UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q





x
            Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




For the
quarterly period ended September 30, 2009




or




 ̈
            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: 001-33397





SYNUTRA
INTERNATIONAL, INC.




DELAWARE
            
            13-4306188(State or other jurisdiction of
              incorporation or organization)
            
            (IRS Employer Identification No.)




2275
Research Blvd., Suite 500


Rockville,
Maryland 20850


(Address
of Principal Executive Offices, Zip Code)




(301)
840-3888


(Registrant's
Telephone Number, Including Area Code)





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 of 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
 ̈


Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes 
 ̈    No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
accelerated filer  ̈ Accelerated filer
x Non-accelerated
filer o (Do
not check if a smaller reporting company)
                     
Smaller reporting company o





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


Yes o    
No x




As of
November 6, 2009, there were 54,000,713 shares of Common Stock issued and
outstanding.





TABLE OF
CONTENTS




PagePART
      IItem
      1. Financial Statements (unaudited)
                
                3Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                
                
                16Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                
                
                28Item
      4. Controls and Procedures
                
                
                29PART
      IIItem
      1. Legal Proceedings
                
                
                30Item
      1A. Risk Factors
                
                
                30Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                
                
                31Item
      3. Defaults Upon Senior Securities
                
                
                31Item
      4. Submission of Matters to a Vote of Security Holders
                
                
                31Item
      5. Other Information
                
                
                31Item
      6. Exhibits
                
                
                32Signatures
                
                
                33


2


PART
I


FINANCIAL
INFORMATION




ITEM
1. FINANCIAL STATEMENTS.




SYNUTRA
INTERNATIONAL, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands, except share par value)


(unaudited)





September30,
                                              2009
                                            
                                            
                                            March 31,
                                              2009ASSETSCurrent
      Assets:Cash
      and cash equivalents
                                            
                                            $
                                            57,873
                                            
                                            
                                            $
                                            37,736Restricted
      cash
                                            
                                            
                                            116,069
                                            
                                            
                                            
                                            84,338Accounts
      receivable, net of allowance of $904 and $1,452,
    respectively
                                            
                                            
                                            33,108
                                            
                                            
                                            
                                            23,826Inventories
                                            
                                            
                                            114,721
                                            
                                            
                                            
                                            114,724Due
      from related parties
                                            
                                            
                                            1,894
                                            
                                            
                                            
                                            2,463Deferred
      tax assets
                                            
                                            
                                            16,292
                                            
                                            
                                            
                                            16,276Income
      tax receivable
                                            
                                            
                                            10,040
                                            
                                            
                                            
                                            1,476Prepaid
      expenses and other current assets
                                            
                                            
                                            9,267
                                            
                                            
                                            
                                            13,436Assets
      held for sale
                                            
                                            
                                            30,184
                                            
                                            
                                            
                                            —Total
      current assets
                                            
                                            
                                            389,448
                                            
                                            
                                            
                                            294,275Property,
      plant and equipment, net
                                            
                                            
                                            111,043
                                            
                                            
                                            
                                            144,481Land
      use rights, net
                                            
                                            
                                            6,064
                                            
                                            
                                            
                                            6,374Intangible
      assets, net
                                            
                                            
                                            3,433
                                            
                                            
                                            
                                            3,136Goodwill
                                            
                                            
                                            1,436
                                            
                                            
                                            
                                            1,435Deferred
      tax assets
                                            
                                            
                                            18,470
                                            
                                            
                                            
                                            18,464Other
      assets
                                            
                                            
                                            3,536
                                            
                                            
                                            
                                            4,406TOTAL
      ASSETS
                                            
                                            $
                                            533,430
                                            
                                            
                                            $
                                            472,571LIABILITIES
      AND EQUITYCurrent
      Liabilities:Short-term
      loans
                                            
                                            $
                                            316,817
                                            
                                            
                                            $
                                            224,647Accounts
      payable
                                            
                                            
                                            83,595
                                            
                                            
                                            
                                            112,968Due
      to related parties
                                            
                                            
                                            2,678
                                            
                                            
                                            
                                            5,172Advances
      from customers
                                            
                                            
                                            14,958
                                            
                                            
                                            
                                            5,448Product
      recall provision
                                            
                                            
                                            2,850
                                            
                                            
                                            
                                            4,547Other
      current liabilities
                                            
                                            
                                            30,949
                                            
                                            
                                            
                                            21,925Total
      current liabilities
                                            
                                            
                                            451,847
                                            
                                            
                                            
                                            374,707Long-term
      debt
                                            
                                            
                                            16,108
                                            
                                            
                                            
                                            8,777Deferred
      revenue
                                            
                                            
                                            4,686
                                            
                                            
                                            
                                            4,681Capital
      lease obligations
                                            
                                            
                                            5,422
                                            
                                            
                                            
                                            5,254Other
      long-term liabilities
                                            
                                            
                                            1,757
                                            
                                            
                                            
                                            1,756Total
      liabilities
                                            
                                            
                                            479,820
                                            
                                            
                                            
                                            395,175Equity:Synutra
      International, Inc., shareholders' equityCommon
      stock, $.0001 par value: 250,000 authorized; 54,001 and 54,001 issued and
      outstanding at June 30, 2009 and March 31, 2009,
    respectively
                                            
                                            
                                            5
                                            
                                            
                                            
                                            5Additional
      paid-in capital
                                            
                                            
                                            76,607
                                            
                                            
                                            
                                            76,607Accumulated
      deficit
                                            
                                            
                                            (47,639
                                            )
                                            
                                            
                                            (23,674
                                            )Accumulated
      other comprehensive income
                                            
                                            
                                            24,035
                                            
                                            
                                            
                                            23,921Total
      Synutra common shareholders’ equity
                                            
                                            
                                            53,008
                                            
                                            
                                            
                                            76,859Noncontrolling
      interest
                                            
                                            
                                            602
                                            
                                            
                                            
                                            537Total
      equity
                                            
                                            
                                            53,610
                                            
                                            
                                            
                                            77,396TOTAL
      LIABILITIES AND EQUITY
                                            
                                            $
                                            533,430
                                            
                                            
                                            $
                                            472,571




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


3


SYNUTRA
INTERNATIONAL, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(in
thousands except earnings per share data)


(unaudited)





Three Months Ended
                                                                                                
                                                                                                
                                                                                                Six Months EndedSeptember 30,
                                                                                                
                                                                                                
                                                                                                September 30,2009
                                                                                                
                                                                                                
                                                                                                2008
                                                                                                
                                                                                                
                                                                                                2009
                                                                                                
                                                                                                
                                                                                                2008Net
      sales
                                                                                                
                                                                                                $
                                                                                                65,330
                                                                                                
                                                                                                
                                                                                                $
                                                                                                94,791
                                                                                                
                                                                                                
                                                                                                $
                                                                                                112,680
                                                                                                
                                                                                                
                                                                                                $
                                                                                                222,171Cost
      of sales
                                                                                                
                                                                                                
                                                                                                53,051
                                                                                                
                                                                                                
                                                                                                
                                                                                                121,514
                                                                                                
                                                                                                
                                                                                                
                                                                                                80,829
                                                                                                
                                                                                                
                                                                                                
                                                                                                181,999Gross
      profit (loss)
                                                                                                
                                                                                                
                                                                                                12,279
                                                                                                
                                                                                                
                                                                                                
                                                                                                (26,723
                                                                                                )
                                                                                                
                                                                                                
                                                                                                31,851
                                                                                                
                                                                                                
                                                                                                
                                                                                                40,172Selling
      and distribution expense
                                                                                                
                                                                                                
                                                                                                10,334
                                                                                                
                                                                                                
                                                                                                
                                                                                                10,658
                                                                                                
                                                                                                
                                                                                                
                                                                                                20,811
                                                                                                
                                                                                                
                                                                                                
                                                                                                22,081Advertising
      and promotion expenses
                                                                                                
                                                                                                
                                                                                                7,507
                                                                                                
                                                                                                
                                                                                                
                                                                                                18,637
                                                                                                
                                                                                                
                                                                                                
                                                                                                22,652
                                                                                                
                                                                                                
                                                                                                
                                                                                                50,733General
      and administrative expenses
                                                                                                
                                                                                                
                                                                                                4,909
                                                                                                
                                                                                                
                                                                                                
                                                                                                6,790
                                                                                                
                                                                                                
                                                                                                
                                                                                                9,550
                                                                                                
                                                                                                
                                                                                                
                                                                                                10,720Impairment
      loss
                                                                                                
                                                                                                
                                                                                                5,921
                                                                                                
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                
                                                                                                
                                                                                                5,921
                                                                                                
                                                                                                
                                                                                                
                                                                                                —Other
      operating income, net
                                                                                                
                                                                                                
                                                                                                107
                                                                                                
                                                                                                
                                                                                                
                                                                                                733
                                                                                                
                                                                                                
                                                                                                
                                                                                                224
                                                                                                
                                                                                                
                                                                                                
                                                                                                733Loss
      from operations
                                                                                                
                                                                                                
                                                                                                (16,285
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (62,075
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (26,859
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (42,629
                                                                                                )Interest
      expense
                                                                                                
                                                                                                
                                                                                                2,788
                                                                                                
                                                                                                
                                                                                                
                                                                                                545
                                                                                                
                                                                                                
                                                                                                
                                                                                                5,166
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,066Interest
      income
                                                                                                
                                                                                                
                                                                                                370
                                                                                                
                                                                                                
                                                                                                
                                                                                                186
                                                                                                
                                                                                                
                                                                                                
                                                                                                888
                                                                                                
                                                                                                
                                                                                                
                                                                                                384Other
      income (expense), net
                                                                                                
                                                                                                
                                                                                                (267
                                                                                                )
                                                                                                
                                                                                                
                                                                                                80
                                                                                                
                                                                                                
                                                                                                
                                                                                                (1,051
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (354
                                                                                                )Loss
      before income tax benefit
                                                                                                
                                                                                                
                                                                                                (18,970
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (62,354
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (32,188
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (43,665
                                                                                                )Income
      tax benefit
                                                                                                
                                                                                                
                                                                                                (4,912
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (12,675
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (8,135
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (9,631
                                                                                                )Net
      loss
                                                                                                
                                                                                                
                                                                                                (14,058
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (49,679
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (24,053
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (34,034
                                                                                                )Net
      income (loss) attributable to the noncontrolling interest
                                                                                                
                                                                                                
                                                                                                (39
                                                                                                )
                                                                                                
                                                                                                
                                                                                                1
                                                                                                
                                                                                                
                                                                                                
                                                                                                (88
                                                                                                )
                                                                                                
                                                                                                
                                                                                                2Net
      loss attributable to Synutra International, Inc. common
      shareholders
                                                                                                
                                                                                                $
                                                                                                (14,019
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (49,680
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (23,965
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (34,036
                                                                                                )Loss
      per share - basic and diluted
                                                                                                
                                                                                                $
                                                                                                (0.26
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (0.92
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (0.44
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                (0.63
                                                                                                )Weighted
      average common share outstanding - basic and diluted
                                                                                                
                                                                                                
                                                                                                54,001
                                                                                                
                                                                                                
                                                                                                
                                                                                                54,001
                                                                                                
                                                                                                
                                                                                                
                                                                                                54,001
                                                                                                
                                                                                                
                                                                                                
                                                                                                54,001





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


4




SYNUTRA
INTERNATIONAL, INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 (in
thousands)
 (unaudited)
 
 Three Months Ended
                                
                                Six Months EndedSeptember 30,
                                
                                September 30,2009
                                
                                2008
                                
                                2009
                                
                                2008Net
      loss
                                
                                $
                                (14,058
                                )
                                
                                $
                                (49,679
                                )
                                
                                $
                                (24,053
                                )
                                
                                $
                                (34,034
                                )Currency
      translation adjustment
                                
                                
                                44
                                
                                
                                
                                1,255
                                
                                
                                
                                114
                                
                                
                                
                                6,552Total
      comprehensive loss
                                
                                
                                (14,014
                                )
                                
                                
                                (48,424
                                )
                                
                                
                                (23,939
                                )
                                
                                
                                (27,482
                                )Comprehensive
      loss attributable to noncontrolling interest
                                
                                
                                39
                                
                                
                                
                                (1
                                )
                                
                                
                                88
                                
                                
                                
                                (2
                                )Comprehensive
      loss attributable to Synutra International, Inc. common
      shareholders
                                
                                $
                                (13,975
                                )
                                
                                $
                                (48,425
                                )
                                
                                $
                                (23,851
                                )
                                
                                $
                                (27,484
                                )
 The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements
 5




SYNUTRA
INTERNATIONAL, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF EQUITY


(in
thousands)


(unaudited)




Common StockShares
                                                                            
                                                                            
                                                                            Amount
                                                                            
                                                                            
                                                                            Additional
                                                                              paid-in
                                                                              capital
                                                                            
                                                                            
                                                                            Retained
                                                                              earnings
                                                                              (accumulated
                                                                              deficit)
                                                                            
                                                                            
                                                                            Accumulated
                                                                              other
                                                                              comprehensive
                                                                              income
                                                                            
                                                                            
                                                                            Noncontrolling
                                                                              Interest
                                                                            
                                                                            
                                                                            Total
                                                                              equityBalance,
      March 31, 2008
                                                                            
                                                                            
                                                                            54,001
                                                                            
                                                                            
                                                                            $
                                                                            5
                                                                            
                                                                            
                                                                            $
                                                                            76,607
                                                                            
                                                                            
                                                                            $
                                                                            76,875
                                                                            
                                                                            
                                                                            $
                                                                            17,772
                                                                            
                                                                            
                                                                            $
                                                                            385
                                                                            
                                                                            
                                                                            $
                                                                            171,644Net
      loss
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            (34,036
                                                                            )
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            2
                                                                            
                                                                            
                                                                            
                                                                            (34,034
                                                                            )Currency
      translation adjustment
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            6,552
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            6,552Balance,
      September 30, 2008
                                                                            
                                                                            
                                                                            54,001
                                                                            
                                                                            
                                                                            $
                                                                            5
                                                                            
                                                                            
                                                                            $
                                                                            76,607
                                                                            
                                                                            
                                                                            $
                                                                            42,839
                                                                            
                                                                            
                                                                            $
                                                                            24,324
                                                                            
                                                                            
                                                                            $
                                                                            387
                                                                            
                                                                            
                                                                            $
                                                                            144,162




Common StockShares
                                                                      
                                                                      
                                                                      Amount
                                                                      
                                                                      
                                                                      Additional
                                                                        paid-in
                                                                        capital
                                                                      
