**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)





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





For
      the
      quarterly period ended September 30, 2006





or





** ̈**
            **Transition
                Report Pursuant to Section 13 of 15(d) of the Securities Exchange
                Act of
                1934**





For
      the
      Transition Period From  to





Commission
      File number: 000-50601





**SYNUTRA
      INTERNATIONAL, INC.**


**(Exact name of registrant as specified in its charter)**





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





15200
      Shady Grove Road, Suite 350


Rockville,
      Maryland 20850


**(Address of principal executive offices)**





(301)
      840-3888


**(Registrant’s
      telephone number, including area code)**





Vorsatech
      Ventures, Inc.


**Former
      Name, Former Address and Former Fiscal Year, if Changed Since Last Report**





Check
      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 is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈ Accelerated filer  ̈ Non-accelerated filer x





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





Yes  ̈ No x





As
      of
      September 30, 2006, there were 50,000,713 shares of Common Stock outstanding.











**SYNUTRA
      INTERNATIONAL, INC.**


**FORM
      10-Q**


For
      the
      Quarter Ended September 30, 2006





**INDEX**




PART
                I. FINANCIAL INFORMATIONItem
                1. Consolidated Financial Statements:Condensed
                Consolidated Balance Sheet as of September 30, 2006 (unaudited) and
                March
                31, 2006 (audited)
            
            3Condensed
                Consolidated Statements of Operations for the three and six months
                ended September 30, 2006 and 2005 (unaudited)
            
            5Consolidated
                Statements of Changes in Stockholders' Equity for the three and six
                months
                ended September 30, 2006 and 2005 (unaudited)
            
            6Condensed
                Consolidated Statements of Cash Flows for the three and six months
                ended
                September 30, 2006 and 2005 (unaudited)
            
            7Notes
                to the Condensed Consolidated Financial Statements
            
            9Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            
            24Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            
            37Item
                4. Controls and Procedures
            
            37PART
                II. OTHER INFORMATIONItem
                6. Exhibits
            
            38Signatures
            
            38






2


**PART
      I**


**FINANCIAL
      INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**SYNUTRA
      INTERNATIONAL, INC. AND SUBSIDIARIES**


**(INCORPORATED
      IN THE STATE OF DELAWARE**


**WITH
      LIMITED LIABILITY)**


**CONSOLIDATED
      BALANCE SHEETS**




**September
                30,**
            
            **March
                31,****ASSETS**
            
            **2006**
            
            **2006****(unaudited)**
            
            **(audited)****Current
                Assets**Cash
                and cash equivalents
            
            $
            35,469,377
            
            $
            22,133,869Short
                term investment - at market
            
            
            48,197
            
            
            42,557Notes
                receivables
            
            
            94,832
            
            
            -Trade
                receivables, net of provisions
            
            
            8,396,312
            
            
            2,539,717Inventories,
                net of provisions
            
            
            12,840,825
            
            
            11,789,433Advances
                to suppliers
            
            
            3,720,035
            
            
            354,052Other
                receivables, net of provisions
            
            
            3,751,030
            
            
            2,229,869Due
                from related parties
            
            
            6,768,488
            
            
            8,602,363Including
                Trade receivables
            
            
            1,317,513
            
            
            2,018,344Other
                receivables
            
            
            93,475
            
            
            2,058,250Prepayment
            
            
            5,357,230
            
            
            4,525,769Deferred
                expenses
            
            
            379,610
            
            
            125,931**Total
                current assets**
            
            
            **71,468,707**
            
            
            **47,817,791****Property,
                plant and equipment, net**
            
            
            **13,886,517**
            
            
            **13,727,873****Other
                Assets**Intangible
                assets, net
            
            
            236,323
            
            
            264,562Construction
                in progress
            
            
            25,850,850
            
            
            21,198,431**TOTAL
                ASSETS**
            
            $
            111,442,397
            
            $
            83,008,658




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


3


**CONSOLIDATED
      BALANCE SHEETS (Continued)**




**September
                30,**
            
            **March
                31,****LIABILITIES
                & SHAREHOLDERS' EQUITY**
            
            **2006**
            
            **2006****(unaudited)**
            
            **(audited)****Current
                Liabilities**Bank
                loans
            
            $
            25,709,831
            
            $
            13,133,534Notes
                payable
            
            
            24,330,499
            
            
            19,112,823Trade
                payables
            
            
            9,045,145
            
            
            12,579,942Advance
                from customers
            
            
            1,984,553
            
            
            932,843Other
                payables
            
            
            5,271,276
            
            
            4,569,873Accrued
                expenses
            
            
            2,392,115
            
            
            498,786Tax
                payables
            
            
            2,675,700
            
            
            1,996,789Due
                to related parties
            
            
            2,779,560
            
            
            4,301,137Including
                Trade payables
            
            
            2,284,756
            
            
            4,301,137Advance
                from Customers
            
            
            445,377
            
            
            -Other
                Payables
            
            
            49,427
            
            
            -**Total
                current liabilities**
            
            $
            74,188,678
            
            $
            57,125,726**Long
                term debt**
            
            
            **-**
            
            
            **4,932,182****Total
                liabilities**
            
            $
            74,188,678
            
            $
            62,057,909**Shareholders'
                equity**Preferred
                stock-$.0001 par value; 20,000,000 Authorized; 0 issued and outstanding
            
            
            -
            
            
            -Common
                Stock-$.0001 par value; 250,000,000 authorized; 50,000,713 issued
                and
                outstanding
            
            
            5,000
            
            
            5,000Additional
                paid-in capital
            
            
            8,226,033
            
            
            8,226,033Reserves
            
            
            45,804
            
            
            45,804Retained
                earnings
            
            
            27,268,509
            
            
            11,618,515Accumulated
                other comprehensive income/(loss)
            
            
            1,708,373
            
            
            1,055,397**Total
                shareholders' equity**
            
            $
            37,253,719
            
            $
            20,950,749**TOTAL
                LIABILITIES AND SHAREHOLDERS'**
            
            $
            111,442,397
            
            $
            83,008,658




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


4


**SYNUTRA
      INTERNATIONAL, INC. AND SUBSIDIARIES**


**(INCORPORATED
      IN THE STATE OF DELAWARE**


**WITH
      LIMITED LIABILITY)**





**CONSOLIDATED
      STATEMENTS OF INCOME**




**Three
                Months ended**
              **September
                30,**
            
            **Six
                Months ended**
              **September
                30,****2006**
              **(Unaudited)**
            
            **2005**
              **(Unaudited)**
            
            **2006**
              **(Unaudited)**
            
            **2005**
              **(Unaudited)****Sales**
            
            $
            43,062,815
            
            $
            25,212,421
            
            $
            85,738,935
            
            $
            42,614,248Including
                sales to related parties
            
            
            12,616
            
            
            529,117
            
            
            60,324
            
            
            **870,616**Cost
                of sales
            
            
            18,937,875
            
            
            10,965,478
            
            
            39,582,122
            
            
            19,421,618Including
                cost of sales to related parties
            
            
            5,548
            
            
            230,125
            
            
            28,639
            
            
            396,094**Gross
                profit**
            
            
            **24,124,940**
            
            
            **14,246,943**
            
            
            **46,156,813**
            
            
            **23,192,630**Selling
                & distribution expenses
            
            
            5,194,027
            
            
            3,910,023
            
            
            10,236,375
            
            
            5,725,000Advertising
                and promotion
            
            
            11,640,792
            
            
            6,197,680
            
            
            18,568,866
            
            
            11,455,561General
                & administrative expenses
            
            
            1,323,470
            
            
            2,065,390
            
            
            2,317,012
            
            
            2,924,891**Income
                from operations**
            
            
            **5,966,651**
            
            
            **2,073,850**
            
            
            **15,034,560**
            
            
            **3,087,178**Finance
                costs
            
            
            477,701
            
            
            871,261
            
            
            886,495
            
            
            1,286,547Subsidy
                income
            
            
            1,702,443
            
            
            43,157
            
            
            3,089,863
            
            
            647,277Interest
                income
            
            
            60,168
            
            
            40,230
            
            
            121,300
            
            
            104,060Other
                income/(loss)
            
            
            (170,816
            )
            
            330,175
            
            
            (263,367
            )
            
            814,528**Income
                before tax**
            
            
            **7,080,745**
            
            
            **1,616,150**
            
            
            **17,095,861**
            
            
            **3,366,496**Corporation
                income tax - current
            
            
            651,232
            
            
            279,433
            
            
            1,445,867
            
            
            304,999**Net
                income before minority interests**
            
            
            **6,429,513**
            
            
            **1,336,717**
            
            
            **15,649,994**
            
            
            **3,061,497**Minority
                interests
            
            
            -
            
            
            -
            
            
            -
            
            
            576**Net
                income attributable to shareholders**
            
            
            **6,429,513**
            
            
            **1,336,717**
            
            
            **15,649,994**
            
            
            **3,060,921**Other
                Comprehensive income/(loss)
            
            
            612,761
            
            
            617,128
            
            
            652,975
            
            
            652,197Unrealized
                Loss on Investment
            
            
            -
            
            
            -
            
            
            -
            
            
            (8,192
            )**Comprhensive
                income**
            
            
            **7,042,275**
            
            
            **1,953,845**
            
            
            **16,302,970**
            
            
            **3,704,926****Earning
                per share**Basic
                and diluted
            
            $
            0.13
            
            $
            0.03
            
            $
            0.31
            
            $
            0.06**Weighted
                average common share outstanding**Basic
                and diluted
            
