**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-K/A**


**(Amendment
      No. 1)**





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: Common Stock $0.0001 Par
      Value





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





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes oNo x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act. Yes o No x





Indicate
      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. Yes x No
o





Indicate
      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 filer oAccelerated
      filer oNon-accelerated filer x





Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).


Yes oNo x





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.









**EXPLANATORY
      NOTE:**





On
      August
      15, 2007, Synutra International, Inc. (“Synutra” or the “Company”) filed a
      timely Notification of Late Filing on Form 12b-25 with the U.S. Securities
      and
      Exchange Commission (the “SEC”) to report that it would be unable to file its
      Quarterly Report on Form 10-Q as and for the fiscal quarter ended June 30,
      2007
      by the prescribed due date of August 14, 2007. Further, the Company was unable
      to file its Form 10-Q within the five-day extension period provided in Rule
      12b-25 under the Exchange Act of 1934, as amended (the “Exchange Act”). On
      August 17, 2007, the Company filed a current report on Form 8-K stating that
      management had concluded that Synutra’s financial statements as of and for the
      fiscal year ended March 31, 2007 and for each fiscal quarter ended June 30,
      2006, September 30, 2006 and December 31, 2006 should not be relied upon. On
      August 20, 2007, the Company received a staff determination letter from The
      Nasdaq Stock Market stating that the Company’s common stock is subject to
      delisting from The Nasdaq Global Market for the Company’s failure to file its
      Form 10-Q. Finally, on October 2, 2007, the Company filed a current report
      on
      Form 8-K announcing that Lawrence Lee, a member of Synutra’s Board of Directors,
      resigned from his position on the Board to become Synutra’s Chief Financial
      Officer.





The
      Company’s failure to file timely its Form 10-Q was due to management’s
      assessment of accounting errors and irregularities identified during the
      preparation of the Form 10-Q. As a result of such assessment, the Company is
      filing this amendment to its Annual Report on Form 10-K for the fiscal year
      ended March 31, 2007 as filed on June 29, 2007 (the “Original Filing”). The
      Company will file amended Quarterly Reports on Form 10-Q with restated financial
      statements as of and for each fiscal quarter ended September 30, 2006 and
      December 31, 2006, as soon as practicable.





1




The
      Company’s dismissal of its independent registered public accounting firm,
      Rotenberg & Co. LLP, engagement of Deloitte Touche Tohmatsu CPA Ltd. as its
      new independent auditors effective July 27, 2007 and assessment of the
      accounting errors and irregularities identified during the preparation of the
      Form 10-Q are described in the Company’s previously-filed Exchange Act documents
      as follows:





·
            the
                Current Report on Form 8-K filed on July 27,
                2007;


·
            the
                Current Report on Form 8-K/A filed on August 9,
                2007;


·
            the
                Company’s Notification of Late Filing on Form 12b-25 filed on August 15,
                2007;


·
            the
                Current Report on Form 8-K filed on August 17, 2007;


·
            the
                Current Report on Form 8-K filed on August 24, 2007; and


·
            the
                Current Report on Form 8-K filed on October 2,
                2007.





In
      addition, aspects of the restatement are described in Note 18 to the Notes
      to
      the Consolidated Financial Statements to this Form 10-K/A, Note 3 to the Notes
      to Condensed Consolidated Financial Statements to the Company’s Form 10-Q as and
      for the fiscal quarter ended June 30, 2007 and as described immediately
      below.





Subsequent
      to the Original Filing, we identified the following issues in our consolidated
      financial statements and have made the adjustments as follows:





·
            In
                fiscal year 2007, we acquired certain fixed assets from Zheng Lan
                Qi
                County and subsequently established a new subsidiary with these assets.
                In
                conjunction with the acquisition, the local government provided an
                irrevocable subsidy of $4.1 million which we recognized as subsidy
                income
                for the fiscal year ended March 31, 2007. Subsequent to the Original
                Filing, we determined that the $4.1 million should be deferred and
                netted
                against the depreciation expenses of the assets acquired, as this
                method
                effectively matches the related depreciation of the cost of assets
                with
                the corresponding grant income. The effect of this adjustment is
                a
                decrease in subsidy income by $4.1 million and an increase in deferred
                subsidy by $4.1 million for the fiscal year ended March 31, 2007.
                We did
                not recognize any of the subsidy during the fiscal year as the asset
                had
                not yet been placed in service.





·
            The
                Company has recognized revenue upon shipment rather than upon delivery
                to
                the distributors' site. The effect of the difference between the
                shipment
                and delivery is a decrease in sales and an increase in advances from
                customers of $1.6 million for the year ended March 31, 2007. In addition,
                Cost of sales is reduced and inventory is increased by $692,000 for
                the
                same period.





·
            The
                cash consideration given to our retailers, who purchased our products
                directly from our distributors, is reclassified as a reduction of
                sales.
                It was recorded as advertising and promotion expense in the Original
                Filing. The effects of the reclassification are a decrease in sales
                and
                advertising and promotion expense of $1.2 million and $0.4 million
                for the
                fiscal years ended March 31, 2007and 2006, respectively.





·
            The
                amount of free products provided to our customers is reclassified
                as cost
                of sales for the fiscal years ended March 31, 2007 and 2006. It had
                been
                recorded as advertising and promotion expense in the Original Filing.
                The
                effects of this adjustment are an increase in cost of sales and a
                decrease
                in advertising and promotion expense of $1.0 million and $1.2 million
                for
                the fiscal years ended March 31, 2007 and 2006, respectively.




2




·
            We
                have reviewed our consolidated income tax provision and recognized
                net
                operating loss carried forwards of one of our subsidiaries as additional
                deferred tax assets. As a result, our consolidated income tax provision
                decreased by $209,000 for the year ended March 31, 2007.





·
            Restricted
                cash, included as cash and cash equivalents in the Original Filing,
                represents cash deposited with the banks as guarantee for the issuance
                of
                promissory notes. Under US GAAP, restricted cash does not meet the
                definition of cash and cash equivalents, and separate disclosure
                on the
                face of balance sheet is required. In addition, the change in the
                restricted cash balance, given its use to secure promissory notes,
                should
                have been presented as an investing activity. Therefore, restricted
                cash
                of $12.9 million and $16.4 million is reclassified and is presented
                as an
                individual item on our consolidated balance sheets as of March 31,
                2007
                and 2006, respectively. In addition, the increase (decrease) in restricted
                cash of $3.5 million ($6.2 million) is reclassified from operating
                to
                investing activities in the consolidated statements of cash flows
                for the
                years ended March 31, 2007 and 2006, respectively.





·
            We
                recognized $1.1 million in previously deferred advertising expense
                for the
                year ended March 31, 2007 as the associated advertising and promotion
                expenses had been provided. We also reclassified $0.4 million in
                amounts
                classified as deferred advertising expenses to other receivables.





·
            As
                at March 31, 2007, the Company had provided bank loan guarantees
                of $1.1
                million in total, extended to 104 farmers in the Zhangbei area. This
                was
                incorrectly presented as gross other receivable and other payable
                in the
                Original Filing. The Company has revised the balance sheet to eliminate
                both the other receivable and other
                payable.





·
            Land
                use rights, which represents a prepaid lease payment, is reclassified
                as
                an individual line item on our consolidated balance sheets as of
                March 31,
                2007 and 2006, respectively. It was included as part of property,
                plant
                and equipment, net in the Original
                Filing.





·
            A
                balance of $4.9 million in long-term liabilities as of March 31,
                2006, which was due on December, 2006, has been reclassified as
                short-term bank loans due to its maturity of less than one
                year.





·
            Certain
                short-term notes payable balances, in the amounts of $17.5 million
                and
                $18.5 million, are reclassified as short-term bank loans as of March
                31,
                2007 and 2006, respectively, as the ultimate lender of the note is
                an
                accredited financial institution.





·
            We
                reclassified $1.8 million in advances to suppliers to construction
                in
                progress under property, plant and equipment as of March 31, 2007,
                as the
                goods had been delivered and used in construction.




3




In
      addition to the above correcting adjustments, we also made reclassifications
      on
      our consolidated financial statements as disclosed in footnote 18 to the
      consolidated financial statements for the current period and have reclassified
      prior period amounts to conform to the current period presentation.




In
      this
      Form 10K/A, We revised our disclosure of the Mei Tai Technology (Qingdao) Co.,
      Ltd. (“Mei Tai”) to clarify our 100% ownership, which was disclosed as 70% due
      to a miscommunication internally when preparing the Original
      Filing.




We
      also
      added a disclosure of our aborted acquisition of Cangshan Tian Fa Bio-chemical
      Co., Ltd. (“Tian Fa”), which was omitted in our Original Filing.




In
      connection with the above restatements, we have amended the following items
      on
      this Form 10-K/A:




**Part
      I:**




Item
      1  Business
      - to clarify Mei Tai 100% ownership and the aborted acquisition of
      Tianfa.




**Part
      II:**




Item
      6  Selected
      Financial Data - to reflect the restated financial information




Item
      7  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      to
      reflect the restated financial information




Item 8  Financial
      Statements and Supplementary Data - to reflect the restated financial
      information




Item
      9A  Controls
      and Procedures - to reflect the restatement process.




Item
      9B
      Other Information - to clarify Mei Tai 100% ownership  and
      the
      aborted acquisition of Tianfa.





As
      a
      result of this amendment, the certifications pursuant to Section 302 and
      Section 906 of the Sarbanes-Oxley Act of 2002, filed as exhibits to the
      Original Filing, have been re-executed and re-filed as of the date of this
      Form 10-K/A.




Except
      as
      described above, all other information is unchanged and reflects the disclosures
      made at the time of the Original Filing and this Form 10-K/A does not otherwise
      reflect events occurring after the Original Filing or otherwise modify or update
      these disclosures. Accordingly, this Form 10-K/A should be read in conjunction
      with our filings with SEC subsequent to the filing of the original Form
      10-K.




4




**TABLE
      OF CONTENTS**


PAGEPART
                    IITEM
                    1.
                BUSINESS
                6ITEM
                    1A.
                RISK
                    FACTORS
                19ITEM
                    2.
                PROPERTIES
                29ITEM
                    3.
                LEGAL
                    PROCEEDINGS
                29ITEM
                    4.
                SUBMISSION
                    OF MATTERS TO A VOTE OF SECURITY HOLDERS
                29PART
                    IIITEM
                    5.
                MARKET
                    FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER
                    PURCHASES OF EQUITY SECURITIES
                30ITEM
                    6.
                SELECTED
                    FINANCIAL DATA
                30ITEM
                    7.
                MANAGEMENT’S
                    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                    OPERATION
                31ITEM
                    7A.
                QUANTITATIVE
                    AND QUALITATIVE DISCLOUSRES ABOUT MARKET RISK
                49ITEM
                    8.
                FINANCIAL
                    STATEMENTS AND SUPPLEMENTARY DATA
                51ITEM
                    9.
                CHANGES
                    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                52AND
                    FINANCIAL DISCLOSUREITEM 9A.
                CONTROLS
                    AND PROCEDURES
                52ITEM
                    9B.
                OTHER
                    INFORMATION
                54PART
                    IIIITEM
                    10.
                DIRECTORS,
                    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                55ITEM
                    11.
                EXECUTIVE
                    COMPENSATION
                59ITEM
                    12.
                SECURITY
                    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                    STOCKHOLDER MATTERS
                62ITEM
                    13.
                CERTAIN
                    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
                64ITEM
                    14.
                PRINCIPAL
                    ACCOUNTING FEES AND SERVICES
                65PART
                    IVITEM
                    15.
                EXHIBITS,
                    FINANCIAL STATEMENT SCHEDULES
                66SIGNATURES
                67





5





**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, with the exception of Mei Tai,
      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.