                                                                      
                                                                      Retained
                                                                        earnings
                                                                        (accumulated
                                                                        deficit)
                                                                      
                                                                      
                                                                      Accumulated
                                                                        other
                                                                        comprehensive
                                                                        income
                                                                      
                                                                      
                                                                      Noncontrolling
                                                                        Interest
                                                                      
                                                                      
                                                                      Total
                                                                        equityBalance,
      March 31, 2009
                                                                      
                                                                      
                                                                      54,001
                                                                      
                                                                      
                                                                      $
                                                                      5
                                                                      
                                                                      
                                                                      $
                                                                      76,607
                                                                      
                                                                      
                                                                      $
                                                                      (23,674
                                                                      )
                                                                      
                                                                      $
                                                                      23,921
                                                                      
                                                                      
                                                                      $
                                                                      537
                                                                      
                                                                      
                                                                      $
                                                                      77,396Net
      loss
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      (23,965
                                                                      )
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      (88
                                                                      )
                                                                      
                                                                      
                                                                      (24,053
                                                                      )Currency
      translation adjustment
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      114
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      114Other
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      153
                                                                      
                                                                      
                                                                      
                                                                      153Balance,
      September 30, 2009
                                                                      
                                                                      
                                                                      54,001
                                                                      
                                                                      
                                                                      $
                                                                      5
                                                                      
                                                                      
                                                                      $
                                                                      76,607
                                                                      
                                                                      
                                                                      $
                                                                      (47,639
                                                                      )
                                                                      
                                                                      $
                                                                      24,035
                                                                      
                                                                      
                                                                      $
                                                                      602
                                                                      
                                                                      
                                                                      $
                                                                      53,610





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


6


SYNUTRA
INTERNATIONAL, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)


(unaudited)




SixMonths Ended
                                        September30,2009
                                      
                                      
                                      2008Operating
      activities:Net
      loss
                                      
                                      $
                                      (24,053
                                      )
                                      
                                      $
                                      (34,034
                                      )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Amortization
      of debt issuance costs
                                      
                                      
                                      160
                                      
                                      
                                      
                                      160Depreciation
      and amortization
                                      
                                      
                                      4,963
                                      
                                      
                                      
                                      3,350Bad
      debt expense (reversal)
                                      
                                      (548
                                      )
                                      
                                      
                                      307Loss
      on disposal of property, plant and equipment
                                      
                                      
                                      10
                                      
                                      
                                      
                                      (7
                                      )Impairment
      loss
                                      
                                      
                                      5,921
                                      
                                      
                                      
                                      —Deferred
      income tax
                                      
                                      
                                      (6
                                      )
                                      
                                      
                                      60Other
      compensation expense
                                      
                                      
                                      153
                                      
                                      
                                      
                                      —Changes
      in assets and liabilities:Accounts
      receivable
                                      
                                      
                                      (8,188
                                      )
                                      
                                      
                                      (8,267
                                      )Inventories
                                      
                                      
                                      (1,306
                                      )
                                      
                                      
                                      7,716Due
      from related parties
                                      
                                      
                                      531
                                      
                                      
                                      
                                      (3,111
                                      )Prepaid
      expenses and other current assets
                                      
                                      
                                      4,173
                                      
                                      
                                      
                                      (6,418
                                      )Accounts
      payable
                                      
                                      
                                      (31,299
                                      )
                                      
                                      
                                      9,831Due
      to related parties
                                      
                                      
                                      (2,444
                                      )
                                      
                                      
                                      5,552Advances
      from customers
                                      
                                      
                                      9,500
                                      
                                      
                                      
                                      (2,889
                                      )Income
      tax receivable
                                      
                                      
                                      (8,559
                                      )
                                      
                                      
                                      (16,302
                                      )Product
      recall provision
                                      
                                      
                                      (1,697
                                      )
                                      
                                      
                                      37,987Other
      liabilities
                                      
                                      
                                      4,085
                                      
                                      
                                      
                                      (5,713
                                      )Net
      cash used in operating activities
                                      
                                      
                                      (48,604
                                      )
                                      
                                      
                                      (11,778
                                      )Investing
      activities:Acquisition
      of property, plant and equipment
                                      
                                      
                                      (2,965
                                      )
                                      
                                      
                                      (33,966
                                      )Change
      in restricted cash
                                      
                                      
                                      (31,630
                                      )
                                      
                                      
                                      (27,174
                                      )Payment
      for business acquisition
                                      
                                      
                                      (1,468
                                      )
                                      
                                      
                                      (205
                                      )Proceeds
      from assets disposal
                                      
                                      
                                      5,642
                                      
                                      
                                      
                                      —Net
      cash used in investing activities
                                      
                                      
                                      (30,421
                                      )
                                      
                                      
                                      (61,345
                                      )Financing
      activities:Proceeds
      from short-term loans
                                      
                                      
                                      251,868
                                      
                                      
                                      
                                      41,078Proceeds
      from long-term loans
                                      
                                      
                                      7,331
                                      
                                      
                                      
                                      —Repayment
      of short-term loans
                                      
                                      
                                      (160,092
                                      )
                                      
                                      
                                      (
      16,771
                                      )Payment
      on capital lease obligations
                                      
                                      
                                      7
                                      
                                      
                                      
                                      (518
                                      )Net
      cash provided by financing activities
                                      
                                      
                                      99,114
                                      
                                      
                                      
                                      23,789Effect
      of exchange rate changes on cash and cash equivalents
                                      
                                      
                                      48
                                      
                                      
                                      
                                      4,132Net
      change in cash and cash equivalents
                                      
                                      
                                      20,137
                                      
                                      
                                      
                                      (45,202
                                      )Cash
      and cash equivalents, beginning of period
                                      
                                      
                                      37,736
                                      
                                      
                                      
                                      97,425Cash
      and cash equivalents, end of period
                                      
                                      $
                                      57,873
                                      
                                      
                                      $
                                      52,223Supplemental
      cash flow information:Interest
      paid
                                      
                                      $
                                      5,773
                                      
                                      
                                      $
                                      1,845Income
      tax paid
                                      
                                      $
                                      732
                                      
                                      
                                      $
                                      5,794Non-cash
      investing and financing activities:Purchase
      of property, plant and equipment by accounts payable
                                      
                                      $
                                      879
                                      
                                      
                                      $
                                      4,188Assets
      acquired under capital lease
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      5,350Acquisition
      of subsidiary by accounts payable
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      821





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


7


SYNUTRA
INTERNATIONAL, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)


1.
            ORGANIZATION
      AND PRINCIPAL ACTIVITIES




Directly
or through its wholly owned subsidiary, Synutra Inc., an Illinois corporation
(“Synutra Illinois”), Synutra International, Inc. (collectively with
its subsidiaries, the “Company” or “Synutra”) owns all or majority of the
equity interests of the entities in the People’s Republic of China (“China” or
“PRC”) that are principally engaged in the production, marketing and
distribution of dairy based nutritional products under the Company’s own
brands in China. The Company is a leader in sales of infant formula products in
China.





The
Company produces, markets and sells nutritional products under “Shengyuan”, or
“Synutra”, name, together with other complementary brands. The Company
focuses on selling premium infant formula products, which are supplemented by
more affordable infant formula products targeting the mass market as
well as other nutritional products, such as adult powdered formula and prepared
baby food, and certain nutritional ingredients and supplements.





2.
            BASIS
      OF PRESENTATION




The
Company is responsible for the unaudited condensed consolidated financial
statements included in this document, which have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“GAAP”) and include all normal and recurring adjustments that management of the
Company considers necessary for a fair presentation of its financial
position and operating results.  The Company prepared these statements
following the requirements of the U.S. Securities and Exchange Commission (the
“SEC”) for interim reporting. As permitted under those rules, the
Company condensed or omitted certain footnotes or other financial
information that are normally required by GAAP for annual financial statements.
These statements should be read in combination with the consolidated financial
statements in the Company’s Annual Report on Form 10-K and its subsequent
amendments, if any, for the fiscal year ended March 31, 2009.





The
accompanying unaudited condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. Under that
assumption, it is expected that assets will be realized and liabilities will be
satisfied in the normal course of business. Following the government
announcement in mid September 2008 that formula products of the Company and 21
other manufacturers had been contaminated with melamine, the Company conducted a
compulsory recall of certain lots of U-Smart products and a voluntary recall of
all other products produced before September 16, 2008 at the same facilities,
where the Company believed the contaminated milk supplies
originated.  As a direct result of the incident, the Company has
experienced significant operating losses and negative cash flows from operations
for the fiscal year ended March 31, 2009 and the six months ended September 30,
2009 and, as of September 30, 2009, had a working capital deficit of
approximately $62.4 million caused primarily by the subsequent loss of sales
following the product recall. As discussed in Note 11 to the unaudited
condensed consolidated financial statements, at September 30, 2009, the Company
was not in compliance with certain covenants of its loan agreement due to the
losses suffered as a result of the melamine issue.  The occurrence of
these economic events, the ensuing operating losses and negative cash flows and
the failure of the Company to meet its debt covenants raise substantial doubt as
to the Company's ability to continue as a going concern. Management is
attempting to renegotiate the terms and covenants of the loan agreement and is
in the process of evaluating funding alternatives including seeking refinancing
of certain short-term loans from PRC banks. The accompanying unaudited condensed
consolidated financial statements do not reflect any adjustments relating to the
recoverability and reclassification of assets and liabilities as might be
necessary if the Company is unable to continue as a going concern.





The
unaudited condensed consolidated financial statements include the financial
statements of Synutra International, Inc. and its subsidiaries, its variable
interest entity, Beijing Shengyuan Huimin Technology Service Co., Ltd., and its
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation. The variable interest entity and its subsidiaries
have not commenced their planned operations as of September 30,
2009.





Revenues,
expenses, assets and liabilities can vary during each quarter of the year.
Therefore, the results and trends in these interim unaudited condensed
consolidated financial statements may not be the same as those for the full
year.


8


3.
            RECENTLY
      ADOPTED ACCOUNTING PRONOUNCEMENTS





Effective
April 1, 2009, the Company adopted Accounting Standards Codification (ASC)
No. 805, Business
Combinations (pre-codification reference as SFAS No. 141,
Business
Combinations: (Revised 2007)). ASC No. 805 requires recognition of assets
acquired, liabilities assumed, and any non-controlling interest in the acquiree
at the acquisition date, measured at their fair values as of that date. In a
business combination achieved in stages, this topic requires recognition of
identifiable assets and liabilities, as well as the non-controlling interest in
the acquiree, at the full amounts of their fair values. This topic also requires
the fair value of acquired in-process research and development to be recorded as
indefinite lived intangibles, contingent consideration to be recorded on the
acquisition date, and restructuring and acquisition-related deal costs to be
expensed as incurred. In addition, any excess of the fair value of net assets
acquired over purchase price and any subsequent changes in estimated
contingencies are to be recorded in earnings. This topic applies to business
combinations occurring on or after April 1, 2009. The Company’s adoption of
ASC 805 did not have a material effect on the Company’s financial
statements.





Effective
April 1, 2009, the Company adopted ASC No. 820,Fair Value Measurements(pre-codification
reference as SFAS No. 157, Fair Value Measurements),with respect to non-financial assets and liabilities. This topic defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The Company’s adoption of ASC 820 did
not have a material effect on the Company’s financial statements.





Effective
April 1, 2009, the Company retrospectively adopted ASC No. 810,Consolidation(pre-codification
reference as SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements).ASC No. 810 requires the
ownership interests in subsidiaries held by parties other than the parent be
clearly identified, labeled and presented in the consolidated statement of
financial position within equity, but separate from the parent’s equity. This
topic also requires the amount of consolidated net earnings attributable to the
parent and to the noncontrolling interest be clearly identified and presented on
the face of the consolidated statement of earnings. Changes in a parent’s
ownership interest while the parent retains its controlling financial interest
in its subsidiary must be accounted for consistently, and when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary must be initially measured at fair value. This topic also requires
entities to provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners.





The
Company adopted ASC No. 855, Subsequent Events (pre-codification
reference as SFAS No. 165, Subsequent Events)on
April 1, 2009 on a prospective basis. ASC No. 855 includes guidance for the
accounting and disclosure of events that happen after the date of the balance
sheet but before the release of the financial statements. The adoption of this
topic did not have a material effect on the Company’s consolidated financial
statements.




In June
2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting
Standards Codification and the Hierarchy of GAAP (Codification). The
Codification is the single official source of authoritative U.S. accounting and
reporting standards applicable for all nongovernmental entities, with the
exception of guidance issued by the Securities and Exchange Commission. The
Codification did not change GAAP, but organized it into an online research
system sorted by individual accounting topics, which are further divided into
subtopics. The FASB now issues new standards in the form of Accounting Standards
Updates. The Codification is effective for financial statements issued for
periods ending after September 15, 2009. The adoption of the Codification
did not have a material impact on the Company’s financial
statements


4.
            RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS




In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (FIN 46(R)). SFAS No. 167 amends FIN 46(R) in
determining whether an enterprise has a controlling financial interest in a
variable interest entity. This determination identifies the primary beneficiary
of a variable interest entity as the enterprise that has both the power to
direct the activities of a variable interest entity that most significantly
impacts the entity’s economic performance, and the obligation to absorb losses
or the right to receive benefits of the entity that could potentially be
significant to the variable interest entity. SFAS No. 167 also requires
ongoing reassessments of whether an enterprise is the primary beneficiary and
eliminates the quantitative approach previously required for determining the
primary beneficiary. SFAS No. 167 is effective for the Company
April 1, 2010. The Company does not expect the adoption of this
pronouncement to have a material effect on the consolidated financial
statements.


