fiscal
      year ended March 31, 2006, the Company increased its marketing effort in rural
      areas with more than 800 sales personnel added reaching into 1,000 additional
      townships throughout China.




**Advertising
      and Promotion Expenses**





Advertising
      and promotion increased by $13.4 million or 146% to $22.5 million for the year
      ended March 31, 2006, as compared to $9.1 million 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 %**(in
                  thousands)Advertising
              
              $
              6,039
              
              $
              2,557
              
              $
              3,482
              
              
              136
              %Sales
                  promotion
              
              
              16,502
              
              
              6,620
              
              
              9,882
              
              
              149
              %**Totals**
              
              **$**
              **22,541**
              
              **$**
              **9,177**
              
              **$**
              **13,364**
              
              
              146
              %




**General
      and Administrative Expenses**





General
      and administrative expenses increased by $2.9 million or 101% to $5.7 million
      for the year ended March 31, 2006, as compared to $2.8 million for the year
      ended March 31, 2005. The major increases in general and administrative expenses
      were for staff salaries and management expenses which accounted for about $1.1
      million of the total increase. The Company incurred an additional $1.1 million
      incremental legal, accounting, and consulting costs related to corporate
      transactions and the costs associated with operating a public
      company.




30




**Income
      from Operations**





Based
      on
      the sales increase of $69.2 million or 109% and the cost of sales increase
      of
      $40.2 million or 114% for the year ended March 31, 2006, gross profit was up
      by
      almost $29 million or 103% 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 $13.5 million for the year ended March 31, 2006,
      as
      compared to $5.0 million for the year ended March 31, 2005, an increase of
      $8.5
      million or 171%





**Finance
      costs**





Finance
      costs increased by $813,000 or 70% to $2.0 million for the year ended March
      31,
      2006, as compared to $1.2 million for the year ended March 31, 2005. The
      increase is mainly a result of recording of share-based payment to financial
      consultants in a transaction fee of $567,000 and 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 $463,000 to $734,000 for the year
      ended March 31, 2006 as compared to $271,000 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), Net**





Other
      expenses, net were $45,000 for the year ended March 31, 2006, and the amount
      was
      $291,000 for the year ended March 31, 2005. The Company incurred these net
      expenses mainly as a result of sales and disposal of certain assets or fixed
      assets.





**Provision
      for Income Taxes**





The
      provision for income taxes, which is computed on a per subsidiary basis, was
      $1.4 million and $88,000 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 fiscal year 2006 for some
      of
      the operating subsidiaries.





Under
      the
      Provisional Taxation Regulation of the PRC, income tax is payable by enterprises
      at a rate of 33% of their taxable income. Subject to this regime, the Company’s
      aggregate corporate income tax would have been $4.1 million and $1.3 million
      for
      the year ended March 31, 2006 and 2005, respectively. Some of the Company’s
      operating subsidiaries in China currently enjoy reduced tax rates or tax
      holidays which will expire under varying termination schedules. Due to
      application of such preferential tax policy, the actual corporate income tax
      was
      $1.4 million and $88,000 for the year ended March 31, 2006 and 2005,
      respectively. The reduced tax rates or tax holidays accorded to the Company
      resulted in tax savings of $2.7 million and $1.2 million, respectively. The
      per
      share effect of the total tax savings was $0.05 and $0.03 for the year ended
      March 31, 2006 and 2005, respectively.





**Net
      Income Attributed to Shareholders**





Net
      income attributable to shareholders for the year ended March 31, 2006 increased
      by $7.9 million to $11.0 million from $3.1 million 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 and $0.07 for the years ended March 31,
      2006 and 2005, respectively.





31




**LIQUIDITY
      AND CAPITAL RESOURCES**





**Cash**





The
      cash
      balance increased by $11.6 million to $33.8 million at March 31, 2007, as
      compared to $22.1 million at March 31, 2006. The increase was mainly
      attributable to net cash provided by operating activities of $11.6 million
      and
      net cash provided by financial activities of $17.6 million, being offset by
      cash
      spent in construction projects on plant and acquisition of fixed assets which
      amounted to $19.6 million. The remaining $2.0 million was the effect of exchange
      rate changes on cash items.




Cash
      flow
      generated from operations was $11.6 million for the fiscal year ended March
      31,
      2007. Notes receivable increased by $1.3 million, trade receivables increased
      by
      $2.7 million and advances to suppliers increased by $2.7 million. Expanded
      scale
      of operations from the increase in sales revenues in fiscal year 2007 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 increases
      in other payable and accrued expensesand customer deposits, which
      provided$4.5 million in cash flow.




Cash
      flows used in investing activities amounted to $19.6 million. During the fiscal
      year 2007, we used around $10.8 million for the construction on a factory plant
      and facilities, ** We
      also
      spent around $8.9 million on new machinery and equipment.





Cash
      flows generated from financing activities was $17,584. It was the net increase
      in bank loans .





**Working
      Capital**





Working
      capital increased by $4.9 million to negative $4.4 million at March 31, 2007,
      as
      compared to negative $9.31million at March 31, 2006. The increase in working
      capital reflects current ratios of 95% and 84%, respectively.





The
      significant improvement was due to the growth of the Company’s pretax earnings
      which 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, 2008, we intend to continue to work
      to
      expand our product lines and product mix, as well as our product distribution
      throughout China. We expect to fund these projects with operating cash flows
      generated in the normal course of business, as well as ongoing borrowings under
      the facility.





In
      April,
      2007, the Company and ABN AMRO Bank N.V., Hong Kong branch ("ABN") entered
      into
      a Loan Agreement pursuant to which ABN agreed to make loans to the Company
      in
      the amount of $35,000,000. The principal amount, and any unpaid accrued interest
      thereon, is due in six months. The loans may be prepaid without penalty prior
      to
      the Maturity Date. The loans bear interest at the one-month London interbank
      offered rate for deposits in US dollars plus 2.5% with interest payable on
      the
      last day of each month. The Company is required to pay to ABN a commitment
      fee
      of 1% on the daily amount of the unused Commitment Amount. The proceeds of
      the
      loans have been used to make investments in one of the Company's suppliers,
      Heilongjiang Baoquanling Shen Yuan Dairy, a related party, to fund the
      construction of new production facilities, to establish a joint venture for
      the
      production of Chondroitin, to purchase fixed assets for the production of
      nutritional food bars, and to establish a joint venture that will offer prenatal
      diagnostic and genetic testing services.




32




On
      June
      15, 2007, the Company completed a transaction pursuant to a Purchase Agreement
      dated May 24 between the Company and Warburg Pincus Private Equity IX, L.P,
      whereby Warburg purchased 4 million shares of common stock, par value $0.0001
      per share, for an aggregate purchase price of sixty-six million dollars
      ($66,000,000). The proceeds from this transaction is intended for general
      corporate purposes.





**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, advances and
      other current assets, short-term bank borrowings, and other payables and
      accruals, the carrying amounts approximate fair values due to their short
      maturities.





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.





33




**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.
      Under the Provisional Taxation Regulation of the PRC, income tax is payable
      by
      enterprises at a rate of 33% of their taxable income. Subject to this regime,
      the Company’s aggregate corporate income tax would have been $9.1 million and
      $4.3 million for the year ended March 31, 2007 and 2006, respectively. Some
      of
      the Company’s operating subsidiaries in China currently enjoy reduced tax rates
      or tax holidays which will expire under varying termination schedules. Due
      to
      application of such preferential tax policy, the actual corporate income tax
      was
      $2.0 million, $1.4 million and $88,000 for the year ended March 31, 2007, 2006
      and 2005, respectively. The reduced tax rates or tax holidays accorded to the
      Company resulted in tax savings of $7.3 million, $2,9 million and $1.2 million
      for the year ended March 31, 2007, 2006 and 2005, respectively. The per share
      effect of the total tax savings was $0.14, $0.05 and $0.03 for the year ended
      March 31, 2007, 2006 and 2005, respectively.





Qingdao
      St. George Dairy Co., Ltd, Heilongjiang Loubei Shengyuan Dairy Co. Ltd, Bei’an
      Yipin Dairy Co. Ltd and Zhangjiakou Sheng Yuan Co. Ltd., Inner Mongolia
      Shengyuan Food Co., Ltd., and Mei Tai Technology (Qingdao) Co., Ltd. qualify
      as
      a foreign investment production enterprise and were established in a special
      economic zone. As approved by the tax authorities, such subsidiaries are
      entitled to a two year exemption from income taxes followed by three years
      of a
      50% tax reduction, commencing from the first cumulative profit-making year
      net
      of losses carried forward.





Qingdao
      St. George Dairy Co., Ltd. is under such preferential tax treatment until
      December 31, 2008. Accordingly, the applicable enterprise income tax rate is
      24%
      and the local tax rate is 0%, resulting in an aggregate tax rate of 24%. The
      subsidiary will not be subject to local income tax prior to 2003. The
      subsidiary’s first cumulative profit-making year was 2004.





Heilongjiang
      Luobei Sheng Yuan Dairy Co., Ltd. is under such preferential tax treatment
      until
      December 31, 2010. Accordingly, the applicable enterprise income tax rate is
      30%
      and the local tax rate is3%, resulting in an aggregate tax rate of 33%. The
      subsidiary will not be subject to local income tax prior to 2008. The
      subsidiary’s first cumulative profit-making year was 2006.





Bei’an
      Yipin Dairy Co., Ltd. is under such preferential tax treatment until December
      31, 2009. Accordingly, the applicable enterprise income tax rate is30% and
      the
      local tax rate is 3%, resulting in an aggregate tax rate of 33%. The subsidiary
      will not be subject to local income tax prior to 2007. The subsidiary’s first
      cumulative profit-making year was 2005.





Zhangjiakou
      Sheng Yuan Dairy Co., Ltd. is under such preferential tax treatment until
      December 31, 2010. Accordingly, the applicable enterprise income tax rate is
      30%
      and the local tax rate is 3%, resulting in an aggregate tax rate of 33%. The
      subsidiary will not be subject to local income tax prior to 2008. The
      subsidiary’s first cumulative profit-making year was 2006.




34




Inner
      Mongolia Meng Yuan Dairy Co., Ltd. is not under such preferential tax treatment.
      Accordingly, the applicable enterprise income tax rate will be 33% before the
      end of year 2008, and 25% thereafter.





Inner
      Mongolia Sheng Yuan Food Co., Ltd. is under such preferential tax treatment
      until December 31, 2011. Accordingly, the applicable enterprise income tax
      rate
      will be 25% after 2012.


Mei
      Tai
      Technology (Qingdao) Co., Ltd. is under such preferential tax treatment until
      December 31, 2011. Accordingly, the applicable enterprise income tax rate will
      be 25% after 2012.





Mei
      Tai
      Technology (Qingdao) Co., Ltd. is under such preferential tax treatment until
      December 31, 2011. Accordingly, the applicable enterprise income tax rate will
      be 25% after 2012.





Tax
      Rates
      Schedule for various operating subsidiaries of the Company in China is as
      follows:


**Name
                    of subsidiaries**
                
                **Period-Tax
                    rate**
                
                **Incorporation**
                  **date**Qingdao
                    St. George Dairy Co., Ltd.
                
                
                2004-2005
                
                
                2006-2008
                
                
                After
                    2008
                
                
                Sep-010%
                
                
                12%
                
                
                24%Qingdao
                    Sheng Yuan Dairy Co., Ltd.
                
                
                all
                    term
                
                
                Jan-9830%Heilongjiang
                    Luobei Sheng Yuan Dairy Co., Ltd.
                