6




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.





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., to develop, manufacture, and
      export chondroitin sulfate, or cartilage, a nutraceutical supplement ingredient
      for distribution and sale in North American markets. For the past year, the
      Company has been exporting these products which generated other income for
      the
      company. In the business venture, the Company has made an initial investment
      of
      $7.5 million. 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 business venture 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.





On December
      8, 2006, the Company’s subsidiary, Qingdao ST George Dairy Co., Ltd., entered
      into an agreement with the owners of Cangshan Tian Fa Bio-chemical Co., Ltd.
      (“Tian Fa”), a chondroitin sulfates supplier of the Company, to acquire a 51%
      equity stake in Tian Fa from its owners for a consideration of $ 196,000. The
      consideration was not paid and the transaction was terminated due to differences
      on business directions on December 18, 2006 with mutual consent. Qingdao ST
      George Dairy Co., Ltd. ceased to be a shareholder of Tian Fa on the same date.




7




**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.





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.





8




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.




9




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.





**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.





10




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.





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.





11




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.




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.





12




*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.





13




**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.




14




**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.





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.




15




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).





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.




16





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.





17




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.




18




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.





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/A.





**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;




19




·
            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.





**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.




20




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





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





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





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





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





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





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





Synutra
      has established limited brand recognition in China. Failure to establish a
      brand
      and presence in the marketplace on a timely basis could adversely affect its
      financial condition and operating results. Moreover, Synutra cannot be sure
      that
      it will successfully complete the development and introduction of new products
      or product enhancements or that any new products developed will achieve
      acceptance in the marketplace. It may also fail to develop and deploy new
      products and product enhancements on a timely basis. In addition, currently
      Synutra only sells its products in China. It may seek to expand its distribution
      to 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.





21




**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.





22




**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.





23




**RISKS
      ASSOCIATED WITH DOING BUSINESS IN CHINA**





**The
      Chinese Legal System**





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





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





**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.





24




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





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





·
            Synutra
                will be able to capitalize on economic reforms;·
            The
                Chinese government will continue its pursuit of economic reform policies;·
            The
                economic policies, even if pursued, will be successful;·
            Economic
                policies will not be significantly altered from time to time; and·
            Business
                operations in China will not become subject to the risk of
                nationalization.





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





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





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





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.





25




**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.





26




**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;




27




·
            receiving
                preferences over the holders of common stock regarding or surplus
                funds in
                the event of its dissolution or liquidation;·
            delaying,
                deferring or preventing a change in control of the Company; and·
            discouraging
                bids for its common stock.





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





As
      of
      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.





28




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





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





·
            announcements
                of technological innovations by the Company or its competitors;·
            announcements
                of new products or new contracts by the Company or its competitors;·
            actual
                or anticipated variations in its operating results due to the level
                of
                expenses and other factors;·
            changes
                in financial estimates by securities analysts and whether its earnings
                meet or exceed such estimates;·
            conditions
                and trends in the baby food and other industries;·
            new
                accounting standards;·
            general
                economic, political and market conditions and other factors; and·
            the
                occurrence of any of the risks described in this Form 10-K/A.








**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.





29




**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.





**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.





30





**Year
                Ended March 31,**(In
                thousands, except per share amounts)
            
            **2007**
            
            **2006**
            
            **2005****Statement
                of Income Data (restated):**Sales
            
            $
            216,605
            
            $
            132,289
            
            $
            63,452Income
                from operations
            
            
            21,791
            
            
            13,338
            
            
            4,506Net
                income
            
            
            19,874
            
            
            11,035
            
            
            3,122Net
                income per Share - basic and diluted
            
            
            0.40
            
            
            0.23
            
            
            0.07




**March
                31,**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2005****Balance
                Sheet Data (restated):**Working
                Deficit
            
            $
            (8,281
            )
            $
            (14,269
            )
            $
            (15,920
            )Total
                Assets
            
            
            127,271
            
            
            83,009
            
            
            64,192Short-Term
                Debt
            
            
            53,104
            
            
            36,680
            
            
            29,644Long-Term
                Liabilities
            
            
            4,138
            
            
            -
            
            
            4,833Shareholders’
                Equity
            
            
            42,701
            
            
            20,950
            
            
            7,622





**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/A.





**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 , with the exception of Mei Tai, 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.





31




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., to develop, manufacture, and
      export chondroitin sulfate, or cartilage, a nutraceutical supplement ingredient
      for distribution and sale in North American markets. For the past year, the
      Company has been exporting these products which generated revenue for the
      company. 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 business venture 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.





On December
      8, 2006, the Company’s subsidiary, Qingdao ST George Dairy Co., Ltd., entered
      into an agreement with the owners of Cangshan Tian Fa Bio-chemical Co., Ltd.
      (“Tian Fa”), a chondroitin sulfates supplier of the Company, to acquire a 51%
      equity stake in Tian Fa from its owners for a consideration of $ 196,000. The
      consideration was not paid and the transaction was terminated due to differences
      on business direction on December 18, 2006 with mutual consent. Qingdao ST
      George Dairy Co., Ltd. ceased to be a shareholder of Tian Fa on the same
      date.





32




**RESULTS
      OF OPERATIONS**





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





Sales
      for
      the year ended March 31, 2007 increased by $84.3 million or 63.7% to $216.6
      million from $132.3 million for the year ended March 31, 2006. The 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 changes 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, increased by $72.5 million, or 76.4% to $167.5 million
      for the fiscal year ended March 31, 2007 from $94.9 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 28,000 tons in
                the
                year ended March 31, 2007 from 19,000 tons in the year ended March
                31,
                2006, resulting in an increase of $44.5million 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 $5,000 to $6,000 per ton,
                resulting in an increase of $28.0 million in gross sales.




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
      320.5%. 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 150.0% 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
      16.7%, and the sales of industry material-- anhydrous milk-fat, non-fat dry
      milk
      which was $14.4 million and $19.7 million for fiscal year ended March 31, 2007
      and 2006, respectively, a decrease of $5.3 million, or 26.9%, 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.





33




In
      the
      fiscal year ended March 31, 2007, the Company achieved approximately 98.9%
      of
      its sales revenue of the $167.5 million in traditional main products through
      its
      wholesale distributor networks and about 1.1% through the supermarket retailers.
      Of the total $94.9 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.





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 $109.9million from $76.7
      million for the year ended March 31, 2006. The 43.4% increase in cost of sales
      of $33.2 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 $24.2 million, or 59% to
      $65.2 million for the fiscal year ended March 31, 2007 from $40.9 million for
      the fiscal year ended March 31, 2006. The increase of 9,000 tons sold of the
      traditional main products resulted in $19.2 million increase in cost. Due to
      the
      increase in sales of the premium products, the average cost per unit increased
      by $180 per metric ton, resulting in a $5.0 million increase in cost for the
      year ended March 31, 2007.




34




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 308.6%. 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
      119.1 %.





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 27.3%; 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 14.2%.





**Gross
      Profit**





Gross
      profit was $106.7 million or 49.3% of sales for the year ended March 31, 2007,
      compared to $55.6 million or 42.1% of sales for the year ended March 31, 2006,
      an increase of $51.1 million or 91.8%, primarily due to the sales of traditional
      main products which contributed $102.3 million or 95.9% of gross profits for
      the
      year ended March 31, 2007, versus $54.0 million or 97.1% 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 65.0% 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.





35




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**





(in
                thousands)
            
            **Year
                ended**
              **March 31, 2007**
            
            **Year
                ended**
              **March 31, 2006**
            
            **Change
                in$**
            
            **change
                in**
              **%**Advertising
            
            $
            16,354
            
            $
            6,039
            
            $
            10,315
            
            
            170.8
            %Sales
                promotion
            
            
            35,968
            
            
            14,868
            
            
            21,100
            
            
            141.9
            %Totals
            
            $
            52,322
            
            $
            20,907
            
            $
            31,415
            
            
            150.3
            %





Advertising
      and promotion increased by $31.4 million or 150.3% to $52.3 million for the
      year
      ended March 31, 2007, as compared to $20.9 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.





**General
      and Administrative Expenses**





General
      and administrative expenses increased by $1.1 million or 19.4% to $7.0 million
      for the year ended March 31, 2007, as compared to $5.9 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 $84.3 million or 63.7% and the cost of sales increase
      of
      $33.2 million or 43.4% for the year ended March 31, 2007, gross profit increased
      by $51.1million or 91.8% compared to prior fiscal year. In the meantime,
      operational expenses also increased by $42.6 million for the year. As a result,
      income from operations was $21.8 million for the year ended March 31, 2007,
      as
      compared to $13.3 million for the year ended March 31, 2006, an increase of
      $8.4
      million or 63.4%





**Interest
      expenses**





Interest
      expenses increased by $112,000 or 6.3% to $1.9 million for the year ended March
      31, 2007, as compared to $1.8 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.





36




**Other
      Income/(Expenses), Net**





Other
      income, net was $1.2 million and $690,000 for the year ended March 31, 2007,
      and
      2006. The Company incurred these other income mainly as a result of Subsidy
      income from local governments increased by $830,000 to $1.1 million for the
      year
      ended March 31, 2007 as compared to $270,000 for the year ended March 31, 2006.





**Provision
      for Income Taxes**





The
      provision for income taxes, which is computed on a per subsidiary basis, was
      $1.6 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 $7.1 million and $4.1 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
      $1.6 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 $5.5 million and $2.7 million, respectively. The
      per
      share effect of the total tax savings was $0.11 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 $8.8 million, or 80.1% to $19.9 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 $0.40 and $0.23 for the years ended March 31,
      2007 and 2006, respectively, an increase of $0.17, or 70.3%.





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





**Sales**





Sales
      for
      the year ended March 31, 2006 increased by $68.8 million or 108.5% to
      $132.3 million from $63.5 million for the year ended March 31, 2005. The
      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
      changes 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.




37




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.





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 to19,000 tons in
                the year
                ended March 31, 2006 from13,000 tons in the year ended March 31,
                2005,
                resulting in an increase of $26.5 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 $4,330 to $4,990 per ton,
                resulting in an increase of $12.5 million in gross sales.