9




5.
            PRODUCT
      RECALL





On
September 16, 2008, the Company announced a compulsory recall on certain lots of
U-Smart products and a voluntary recall of other products that were contaminated
or suspected to be contaminated by melamine, a substance not approved for use in
food and linked to recent illnesses among infants and children in China. The
cost of this action during the year ended March 31, 2009 was $101.5 million,
including the cost of product replacement of $48.1 million in cost of sales, the
write-down and write-off of affected inventory of $48.5 million in cost of
sales, the net amount of $2.3 million to a compensation fund set up by China
Dairy Industry Association to settle existing and potential claims arising in
China from families of infants affected by melamine contamination in general and
administrative expenses, and freight charges of $2.6 million in selling and
distribution expenses, of which $4.5 million was recorded as a product
recall provision in the consolidated balance sheet as of March 31, 2009. In the
six months ended September 30, 2009, the Company reversed recall expense of
$ 0.9 million, mostly being overestimated product replacement cost. The
Company believes that the product recall has been substantially completed and
estimates that there should be no further material product recall costs
incurred. Following is a summary of the liabilities related to the product
recall that were recorded during the fiscal year ended March 31, 2009 and six
months ended September 30, 2009:




(In thousands)Balance
      at April 1, 2008
                          
                          $
                          —Product
      recall expenses
                          
                          
                          53,038Replacement
      of products
                          
                          
                          (44,002
                          )Payment
      of cash, net
                          
                          
                          (4,395
                          )Foreign
      currency translation
                          
                          
                          (94
                          )Balance
      at March 31, 2009
                          
                          
                          4,547Product
      recall expenses (reversal)
                          
                          
                          (886)Replacement
      of products
                          
                          
                          (656)Payment
      of cash, net
                          
                          
                          (158)Foreign
      currency translation
                          
                          
                          3Balance
      at September 30, 2009
                          
                          $
                          2,850





6.
            IMPAIRMENT
      LOSS





On
September 9, 2009, two subsidiaries of Synutra International, Inc., Heilongjiang
Baoquanling Shengyuan Dairy Co., Ltd. (“Baoquanling”) and Heilongjiang
Baoquanling Shengyuan Dairy Cow Breeding Co., Ltd. (“Cow Breeding”) entered into
an asset purchase agreement (the “Agreement”) with Heilongjiang Wondersun Dairy
Co., Ltd. (“Wondersun”), to sell three dairy farms and two milk processing
factories in China for approximately $28.9 million,plus
reimbursement for certain qualified construction in progress assets acquired
subsequent to the valuation date. The assets were classified as held for sale
assets and were written down to the fair value less estimated cost to sell. No
depreciation or amortization was recorded after September 9,
2009. The previous operating results of these assets was not
reported as discontinued operation, as the assets group is part of a larger
cash-flow-generating group, and on its own is not a component of the entity, the
conditions in paragraph 205-20-45-1, Reporting Discontinued Operations, for
reporting in discontinued operations the operations (losses) of the assets group
would not be met. After the melamine contamination incident, the Company
began to use imported milk powder in the powdered formula products and decreased
the consumption of domestically produced milk powder, hence the Company decided
to sell the Baoquanling and Cow Breeding’s assets. The transaction
is expected to be completed in early 2010. The estimated impairment
loss on the assets groupduring the quarter ended September 30, 2009
was $5.9 million.





7.
            FAIR
      VALUE MEASUREMENTS





The
carrying value of financial instruments including cash, receivables, accounts
payable, accrued expenses and debt, approximates their fair value at September
30, 2009 and March 31, 2009 due to the relatively short-term nature of these
instruments. The carrying value of long-term debt approximates its fair value as
it bears variable interest rate which reflects the current market yield level
for comparable loans.
 
 On April
1, 2008, the Company adopted ASC No.820, Fair Value Measurements andDisclosures,
which was not delayed by ASC No.
820-10-65-1, Transition
related to FASB Staff Position FAS 157-2, Effective Date of FASB statement No.
157 (pre-codification reference as FASB Staff Position FAS 157-2).
ASC
820-10-65-1 delays the effective date of ASC No.820 as it applies to
non-financial assets and liabilities that are not required to be measured at
fair value on a recurring (at least annual) basis. As a result of the delay, ASC
No.820 was applied to the Company’s non-financial assets and liabilities
effective on April 1, 2009. ASC No.820 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (also referred
to as an exit price). ASC No.820 also establishes a three-level fair value
hierarchy for classifying financial instruments that is based on whether the
inputs to the valuation techniques used to measure fair value are observable or
unobservable. The three levels of the ASC No.820 fair value hierarchy are
described below:
 
 Level
      1:
              Quoted
      prices (unadjusted) in active markets for identical assets or
      liabilities.
 Level
      2:
              Observable
      market-based inputs, other than quoted prices in active markets for
      identical assets or liabilities.
 Level
      3:
              Unobservable
      inputs.
 
 The
following table sets forth by level, within the fair value hierarchy, the
Company’s assets and liabilities accounted for at fair value on a
nonrecurring basis as of September 30, 2009. The Company did not have any items
recorded at fair value on a recurring basis subsequent to initial recognition as
of September 30, 2009.
 
 Description
                          
                          September 30,
                            2009
                          
                          
                          Quoted
                            Prices
      in
                            Active
                            Markets
      for
                            Identical
                            Assets
                            (Level
      1)
                          
                          
                          Significant
                            Other
                            Observable
                            Inputs
                            (Level
      2)
                          
                          
                          Significant
                            Unobservable
                            Inputs
                            (Level
      3)
                          
                          
                          Total
                            LossAssets
      held for sale
                          
                          $
                          30,184
                          
                          
                          
                          
                          
                          
                          $
                          30,184
                          
                          
                          
                          
                          
                          
                          $
                          5,921
 
 In
accordance with the provisions of ASC No.360, Property, Plant and
Equipment, assets held for sale with a carrying amount of $35.1 million
were written down to their fair value of $30.2 million, less cost to sell
of $1.0 million, resulting in a loss of $5.9 million, which was included in
impairment loss for the period. The fair value of the assets held of sale was
determined by executed transaction price with a third party.  The
Company has categorized this as a significant other observable input (level
2).


10





8.
            INVENTORIES




The
Company’s inventories at September 30, 2009 and March 31, 2009 are summarized as
follows:





September30,
                        2009
                      
                      
                      March 31,
                        2009(In
      thousands)Raw
      materials
                      
                      $
                      85,782
                      
                      
                      $
                      96,361Work-in-progress
                      
                      
                      17,980
                      
                      
                      
                      11,739Finished
      goods
                      
                      
                      10,959
                      
                      
                      
                      6,624Total
      Inventories
                      
                      $
                      114,721
                      
                      
                      $
                      114,724




9.
            DUE
      FROM (TO) RELATED PARTIES AND RELATED PARTY
  TRANSACTIONS


A.
            Classification
      of related party balances by name


a.
            Due
      from related parties





September30,
                        2009
                      
                      
                      March 31,
                        2009(In thousands)Sheng
      Zhi Da Dairy Group Corporation
                      
                      $
                      1,728
                      
                      
                      $
                      1,726Beijing
      Honnete Dairy Co., Ltd.
                      
                      
                      139
                      
                      
                      
                      737Beijing
      Kelqin Dairy Co., Ltd.
                      
                      
                      25
                      
                      
                      
                      —St.
      Angel (Beijing) Business Service Co., Ltd.
                      
                      
                      2
                      
                      
                      
                      —Total
      Due from Related Parties
                      
                      $
                      1,894
                      
                      
                      $
                      2,463




In June
2008, the Company sold two commercial buildings, one of which was classified as
assets held for sale as of March 31, 2008, to Sheng Zhi Da Dairy Group
Corporation, an entity 100% controlled by the Company’s CEO, at the carrying
value of $1.7 million. The amount represents the balance due from Sheng Zhi Da
Dairy Group Corporation as of September 30, 2009 and March 31,
2009.





b.
            Due
      to related parties




September 30,
                        2009
                      
                      
                      March 31,
                        2009(In
      thousands)Beijing
      Honnete Dairy Co., Ltd.
                      
                      $
                      569
                      
                      
                      $
                      3,057Sheng
      Zhi Da Dairy Group Corporation
                      
                      
                      2,102
                      
                      
                      
                      2,113St.
      Angel (Beijing) Business Service Co., Ltd.
                      
                      
                      7
                      
                      
                      
                      2Total
      Due to Related Parties
                      
                      $
                      2,678
                      
                      
                      $
                      5,172




The
Company had certain related party borrowings. See Note 11. Except for the
related party borrowings, the amount due to and due from related parties were
unsecured and interest free.





B.
            Sales
      to related parties





In the
three and six months ended September 30, 2009 and 2008, the Company’s sales to
the related parties were whey protein to Beijing Honnete Dairy Co., Ltd. and
industrial milk powder to Beijing Kelqin Dairy Co., Ltd.





Three Months Ended
                                
                                Six Months EndedSeptember 30,
                                
                                September 30,2009
                                
                                2008
                                
                                2009
                                
                                2008(In
      thousands)Beijing
      Honnete Dairy Co., Ltd.
                                
                                $
                                2,039
                                
                                
                                $
                                —
                                
                                
                                $
                                4,278
                                
                                
                                $
                                —Beijing
      Kelqin Dairy Co., Ltd
                                
                                
                                31
                                
                                
                                
                                —
                                
                                
                                
                                31
                                
                                
                                
                                —Total
                                
                                $
                                2,070
                                
                                
                                $
                                —
                                
                                
                                $
                                4,309
                                
                                
                                $
                                —





C.
            Purchases
      from related parties




In the
three and six months ended September 30, 2008, the Company’s purchases from
related parties included whey protein powders from Honnete, catalogues,
brochures, and marketing materials from St. Angel, and advertising service from
Shenglong Media.





Three Months Ended
                                      
                                      Six Months EndedSeptember 30,
                                      
                                      September 30,2009
                                      
                                      2008
                                      
                                      2009
                                      
                                      2008(In
      thousands)Beijing
      Honnete Dairy Co., Ltd.
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      6,119
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      8,000St.
      Angel (Beijing) Business Service Co., Ltd.
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      1,639Beijing
      Shenglong Media Co., Ltd.
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      154Total
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      6,119
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      9,793




11





10.
            PROPERTY,
      PLANT AND EQUIPMENT, NET





September30,
                                2009
                              
                              
                              March 31,
                                2009(In thousands)Property,
      plant and equipment, cost:Buildings
                              
                              $
                              62,258
                              
                              
                              $
                              51,693Plant
      and machinery
                              
                              
                              47,978
                              
                              
                              
                              65,020Office
      equipment and furnishings
                              
                              
                              3,136
                              
                              
                              
                              3,076Motor
      vehicles
                              
                              
                              2,345
                              
                              
                              
                              2,963Others
                              
                              
                              392
                              
                              
                              
                              543Total
      cost
                              
                              $
                              116,109
                              
                              
                              $
                              123,295Less:
      Accumulated depreciation:Buildings
                              
                              
                              5,126
                              
                              
                              
                              4,472Plant
      and machinery
                              
                              
                              13,965
                              
                              
                              
                              11,804Office
      equipment and furnishings
                              
                              
                              1,370
                              
                              
                              
                              1,183Motor
      vehicles
                              
                              
                              905
                              
                              
                              
                              885Others
                              
                              
                              304
                              
                              
                              
                              273Total
      accumulated depreciation
                              
                              
                              21,670
                              
                              
                              
                              18,617Construction
      in progress
                              
                              
                              16,604
                              
                              
                              
                              39,803Property,
      plant and equipment, net
                              
                              $
                              111,043
                              
                              
                              $
                              144,481




Construction
in progress primarily represents the construction of manufacturing facilities
and related equipment.




The
Company recorded depreciation expense of $2.3 million and $1.7 million for the
three months ended September 30, 2009 and 2008, respectively, and recorded
depreciation expense of $4.9 million and $3.3 million for the six months ended
September 30, 2009 and 2008, respectively.





11.
            DEBT




On
October 11, 2007, ABN and another lender provided a three year term loan,
or the New ABN Loan, to the Company in the aggregate amount of $35 million. The
principal amount, and any unpaid accrued interest on the New ABN Loan, will be
due on October 11, 2010 and may be prepaid without penalty. The proceeds of
the New ABN Loan were used to pay the outstanding principal and accrued interest
of a six-month term loan provided to the Company by ABN on April 19,
2007, or the Original ABN Loan. The New ABN Loan bears interest at LIBOR for
deposits in U.S. dollars plus 3.5% with interest payable on the last day of each
three-month period. The loan is secured by a pledge of 10,000 shares of common
stock, or 100% of the outstanding common stock of Synutra Illinois.





The loan
agreement for the New ABN Loan provides for mandatory prepayment upon the
occurrence of certain events, and contains customary covenants for financings of
this type, including restrictions on the incurrence of liens, payment of
dividends, and disposition of properties. The loan agreement for the New ABN
Loan also contains certain financial covenants, including a requirement to
maintain specified leverage and interest coverage ratio, tangible net
worth, and indebtedness to tangible net worth ratio. The Company has performed
an analysis of the relevant ratios and found that due to the net loss which
resulted from the significant costs of the product recall, including
inventory write-down and write-off and subsequent loss of sales, the
Company was not able to meet any of the financial covenant requirements since
September 30, 2008. Further, the Company anticipates that it may have difficulty
meeting these financial covenant requirements for the next several fiscal
quarters. The Company has requested the lenders to waive these financial
covenants for the next several fiscal quarters. The lenders have proposed waiver
fee which equals to 0.75% of the aggregate principal amount outstanding and an
increase in the interest rate of 200 basis points to LIBOR for deposits in U.S.
dollars plus 5.5%. As of the issuance date of the unaudited condensed
consolidated financial statements, the waiver has not been granted. The Company
is currently in discussions with the lenders on the waiver and is unable to
predict when, or if the waiver will be granted. Accordingly, the Company has
reclassified the outstanding balance of $34.7 million under the loan to current
liabilities since the Company considers this debt callable by the bank. The
Company may also incur additional expenses in connection with the modification
of loan arrangements.


12





In
addition to the ABN Loan, as of September 30, 2009 and March 31, 2009, the
Company had short-term loans from PRC banks in the amount of $271.5 million and
$182.6 million, respectively.  The maturity dates of the short term
loans outstanding from PRC banks at September 30, 2009 range from October
2009 to September 2010. The weighted average interest rate on short-term loans
from PRC banks outstanding at September 30, 2009 and March 31, 2009 was
3.42% and 4.1%, respectively. The loans at September 30, 2009 and March 31,
2009 were secured by the pledge of certain fixed assets held by the Company
and its subsidiaries, a pledge of the Company’s land use right and pledge of
cash deposits. The value of fixed assets pledged was $38.9 million and $34.2
million as of September 30, 2009 and March 31, 2009,
respectively.  The value of land use right pledged was $4.2 million
and $3.4 million as of September 30, 2009 and March 31, 2009, respectively. The
value of cash pledged was $107.3 million and $66.1 million which were recorded
in restricted cash as of September 30, 2009 and March 31, 2009,
respectively.




As of
September 30, 2009 and March 31, 2009, the Company had long-term loans which are
unsecured debt, from PRC banks in the amount of $16.1 million and $8.8 million,
respectively. The maturity dates of the long-term loans outstanding from PRC
banks at September 30, 2009 are from March 2011 to June 2012. The weighted
average interest rate of outstanding long-term loans at September 30, 2009 and
March 31, 2009 were both 5.4%.