            
            50,000,713
            
            
            49,333,928
            
            
            50,000,713
            
            
            47,666,964





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


5


**SYNUTRA
      INTERNATIONAL, INC. AND SUBSIDIARIES**


**(INCORPORATED
      IN THE STATE OF DELAWARE**


**WITH
      LIMITED LIABILITY)**





**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**


**(unaudited)**


**Common
                  Stock outstanding**
              
              **Registered
                  Capital**
              
              **Additional**
                ****Paid-In****
                **Capital**
              
              **Reserve**
              
              **Retained
                  Earnings (Deficit)**
              
              **Accumulated
                  Comprehensive Income (Loss)**
              
              **Total
                  Stockholder’s Equity****Balance
                  at March 31, 2005**
              
              
              **46,000,000**
              
              **$**
              **4,600**
              
              **$**
              **7,205,809**
              
              **$**
              **45,804**
              
              **$**
              **583,603**
              
              **$**
              **(218,158**
              **)**
              **$**
              **7,621,658**Net
                  Income(Loss)
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              1,724,204
              
              
              -
              
              
              1,724,204Other
                  Comprehensive Income (Loss)
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              26,877
              
              
              26,877Capital
                  Contributions
              
              
              
              
              
              -
              
              
              470,985
              
              
              -
              
              
              -
              
              
              -
              
              
              470,985**Balance
                  at June 30, 2005**
              
              
              **46,000,000**
              
              **$**
              **4,600**
              
              **$**
              **7,676,794**
              
              **$**
              **45,804**
              
              **$**
              **2,307,807**
              
              **$**
              **(191,281**
              **)**
              **$**
              **9,843,724**Acquisition
                  of Vorsatech
              
              
              2,638,713
              
              
              264
              
              
              (17,625
              )
              
              -
              
              
              -
              
              
              -
              
              
              **(17,361**
              **)**Capital
                  stock cancelled
              
              
              (1,517,500
              )
              
              (152
              )
              
              152
              
              
              -
              
              
              -
              
              
              -
              
              
              -Capital
                  stock issued to Financial consultant and finders
              
              
              2,879,500
              
              
              288
              
              
              566,712
              
              
              -
              
              
              -
              
              
              -
              
              
              567,000Capital
                  contribution during the year
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Excess
                  in capital contribution
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  income for the year
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              1,336,717
              
              
              -
              
              
              1,336,717Other
                  comprehensive income/(loss)
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              617,128
              
              
              617,128**Balance
                  at September 30, 2005**
              
              
              50,000,713
              
              $
              5,000
              
              $
              8,226,033
              
              $
              45,804
              
              $
              3,644,524
              
              $
              425,847
              
              $
              12,347,208**Balance
                  at March 31, 2006**
              
              
              **50,000,713**
              
              
              **5,000**
              
              
              **8,226,033**
              
              
              **45,804**
              
              
              **11,618,515**
              
              
              **1,055,397**
              
              
              **20,950,749**Net
                  income for the quarter
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              9,220,481
              
              
              -
              
              
              9,220,481Other
                  comprehensive income/(loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              40,214
              
              
              40,214**Balance
                  at June 30, 2006**
              
              
              **50,000,713**
              
              **$**
              **5,000**
              
              **$**
              **8,226,033**
              
              **$**
              **45,804**
              
              **$**
              **20,838,996**
              
              **$**
              **1,095,611**
              
              **$**
              **30,211,444**Net
                  income for the quarter
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,429,513
              
              
              -
              
              
              6,429,513Other
                  comprehensive income/(loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              612,761
              
              
              612,761**Balance
                  at September 30, 2006**
              
              
              **50,000,713**
              
              **$**
              **5,000**
              
              **$**
              **8,226,033**
              
              **$**
              **45,804**
              
              **$**
              **27,268,509**
              
              **$**
              **1,708,373**
              
              **$**
              **37,253,719**





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


6


**SYNUTRA
      INTERNATIONAL, INC. AND SUBSIDIARIES**


**(INCORPORATED
      IN THE STATE OF DELAWARE**


**WITH
      LIMITED LIABILITY)**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**Six
                Months ended**
              **September
                30,**
            
            **Three
                Months ended**
              **September
                30,****2006**
              **(Unaudited)**
            
            **2005**
              **(Unaudited)**
            
            **2006**
              **(Unaudited)**
            
            **2005**
              **(Unaudited)****Cash
                Flows from Operating Activities:**Net
                income
            
            $
            15,649,994
            
            $
            3,060,921
            
            $
            6,429,513
            
            $
            1,336,716Adjustments
                to reconcile net income tonet
                cash provided by operating activities:Depreciation
                and amortization
            
            
            804,206
            
            
            745,816
            
            
            425,106
            
            
            387,446Bad
                Debt Expenses/£ ̈Income)
            
            
            (44,958
            )
            
            4,214
            
            
            (26,392
            )
            
            4,214Gain
                on short term investment
            
            
            (5,640
            )
            
            7,431
            
            
            (5,527
            )
            
            11,322Minority
                interest
            
            
            -
            
            
            576
            
            
            -
            
            
            -Financial
                consultants and finders fee
            
            
            -
            
            
            567,000
            
            
            -
            
            
            567,000Changes
                in operating assets and liabilities:Notes
                receivable
            
            
            (94,832
            )
            
            27,790
            
            
            54,123
            
            
            32,260Trade
                receivable
            
            
            (5,811,637
            )
            
            (401,871
            )
            
            (82,907
            )
            
            (388,222
            )Inventories
            
            
            (1,051,392
            )
            
            (183,858
            )
            
            (4,376,384
            )
            
            (495,247
            )Advances
                to suppliers
            
            
            (3,365,983
            )
            
            267,784
            
            
            (1,391,360
            )
            
            183,951Other
                receivable, net
            
            
            (1,521,161
            )
            
            (1,025,058
            )
            
            (757,471
            )
            
            (463,417
            )Deferred
                expenses
            
            
            (253,679
            )
            
            (1,366,568
            )
            
            (299,944
            )
            
            1,070,032Due
                from related parties
            
            
            1,833,875
            
            
            (9,725
            )
            
            614,802
            
            
            (2,776,860
            )Due
                to related parties
            
            
            (1,521,577
            )
            
            (496,435
            )
            
            575,241
            
            
            955,823Notes
                payable
            
            
            5,217,677
            
            
            1,572,161
            
            
            1,130,239
            
            
            243,097Trade
                payable
            
            
            (3,534,797
            )
            
            1,795,483
            
            
            (267,491
            )
            
            1,359,400Advances
                from customers
            
            
            1,051,710
            
            
            130,735
            
            
            1,228,519
            
            
            (725,136
            )Other
                payable & accrued expenses
            
            
            2,594,732
            
            
            1,509,086
            
            
            1,662,071
            
            
            1,477,025Tax
                payable
            
            
            678,911
            
            
            -
            
            
            765,658
            
            
            -**Net
                Cash Provided by Operating Activities**
            
            
            **10,625,448**
            
            
            **6,205,483**
            
            
            **5,677,799**
            
            
            **2,779,404****Cash
                Flows from Investing Activities:**Acquisition
                of property, plant and equipment
            
            
            (657,749
            )
            
            (650,411
            )
            
            (433,197
            )
            
            415,657Cash
                used for construction in progress
            
            
            (4,905,305
            )
            
            (5,453,595
            )
            
            (4,410,716
            )
            
            (4,245,089
            )Purchases
                of intangible assets
            
            
            (23,977
            )
            
            35,235
            
            
            (13,275
            )
            
            35,537**Net
                Cash Used in Investing Activities**
            
            
            **(5,587,031**
            **)**
            
            **(6,068,771**
            **)**
            
            **(4,857,188**
            **)**
            
            **(3,793,895**
            **)**





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


7


**SYNUTRA
      INTERNATIONAL, INC. AND SUBSIDIARIES**


**(INCORPORATED
      IN THE STATE OF DELAWARE**


**WITH
      LIMITED LIABILITY)**





**CONSOLIDATED
      STATEMENTS OF CASH FLOW (CONTINUED)**




**Six
                Months ended September 30,**
            
            **Three
                Months ended September 30,****2006**
              **(Unaudited)**
            
            **2005**
              **(Unaudited)**
            
            **2006**
              **(Unaudited)**
            
            **2005**
              **(Unaudited)****Cash
                Flows from Financing Activites:**Inception
                of bank loans, net
            
            
            7,644,115
            
            
            1,584,787
            
            
            8,158,760
            
            
            376,546Repayment
                of bank loans, net
            
            
            -
            
            
            -
            
            
            -
            
            
            -(Excess
                of)/ capital contribution
            
            
            -
            
            
            217,385
            
            
            -
            
            
            (253,601
            )**Net
                Cash Used in Financing Activities**
            
            
            **7,644,115**
            
            
            **1,802,171**
            
            
            **8,158,760**
            
            
            **122,946****Net
                Change in Cash and Cash Equivalents**
            
            
            **12,682,533**
            
            
            **1,938,883**
            
            
            **8,979,371**
            
            
            **(891,546**
            **)**Effect
                of Exchange Rate Changes on Cash and Cash Equivalents
            
            
            652,975
            
            
            644,005
            
            
            612,761
            
            
            617,129Cash
                and cash equivalents, beginning of period
            
            
            22,133,869
            
            
            16,085,403
            
            
            25,877,244
            
            
            18,942,707**Cash
                and cash equivalents, end of period**
            
            **$**
            **35,469,377**
            
            **$**
            **18,668,290**
            
            **$**
            **35,469,377**
            
            **$**
            **18,668,290****Supplementary
                Cash Flows Disclosures**Interest
                paid
            
            $
            771,656
            
            $
            719,547
            
            **$**
            426,711
            
            $
            359,304Income
                taxes paid
            
            $
            1,115,902
            
            $
            304,999
            
            **$**
            320,203
            
            $
            297,206





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


8


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**1.
      DESCRIPTION OF BUSINESS**





The
      Company is a Delaware corporation that at September 30, 2006 owned 100% of
      five
      subsidiary companies in the People’s Republic of China (“PRC” or “China”). These
      five subsidiaries are all principally engaged in different stages of the
      production, distribution, and sales of dairy based pediatric and adult nutrition
      products. The Company’s extensive sales network covers 24 provinces, 227 cities,
      and more than 800 counties throughout China. In 2004, the Company’s infant
      formula market share was rated number eight among international manufacturers
      and number three among domestic manufacturers in China. The Company’s fiscal
      year end is March 31.