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





d.
            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 $94.9 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.




38




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.





Most
      of
      the Company’s products are shipped to the distributors upon receipt of payment
      directly from them. 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 $76.7million from $35.2
      million for the year ended March 31, 2005. The 117.9%% increase in cost of
      sales
      of $41.5 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 6,000 tons sold of the traditional main products resulted in $13.3
      million increase of cost. The average cost per unit decreased by $15 per metric
      ton, resulted in $196,000 million cost reduction for the year ended March 31,
      2006. Additionally, the combined factor of production volume and reduction
      of
      unit cost led to $93,000 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
      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 87.0%. 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 487.9%. 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.




39




**Gross
      Profit**





Gross
      profit was $55.6 million or 42.1% of sales for the year ended March 31, 2006,
      compared to $28.3 million or 44.6% of sales for the year ended March 31, 2005.
      It was an increase of $27.4 million or 96.7% in gross profit.





The
      sales
      of traditional main products contributed $54.0 million or 97.1% of gross profits
      for the year ended March 31, 2006. Such main products sales contributed $28.0
      million gross profits for the year ended March 31, 2005. The gross profit of
      the
      ancillary products and services was $1.6million or about 3% of the consolidated
      gross profit for the year ended March 31, 2006, as compared $300,000 for the
      year before.





In
      the
      year ended March 31, 2006, the Company experienced increase in gross profit.
      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 profit.





**Selling
      and Distribution Expenses**





Selling
      and distribution expenses increased by $4.2 million or 37.5% 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.





40




**Advertising
      and Promotion Expenses**





Advertising
      and promotion increased by $11.7 million or 127.8% to $20.9million for the
      year
      ended March 31, 2006, as compared to $9.2 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
            
            
            136.2
            %Sales
                promotion
            
            
            14,868
            
            
            6,620
            
            
            8,248
            
            
            124.6
            %**Totals**
            
            **$**
            **20,907**
            
            **$**
            **9,177**
            
            **$**
            **11,730**
            
            
            127.8
            %





**General
      and Administrative Expenses**





General
      and administrative expenses increased by $2.6 million or77.2% to $5.9 million
      for the year ended March 31, 2006, as compared to $3.3 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.





**Income
      from Operations**





Based
      on
      the sales increase of $68.8 million or108.5% and the cost of sales increase
      of
      $41.5 million or 117.9% for the year ended March 31, 2006, gross profit was
      up
      by almost $27.4 million or96.7% compared to March 2005. In the meantime,
      operational expenses also increased by approximately $18.5 million for the
      year.
      As a result, income from operations was $13.3 million for the year ended March
      31, 2006, as compared to $4.5 million for the year ended March 31, 2005, an
      increase of $8.8 million or 196.0%





**Interest
      expense**





Interest
      expense increased by $1.1 million or163.9% to $1.8 million for the year ended
      March 31, 2006, as compared to $676,000 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.





**Other
      Income/(Expenses), Net**





Other
      income, net was $689,000 for the year ended March 31, 2006, and the amount
      was
      $62,000 for the year ended March 31, 2005. The Company incurred this net income
      mainly as a result of 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.




41




**Provision
      for Income Taxes**





The
      provision for income taxes, which is computed on a per subsidiary basis, was
      $1.4 million and $89,000 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 $89,000 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.





**LIQUIDITY
      AND CAPITAL RESOURCES**





**Cash**





The
      cash
      balance increased by $15.2 million to $20.8 million at March 31, 2007, as
      compared to $5.6million at March 31, 2006. The increase was mainly attributable
      to net cash provided by operating activities of $14.8 million and net cash
      provided by financial activities of $16.4 million, being offset by cash spent
      in
      construction projects on plant and acquisition of fixed assets which amounted
      to
      $21.6 million.





Cash
      flow
      generated from operations was $14.8 million for the fiscal year ended March
      31,
      2007. Accounts receivable increased by $4.0 million and advances to suppliers
      increased by $852,000. 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 expenses and
      customer deposits, which provided $3.3 million in cash flow. Deferred
      income provided $3.9million in cash flow.





42




Cash
      flows used in investing activities amounted to $18 million. During the fiscal
      year 2007, we used around $12.7 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 $16.4. It was the net increase
      in
      bank loans.





**Working
      Capital**





Working
      capital increased by $6.0 million to negative $8.3 million at March 31, 2007,
      as
      compared to negative $14.3 million at March 31, 2006. The increase in working
      capital reflects current ratios of 89.7% and 78.6%, 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.





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.




43




**CONTRACTUAL
      OBLIGATIONS**





Our
      cash
      flows from operations are dependent on a number of factors, including
      fluctuations in our operating results,, accounts receivable collections,
      inventory management, and the timing and amount of tax and other payments.
      As a
      result, the impact of contractual obligations on our liquidity and capital
      resources in future periods should be analyzed in conjunction with such factors.
      In addition, we plan for and measure our liquidity and capital resources through
      an annual budgeting process.


The
      following tables summarize our contractual obligations at March 31, 2007 (in
      thousands):








**PAYMENTS
                DUE BY PERIOD****31-Mar-07****Total**
            
            **Less than 1 Year**
            
            **1-3 Years**
            
            **3—****5 Years**
            
            **More than 5 Years**Operating
                leases
            
            $
            728
            
            
            355
            
            
            373
            
            
            –
            
            
            –Short-
                term debt
            
            
            53,104
            
            
            53,104
            
            
            –
            
            
            –
            
            
            –Other
                long-term liabilities
            
            
            3,706
            
            
            –
            
            
            –
            
            
            –
            
            
            –**Total**
            
            **$**
            57,538
            
            
            –
            
            
            –
            
            
            –
            
            
            –




**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.





44




**Accounting
      Method**





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





**Accounts
      Receivable and Allowance For Doubtful Accounts**





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





**Inventories**





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





**Property,
      Plant and Equipment**





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





**Income
      Taxes**





Income
      taxes of the Company’s subsidiaries are calculated in accordance with taxation
      principles currently effective in the PRC. For Synutra Illinois, applicable
      U.S.
      tax laws are followed. 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.




45




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 $7.1 million and
      $4.1 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
      $1.6million, $1.4 million and $89,000 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 $5.5 million, $2.7 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 $0.11, $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.





46




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****2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**Qingdao
                St. George Dairy Co., Ltd.
            
            
            12
            %
            
            12
            %
            
            12
            %
            
            24
            %
            
            24
            %
            
            24
            %
            
            Sep-01Qingdao
                Sheng Yuan Dairy Co., Ltd.
            
            
            30
            %
            
            30
            %
            
            25
            %
            
            25
            %
            
            25
            %
            
            25
            %
            
            Jan-98Heilongjiang
                Luobei Sheng Yuan Dairy Co., Ltd.
            
            
            0
            %
            
            0
            %
            
            16.5
            %
            
            16.5
            %
            
            16.5
            %
            
            25
            %
            
            Apr-01Bei’an
                Yipin Dairy Co., Ltd.
            
            
            0
            %
            
            16.5
            %
            
            16.5
            %
            
            16.5
            %
            
            25
            %
            
            25
            %
            
            Jun-04Zhangjiakou
                Shen Yuan Dairy Co., Ltd.
            
            
            0
            %
            
            0
            %
            
            16.5
            %
            
            16.5
            %
            
            16.5
            %
            
            25
            %
            
            Mar-04Mei
                Tai Technology(Qingdao) Co.,Ltd.
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %
            
            16.5
            %
            
            16.5
            %
            
            Nov-06Inner
                Mongolia Sheng Yuan Food Co.,Ltd.
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %
            
            16.5
            %
            
            16.5
            %
            
            Sep-06Inner
                Mongolia Meng Yuan Food Co.,Ltd
            
            
            33
            %
            
            33
            %
            
            25
            %
            
            25
            %
            
            25
            %
            
            25
            %
            
            Apr-05


**Revenue
      Recognition**





The
      Company recognizes revenue from product sales when goods are 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.





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 acceptance of delivery of
      products 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.




47




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.





The
      Company provides its retailers, who purchase products directly from
      distributors, with certain amount of cash consideration as rebates. These
      rebates are recorded as a reduction of
      sales.





Most
      of
      the Company’s products are shipped to the distributors upon receipt of payment
      directly from them. 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:





48




(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 (1) geographic sales as a
      majority of its products are marketed and sold in the PRC; (2) export of
      chondroitin sulfate was through a single importer in North America.





(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.





**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.




49





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.




50


**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 (restated)
              F-2Consolidated
                  Statements of Income for the years ended March 31, 2007, 2006 and
                  2005
                  (restated)
              F-3Consolidated
                  Statements of Shareholders’ Equity for the years ended March 31, 2007,
                  2006 and 2005 (restated)
              F-4Consolidated
                  Statements of Cash Flows for the years ended March 31, 2007, 2006
                  and 2005
                  (restated)
              F-5Notes
                  to Consolidated Financial Statements
              F-6
  51
  **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, 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.
 
 As
        described more fully in Note 18, the consolidated financial statements for
        the
        years ended March 31, 2007 and 2006 have been restated.
 
 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  (October
        1, 2007 as to the effects of the restatement discussed in
        Note 18)
   
 F-1
  **SYNUTRA
        INTERNATIONAL, INC.**
 
 **CONSOLIDATED
        BALANCE SHEETS**
 **(in
        thousands, except share par value)**
 **(As
        restated, see Note 18)**
 
 **2007**
              
              **2006****ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              20,836
              
              $
              5,677Restricted
                  cash
              
              
              12,930
              
              
              16,457Accounts
                  receivable
              
              
              6,760
              
              
              2,540Inventories
              
              
              16,406
              
              
              11,789Other
                  receivable
              
              
              2,019
              
              
              2,230Due
                  from the related parties
              
              
              11,742
              
              
              8,602Advances
                  to suppliers
              
              
              1,206
              
              
              354Deferred
                  expenses and other current assets
              
              
              252
              
              
              139**Total
                  current assets**
              
              
              **72,151**
              
              
              **47,788****Property,
                  plant and equipment, net**
              
              
              51,472
              
              
              33,318**Land
                  use rights, net**
              
              
              3,024
              
              
              1,546**Deferred
                  tax assets**
              
              
              432
              
              
              –**Other
                  Assets**
              
              
              192
              
              
              357**TOTAL
                  ASSETS**
              
              **$**
              **127,271**
              
              **$**
              **83,009****LIABILITIES
                  AND SHAREHOLDERS' EQUITY****Current
                  Liabilities:**Bank
                  loans
              