Apart
from the short-term loans and long-term loans from banks, the Company also had
short term loans from related parties in the amount of $10.7 million and $7.5
million as of September 30, 2009 and March 31, 2009 respectively. The maturity
dates of the short term loans outstanding from related parties at September 30,
2009 are from October 2009 to January 2010, and are extendable under same
terms upon maturity. The balance as of September 30, 2009 included a US dollar
loan of $3.9 million and a RMB loan of RMB46.8 million, and the weighted average
interest rate was 10.0% and 1.7% respectively. The interest rate of
the US dollar loan is benched mark to that of US dollar borrowing from third
parties.





12.
            INCOME
      TAX




The
effective tax rate is based on expected income, statutory tax rates and
incentives available in the various jurisdictions in which the Company operates.
For interim financial reporting, the Company estimates the annual tax rate based
on projected taxable income for the full year and records a quarterly income tax
provision in accordance with the FIN 18, “Accounting for Income Taxes in Interim
Period” and APB 18, “Interim Financial Reporting”. As the year progresses, the
Company refines the estimates of the year’s taxable income as new information
becomes available. This continual estimation process often results in a change
to the expected effective tax rate for the year. When this occurs, the Company
adjusts the income tax provision during the quarter in which the change in
estimate occurs so that the year-to-date provision reflects the expected annual
tax rate.





The
effective tax rate for the six months ended September 30, 2009 increased 3.2%
from the 22.1% effective rate for the six months ended September 30, 2008
to 25.3%. This increase was due primarily to the expiration of the tax
holidays enjoyed by certain subsidiaries in China.





13.
            LOSS
      PER SHARE




For
purposes of calculating basic and diluted earnings per share, the Company used
the following weighted average common shares outstanding:




Three Months Ended
                                          
                                          
                                          Six Months EndedSeptember 30,
                                          
                                          
                                          September 30,2009
                                          
                                          
                                          2008
                                          
                                          
                                          2009
                                          
                                          
                                          2008Net
      loss attributable to Synutra International, Inc.
                                          
                                          $
                                          (14,019
                                          )
                                          
                                          $
                                          (49,680
                                          )
                                          
                                          $
                                          (23,965
                                          )
                                          
                                          $
                                          (34,036
                                          )Basic
      and diluted weighted average common shares
outstanding
                                          
                                          
                                          54,001
                                          
                                          
                                          
                                          54,001
                                          
                                          
                                          
                                          54,001
                                          
                                          
                                          
                                          54,001Loss
      per share – basic and diluted
                                          
                                          $
                                          (0.26
                                          )
                                          
                                          $
                                          (0.92
                                          )
                                          
                                          $
                                          (0.44
                                          )
                                          
                                          $
                                          (0.63
                                          )





The
warrants to purchase 400,000 shares of common stock granted to ABN in connection
with the Original ABN Loan were excluded from the computation of diluted
earnings per share for all periods presented as they would be
anti-dilutive.


13





14.
            SEGMENT
      REPORTING




The
Company focuses on selling premium infant formula products, which are
supplemented by more affordable infant formula products targeting the
mass market as well as other nutritional products, such as adult powdered
formula and prepared baby food, and certain nutritional ingredients and
supplements. The activities of each segment are as follows:





Powdered Formula- Sales of
powdered infant and adult formula products.





Baby Food- Sales of prepared
baby food and nutritional snacks for babies and children.





Nutritional Ingredients and
Supplements-
Sales of nutritional ingredients and supplements such as chondroitin sulfate,
and microencapsulated Docosahexanoic Acid (“DHA”) and Arachidonic Acid
(“ARA”).





"All
Other" includes non-core businesses such as toll packaging, toll drying service
and sales of ingredients and materials to industrial customers.





The
Company’s underlying accounting records are maintained on a legal entity basis
for government and public reporting requirements. Segment disclosures are on a
performance basis consistent with internal management reporting. The following
segment information has been prepared in accordance with the internal accounting
policies of the Company, as described above.





Three Months Ended
                                            
                                            
                                            Six Months EndedSeptember 30,
                                            
                                            
                                            September 30,2009
                                            
                                            
                                            2008
                                            
                                            
                                            2009
                                            
                                            
                                            2008(In thousands)NET
      SALES TO EXTERNAL CUSTOMERSPowdered
      formula
                                            
                                            $
                                            42,031
                                            
                                            
                                            $
                                            85,165
                                            
                                            
                                            $
                                            84,501
                                            
                                            
                                            $
                                            203,228Baby
      food
                                            
                                            
                                            268
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            611
                                            
                                            
                                            
                                            —Nutritional
      ingredients and supplements
                                            
                                            
                                            460
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            516
                                            
                                            
                                            
                                            —All
      other
                                            
                                            
                                            22,571
                                            
                                            
                                            
                                            9,626
                                            
                                            
                                            
                                            27,052
                                            
                                            
                                            
                                            18,943Net
      sales
                                            
                                            $
                                            65,330
                                            
                                            
                                            $
                                            94,791
                                            
                                            
                                            $
                                            112,680
                                            
                                            
                                            $
                                            222,171INTERSEGMENT
      SALESPowdered
      formula
                                            
                                            $
                                            1
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            5
                                            
                                            
                                            $
                                            —Baby
      food
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            232
                                            
                                            
                                            
                                            —Nutritional
      ingredients and supplements
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            1,522
                                            
                                            
                                            
                                            —All
      other
                                            
                                            
                                            1,046
                                            
                                            
                                            
                                            191
                                            
                                            
                                            
                                            1,054
                                            
                                            
                                            
                                            191Intersegment
      sales
                                            
                                            $
                                            1,047
                                            
                                            
                                            $
                                            191
                                            
                                            
                                            $
                                            2,813
                                            
                                            
                                            $
                                            191GROSS
      PROFIT (LOSS)Powdered
      formula
                                            
                                            $
                                            21,269
                                            
                                            
                                            $
                                            (27,652
                                            )
                                            
                                            $
                                            41,470
                                            
                                            
                                            $
                                            38,155Baby
      food
                                            
                                            
                                            45
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            177
                                            
                                            
                                            
                                            —Nutritional
      ingredients and supplements
                                            
                                            
                                            (230
                                            )
                                            
                                            
                                            —
                                            
                                            
                                            
                                            (879
                                            )
                                            
                                            
                                            —All
      other
                                            
                                            
                                            (8,805
                                            )
                                            
                                            
                                            929
                                            
                                            
                                            
                                            (8,917
                                            )
                                            
                                            
                                            2,017Gross
      profit (loss)
                                            
                                            
                                            12,279
                                            
                                            
                                            
                                            (26,723
                                            )
                                            
                                            
                                            31,851
                                            
                                            
                                            
                                            40,172Selling
      and distribution expenses
                                            
                                            
                                            10,334
                                            
                                            
                                            
                                            10,658
                                            
                                            
                                            
                                            20,811
                                            
                                            
                                            
                                            22,081Advertising
      and promotion expenses
                                            
                                            
                                            7,507
                                            
                                            
                                            
                                            18,637
                                            
                                            
                                            
                                            22,652
                                            
                                            
                                            
                                            50,733General
      and administrative expenses
                                            
                                            
                                            4,909
                                            
                                            
                                            
                                            6,790
                                            
                                            
                                            
                                            9,550
                                            
                                            
                                            
                                            10,720Impairment
      loss
                                            
                                            
                                            5,921
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            5,921
                                            
                                            
                                            
                                            —Other
      operating income, net
                                            
                                            
                                            107
                                            
                                            
                                            
                                            733
                                            
                                            
                                            
                                            224
                                            
                                            
                                            
                                            733Loss
      from operations
                                            
                                            
                                            (16,285
                                            )
                                            
                                            
                                            (62,075
                                            )
                                            
                                            
                                            (26,859
                                            )
                                            
                                            
                                            (42,629
                                            )Interest
      expense
                                            
                                            
                                            2,788
                                            
                                            
                                            
                                            545
                                            
                                            
                                            
                                            5,166
                                            
                                            
                                            
                                            1,066Interest
      income
                                            
                                            
                                            370
                                            
                                            
                                            
                                            186
                                            
                                            
                                            
                                            888
                                            
                                            
                                            
                                            384Other
      income (expense), net
                                            
                                            
                                            (267
                                            )
                                            
                                            
                                            80
                                            
                                            
                                            
                                            (1,051
                                            )
                                            
                                            
                                            (354
                                            )Loss
      before income tax benefit
                                            
                                            $
                                            (18,970
                                            )
                                            
                                            $
                                            (62,354
                                            )
                                            
                                            $
                                            (32,188
                                            )
                                            
                                            $
                                            (43,665
                                            )





September30,
                        2009
                      
                      
                      March 31,
                        2009(In thousands)TOTAL ASSETSPowdered
      formula
                      
                      $
                      504,822
                      
                      
                      $
                      443,946Baby
      food
                      
                      
                      36,697
                      
                      
                      
                      30,291Nutritional
      ingredients and supplements
                      
                      
                      39,122
                      
                      
                      
                      49,611All
      other
                      
                      
                      115,243
                      
                      
                      
                      115,923Intersegment
      elimination
                      
                      
                      (162,454
                      )
                      
                      
                      (167,200
                      )Total
                      
                      $
                      533,430
                      
                      
                      $
                      472,571




14





15.
            CONTINGENCIES





As of
September 30, 2009, the end of the period covered by this report, the Company
was subject to various legal proceedings and claims discussed below, as
well as certain other legal proceedings and claims that have not been fully
resolved and that have arisen in the ordinary course of business. Other than as
discussed below, in the opinion of management, the Company does not have a
potential liability related to any current legal proceedings and claims that
would individually or in the aggregate have a material adverse effect on its
financial condition or operating results. However, the results of legal
proceedings cannot be predicted with certainty. The Company intends to contest
each lawsuit vigorously but should the Company fail to prevail in any of these
legal matters or should several of these legal matters be resolved against the
Company in the same reporting period, the operating results of a particular
reporting period could be materially adversely affected. Management continues to
evaluate the lawsuits discussed below and based on the stage of these
proceedings, management is unable to reasonably estimate the likelihood of any
loss or the amount or range of any potential loss that could result from the
litigation. Therefore, no accrual has been established for any potential loss in
connection with these lawsuits.





On
January 15, 2009 , a lawsuit was filed in the U.S. on behalf of 54 Chinese
families alleged to be affected by melamine contamination, against Synutra
International, Inc. and Synutra Inc. in the U.S. District Court for the District
of Maryland, alleging negligent or intentional infliction of personal injury,
negligent or intentional infliction of emotional distress, battery, breach of
warranty, fraudulent or negligent misrepresentation, seeking compensation for
punitive damages in the amount of US$500 million, together with any compensatory
damages. We filed a motion in April 2009 to dismiss the case on grounds of
"Forum Non-Convenience,” failure to state a claim, and failure to join an
indispensable party, and the opposition filed a Memorandum of Opposition to
Motion to Dismiss on May 20, 2009. We responded to the Opposition on June 15,
2009 with an additional filing. The presiding Judge of the Court
will decide, with no time limit, if the Court will take the case or render
its dismissal. To date, the presiding Judge of the Court has not rendered a
decision.




On March
2, 2009, a lawsuit was filed in China on behalf of 54 Chinese families alleged
to be affected by melamine contamination against our subsidiary, Shengyuan
Nutritional Food Co., Ltd. at Qingdao Intermediate People’s Court, seeking
compensation for damages, including medical and other expenses, emotional harm
and punitive damages, for an aggregate amount over US$1.0 million (RMB6.9
million). Further, on April 14, 2009, a lawsuit was filed on behalf of 73
families (including the original 54 families) against our subsidiary,
Shengyuan Nutritional Food Co., Ltd. at Shandong Higher People’s Court on April
14, 2009, seeking compensation for damages of over US$1.7 million (RMB11.3
million). To date, we have not been notified by either court of acceptance
of these above cases.
 
 On July
21, 2009, one of our subsidiaries, Shengyuan Nutritional Food Co., Ltd. was
notified by the municipal People’s Court in Gaomi City, Shandong province, that
the Court had accepted the case of Qiu Fafu and Tai Shijuan vs.
Tu Zhuang Fa Da Store and
Shengyuan Nutritional Food Co., Ltd.  In that Complaint, the
plaintiffs sought damages from Shengyuan Nutritional Food Co., Ltd. based upon
allegations that they purchased baby formula made by Shengyuan Nutritional Food
Co., Ltd. in late September 2008 that “contained melamine that seriously
exceeded standards,” and that the formula caused their child to develop
“multiple kidney stones resulting from baby formula drinking.”  In
response to that Complaint, the Gaomi Municipal People’s Court issued a “Notice
to Respond to Action,” which reflected that the “court had accepted the lawsuit
by Qiu Fafu and Tai Shijuanin a product liabilitydispute.”  Subsequently, Shengyuan Nutritional Food Co., Ltd.
observed the order of the Court and conducted preliminary discoveries for
submission. On September 4, 2009, the plaintiffs applied to the Court to
withdraw the complaint.




16.
            SUBSEQUENT
      EVENTS





The
Company has evaluated subsequent events, as defined by ASC No. 855, Subsequent Events, through the date that
the unaudited condensed consolidated financial statements were issued
on November 9, 2009.




15





ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.




Sections
of this Quarterly Report on Form 10-Q (the “Form 10-Q”) including, in
particular, the Company’s Management’s Discussion and Analysis of Financial
Condition and Results of Operations contain forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict; therefore, actual results may differ materially from
those expressed, implied or forecasted in any such forward-looking
statements.





Expressions
of future goals and expectations or similar expressions including, without
limitation, “may,” “should,” “could,” “expects,” “does not currently expect,”
“plans,” “anticipates,” “intends,” “believes,” “estimates,” “predicts,”
“potential,” “targets,” or “continue,” reflecting something other than
historical fact are intended to identify forward-looking statements. The
factors described in the Company’s Annual Report on Form 10-K under Part I. Item
1A. Risk Factors and below in Part II. Other Information – Item 1A. Risk Factors
could cause the Company’s actual results to differ materially from those
described in the forward-looking statements. Unless required by law, the
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or
otherwise. However, readers should carefully review the reports and
documents the Company files from time to time with the SEC, particularly its
Quarterly Reports on Form 10-Q, Annual Report on Form 10-K , Current Reports on
Form 8-K and all amendments to those reports.