**2.
      CRITICAL ACCOUNTING POLICIES AND ESTIMATES**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with generally accepted accounting principles for interim
      financial information and with the instructions to Form 10-Q. Accordingly,
      they
      do not include all of the information and footnotes required by generally
      accepted accounting principles for complete financial statements and related
      notes.





In
      the
      opinion of management, the accompanying unaudited condensed consolidated
      financial statements contain all adjustments necessary to present fairly the
      balance sheet of Synutra International, Inc. and subsidiaries as of September
      30, 2006, and the results of their operations and their cash flows for the
      three
      and six month periods ended September 30, 2006 and 2005. The results of
      operations for the three and six month periods ended September 30, 2006 and
      2005
      are not necessarily indicative of the results to be expected for the entire
      year. The condensed consolidated balance sheet information as of March 31,
      2006
      was derived from the audited Fiscal 2005 Annual Report. These financial
      statements should read in conjunction with that report.





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





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





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





9


**Accounting
      method**





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





**Principles
      of consolidation**





The
      consolidated financial statements as of September 30, 2006, the related
      consolidated statements of income for the three and six months ended September
      30, 2006 and 2005, and the related consolidated statements of cash flows and
      stockholders’ equity statements for the three and six months ended September 30,
      2006 and 2005 are unaudited. All significant inter-company balances and
      transactions have been eliminated in the consolidation.





The
      following companies are consolidated for financial statement presentation:




**Name
                of subsidiaries**
            
            September 30, 2006
            
            **Incorporation
                date**Qingdao
                St. George Dairy Co. Ltd
            
            
            100
            %
            
            Sep-01Qingdao
                Sheng Yuan Dairy Co. Ltd
            
            
            100
            %
            
            Jan-98Heilongjiang
                Loubei Sheng Yuan Food Co. Ltd
            
            
            100
            %
            
            Apr-01Bei’an
                Yipin Dairy Co. Ltd
            
            
            100
            %
            
            Jun-04Qingdao
                Women and Children Nutrition Research Co. Ltd *
            
            
            100
            %
            
            Apr-04Zhangjiakou
                Shen Yuan Co. Ltd **
            
            
            100
            %
            
            Mar-04





*
      Qingdao
      Women and Children Nutrition Research Co, Ltd was dissolved and disposed of
      in
      July 2006.


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





**Cash
      and cash equivalents**





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




**30-Sep-06**
            
            **31-Mar-06**Cash
            
            $
            15,828,210
            
            $
            5,676,616Cash
                restricted
            
            
            19,641,168
            
            
            16,457,253Total
            
            $
            35,469,377
            
            $
            22,133,869





Cash
      restricted is 30%, 50%, or 100% of bank demand deposits used as security against
      notes payables of 3 to 6 months terms. This is used by the Company as a short
      term instrument to reduce short-term interest expenses.





10


**Accounts
      receivable**





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





Trade
      receivables are recognized and carried at the original invoice amount less
      allowance for any uncollectible amounts. An estimate for doubtful accounts
      is
      made when collection of the full amount is no longer probable. Bad debts are
      written off as incurred. The allowance on the doubtful accounts was $372,186
      and
      $417,143 as at September 30, 2006 and March 31, 2006, respectively.





**Inventories**





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





**Property,
      plant and equipment**





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





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





Buildings
                and leasehold improvement
            20
                - 50 yearsPlant
                and machinery
            5
                -
                10 yearsOffice
                equipment and furnishings
            5
                yearsMotor
                vehicles
            5
                years





**Income
      taxes**





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





11


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





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





Heilongjiang
      Luobei Sheng Yuan Dairy Co., Ltd. is under such preferential tax treatment
      until
      December 31, 2010. Accordingly, the applicable enterprise income tax rate is
      30%
      and the local tax rate is3%, resulting in an aggregate tax rate of 33%. The
      subsidiary will not be subject to local income tax prior to 2005, The
      subsidiary’s first cumulative profit-making year was2006.





Bei’an
      Yipin Dairy Co., Ltd. is under such preferential tax treatment until December
      31, 2009. Accordingly, the applicable enterprise income tax rate is30% and
      the
      local tax rate is 3%, resulting in an aggregate tax rate of 33%. The subsidiary
      will not be subject to local income tax prior to 2004. The subsidiary’s first
      cumulative profit-making year was 2005.





Zhangjiakou
      Sheng Yuan Dairy Co., Ltd. is under such preferential tax treatment until
      December 31, 2010. Accordingly, the applicable enterprise income tax rate is
      30%
      and the local tax rate is 3%, resulting in an aggregate tax rate of 33%. The
      subsidiary will not be subject to local income tax prior to 2005. The
      subsidiary’s first cumulative profit-making year was 2006.





Qingdao
      Women and Children Nutrition Research Co. Ltd was subject to 33% income tax.
      This entity was dissolved in July 2006.




12


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




**Name
                of subsidiaries**
            **Period--Tax
                rate**
            **Incorporation
                date**Qingdao
                St. George Dairy Co. Ltd
            2004-2005
            2006-2008
            After2008
            
            Sep-010%
            12%
            24%Qingdao
                Sheng Yuan Dairy Co. Ltd
            all
                term
            Jan-9830%Heilongjiang
                Loubei Sheng Yuan Food Co. Ltd
            Before2005
            2006-2007
            2008-2010
            After2010
            Apr-0133%
            0%
            16.50%
            33%Bei’an
                Yipin Dairy Co. Ltd
            Before2004
            2005-2006
            2007-2009
            After2009
            Jun-0433%
            0%
            16.50%
            33%Qingdao
                Women and Children Nutrition Research Co. Ltd *
            all
                term
            Apr-0433%Zhangjiakou
                Shen Yuan Co. Ltd
            Before2005
            2006-2007
            2008-2010
            After2010
            Mar-0433%
            0%
            16.50%
            33%





*
      Qingdao
      Women and Children Nutrition Research Co, Ltd was dissolved and disposed of
      in
      July 2006.




**Revenue
      recognition**




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





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





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





Product
      returns to the supermarket retailers are charged against current sales revenues.
      These include product returns due to package damages in transportation and
      shelf-life expiration. Majority of the Company’s products carry shelf lives of
      18 to 24 months. Unsold products with expired shelf life are returned and
      deducted from sales revenue. The arrangement meets the revenue recognition
      criteria under FASB Statement of Financial Accounting Standards
      No.48.





13


The
      Company has put in place internal controls to track and assess product returns
      from distributors and retailers. Product returns are verified at the source,
      removed from shelf, and deducted from revenue. The Company evaluates market
      conditions for products or groups of products primarily through the analysis
      of
      third party sell-through and market research data, as well as internally
      generated information. Portions of the sales returns are estimated and recorded
      based on historical sales and returns information. Products that exhibit unusual
      sales or return patterns due to dating, competition or other marketing matters
      are specifically investigated and analyzed as part of the accounting for sales
      return accruals.





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





Most
      of
      the Company’s products are shipped to the distributors upon receipt of payment
      directly from them, and thus assume title of the products immediately. No single
      customer constitutes a significant distributor to the Company by commanding
      more
      than 5% of its total sales.





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




**Construction
      in progress**





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





The
      capitalized interest accrued up to the three months ended September 30, 2006
      was
      $74,460 associated with construction in progress





**Intangible
      assets**





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





The
      net
      carrying amount of the intangible assets was $236,323 as at September 30, 2006
      and $264,562 as at March 31, 2006, respectively





14


**Government
      subsidies**





Subsidies
      from the government are recognized at their fair values when received or there
      is reasonable assurance that they will be received, and all attached conditions
      are complied with. The Subsidies from the government were $1,702,443 and $43,157
      during the three months ended September 30, 2006 and 2005,
      respectively.





**Related
      parties**





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





**Foreign
      currency translation**





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





**September
                30,2006**Balance
                sheet
            
            
            RMB
            
            
            7.91
            
            
            to
                US
            
            $
            1.00Operating
                statement
            
            
            RMB
            
            
            7.95
            
            
            to
                US
            
            $
            1.00**September
                30,2005**Balance
                sheet
            
            
            RMB
            
            
            8.11
            
            
            to
                US
            
            $
            1.00Operating
                statement
            
            
            RMB
            
            
            8.19
            
            
            to
                US
            
            $
            1.00





In
      July
      2005, the PRC began to value the RMB against a basket of currencies of its
      major
      trading partners, including the U.S. This measure has allowed the RMB yuan
      to
      fluctuate within a narrow band vis á vis the U.S. dollars. Since the adoption of
      this managed flexible exchange rate policy, the RMB has been under pressure
      to
      appreciate against the U.S. dollar. This has affected changes in the foreign
      currency translation over the reporting period and is reflected in the
      other comprehensive income / (loss) of $612,761 and $617,128 for the three
      months ended September 30, 2006 and 2005 respectively.