              $
              53,104
              
              $
              36,680Accounts
                  payable
              
              
              12,085
              
              
              13,079Due
                  to related parties
              
              
              2,935
              
              
              4,301Advances
                  from customers
              
              
              4,263
              
              
              933Tax
                  payables
              
              
              1,329
              
              
              1,996Other
                  current liabilities
              
              
              6,716
              
              
              5,069**Total
                  current liabilities**
              
              
              **80,432**
              
              
              **62,058**Deferred
                  income
              
              
              4,138
              
              
              –**Total
                  liabilities**
              
              
              **84,570**
              
              
              **62,058****Shareholders'
                  equity:**Common
                  Stock, $.0001 par value: 250,000 authorized; 54,001 and 50,001issued
                  and outstanding at March 31, 2006, respectively
              
              
              5
              
              
              5Additional
                  paid-in capital
              
              
              8,226
              
              
              8,226Retained
                  earnings
              
              
              31,538
              
              
              11,664Accumulated
                  other comprehensive income
              
              
              2,932
              
              
              1,056**Total
                  shareholders' equity**
              
              
              **42,701**
              
              
              **20,951****TOTAL
                  LIABILITIES AND SHAREHOLDERS' EQUITY**
              
              **$**
              **127,271**
              
              **$**
              **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)**
 **(As
        restated, see Note 18)**
  **2007**
              
              **2006**
              
              **2005**Net
                  sales
              
              $
              216,605
              
              $
              132,289
              
              $
              63,452Including:
                  Related party sales
              
              
              16,815
              
              
              20,983
              
              
              4,821Cost
                  of sales
              
              
              109,900
              
              
              76,653
              
              
              35,172Including:
                  Related party cost of sales
              
              
              14,871
              
              
              19,771
              
              
              4,500**Gross
                  profit**
              
              
              **106,705**
              
              
              **55,636**
              
              
              **28,280**Selling
                  & distribution expenses
              
              
              25,561
              
              
              15,494
              
              
              11,269Advertising
                  and promotion expenses
              
              
              52,322
              
              
              20,908
              
              
              9,177General
                  & administrative expenses
              
              
              7,031
              
              
              5,896
              
              
              3,328Total
                  operating expense
              
              
              84,914
              
              
              42,298
              
              
              23,774**Income
                  from operations**
              
              
              **21,791**
              
              
              **13,338**
              
              
              **4,506**Interest
                  expense
              
              
              (1,896
              )
              
              (1,784
              )
              
              (676
              )Interest
                  income
              
              
              356
              
              
              238
              
              
              145Other
                  income, net
              
              
              1,219
              
              
              690
              
              
              (20
              )**Income
                  before provision for income tax**
              
              
              **21,470**
              
              
              **12,482**
              
              
              **3,955**Provision
                  for income tax
              
              
              1,596
              
              
              1,446
              
              
              89**Net
                  income before minority interests**
              
              
              **19,874**
              
              
              **11,036**
              
              
              **3,866**Minority
                  interests
              
              
              –
              
              
              1
              
              
              (744
              )**Net
                  income attributable to shareholders**
              
              **$**
              **19,874**
              
              **$**
              **11,035**
              
              **$**
              **3,122****Earning
                  per share—basic and diluted**
              
              $
              **0.40**
              
              $
              **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)**
 **(As
        restated, see Note 18)**
 
 **Common**
                  **Stock**
                  **Outstanding**
                
                **Share**
                  **capital**
                
                **Additional**
                  **paid-in
                    capital**
                
                **Retained**
                  **earnings**
                
                **Accumulated**
                  **other**
                  **comprehensive**
                  **income
                    (loss)**
                
                **Total****Balance
                    at April 1, 2004**
                
                
                **46,000**
                
                **$**
                **5**
                
                **$**
                **7,001**
                
                **$**
                **(2,493**
                **)**
                **$**
                **(108**
                **)**
                **$**
                **4,405**Capital
                    contribution during the year
                
                
                
                
                
                
                
                
                205
                
                
                
                
                
                
                
                
                205Net
                    income for the year
                
                
                –
                
                
                –
                
                
                –
                
                
                3,122
                
                
                –
                
                
                3,122Transfer
                    to reserves
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                –Currency
                    translation adjustment
                
                
                –
                
                
                –
                
                
                –
                
                
                –
                
                
                (110
                )
                
                (110
                )**Balance
                    at March 31, 2005**
                
                
                **46,000**
                
                
                **5**
                
                
                **7,206**
                
                
                **629**
                
                
                **(218**
                **)**
                
                **7,622**Acquisition
                    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
                
                
                –
                
                
                11,035Currency
                    translation adjustment
                
                
                –
                
                
                –
                
                
                –
                
                
                –
                
                
                1,274
                
                
                1,274**Balance
                    at March 31, 2006**
                
                
                **50,001**
                
                
                **5**
                
                
                **8,226**
                
                
                **11,664**
                
                
                **1,056**
                
                
                **20,951**Net
                    income for the year
                
                
                –
                
                
                –
                
                
                –
                
                
                19,874
                
                
                –
                
                
                19,874Currency
                    translation adjustment
                
                
                –
                
                
                –
                
                
                –
                
                
                –
                
                
                1,876
                
                
                1,876**Balance
                    at March 31,2007**
                
                
                **50,001**
                
                **$**
                **5**
                
                
                **8,226**
                
                
                **31,538**
                
                
                **2,932**
                
                
                **42,701**
 
 The
        accompanying notes are an integral part of the consolidated financial
        statements.
  F-4
 
 **SYNUTRA
        INTERNATIONAL, INC.**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(in
        thousands)** **(As
        restated, see Note 18)**
 
 **2007**
              
              **2006**
              
              **2005****Cash
                  flow from operating activities:**Net
                  income
              
              $
              19,874
              
              $
              11,035
              
              $
              3,122Adjustments
                  to reconcile net income to net cash provided by operating
                  activitiesDepreciation
                  and amortization
              
              
              2,057
              
              
              914
              
              
              1,320Bad
                  debt expense
              
              
              397
              
              
              215
              
              
              98(Gain)
                  or loss on short term investment
              
              
              (77
              )
              
              3
              
              
              26Minority
                  interest
              
              
              -
              
              
              -
              
              
              744Financial
                  consultants and finders fee
              
              
              -
              
              
              567
              
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (4,044
              )
              
              (758
              )
              
              (587
              )Inventories
              
              
              (4,616
              )
              
              (5,032
              )
              
              (327
              )Advances
                  to suppliers
              
              
              (852
              )
              
              368
              
              
              87Due
                  from related parties
              
              
              (3,139
              )
              
              (520
              )
              
              (5,593
              )Other
                  receivable
              
              
              (363
              )
              
              (484
              )
              
              10,916Deferred
                  expense
              
              
              (126
              )
              
              258
              
              
              (58
              )Accounts
                  payable
              
              
              (994
              )
              
              5,788
              
              
              (9,188
              )Due
                  to related parties
              
              
              (1,366
              )
              
              (4,508
              )
              
              (817
              )Advances
                  from customers
              
              
              3,330
              
              
              392
              
              
              (320
              )Tax
                  payable
              
              
              (668
              )
              
              1,391
              
              
              91Deferred
                  tax assets
              
              
              (432
              )
              
              -
              
              
              -Other
                  payable and other accrued liabilities
              
              
              1,647
              
              
              357
              
              
              (2,567
              )Deferred
                  revenue
              
              
              4,138
              
              
              -
              
              
              -**Net
                  cash provided by operating activities**
              
              
              **14,766**
              
              
              **9,986**
              
              
              **(3,053**
              **)****Cash
                  flow from investing activities:**Acquisition
                  of property, plant and equipment
              
              
              (8,939
              )
              
              (669
              )
              
              (1,380
              )Cash
                  used for construction in progress
              
              
              (12,631
              )
              
              (7,046
              )
              
              (13,224
              )Cash
                  receipt of disposal of fix assets
              
              
              29
              
              
              -
              
              
              -Purchases
                  of intangible assets
              
              
              (14
              )
              
              (16
              )
              
              (334
              )Sales
                  on short term investment
              
              
              120
              
              
              -
              
              
              -Change
                  in restricted cash
              
              
              3,527
              
              
              (6,184
              )
              
              (4,872
              )**Net
                  cash used in investing activities**
              
              
              (17,908
              )
              
              (13,915
              )
              
              (19,810
              )**Cash
                  flow from financing activities:**Borrowing
                  of bank loans
              
              
              32,625
              
              
              14,747
              
              
              23,869Repayment
                  of bank loans
              
              
              (16,200
              )
              
              (12,698
              )
              
              (3,625
              )Issuance
                  of Common stock
              
              
              -
              
              
              471
              
              
              205**Net
                  cash provided by financing activities**
              
              $
              **16,425**
              
              $
              **2,520**
              
              $
              **20,449****Net
                  change in increase in cash and cash equivalents**
              
              $
              **13,283**
              
              **$**
              **(1,409**
              **)**
              **$**
              **(2,414**
              **)**Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              1,876
              
              
              1,274
              
              
              (110
              )**Cash
                  and cash equivalents, beginning of period**
              
              
              **5,677**
              
              
              **5,812**
              
              
              **8,336****Cash
                  and cash equivalents, end of period**
              
              
              **20,836**
              
              
              **5,677**
              
              
              **5,812****Supplemental
                  cash flow information:**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 (Restated)**
 
 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, the Company obtained government approval to form a business
        venture, Mei Tai Technology (Qingdao) Co., Ltd., to develop, manufacture,
        and
        export chondroitin sulfate, or cartilage, a nutraceutical supplement ingredient
        for distribution and sale in North American markets. For the past year, the
        Company has been exporting these products which generated revenue for the
        company. In the business venture, the Company has made an initial investment
        of
        $7.5 million. 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 business venture 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 (Restated)**
 
 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,************2007**
              
              
              **2006**
              
              
              **2005**
              
              
              **Incorporation**
                **date****Name
                  of subsidiaries**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.
              
              
              100
              %
              
              0
              %
              
              0
              %
              
              Nov-06
  *
        The
        previous owner of the assets acquired was established in April, 2005.
 
 **3.
        SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Restated)**
 
 **A.
        RESTRICTED CASH**
 
 Restricted
        cash 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
                  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 $7.1 million and
        $4.1 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
        $1.6 million, $1.4 million and $89,000 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 $5.5 million, $2.7 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 $0.11, $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 (Calendar Year)**
              
              **Incorporation date****2006**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **2010**
              
              **2011**Qingdao
                  St. George Dairy Co., Ltd.
              
              
              12
              %
              
              12
              %
              
              12
              %
              
              24
              %
              
              24
              %
              
              24
              %
              
              Sep-01Qingdao
                  Sheng Yuan Dairy Co., Ltd.
              
              
              30
              %
              
              30
              %
              
              25
              %
              
              25
              %
              
              25
              %
              
              25
              %
              
              Jan-98Heilongjiang
                  Luobei Sheng Yuan Dairy Co., Ltd.
              
              
              0
              %
              
              0
              %
              
              16.5
              %
              
              16.5
              %
              
              16.5
              %
              
              25
              %
              
              Apr-01Bei’an
                  Yipin Dairy Co., Ltd.
              