                
                Before
                    2005
                
                
                2006-2007
                
                
                2008-2010
                
                
                After
                    2010
                
                
                Apr-0133%
                
                
                0%
                
                
                16.50%
                
                
                33%Bei’an
                    Yipin Dairy Co., Ltd.
                
                
                Before
                    2004
                
                
                2005-2006
                
                
                2007-2009
                
                
                After
                    2010
                
                
                Jun-0433%
                
                
                0%
                
                
                16.50%
                
                
                33%Zhangjiakou
                    Shen Yuan Dairy Co., Ltd.
                
                
                Before
                    2005
                
                
                2006-2007
                
                
                2008-2010
                
                
                After
                    2010
                
                
                Mar-0433%
                
                
                0%
                
                
                16.50%
                
                
                33%Mei
                    Tai Technology(Qingdao) Co.,Ltd.
                
                
                Before
                    2009
                
                
                2009-2011
                
                
                After
                    2011
                
                
                Nov-060%
                
                
                16.50%
                
                
                25%Inner
                    Mongolia Sheng Yuan Food Co.,Ltd.
                
                
                Before
                    2009
                
                
                2009-2011
                
                
                After
                    2011
                
                
                Sep-060
                
                
                16.50%
                
                
                25%Inner
                    Mongolia Meng Yuan Food Co.,Ltd
                
                
                Before
                    2008
                
                
                After
                    2008
                
                
                Apr-0533%
                
                
                25%





**Revenue
      Recognition**





The
      Company recognizes revenue from product sales when goods are shipped or
      delivered and rewards and risk of ownership and title pass to the customer.
      Revenues consist of the invoice value of the sale of goods and services net
      of
      value added tax, rebates and discounts, certain sales incentives, trade
      promotions, and product returns. Revenue dilution is accounted for as reductions
      in sales in the same period the related sales are recorded.




35




Most
      of
      the Company’s mainline product sales are through distributors. The Company’s
      revenue arrangement with all its distributors requires distributor advance
      payment before shipment and delivery of goods to distributors. Under this
      distributor arrangement, evidenced by purchase order together with advance
      payment, sales revenue is realized and earned upon shipment and acceptance
      of
      delivery of products to and by distributors. The Company applies this revenue
      recognition policy uniformly to all its mainline products, including all
      dairy-based pediatric and adult nutritional products. Revenue recognition
      criteria outlined in the provisions of SAB 104, namely, persuasive evidence
      of
      arrangement, product delivery, fixed and determinable product prices, and
      reasonable assurance of collectibility are, therefore, met and self-evident.





A
      fraction of the Company’s mainline product sales are through supermarket
      retailers directly. Revenue arrangement with these retailers requires receipt
      of
      purchase orders before product shipment and delivery. Similarly, the revenues
      from retailers are recognized upon shipment or delivery of the goods to the
      retailers under payment terms of the sales contracts which are negotiated with
      select long term retailers, to assure reasonable collectibility.





The
      Company provides its distributors and retailers the right to return products
      due
      to package damage and shelf-life expiration. The majority of the Company’s
      products carry shelf lives of 18 to 24 months and the majority of products
      are
      sold during the shelf lives. Product returns due to damage and expiration,
      if
      any, are charged against current sales revenues. The arrangement meets the
      revenue recognition criteria under FASB Statement of Financial Accounting
      Standards No.48 “Revenue Recognition When Right of Return Exists.”





For
      new
      product offerings, the Company grants its distributors and retailers the same
      rights to return products due to package damage and shelf-life expiration as
      existing product offerings. These returns are deducted from revenue for the
      reporting period the return occurs. The Company monitors over time each product
      line, including new product offerings, to track the pattern of sales returns
      and
      considers if sales return reserves are necessary.





In
      addition to standard distributor pricing arrangements, the Company provides
      its
      larger distributors with a growth-based incentive mechanism that ties
      incremental discounts to the levels of incremental sales growth attained in
      the
      corresponding periods. Qualified discounts are accrued in the corresponding
      periods during which the sales growth materialized. The cost of this policy
      is
      treated as discount and is charged against sales revenue of the corresponding
      period.





Most
      of
      the Company’s products are shipped to the distributors upon receipt of payment
      directly from them, and thus the distributors assume title of the products
      immediately. No single customer represents more than 3% of the Company’s total
      sales.





The
      Company does not employ any sales incentive programs aimed at inducing sales
      to
      customers that result in excess inventory levels. The practice of the Company’s
      standard cash in advance revenue arrangement with distributors also discourages
      customers from accumulating excessive inventory beyond their normal business
      needs.





**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:




36




(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.





**RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS**





Please
      refer to Note 3 to the Consolidated Statements for detailed discussion of
      recently issued accounting pronouncements.





**CONTRACTUAL
      OBLIGATIONS**





The
      Company carries an operating lease obligation of $728,000, all of which is
      due
      within three years, see detailed discussion in Note 15 to the Consolidated
      Financial Statements.





**OFF-BALANCE
      SHEET OBLIGATIONS**





The
      Company does not have off-balance sheet financing or unconsolidated special
      purpose entities.




**ITEM
      7A. 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 materially
      adverse 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.





37




**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**




The
      following consolidated financial statements are filed as a part of this
      report:





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





Report
                of Independent Registered Public Accounting Firm
            F-1Consolidated
                Balance Sheets as of March 31, 2007 and 2006
            F-2Consolidated
                Statements of Income for the years ended March 31, 2007, 2006 and
                2005
            F-3Consolidated
                Statements of Shareholders’ Equity for the years ended March 31, 2007,
                2006 and 2005
            F-4Consolidated
                Statements of Cash Flows for the years ended March 31, 2007, 2006
                and 2005
            F-5Notes
                to Consolidated Financial Statements
            F-6




38







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, 2007 and 2006, and the related
      consolidated statements of income, changes in shareholders' equity, and cash
      flows for each of the three years in the period ended March 31, 2007. 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,
      2007 and 2006, and the results of its operations and its cash flows for each
      of
      the three years in the period ended March 31, 2007, in conformity with
      accounting principles generally accepted in the United States of
      America.







/s/
      Rotenberg & Co., LLP





Rotenberg
      & Co., LLP


Rochester,
      New York


June
      26,
      2007




F-1


**SYNUTRA
      INTERNATIONAL, INC.**





**CONSOLIDATED
      BALANCE SHEETS**


**(in
      thousands, except share amounts)**


**ASSETS**
                
                **March
                    31,2007**
                
                **March
                    31, 2006****Current
                    Assets**Cash
                    and cash equivalents
                
                $
                33,766
                
                $
                22,134Short
                    term investment - at market
                
                
                -
                
                
                43Notes
                    receivables
                
                
                1,313
                
                
                -Trade
                    receivables, net of provisions
                
                
                5,447
                
                
                2,540Inventories,
                    net of provisions
                
                
                15,714
                
                
                11,789Advances
                    to suppliers
                
                
                3,073
                
                
                354Other
                    receivables, net of provisions
                
                
                2,694
                
                
                2,230Due
                    from related parties
                
                
                11,742
                
                
                8,602Including: 
                    Trade receivables
                
                
                5,569
                
                
                2,018Prepayment
                
                
                -
                
                
                4,526Other
                    receivables
                
                
                6,173
                
                
                2,058Deferred
                    expenses
                
                
                1,786
                
                
                126**Total
                    current assets**
                
                
                **75,535**
                
                
                **47,818****Property,
                    plant and equipment, net**
                
                
                43,470
                
                
                13,728**Other
                    Assets**Intangible
                    assets, net
                
                
                131
                
                
                265Construction
                    in progress
                
                
                9,220
                
                
                21,198Deferred
                    tax assets
                
                
                218
                
                
                -**TOTAL
                    ASSETS**
                
                
                **128,574**
                
                
                **83,009****LIABILITIES
                    AND SHAREHOLDERS’ EQUITY****Current
                    Liabilities**Bank
                    loans
                
                
                35,649
                
                
                13,134Notes
                    payable
                
                
                17,972
                
                
                19,113Trade
                    payables
                
                
                11,568
                
                
                12,580Advance
                    from customers
                
                
                2,620
                
                
                933Other
                    payables
                
                
                6,518
                
                
                4,569Accrued
                    expenses
                
                
                1,317
                
                
                499Tax
                    payables
                
                
                1,330
                
                
                1,997Due
                    to related parties
                
                
                2,935
                
                
                4,301Including  
                    Trade payables
                
                
                1,685
                
                
                4,301Other
                    payables
                
                
                1,250
                
                
                -**Total
                    current liabilities**
                
                
                **79,909**
                
                
                **57,126****Long
                    term liabilities**
                
                
                **-**
                
                
                4,932**Deferred
                    tax liabilities**
                
                
                **0.4**
                
                
                -**Total
                    liabilities**
                
                
                **79,909**
                
                
                **62,058****Shareholders'
                    equity**Share
                    capital - $0.0001 par value, 20,000,000 shares of
                  Preferred
                    Stock authorized, none issued; and 250,000,000 shares
                  of
                    Common Stock authorized, 50,000,713 shares issued and
                  outstanding
                
                
                5
                
                
                5Additional
                    paid-in capital
                
                
                8,226
                
                
                8,226Reserves
                
                
                46
                
                
                46Retained
                    profits
                
                
                37,349
                
                
                11,619Accumulated
                    other comprehensive income
                
                
                3,039
                
                
                1,055**Total
                    shareholders' equity**
                
                
                **48,665**
                
                
                **20,951****TOTAL
                    LIABILITIES AND SHAREHOLDERS' EQUITY**
                
                **$**
                **128,574**
                
                **$**
                **83,009**





The
      accompanying notes are an integral part of the consolidated financial
      statements.





F-2





**SYNUTRA
      INTERNATIONAL, INC.**





**CONSOLIDATED
      STATEMENTS OF INCOME**


**(in
      thousands except earning per share data)**





**Year
                    ended March 31,****2007**
                
                **2006**
                
                **2005**Sales
                
                $
                219,404
                
                $
                132,692
                
                $
                63,452Including
                    sales to related parties
                
                
                16,815
                
                
                20,983
                
                
                4,821Cost
                    of sales
                
                
                109,551
                
                
                75,423
                
                
                35,172Including
                    cost of sales to related parties
                
                
                14,871
                
                
                19,771
                
                
                4,500**Gross
                    profit**
                
                
                **109,853**
                
                
                **57,269**
                
                
                **28,280**Selling
                    & distribution expenses
                
                
                25,561
                
                
                15,494
                
                
                11,269Advertising
                    and promotion expenses
                
                
                53,467
                
                
                22,541
                
                
                9,177General
                    & administrative expenses
                
                
                6,819
                
                
                5,698
                
                
                2,835**Income
                    from operations**
                
                
                **24,006**
                
                
                **13,536**
                
                
                **4,999**Finance
                    costs
                
                
                (2,119
                )
                
                (1,982
                )
                
                (1,169
                )Subsidy
                
                
                5,173
                
                
                734
                
                
                271Interest
                    income
                
                
                356
                
                
                238
                
                
                145Other
                    income/(expenses), net
                
                
                120
                
                
                (45
                )
                
                (291
                )**Income
                    before tax**
                
                
                **27,536**
                
                
                **12,481**
                
                
                **3,955**Corporation
                    income tax
                
                
                1,805
                
                
                1,446
                
                
                89**Net
                    income before minority interests**
                
                
                **25,731**
                
                
                **11,035**
                
                
                **3,866**Minority
                    interests
                
                
                -
                
                
                -
                
                
                (744
                )**Net
                    income attributable to common shareholders**
                
                
                **25,731**
                
                
                **11,035**
                
                
                **3,122**Other
                    Comprehensive income/(loss)
                
                
                1,983
                
                
                1,274
                
                
                (110
                )**Comprehensive
                    income**
                
                
                **27,714**
                
                
                **12,309**
                
                
                **3,012****Earnings
                    per share**Basic
                    and diluted
                
                $
                0.51
                
                $
                0.23
                
                $
                0.07**Weighted
                    average common share outstanding**Basic
                    and diluted
                
                
                50,001
                
                
                48,834
                
                
                46,000




The
      accompanying notes are an integral part of the consolidated financial
      statement.