**Use
      of estimates**





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




15


**Fair
      value of financial instruments**





The
      carrying value of financial instruments including cash, receivables, accounts
      payable and accrued expenses and debt, approximates their fair value at
      September 30, 2006 and 2005 due to the relatively short-term nature of these
      instruments.





**Shipping
      and handing**





All
      shipping and handling are expensed as incurred and outbound freight is not
      billed to customers. Shipping and handling expenses are included in selling
      and
      distribution expenses. The expenses were $654,607 and $527,998 during the three
      months ended September 30, 2006 and 2005, respectively





**Advertising
      costs and promotion**





Advertising
      costs and promotion include salaries for all salesmen all over the Mainland
      China and are expensed as incurred. The advertising costs and promotion
      expenses were $11,640,792 and $6,197,680 during the three months ended September
      30, 2006 and 2005, respectively.





**Employees’
      benefits**





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





**Comprehensive
      income/(loss)**





The
      Company has adopted the provisions of Statement of Financial Accounting
      Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS
      No.
      130 establishes standards for the reporting and display of comprehensive income,
      its components and accumulated balances in a full set of general-purpose
      financial statements. SFAS No. 130 defines comprehensive income (loss) to
      include all changes in equity except those resulting from investments by owners
      and distributions to owners, including adjustments to minimum pension
      liabilities, accumulated foreign currency translation, and unrealized gains
      or
      losses on marketable securities. The comprehensive income was $612,761 and
      $617,128 for the three months ended September 30, 2006 and 2005, respectively.





**3.
      CONCENTRATION OF CREDIT RISK**





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





16


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




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





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





**4.
      RECENT PRONOUNCEMENTS**





**FIN
      48**


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





**SAB
      108**


In
      September, 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108 (SAB 108) which provides interpretive guidance
      on
      how the effects of the carryover or reversal of prior year misstatements should
      be considered in quantifying a current year misstatement. SAB 108 is effective
      for fiscal years ending after November 15, 2006 and early application is
      encouraged for any interim period of the first fiscal year ending after that
      date. The Company will adopt SAB 108 in the 4 th quarter
      of its fiscal 2007 and is currently evaluating the impact of adopting SAB 108
      on
      its financial statements.





**FAS
      157**


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





17


**FAS
      158**


In
      September 2006, the FASB also issued
      Statement of Financial Accounting Standards No. 158 “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans, an amendment of FAS
      Statements No. 87, 88, 106, and 132(R)” (FAS 158). FAS
      158
      requires an employer to recognize the over-funded or under-funded status of
      a
      defined benefit postretirement plan as an asset or liability in its statement
      of
      financial position and to recognize changes in that funded status in the year
      in
      which the changes occur through comprehensive income of a business entity.
      This
      statement also requires an employer to measure the funded status of a plan
      as of
      the date of its year-end statement of financial position, with limited
      exceptions. The Company will be required to initially recognize the funded
      status of a defined benefit postretirement plan and to provide the required
      disclosures as of the end of the fiscal year ending after December 15,
      2006, which for the Company will be the end of fiscal 2007. The requirement
      to
      measure plan assets and benefit obligations as of the date of the employer's
      fiscal year-end statement of financial position is effective for fiscal years
      ending after December 15, 2008, or fiscal 2009 for the Company. The
      Company does not currently have a defined benefit pension plan but is currently
      evaluating the possible impact of adopting FAS 158 on its financial
      statements .





**SEC
      Staff’s letter regarding accounting for stock options under APB
      25**


In
      September 2006, SEC issued a Staff letter regarding several common errors in
      the
      past practices related to the granting of stock options under APB 25. This
      letter provided guidance on what constitutes an error and how to correct them.
      The Company has not granted stock options and therefore this new pronouncement
      is not applicable.





**5.
      ACCOUNT RECEIVABLES**





The
      Company's trade receivables as at September 30, 2006 and March 13, 2006 are
      summarized as follows:




**30-Sep-06**
            
            **31-Mar-06**Trade
                receivables
            
            $
            8,768,498
            
            $
            2,956,860Less:
                Allowance for doubtful accounts
            
            
            372,186
            
            
            417,143Trade
                receivables, net
            
            $
            8,386,312
            
            $
            2,539,717





**6.
      PROPERTY, PLANT AND EQUIPMENT**





**30-Sep-06**
            
            **31-Mar-06****Cost:**Buildings
                and leasehold improvement
            
            $
            7,514,556
            
            $
            7,313,860Land
                use rights
            
            
            1,939,264
            
            
            1,659,542Plant
                and machinery
            
            
            6,927,275
            
            
            7,206,411Office
                equipment and furnishings
            
            
            1,635,677
            
            
            988,330Motor
                vehicles
            
            
            1,272,980
            
            
            1,210,97419,289,752
            
            
            18,379,117**Less:
                Accumulated depreciation:**Buildings
                and leasehold improvement
            
            
            1,483,741
            
            
            1,264,683Land
                use rights
            
            
            132,012
            
            
            113,585Plant
                and machinery
            
            
            2,533,279
            
            
            2,306,131Office
                equipment and furnishings
            
            
            523,050
            
            
            336,235Motor
                vehicles
            
            
            731,153
            
            
            630,6105,403,235
            
            
            4,651,244Property,
                plant and equipment, net
            
            $
            13,886,517
            
            $
            13,727,873





Depreciation
      expenses relating to property, land, plant and equipment was $401,219 and
      $408,259 for the three months ended September 30, 2006 and 2005,
      respectively.




18


**7.
      INVENTORIES**





The
      Company's inventories at September 30, 2006 and March 31, 2006 are summarized
      as
      follows:




**30-Sep-06**
            
            **31-Mar-06**Raw
                Materials
            
            $
            2,098,263
            
            $
            1,984,520Work
                in Process
            
            
            8,465,950
            
            
            7,586,465Finished
                Goods
            
            
            1,478,302
            
            
            2,131,552Packing
                Materials & Other Consumables
            
            
            798,310
            
            
            86,896Total
            
            $
            12,840,825
            
            $
            11,789,433





**8.
      DUE FROM/(TO) RELATED PARTIES**





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




A.
      Classification by name of related parties





**a.
      Due from related parties**




**30-Sep-06**
            
            **31-Mar-06**Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            $
            858,292
            
            $
            226,383Sheng
                Zhi Da Dairy Group Corporation
            
            
            808,202
            
            
            (268,349
            )Beijing
                Kelqin Dairy Co. Ltd
            
            
            556,206
            
            
            1,708,230St.
                Angel (Beijing Business Service)
            
            
            338
            
            
            1,761,265Beijing
                Honnete Dairy Corporation Ltd
            
            
            4,208,311
            
            
            4,185,149Beijing
                Ao Naier Feed Stuff LLC
            
            
            306,859
            
            
            297,892Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            
            30,280
            
            
            691,793Total
                Due from Related Companies
            
            $
            6,768,488
            
            $
            8,602,363





19


**b.
      Due to related parties**





**30-Sep-06**
            
            **31-Mar-06**Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            $
            919,735
            
            $
            705,602Sheng
                Zhi Da Dairy Group Corporation
            
            
            1,323,216
            
            
            2,192,892Beijing
                Kelqin Dairy Co. Ltd
            
            
            91,232
            
            
            63,909Beijing
                Honnete Dairy Corporation Ltd
            
            
            445,377
            
            
            1,338,734Total
                Due to Related Companies
            
            $
            2,779,560
            
            $
            4,301,137





B.
      Classification of Related Party Transactions by Nature





**a.
      Due from related parties**





**30-Sep-06**
            
            **31-Mar-06**Trade
                receivables
            
            $
            1,317,513
            
            $
            2,018,344Prepayments
                for goods
            
            
            5,357,230
            
            
            4,525,769Other
                receivables
            
            
            93,745
            
            
            2,058,250**Total**
            
            **$**
            **6,768,488**
            
            $
            8,602,363





**b.
      Due to related parties**





**30-Sep-06**
            
            **31-Mar-06**Trade
                payables
            
            $
            2,284,756
            
            $
            4,301,137Advance
                from Customers
            
            
            445,377
            
            
            -Other
                payable
            
            
            49,427
            
            
            -**Total**
            
            **$**
            **2,779,560**
            
            $
            4,301,137





**9.
      RELATED PARTY TRANSACTIONS**




The
      following related party transactions occurred during the three months ended
      September 30, 2006 and 2005:




In
      the
      three months ended September 30, 2006 and 2005, the Company’s sales to the
      related parties included anhydrous milk fat and non-fat dry milk to Beijing
      Kelgin Dairy Co., Ltd. and Heilongjiang Baoquanling Sheng Yuan Dairy Co., Ltd.;
      and Luding Xueyuan for direct sales, catalogue sales, and regional retail
      outlets distribution. Terms of all the sales are at market price.