              
              0
              %
              
              16.5
              %
              
              16.5
              %
              
              16.5
              %
              
              25
              %
              
              25
              %
              
              Jun-04Zhangjiakou
                  Shen Yuan Dairy Co., Ltd.
              
              
              0
              %
              
              0
              %
              
              16.5
              %
              
              16.5
              %
              
              16.5
              %
              
              25
              %
              
              Mar-04Mei
                  Tai Technology(Qingdao) Co.,Ltd.
              
              
              0
              %
              
              0
              %
              
              0
              %
              
              0
              %
              
              16.5
              %
              
              16.5
              %
              
              Nov-06Inner
                  Mongolia Sheng Yuan Food Co.,Ltd.
              
              
              0
              %
              
              0
              %
              
              0
              %
              
              0
              %
              
              16.5
              %
              
              16.5
              %
              
              Sep-06Inner
                  Mongolia Meng Yuan Food Co.,Ltd
              
              
              33
              %
              
              33
              %
              
              25
              %
              
              25
              %
              
              25
              %
              
              25
              %
              
              Apr-05
 
 On
        March
        16, 2007, the National People’s Congress approved and promulgated a new tax law,
        which will take effect beginning January 1, 2008. Under the new tax law,
        foreign
        invested enterprises and domestic companies are subject to a uniform tax
        rate of
        25%. The new tax law provides a five-year transition period from its effective
        date for those enterprises which were established before the promulgation
        date
        of the new tax law and which were entitled to a preferential lower tax rate
        under the then effective tax laws or regulations.
 
 **I.
        GOVERNMENT SUBSIDIES**
 
 Government
        grants for revenue and/or expenses should be recognized in income when the
        related revenue and/or expense is recorded. Government grants related to
        property, plant, and equipment should be netted against the depreciation
        expenses of the related assets over the useful lives of these assets. Government
        subsidies were $1.1 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-07**Balance
                  sheet
              
              
              RMB
              
              
              7.734
              
              
              to
                  US $
              
              
              1Operating
                  statement
              
              
              RMB
              
              
              7.876
              
              
              to
                  US $
              
              
              1**31-Mar-06**Balance
                  sheet
              
              
              RMB
              
              
              8.017
              
              
              to
                  US $
              
              
              1Operating
                  statement
              
              
              RMB
              
              
              8.147
              
              
              to
                  US $
              
              
              1**31-Mar-05**Operating
                  statement
              
              
              RMB
              
              
              8.277
              
              
              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 $1.9 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 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 $52.3 million, $20.9 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 other comprehensive income for the years
        ended March 31, 2007 and 2006 was $1.9 million and $1.3 million, respectively,
        while the other 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
   **4.
        ACCOUNTS RECEIVABLE (Restated)**
 
 The
        Company's accounts and notes 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
              )Trade
                  receivable, net
              
              $
              5,447
              
              $
              2,540Notes
                  receivable
              
              
              1,313
              
              
              -Total
                  of accounts and notes receivable, net
              
              
              6,760
              
              
              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 (Restated)**
 
 (
                  in thousands)
              
              **March
                  31, 2007**
              
              **March
                  31, 2006****Property,
                  plant and equipment****Cost:**Buildings
                  and leasehold improvement
              
              $
              16,638
              
              $
              7,252Plant
                  and machinery
              
              
              23,284
              
              
              7,206Office
                  equipment and furnishings
              
              
              1,984
              
              
              988Motor
                  vehicles
              
              
              1,040
              
              
              1,211$
              42,946
              
              $
              16,657**Less:
                  Accumulated depreciation:**Buildings
                  and leasehold improvement
              
              
              1,798
              
              
              1,265Plant
                  and machinery
              
              
              3,450
              
              
              2,306Office
                  equipment and furnishings
              
              
              472
              
              
              336Motor
                  vehicles
              
              
              590
              
              
              630Total accumulated depreciation
              
              
              6,310
              
              
              4,537Construction
                  in progress
              
              
              14,836
              
              
              21,198Property,
                  plant and equipment, net
              
              $
              51,472
              
              $
              33,318
 
 The
        Company recorded depreciation expense of $1.8 million, $791,000 and $1.3
        million
        for the years ended March 31, 2007, 2006 and 2005, respectively.
 
 The
        Company had pledged certain of its property, plant and equipment as collateral
        to secure bank loans with financial institutions in the PRC. The amounts
        of
        assets pledged at cost were $32.7 million and $11.6 million as of March 31,
        2007
        and 2006, respectively.
 
 **6.
        LAND USE RIGHTS (Restated)**
 
 **March
                  31, 2007**
              
              **March
                  31, 2006****Cost:**
              
              
              3,177
              
              
              1,660**Less:
                  Accumulated amortization:**
              
              
              153
              
              
              114**Land
                  use rights, net**
              
              $
              3,024
              
              $
              1,546
 
 The
        Company recorded amortization expense of $40,000, $38,000 and $20,000 for
        the
        years ended March 31, 2007, 2006 and 2005, respectively.
 
 **7.
        INVENTORIES (Restated)**
 
 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
              
              $
              4,522
              
              $
              1,985Work-in-progress
              
              
              7,714
              
              
              7,586Finished
                  goods
              
              
              3,217
              
              
              2,132Packing
                  materials and other consumables
              
              
              953
              
              
              86Total
                  Inventories
              
              $
              16,406
              
              $
              11,789
 
 **8.
        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)
                
                **31-Mar-07**
                
                **31-Mar-06**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 Transactions by Nature**
 
 **a.**
              **Due
                  from related parties**
 
 (in
                  thousands s)
              
              **31-Mar-07**
              
              **31-Mar-06**Trade
                  receivables
              
              $
              4,535
              
              $
              2,018Advance
                  to suppliers
              
              
              7,207
              
              
              -Prepayments
              
              
              -
              
              
              4,526Other
                  recievables
              
              
              -
              
              
              2,058**Total**
              
              **$**
              **11,742**
              
              $
              **8,602**
 
 **b.**
              **Due
                  to related parties**
 
 (in
                    thousands)
                
                **31-Mar-07**
                
                **31-Mar-06**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.
 
 **9.
        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-15
  Amortization
        expense for years 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
 
 **10.
        BANK LOANS (Restated)**
 
 At
        March
        31, 2007 and 2006, the Company had short-term loans from banks at the amount
        of
        $53.1 million and $36.7 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.
 
 **11.
        INCOME TAXES (Restated)**
 
 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
              
              $
              7,938Foreign
                  Rate Benefit
              
              $
              (5,915
              )Other
                  Benefit
              
              $
              (427
              )Total
                  income tax expenses
              
              $
              1,596
 
 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 31.
 
 **(in
                  thousands)**
              
              **Mar-07**
              
              **Mar-06**
              
              **Mar-05**Net
                  deferred tax asset:Net
                  operating loss carry-forward
              
              $
              432
              
              $
              -
              
              $
              -Total
              
              $
              432
              
              $
              -
              
              $
              -
 
 At
        March
        31, 2007, operating loss carry-forwards of approximately $517,000 of U.S
        Synutra
        expiring through 2027 are available to offset future taxable income. No
        valuation allowance is deemed necessary. Qingdao Shengyuan Dairy Co.,Ltd,
        one of
        our subsidiaries in China, have recorded net losses in the past, which they
        may
        carry forward for five years from the end of the period in which the loss
        was
        recorded to offset future net income for tax purposes.We
        cannot, however, give any assurances that the subsidiary will record sufficient
        net income for tax purposes within the carry forward periods to realize the
        full
        tax benefit of these past net losses. The net operating loss of Qingdao
        Shengyuna Diary Co.,Ltd were $634,000 for the years ended March31, 2007.
        Subject
        to an enterprise income tax of 33%, the deferred tax assets of the company
        are
        $214,000, as of March31, 2007 .
 
 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
              
              
              21,596
              
              
              12,799
              
              
              3,975Total
              
              $
              21,470
              
              $
              12,482
              
              $
              3,955
 
 Income
        taxes are calculated on a separate entity basis.
  F-16
  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
              
              
              (427
              )
              
              -
              
              
              -$
              1,596
              
              $
              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 $7.1 million, $4.1 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 $1.6 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 $5.5 million, $2.7 million
        and $1.2 million, respectively. The per share effect of the total tax savings
        was $0.11, $0.05 and $0.03 for the years ended March 31, 2007, 2006 and 2005,
        respectively.
  F-17
  **12.
        EARNINGS PER SHARE (EPS) (Restated)**
 
 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
              
              $
              19,874
              
              $
              11,035
              
              $
              3,122Denominator:Denominator
                  for basic income per share—weighted average shares
              
              
              50,001
              
              
              48,834
              
              
              46,000Denominator
                  for diluted income per share—weighted average shares and assumed
                  conversions
              
              
              50,001
              
              
              48,834
              
              
              46,000Basic
                  and diluted net income per share
              
              $
              0.40
              
              $
              0.23
              
              $
              0.07
 
 **13.
        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-18
  **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
 
 **14.
        COMMITMENTS AND CONTINGENCIES (Restated)**
 
 **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-19
 (in
                    thousands of US dollars)
                
                **Inception**
                  **date**
                
                **Expiration**
                  **date**
                
                **Monthly**
                  **payment**
                
                **2008**
                
                **2009**
                
                **2010**
                
                **2011**
                
                **2012**
                
                **Total**20-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
 
 **D.
        GUARANTEES**
 
 As
        at
        March 31, 2007, the Company had a guarantee given to the Zhangbei Branch
        of the
        Agriculture Bank of China in respect of bank loans of $ 1.1 million in total
        extended to 104 farmers in the Zhangbei Area. These bank loans mature on
        December 25, 2007. Total amounts of bank loans under this guarantee arrangement
        were $1.1 million and $1.5 million as of March 31, 2006, and 2005 respectively.
        The potential loss from this guarantee could not be estimated as the Company
        was
        unable to assess the financial position of individual farmers. However, based
        on
        general economic information available for this area, the Company believes
        that
        these loans will be repaid by the farmers upon maturity. Therefore, no liability
        was recorded on the balance sheet in relation to these guarantees.
 
 
 **15.
        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.
 
 **16.
        SUBSEQUENT EVENTS (Restated)**
 
 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-20
  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
        May
        2007, the Company acquired an 80% equity interest which was previously held
        by
        Mr. Liang Zhang, our Chief Executive Officer, in Baoquanling Shengyuan Diary
        Co., Ltd. (“BQL”) for consideration of $ 1.41 million. Immediately after the
        acquisition, the Company entered into an agreement with Junchuan Ranch of
        Heilongjiang Province (“Junchuan Ranch”), who held the remaining 20% equity
        interest in BQL, to make a capital injection in an aggregate amount of $
        4.74
        million into BQL. After the capital injection, the Company increased its
        holding
        to 94.62%. Junchuan Ranch holds the remaining 5.38% interest. In this
        transaction, the Company’s capital injection of $ 4.74 million was used to erect
        a new dairy processing facility to produce infant formula products. At
        completion, the BQL 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 .
 
