**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q/A**





**(Amendment
      No. 2)**





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





For
      the
      quarterly period ended June 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.**





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





2275
      Research Blvd., Suite 500


Rockville,
      Maryland 20850





(301)
      840-3888








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
      July 31, 2006, there were 50,000,713 shares of Common Stock
      outstanding.














EXPLANATORY
      NOTE:




We
      have
      filed Amendment No. 1 to the Synutra International, Inc. (“we”, or the
“Company”) Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
      2006 with the Securities and Exchange Commission (“SEC”) on September 29, 2006.
      Upon management’s further review, we are filing Amendment No. 2 to our Quarterly
      Report on Form 10-Q for the fiscal quarter ended June 30, 2006 to
      further revise information necessary to improve the disclosures as
      follows:





·
            The
                Consolidated Statements of Income for the three months ended June
                30, 2006
                and 2005 have been restated to reclassify certain sales and related
                costs
                of nutritional supplement ingredients, anhydrous milk-fat, non-fat
                dry
                milk, and toll packaging and blending services as part of revenue
                and cost
                of sales instead of other income (expense). Disclosures in Item 2
                MD&A
                have been accordingly updated to reflect such
                reclassification.





·
            The
                Company has decided to present the Consolidated Statement of Shareholders’
                Equity for the three months ended June 30, 2006 as required by the
                SEC,
                and waived to present the Consolidated Statement of Shareholders’ Equity
                for the three months ended June 30, 2005. There has been no change
                in the
                Consolidated Statement of Shareholders’ Equity for the three months ended
                June 30, 2006.





·
            Disclosures
                have been added to Note 2 to the Consolidated Financial Statements
                to
                clearly describe the return rights of distributors and retailers.
                Related
                disclosures have been revised to resolve a confusion that had mixed
                the
                discussion of a sales expense provision together with product return
                policy discussions.





·
            Disclosures
                have been added to Note 8 to the Consolidated Financial Statements
                to
                elaborate upon how the Company evaluated the related
                parties.





Except
      as
      described above, all other information is unchanged and reflects the disclosures
      made at the time of the original filings of our Form 10-Q filed with SEC on
      August 7, 2006 and Form 10-Q/A Amendment No. 1 filed with SEC on September
      29,
      2006 (collectively, the “Original Filings”). This Form 10-Q/A does not otherwise
      reflect events occurring after the Original Filings or otherwise modify or
      update these disclosures. Accordingly, this Form 10-Q/A should be read in
      conjunction with our filings with the SEC subsequent to the Original
      Filings.










**SYNUTRA
      INTERNATIONAL, INC.**


**FORM
      10-Q/A**


For
      the
      Quarter Ended June 30, 2006





**INDEX**




PART
                I. FINANCIAL INFORMATIONItem
                1. Consolidated Financial Statements:Condensed
                Consolidated Balance Sheets as of June 30, 2006 (restated, unaudited)
                and
                March 31, 2006 (restated, audited)
            
            3
                -4Consolidated
                Statements of Income for the three months ended June 30, 2006 and
                2005 (restated, unaudited)
            
            5Consolidated
                Statement of Shareholders’ Equity for the three months ended June 30, 2006
                (restated, unaudited)
            
            6Consolidated
                Statements of Cash Flows for the three months ended June 30, 2006
                and 2005
                (restated, unaudited)
            
            7-8Notes
                to the Consolidated Financial Statements
            
            9-22Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            
            22PART
                II. OTHER INFORMATIONItem
                6. Exhibits
            