20


**Sales
      to related parties**




**Three
                Months ended**
            
            **Three
                Months ended****September
                30, 2006**
            
            **September
                30, 2005**St.
                Angel (Beijing Business Service)
            
            $
            -
            
            $
            375,508Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            
            12,616
            
            
            153,609Total
            
            $
            12,616
            
            $
            529,117




**Other
      income to related parties**




**Three
                Months ended**
            
            **Three
                Months ended****September
                30, 2006**
            
            **September
                30, 2005**Beijing
                Kelqin Dairy Co. Ltd
            
            $
            49,253
            
            $
            1,603,378Sheng
                Zhi Da Dairy Group Corporation
            
            
            -
            
            
            103,894Heilongjiang
                Baoquanling Shengyuan Dairy Co
            
            
            923,816
            
            
            1,387,668Beijing
                Honnete Dairy Corporation Ltd
            
            
            -
            
            
            175,614Total
            
            $
            973,070
            
            $
            3,270,553





In
      the
      three months ended September 30, 2006 and 2005, the Company’s purchases from
      related parties included whey protein powders from Beijing Kelqin Dairy Co.
      Ltd., Beijing Honnete Dairy Corporation Ltd; and spray-dried milk powder from
      Heilongjiang Bao quanling Sheng Yuan Dairy Co. Ltd.. Terms of these transactions
      are all done at market prices.





**Purchases
      from related parties**




**Three
                months ended**
            
            **Three
                months ended****September
                30, 2006**
            
            **September
                30, 2005**Beijing
                Kelqin Dairy Co. Ltd
            
            $
            914,336
            
            $
            125,157Sheng
                Zhi Da Dairy Group Corporation
            
            
            -
            
            
            1,131,217Heilongjiang
                Baoquanling Shengyuan Dairy Co
            
            
            3,419,861
            
            
            1,583,100Beijing
                Honnete Dairy Corporation Ltd
            
            
            2,183,887
            
            
            490,109Total
            
            $
            6,518,084
            
            $
            3,329,583





**10.
      INTANGIBLES**





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





21


Intangible
      assets consist of the follow:




**30-Sep-06**
            
            **31-Mar-06**Gross
                Carrying
            
            Accumulated
            
            Gross
                Carrying
            
            AccumulatedAmount
            
            Amortization
            
            Amount
            
            AmortizationComputer
                software and applications
            
            $
            450,427
            
            $
            214,105
            
            $
            426,430
            
            $
            161,868**Total
                intangible assets**
            
            
            450,427
            
            
            214,105
            
            
            426,430
            
            
            161,868





Amortization
      expenses for the three months ended September 30, 2006 and 2005 was $23,890
      and
      $21,216 respectively





**11.
      BANK LOANS**





As
      at
      September 30, 2006 and March 31, 2006, the Company had short-term loans from
      banks in the amount of $25,709,831 and $13,113,534 bearing interest ranging
      from
      5.576% to 7.488% per annum. Such loans are extendable for terms of no less
      than
      one year to June 2007. The loans were secured by the pledge of certain fixed
      assets held by the Company and its subsidiaries. The value of the fixed assets
      pledged was $11.56 million and $11.56 million as of September 30, 2006 and
      March
      31, 2006, respectively.





There
      are
      no other long term borrowings by the Company at the time of this report.





**12.
      INCOME TAXES**





The
      Company’s income/(loss) before income taxes was comprised of the following for
      the three months ended September 30,2006 and 2005,respectively




**Three
                months ended September 30, 2006**
            
            **Three
                months ended September 30, 2005**United
                States
            
            $
            (176,041
            )
            $
            (52,596
            )PRC
            
            
            7,256,786
            
            
            1,668,746**Total**
            
            $
            7,080,745
            
            $
            1,616,150





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





The
      provisions for income taxes for the three months ended September 30, 2006 and
      2005, respectively, are summarized as follows:




**Three
                months ended September 30, 2006**
            
            **Three
                months ended September 30, 2005**Current
            
            $
            651,232
            
            $
            279,433Deferred
            
            
            -
            
            
            -**Total**
            
            $
            651,232
            
            $
            279,433





22


**13.
      NET INCOME/(LOSS) PER SHARE (EPS)**





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




**For
                the three Months Ended September 30, 2006**
            
            **For
                the six Months Ended September 30, 2006****Income**
            
            **Shares**
            
            **Per-Share**
            
            **Income**
            
            **Shares**
            
            **Per-Share**(Numerator)
            
            **(**Denominator)
            
            **Amount**
            
            (Numerator)
            
            **(**Denominator)
            
            **Amount****Basic
                EPS**Income
                available to common stockholders
            
            **$**
            **6,479,814**
            ****
            ****
            **50,000,713**
            ****
            **$**
            **0.13**
            ****
            **$**
            **15,700,295**
            ****
            ****
            **50,000,713**
            ****
            **$**
            **0.31****Effect
                of Dilutive Securities**Warrants
                and options
            
            
            -
            
            
            -
            
            
            -
            
            
            **-**
            
            
            **-**
            
            
            **-**Convertible
                preferred stock
            
            
            -
            
            
            -
            
            
            -
            
            
            **-**
            
            
            **-**
            
            
            **-****Diluted
                EPS**Income
                available to common stockholders + assumed conversions
            
            **$**
            **6,479,814**
            ****
            ****
            **50,000,713**
            ****
            **$**
            **0.13**
            ****
            **$**
            **15,700,295**
            ****
            ****
            **50,000,713**
            ****
            **$**
            **0.31**





23


**14.
      COMMITMENTS AND CONTINGENCIES**





**A.
      CAPITAL COMMITMENTS**





As
      of
      September 30, 2006, the Company had no significant capital commitments required
      for disclosure. **





**B.
      LEASE COMMITMENTS**





The
      lease
      commitments of the Company as of September 30, 2006 were as follows:


**Expiration
                date**
            
            **Monthly
                payment**
            
            **Mar-07**
            
            **Mar-08**Office
                facilities in Beijing (SOHO 2903)
            
            
            20-Apr-05
            
            
            to
            
            
            14-Dec-07
            
            $
            7,239
            
            $
            43,431
            
            $
            61,528Office
                facilities in Beijing (SOHO 2903-2905)
            
            
            15-Dec-04
            
            
            to
            
            
            14-Dec-07
            
            
            10,975
            
            
            65,850
            
            
            93,287Office
                facilities in Beijing
            
            
            1-Jan-06
            
            
            to
            
            
            31-Dec-07
            
            
            3,950
            
            
            23,700
            
            
            35,550**Total
                rent expenses:**
            **$**
            **132,981**
            
            **$**
            **190,365**




**C.
      LEGAL PROCEEDINGS**





N/A




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





**Organizational
      structure**





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





24


Qingdao
      Sheng Yuan Dairy Co., Ltd. is engaged in the sales and marketing of dairy based
      nutritional products for infants, children and adults under its brand names
      of
      Super, U-Smart, U-Strong, and National Standards. Qingdao Sheng Yuan Dairy
      Co.,
      Ltd. was formed in January 1998 by Sodiaal Industrial Co. Ltd (55%) and Beijing
      Honnete Dairy Co., Ltd.,(45%) an affiliate of Mr. Liang Zhang, the Company’s
      Chief Executive Officer. In December 2003, Sodiaal Industrial Co. Ltd
      transferred 15% of its ownership to Beijing Honnete Dairy Co., Ltd ,and
      transferred 40% of its ownership to Synutra Illinois, In February 2004,Beijing
      Honnete Dairy Co., Ltd, transferred 60% of his ownership to Sheng Zhi Da Dairy
      Corporation ,In February 2005,Sheng Zhi Da Dairy Corporation transferred 60%of
      its ownership to Synutra Illinois, resulting in a 100% of ownership of Qingdao
      Sheng Yuan Dairy Co., Ltd. by Synutra Illinois.





Qingdao
      ST George Dairy Co., Ltd. is engaged in the production, packaging, shipping
      and
      distribution of all of Synutra’s products. Qingdao ST George Dairy Co., Ltd. was
      formed in September 2001 by Synutra Illinois. In March 2004 Synutra Illinois
      transferred 75% of Qingdao St George Dairy Co., Ltd ownership to Sheng Zhi
      Da
      Dairy Corporation and Synutra Illinois retained 25% of the company. In February
      2005 Sheng Zhi Da Dairy Corporation transferred all of its ownership in Qingdao
      St. George Dairy Co., Ltd. (75%) to Synutra Illinois, resulting in a 100%
      ownership of Qingdao St. George Dairy Co., Ltd by Synutra Illinois. In
      September, 2006 Qingdao St. George Dairy Co., Ltd. incorporated into its
      existing operations the research and development functions of the then dissolved
      Qingdao Mother and Infant Nutrition Research and Development Company,
      Ltd.





Beian
      Yi
      Pin Dairy Co., Ltd. (“Beian”) is engaged in the production and processing of
      adult dairy based nutritional products and various milk powder products. Beian
      Yi Pin Dairy Co., Ltd. was formed In June 2004,by Sheng Zhi Da Dairy Corporation
      and Synutra Illinois-. In January 2005, Sheng Zhi Da Dairy Corporation
      transferred 71.26% of its ownership in Beian to Synutra Illinois, resulting
      in a
      100% ownership of Beian Yi Pin Dairy Co., Ltd. by Synutra Illinois





Luobei
      Sheng Yuan Dairy Co., Ltd. (“Loubei”) is engaged in the production and
      processing of Synutra’s products for infants and children under the brand names
      U-Smart, U-Strong, and National Standards under the “Sheng Yuan” label. Loubei
      was formed in April 2001 by Mr. Liang Zhang, and Ms. Xiu Qing Meng. In June
      2003, Mr. Zhang transferred 67% of his ownership to Sheng Zhi Da Dairy
      Corporation. In January 2005, Ms. Xiu Qing Meng transferred 33% of her ownership
      to Synutra Illinois , Sheng Zhi Da Dairy Corporation transferred 67% of its
      ownership to Synutra Illinois, resulting in a 100% ownership of Luobei Sheng
      Yuan Dairy Co., Ltd by Synutra Illinois.