Available
Information





The
Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), are filed with the SEC. Such reports and other information
filed by the Company with the SEC are available on the Company’s website at
http://www.synutra.com when such reports are available on the SEC website.
The public may read and copy any materials filed by the Company with the
SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580,
Washington, DC 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC at http://www.sec.gov. The contents of these websites are not
incorporated into this filing. Further, the Company’s references to the
URLs for these websites are intended to be inactive textual references
only.




OVERVIEW




We are a
leading infant formula company in China. We principally produce, market and sell
our products under the “Shengyuan,” or “Synutra,” name, together with other
complementary brands. We focus on selling premium infant formula products, which
are supplemented by more affordable infant formulas targeting the mass market as
well as other nutritional products and ingredients. We sell our products through
an extensive nationwide sales and distribution network covering 30 provinces and
provincial-level municipalities in China. As of September 30, 2009, this network
comprised over 490 distributors and over 1,000 sub-distributors who sell
our products in over 75,000 retail outlets.





We
currently have three reportable segments which are:





o
            Powdered
      formula segment: Powdered formula segment covers the sale of powdered
      infant and adult formula products. It includes the brands of Super,
      U-Smart, Mingshan which was launched in October 2008 and Helanruniu which
      was launched in December 2008;




o
            Baby
      food segment: Baby food segment covers the sale of prepared baby food and
      nutritional snacks for babies and children. It includes the brand of
      Huiliduo which was launched in March 2009 and the nutritional snacks
      component which we expect to launch in
2010;




o
            Nutritional
      ingredients and supplements segment: Nutritional ingredients and
      supplements segment covers the production and sale of nutritional
      ingredients and supplements such as chondroitin sulfate, and
      microencapsulated DHA and ARA which we launched in the fiscal quarter
      ended December 31, 2008.




Other
business includes non-core businesses such as toll packaging, toll drying
service and sales of ingredients and materials to industrial customers. The
major portion of other business for the fiscal quarter ended September 30, 2009
was sales of surplus industrial milk powder.





On
September 16, 2008, we announced a compulsory recall on certain lots of U-Smart
products and a voluntary recall of other products that were contaminated or
suspected to be contaminated by melamine, a substance not approved for use in
food and linked to recent illnesses among infants and children in China. The
cost of this action during the year ended March 31, 2009 was $101.5 million,
including the cost of product replacement of $48.1 million in cost of sales, the
write-down and write-off of affected inventory of $48.5 million in cost of
sales, the net amount of $2.3 million to a compensation fund set up by China
Dairy Industry Association to settle existing and potential claims arising in
China from families of infants affected by melamine contamination in general and
administrative expenses, and freight charges of $2.6 million in selling and
distribution expenses, of which $4.5 million was recorded as a product recall
provision in the consolidated balance sheet as of March 31, 2009. In the six
months ended September 30, 2009, the Company reversed recall expense of
$0.8 million, mostly being overestimated product replacement cost. The
Company believes that the product recall has been substantially completed and
estimates that there should be no further material product recall costs
incurred. We believe that our fast response to the melamine crisis, as well
as recall efforts, including instituting a voluntary recall were well recognized
by the public and helped us to maintain our reputation, brand recognition and
relationships with our distributors and suppliers.




16




There
have been certain legal proceedings brought against us in connection with the
melamine contamination incident, which may have an adverse effect on our results
of operations, see Part II - Item 1.  Legal Proceedings below and
“Part I - Item 1A. Risk
Factors - Product liability claims against us could result in adverse publicity
and potential significant monetary damages”in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2009. Although management is not
aware of any additional significant issues associated with the melamine
contamination incident, there can be no assurance that additional issues will
not be identified in the future and this may have an adverse effect on our
results of operations. See “Part I - Item 1A. Risk Factors - We are highly
dependent upon consumers’perception of the safety and
quality of our products. Any ill effects, product liability claims, recalls,
adverse publicity or negative public perception regarding particularingredients or products or our
industry in general could harm our reputation and damage our brand and adversely
affect our results of operations”in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2009.




Our net
sales for the six months ended September 30, 2009 decreased by 49.3% to
$112.7 million from $222.2 million for the same period in the previous year. Our
gross profit for the six months ended September 30, 2009 decreased by
20.6% to $31.9 million from $40.2 million for the same period in the previous
year. Our net loss attributable to Synutra International, Inc. common
shareholders for the six months ended September 30, 2009 was $24.0
million, as compared to net loss attributable to Synutra International, Inc.
common shareholders of $34.0 million for the same period in the previous
year.





The
decrease in the Company’s net sales reflected in part the lingering impact of
the product recall carried out in late 2008, as well as the additional product
discounts we provided to distributors beginning August 2009 to compensate
distributors as they were carrying out certain product promotion activities that
were previously handled by the Company.  However, there have been
strong signs of recovery in end-market sales. According to data released by the
Ministry of Commerce’s Commercial Information Center (CIC), the Company’s
market share has stabilized at approximately 7.2% for the fiscal quarter ended
September 30, 2009, representing a significant increase from the 3.4% as
reported in October 2008, the month immediately following the melamine
contamination incident. In addition, the Company’s powdered formula segment
recorded a gross margin of $21.3 million, or 50.7% from net sales of $42.0
million for the fiscal quarter ended September 30, 2009, representing a
significant improvement from fiscal quarters that immediately followed the
product recall. The improvement was driven primarily through sales of the
Company’s premium line of Super series infant formula products. The sales
of Super series infant formula accounted for about 53.1% of the volume of sales
and 69.9% of the net sales for the segment for the fiscal quarter ended
September 30, 2009, compared to 40.1% of the volume of sales and 52.1% of the
net sales for the segment for the same period in the previous year. The Company
believes that the improvement in sales of its Super series infant
formula has led the segment in market recovery and helped to stabilize the
Company’s market position. The Company also believes that Super’s success
has laid a solid foundation for its future growth.




Though
powdered formula sales have improved since the quarter (ended December 31, 2008)
that immediately followed the recall, the Company has not yet recovered its
pre-recall market share of approximately 10.5% in August 2008, according to
CIC.  In order to regain its market leadership, the Company has
focused on fundamental approaches to procure new customers through its
integrated marketing platform, capitalizing on database resources built with a
nationwide deployed team of more than 500 nutrition education specialists who
work directly with medical and healthcare professionals at maternity wards or
clinics throughout the country.  The Company also made sales and
distribution system adjustments including a new control and monitoring mechanism
aimed at improving sales efficiency and managing the effectiveness of our
distribution channels which comprise of more than 490 distributors across the
market. The Company believes that these initiatives are generating favorable
results as reflected in the improved market share data for the fiscal quarter
ended September 30, 2009. The Company also estimates that its operating results
will be close to break-even for the fiscal quarter ending December 31, 2009 and
hopes to return to profitability for the fiscal quarter ending March 31,
2010.





On
September 9, 2009, two subsidiaries of Synutra International, Inc., Baoquanling
and Cow Breeding, entered into an asset purchase agreement (the “Agreement”)
with Wondersun, to sell three dairy farms and two milk processing factories in
China for approximately $28.9 million plus
reimbursement for certain qualified construction in progress assets acquired
subsequent to the valuation date. The assets were classified as held for sale
assets and were written down to the fair value less estimated cost to sell. No
depreciation or amortization was recorded after September 9, 2009. The past
operating results of these assets was not reported as discontinued operation, as
the assets group is part of a larger cash-flow-generating group, and on its own
is not a component of the entity, the conditions in
paragraph 205-20-45-1, Reporting
Discontinued Operations, for
reporting in discontinued operations the operations (losses) of the assets group
would not be met. After the melamine contamination incident, the Company began
to use imported milk powder in the powdered formula products and decreased the
consumption of domestically produced milk powder. In light of the decrease in
demand for domestically produced milk powder as well as increasing competition
from other domestic raw milk suppliers, the Company decided to sell Baoquanling
and Cow Breeding’s assets. The transaction is expected to be completed in
early 2010. The estimated impairment loss on the assets group during
the quarter ended September 30, 2009 was $5.9 million. The Company believes the
sales of these facilities will streamline the Company’s operation and benefit
the Company’s long-term operating efficiency.




17




Since the melamine contamination
incident, we have been using imported milk powder for the production of our
Super, U-Smart and Helanruniu series of products.
In the meantime, our
domestic production facilities continue to purchase raw milk locally to produce
milk powder for commercial resale and for our Mingshan series of products.We intend to continue
relying on imported milk powder for use in our Super, U-Smart and
Helanruniu series of
products in the foreseeable future.Due to the decline in the consumption of
dairy based products in the PRC as a result of the melamine contamination
incident and the significant increase in milk powder imports, there has been a
nationwide inventory build
up of domestically produced milk powder in the PRC. Such inventory build up has
caused a decline in milk powder prices and have resulted in us taking a
write-down of our inventory of domestically produced milk powder of
$3.3 millionand $3.3millionfor the three and six months ended
September 30, 2009, respectively.Currently milkpowder, whether imported or domestically
produced, accounts for approximately 50% of our raw materials inventory. We
managed to reduce our inventory of raw milk for the quarter ended September 30, 2009
through the sales of domestically produced raw milk power although this resulted
in a gross loss in our other businessdue to the decline in domestically
produced raw milk powder price.




The Company’s main operations are located in
mainland China. Though the recent disruptions in the overall economy and
financial markets is less severe in China than in the U.S., it could reduce consumer confidence in
the economy and negatively affect consumers’spending, which could be harmful to our
financial position and results of operations. See “Part I - Item 1A.Risk Factors - The
recent disruptions in the overall economy andthe financial
markets may adversely impact our business and results of operations and may
limit our access to additional financing”in our Annual Report on Form 10-K for
the fiscal year ended March 31, 2009.





Unless otherwise noted, all translations
fromRenminbi to U.S.
dollars were made at the mid rate published by the People’s Bank of China, or the mid rate, as ofSeptember30, 2009, which was RMB6.8290to $1.00. We make no representation
that the Renminbi amounts referred to in this Quarterly Report on Form 10-Q could have been or
could be converted into U.S. dollars at any particular rate or at all. OnNovember 6, 2009, the mid rate was RMB6.8276to $1.00.





CRITICAL ACCOUNTING
POLICIES





We follow certain significant accounting
policies when preparing our
consolidated financial statements. A summary of these policies is included in
our Annual Report on Form 10-K for the year ended March 31, 2009 under
“Item 7.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations–Critical Accounting Policies and
Estimates”. The preparation
of these financial statements in conformity with accounting principles generally
accepted in the United States of America requires us to make estimates and
judgments that affect our reported amounts of assets, liabilities, revenues
and expenses, and the related disclosures of contingent assets and liabilities
at the date of the financial statements. We evaluate these estimates and
judgments on an ongoing basis and base our estimates on historicalexperience, current conditions and
various other assumptions that are believed to be reasonable under the
circumstances. The results of these estimates form the basis for making
judgments about the carrying values of assets and liabilities as well as
identifying and assessing the accounting
treatment with respect to commitments and contingencies. Our actual results may
differ from these estimates.





We believe that the estimates,
assumptions and judgments involved in the accounting policies described
inthe “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”section of our most recent Annual
Report on Form 10-K have the greatest potential impact on our financial
statements, so we consider these to be our critical accounting policies.


18


RESULTS OF
OPERATIONS





Three months endedSeptember30, 2009 and 2008





Net Sales





Net sales for the fiscal quarter endedSeptember30, 2009 decreased by31.1% to $65.3million from $94.8million for the same period in the
previous year. This
decrease in net sales was mainly due to the loss of market share caused by the
melamine contamination incident, partially offset by an increase in
sales of surplus industrial milk powder.





Powdered formula
segment


Net sales of our powdered formula products, including infant
milk formula and other powdered formula products for children and adults under
our Super, U-Smart, Mingshan and Helanruniu brand names, accounted for64.3% of our total sales for the fiscal
quarter endedSeptember 30,
2009. Net sales of our
powdered formula products for the fiscal quarter endedSeptember 30, 2009 decreased by50.7% to $42.0million from $85.2million for the same period in the
previous year, primarily as a result of the following
factors:





            Sales volume of powdered formula
      products decreased by36.0% to5,630tons for the fiscal quarter endedSeptember 30, 2009
      from8,798tons for the same period in the
      previous year, due primarily to a slow-down in sales activities from
      September 2008 toSeptember 2009 following the melamine
      contamination incident.






            The average selling price of our
      powdered formula products for the fiscal quarter endedSeptember
      30, 2009decreased by22.9% to $7,466per ton from $9,680per ton for the same period in
      the previous year. This decrease in average selling price was dueto a greater
      proportion of rebates to distributorsand an increase in product
      discount to compensatedistributorsas they were carrying out certain product
      promotion activities that were previously handled by us,partially offset by the effect of
      increasedproportion
      of higher-priced products in our product mix and an increase of our sales
      price in August 2008.





Baby food segment


Net sales of prepared baby food business
for the fiscal quarter endedSeptember 30, 2009 was $268,000, representing sales of prepared baby food, such as cooked meat
and vegetables. We did not have any net sales of prepared baby food business for
the fiscal quarter endedSeptember 30, 2008 as we acquired this business in
October 2008. Our
nutritional snack business was still in its pre-operation stage and hence did not
have sales for the fiscal quarter endedSeptember 30, 2009.





Nutritional ingredients and supplements
segment


Net sales of nutritional ingredients and
supplements segment for the fiscal quarter endedSeptember 30, 2009 was $460,000, representing chondroitin sulfate sold
to third parties. We did not have any net sales in the fiscal quarter endedSeptember 30, 2008 as the
nutritional ingredients and supplements segment had not begun its operations bySeptember 30,
2008.


Other


Other sales for the fiscal
quarterended September 20,
2009 was $22.6million,whichmainly includedsales ofsurplusmilk powderto industrial customersof$18.4million,as compared to $9.6millionfor the same period in the previous
year.





Cost of Sales





Cost of sales for the fiscal quarter
endedSeptember 30, 2009
decreased by56.3% to $53.1million from $121.5million for the same period in the
previous year. The decrease in the cost of sales is due primarily to a decrease
in the sales volume of our
powdered formula products,and the product recall cost which was
recorded in the fiscal quarter ended September 30, 2008.





Powdered formula
segment


Cost of sales for the powdered formula
products for the fiscal quarter endedSeptember 30, 2009 decreased by81.6% to $20.8million from $112.8million for the same period in the
previous year. The decrease in the cost of sales is due primarily to the
decrease in the sales volume of our powdered formula products, and the significant product recallcost recorded in the fiscal
quarter ended September 30, 2008. The sales volume of powdered formula
products sold for the fiscal quarter endedSeptember 30, 2009 decreased by3,168tons as compared to the same period in
the previous year.