F-3


**SYNUTRA
      INTERNATIONAL, INC.**





**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY**


**(in
      thousands)**





Common
                Stock Outstanding
            
            Share
                capital
            
            Additional
                paid-in capital
            
            Reserves
            
            Retained
                profits
            
            Accumulated
                other comprehensive income (loss)
            
            TotalBalance
                at April 1, 2004
            
            
            46,000
            
            $
            5
            
            $
            7,001
            
            $
            29
            
            $
            (2,522
            )
            $
            (108
            )
            $
            4,405Capital
                contribution during the year
            
            
            
            
            
            
            
            
            205
            
            
            
            
            
            
            
            
            
            
            
            205Net
                income for the year
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            3,122
            
            
            -
            
            
            3,122Transfer
                to reserves
            
            
            
            
            
            
            
            
            
            
            
            17
            
            
            (17
            )
            
            -
            
            
            -Other
                comprehensive (loss)
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            (110
            )
            
            (110
            )Balance
                at March 31, 2005
            
            
            46,000
            
            
            5
            
            
            7,206
            
            
            46
            
            
            583
            
            
            (218
            )
            
            7,622Acquisition
                of Vorsatech
            
            
            1,121
            
            
            -
            
            
            (18
            )
            
            
            
            
            
            
            
            
            
            
            (18
            )Capital
                stock issued to financial consultant and finders
            
            
            2,880
            
            
            -
            
            
            567
            
            
            
            
            
            
            
            
            
            
            
            567Capital
                contribution during the year
            
            
            
            
            
            
            
            
            471
            
            
            
            
            
            
            
            
            
            
            
            471Net
                income for the year
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            11,035
            
            
            -
            
            
            11,035Other
                comprehensive income
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,274
            
            
            1,274Balance
                at March 31, 2006
            
            
            50,001
            
            
            5
            
            
            8,226
            
            
            46
            
            
            11,618
            
            
            1,056
            
            
            20,951Net
                income for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            25,731
            
            
            
            
            
            25,731Other
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,983
            
            
            1,983Balance
                at March 31,2007
            
            
            50,001
            
            $
            5
            
            
            8,226
            
            
            46
            
            
            37,349
            
            
            3,039
            
            
            48,665





The
      accompanying notes are an integral part of the consolidated financial
      statements.




F-4


**SYNUTRA
      INTERNATIONAL, INC.**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(in
      thousands)**


**Year
                  ended March 31,****2007**
              
              **2006**
              
              **2005****Cash
                  Flows from Operating Activities:**Net
                  income
              
              $
              25,731
              
              $
              11,035
              
              $
              3,122Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              2,057
              
              
              914
              
              
              1,321Bad
                  debt expenses
              
              
              397
              
              
              214
              
              
              98Gain
                  on short term investment
              
              
              (77
              )
              
              3
              
              
              26Minority
                  interest
              
              
              -
              
              
              1
              
              
              744Financial
                  consultants and finders fee
              
              
              -
              
              
              567Cash
                  provided (used) by Changes in operating assets and liabilities:Notes
                  receivable
              
              
              (1,313
              )
              
              28
              
              
              173Trade
                  receivable, net
              
              
              (2,731
              )
              
              (786
              )
              
              (760
              )Inventories,
                  net
              
              
              (3,925
              )
              
              (5,032
              )
              
              (327
              )Advances
                  to suppliers
              
              
              (2,719
              )
              
              367
              
              
              87Other
                  receivable, net
              
              
              (1.037
              )
              
              (484
              )
              
              10,916Deferred
                  expenses
              
              
              (1,660
              )
              
              258
              
              
              (58
              )Due
                  from related parties
              
              
              (3,139
              )
              
              (520
              )
              
              (5,593
              )Due
                  to related parties
              
              
              (1,366
              )
              
              (4,508
              )
              
              (817
              )Notes
                  payable
              
              
              (1,141
              )
              
              (708
              )
              
              7,739Trade
                  payable
              
              
              (1,012
              )
              
              7,613
              
              
              418Advances
                  from customers
              
              
              1,687
              
              
              392
              
              
              (320
              )Other
                  payable & accrued expenses
              
              
              2,767
              
              
              357
              
              
              (2,567
              )Tax
                  payable
              
              
              (668
              )
              
              1,391
              
              
              91Deferred
                  tax assets
              
              
              (219
              )
              
              -
              
              
              -**Net
                  Cash Provided by Operating Activities**
              
              
              **11,632**
              
              
              **11,102**
              
              
              **14,292****Cash
                  Flows from Investing Activities:**Acquisition
                  of property, plant and equipment
              
              
              (8,939
              )
              
              (669
              )
              
              (1,380
              )Cash
                  used for construction in progress
              
              
              (10,763
              )
              
              (7,046
              )
              
              (13,224
              )Purchases
                  of intangible assets
              
              
              (14
              )
              
              (16
              )
              
              (334
              )Cash
                  receipt on disposal of fixed assets
              
              
              29
              
              
              -
              
              
              --
              )Sales
                  on short term investment
              
              
              120
              
              
              -
              
              
              -
              )**Net
                  Cash Used in Investing Activities**
              
              
              (19,567
              )
              
              (7,731
              )
              
              (14,938
              )**Cash
                  Flows from Financing Activities**Borrowing
                  of bank loans, net
              
              
              17,584
              
              
              933
              
              
              2,899Capital
                  contribution
              
              
              -
              
              
              471
              
              
              205**Net
                  Cash Provided by Financing Activities**
              
              
              **17,584**
              
              
              **1,404**
              
              
              **3,104****Net
                  Change in Cash and Cash Equivalents**
              
              
              **9,649**
              
              
              **4,775**
              
              
              **2,458**Effect
                  of Exchange Rate Changes on Cash and Cash Equivalents
              
              
              1,983
              
              
              1,274
              
              
              (110
              )**Cash
                  and cash equivalents, beginning of period**
              
              
              **22,134**
              
              
              **16,085**
              
              
              **13,737****Cash
                  and cash equivalents, end of period**
              
              $
              **33,766**
              
              $
              22,134
              
              $
              **16,085****Supplementary
                  Cash Flows Disclosures**Cash
                  paid during the year for:Interest
                  paid
              
              $
              2,119
              
              $
              1,982
              
              $
              1,169Income
                  taxes paid
              
              $
              2,714
              
              $
              1,026
              
              $
              95





The
      accompanying notes are an integral part of the consolidated financial
      statements





F-5


**SYNUTRA
      INTERNATIONAL, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FISCAL
      YEARS ENDED MARCH 31, 2007, 2006 AND 2005**





**1.
      ORGANIZATION AND PRINCIPAL ACTIVITIES**





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 eight companies in the People’s Republic of China,
      (“China” or the “PRC”) described below, 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.





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
      ST George Dairy Co., Ltd. is engaged in the production, packaging, shipping
      and
      distribution of all of Synutra’s products.





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.





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.





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.




On
      November 6, 2006, the Company consummated a transaction with the Department
      of
      Finance of Zheng Lan Qi (County) of Inner Mongolia in which the Company acquired
      certain assets owned by them including approximately $256,000 in land use rights
      and $5,635,000 in plant and buildings under construction. The transaction was
      consummated to establish a wholly foreign-owned company, the Inner Mongolia
      Sheng Yuan Food Co., Ltd, to produce milk fat and other diary-based food
      ingredients.





In
      November, 2006 Zhangjiakou Sheng Yuan Co., Ltd., one of the Company’s operating
      subsidiaries, entered into an agreement with the shareholders of Inner Mongolia
      Meng Yuan Food Co., Ltd. (“Meng Yuan”) to acquire 100% of the equity interest in
      Meng Yuan for a consideration of about $900,000. At the close of the transaction
      Meng Yuan transferred assets under its control to Zhangjiakou which included
      land use rights, plant equipment and plant buildings under construction. The
      Meng Yuan project is anticipated to be put in service in late 2007 and is
      designed to produce 7,200 tons per year infant formula products.





In
      November 2006, the Company obtained government approval to form a business
      venture, Mei Tai Technology (Qingdao) Co., Ltd., with three principals of Mei
      Hua Company and its affiliate who are engaged in developing, manufacturing,
      and
      exporting chondroitin sulfate, or cartilage, a nutraceutical supplement
      ingredient for distribution and sale in North American markets. The Company
      has
      been a business partner with these individuals for the past year in financing
      exports of the nutraceutical products which generated other income for the
      company. In the business venture, the Company has made an initial investment
      of
      $7.5 million to acquire a 70% stake in the resulting business, while the three
      individuals involved hold the remaining 30% of the business, with their
      contribution of technologies, know-how, marketing and sales effort, and client
      access valued accordingly. Part of the cash investment is being used to finance
      plant construction and equipment procurement to achieve a capacity of 700 tons
      per year of chondroitin sulfates and 2,000 tons per year of high grade
      polypeptide collagen protein in 12 months. It is expected that the collagen
      protein, as a by-product of the cartilage manufacturing processes, will become
      a
      key revenue source for the Company’s operations, including in specially
      formulated milk powder products for women, in dairy-based protein bars, and
      as a
      main ingredient in new meal replacement products for women, in addition to
      direct export of the protein product to North America. The consummation of
      this
      transaction was contingent upon the injection of investment capital by the
      Company into the business within 6 months from the date of approval by the
      government authorities.




F-6




**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:





**March
                31,****Name
                of subsidiaries**
            
            **2007**
            
            **2006**
            
            **2005**
            
            **Incorporation**
              **date**Qingdao
                St. George Dairy Co., Ltd.
            
            
            100
            %
            
            100
            %
            
            100
            %
            
            Sep-01Qingdao
                Sheng Yuan Dairy Co., Ltd.
            
            
            100
            %
            
            100
            %
            
            100
            %
            
            Jan-98Heilongjiang
                Loubei Sheng Yuan Food Co., Ltd.
            
            
            100
            %
            
            100
            %
            
            100
            %
            
            Apr-01Bei’an
                Yipin Dairy Co., Ltd.
            
            
            100
            %
            
            100
            %
            
            100
            %
            
            Jun-04Zhangjiakou
                Shen Yuan Diary Co., Ltd.
            
            
            100
            %
            
            100
            %
            
            100
            %
            
            Mar-04Inner
                Mongolia Sheng Yuan Food Co.,Ltd.
            
            
            100
            %
            
            0
            %
            
            0
            %
            
            Sep-06Inner
                Mongolia Meng Yuan Food Co.,Ltd.
            
            
            100
            %
            
            0
            %
            
            0
            %
            
            Apr-05*Mei
                Tai Technology (Qingdao) Co., Ltd.
            
            
            70
            %
            
            0
            %
            
            0
            %
            
            Nov-06





* The
      previous owner of the assets acquired was established in April,
      2005.





**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.




(in
                thousands)
            
            31-Mar-07
            
            31-Mar-06Cash
            
            $
            20,836
            
            $
            5,677Cash
                restricted
            
            
            12,930
            
            
            16,457Total
            
            $
            33,766
            
            $
            22,134





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.




F-7




**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 20 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
            
            
            20
                - 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, 2007 and 2006 was $726,000 and
      $481,000 associated with construction in progress.