Qingdao
      Mother and Infant Nutrition Research Company Limited is engaged in the research
      and development of various nutritional products for both infants and children
      as
      well as pregnant and lactating women. Qingdao Mother and Infant Nutrition
      Research Company Limited was formed in April 2004 by Sheng Zhi Da Dairy
      Corporation (80%) and Ms. Xiu Qing Meng (20%). In May 2005, Sheng Zhi Da Dairy
      Corporation transferred 80% of its ownership to Synutra Illinois and Ms. Xiu
      Qing Meng transferred 20% of her ownership to Synutra Illinois, resulting in
      a
      100% ownership of Qingdao Mother and Infant Nutrition Research Company Limited
      by Synutra Illinois. In July 2006 Qingdao Mother and Infant Nutrition Research
      Company Limited was dissolved.





25


Chabei
      Sheng Yuan Dairy Co., Ltd. is engaged in the production and processing of all
      of
      Synutra’s products under the brand names Super, U-Smart, U-Strong, and National
      Standards. Chabei Sheng Yuan Dairy Co., Ltd. was formed in February 2002,by
      Ms,
      Xiu Qing Meng(20%) and Sheng Zhi Da Dairy Corporation(80%). In March 2005,
      Ms.
      Xiu Qing Meng transferred 20% of her ownership to Synutra Illinois and Sheng
      Zhi
      Da Dairy Corporation transferred 80% of its ownership to Synutra Illinois,
      resulting in a 100% ownership of Chabei Sheng Yuan Dairy Co., Ltd. by Synutra
      Illinois. In August 2005, Chabei Sheng Yuan Diary Co., Ltd. was merged with
      Zhangjiakou Sheng Yuan Diary Co., Ltd. Zhangjiakou Sheng Yuan Diary Co., Ltd.
      emerged as the surviving entity from the merger.




Zhangjiakou
      Sheng Yuan Dairy Co., Ltd. (“Zhangjiakou”) is engaged in the production and
      processing of all of Synutra’s products under the brand names Super, U-Smart,
      U-Strong, and National Standards. Zhangjiakou Sheng Yuan Dairy Co., Ltd. was
      formed in March 2004 by Sheng Zhi Da Dairy Corporation(40%) and Synutra
      Illinois(60%). In March 2005, Sheng Zhi Da Dairy Corporation transferred 40%
      of
      its ownership to Synutra Illinois, resulting in Synutra Illinois owing 100%
      of
      Zhangjiakou.





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





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





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





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





26


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





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





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





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





**RESULTS
      OF OPERATIONS**





**Three
      Months Ended September 30, 2006 Compared to Three Months Ended September 30,
      2005**




**Sales**





Sales
      for
      the three months ended September 30, 2006 increased by $17,850,394 or 70.8%
      to
      $43,062,815 from $25,212,421 for the three months ended September 30, 2005.





Increase
      in volume of products sold was due in part to greater market penetration as
      a
      result of various measures including changes made by management to incentive
      programs and policies affecting the Synutra sales system. Such change enhanced
      sales force productivity through targeted resource allocation down to the store
      level, and strengthened promotional efforts in the medium sized city markets
      and
      rural markets of China by aligning bonuses with sales performance.





The
      bulk
      of sales was generated from the Company’s mainline dairy-based pediatric and
      adult nutrition products, under the brand names of Super, U-Smart, U-Strong,
      and
      National Standards, which were also mostly responsible for the increases in
      revenue growth.





a.
            The
                tonnage of such products sold increased by 2,126 for the three months
                ended September 30, 2006, resulting in a $10,588,039 increase of
                gross
                sales.





b.
            The
                average selling price for the period ended September 30, 2006 increased
                by
                $836 per ton, resulting in an increase of $3,846,705 in gross sales.




c.
            Sales
                growth attributable to the combined factor of volume and price increase
                was $1,776,900.d.
            New
                product launches contributed $1,638,750 in gross sales
                growth.





27


For
      the
      three months ended September 30, 2006, the Company realized and earned close
      to
      99.26% of its total sales revenue of $43 million through its wholesale
      distributor networks and about 0.74% through the supermarket retailers. Of
      the
      total $25million sales earned in the 3 months period ended September 30, 2005,
      about 98.3% was from distributors and about 1.7% from supermarket
      retailers.





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





**Cost
      of Sales**





Cost
      of
      sales for the three months ended September 30, 2006 increased to $18,937,875
      from $10,965,478 for the three months ended September 30, 2005. The 72.7%
      increase in cost of sales of $7,972,397 was a result of increases in purchases
      of raw materials and other ingredients, as well as increases in processing
      expenses, all in proportion to the production volume increases.





The
      increase of 2,126 tons sold of the traditional main products resulted in
      $4,225,948 increase of cost. The average cost per unit increased by $356 per
      metric ton, resulting in $1,636,838 cost increase for the three months ended
      September 30, 2006. Additionally, the combined factor of production volume
      and
      reduction of unit cost resulted in $756,101 increase of cost of products sold.
      The launch of new products accounted for $1,353,510 in the total cost of sales
      for the three months ended September 30, 2006. All factors contributed to the
      increases in cost of sales.





**Gross
      Profit**





Gross
      profit was $24,124,940 or 56.02% of sales for the three months ended September
      30, 2006, compared to $14,246,943 or 56.51% of sales for the three months ended
      September 30, 2005. It was an increase of $9,877,997 or 69.33%.





The
      sales
      of traditional main products contributed $23,365,666 or 97% of gross profits
      for
      the three months ended September 30, 2006. Such main products contributed
      $13,772,910 or 97% of gross profits for the three months ended September 30,
      2005.





With
      sales increasing in the three months ended September 30, 2006 compared to 2005,
      the Company experienced a significant increase in gross profit. This increase
      was primarily a result of increased volume of products sold and the average
      sales price during the year. Due to implementation of targeted sales incentive
      programs, sales of the higher margin lines of products increased more,
      contributing to the increase in gross margin.





28


**Selling
      and Distribution Expenses**





Selling
      and distribution expenses increased by $1,284,004 or 32.84% to $5,194,027 for
      the three months ended September 30, 2006, as compared to $3,910,023 for the
      three months ended September 30, 2005. The increase in selling and distribution
      expenses in the three months ended September 30, 2006 as compared to 2005 was
      a
      result of increased transportation expenses due to the increase in sales volume,
      in addition to increases in other components of expenses such as wages,
      supermarket expenses and service expenses. ** The
      increase in total compensation to the sales force constitutes most of the
      increase in selling and distribution expenses. The
      total
      compensation to the sales force increased by $1,216,607 from $975,269 in the
      three months ended September 30, 2005 to $2,191,876 in the three months ended
      September 30, 2006. In the meantime shipping and handling expenses increased
      by
      $126,610 from $527,998 in the three months ended September 30, 2005 to $654,608
      in the three months ended September 30, 2006; and travel expenses increased
      by
      $187,455 from $340,454 in the three months ended September 30, 2005 to $527,909
      in the three months ended September 30, 2006.





**Advertising
      and Sales Promotion**





Advertising
      and sales promotion increased by $5,443,112or 87.82% to $11,640,792 for the
      three months ended September 30, 2006, as compared to $6,197,680 for the three
      months ended September 30, 2005 as a result of increased advertising and
      promotional activity expenses. The major components of advertising and sales
      promotion are placement of advertisements with major media outlets and points
      of
      sale and community promotional activities.





**Three
                months ended September 30, 2006**
            
            **Three
                months ended September 30, 2005**
            
            **change
                in $**
            
            **change
                in %**Advertising
            
            $
            2,363,904
            
            $
            2,696,257
            
            $
            (332,353
            )
            
            -12.33
            %Sales
                promotion
            
            
            9,276,888
            
            
            3,501,423
            
            
            5,775,465
            
            
            164.95
            %**Totals**
            
            **$**
            **11,640,792**
            
            **$**
            **6,197,680**
            
            **$**
            **5,443,112**
            
            
            **87.82**
            **%**





**General
      and Administrative Expenses**





General
      and administrative expenses decreased by $741,920 or 35.92% to $1,323,470 for
      the three months ended September 30, 2006, as compared to $2,065,390 for the
      three months ended September 30, 2005.  The
      decrease in general and administrative expenses was due to the consolation
      of
      certain business functions and development of shared services.





**Income
      from Operations**





Based
      on
      the sales increase of $17.85 million or 70.8% and the cost of sales increase
      of
      $7.97 million or 72.7% for the three months ended September 30, 2006, gross
      profit increased by almost $9.88 million or 69.33% compared to the three months
      ended September 30, 2005. In the meantime, operational expenses also increased
      by approximately $5.99 million from $12.17 million to $18.15 million for the
      three months ended September 30, 2006 and 2005. As a result, income from
      operations was $5,966,651 for the three months ended September 30, 2006, as
      compared to $2,073,850 for the three months ended September 30, 2005, an
      increase of $3,982,801 or 187.71%.





29


**Finance
      costs**





Finance
      costs decreased by $393,560 or 45.17% to $477,701 for the three months ended
      September 30, 2006, as compared to $871,261 for the three months ended September
      30, 2005. The decrease in finance costs was due to reduction of borrowing size
      upon maturity of certain loans.





**Subsidy
      income**





Subsidy
      income from local governments increased by $1,659,286 to $1,702,443 for the
      three months ended September 30, 2006 as compared to $43,157 for the three
      months ended September 30, 2005. These subsidies were provided to the Company
      as
      economic incentives and no repayment by the Company is required. The Company
      receives such subsidy from time to time.