 **17.
        QUARTERLY FINANCIAL DATA (UNAUDITED) (Restated)**
 
 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
              
              
              49,107
              
              
              45,617
              
              
              56,314
              
              
              65,567
              
              
              216,605
              
              
              21,164
              
              
              30,172
              
              
              43,805
              
              
              37,148
              
              
              132,289Gross
                  Profit
              
              
              21,460
              
              
              23,409
              
              
              28,131
              
              
              33,705
              
              
              106,705
              
              
              9,508
              
              
              14,548
              
              
              15,875
              
              
              15,705
              
              
              55,636Net
                  Income
              
              
              7,971
              
              
              4,921
              
              
              2,919
              
              
              4,063
              
              
              19,874
              
              
              1,724
              
              
              1,337
              
              
              3,778
              
              
              4,196
              
              
              11,035Earnings
                  per share, basic and diluted
              
              
              0.16
              
              
              0.10
              
              
              0.06
              
              
              0.08
              
              
              0.40
              
              
              0.04
              
              
              0.03
              
              
              0.08
              
              
              0.08
              
              
              0.23
  F-21
 
 **18.
        RESTATEMENT**
 
 **Adjustments**
 
 Subsequent
        to the Original Filing, we identified the following issues in our consolidated
        financial statements and have made the adjustments as follows:
 
 ·
              In
                  fiscal year 2007, we acquired certain fixed assets from Zheng Lan
                  Qi
                  County and subsequently established a new subsidiary with these
                  assets. In
                  conjunction with the acquisition, the local government provided
                  an
                  irrevocable subsidy of $4.1 million which we recognized as subsidy
                  income
                  for the fiscal year ended March 31, 2007. Subsequent to the Original
                  Filing, we determined that the $4.1 million should be deferred
                  and netted
                  against the depreciation expenses of the assets acquired, as this
                  method
                  effectively matches the related depreciation of the cost of assets
                  with the corresponding grant income. The effect of this adjustment
                  is a
                  decrease in subsidy income by $4.1 million and an increase in deferred
                  subsidy by $4.1 million for the fiscal year ended March 31, 2007.
                  We did
                  not recognize any of the subsidy during the fiscal year as the
                  asset had
                  not yet been placed in service.
 
 ·
              The
                  Company has recognized revenue upon shipment rather than upon delivery
                  to
                  the distributors' site. The effect of the difference between the
                  shipment
                  and delivery is a decrease in sales and an increase in advances
                  from
                  customers of $1.6 million for the year ended March 31, 2007. In
                  addition,
                  Cost of sales is reduced and inventory is increased by $692,000
                  for the
                  same period.
 
 ·
              The
                  cash consideration given to our retailers, who purchased our products
                  directly from our distributors, is reclassified as a reduction
                  of sales.
                  It was recorded as advertising and promotion expense in the Original
                  Filing. The effects of the reclassification are a decrease in sales
                  and
                  advertising and promotion expense of $1.2 million and $0.4 million
                  for the
                  fiscal years ended March 31, 2007and 2006, respectively.
 
 ·
              The
                  amount of free products provided to our customers is reclassified
                  as cost
                  of sales for the fiscal years ended March 31, 2007 and 2006. It
                  had been
                  recorded as advertising and promotion expense in the Original Filing.
                  The
                  effects of this adjustment are an increase in cost of sales and
                  a decrease
                  in advertising and promotion expense of $1.0 million and $1.2 million
                  for
                  the fiscal years ended March 31, 2007 and 2006, respectively.
 
 ·
              We
                  have reviewed our consolidated income tax provision and recognized
                  net
                  operating loss carried forwards of one of our subsidiaries as additional
                  deferred tax assets. As a result, our consolidated income tax provision
                  decreased by $209,000 for the year ended March 31, 2007.
 
 ·
              Restricted
                  cash, included as cash and cash equivalents in the Original Filing,
                  represents cash deposited with the banks as guarantee for the issuance
                  of
                  promissory notes. Under US GAAP, restricted cash does not meet
                  the
                  definition of cash and cash equivalents, and separate disclosure
                  on the
                  face of balance sheet is required. In addition, the change in the
                  restricted cash balance, given its use to secure promissory notes,
                  should
                  have been presented as an investing activity. Therefore, restricted
                  cash
                  of $12.9 million and $16.4 million is reclassified and is presented
                  as an
                  individual item on our consolidated balance sheets as of March
                  31, 2007
                  and 2006, respectively. In addition, the increase (decrease) in
                  restricted
                  cash of $3.5 million ($6.2 million) is reclassified from operating
                  to
                  investing activities in the consolidated statements of cash flows
                  for the
                  years ended March 31, 2007 and 2006, respectively.
 
 ·
              We
                  recognized $1.1 million in previously deferred advertising expense
                  for the
                  year ended March 31, 2007 as the associated advertising and promotion
                  expenses had been provided. We also reclassified $0.4 million in
                  amounts
                  classified as deferred advertising expenses to other receivables.
  F-22
  ·
              As
                  at March 31, 2007, the Company had provided bank loan guarantees
                  of $1.1
                  million in total, extended to 104 farmers in the Zhangbei area.
                  This was
                  incorrectly presented as gross other receivable and other payable
                  in the
                  Original filing. The Company has revised the balance sheet to eliminate
                  both the other receivable and other
                  payable.
 
 ·
              Land
                  use rights, which represents a prepaid lease payment, is reclassified
                  as
                  an individual line item on our consolidated balance sheets as of
                  March 31,
                  2007 and 2006, respectively. It was included as part of property,
                  plant and equipment, net in the Original
                  Filing.
 
 ·
              A
                  balance of $4.9 million in long-term liabilities as of March 31,
                  2006,
                  which was due on December, 2006, has been reclassified as short-term
                  bank
                  loans due to its maturity of less than one
                  year.
 
 ·
              Certain
                  short-term notes payable balances, in the amounts of $17.5 million
                  and
                  $18.5 million, are reclassified as short-term bank loans as of
                  March 31,
                  2007 and 2006, respectively, as the ultimate lender of the note
                  is an
                  accredited financial institution.
 
 ·
              We
                  reclassified $1.8 million in advances to suppliers to construction
                  in
                  progress under property, plant and equipment as of March 31, 2007,
                  as the
                  goods had been delivered and used in construction.
 
 **Reclassification**
 
 In
        addition to the above correcting adjustments, we also made reclassifications
        on
        our consolidated financial statements as follows for the current period and
        the
        prior period presentation has been conformed:
 ·
                Accounts
                    receivable and notes receivable have been combined as accounts
                    receivable.
                    They used to be reported separately. The combined amounts of
                    accounts
                    receivable were $6.7 million and $2.5 million as of March 31,
                    2007 and
                    2006, respectively.
 
 ·
                Deferred
                    expenses and short-term investment have been combined as deferred
                    expense
                    and other current assets. They used to be reported separately.
                    The
                    combined amounts of deferred expense and other current assets
                    were
                    $252,000 and $139,000 as of March 31, 2007 and 2006,
                    respectively.
 
 ·
                Intangible
                    assets and other long-term deferred costs have been combined
                    as other
                    assets. They used to be reported separately. The combined amounts
                    of other
                    assets were $193,000 and $356,000 as of March 31, 2007 and 2006,
                    respectively.
 
 ·
                Construction
                    in progress had been included under property, plant and equipment,
                    net. It
                    used to be reported separately. The amounts of construction in
                    progress
                    were $14.8 million and $21.2 million as of March 31, 2007 and
                    2006,
                    respectively.
  F-23
  ·
                Accounts
                    payable and notes payable have been combined as accounts payable.
                    They
                    used to be reported separately. The combined amounts of accounts
                    payable
                    were $12.1 million and $13.1 million as of March 31, 2007 and
                    2006,
                    respectively.
 
 ·
                Accrued
                    expense and other payable have been combined as other current
                    liabilities.
                    They used to be reported separately. The combined amounts of
                    other current
                    liabilities were $6.7 million and $5.1 million as of March 31,
                    2007 and
                    2006, respectively.
 
 ·
                Retained
                    earnings and reserves have been combined as retained earnings.
                    They used
                    to be reported separately. The combined amounts of retained earnings
                    and
                    reserves were $31.5 million and $11.7 million as of March 31,
                    2007 and
                    2006, respectively.
 
 ·
                Government
                    grants other than those related to assets, which used to be reported
                    as a
                    separate line item, have been reported as other income, net.
                    The effect of
                    the reclassification is an increase of $ 1.1 million, $271,000
                    and
                    $734,000 on other income, net for the years ended March 31, 2007,
                    2006 and
                    2005, respectively. These subsidies are not related to fixed
                    asset
                    government explained above.
  **Consolidated
        Balance Sheets**
  Two
        years
        ended March 31, 2007 and 2006
 
 The
        following table sets forth the consolidated balance sheets for the Company
        as of
        the dates indicated, showing previously reported amounts and restated amounts
        giving effect to the Restatement Adjustments described above in Note
        18.
  **Fiscal
                    Year 2007**
                
                **Fiscal
                    Year 2006**(In
                    thousands)
                
                **As**
                  **Previously**
                  **Reported**
                
                **Restatement**
                  **Adjustments**
                
                **As**
                  **Restated**
                
                **As**
                  **Previously**
                  **Reported**
                
                **Restatement**
                  **Adjustments**
                
                **As**
                  **Restated****ASSETS****Current
                    Assets:**Cash
                    and cash equivalents
                
                $
                33,766
                
                $
                (12,930
                )
                $
                20,836
                
                $
                22,134
                
                $
                (16,457
                )
                $
                5,677Restricted
                    cash
                
                
                -
                
                
                12,930
                
                
                12,930
                
                
                -
                
                
                16,457
                
                
                16,457Notes
                    receivable
                
                
                1,313
                
                
                (1,313
                )
                
                -
                
                
                -
                
                
                -
                
                
                -Accounts
                    receivable
                
                
                5,447
                
                
                1,313
                
                
                6,760
                
                
                2,540
                
                
                -
                
                
                2,540Inventories
                
                
                15,714
                
                
                692
                
                
                16,406
                
                
                11,789
                
                
                -
                
                
                11,789Other
                    receivable, net
                
                
                2,694
                
                
                (675
                )
                
                2,019
                
                
                2,230
                
                
                -
                
                
                2,230Deferred
                    expenses
                
                
                1,786
                
                
                (1,534
                )
                
                252
                
                
                126
                
                
                (30
                )
                
                96Advances
                    to suppliers
                
                
                3,073
                
                
                (1,867
                )
                