**F.
      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 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.





**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 $241,000
      and
      $417,000 at March 31, 2007 and 2006, respectively.




F-8




**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.
      Under the Provisional Taxation Regulation of the PRC, income tax is payable
      by
      enterprises at a rate of 33% of their taxable income. Subject to this regime,
      the Company’s aggregate corporate income tax would have been $9.1 million and
      $4.3 million for the year ended March 31, 2007 and 2006, respectively. Some
      of
      the Company’s operating subsidiaries in China currently enjoy reduced tax rates
      or tax holidays which will expire under varying termination schedules. Due
      to
      application of such preferential tax policy, the actual corporate income tax
      was
      $2.0 million, $1.4 million and $88,000 for the year ended March 31, 2007, 2006
      and 2005, respectively. The reduced tax rates or tax holidays accorded to the
      Company resulted in tax savings of $7.3 million, $2.9 million and $1.2 million
      for the year ended March 31, 2007, 2006 and 2005, respectively. The per share
      effect of the total tax savings was $0.14, $0.05 and $0.03 for the year ended
      March 31, 2007, 2006 and 2005, respectively.





Qingdao
      St. George Dairy Co., Ltd, Heilongjiang Loubei Shengyuan Dairy Co. Ltd, Bei’an
      Yipin Dairy Co. Ltd and Zhangjiakou Sheng Yuan Co. Ltd., Inner Mongolia
      Shengyuan Food Co., Ltd., and Mei Tai Technology (Qingdao) Co., Ltd. qualify
      as
      a foreign investment production enterprise and were established in a special
      economic zone. As approved by the tax authorities, such subsidiaries are
      entitled to a two year exemption from income taxes followed by three years
      of a
      50% tax reduction, commencing from the first cumulative profit-making year
      net
      of losses carried forward.





Qingdao
      St. George Dairy Co., Ltd. is under such preferential tax treatment until
      December 31, 2008. Accordingly, the applicable enterprise income tax rate is
      24%
      and the local tax rate is 0%, resulting in an aggregate tax rate of 24%. The
      subsidiary will not be subject to local income tax prior to 2003. The
      subsidiary’s first cumulative profit-making year was 2004.





Heilongjiang
      Luobei Sheng Yuan Dairy Co., Ltd. is under such preferential tax treatment
      until
      December 31, 2010. Accordingly, the applicable enterprise income tax rate is
      30%
      and the local tax rate is3%, resulting in an aggregate tax rate of 33%. The
      subsidiary will not be subject to local income tax prior to 2008. The
      subsidiary’s first cumulative profit-making year was 2006.





Bei’an
      Yipin Dairy Co., Ltd. is under such preferential tax treatment until December
      31, 2009. Accordingly, the applicable enterprise income tax rate is30% and
      the
      local tax rate is 3%, resulting in an aggregate tax rate of 33%. The subsidiary
      will not be subject to local income tax prior to 2007. The subsidiary’s first
      cumulative profit-making year was 2005.





Zhangjiakou
      Sheng Yuan Dairy Co., Ltd. is under such preferential tax treatment until
      December 31, 2010. Accordingly, the applicable enterprise income tax rate is
      30%
      and the local tax rate is 3%, resulting in an aggregate tax rate of 33%. The
      subsidiary will not be subject to local income tax prior to 2008. The
      subsidiary’s first cumulative profit-making year was 2006.





Inner
      Mongolia Meng Yuan Dairy Co., Ltd. is not under such preferential tax treatment.
      Accordingly, the applicable enterprise income tax rate will be 33% before the
      end of year 2008, and 25% thereafter.




F-9




Inner
      Mongolia Sheng Yuan Food Co., Ltd. is under such preferential tax treatment
      until December 31, 2011. Accordingly, the applicable enterprise income tax
      rate
      will be 25% after 2012.




Mei
      Tai
      Technology (Qingdao) Co., Ltd. is under such preferential tax treatment until
      December 31, 2011. Accordingly, the applicable enterprise income tax rate will
      be 25% after 2012.










Tax
      Rates
      Schedule for various operating subsidiaries of the Company in China is as
      follows:


**Name
                  of subsidiaries**
              
              **Period-Tax
                  rate**
              
              **Incorporation**
                **date**Qingdao
                  St. George Dairy Co., Ltd.
              
              
              2004-2005
              
              
              2006-2008
              
              
              After
                  2008
              
              
              Sep-010%
              
              
              12%
              
              
              24%Qingdao
                  Sheng Yuan Dairy Co., Ltd.
              
              
              all
                  term
              
              
              Jan-9830%Heilongjiang
                  Luobei Sheng Yuan Dairy Co., Ltd.
              
              
              Before
                  2005
              
              
              2006-2007
              
              
              2008-2010
              
              
              After
                  2010
              
              
              Apr-0133%
              
              
              0%
              
              
              16.50%
              
              
              33%Bei’an
                  Yipin Dairy Co., Ltd.
              
              
              Before
                  2004
              
              
              2005-2006
              
              
              2007-2009
              
              
              After
                  2010
              
              
              Jun-0433%
              
              
              0%
              
              
              16.50%
              
              
              33%Zhangjiakou
                  Shen Yuan Dairy Co., Ltd.
              
              
              Before
                  2005
              
              
              2006-2007
              
              
              2008-2010
              
              
              After
                  2010
              
              
              Mar-0433%
              
              
              0%
              
              
              16.50%
              
              
              33%Mei
                  Tai Technology(Qingdao) Co.,Ltd.
              
              
              Before
                  2009
              
              
              2009-2011
              
              
              After
                  2011
              
              
              Nov-060%
              
              
              16.50%
              
              
              25%Inner
                  Mongolia Sheng Yuan Food Co.,Ltd.
              
              
              Before
                  2009
              
              
              2009-2011
              
              
              After
                  2011
              
              
              Sep-060
              
              
              16.50%
              
              
              25%Inner
                  Mongolia Meng Yuan Food Co.,Ltd
              
              
              Before
                  2008
              
              
              After
                  2008
              
              
              Apr-0533%
              
              
              25%





**I.
      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 $5.2 million, $734,000
      and $271,000 for the years ended March 31, 2007 2006 and 2005,
      respectively.





**J.
      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-10




**K.
      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.





31-Mar-07Balance
                sheet
            
            
            RMB
            
            
            7.7342
            
            
            to
                US
            
            $
            1Operating
                statement
            
            
            RMB
            
            
            7.8756
            
            
            to
                US
            
            $
            131-Mar-06Balance
                sheet
            
            
            RMB
            
            
            8.017
            
            
            to
                US
            
            $
            1Operating
                statement
            
            
            RMB
            
            
            8.147
            
            
            to
                US
            
            $
            131-Mar-05Operating
                statement
            
            
            RMB
            
            
            8.2765
            
            
            to
                US
            
            $
            1





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 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 $2.0 million, 1.3 million and $(110,000) for the years ended March
      31,
      2007 2006 and 2005, respectively.





**L.
      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.





**M.
      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, 2007 and 2006 due to the relatively short-term nature of these instruments.





**N.
      REVENUE RECOGNITION**




The
      Company recognizes revenue from product sales when goods are shipped or
      delivered and rewards and risk of ownership and title pass to the customer.
      Revenues consist of the invoice value of the sale of goods and services net
      of
      value added tax, rebates and discounts, certain sales incentives, trade
      promotions, and product returns. Revenue dilution is accounted for as reductions
      in sales in the same period the related sales are recorded.




F-11




Most
      of
      the Company’s mainline product sales are through distributors. The Company’s
      revenue arrangement with all its distributors requires distributor advance
      payment before shipment and delivery of goods to distributors. Under this
      distributor arrangement, evidenced by purchase order together with advance
      payment, sales revenue is realized and earned upon shipment and acceptance
      of
      delivery of products to and by distributors. The Company applies this revenue
      recognition policy uniformly to all its mainline products, including all
      dairy-based pediatric and adult nutritional products. Revenue recognition
      criteria outlined in the provisions of SAB 104, namely, persuasive evidence
      of
      arrangement, product delivery, fixed and determinable product prices, and
      reasonable assurance of collectibility are, therefore, met and self-evident.





A
      fraction of the Company’s mainline product sales are through supermarket
      retailers directly. Revenue arrangement with these retailers requires receipt
      of
      purchase orders before product shipment and delivery. Similarly, the revenues
      from retailers are recognized upon shipment or delivery of the goods to the
      retailers under payment terms of the sales contracts which are negotiated with
      select long term retailers, to assure reasonable collectibility.




The
      Company provides its distributors and retailers the right to return products
      due
      to package damage and shelf-life expiration. The majority of the Company’s
      products carry shelf lives of 18 to 24 months and majority of products are
      sold
      during the shelf lives. Product returns due to damage and expiration, if any,
      are charged against current sales revenues. The arrangement meets the revenue
      recognition criteria under Statement of Financial Accounting Standards No.48
      “Revenue Recognition When Right of Return Exists”.





For
      new
      product offerings, the Company grants its distributors and retailers the same
      rights to return products due to package damage and shelf-life expiration as
      existing product offerings. These returns are deducted from revenue for the
      reporting period. The Company monitors over time each product line, including
      new product offerings, to track the pattern of sales returns and considers
      if
      sales return reserves are necessary.





On
      top of
      standard distributor pricing arrangements, the Company provides its larger
      distributors with a growth-based incentive mechanism that ties incremental
      discounts to the levels of incremental sales growth attained in the
      corresponding periods the return occurs. Qualified discounts are accrued in
      the
      corresponding periods during which the sales growth materialized. The cost
      of
      this policy is treated as discount and is charged against sales revenue of
      the
      corresponding period.





Most
      of
      the Company’s products are shipped to the distributors upon receipt of payment
      directly from them, and thus assume title of the products immediately. No single
      customer constitutes a significant distributor to the Company by commanding
      more
      than 3% of its total sales.





The
      Company does not employ any sales incentive programs aimed at inducing sales
      to
      customers that result in excess inventory levels. The practice of the Company’s
      standard cash in advance revenue arrangement with distributors also discourages
      customers from accumulating excessive inventory beyond their normal business
      needs.




**O.
      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 $4.0 million, $2.8 million and $2.0
      million for the years ended March 31, 2007, 2006 and 2005 respectively.




F-12




**P.
      ADVERTISING AND PROMOTION EXPENSES**





Advertising
      and promotion expenses include salaries for all salesmen all over the Mainland
      China and are expensed as incurred. The advertising costs and promotion
      expenses were $53.5 million, $22.5 million and $9.2 million for the years ended
      March 31, 2007, 2006 and 2005 respectively.





**Q.
      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.





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





The
      Company 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 years ended
      March 31, 2007 and 2006 was $2.0 million and $1.3 million, respectively, while
      the comprehensive loss for the year ended March 31, 2005 was
      $110,000.




**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.
      RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS**





In
      July
      2006, the Financial Accounting Standard Board (“FASB”) issued Interpretation No.
      48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB
      Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in
      tax positions. This interpretation requires that the Company recognize in its
      financial statements the impact of a tax position if that position is more
      likely than not of being sustained on audit, based on the technical merits
      of
      the position. FIN 48 is effective for fiscal years beginning after December
      15,
      2006 which is the beginning of the Company’s fiscal 2008. The Company is
      currently evaluating the impact of adopting FIN 48 on its financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157 “Defining Fair Value Measurement” (“SFAS 157”) which defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      FAS
      157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007, which is the Company’s fiscal 2009. The Company is
      currently evaluating the impact of adopting FAS 157 on its financial statements.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS 159”). SFAS 159 permits companies to choose to measure many financial
      instruments and certain other items at fair value. SFAS 159 is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007, which is the Company’s fiscal 2009. The Company is currently evaluating
      the impact of adopting FAS 157 on its financial statements.