Baby food segment


Cost of sales of prepared baby food
business for the fiscal quarter endedSeptember 30, 2009 was $223,000, representing cost of sales of prepared
baby food, such as cooked meat and vegetables. We did not have any cost of sales
of prepared baby food business for the fiscal quarter endedSeptember 30, 2008 as we
acquired this business in October 2008. Our nutritional snack business was still
in its pre-operations stage and hence did not have cost of sales for the fiscal
quarter endedSeptember 30,
2009.





Nutritional ingredients and supplements
segment


Cost of sales of nutritional ingredients
and supplements segment for the fiscal quarter endedSeptember 30, 2009 was $690,000, representing chondroitin sulfate sold
to third parties. We did not have any costof sales in the fiscal quarter endedSeptember 30, 2008 as the
nutritional ingredients and supplements segment had not begun its operations bySeptember 30,
2008.





Other


Other cost for the fiscal
quarterended September30, 2009 was $31.4 million, whichmainly included the cost of sales of
surplus milk powderto
industrial customersof$24.0millionand write-down of industrial milk
powder of $3.3 million due to a decline in selling priceas a result of lower-priced domestically
produced milk powder,as compared to $8.7millionfor the same period in the previous
year.




19





Gross Profit(loss)and Gross Margin





As a result of the foregoing, gross
profit for the fiscal quarter endedSeptember 30, 2009was$12.3million, as compared togross loss of$26.7million for the same period in the
previous year. Gross profit for our powdered formula products for the fiscal
quarter endedSeptember 30,
2009was$21.3million, as compared to gross loss of$27.7million for the same period in the
previous year,primarily due to the product recall costs
which were incurred in the fiscal quarter ended September 30, 2008. Gross profit for our baby food segment
for the fiscal quarter endedSeptember 30, 2009 was$45,000. Gross loss for ournutritional ingredients and
supplements segment for the
fiscal quarter endedSeptember 30, 2009was$230,000, as the businesswasstill inits earlystageandwewere in the process ofdeveloping a new sales channel.Gross lossfor other business for the fiscal
quarter ended September 30,
2009 was $8.8million, primarilydue to the loss from sales of
domestically produced milk powder and write-down of domestically produced milk
powder in inventory. In
order to improve our working capital situation, we sold part of milk powder
which was surplus to our
own requirement for the fiscal quarter ended September 30, 2009. In October2009,cost ofsales of surplus milk powder was
$20.5million and the gross profit from such
sales was $2.4million.





Our overall gross margin was18.8% for the fiscalquarter endedSeptember 30, 2009, as compared to negative margin
of28.2% for the same period in the previous
year. Our gross margin for powdered formula products was50.6% for the fiscal quarter endedSeptember 30, 2009,representing a significant
increaseas compared tonegative margin of32.5% for the same period in the previous
year.Gross margin for baby food
segmentfor the fiscal quarter endedSeptember 30, 2009 was16.8%. Gross margin for nutritional ingredients
and supplements segment for the fiscal quarter endedSeptember 30, 2009 was negative50.1%.Gross margin forother businessfor the fiscal quarter endedSeptember 30, 2009 was
negative39.0%.





Selling and Distribution
Expenses





Selling and distribution expenses for
the fiscal quarter endedSeptember 30, 2009
decreased by3.7% to $10.3million from $10.7million for the same period in the
previous year. This decrease wasthecombinedresult ofa decrease in freight charges, partially
offset byan increase in compensation expenses for
our sales force. Total
compensation for our sales force for the fiscal quarter endedSeptember
30, 2009 increased by25.5% to $5.9million from $4.7million for the same period in the
previous year, due toa pay riseof sales staffin thefiscal quarter endedJune 30, 2009 andan increase in the number of sales staff
to2,953as ofSeptember30, 2009 from2,809as ofSeptember30, 2008. Freight charges for the fiscal quarter
endedSeptember 30, 2009
decreased by58.6% to $1.2million from $2.9million for the same period in the previous year, due
primarily tothe freight
charges accrual for product recall in the fiscal quarter ended September 30,
2008.





Advertising and Promotion
Expenses





Advertising and promotion expenses for
the fiscal quarter endedSeptember 30, 2009 decreased by59.7% to $7.5million from $18.6million for the same period in the
previous year. Advertising expenses for the fiscal quarter endedSeptember 30, 2009, which
accounted for52.6% of total advertising and promotion
expenses, decreased
by69.3% to $3.9million from $12.7million for the same period in the
previous year. Promotion expenses for the fiscal quarter endedSeptember
30, 2009, which accounted
for47.4% of total advertising and promotion
expenses, decreased by39.0% to $3.6million from $5.9million for the same period in the
previous year, as certain
promotions werecarried outdirectly bydistributorsin exchange for us providing such
distributors withincrease
in product discount.After
an aggressive advertising and promotional campaign in the fiscal quarter
ended March 31, 2009 to regain market share in the aftermath of the melamine
contamination incidentandto achieve effective market
pull-through immediately following new product launches, we intentionally slowed down
our advertising and
promotional expenses in thesix monthsendedSeptember 30, 2009 to better utilize our
resources, and focused more
on promotional activities by our field promoters in the communities and our
nutrition education professionals at the medical facilitiesin our efforts to improve brand
loyalty.


20


General and Administrative
Expenses





General and administrative expenses for
the fiscal quarter endedSeptember30, 2009decreased by27.9% to $4.9million from $6.8million for the same periodin the previous year. Thedecrease in general and administrative
expenses was primarily duetoadecrease of $1.7million inlegal and professional fees incurred for the
terminated following-on offeringin the fiscal quarter ended September
30, 2008.


ImpairmentLoss
 
 We recorded impairment lossof $5.9 millionfor the fiscal quarter ended September
30, 2009,which
representedthedifference between the estimated fair
value and carrying value of theassetsto be sold byour subsidiaries, Baoquanling and Cow
Breeding.We do not intend to dispose anyother major
assets.


OtherOperatingIncome,Net





Other operating income for the fiscal
quarter endedSeptember 30,
2009 was$107,000, as compared to$733,000for the same period in the previous
year.




Interest Income





Interest income for the fiscal quarter
endedSeptember 30, 2009
increased to $0.4million from $0.2 million for the same
period in the previous year.





Interest Expense





Interest expense for the fiscal quarter
endedSeptember 30, 2009
increased to $2.8million from $0.5 million for the same
period in theprevious
year, due primarily to the significant increase in bank borrowings after the
melamine contamination incident.





Income TaxBenefit





As a result of the net loss, we
recorded an income tax
benefit of $4.9million for the fiscal quarter endedSeptember 30, 2009, as
compared to an income taxbenefitof $12.7million for the fiscal quarter endedSeptember 30,
2008.





Net Loss Attributable toSynutra International, Inc. Common
Shareholders





As a result of the foregoing, net loss
attributable toSynutra
International, Inc.for the
fiscal quarter endedSeptember 30, 2009 was $14.0million, as compared to netlossof $49.7million for the same period in the
previous year.


21


Six months ended September 30, 2009 and
2008





Net Sales





Net sales for the six months ended
September 30, 2009 decreased by49.3% to $112.7million from $222.2million for the same period in the
previous year. This decrease in net sales was mainly due to the loss of
marketshare caused by the
melamine contamination incident, partially offset by an increase in the
sales of surplus industrial milk powder.





Powdered formula
segment


Net sales of our powdered formula
products, including infant milk formula and other powdered formula products for children and adults
under our Super, U-Smart, Mingshan and Helanruniu brand names, accounted
for75.0% of our total sales for thesix monthsendedSeptember 30, 2009. Net sales of our powdered
formula products for thesix monthsendedSeptember 30, 2009 decreased by58.4% to $84.5million from $203.2million for the same period in the
previous year, primarily as a result of the following
factors:






            Sales volume of powdered formula
      products decreased by51.4% to10,626tons for thesix monthsendedSeptember 30, 2009 from21,864tons for the same period in the
      previous year, due primarily to a slow-down in sales activities from
      September 2008 toSeptember 2009 following the melamine
      contamination incident.






            The average selling price of our powdered formula
      products for thesix
      monthsendedSeptember 30, 2009decreased by14.4% to $7,953per ton from $9,295per ton for the same period in
      the previous year. This decrease in average selling price was due to a
      greater proportion of
      rebates to distributors andan increase in product discount to
      compensatedistributorsas they were carrying out certain
      product promotion activities that were previously handled by
      us,partially offset by the effect of
      increased proportion of higher-priced products in our product mix
      and an increase of our sales price in August
  2008.





Baby food segment


Net sales of prepared baby food business
for thesix
monthsendedSeptember 30, 2009 was
$611,000, representing sales of prepared baby
food, such ascooked meat
and vegetables. We did not have any net sales of prepared baby food business for
thesix monthsendedSeptember 30, 2008 as we acquired this business in
October 2008. Our
nutritional snack business was still in its pre-operation stage and
hence did not have sales
for thesix
monthsendedSeptember 30,
2009.





Nutritional ingredients and supplements
segment


Net sales of nutritional ingredients and
supplements segment for thesix monthsendedSeptember 30, 2009 was $516,000, representing chondroitin sulfate sold to third parties. We
did not have any net sales in thesix monthsendedSeptember 30, 2008 as the nutritional ingredients
and supplements segment had not begun its operations bySeptember 30, 2008.





Other


Other sales for thesix months ended September 20, 2009 was
$27.1million,whichmainly includedsales ofsurplusmilk powderto industrial customersof$18.8million,as compared to $18.9millionf
 or the same period in the previous year.





Cost of Sales





Cost of sales for thesix monthsendedSeptember 30, 2009 decreased by55.6% to $80.8million from $182.0million for the same period in the
previous year. The decrease in the cost of sales is due primarily to a decrease
in the sales volume of our powdered formula products,and the product recall cost which was recorded in
thesix monthsended September 30,
2008.





Powdered formula
segment


Cost of sales for the powdered formula
products for thesix
monthsendedSeptember 30, 2009
decreased by74.0% to $43.0million from $165.1million for the same period in the previous year. Thedecrease in the cost ofsales is due primarily to the
decrease in the sales
volume of our powdered formula products,and the significant product recall cost
recorded in thesix
monthsended September 30,
2008.The sales volume of powdered formula
products sold for thesix
monthsendedSeptember 30, 2009
decreased by11,239tons as compared to the same period in
the previous year.





Baby food segment


Cost of sales of prepared baby food
business for thesix
monthsendedSeptember 30, 2009 was
$435,000, representing cost of sales of prepared
baby food, such as cooked meat and vegetables. We did not have any cost of sales
of prepared baby food business for thesix monthsendedSeptember 30, 2008 as we acquired this
business in October 2008.
Our nutritional snack business was still in its pre-operations stage and hence
did not have cost of sales for thesix monthsendedSeptember 30, 2009.





Nutritional ingredients and supplements
segment


Cost of sales of nutritionalingredients and supplements
segment for thesix
monthsendedSeptember 30, 2009 was
$1.4 million, representing chondroitin sulfate sold
to third parties. We did not have any cost of sales in thesix monthsendedSeptember 30, 2008 as the nutritional
ingredients and supplements
segment had not begun its operations bySeptember 30, 2008.





Other


Other cost for the six months ended
September 20, 2009 was $36.0 million, which mainly includedthe cost of sales of surplus milk
powderof$24.2millionand write-down of industrial milk powder of $3.3
million due to a decline in selling priceas a result of lower-priced domestically
produced milk powder, as
compared to $16.9 millionfor the same period in the previous
year.


22


Gross Profit(loss)and Gross Margin





As a
result of the foregoing, gross profit for the six months ended September 30,
2009 decreased by 20.6% to $31.9 million from $40.2 million for the same period
in the previous year. Gross profit for our powdered formula products for the six
months ended September 30, 2009 increased 8.6% to $41.5 million from $38.2
million for the same period in the previous year, primarily because of product
recall costs recorded in the six months ended September 30, 2008. Gross profit
for our baby food segment for the six months ended September 30, 2009 was
$177,000. Gross loss for our nutritional ingredients and supplements segment for
the six months ended September 30, 2009 was $879,000, as the business was still
at its early stage and we were in the process of developing a new sales channel.
Gross loss for other business for the fiscal quarter ended September 30, 2009
was $8.9 million, primarily due to the loss from sales of domestically produced
milk powder and write-down of domestically produced milk powder in inventory. In
order to improve our working capital situation, we sold part of milk powder
which was surplus to our own requirement for the fiscal quarter ended September
30, 2009. In October 2009, cost of sales of surplus milk powder was $20.5
million and the gross profit from such sales was $2.4
million.




Our overall gross margin was28.3% for thesix monthsendedSeptember 30, 2009, as compared to18.1% for the same period in the previous
year. Our gross margin for powdered formula products was49.1% for thesix monthsendedSeptember 30, 2009, as compared to18.8% for the same period in the previous
year. Our gross margin for baby food segmentfor thesix monthsendedSeptember 30, 2009 was28.9%.Gross margin for nutritional ingredients
and supplements segment for
thesix monthsendedSeptember 30, 2009 was negative170.3%.Gross margin forother businessfor the fiscal quarter endedSeptember 30, 2009 was
negative33.0%.





Selling and Distribution
Expenses





Selling and distribution expenses for
thesix monthsendedSeptember 30, 2009 decreased by5.9% to $20.8million from $22.1million for the same period in the
previous year. This decrease was acombinedresult ofa decrease in freight charges and office
expenses, partially offset byan increase in compensation expenses for our sales force.
Total compensation for our sales force for thesix monthsendedSeptember 30, 2009 increased by21.4% to $11.9million from $9.8million for the same period in the
previous year, due toa pay rise of sales staff
in the fiscal quarter ended
June 30, 2009 andan
increase in the number of sales staff to2,953as ofSeptember30, 2009 from2,809as ofSeptember30, 2008. Freight charges for thesix monthsendedSeptember 30, 2009 decreased by63.5% to $1.9million f
rom
$5.2million for the same period in the
previous year, due primarily to the freight charges accrual for product recall
in the fiscal quarter ended
September 30, 2008.Office
expenses for the fiscal quarter endedSeptember 30, 2009 decreased by68.8% to $0.5million from $1.6million for the same period in the
previous year, due primarily to tightened budgetary control.