                1,206
                
                
                354
                
                
                -
                
                
                354**Total
                    current assets**
                
                
                **75,535**
                
                
                **(3,384**
                **)**
                
                **72,151**
                
                
                **47,818**
                
                
                **(30**
                **)**
                
                **47,788****Property,
                    plant and equipment, net**
                
                
                43,470
                
                
                (3,086
                )
                
                40,384
                
                
                13,728
                
                
                (1,608
                )
                
                12,120**Construction
                    in progress**
                
                
                9,220
                
                
                1,868
                
                
                11,088
                
                
                21,198
                
                
                
                
                
                21,198**Land
                    use rights, net**
                
                
                -
                
                
                3,024
                
                
                3,024
                
                
                -
                
                
                1,546
                
                
                1,546**Deferred
                    tax assets**
                
                
                218
                
                
                214
                
                
                432
                
                
                -
                
                
                -
                
                
                -**Other
                    Assets**
                
                
                131
                
                
                62
                
                
                193
                
                
                265
                
                
                92
                
                
                357**TOTAL
                    ASSETS**
                
                
                **128,574**
                
                
                **(1,303**
                **)**
                
                **127,271**
                
                
                **83,009**
                
                
                -
                
                
                **83,009****Current
                    Liabilities:**Bank
                    loans
                
                
                35,649
                
                
                17,455
                
                
                53,104
                
                
                13,134
                
                
                23,546
                
                
                36,680Notes
                    payable
                
                
                17,972
                
                
                (17,
                    972
                )
                
                -
                
                
                19,113
                
                
                (19,113
                )
                
                -Accounts
                    payable
                
                
                11,568
                
                
                517
                
                
                12,085
                
                
                12,580
                
                
                499
                
                
                13,079Advances
                    from customers
                
                
                2,620
                
                
                1,643
                
                
                4,263
                
                
                933
                
                
                -
                
                
                933Other
                    payables
                
                
                6,518
                
                
                (1,119
                )
                
                5,399
                
                
                4,569
                
                
                -
                
                
                4,569**Total
                    current liabilities**
                
                
                **79,909**
                
                
                **523**
                
                
                **80,432**
                
                
                **57,126**
                
                
                **4,932**
                
                
                **62,058****Long
                    term debts**
                
                
                -
                
                
                -
                
                
                -
                
                
                4,932
                
                
                (4,932
                )
                
                -**Deferred
                    income**
                
                
                -
                
                
                4,138
                
                
                4,138
                
                
                -
                
                
                -
                
                
                -**Total
                    liabilities**
                
                
                **79,909**
                
                
                **4,661**
                
                
                **84,570**
                
                
                **62,058**
                
                
                -
                
                
                **62,058**Retained
                    earnings
                
                
                37,395
                
                
                (5,857
                )
                
                31,538
                
                
                11,664
                
                
                -
                
                
                11,664Accumulated
                    other comprehensive income
                
                
                3,039
                
                
                (107
                )
                
                2,932
                
                
                1,056
                
                
                -
                
                
                1,056**Total
                    shareholders' equity**
                
                **$**
                **48,665**
                
                **$**
                **(5,964**
                **)**
                **$**
                **42,886**
                
                **$**
                **20,951**
                
                $
                -
                
                **$**
                **20,951****TOTAL
                    LIABILITIES AND SHAREHOLDERS' EQUITY**
                
                **$**
                **128,574**
                
                **$**
                **(1,303**
                )
                **$**
                **127,271**
                
                **$**
                **83,009**
                
                **$**
                -
                
                **$**
                **83,009**
  F-24
 
 **Consolidated
        Statements of Income**
  Three
        years ended March 31, 2007
 
 The
        following tables show the Consolidated Statements of Income for the fiscal
        years
        indicated, showing previously reported amounts and restated amounts giving
        effect to the Restatement Adjustments described above in Note 18.
 
 **Fiscal
                    Year 2007**
                
                **Fiscal
                    Year 2006**(In
                    thousands)
                
                
                **As**
                  **Previously**
                  **Reported**
                
                
                **Restatement**
                  **Adjustments**
                
                
                **As**
                  **Restated**
                
                
                **As**
                  **Previously**
                  **Reported**
                
                
                **Restatement**
                  **Adjustments**
                
                
                **As**
                  **Restated**Net
                    sales
                
                $
                219,404
                
                $
                (2,799
                )
                $
                216,605
                
                $
                132,692
                
                $
                (403
                )
                $
                132,289Cost
                    of sales
                
                
                109,551
                
                
                349
                
                
                109,900
                
                
                75,423
                
                
                1,230
                
                
                76,653**Gross
                    profit**
                
                
                **109,853**
                
                
                **(3,148**
                **)**
                
                **106,705**
                
                
                **57,269**
                
                
                **(1,633**
                **)**
                
                **55,636**Advertising
                    and promotion expenses
                
                
                53,467
                
                
                (1,145
                )
                
                52,322
                
                
                22,541
                
                
                (1,633
                )
                
                20,908General
                    and administrative expenses
                
                
                6,819
                
                
                212
                
                
                7,031
                
                
                5,698
                
                
                198
                
                
                5,896Total
                    operating expense
                
                
                85,847
                
                
                (933
                )
                
                84,914
                
                
                43,733
                
                
                (1,435
                )
                
                42,298**Income
                    from operations**
                
                
                **24,006**
                
                
                **(2,215**
                **)**
                
                **21,791**
                
                
                **13,536**
                
                
                **(198**
                **)**
                
                **13,338**Subsidy
                    income
                
                
                5,173
                
                
                (5,173
                )
                
                -
                
                
                734
                
                
                (734
                )
                
                -Interest
                    expense
                
                
                (2,119
                )
                
                223
                
                
                (1,896
                )
                
                (1,982
                )
                
                198
                
                
                (1,784
                )Other
                    income, net
                
                
                120
                
                
                1,099
                
                
                1,219
                
                
                (45
                )
                
                735
                
                
                690**Income
                    before provision for income tax**
                
                
                **27,536**
                
                
                **(6,,066**
                **)**
                
                **21,470**
                
                
                **12,482**
                
                
                -
                
                
                **12,482**Provision
                    for income tax
                
                
                1,805
                
                
                (209
                )
                
                1,596
                
                
                1,446
                
                
                -
                
                
                1,446**Net
                    income attributable to shareholders**
                
                
                **25,731**
                
                
                **(5,857**
                **)**
                
                **19,874**
                
                
                **11,035**
                
                
                -
                
                
                **11,035**Currency
                    translation adjustment
                
                $
                1,983
                
                $
                (107
                )
                $
                1,876
                
                $
                1,274
                
                
                -
                
                $
                $
                    1,274**Comprehensive
                    income**
                
                **$**
                **27,714**
                
                **$**
                **(5,964**
                **)**
                **$**
                **21,750**
                
                **$**
                **12,309**
                
                
                -
                
                $
                $
                    12,309**Earning
                    per share—basic and diluted**
                
                
                0.51
                
                
                (0.11
                )
                
                0.40
                
                $
                0.23
                
                
                
                
                $
                $
                    0.23
 **Fiscal
                    Year 2005**(In
                    thousands)
                
                **As**
                  **Previously**
                  **Reported**
                
                **Restatement**
                  **Adjustments**
                
                **As**
                  **Restated**General
                    and administrative expenses
                
                
                2,835
                
                
                493
                
                
                3,328Total
                    operating expense
                
                
                23,281
                
                
                493
                
                
                23,774**Income
                    from operations**
                
                
                **4,999**
                
                
                **(493**
                **)**
                
                **4,506**Subsidy
                    income
                
                
                271
                
                
                (271
                )
                
                -Interest
                    expense
                
                
                (1,169
                )
                
                493
                
                
                (676
                )Other
                    income, net
                
                
                (291
                )
                
                271
                
                
                (20
                )**Net
                    income attributable to shareholders**
                
                
                **3,122**
                
                
                -
                
                
                **3,122**
  F-25
 **Consolidated
        Statement of Cash Flows**
 Three
        years ended March, 2007
 
 The
        following tables show the consolidated statements of cash flows for the fiscal
        years indicated, showing previously reported amounts and restated amounts
        giving
        effect to the Restatement Adjustments described above in Note
        18.
 **Fiscal
                    Year 2007****As**
                  **Previously**
                  **Reported**
                
                **Restatement**
                  **Adjustments**
                
                **As**
                  **Restated****Cash
                    flow from operating activities:**Net
                    income
                
                $
                25,731
                
                $
                (5,857
                )
                $
                19,874Changes
                    in operating assets and liabilities:Inventories
                
                
                (3,925
                )
                
                (691
                )
                
                (4,616
                )Advances
                    to suppliers
                
                
                (2,719
                )
                
                1,867
                
                
                (852
                )Other
                    receivable, net
                
                
                (1,037
                )
                
                674
                
                
                (363
                )Deferred
                    expenses
                
                
                (1,660
                )
                
                1,534
                
                
                (126
                )Notes
                    payable
                
                
                (1141
                )
                
                1,159
                
                
                18Advances
                    from customers
                
                
                1,687
                
                
                1,643
                
                
                3,330Deferred
                    tax assets
                
                
                (219
                )
                
                (213
                )
                
                (432
                )Other
                    payables and accrued liabilities
                
                
                2,767
                
                
                (1,120
                )
                
                1,647Deferred
                    revenue
                
                
                -
                
                
                4,138
                
                
                4,138**Net
                    cash provided by operating activities**
                
                
                11,632
                
                
                3,134
                
                
                14,766**Cash
                    flow from investing activities:**Cash
                    used for construction in progress
                
                
                (10,763
                )
                
                (1,868
                )
                
                (12,631
                )Restricted
                    cash
                
                
                -
                
                
                3,527
                
                
                3,527**Net
                    cash provided by (used in)investing activities**
                
                
                (19,567
                )
                
                1,659
                
                
                (17,908
                )**Cash
                    flow from financing activities:**Borrowing
                    of bank loans
                
                
                17,584
                
                
                15,041
                
                
                32,
                    625Repayment
                    of bank loans
                
                
                -
                
                
                (16,200
                )
                
                (16,200
                )**Net
                    cash provided by financing activities**
                
                $
                17,584
                
                $
                (1,159
                )
                $
                16,425**Effect
                    of exchange rate changes on cash and cash
                    equivalents**
                
                
                1,983
                
                
                (107
                )
                
                1,876**Net
                    change in increase in cash and cash equivalents**
                
                
                9,649
                
                
                3,634
                
                
                13,283**Cash
                    and cash equivalents, beginning of period**
                
                
                22,134
                
                
                (16,457
                )
                
                5,677**Cash
                    and cash equivalents, end of period**
                
                
                33,766
                
                
                (12,930
                )
                
                20,836
 
 
 F-26
 
 **Fiscal
                    Year 2006**
                
                **Fiscal
                    Year 2005****As**
                  **Previously**
                  **Reported**
                
                **Restatement**
                  **Adjustments**
                
                **As**
                  **Restated**
                
                **As**
                  **Previously**
                  **Reported**
                
                **Restatement**
                  **Adjustments**
                
                **As**
                  **Restated****Cash
                    flow from operating activities:**Notes
                    payable
                