F-13




**U.
      RECLASSIFICATIONS**





Certain
      reclassifications of prior year’s balances have been made to conform to the
      current format.





**4.
      ACCOUNT RECEIVABLES**





The
      Company's trade receivables as at March 31, 2007 and 2006 are summarized as
      follows:




(in
                thousands)
            
            **March
                31, 2007**
            
            **March
                31, 2006**Trade
                receivables
            
            $
            5,688
            
            $
            2,957Less:
                Allowance for doubtful accounts
            
            
            (241
            )
            
            (417
            )Net
            
            $
            5,447
            
            $
            2,540





The
      activity in the Company allowance for doubtful accounts during the years ended
      March 31, 2007 and 2006 is summarized as follows:





(in
                thousands)
            
            **March
                31, 2007**
            
            **March
                31, 2006**Balance
                at beginning of year
            
            $
            417
            
            $
            202Additions
                (deductions) during the year
            
            
            (176
            )
            
            215Balance
                at end of year
            
            $
            241
            
            $
            417





**5.
      PROPERTY, PLANT AND EQUIPMENT**




(
                in thousands)
            
            **March
                31, 2007**
            
            **March
                31, 2006****Cost:**Buildings
                and leasehold improvement
            
            $
            19,342
            
            $
            7,314Land
                use rights
            
            
            3,177
            
            
            1,660Plant
                and machinery
            
            
            24,363
            
            
            7,206Office
                equipment and furnishings
            
            
            2,011
            
            
            988Motor
                vehicles
            
            
            1,040
            
            
            1,211$
            49,933
            
            $
            18,379**Less:
                Accumulated depreciation:**Buildings
                and leasehold improvement
            
            
            1,798
            
            
            1,265Land
                use rights
            
            
            153
            
            
            114Plant
                and machinery
            
            
            3,450
            
            
            2,306Office
                equipment and furnishings
            
            
            472
            
            
            336Motor
                vehicles
            
            
            590
            
            
            6306,463
            
            
            4,651Property,
                plant and equipment, net
            
            $
            43,469
            
            $
            13,728





Depreciation
      expenses relating to property, land, plant and equipment was $1.9 million,
      $0.8
      million, and $1.3 million for the years ended March 31, 2007, 2006 and 2005,
      respectively.





**6.
      INVENTORIES**





The
      Company's inventories at March 31, 2007 and 2006 are summarized as follows:




F-14




(in
                thousands)
            
            **March
                31, 2007**
            
            **March
                31, 2006**Raw
                materials
            
            $
            3,830
            
            $
            1,985Work-in-progress
            
            
            7,714
            
            
            7,586Finished
                goods
            
            
            3,217
            
            
            2,132Packing
                materials and other consumables
            
            
            953
            
            
            86Total
                Inventories
            
            $
            15,714
            
            $
            11,789





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





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





**A.
      Classification of Related Party Balance by Nature**





a.
            Due
                from related parties




(in
              thousands)
            
            **March
                31, 2007**
            
            **March
                31, 2006**Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            $
            978
            
            $
            226Sheng
                Zhi Da Dairy Group Corporation
            
            
            -
            
            
            (268
            )Beijing
                Kelqin Dairy Co. Ltd
            
            
            3,015
            
            
            1,708St.
                Angel (Beijing Business Service)
            
            
            -
            
            
            1,761Beijing
                Honnete Dairy Corporation Ltd
            
            
            7,207
            
            
            4,185Beijing
                Ao Naier Feed Stuff LLC
            
            
            462
            
            
            298Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            
            80
            
            
            692Total
                Due from Related Companies
            
            $
            11,742
            
            $
            8,602





b.
            Due
                to related parties




(in
                thousands)
            
            **March
                31, 2007**
            
            **March
                31, 2006**Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            $
            728
            
            $
            705Sheng
                Zhi Da Dairy Group Corporation
            
            
            1,338
            
            
            2,193Beijing
                Kelqin Dairy Co. Ltd
            
            
            863
            
            
            64St.
                Angel (Beijing Business Service)
            
            
            5
            
            
            -Beijing
                Honnete Dairy Corporation Ltd
            
            
            -
            
            
            1,339Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            
            1
            
            
            -Total
                Due to Related Companies
            
            $
            2,935
            
            $
            4,301





**B.
      Classification of Related Party Balance by Nature**





**a.
      Due from related parties**




(in
                thousands)
            
            **March
                31, 2007**
            
            **March
                31, 2006**Trade
                receivables
            
            $
            5,569
            
            $
            2,018Prepayments
            
            
            -
            
            
            4,526Other
                receivables
            
            
            6,173
            
            
            2,058**Total**
            
            $
            11,742
            
            $
            8,602




F-15





**b.
      Due to related parties**


(in
                thousands)
            
            **March
                31, 2007**
            
            **March
                31, 2006**Trade
                payables
            
            $
            1,685
            
            $
            4,301Other
                payables
            
            
            1,250
            
            
            -**Total**
            
            $
            2,935
            
            $
            4,301





These
      entities are considered related parties to the Company because they are
      affiliates of the Company under the common control of the Company’s major
      shareholder. These related parties act only as the Company’s suppliers or
      distributors and there are no other relationships wherein the Company has the
      ability to exercise significant influence over the operating and financial
      policies of these parties. The Company is not obligated to provide any type
      of
      financial support to these related parties. The economic substance of each
      entity apart from its relationship with the Company and the controlling
      beneficial shareholder is discussed in the table below.





**Related
                Party**
            
            **Economic
                Substance**Heilongjiang
                Baoquanling Sheng Yuan Dairy Co., Ltd
            
            Engages
                in spray-drying milk powder products that are shipped in 25kg bags
                to
                commercial customers.Sheng
                Zhi Da Dairy Group Corporation
            
            Engaged
                in buying and selling packaging materials, and vitamin and mineral
                pre-mixes, and other food ingredients.Beijing
                Kelqin Dairy Co. Ltd
            
            Produces
                and distributes retail-packaged yogurt products in
                Beijing.St.
                Angel (Beijing Business Service)
            
            Publishes
                catalogues and engages in direct marketing and sales of consumer
                products
                featured in catalogues.Beijing
                Honnete Dairy Corporation Ltd
            
            Engages
                in importing and distributing whey protein products to commercial
                customers.Beijing
                Ao Naier Feed Stuff LLC
            
            Engages
                in buying and selling whey protein and other protein
                substitutes.Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            Operates
                retail shelf spaces in supermarkets in
                Beijing.




**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 following:





(in
                thousands)
            
            **March
                31, 2007**
            
            **March
                31, 2006**Computer
                software and applications
            
            $
            463
            
            $
            426Less:
                Accumulated amortization
            
            
            (332
            )
            
            (162
            )Intangible
                assets, net
            
            $
            131
            
            $
            265




F-16





Amortization
      expenses for year ended March 31, 2007, 2006 and 2005 was $157,000, $87,000
      and
      $56,000, respectively. Estimated amortization expense for each of the five
      succeeding years is as follow:





**Year
                ending March 31,**
              (in
                thousands)2008
            
            462009
            
            452010
            
            342011
            
            32012
            
            1





**9.
      BANK LOANS**





At
      March
      31, 2007 and 2006, the Company had short-term loans from banks at the amount
      of
      $35.6 million and $13.1 million, respectively, bearing interest ranging from
      5.85% to 6.48% per annum. Such loans are extendable for not less than one year
      to March 2008. The loans were secured by the pledge of certain fixed assets
      held
      by the Group and its subsidiaries.





The
      value
      of equipment pledged were $32.7 million and $11.6 million during the year ended
      March 31, 2007 and 2006 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 paid off this long-term bank
      loan by the end of fiscal 2007.





**10.
      OTHER INCOME (EXPENSES), NET**




Other
      income was $120,000 for the year ended March 31, 2007, and other expenses were
      $45,000 and $291,000 for the years ended March 31, 2006 and 2005, respectively.
      The Company incurred these income (expenses) mainly as a result of sales and
      disposal of certain assets or fixed assets.





**11.
      INCOME TAXES**


The
        income tax expense reconciled to the tax expense computed at the statutory
        rate
        was approximately as follows during the years ended March 31 **,** 2007:
 
 **(in
                  thousands)**
              
              **March
                  31.2007**Tax
                  expense computed at federal statutory rate
              
              $
              10,037Foreign
                  Rate Benefit
              
              $
              (8.057
              )Other
                  Benefit
              
              $
              (176
              )Permanent
                  Difference$
              1$
              1,805
 Deferred
          income taxes reflect the net tax effects of temporary differences between
          the
          carrying amounts of assets and liabilities for financial reporting purposes
          and
          the amounts used for income tax purposes. Significant components of the
          Company’s net deferred tax assets are approximately as follows at March 3 1 :
 
 **(in
                    thousands)**
                
                **March
                    2007**Net
                    deferred tax asset:Net
                    operating loss carry-forward
                
                $
                219Other
                
                
                (1
                )$
                218
 
 At
          March 31, 2007,
          operating loss carry-forwards of approximately $517,000 expiring through
          2027
          are available to offset future taxable income. No valuation allowance is
          deemed
          necessary.


The
      Company’s income before income taxes was comprised of the following for the
      years ended March 31, 2007, 2006 and 2005, respectively:


**Year
                  ended March 31,****2007**
              
              **2006**
              
              **2005**(in
                  thousands)United
                  States
              
              $
              (126
              )
              $
              (317
              )
              $
              (20
              )PRC
              
              
              27,662
              
              
              12,798
              
              
              3,975Total
              
              $
              27,536
              
              $
              12,481
              
              $
              3,955




Income
      taxes are calculated on a separate entity basis.




F-17




The
      provisions for income taxes for the years ended March 31, 2007, 2006 and 2005,
      respectively, are summarized as follows:


**Year
                  ended March 31**(in
                thousands)
              
              
              **2007**
              
              
              **2006**
              
              
              **2005**Current
              
              $
              2,023
              
              $
              1,446
              
              $
              89Deferred
              
              
              (218
              )
              
              —
              
              
              —$
              1,805
              
              $
              1,446
              
              $
              89


Under
      the
      Provisional Taxation Regulation of the PRC, income tax is payable by enterprises
      at a rate of 33% of their taxable income. Subject to this regime, the Company’s
      aggregate corporate income tax would have been $9.1 million, $4.3 million and
      $1.3 million for the years ended March 31, 2007, 2006 and 2005, respectively.
      Some of the Company’s operating subsidiaries in China currently enjoy reduced
      tax rates or tax holidays which will expire under varying termination schedules.
      Due to application of such preferential tax policy, the actual corporate income
      tax was $2.0 million, $1.4 million and $89,000 for the years ended March 31,
      2007, 2006 and 2005, respectively. The reduced tax rates or tax holidays
      accorded to the Company resulted in tax savings of $7.3 million, $2.9 million
      and $1.2 million, respectively. The per share effect of the total tax savings
      was $0.14, $0.05 and $0.03 for the years ended March 31, 2007, 2006 and 2005,
      respectively.





**12.
      RESERVES**





The
      reserve fund is comprised of the following:





**March
                31, 2007**
            
            **March
                31, 2006**(in thousands)Statutory
                surplus reserve fund
            
            $
            46
            
            $
            46





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 2007, 2006 and
      2005.
      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 (including 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.