**Other
      Income/(Loss)**





Other
      income was $2,907,561 for the three months ended September 30, 2006 as compared
      to $5,000,471 for the same period of 2005. Other expenses were $3,078,377 for
      the three months ended September 30, 2006 as compared to $4,670,296 for the
      same
      three-month period of 2005. The Company generated other income in the three
      months ended September 30, 2006 through sale of premixes and additives,
      deep-discounted resale of qualified product returns (due to packaging damage
      and
      shelf space rotation), and provision of third party toll packaging and blending
      services. In the three months period ended September 30, 2005, other income
      included sale of anhydrous milk fat, non-fat dry milk, premixes and additives,
      and deep-discounted resale of qualified product returns, as well as third party
      toll packaging and blending services. Other expenses were incurred during these
      reporting periods to manufacture and sell the said goods and to provide the
      above-mentioned services. Over the same three-month periods ended September
      30
      of 2006 and 2005, other income decreased by $2,207,090 and other expenses
      decreased by $1,591,919, resulting in a net loss of $170,816 for the three
      months ended September 30, 2006. This was partially due to reclassification
      of
      the dairy ingredient businesses over the reporting periods, in addition to
      relative higher cost of disposal of qualified product returns.





**Three
                Months ended**
              **September
                30, 2006**
            
            **Three
                Months ended**
              **September
                30, 2005**Other
                income
            
            $
            2,907,561
            
            $
            5,000,471Other
                expenses
            
            $
            3,078,377
            
            $
            4,670,296**Other
                income/(loss), net**
            
            $
            (170,816
            )
            $
            330,175





**Provision
      for Income Taxes**





The
      provision for income taxes, which is computed on a per subsidiary basis, was
      $651,232 and $279,433 for the three months ended September 30, 2006 and 2005,
      respectively. The difference in income tax provisions was due to changes in
      the
      status of tax holidays and abatement treatment for the year 2006 for some of
      the
      operating subsidiaries.





30


**Net
      Income Attributed to Shareholders**





Net
      income attributable to shareholders for the three months ended September 30,
      2006 increased by $5,092,796 or 381% to $6,429,513 from $1,336,717 for the
      three
      months ended September 30, 2005 due to the factors discussed above.





**Earnings
      Per Share**





Basic
      and
      diluted Earnings Per Share were $0.13 for three months ended September 30,
      2006
      and $0.03 for three months ended September 30, 2005.





**FINANCIAL
      CONDITION**





**LIQUIDITY
      AND CAPITAL RESOURCES**





**Cash**





The
      cash
      balance increased by $9,592,133 to $35,469,377 at September 30, 2006, as
      compared to $25,877,244 at June 30, 2006. The increase was mainly attributable
      to cash flow from operations in 2006 which amounted to $5,677,799, being offset
      by cash spent in construction projects on plant and acquisition of fixed assets
      which amounted to $4,857,188 and new bank loans which amounted to
      $8,158,760. The remaining $612,761 was the effect of exchange rate changes
      on
      cash items.





Cash
      flow
      generated from operations was $5,677,799 for the three months ended September
      30, 2006. Trade receivables increased by $82,907 and advances to suppliers
      increased by $1,391,360. Expanded scale of operations from the increase in
      sales
      revenues in the six months ended September 30, 2006 resulted in additional
      demand on working capital. Therefore, we experienced increased account
      receivables and inventories to support our increased sales revenues and
      production activities.





Cash
      flows used in investing activities amounted to $4,857,188. During the three
      months, we used $4,410,716 for the construction of a new factory plant and
      facilities. The facilities are expected to be completed in the year ended
      2006 *.* We
      also
      spent around $433,197 for new machinery and equipment.





**Working
      Capital**





Working
      capital increased by $2.6million to negative $2.72million at September 30,
      2006,
      as compared to negative $5.3 million at June 30, 2006. The increase in working
      capital reflects an improvement in the ratio of current assets over current
      liabilities to 96.33% from 91.28% over the period in discussion.





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





31





**Six
      Months Ended September 30, 2006 Compared to Six Months Ended September 30,
      2005**




**Sales**





Sales
      for
      the six months ended September 30, 2006 increased by $43,124,688 or 101.2%
      to
      $85,738,936 from $42,614,248 for the six months ended September 30, 2005.





Increase
      in volume of products sold was due in part to greater market penetration as
      a
      result of various measures including changes made by management to incentive
      programs and policies affecting the Synutra sales system. Such change enhanced
      sales force productivity through targeted resource allocation down to the store
      level, and strengthened promotional efforts in the medium sized city markets
      and
      rural markets of China by aligning bonuses with sales performance.





The
      bulk
      of sales were generated from the Company’s mainline dairy-based pediatric and
      adult nutrition products, under the brand names of Super, U-Smart, U-Strong,
      and
      National Standards, which were also mostly responsible for the increases in
      revenue growth.








a.
            The
                tonnage of such products sold increased by 4,330 tons for the six
                months
                ended September 30, 2006, resulting in $21,539,554 increase of gross
                sales.





b.
            The
                average selling price for the six months ended September 30, 2006
                increased by $911 per ton, resulting in an increase of $7,388,201
                in gross
                sales.





c.
            Sales
                growth attributable to the combined factor of volume and the price
                increase was $3,946,572.d.
            New
                product launches contributed $10,250,361 in gross sales
                growth.





For
      the
      six months ended September 30, 2006, the Company realized and earned close
      to
      99.3% of its total sales revenue of $85.74 million through its wholesale
      distributor networks and about 0.7% through the supermarket retailers. Of the
      total $42.6 million sales earned in the six months ended September30, 2005,
      about 98.4% was from distributors and about 1.6% from supermarket
      retailers.





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





32


**Cost
      of Sales**





Cost
      of
      sales for the six months ended September 30, 2006 increased to $39,582,122
      from
      $19,421,618 for the six months ended September 30, 2005. The 103.8% increase
      in
      cost of sales of $20,160,504 was a result of increases in purchases of raw
      materials and other ingredients, as well as increases in processing expenses,
      all in proportion to the production volume increases.





The
      increase of 4,330 tons sold of the traditional main products resulted in
      $9,403,910 increase of cost. The average cost per unit increased by $154 per
      metric ton, resulting in $1,248,102 cost increase for the six months ended
      September 30, 2006. Additionally, the combined factor of production volume
      and
      reduction of unit cost resulted in $666,702 increase of cost of products sold.
      The launch of new products accounted for $8,841,790 in the total cost of sales
      for the six months ended September 30, 2006. All factors contributed to
      increases in the cost of sales.





**Gross
      Profit**





Gross
      profit was $46,156,813 or 53.83% of sales for the six months ended September
      30,
      2006, compared to $23,192,630 or 54.42% of sales for the six months ended
      September 30, 2005. It was an increase of $22,964,183 or 99.02%.





The
      sales
      of traditional main products contributed $44,274,210 or 95.92% of gross profits
      for the six months ended September 30, 2006. Such main products contributed
      $22,718,597 or 97.96% of gross profits for the six months ended September 30,
      2005.





With
      sales increasing in the six months ended September 30, 2006 compared to 2005,
      the Company experienced an increase in both gross profit and gross margin.
      This
      increase was primarily a result of increased volume of products sold and the
      average sales price during the year. Due to implementation of targeted sales
      incentive programs, sales of the higher margin lines of products increased
      more,
      contributing to the increase in gross margin.





**Selling
      and Distribution Expenses**





Selling
      and distribution expenses increased by $4,511,375 or 78.8% to $10,236.375 for
      the six months ended September 30, 2006, as compared to $5,725,000 for the
      six
      months ended September 30, 2005. The increase in selling and distribution
      expenses in the six months ended September 30, 2006 as compared to 2005 was
      a
      result of increased transportation expenses due to the increase in sales volume,
      in addition to increases in other components of expenses such as wages,
      supermarket expenses and service expenses. ** The
      increase in total compensation to the sales force constitutes most of the
      increase in selling and distribution expenses. The
      total
      compensation to the sales force increased by $2,083,183 from $1,726,417 in
      the
      six months ended September 30, 2005 to $3,809,600 in the six months ended
      September 30, 2006. In the meantime shipping and handling expenses increased
      by
      $151,211 from $1,390,478 in the six months ended September 30, 2005 to
      $1,541,689 in the six months ended September 30, 2006; and travel expenses
      increased by $310,396 from $627,416 in the six months ended September 30, 2005
      to $937,812 in the six months ended September 30, 2006.





33


**Advertising
      and Sales Promotion**





Advertising
      and sales promotion increased by $7,113,305 or 62.1% to $18,568,866 for the
      six
      months ended September 30, 2006, as compared to $11,455,561 for the six months
      ended September 30, 2005 as a result of increased advertising and promotional
      activity expenses. The major components of advertising and sales promotion
      are
      placement of advertisements with major media outlets and points of sale and
      community promotional activities.




**Six
                months ended September 30, 2006**
            
            **Six
                months ended September 30, 2005**
            
            **change
                in $**
            
            **change
                in %**Advertising
            
            $
            3,079,782
            
            $
            3,388,138
            
            $
            (308,356
            )
            
            -9.10
            %Sales
                promotion
            
            
            15,489,084
            
            
            8,067,423
            
            
            7,421,661
            
            
            92.00
            %**Totals**
            
            **$**
            **18,568,866**
            
            **$**
            **11,455,561**
            
            **$**
            **7,113,305**
            
            
            **62.09**
            **%**





**General
      and Administrative Expenses**





General
      and administrative expenses decreased by $607,879 or 20.8% to $2,317,012 for
      the
      six months ended September 30, 2006, as compared to $2,924,891 for the six
      months ended September 30, 2005. The decrease in general and administrative
      expenses was due to the consolation of certain business functions and
      development of shared services.