Advertising and Promotion
Expenses





Advertising and promotion expenses for
thesix monthsendedSeptember 30, 2009 decreased by55.2% to$22.7million from $50.7million for the same period in the
previous year. Advertising expenses for thesix monthsendedSeptember 30, 2009, which accounted for54.0% of total advertising and promotion
expenses, decreased by61.3% to $12.2million from $31.5million for the same period in the
previous year. Promotion expenses for thesix monthsendedSeptember 30, 2009, which accounted for46.0% of total advertising and promotion
expenses, decreased by45.8% to $10.4million from $19.2million for the sameperiod in the previous year,as certain promotions werecarried outdirectly bydistributorsin exchange for us providing such
distributors withincrease
in product discount.After
an aggressive advertising and promotional campaign in the fiscal quarter
ended March 31, 2009 to
regain market share in the aftermath of the melamine contamination
incidentandto achieve effective market pull-through
immediately following new/improved product launches, we intentionally slowed down our
advertising and promotionalexpenses in the six months endedSeptember 30, 2009 to better utilize our
resources,and focused more on promotional
activities by our field promoters in the communities and our nutrition education
professionals at the medical facilitiesin our efforts toimprove brand loyalty.


23


General and Administrative
Expenses





General and administrative expenses for
thesix monthsendedSeptember 30, 2009 decreased by10.3% to $9.6million from $10.7million for the same period in the previous year. The
decrease in general and administrative
expenses was primarily due
toadecrease of $2.0millioninlegal and professional fees incurred for the
terminated follow-on offeringin the fiscal quarter ended September 30,
2008.


ImpairmentLoss
 
 We recorded impairment lossof $5.9 millionfor thesix monthsended September 30, 2009,which representedthe difference between the estimated
fair value and carrying
value of theassetsto be sold byour subsidiaries, Baoquanling and Cow
Breeding.We do not intend to dispose anyother major
assets.




OtherOperatingIncome,Net





Other operating income for thesix monthsendedSeptember 30, 2009 was $224,000, as compared to $733,000for the same period in the previous
year.




Interest Income





Interest income for thesix monthsendedSeptember 30, 2009 increased to $0.9million from$384,000for the same period in the previous
year.





Interest Expense





Interest expense for thesix monthsendedSeptember 30, 2009 increased to $5.2million from $1.1million for the same period in the
previous year, due primarily to the significant increase in bank borrowings after the
melamine contamination incident.




Income TaxBenefit





As a result of the net loss, we
recorded an income tax benefit of $8.1million for thesix monthsendedSeptember 30, 2009, as compared to $9.6million forthe same period in the previous
year. Our effective tax
rate increased to25.3% for six months endedSeptember
30, 2009 from22.1% for the same period in the previous
year. This increase in our effective income tax rate was primarily
due to the expirations of tax holidays enjoyed by certain subsidiaries in
China.





Net Loss Attributable to Synutra
International, Inc. Common Shareholders





As a result of the foregoing, net loss
attributable to Synutra International, Inc. for thesix monthsendedSeptember 30, 2009 was $24.0million, as compared to net loss of
$34.0million for the same period in the
previous year.


24


LIQUIDITY AND CAPITAL
RESOURCES





The accompanying unaudited condensed
consolidated financial statements have been prepared assuming
that we will continue as a going concern, which contemplates the realization of
assets and the liquidation of liabilities in the normal course of
business.As a
result of the melamine contamination incident and the subsequent product recall, we have
experienced significant operating losses and negative cash flows from operations
for the fiscal year ended March 31, 2009 and thesix monthsendedSeptember30, 2009. As ofSeptember30, 2009, we had a working capital
deficit of approximately
$62.4million. In addition, we have not been
in compliance with certain covenants in our New ABN loan agreement sinceSeptember30, 2008.We are attempting to renegotiate the
terms and covenants of the New ABN loan agreement.As a result of the occurrence of these recent
economic events, the ensuing operating losses and negative cash flows and our
failure to meet our debt covenants, the report of our independent registered
public accounting firm for the fiscal year ended March 31, 2009contains a reference raising
substantial doubts about our ability to continue as a going
concern.See Note 2(A) and Note 11 to the
consolidated financial statements in our Annual Report on Form 10-K for the
fiscal year ended March 31, 2009. We are currently in the process of evaluating
funding alternatives including seeking refinancing of certain short-term loans
from PRC banks.The accompanying unaudited condensed
consolidated financial statements do not include any adjustments that might
result fromthe outcome of
this uncertainty.





We intend to seek to overcome any
substantial doubt concerning our ability to continue as going concern by
continuing to pursue our strategic operating goals for enhanced profitability
and by obtaining new debt and/or equity financing. Any substantial
doubt about our ability to continue as a going concern could also affect our
relationship with our trade suppliers and their willingness to continue to
conduct business with us on terms consistent with historical
practice.These suppliers might respond to an
apparent weakening of our liquidity position and to address their own liquidity
needs may request faster payment of invoices, new or increased deposits or other
assurances.If
this were to happen, our need for cash would be intensified and we might be unable
to make payments to our suppliers as they become due. See “Part I - Item 1A.Risk Factors - The
report of our Independent Registered Public Accounting Firm contains a reference
raising substantial doubt about our ability to continue as
a “going
concern”in our Annual Report on Form 10-K for
the fiscal year ended March 31, 2009.





The recent melamine contamination
incident has significantly impacted our liquidity. Since the damage to our
reputation caused by the melamine contamination incident will take
time to recover, the net sales of our powdered formula products were negatively
impacted in the fiscal year ended March 31, 2009 andsix monthsendedSeptember30, 2009. In the meantime, we incurred
substantial cashoutflow
for the purchase of raw materials and for operating
expenses.





Accordingly, we have had discussions
with local banks to obtain short term financing to support our operational
needs.We have enjoyed
relatively open access tobank credit among the domestic banksand have been able to renew all
existing loans successfully.As ofSeptember30, 2009, we had short-term borrowings
from local banks of $271.5million with a weighted average
interest rate of3.42%. The loans were secured by the pledge
of certain fixed assets
held by the Company’s subsidiaries, pledge of land use right
in Qingdao, China and pledge of cash deposits which was recorded as restricted
cash.The
maturity dates of the short-term loans from local banks outstanding atSeptember30, 2009 range fromOctober2009 toSeptember2010. As of the date of the filing of this
10-Q, all outstanding short-term loansfrom local banksthat have become due have been repaid.
As ofSeptember30, 2009, we have unsecured long-term
borrowing from local banks
of $16.1 million maturing from March 2011 to June 2012 with a weighted average
interest rate of5.4%. In addition to the loans from local
banks, we also borrowed from related parties short-term loans amounting to
$10.7million with a weighted average
interest rate of4.7% to finance our acquisition of the
Helanruniu trademarks and to support our normal operating needs. The maturity
dates of the short-term loans outstanding from related parties atSeptember30, 2009 are from October 2009 to
January 2010,and are extendable under same terms upon
maturity. As ofSeptember30, 2009, we are not able to meet the
financial covenants of the ABN loan and hence it was reclassified to current
liabilities since we considered this debt callable by the bank. As of thedate of the filing of this
10-Q, the waiver has not been granted. Prior to the melamine contamination
incident, cash generated from our operating activities were sufficient for
normal operating needs, and financing from banks was normally related to
investing activities such as expansion of our
manufacturing plant.





In order to maintain sufficient funds
for our operations, we have postponed the payment of certain accounts payable.
The payment terms of accounts payable were usually three months.We have strong long-term partnerships with key
suppliers, most of them indicated they were willing to provide the company
payment terms extension on the accounts payable if necessary.We believe that our cash flows should
improve as we are beginning to see improvements in our net sales and have been
working on decreasing our raw milk powder inventory.





The Company believes that the product
recallhas been
substantially completedandestimates that there should
be no further material cash outflow incurring other thanthe accrued freight charge of $85,000atSeptember30, 2009.





Our cash and cash equivalent balanceincreased by $20.2million to $57.9million atSeptember30, 2009, as compared to
$37.7 million at March 31, 2009.


25


Cash Flows from Operating
Activities





Net cash used in operating activities
was $48.6million for thesix monthsendedSeptember30, 2009, as compared to net cashused inoperating activities of $11.8million for the same period in the
previous year. Net cash used in operating activities for thesix months ended September30, 2009 was mainly due to net loss of
$24.1million, non-cash items not affecting
cash flows of $10.7million and a $35.2million decrease in working capital.
The changes in working capital for thesix months ended September30, 2009 were primarily related toan$8.2 million increase in accounts
receivable, $31.3 million decrease in accounts payable due tothesettlement of certain accumulatedoverdueliabilities, $9.5million increase in advances from
customers, and $8.6 million
increase in income tax receivable.Inthesix monthsendedSeptember30, 2009, we spent$118.3million in purchasing raw materials and
other production materials, $18.1million in staff compensation and
social welfare, $10.2million inothertaxes, $59.6million in selling and distribution,
advertising and promotion, and general and administrative expenses, and received
$163.7million from our
customers.





Cash Flows from Investing
Activities





Net cash used in investing activities
was $30.4million for thesix months ended September30, 2009, as compared to $61.3million for the same period in the
previous year. Cash invested in purchases of property, plant and equipment
was $3.0million and $34.0 million for thesix months ended September30, 2009, and 2008, respectively. The decrease is mainly
due to the suspension of major investing projects in the aftermath of the
melamine contamination incident. We expect the suspension will slow down our
expansion into the nutritional snack business which we expect tolaunch in2010, but it will not materially affect our
production capacity to fulfill our customers’order requirements. Restricted cash
increasedby$31.6million for thesix months ended September30, 2009, as compared to$27.2million for the same periodin the previous year due to a
significant increase in our bank borrowings. Restricted cash represents cash
deposited with banks as security against the issuance of letters of credit for
the import of raw materials and as pledges for certain short-term
borrowings.Proceeds from assets disposal of $5.6
million represent the first installment of consideration paid by Wondersun to
acquire Baoquanling and Cow Breeding’s assets.





Cash Flows from Financing
Activities





Net cash provided by financing
activities was
$99.1million for thesix months ended September30, 2009, as compared to $23.8million for the same period in the
previous year. Cash provided by financing activities during thesix months ended September30, 2009 was primarily related to
$251.9million short-term loans fromdomesticbanks in Chinaand related parties, $7.3 million long-term loans from
domestic banks in China, offset by $160.1million repayment of short-term loanstodomestic banks in China.





Outstanding
Indebtedness





On October 11, 2007, ABN and another lender provided a
three year term loan, or the New ABN Loan, to the Company in the aggregate
amount of $35 million. The principal amount, and any unpaid accrued interest on
the New ABN Loan, will be due on October 11, 2010 and may be prepaid without penalty. The proceeds of
the New ABN Loan were used to pay the outstanding principal and accrued interest
of a six-month term loan provided to the Company by ABN on April 19, 2007,
or the Original ABN Loan. The New ABN Loan bears interest atLIBOR for deposits in U.S. dollars plus
3.5% with interest payable on the last day of each three-month period. The loan
is secured by a pledge of 10,000 shares of common stock, or 100% of the
outstanding common stock of Synutra Illinois.


26





The loan agreement for the New ABN Loan provides for
mandatory prepayment upon the occurrence of certain events, and contains
customary covenants for financings of this type, including restrictions on the
incurrence of liens, payment of dividends, and disposition of properties. The loan agreement for the New
ABN Loan also contains certain financial covenants, including a requirement to
maintain specified leverage and interest coverage ratio, tangible net worth, and
indebtedness to tangible net worth ratio. The Companyhas performed an analysis of the relevant
ratios and found that due to the net loss which resulted from the significant
costs of the product recall, including inventory write-down and
write-offand subsequent loss of sales, the Company was not able to meetany of the financial
covenant requirementssince
September 30, 2008.
Further, the Company anticipates that it may have difficulty meeting these
financial covenant requirements for the next several fiscal quarters. The
Company has requested the lenders to waive these financial covenants for the
next several fiscal quarters. The lenders have proposed waiver
fee which equals to 0.75% of the aggregate principal amount outstanding and an
increase in the interest rate of 200 basis points to LIBOR for deposits inU.S. dollars plus 5.5%.As of the issuance date of
the unaudited condensed consolidated financial statements, the waiver has not
been granted. The Company is currently in discussions with the lenders on the
waiver and is unable to predict when, or if the waiver will be granted. Accordingly, the
Company has reclassified the outstanding balance of $34.7million under the loan to current
liabilities since the Company considers this debt callable by the bank. The
Company may also incur additional expenses in connection with the modification of loan
arrangements.





In addition to the ABN Loan, as of
September 30, 2009 and March 31, 2009, the Company had short-term loans
from PRC banks in the amount of $271.5million and $182.6million,
respectively.The maturitydates of the short term loans
outstanding from PRC banks at September 30, 2009 range fromOctober2009 toSeptember2010. The weighted average interest
rate on short-term loans from PRC banks outstanding at September 30, 2009 and
March 31, 2009 was3.42%and 4.1%, respectively. The loans at
September 30, 2009and
March 31, 2009were secured by the pledge of certain
fixed assets held by the Company and its subsidiaries, a pledge of the
Company’s land use right and pledge of cash
deposits. The value of fixedassets pledged was $38.9million and $34.2 million as of
September 30, 2009 and March 31, 2009,
respectively.The value of land use right pledged was
$4.2million and $3.4 million as of
September 30, 2009 and March 31, 2009, respectively. The value of cash pledged was $107.3million and $66.1 million which were
recorded in restricted cash as of September 30, 2009 and March 31, 2009,
respectively.





As of September 30, 2009 and March 31,
2009, the Company had long-term loans which are unsecured debt, fromPRC banks in the amount of
$16.1million and $8.8 million, respectively.
The maturity dates of the long-term loans outstanding from PRC banks at
September 30, 2009 are fromMarch2011 to June 2012. The weighted average
interest rate of outstanding long-term loans at September 30, 2009 and
March 31, 2009were
both5.4%.





Apart from the short-term loans and
long-term loans from banks, the Company also had short term loans from related
parties in the amount of $10.7million and $7.5 million as of
September 30, 2009 and
March 31, 2009 respectively. The maturity dates of the short term loans
outstanding from related parties at September 30, 2009 are from October
2009 to January 2010, and
are extendable under same terms upon maturity. The balance as of September30, 2009 included a US
dollar loan of $3.9 million and a RMB loan of RMB46.8million, and theweighted averageinterest ratewas10.0% and1.7% respectively. The interest rate of the
US dollar loan is benched mark to that of US dollar borrowing from thirdparties.