F-18




**13.
      EARNINGS 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.


(in
                  thousands except for per share data)
              
              Year
                  Ended March 31,2007
              
              2006
              
              2005Numerator:Net
                  income attributable to common shareholders
              
              $
              25,731
              
              $
              11,035
              
              $
              3,122Denominator:Denominator
                  for basic income per share—weighted average shares
              
              
              50,001
              
              
              48,834
              
              
              46,000Dilutive
                  potential common shares from warrants and options
              
              
              —
              
              
              —
              
              
              —Dilutive
                  potential common shares from convertible preferred stock
              
              
              —
              
              
              —
              
              
              —Denominator
                  for diluted income per share—weighted average shares and assumed
                  conversions
              
              
              50,001
              
              
              48,834
              
              
              46,000Basic
                  and diluted net income per share
              
              $
              0.51
              
              $
              0.23
              
              $
              0.07




**14.
      RELATED PARTY TRANSACTIONS**





The
      following related party transactions occurred during the years ended March
      31,
      2007, 2006 and 2005:





**Sales
      to Related Companies**





In
      the
      fiscal years ended March 31, 2007, 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 Beijing Luding
      Xueyuan for direct sales, catalogue sales, and regional retail outlets
      distribution. Terms of all the sales are at market price.





The
      following tables categorize sales to related companies as main product sales
      and
      ancillary product sales as presented in the income statements:





**a.
      Main Product Sales to Related Companies**


**Year
                  ended March 31,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Heilongjiang
                  Baoquanling Shen Yuan Dairy Co. Ltd
              
              
              637
              
              
              —
              
              
              —Beijing
                  Honnete Dairy Corporation Ltd
              
              
              
              
              
              1,254
              
              
              —St.
                  Angel (Beijing Business Service)
              
              
              
              
              
              1,048
              
              
              324Beijing
                  Kelqin Diary Co. Ltd.
              
              
              5,230
              
              
              —
              
              
              —Beijing
                  Ludin Xueyuan Trading Co. Ltd
              
              
              686
              
              
              527
              
              
              270Total
              
              $
              6,553
              
              $
              2,829
              
              $
              594




F-19




**b.
      Ancillary Product Sales to Related Companies**


**Year
                  ended March 31,**(in
                  thousands)
              
              **2007**
              
              **2006**
              
              **2005**Beijing
                  Kelqin Dairy Co. Ltd
              
              $
              311
              
              $
              2,260
              
              
              384Sheng
                  Zhi Da Dairy Group Corporation
              
              
              —
              
              
              376
              
              
              1,038Heilongjiang
                  Baoquanling Shen Yuan Dairy Co. Ltd
              
              
              3,401
              
              
              3,542
              
              
              2,789Beijing
                  Honnete Dairy Corporation Ltd
              
              
              6,128
              
              
              11,901
              
              
              —Beijing
                  Ao Naier Feed Stuff LLC
              
              
              130
              
              
              75
              
              
              16Beijing
                  Ludin Xueyuan Trading Co. Ltd
              
              
              260
              
              
              —
              
              
              —St.
                  Angel (Beijing Business Service)
              
              
              32
              
              
              —
              
              
              —Total
              
              $
              10,262
              
              $
              18,154
              
              $
              4,227Total
                  of main product and ancillary product sales to related
                  companies
              
              $
              16,815
              
              $
              20,983
              
              $
              4,821




**Purchases
      from Related Companies**





In
      the
      fiscal year ended March 31, 2007, 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.


**Year
                  ended Mach 31,**(in thousands)
              
              **2007**
              
              **2006**
              
              **2005**Beijing
                  Kelqin Dairy Co. Ltd
              
              $
              3,033
              
              $
              955
              
              $
              904Sheng
                  Zhi Da Dairy Group Corporation
              
              
              —
              
              
              2,145
              
              
              2,214Heilongjiang
                  Baoquanling Sheng Yuan Dairy Co. Ltd
              
              
              15,139
              
              
              11,987
              
              
              7,247Beijing
                  Honnete Dairy Corporation Ltd
              
              
              11,460
              
              
              6,655
              
              
              4,562Beijing
                  Sheng Long Media Co. Ltd
              
              
              19
              
              
              59
              
              
              31Total
              
              $
              29,651
              
              $
              21,801
              
              $
              14,958




**15.
      COMMITMENTS AND CONTINGENCIES**





**A.
      CAPITAL COMMITMENTS**





As
      of
      March 31, 2007, the Company had no significant capital commitments required
      for
      disclosure. **





**B.
      LEASE COMMITMENTS**





The
      lease
      commitments of the Company for years ending March 31 are as follows:




F-20


(in
                  thousands of US dollars)
              
              **Inception
                  date**
              
              **Expiration**
                **date**
              
              **Monthly
                  payment**
              
              **2008**
              
              **2009**
              
              **2010**
              
              **2011**
              
              **2012**
              
              Total20-Apr-05
              
              
              14-Dec-09
              
              $
              7
              
              $
              87
              
              
              87
              
              
              61
              
              
              -
              
              
              -
              
              
              235Office
                  facilities in Beijing(SOHO2903-2905)
              
              
              15-Dec-04
              
              
              14-Dec-09
              
              $
              11
              
              
              132
              
              
              132
              
              
              93
              
              
              -
              
              
              -
              
              
              356Office
                  facilities in Beijing
              
              
              1-Jan-06
              
              
              31-Dec-07
              
              $
              4
              
              
              37
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              37Office
                  facilities in Beijing
              
              
              1-Aug-06
              
              
              31-Dec-07
              
              $
              3
              
              
              31
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              31Warehouses
                  in Qingdao
              
              
              8-Aug-06
              
              
              8-Aug-07
              
              $
              2
              
              
              7
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7Warehouses
                  in Qingdao
              
              
              5-Dec-06
              
              
              5-May-07
              
              $
              2
              
              
              2
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2Warehouses
                  in Qingdao
              
              
              18-Jan-07
              
              
              17-Jan-08
              
              $
              6
              
              
              59
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              59**Total
                  rent expenses**
              
              
              
              
              
              
              
              
              
              
              $
              355
              
              
              **219**
              
              
              **154**
              
              
              -
              
              
              -
              
              
              **728**





**C.
      LEGAL PROCEEDINGS**





N/A




**16.
      SEGMENTS**





The
      Company has determined that it operates its business in one reportable segment
      based upon the manner in which internal financial information is produced and
      evaluated by its chief operating decision maker (the Company’s Chief Executive
      Officer).





Majority
      of the consolidated revenue is generated from sales in Mainland China which
      comprises 93%of the consolidated revenue in fiscal year 2007, the remaining
      7%
      is generated from sales to US. All of the revenue was generated from sales
      in
      Mainland China in fiscal 2006 and 2005. No single customer accounted for more
      than 5% of the Company's total sales in 2007, 2006 and 2005.





All
      of
      the Company’s long-live assets are located in China.





**17.
      SUBSEQUENT EVENTS**





On
      April
      12, 2007, the Company announced that it has transferred trading of its common
      stock from the Over-The-Counter Bulletin Board to the NASDAQ Global Market
      as of
      April 12, 2007. The Company's shares will continue to trade under the present
      symbol "SYUT"; no new shares will be issued in conjunction with this
      listing.





On
      April
      19, 2007, the Company, Liang Zhang, and Xiuqing Meng, on the one hand, and
      ABN
      AMRO Bank N.V., Hong Kong branch (“ABN”), on the other hand, entered into a Loan
      Agreement (the “Loan Agreement”) pursuant to which ABN agreed to make loans (the
“loans”) to the Company for a period of sixty days from the closing of Loan
      Agreement (the “Closing”) up to $35,000,000 (the “Commitment Amount”). The
      principal amount, and any unpaid accrued interest thereon, is due on October
      19,
      2007 (the “Maturity Date”). The loans may be prepaid without penalty prior to
      the Maturity Date. The loans bear interest at the one-month London interbank
      offered rate for deposits in US dollars plus 2.5% with interest payable on
      the
      last day of each month. The Company is required to pay to ABN a commitment
      fee
      of 1% on the daily amount of the unused Commitment Amount. The loans are secured
      by a pledge of 25,000,000 shares of the Company’s Common Stock owned by Beams
      Power Investment Limited, a British Virgin Islands company, the capital stock
      of
      which is beneficially owned by Liang Zhang, the Chief Executive Officer of
      the
      Company. Pursuant to the Loan Agreement, Liang Zhang and Xiuqing Meng, Mr.
      Zhang’s wife, are guaranteeing the Company’s obligations thereunder. The
      proceeds of the loans will be used to make investments in one of the Company’s
      suppliers, Heilongjiang Baoquanling Shen Yuan Dairy, a related party, to fund
      the construction of new production facilities, to establish a joint venture
      for
      the production of Chondroitin, to purchase fixed assets for the production
      of
      nutritional food bars, and to establish a joint venture that will offer prenatal
      diagnostic and genetic testing services.




F-21




In
      May,
      2007, the Company’s US subsidiary, Synutra, Inc. (“Synutra Illinois”) entered
      into a definitive agreement with Boom Healthy Development Limited (“Boom”) for
      Boom to acquire 100% of Synutra Illinois equity interest in Beian Yipin Dairy
      Co., Ltd. (“Beian”) for a consideration of RMB 15,313,327.06 or approximately
      USD $2.01 million, equivalent of Beian’s total book asset as of March 31, 2007.
      With a Spray-drying capacity of 3,000 tons per year, Beian is engaged in the
      production and processing of adult dairy based nutritional products and various
      milk powder products. Beian has been a consistent supplier of milk powder and
      infant formula products to the Company and is expected to continue this business
      relationship.





On
      May
      24, 2007, the Company entered into a Common Stock Purchase Agreement (the
“Purchase Agreement”) with Warburg Pincus Private Equity IX, L.P. (the
“Investor”), pursuant to which the Investor agreed to acquire 4 million shares
      of common stock (the “Common Shares”), par value $0.0001 per share, of the
      Company for an aggregate purchase price of sixty six million dollars
      ($66,000,000). The closing of the transaction took place on June 15, 2007.
      The
      Company intends to use the net proceeds from this financing for general
      corporate purposes. Pursuant to the terms of the Purchase Agreement so long
      as
      Investor owns at least 50% of the Common Shares acquired by the Investor
      pursuant to the Purchase Agreement, the Investor shall have the right to
      designate a person to serve on the Board of Directors of the Company (the
“Investor Designee”), and the Company agreed to use its best efforts to
      nominate and cause the Investor Designee to be elected to the
      Company’s Board of Directors.





In
      June
      2007, the Company entered into an agreement with Junchuan Ranch of Heilongjiang
      Province (“Junchuan Ranch”) to form a business venture, Junchuan Shengyuan Dairy
      Co., Ltd (“Junchuan Shengyuan”). The Company holds a 94.62% equity interest in
      the venture, while Junchuan Ranch holds the remaining 5.38% interest. In this
      transaction, the Company injected an aggregate amount of $4.65 million in
      capital investment in Junchuan Shengyuan to erect a new dairy processing
      facility to produce infant formula products. At completion, the Junchuan
      Shengyuan production expansion will result in a total capacity of 18,000 tons
      per year of infant and pediatric nutritional products. The production technology
      upgrade and capacity augmentation are integral parts of the company’s long-term
      technological development strategy to move from the current industry practice
      of
      spray-drying technologies to dry-blending technologies in China.