                
                (708
                )
                
                (1,117
                )
                
                (1,825
                )
                
                7,739
                
                
                (17,345
                )
                
                (9,606
                )**Net
                    cash provided by****operating
                    activities**
                
                
                **11,102**
                
                
                **(1,116**
                **)**
                
                **9,986**
                
                
                **14,293**
                
                
                **(17,346**
                **)**
                
                **(3,053**
                **)****Cash
                    flow from investing activities:**Restricted
                    cash
                
                
                -
                
                
                (6,184
                )
                
                (6,184
                )
                
                -
                
                
                (4,872
                )
                
                (4,872
                )**Net
                    cash used in investing activities**
                
                
                **(7,731**
                **)**
                
                **(6,184**
                **)**
                
                **(13,915**
                **)**
                
                **(14,938**
                **)**
                
                **(4,872**
                **)**
                
                **(19,810**
                **)****Cash
                    flow from financing activities:**Borrowing
                    of bank loans
                
                
                933
                
                
                13,814
                
                
                14,747
                
                
                2,899
                
                
                20,970
                
                
                23,869Repayment
                    of bank loans
                
                
                -
                
                
                (12,698
                )
                
                (12,698
                )
                
                -
                
                
                (3,625
                )
                
                (3,625
                )**Net
                    cash provided by****financing
                    activities**
                
                $
                **1,404**
                
                **$**
                **1,116**
                
                **$**
                **2,520**
                
                
                **3,104**
                
                
                **17,345**
                
                
                **20,449****Net
                    change in increase in cash and****cash
                    equivalents**
                
                
                **4,775**
                
                
                (6,184
                )
                
                (1,409
                )
                
                **2,458**
                
                
                **(4,872**
                **)**
                
                (2,414
                )**Cash
                    and cash equivalents, beginning of period**
                
                
                **16,085**
                
                
                (10,273
                )
                
                **5,812**
                
                
                **13,737**
                
                
                (5,401
                )
                
                **8,336****Cash
                    and cash equivalents, end of period**
                
                
                **22,134**
                
                
                **(16,457**
                **)**
                
                **5,677**
                
                
                **16,085**
                
                
                **(10,273**
                **)**
                
                **5,812**
 
 **Consolidated
        Statements of Stockholders’ Equity**
  The
        year
        ended March 31, 2007
 
 The
        following tables show the consolidated statements of stockholders’ equity for
        the fiscal yearindicated, showing previously reported amounts and restated
        amounts giving effect to the Restatement Adjustments described above in Note
        18.
 
 (In
                    thousands)
                
                **Retained**
                  **Earnings**
                
                **Accumulated**
                  **Other**
                  **Comprehensive**
                  **Income
                    (Loss)**
                
                **Stockholders’**
                  **Equity****Previously
                    Reported Balance at March 31, 2007**
                
                **$**
                **37,395**
                
                **$**
                **3,039**
                
                **$**
                **48,665**Adjustments
                
                
                (5,857
                )
                
                (107
                )
                
                (5,964
                )**Restated
                    Balance at March 31,2007**
                
                **$**
                **31,538**
                
                **$**
                **2,932**
                
                **$**
                **42,701**
  F-27
  **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-28
 
 **ITEM
        9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE.**
 
 None.
 
 **ITEM
        9A. CONTROLS AND PROCEDURES**
 
 **DISCLOSURE
        CONTROLS AND PROCEDURES**
 
 As
        of
        March 31, 2007, the end of the period covered by this report, our Chief
        Executive Officer and our Chief Financial Officer reviewed and evaluated
        the
        effectiveness of our disclosure controls and procedures (as defined in Exchange
        Act Rule 13a-15(e) and 15d-15(e)), which are designed to ensure that material
        information we are required to disclose in our reports filed or submitted
        under
        the Exchange Act is recorded, processed, summarized, and reported within
        required time periods. Disclosure controls and procedures include, without
        limitation, controls and procedures designed to ensure that information required
        to be disclosed is accumulated and communicated to the Company’s management
        including its Chief Executive Officer and Chief Financial Officer, as
        appropriate, to allow timely decisions regarding required disclosures. We
        have
        concluded, based on that evaluation, that as of the end of the period covered
        by
        this report, our disclosure controls and procedures were not effective at
        the
        reasonable assurance level because of the identification of material weaknesses
        in our internal control over financial reporting, which we view as an integral
        part of our disclosure controls and procedures.
  52
  Management’s
        assessment identified the following material weaknesses:
  1.
        The
        Company did not maintain a sufficient complement of personnel with an
        appropriate level of technical accounting knowledge, experience, and training
        in
        the application of generally accepted accounting principles commensurate
        with
        the Company’s complex financial accounting and reporting requirements and low
        materiality thresholds.
  2.
        The
        Company did not have a robust antifraud and risk assessment process in place
        to
        regularly monitor and document the procedures, programs and controls related
        to
        its financial reporting.
 
 3.
        The
        Company did not have effective controls to ensure that significant non-routine
        transactions, accounting estimates, and other adjustments were appropriately
        reviewed, analyzed, and monitored on a timely basis.
 
 Due
        to
        these material weaknesses in internal control over financial reporting --
        as
        evidenced by the significant number and magnitude of out-of-period adjustments
        identified during the year-end closing process and the resulting restatements
        --
        management has concluded that the Company’s disclosure controls and procedures
        were not effective at the reasonable assurance level. Further, management
        understands that these material weaknesses, if not remediated, could result
        in
        the Company not being able to meet its regulatory filing deadlines or cause
        a
        material misstatement in the future.
 
 **REMEDIATION
        AND CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING**
 
 The
        Company is in the process of developing and implementing remediation plans
        to
        address our material weaknesses in our internal control over financial reporting
        by adopting and implementing the Sarbanes Oxley Act for the Company's fiscal
        year ending March 31, 2008. During the second quarter of 2008, management
        conducted a program to plan the remediation of all identified material
        weaknesses and significant deficiencies using a risk-based approach based
        on the
“Internal Control — Integrated Framework” issued by the Committee of
        Sponsoring Organizations of the Treadway Commission ("COSO"). These plans
        contemplate various changes in process, procedures, policy, training and
        organizational design, and are currently being implemented. In addition,
        the
        Company will hire and/or appoint new managers in the accounting area and
        engage
        accounting professionals from external resources to address internal control
        weaknesses related to technical accounting.
  The
        following specific remedial actions are in process to address the material
        weaknesses in our internal control over financial reporting described above:
  1.
        Reorganize and restructure the Company’s corporate accounting staff (“Corporate
        Accounting”) by (1) revising the reporting structure and establishing clear
        roles, responsibilities, and accountability, (2) hiring additional technical
        accounting personnel to address the Company's complex accounting and financial
        reporting requirements, and (3) assessing the technical accounting capabilities
        at our subsidiaries to ensure the right complement of knowledge, skills,
        and
        training.
  53
  2.
        Improve period-end closing procedures by (1) requiring all significant
        non-routine transactions to be reviewed by Corporate Accounting, (2) ensuring
        that account reconciliations and analyses for significant financial statement
        accounts are reviewed for completeness and accuracy by qualified accounting
        personnel, (3) implementing a process that ensures the timely review and
        approval of complex accounting estimates by qualified accounting personnel
        and
        subject matter experts, where appropriate, and (4) developing better monitoring
        controls at Corporate Accounting and at our subsidiaries and (5) documenting
        and
        implementing antifraud programs and controls as well as comprehensive risk
        assessment procedures, programs and controls.
 
 As
        previously noted, management has augmented the resources in Corporate Accounting
        by utilizing external resources in technical accounting areas and will implement
        additional closing procedures during the remainder of fiscal 2008. As a result,
        management believes that there are no material inaccuracies or omissions
        of
        material fact and, to the best of its knowledge, believes that the consolidated
        financial statements as and for the fiscal year ended March 31, 2007 in this
        Form 10-K/A, fairly present in all material aspects the financial condition
        and
        results of operations of the Company in conformity with accounting principles
        generally accepted in the United States of America.
 
 Other
        than as described above, management does not believe that there have not
        been
        any other changes in the Company’s internal control over financial reporting
        during the fiscal year ended March 31, 2007, which have materially affected,
        or
        are reasonably likely to materially affect, the Company’s 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., to develop, manufacture,
        and
        export chondroitin sulfate, or cartilage, a nutraceutical supplement ingredient
        for distribution and sale in North American markets. For the past year, the
        Company has been exporting these products which generated other income for
        the
        company. In the business venture, the Company has made an initial investment
        of
        $7.5 million. 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 business venture 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.
 
 On December
        8, 2006, the Company’s subsidiary, Qingdao ST George Dairy Co., Ltd., entered
        into an agreement with the owners of Cangshan Tian Fa Bio-chemical Co., Ltd.
        (“Tian Fa”), a chondroitin sulfates supplier of the Company, to acquire a 51%
        equity stake in Tian Fa from its owners for a consideration of $ 196,000.
        The
        consideration was not paid and the transaction was terminated due to differences
        on business direction on December 18, 2006 with mutual consent. Qingdao ST
        George Dairy Co., Ltd. ceased to be a shareholder of Tian Fa on the same
        date.
 
 54
 
 **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.
 
 55
  *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.
 
 *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.
  56
  **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.
 
 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.
 
 57
  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.
 
 *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.
  58
  **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.
 
 59
  ***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.
 
 60
  ***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.
 
 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.
  61
  **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.
 
 **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.
  62
  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.
  **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 Kong
                
                
                -
                
                
                -Lawrence
                    Lee, Director
                  R9-101,
                    2899 Hongmei Rd.
                  Minnauh
                    District
                  Shanghai,
                    China 201103
                
                
                -
                
                
                -Willie
                    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.
  63
  **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.
  64
  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.
 
 **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.
 
 65
  **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.
  66
  **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 Amendment No. 1 to the report
          on Form
          10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
          on this 5 th day
          of
          October, 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. 1
          to the report on Form 10-K 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
                
                October
                    5, 2007/s/Lawrence
                    LeeLawrence
                    Lee
                
                Chief
                    Financial Officer
                
                October
                    5, 2007/s/
                    Weiguo ZhangWeiguo
                    Zhang
                
                Chief
                    Operating Officer
                
                October
                    5, 2007/s/
                    Jinrong ChenJinrong
                    Chen
                
                Director
                
                October
                    5, 2007/s/
                    Yiu-Chun ChanYiu-Chun
                    Chan
                
                Director
                
                October
                    5, 2007/s/
                    Lei LinLei
                    Lin
                
                Director
                
                October
                    5, 2007/s/
                    Willie WuWillie
                    Wu
                
                Director,
                    Vice President
                
                October
                    5, 2007
  67