**Income
      from Operations**





Based
      on
      the sales increase of $43.12 million or 101.2% and the cost of sales increase
      of
      $20.16 million or 103.8% for the six months ended September 30, 2006, gross
      profit increased by almost $22.96 million or 99.02% compared to the six months
      ended September 30, 2005. In the meantime, operational expenses also increased
      by approximately $11.02million for the six months. As a result, income from
      operations was $15,034,560 for the six months ended September 30, 2006, as
      compared to $3,087,178 for the six months ended September 30, 2005, an increase
      of $11,947,382 or 387%.





**Finance
      costs**





Finance
      costs decreased by $400,052 or 31.1% to $886,494 for the six months ended
      September 30, 2006, as compared to $1,286,547 for the six months ended September
      30, 2005. The decrease in finance costs was due to reduction of borrowing size
      upon maturity of certain loans.





34


**Subsidy
      income**





Subsidy
      income from local governments increased by $2,442,586 to $3,089,863 for the
      six
      months ended September 30, 2006 as compared to $647,277 for the six months
      ended
      September 30, 2005. These subsidies were provided to the Company as economic
      incentives and no repayment by the Company is required. The Company receives
      such subsidy from time to time.





**Other
      Income/(Loss)**





Other
      income was $9,623,207 for the six months ended September 30, 2006 as compared
      to
      $5,484,824 for the same period of 2005. Other expenses were $9,886,574 for
      the
      six months ended September 30, 2006 as compared to $4,670,296 for the
      same six month period of 2005. The Company generated other income in the
      six months ended September 30, 2006 through sale of premixes and additives,
      deep-discounted resale of qualified product returns (due to packaging damage
      and
      shelf space rotation), and provision of third party toll packaging and blending
      services. In the six months period ended September 30, 2005, other income
      included sale of anhydrous milk fat, non-fat dry milk, sale of premixes and
      additives, deep-discounted resale of qualified product returns, as well as
      third
      party toll packaging and blending services. Other expenses were incurred to
      manufacture and sell the said goods and to provide the above-mentioned services.
      Over the same six-month periods ended September 30 of 2006 and 2005, other
      income increased by $4,138,383 and other expenses increased by $5,216,278,
      resulting in a net loss of $263,367 for the six months ended September 30,
      2006.
      This was partially due to reclassification of the dairy ingredient businesses
      over the reporting periods, in addition to relatively higher cost of disposal
      of
      qualified product returns.




**Six
                Months ended**
              **September
                30,2006**
            
            **Six
                Months ended**
              **September
                30,2005**Other
                income
            
            $
            9,623,207
            
            $
            5,484,824Other
                expenses
            
            $
            9,886,574
            
            $
            4,670,296**Other
                income/(Loss), net**
            
            $
            (263,367
            )
            $
            814,528





**Provision
      for Income Taxes**





The
      provision for income taxes, which is computed on a per subsidiary basis, was
      $1,445,867 and $304,999 for the six months ended September 30, 2006 and 2005,
      respectively. The difference in income tax provisions was due to changes in
      the
      status of tax holidays and abatement treatment for the year 2006 for some of
      the
      operating subsidiaries.





**Net
      Income Attributed to Shareholders**





Net
      income attributable to shareholders for the six months ended September 30,
      2006
      increased by $12,589,073 or 411.28% to $15,649,994 from $3,060,921 for the
      six
      months ended September 30, 2005 due to the factors discussed above.





35


**Earnings
      Per Share**





Basic
      and
      diluted Earnings Per Share were $0.31 for six months ended September 30, 2006
      and $0.06 for six months ended September 30, 2005.





**FINANCIAL
      CONDITION**





**LIQUIDITY
      AND CAPITAL RESOURCES**





**Cash**





The
      cash
      balance increased by $13,335,508 to $35,469,377 at September 30, 2006, as
      compared to $22,133,869 at March 31, 2006. The increase was mainly attributable
      to cash flow from operations in 2006 which amounted to $10,625,448, being offset
      by cash spent in construction projects on plant and acquisition of fixed assets
      which amounted to $5,587,031 and new bank loans which amounted to
      $7,644,115. The remaining $652,975 was the effect of exchange rate changes
      on
      cash items.





Cash
      flow
      generated from operations was $10,625,448 for the six months ended September
      30,
      2006. Trade receivables increased by $5,811,637 and advances to suppliers
      increased by $3,365,983. Expanded scale of operations from the increase in
      sales
      revenues in the six months ended September 30, 2006 resulted in additional
      demand on working capital. Therefore, we experienced increased account
      receivables and inventories to support our increased sales revenues and
      production activities.





Cash
      flows used in investing activities amounted to $5,587,031. During the six
      months, we used $4,905,305 for the construction of a new factory plant and
      facilities. The facilities are expected to be completed in the year ended
      2006 *.* We
      also
      spent around $657,749 for new machinery and equipment.





**Working
      Capital**





Working
      capital increased by $6.59million to negative $2.72million at September 30,
      2006, as compared to negative $9.3 million at March 31, 2006. The increase
      in
      working capital reflects an improvement in the ratio of current assets over
      current liabilities to 96.33% from 83.7% over the period in discussion.





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





**Subsequent
      Events**





On
      November 6th, 2006, the Company consummated a transaction with the Department
      of
      Finance of Zheng Lan Qi (County) of Inner Mongolia in which the Company acquired
      certain assets owned by them including approximately $ 253,000 in land use
      rights and $3,257,000 in plant and buildings. The transaction was consummated
      in
      order to establish a wholly foreign-owned company to produce milk fat and other
      diary-based food ingredients.





The
      agreement, provided that the effective date of the transaction was when the
      Company received 60% of the non refundable subsidy of RMB 30,000,000
      (approximately $3,800,000). This occurred during the September quarter and
      thus
      the assets were recorded during that period, notwithstanding that the official
      ownership certificates have not yet been obtained. The non refundable subsidy
      was received in 2 installments and was recorded in the periods
      received.





36


**ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
 
 There
        were no material changes in quantitative or qualitative disclosure about
        market
        risk since June 30, 2006.
 
 As
        of
        September 30, 2006, the Company had not entered into any type of hedging
        or
        interest rate swap type transactions.
 
 **ITEM
        4. CONTROLS AND PROCEDURES**
 
 As
        of
        September 30, 2006, the end of the period covered by this report, our Chief
        Executive Officer and our Chief Financial Officer reviewed and evaluated
        the
        effectiveness of our disclosure controls and procedures (as defined in Exchange
        Act Rule 13a-15(e) and 15d-15(e)), which are designed to ensure that
        material information we are required to disclose in our reports filed or
        submitted under the Securities Exchange Act of 1934, as amended (the “Exchange
        Act”) is recorded, processed, summarized, and reported within required time
        periods. Disclosure controls and procedures include, without limitation,
        controls and procedures designed to ensure that information required to be
        disclosed is accumulated and communicated to the Company’s management including
        its Chief Executive Officer and Chief Financial Officer as appropriate to
        allow
        timely decision regarding required disclosures. We have concluded, based
        on that
        evaluation, that as of the end of the period covered by this report, our
        disclosure controls and procedures were effective to ensure that material
        information required to be disclosed by us in reports that we file or submit
        under the Exchange Act is accumulated, recorded, processed, summarized and
        reported within the required time periods and is communicated to our Chief
        Executive Officer and Chief Financial Officer as appropriate to allow timely
        decisions regarding required disclosure.
 
 **CHANGES
        IN INTERNAL CONTROL OVER FINANCIAL REPORTING**
 
 There
        was
        no change in our internal controls over financial reporting that occurred
        during
        the second quarter of fiscal year 2006 covered by this Quarterly Report on
        Form 10-Q that has materially affected, or is reasonably likely to
        materially affect, our internal control over financial reporting.
  37


**PART
      II**


**OTHER
      INFORMATION**





**ITEM
      6. EXHIBITS**





**EXHIBIT
                NO.**
            
            **DOCUMENT
                DESCRIPTION**3.1
            
            Articles
                of Incorporation (1)3.2
            
            Bylaws
                (1)10.1
            
            Share
                Exchange Agreement dated as of June 14, 2005 (2)10.2
            
            License
                and Supply Agreement dated as of September 1st,
                2003 (3)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 amended.31.2
            
            Certification
                of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
                promulgated under the Securities and Exchange Act of 1934, as amended.32.1
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive
                Officer).32.2
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial
                Officer).





(1)
            Incorporated
                herein by reference from the Registrant’s Form 10SB126 filed with the
                Securities and Exchange Commission on June 15, 2005.(2)
            Incorporated
                herein by reference from the Registrant’s Form 8-K filed with Securities
                and Exchange Commission on July 21, 2005.(3)
            Incorporated
                herein by reference from the Registrant’s Form 10-KSB filed with the
                Securities and Exchange Commission on June 29, 2006.




**SIGNATURES**





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


SYNUTRA
                INTERNATIONAL, INC.Date:
              November 10, 2006
            By:
            /s/ Liang
                ZhangName: 
                Liang ZhangTitle:  
                Chief Executive Officer


Date:
              November 10, 2006
            By:
            /s/ Jibin
                ZhangName: 
                Jibin ZhangTitle:  
                Chief Financial Officer




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