**18.
      QUARTERLY FINANCIAL DATA (UNAUDITED)**





Summarized
      quarterly financial information in fiscal 2007 and 2006 is as
      follows:





(in
                thousands except per share data
            
            **Fiscal
                Year 2007**
            
            **Fiscal
                Year 2006****First**
            
            **Second**
            
            **Third**
            
            **Fourth**
            
            **Total**
            
            **First**
            
            **Second**
            
            **Third**
            
            **Fourth**
            
            **Total**Revenue
            
            
            49,337
            
            
            45,915
            
            
            56,650
            
            
            67,502
            
            
            219,404
            
            
            21,164
            
            
            30,171
            
            
            43,805
            
            
            37,551
            
            
            132,692Gross
                Profit
            
            
            21,914
            
            
            23,990
            
            
            28,928
            
            
            35,021
            
            
            109,853
            
            
            9,508
            
            
            14,548
            
            
            15,875
            
            
            17,338
            
            
            57,269Net
                Income
            
            
            9,220
            
            
            6,430
            
            
            4,192
            
            
            5,889
            
            
            25,731
            
            
            1,724
            
            
            1,336
            
            
            3,778
            
            
            4,197
            
            
            11,035Earnings
                per share, basic and diluted
            
            
            0.18
            
            
            0.13
            
            
            0.08
            
            
            0.12
            
            
            0.51
            
            
            0.04
            
            
            0.03
            
            
            0.08
            
            
            0.08
            
            
            0.23





F-22





**SYNUTRA
      INTERNATIONAL, INC.**


**SCHEDULE
      II**


**VALUATION
      AND QUALIFYING ACCOUNTS**


**(In
      Thousands)**


**Classification**
              
              **Balance at**
                **Beginning**
                **of
                  Period**
              
              **Charged to**
                **Costs and**
                **Expenses**
              
              **Deductions**
              
              **Balance**
                **at
                  End**
                **of Period***Year
                  Ended March 31:**Allowance
                  for Doubtful Accounts*2007
              
              $
              420
              
              $
              573
              
              $
              (176
              )
              $
              8172006
              
              
              205
              
              
              215
              
              
              -
              
              
              4202005
              
              
              107
              
              
              98
              
              
              -
              
              
              205




F-23


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





None.





**ITEM
      9A. CONTROLS AND PROCEDURES**




We
      maintain disclosure controls and procedures that are designed to ensure that
      material information required to be disclosed in the reports filed or submitted
      under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
      recorded, processed, summarized and reported within the time periods specified
      in the Securities and Exchange Commission’s (“SEC”) rules and forms. Our
      disclosure controls and procedures are also designed to ensure that information
      required to be disclosed in the reports the Company files or submits under
      the
      Exchange Act is accumulated and communicated to the Company’s management,
      including its principal executive officer and principal financial officer as
      appropriate, to allow timely decisions regarding required disclosure.





As
      of
      March 31, 2007, the end of the period covered by this report, we carried
      out an evaluation, under the supervision and with the participation of the
      Company’s management, including our Chief Executive Officer and our Chief
      Financial Officer, of 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 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 the
      required time periods specified in the SEC’s rules and forms. Disclosure
      controls and procedures are also designed to ensure that information required
      to
      be disclosed in our reports filed or submitted under the Exchange Act is
      accumulated and communicated to the Company’s management including its principal
      executive officer and principal financial officer as appropriate to allow timely
      decision regarding required disclosures. Based on that evaluation, our Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures were effective as of March 31, 2007, the end of the
      period covered by this report.





We
      are
      currently implementing a “Section 404” compliance program in anticipation of the
      requirement for management attestation and auditor report on internal control
      over financial reporting that will become applicable to the Company for the
      next
      fiscal year.




**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-K that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial reporting.





**ITEM
      9B. OTHER INFORMATION**




In
      November 2006, the Company obtained government approval to form a business
      venture, Mei Tai Technology (Qingdao) Co., Ltd., with three principals of Mei
      Hua Company and its affiliate who are engaged in developing, manufacturing,
      and
      exporting chondroitin sulfate, or cartilage, a nutraceutical supplement
      ingredient for distribution and sale in North American markets. The Company
      has
      been a business partner with these individuals for the past year in financing
      exports of the nutraceutical products which generated other income for the
      company. In the business venture, the Company has made an initial investment
      of
      $7.5 million to acquire a 70% stake in the resulting business, while the three
      individuals involved hold the remaining 30% of the business, with their
      contribution of technologies, know-how, marketing and sales effort, and client
      access valued accordingly. Part of the cash investment is being used to finance
      plant construction and equipment procurement to achieve a capacity of 700 tons
      per year of chondroitin sulfates and 2,000 tons per year of high grade
      polypeptide collagen protein in 12 months. It is expected that the collagen
      protein, as a by-product of the cartilage manufacturing processes, will become
      a
      key revenue source for the Company’s operations, including in specially
      formulated milk powder products for women, in dairy-based protein bars, and
      as a
      main ingredient in new meal replacement products for women, in addition to
      direct export of the protein product to North America. The consummation of
      this
      transaction was contingent upon the injection of investment capital by the
      Company into the business within 6 months from the date of approval by the
      government authorities.




39




**PART
      III**





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**




The
      following table sets forth our executive officers, directors and key employees,
      their ages and the positions they held as of March 31, 2007.




**Name**
            
            **Age**
            
            **Position**Liang
                Zhang
            
            47
            
            Chairman
                of the Board and Chief Executive OfficerJinrong
                Chen
            
            48
            
            Director
                (1) (2) (3)Yiu-Chun
                Chan
            
            55
            
            Director
                (1) (2) (3)Lawrence
                Lee
            
            43
            
            Director
                (1) (2) (3)Jibin
                Zhang
            
            43
            
            Chief
                Financial OfficerWeiguo
                Zhang
            
            49
            
            President
                and Chief Operating OfficerWillie
                Wu
            
            46
            
            Director,
                Vice President





(1) Member
      of Audit Committee


(2) Member
      of Compensation Committee


(3)
      Member of Nominating Committee





*Liang
      Zhang.* Mr.
      Liang
      Zhang has been Chairman of the Board and Chief Executive Officer of Synutra
      since 2000 and General Manager of Sheng Yuan Dairy Co., Ltd. since 2000. Mr.
      Liang Zhang has been a recognized business leader of the dairy industry in
      China, serving as of China Dairy Industry Association. Through his dairy
      ingredients trading company, Beijing Honnete Dairy Corporation, Ltd, Mr. Zhang
      has been the largest volume trader of whey protein imports in China since the
      early 1990s. Mr. Zhang received a BA from Nanjing International Relations
      Institute *.*




*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.





*Yiu-Chun
      Chan.* Mr. Chan
      was elected a director of the Company on December 3, 2006. Mr. Chan has over
      30
      years of experience in marketing agricultural and food products in the Greater
      China area, A graduate from the Baptist College with a major in Communications,
      Mr. Chan began his career marketing US agricultural products when he handled
      advertising and promotion activities for Sunkist Growers in the Hong Kong
      market. He has worked with food processing giants, including Nabisco and Borden
      on their market research projects and feasibility studies in setting up joint
      ventures with Chinese partners. Mr. Chan is CEO and founder of P R Consultants
      Limited (PRC). Previously, he was an Executive Director of Lintas Hong Kong
      Limited and a partner of Times Direct Marketing Asia - the largest privately
      held direct marketing company in South East Asia.





*Lawrence
      Lee* **.** Mr.
      Lee
      was elected a director of the Company on December 3, 2006. Mr. Lee is vice
      president and Chief Financial Officer of Kasen International, public company
      listed on the Hong Kong Stock Exchange. Mr. Lee has over 15 years of experience
      in corporate finance, financial advisory and management, accounting, and
      auditing. He is an associate member of the Association of Chartered Certified
      Accountants ("ACCA"). Before joining Kasen, Mr. Lee served as Chief Financial
      Officer at Eagle Brand Holdings Limited, a company listed on the Singapore
      Stock
      Exchange. His relevant experiences also include financial controller at the
      Korean division of Exel Plc in the UK and the senior auditor of the London
      international business headquarter of Waste Management Inc. in the US. In 1987,
      Mr. Lee participated in a research program on Chinese economic policies of
      at
      the Chinese Economic System Reform Research Institute and the London School
      of
      Economics. Mr. Lee received a Bachelor degree in Management and Engineering
      from
      the Beijing Institute of Technology, a Master degree in Economics from the
      Renmin University, and a Master degree in Accounting and Finance from the London
      School of Economics.




40




*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. **




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.





Each
      director is expected to attend and participate in, either in person or by means
      of telephone conference, all scheduled meetings of the Board and all committees
      of the Board in which the director serves. During the fiscal year ended March
      31, 2007, the Board met 4 times and each of the directors attended at least
      75%
      of the total number of meetings of the Board and the meetings of the committees
      on which the director served.





**Director
      Independence**





The
      Board
      has affirmatively determined that none of the following directors has a material
      relationship with the Company: Jinrong Chen, Yiu-Chun Chan, and Lawrence Lee.
      In
      determining independence, the Board was guided by the definitions of the
      independent director in the listing standards of the NASDAQ Stock Market and
      applicable laws and regulations.





**Committees
      of the Board of Directors**




*Audit
      Committee* .
      The
      members of our audit committee are Lawrence Lee, Jinrong Chen, and Yiu-Chun
      Chan, all of whom are independent as defined by the applicable listing
      requirements of the NASDAQ Stock Market. Mr. Lawrence Lee serves as Chairman
      of
      the committee and serves as the Financial Expert of the committee. During the
      fiscal year ended March 31, 2007, the Committee held one meeting. The committee
      is governed by a Charter, a current copy of which is to be made available on
      our
      website www.synutra.com .
      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.




41




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.




*Compensation
      Committee* .
      The
      members of our compensation committee are Jinrong Chen, Yiu-Chun Chan, and
      Lawrence Lee. Ms. Chen is the chairperson of this 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.




During
      the fiscal year ended March 31, 2007, the Committee met once.





*Nominating
      Committee* .
      The
      members of our nominating committee are Yiu-Chun Chan, Jinrong Chen, and
      Lawrence Lee. The chairman of this Committee is Mr. Chan. The purpose of our
      nominating committee is to be primarily responsible for identifying individuals
      qualified to serve as members of the Board of Directors and recommending to
      the
      Board the persons to be nominated by the Board as nominees for director at
      each
      annual meeting of shareholders of the Company.





The
      Committee met once during the fiscal year ended March 31, 2007.





*Stockholder
      Nominations*





The
      Nominating Committee will accept nominations from stockholders. A stockholder
      who wishes to nominate a director should send a notice with the stockholder’s
      nomination and the information set forth below to the Company. A stockholder’s
      notice concerning nominations for director is required to set forth:





·
            as
                to each proposed nominee for election as a director, the name, age,
                business address and, if known, the residence address of each proposed
                nominee, the principal occupation or employment of each nominee and
                the
                number of shares of our common stock beneficially owned by each nominee;
                and





·
            as
                to the stockholder giving notice, the stockholder’s name and address as
                they appear on the Company’s books and the class and number of shares of
                common stock that are beneficially owned by such
                stockholder.





*Minimum
      Criteria for Board Members*





The
      Nominating Committee will identify individuals qualified to become Board members
      and recommend candidates to fill new or vacant positions. In recommending such
      candidates, the Committee will consider such factors as it deems appropriate
      to
      assist in developing a Board and committees that are comprised of experienced
      and seasoned advisors. These factors may include, but are not limited to,
      judgment, skill, integrity, experience with businesses and other organizations
      of comparable size and industry sector, experience in operating in China, the
      interplay of the candidate’s experience with the experience of other Board
      members and the extent to which the candidate would be a desirable addition
      to
      the Board and any committees of the Board. The Committee will also review the
      qualifications of director nominations submitted by stockholders and will make
      recommendations to the full Board about these nominees as the Committee deems
      appropriate. All potential director candidates, regardless of source, are
      reviewed under the same process.