Contractual
Obligations





For information on our contractual
obligations, please refer to Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources - Tabular
Disclosure of Contractual
Obligations.”as presented
in our Annual Report on Form 10-K for the fiscal year ended March 31,
2009.





Capital Expenditures





Our capital expenditures for thesix months ended
September30, 2009 was
$3.0million. In order to meet our
immediate working capital
needs in the aftermath of the melamine contamination incident, we have
temporarily postponed projects that are not urgently needed for our operations
such as our baby beverage project and the furnishing of our head office
building. We donot anticipate significant capital
expenditure in the next several fiscal quarters. All future capital expenditure
plans will be dependent upon our cash position and operating
status.





Off-Balance Sheet
Arrangements





We have not entered into any
guarantee contract or
commitments to guarantee the payment obligations of any third parties except for
the guarantee issued to the Zhangbei Branch of the Agricultural Bank of China
related to various bank loans of $1.1 million to 104 dairy farmers in the
Zhangbei area of Hebei Province in China, which
was recorded as contingent liability of $0.4 million. Such loans matured on
December 15, 2007 but as ofSeptember30, 2009, none of these loans have been
repaid. We do not have any retained or contingent interest inassets transferred to an unconsolidated
entity or similar arrangement that serves as credit, liquidity or market risk
support to such entity for such assets. We do not have any obligation, including
a contingent obligation, under a contract that would beaccounted for as a derivative
instrument, except that it is both indexed to the registrant's own stock and
classified in equity in the registrant's statement of financial position, and
therefore excluded from the scope of ASC No. 815, Derivatives and Hedging (pre-codification
reference as FASB Statement of Financial Accounting Standards No. 133,Accounting for
Derivative Instruments and Hedging Activities).We do not have any obligation, including
a contingent obligation, arising out of a variable interest in an unconsolidated
entity that is held by and material to us wheresuch entity provides financing,
liquidity, market risk or credit risk support to, or engages in leasing, hedging
or research and development services with us.


27


ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





The objective of ourpolicies is to mitigate potential
income statement, cash flow and fair value exposures resulting from possible
future adverse fluctuations in rates. We evaluate our exposure to market risk by
assessing the anticipated near-term and long-term fluctuationsin interest rates and foreign exchange
rates. This evaluation includes the review of leading market indicators,
discussions with financial analysts and investment bankers regarding current and
future economic conditions and the review of market projectionsas to expected future
rates.





Foreign Exchange
Risk





The value of the Renminbi against the
U.S. dollar and other currencies is affected by, among other things, changes in
China’s political and economic conditions.
Since July 2005, the Renminbi has no longer been pegged to the U.S. dollar.
Although the People’s Bank of China (“PBOC”) regularly intervenes in the
foreign exchange market to prevent significant short-term fluctuations in the
exchange rate, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in
the medium to long term. Moreover, it is possible that in the future, PRC
authorities may lift restrictions on fluctuations in the Renminbi exchange rate
and lessen intervention in the foreign exchange market.





Because substantially all of our earnings and
cash assets are denominated in Renminbi, appreciation or depreciation in the
value of the Renminbi relative to the U.S. dollar would affect our financial
results reported in U.S. dollar terms without giving effectto any underlying change in our business
or results of operations. As a result, we face exposure to adverse movements in
currency exchange rates as the financial results of our Chinese operations are
translated from local currency into U.S. dollars upon consolidation. If the U.S. dollar weakens
against the Renminbi, the translation of our foreign-currency-denominated
balances will result in increased net assets, net revenues, operating expenses,
and net income or loss. Similarly, our net assets, net revenues, operating expenses, and net income or
loss will decrease if the U.S. dollar strengthens against the Renminbi.
Additionally, foreign exchange rate fluctuations on transactions denominated in
Renminbi other than the functional currency result in gains andlosses that are reflected in our
Consolidated Statement of Income. Our operations are subject to risks typical of
international business, including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures,other regulations and restrictions, and
foreign exchange rate volatility.





Considering the RMB balance of our cash
and cash equivalents as ofSeptember30, 2009, which amounted to
$57.9million, a 1.0% change in the exchange
rates between the Renminbi andthe U.S. dollar would result in an
increase or decrease of approximately $0.6million of the
balance.





Very limited hedging transactions are
available in China to reduce our exposure to exchange rate fluctuations. To
date, we have not entered into any hedging transactions in an effort to
reduce our exposure to foreign currency exchange risk. While we may enter into
hedging transactions in the future, the availability and effectiveness of these
transactions may be limited, and we may not be able to successfully hedge our exposure at all. In
addition, our foreign currency exchange losses may be magnified by PRC exchange
control regulations that restrict our ability to convert Renminbi into foreign
currencies.





Inflation





Inflationary factors, such as
increases in the cost of
our products and overhead costs, could impair our operating results. Although we
do not believe that inflation has had a material impact on our financial
position or results of operations to date, a high rate of inflation in the
futuremay have an adverse effect on our
ability to maintain current levels of gross margin and selling, general and
administrative expenses as a percentage of sales revenue if the selling prices
of our products do not increase with these increased costs.





Interest Rate Risk





We did not experience any material
changes in interest rate exposures during the fiscal quarter endedSeptember30, 2009. Based upon economic
conditions and leading market indicators atSeptember30, 2009, we do not foresee a
significant adverse change
in interest rates in the near future and do not use interest rate derivatives to
manage exposure to interest rate changes.





Currently, we are exposed to interest
rate risk primarily associated with: the New ABN Loan, a variable-rate debt
obligation based on LIBOR,
with the carrying value of $35.0 million which approximates its fair value atSeptember30, 2009.





Concentration of Credit
Risk





We are subject to concentrations of
credit risk consisting primarily of accounts receivable. We perform ongoing credit evaluations with
respect to the financial condition of our debtors, but do not require
collateral. In order to determine the value of our accounts receivable, we
record a provision for doubtful accounts to cover probable credit losses.
Ourmanagement reviews and adjusts this
allowance periodically based on historical experience and its evaluation of the
collectibility of outstanding accounts receivable.





Commodities Risk





Raw milk, imported milk powder and whey
protein are the principal raw materials in the Company’s business, accounting for over 70% of
the Company’s cost of sales. Domestically produced
milk powder and other dairy based ancillary products are also the
Company’s products for commercial sales. As
such, the Company is exposedto the fluctuations in the price of raw
milk, milk powder and whey protein. During the past two years, the rise and fall
in the prices of these commodities have significantly affected the
Company’s business operations and profitability.
A significant risein the prices of these raw materials
will adversely affect the gross margin of the Company’s powdered formula products. In the
meantime, a significant decrease in the price of milk powder may also adversely
affect the gross margin of domestically producedmilk powder and other dairy based
ancillary products for commercial sales.


28


ITEM 4. CONTROLS AND
PROCEDURES





Conclusion Regarding Effectiveness of
Disclosure Controls and Procedures





The Company’s management, with the participation of
the Company’s Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended,or the Exchange Act) as of the end of
the period covered by this report.





Based on such evaluation, the
Company’s Chief Executive Officer and Chief
Financial Officer have concluded that, as ofSeptember30, 2009, the Company’s disclosure controls and procedures were effective to ensure that
the information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is (a) recorded,
processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms and
(b) accumulated and communicated to the Company’s management, including its Chief
Executive Officer and Chief Financial Officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.





Remediation and Changes in Internal
Control over Financial Reporting





As previously reported in the
Company’s Annual Report on Form 10-K for the
fiscal year ended March 31, 2009, management had concluded that as of March 31,
2009, the Company’s internal control over financial
reporting was effective. However, as of March 31, 2009, management concluded
that we still have one significant deficiency and four deficiencies as set forth
below:





Our significant deficiency related
to:



            an inadequate control over cutoff of
      certain marketing expenses, primarily in the category of slotting fees,
      which could result in a material impact on our financial
      statements.


Our deficiencies related
to:



            an incomplete stock count of
      inventory at certain
      warehouses;



            a malfunction of our anti-fraud
      hotline which may lead to ineffective monitoring over fraud
      risk;



            recording of investments outside
      of the months in which they occurred;
and



            an inappropriate delegation of
      authority inthe
      financial reporting process of certain
  subsidiaries.





The Company has discussed the
significant deficiency and deficiencies identified above with the Audit
Committee and has developed and implemented remediation plans to address these
deficiencies. These plans
included improving the cutoff procedures for marketing expenses despite our
largely dispersed sales network, implementing stricter controls to ensure
complete coverage of the inventory stock-taking process, clarifying the
instructions on how touse our anti-fraud hotline, implementing
controls to ensure that all investments are accurately calculated and recorded
in the appropriate months, and revisiting certain job allocations to ensure
proper segregation of duties.





Other than as described above, management does not believe that
there have been any other changes in the Company’s internal control over financial
reporting during the Company’s most recent fiscal quarter, which have
materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial
reporting.


29


PART II


OTHER INFORMATION





ITEM 1. LEGAL
PROCEEDINGS





As of September 30, 2009, the end of the
period covered by this report, the Company was subject to various legal
proceedings and claims
discussed below, as well as certain other legal proceedings and claims that have
not been fully resolved and that have arisen in the ordinary course of business.
Other than as discussed below, in the opinion of management, the Company does
not have a potential liability related to any current
legal proceedings and claims that would individually or in the aggregate have a
material adverse effect on its financial condition or operating results.
However, the results of legal proceedings cannot be predictedwith certainty. The Company intends to
contest each lawsuit vigorously but should the Company fail to prevail in any of
these legal matters or should several of these legal matters be resolved against
the Company in the same reporting period, the operatingresults of a particular reporting
period could be materially adversely affected. Management continues to evaluate
the lawsuits discussed below and based on the stage of these proceedings,
management is unable to reasonably estimate the likelihood of anyloss or the amount or range of any
potential loss that could result from the litigation. Therefore, no accrual has
been established for any potential loss in connection with these
lawsuits.





On January 15, 2009 , a lawsuit was
filed in the U.S. on behalf of 54 Chinese families alleged to be
affected by melamine contamination, against Synutra International, Inc. and
Synutra Inc. in the U.S. District Court for the District of Maryland, alleging
negligent or intentional infliction of personal injury, negligentor intentional infliction of emotional
distress, battery, breach of warranty, fraudulent or negligent
misrepresentation, seeking compensation for punitive damages in the amount of
US$500 million, together with any compensatory damages. We filed a motionin April 2009 to dismiss the case on
grounds of "Forum Non-Convenience,”failure to state a claim, and failure to
join an indispensable party, and the opposition filed a Memorandum of
Opposition to Motion to Dismiss on May 20, 2009.We responded to the Oppositionon June 15, 2009 with an additional
filing. The presiding Judge of the Courtwilldecide, with no time limit, if the
Court will take the case or render its dismissal. To date, the presiding Judge of the
Court has not rendered a decision.




On March
2, 2009, a lawsuit was filed in China on behalf of 54 Chinese families alleged
to be affected by melamine contamination against our subsidiary, Shengyuan
Nutritional Food Co., Ltd. at Qingdao Intermediate People’s Court, seeking
compensation for damages, including medical and other expenses, emotional harm
and punitive damages, for an aggregate amount over US$1.0 million (RMB6.9
million). Further, on April 14, 2009, a lawsuit was filed on behalf of 73
families (including the original 54 families) against our subsidiary,
Shengyuan Nutritional Food Co., Ltd. at Shandong Higher People’s Court on April
14, 2009, seeking compensation for damages of over US$1.7 million (RMB11.3
million). To date, we have not been notified by either court of acceptance
of these above cases.
 
 On July
21, 2009, one of our subsidiaries, Shengyuan Nutritional Food Co., Ltd. was
notified by the municipal People’s Court in Gaomi City, Shandong province, that
the Court had accepted the case of Qiu Fafu and Tai Shijuan vs.
Tu Zhuang Fa Da Store and
Shengyuan Nutritional Food Co., Ltd.  In that Complaint, the
plaintiffs sought damages from Shengyuan Nutritional Food Co., Ltd. based upon
allegations that they purchased baby formula made by Shengyuan Nutritional Food
Co., Ltd. in late September 2008 that “contained melamine that seriously
exceeded standards,” and that the formula caused their child to develop
“multiple kidney stones resulting from baby formula drinking.”  In
response to that Complaint, the Gaomi Municipal People’s Court issued a “Notice
to Respond to Action,” which reflected that the “court had accepted the lawsuit
by Qiu Fafu and Tai Shijuanin a product liabilitydispute.”  Subsequently, Shengyuan Nutritional Food Co., Ltd.
observed the order of the Court and conducted preliminary discoveries for
submission. On September 4, 2009, the plaintiffs applied to the Court to
withdraw the complaint.





ITEM 1A. RISK
FACTORS





For information regarding the risks and
uncertainties affecting our business, please refer to “Part I, Item 1A Risk
Factors”of our Annual
Report on Form 10-K for the fiscal year ended March 31, 2009. There have been no material changes to
these risks and uncertainties during the fiscal quarter endedSeptember30, 2009.


30


ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS





None.





ITEM 3. DEFAULTS UPON SENIOR
SECURITIES





None.





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





None.





ITEM 5. OTHER
INFORMATION





None.


31


ITEM 6. EXHIBITS


EXHIBIT
                  NO.
                
                DOCUMENTDESCRIPTION2.1
                
                Asset
      Purchase Agreement dated as of September 9, 2009 among Heilongjiang
      Baoquanling Shengyuan Dairy Co., Ltd., Heilongjiang Baoquanling Shengyuan
      Dairy Cow Breeding Co., Ltd. and Heilongjiang Wondersun Dairy Co., Ltd.
      (incorporated by reference to Exhibit 2.1 to the Registrant’s Current
      Report on Form 8-K filed on September 15, 2009)3.1
                
                Amended and Restated Certificate
      of Incorporation of Synutra International, Inc. (incorporated by reference
      to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q
      filed on November 11, 2008)3.2
                
                Amended and Restated Bylaws of
      Synutra International, Inc. (incorporated by reference to Exhibit 3.2 to
      the Registrant’s Quarterly Report on Form 10-Q
      filed on November 11, 2008)31.1
                
                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
      amended31.2
                
                Certification of Principal
      Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated
      under the Securities and ExchangeAct of 1934, as
      amended32.1
                
                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)


32


SIGNATURES





Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed onits behalf by
the undersigned thereunto duly authorized.





SYNUTRA INTERNATIONAL,
      INC.Date:November9, 2009
              By:
              /s/ Liang
      ZhangName:Liang
  ZhangTitle:Chief Executive
      Officer


33