42




*Process
      for Identifying Nominees*





The
      Nominating Committee assesses the appropriate size of the Board from time to
      time and whether any vacancies on the Board are anticipated. Various potential
      candidates for director are then identified. Candidates may come to the
      attention of the Committee through current Board members, stockholders or other
      industry sources.





**Director
      Compensation**




Our
      non-executive directors receive certain cash compensation for their time and
      efforts and 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.





**Name**
            
            **Position**
            
            **Compensation**
            
            **Expenses**Lawrence
                Lee
            
            
            Non-executive
                Director
            
            $
            20,000
            
            $
            2,500
                per meetingJinrong
                Chen
            
            
            Non-executive
                Director
            
            $
            20,000
            
            $
            2,500
                per meetingYiu-Chun
                Chan
            
            
            Non-executive
                Director
            
            $
            20,000
            
            $
            2,500
                per meeting





**Compensation
      Committee Interlocks and Insider Participation**




No
      member
      of the Compensation Committee has ever been an officer or employee of the
      Company or any of the subsidiaries. None of our executive officers serve as
      a
      member of the board of directors or compensation committee of any entity of
      which any of our directors is an executive officer.





**CODE
      OF ETHICS**





The
      Company has a Code of Ethics, which is applicable to all directors, officers,
      and employees. The Code of Ethics is to be made available on our website www.synutra.com .
      If the
      Company amends the Business Code of Ethics with respect to a director or
      officer, it will make public the changes thereof no later than its next public
      filing with the Securities and Exchange Commission.





**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
      11. EXECUTIVE COMPENSATION**




**Compensation
      Discussion and Analysis**





***Overview
      of Executive Compensation Program***





The
      Compensation Committee of our board of directors has responsibility for
      establishing, implementing and monitoring our executive compensation program
      philosophy and practices. The Compensation Committee seeks to ensure that the
      total compensation paid to our executive officers is fair, reasonable and
      competitive.




43




***Compensation
      Philosophy and Objectives***





The
      Compensation Committee believes that an effective executive compensation program
      should provide base annual compensation that is reasonable in relation to
      individual executive’s job responsibilities and reward the achievement of both
      annual and long-term strategic goals of our company. Because
      of the size of our company, the small number of executive officers in our
      company, and our company’s financial priorities, the Committee has decided not
      to implement or offer any retirement plans, pension benefits, deferred
      compensation plans, or other similar plans for our executive officers.
      Accordingly, the components of the executive compensation currently consist
      of
      cash salary, in addition to rights to purchase certain initial shares of the
      Company’s Common Stock. The Compensation Committee will consider using stock
      option grants to provide executives with longer-term incentives.





As
      a
      manufacturing and marketing company operating in China, the Compensation
      Committee also takes the local average executives’ salary level into account in
      its compensation decisions. The Compensation Committee may reassess the proper
      level of equity and cash compensation in light of the company’s improved
      profitability and working capital situation.





***Role
      of Executive Officers in Compensation Decisions***





The
      Compensation Committee makes all compensation decisions for the Chief Executive
      Officer and approves recommendations regarding equity awards to all of our
      officers. Decisions regarding the non-equity compensation of other officers
      are
      made by the Chief Executive Officer.





The
      Compensation Committee and the Chief Executive Officer annually review the
      performance of each executive officer (other than the Chief Executive Officer,
      whose performance is reviewed only by the Committee). The conclusions reached
      and recommendations based on these reviews, including with respect to salary
      adjustments and annual award amounts, are presented to the Committee. The
      Committee can exercise its discretion in modifying any recommended adjustments
      or awards to executives.





***Setting
      Executive Compensation***





Based
      on
      the foregoing objectives, the Committee has structured the Company’s annual cash
      and incentive-based cash and non-cash executive compensation to motivate
      executives to achieve the business goals set by the Company, to reward the
      executives for achieving such goals, and to retain the executives. In doing
      so,
      the Committee does not employ outside compensation consultants. The Compensation
      Committee utilized this data to set compensation for our executive officers
      at
      levels targeted at or around the average of the compensation amounts provided
      to
      executives at comparable local companies considering, for each individual,
      their
      individual experience level related to their position with us. There is no
      pre-established policy or target for the allocation between cash and non-cash
      incentive compensation.





***2007
      Executive Compensation Components***





For
      2007,
      the principal component of compensation for the executive officers was base
      salary.


The
      Company provides named officers and other employees with a base salary to
      compensate them for services rendered during the fiscal year. Base salary ranges
      for the executive officers are determined for each executive based on his or
      her
      position and responsibility.





During
      its review of base salaries for executives, the Committee primarily considers:





·
            the
                negotiated terms of each executive employment
                agreement;





·
            internal
                review of the executive’s compensation, both individually and relative to
                other executive officers; and





·
            individual
                performance of the executive.




44




Salary
      levels are typically considered annually as part of the company’s performance
      review process, as well as upon a change in job responsibility. Merit-based
      increases to salaries are based on the Compensation Committee’s assessment of
      the individual’s performance.




**Compensation
      Committee Report**





The
      Compensation Committee has reviewed and discussed with management the
“Compensation Discussion and Analysis” required by Item 402(b) of Regulation S-K
      and, based on such review and discussions, has recommended to our board of
      directors that the foregoing “Compensation Discussion and Analysis” be included
      in this Annual Report.





Jinrong
                Chen
            Yiu-Chun
                Chan
            Lawrence
                Lee





**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, 2007. 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, 2007. 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.




45




**ITEM
      12. 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, 2007 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 June 15, 2007.




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




46




**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
              
              
              80.84Jibin
                  Zhang, Chief Financial Officer
                103
                  Dong Lu Yuan
                Tongzhou
                  District
                Beijing,
                  China 101101
              
              
              -
              
              
              -Weiguo
                  Zhang, President and Chief Operating Officer
                2275
                  Research Blvd., Suite 500
                Rockville,
                  Maryland 20850
              
              
              -
              
              
              -Jinrong
                  Chen, Director
                No.
                  316 Wei Lun Lou Bei
                School
                  of Economics and Management
                Tsinghua
                  University
                Beijing
                  100084 China
              
              
              -
              
              
              -Yiu-Chun
                  Chan, Director
                Block
                    22A, 13F, Baguio Villa,
                  555
                    Victoria Rd
                  Pofulam,
                    Hong KongLawrence
                  Lee, Director
                R9-101,
                  2899 Hongmei Rd.
                Minnauh
                    District
                  Shanghai,
                    China 201103Willie
                  Wu, Director, Vice President
                3
                  Guang Qu Men Wai Da Jie
                C9-301
                  Fuli Cheng
                Beijing
                  100022 China
              
              
              -
              
              
              -Warburg
                  Pincus LLC
                466
                  Lexington Ave
                New
                  York, NY 10017
                United
                  States
              
              
              4,000,000
              
              
              7.41All
                  Officers and directors as a group of seven (7) persons
              
              
              43,654,100
              
              
              80.84
              %


*
      Less
      than 1%





(1)
            Based
                on 54,000,713 shares of the Company’s common stock outstanding as of June
                18, 2007.




(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.




47




**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**





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
      $30
      million to Synutra’s operating subsidiaries for the current fiscal year. The
      transactions occurred in the normal course of business and pursuant to Synutra’s
      established standard purchasing policies and practices and were on terms that
      management believes are arms-length.





**Main
      Product** **Sales
      to Related Companies**




(in
                thousands)
            
            **Year
                ended March 31, 2007**Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            
            637Beijing
                Kelqin Diary Co. Ltd.
            
            
            5,230Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            
            686Total
            
            $
            6,553





**Ancillary
      Product** **Sales
      to Related Companies**




(in
                thousands)
            
            **Year
                ended March 31,****2007**Beijing
                Kelqin Dairy Co. Ltd
            
            $
            311Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            
            3,401Beijing
                Honnete Dairy Corporation Ltd
            
            
            6,128Beijing
                Ao Naier Feed Stuff LLC
            
            
            130Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            
            260St.
                Angel (Beijing Business Service)
            
            
            32Total
            
            $
            10,262





**Purchases
      from related companies**


(in
                thousands)
              
              **Year
                  ended March 31,
                  2007**Beijing
                  Kelqin Dairy Co. Ltd
              
              $
              3,033Heilongjiang
                  Baoquanling Sheng Yuan Dairy Co. Ltd
              
              
              15,139Beijing
                  Honnete Dairy Corporation Ltd
              
              
              11,460Beijing
                  Sheng Long Media Co. Ltd
              
              
              19Total
              
              $
              29,651




In
      the
      fiscal years ended March 31, 2007 and 2006, 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 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 Beijing 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, 2007, 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.





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





All
      transactions involving the Company and its officers, directors, principally
      shareholders and their affiliates will be and have been approved by a majority
      of the Board of Directors, including a majority of the independent
      directors.




48




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




Rotenberg
      & Co. LLP, Certified Public Accountants, was the Company’s independent
      registered public accounting firm engaged to examine the Company’s financial
      statements for the fiscal years ended March 31, 2007, and 2006. Rotenberg &
Co. LLP performed the following services and has been paid the following
      fees.





**AUDIT
      FEES**




Rotenberg
      & Co. LLP was paid aggregate fees of approximately $235,611 and $190,000,
      for the fiscal year ended March 31, 2007 and 2006, respectively, for
      professional services rendered for the audit of the Company’s annual financial
      statements and for the reviews of the financial statements included in the
      Company’s quarterly reports on Form 10-Q.




**AUDIT-RELATED
      FEES**




Rotenberg
      & Co. LLP was not paid additional fees for the fiscal years ended
      March 31, 2007, and 2006 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,
      2007 and 2006 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, 2007 and 2006.




**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.





49




**PART
      IV**





**ITEM
      15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES**





**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 1, 2003(3)10.3
            
            Agreement
                between the Company and the Department of Finance of Zheng Lan Qi
                (County)
                of Inner Mengolia, with Amendment and attached Schedule of Investment
                Expenditures (4)10.4
            
            Agreement
                between the Company and Mei Hua Company and its affiliates to form
                Mei Tai
                Technology (Qingdao) Co., Ltd. (5)21.1
            
            List
                of Subsidiaries31.1
            
            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.





(3)
            Incorporated
                herein by reference from the Registrant’s Form 10KSB filed with the
                Securities and Exchange Commission on May 5, 2006.





(4)
            Incorporated
                herein by reference from the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on November 9, 2006.




(5)
            Incorporated
                herein by reference from the Registrant’s Form 8-K filed with the
                Securities and Exchange Commission on April 24, 2007.





50





**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 27 th day of
      June, 2007.


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





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Amendment
      No. 4
      to this report has been signed below by the following persons on behalf of
      the
      Registrant and in the capacities.




**Name**
            
            **Position**
            
            **Date**/s/
              Liang ZhangLiang
                Zhang
            
            Chief
                Executive Officer, and Chairman
            
            June
                27, 2007/s/
              Weiguo ZhangWeiguo
                Zhang
            
            Chief
                Operating Officer
            
            June
                27, 2007/s/
                Jibin ZhangJibin
                Zhang
            
            Chief
                Financial Officer
            
            June
                27, 2007/s/
                Jinrong ChenJinrong
                Chen
            
            Director
            
            June
                27, 2007/s/
                Yiu-Chun ChanYiu-Chun
                Chan
            
            Director
            
            June
                27, 2007/s/ Lawrence
              LeeLawrence
                Lee
            
            Director
            
            June
                27, 2007/s/
              Willie WuWillie
                Wu
            
            Director,
                Vice President
            
            June
                27, 2007





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