            29Signatures
            
            30







**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**


**June
                30,**
            
            **March
                31,****2006**
            
            **2006****ASSETS**
            
            **(restated,**
              **unaudited)**
            
            **(restated,**
              **audited)****Current
                Assets**Cash and cash equivalents
            
            $
            25,877,244
            
            $
            22,133,869Short term investment - at market
            
            
            42,671
            
            
            42,557Notes receivables
            
            
            148,955
            
            
            —Trade receivables, net of provisions
            
            
            8,287,013
            
            
            2,539,717Inventories net of provisions
            
            
            8,464,441
            
            
            11,789,433Advances to suppliers
            
            
            2,328,675
            
            
            354,052Other receivables, net of provisions
            
            
            2,993,559
            
            
            2,229,869Due from related parties
            
            
            7,383,290
            
            
            8,602,363


Including:
                Trade receivables
            
            
            35,910
            
            
            2,018,344Other
                receivables
            
            
            1,562,275
            
            
            2,058,250Prepayment
            
            
            5,785,105
            
            
            4,525,769


Deferred expenses
            
            
            79,667
            
            
            125,931**Total
                current assets**
            
            
            **55,605,515**
            
            
            **47,817,791****Property,
                plant and equipment, net**
            
            
            **13,601,653**
            
            
            **13,727,873****Other
                Assets**Intangible assets, net
            
            
            246,937
            
            
            264,562Construction in progress
            
            
            21,693,020
            
            
            21,198,431**TOTAL
                ASSETS**
            
            **$**
            **91,147,125**
            
            $
            83,008,658




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




3


**SYNUTRA
      INTERNATIONAL, INC. AND SUBSIDIARIES**


**(INCORPORATED
      IN THE STATE OF DELAWARE**


**WITH
      LIMITED LIABILITY)**


**CONSOLIDATED
      BALANCE SHEETS**


**June
                  30,**
              
              **March
                  31,****2006**
              
              **2006****LIABILITIES
                  & SHAREHOLDERS' EQUITY**
              
              
              (restated,
                **unaudited)**
              
              
              **(restated,**
                **audited**)******Current
                  Liabilities**Bank loans
              
              $
              17,551,071
              
              $
              13,133,534Notes payable
              
              
              23,200,260
              
              
              19,112,823Trade payables
              
              
              9,312,636
              
              
              12,579,942Advance from customers
              
              
              756,034
              
              
              932,843Other payables
              
              
              5,395,525
              
              
              4,569,873Accrued expenses
              
              
              605,794
              
              
              498,786Tax payables
              
              
              1,910,042
              
              
              1,996,789Due to related parties
              
              
              2,204,319
              
              
              4,301,137


Including:
                Trade payables
            
            
            2,204,319
            
            
            4,301,137


**Total
                current liabilities**
            
            **$**
            **60,935,681**
            
            **$**
            **57,125,726****Long
                term debt**
            
            
            —
            
            
            **4,932,182****Total
                liabilities**
            
            **$**
            **60,935,681**
            
            **$**
            **62,057,909****Minority
                interest**
            
            
            —
            
            
            —**Shareholders'
                equity**Preferred
                Stock ($0.0001 par value; 20,000,000 authorized; 0 issued and
                outstanding)
            
            
            —
            
            
            —Common
                Stock (0.0001 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
            
            
            20,838,996
            
            
            11,618,515Accumulated other comprehensive income
            
            
            1,095,611
            
            
            1,055,397**Total
                shareholders' equity**
            
            **$**
            **30,211,444**
            
            **$**
            **20,950,749****TOTAL
                LIABILITIES AND SHAREHOLDERS' EQUITY**
            
            **$**
            **91,147,125**
            
            **$**
            **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**
                **June
                  30****2006**
              
              **2005****(as
                  restated, see Note 15, unaudited)**
              
              **(as
                  restated, see Note 15, unaudited)****Sales**
              
              $
              49,336,638
              
              $
              21,164,189


Including
                sales to related parties
            
            
            5,420,228
            
            
            1,861,767


Cost
                of sales
            
            
            27,422,672
            
            
            11,655,407


Including
                cost of sales to related parties
            
            
            5,516,179
            
            
            1,583,125


**Gross
                profit**
            
            
            **21,913,966**
            
            
            **9,508,782**Selling
                & distribution expenses
            
            
            5,042,348
            
            
            1,814,977Advertising
                and promotion expenses
            
            
            6,928,074
            
            
            5,257,881General
                & administrative expenses
            
            
            993,542
            
            
            859,501**Income
                from operations**
            
            
            **8,950,002**
            
            
            **1,576,423**Finance
                costs
            
            
            (408,794
            )
            
            (415,286
            )Subsidy
                income
            
            
            1,387,420
            
            
            604,120Interest
                income
            
            
            61,132
            
            
            63,830Other
                income/(expenses)
            
            
            25,356
            
            
            (78,741
            )**Income
                before tax**
            
            
            **10,015,116**
            
            
            **1,750,346**Corporation
                income tax - current
            
            
            794,635
            
            
            25,566**Net
                income before minority interests**
            
            
            **9,220,481**
            
            
            **1,724,780**Minority
                interests
            
            
            —
            
            
            (576
            )**Net
                income attributable to shareholders**
            
            
            **9,220,481**
            
            
            **1,724,204**Other
                comprehensive income/-foreign currency translation
            
            
            40,214
            
            
            26,877**Comprehensive
                income**
            
            
            **9,260,695**
            
            
            **1,751,081****Earning
                per share**Basic
                and diluted
            
            $
            0.18
            
            $
            0.04**Weighted
                average common shares outstanding**Basic
                and diluted
            
            
            50,000,713
            
            
            46,000,000




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
      STATEMENT OF SHAREHOLDERS’ EQUITY**


**(restated,
      unaudited)**


Common
            
            
            
            Additional
            
            
            
            
            
            Accumulated
            
            TotalStock
            
            Share
            
            paid-in
            
            
            
            Retained
            
            comprehensive
            
            Shareholders’outstanding
            
            capital
            
            capital
            
            Reserves
            
            earnings
            
            income
            
            EquityBalance
                at March 31, 2006
            
            
            50,000,713
            
            
            5,000
            
            
            8,226,033
            
            
            45,804
            
            
            11,618,515
            
            
            1,055,397
            
            
            20,950,749Net
                income for the quarter
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            9,220,481
            
            
            —
            
            
            9,220,481Other
                comprehensive income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            40,214
            
            
            40,214Balance
                at June 30, 2006
            
            
            50,000,713
            
            $
            5,000
            
            $
            8,226,033
            
            $
            45,804
            
            $
            20,838,996
            
            $
            1,095,611
            
            $
            30,211,444






(1)
            All
                shares and additional paid-in capital have been restated to reflect
                recapitalization on July 15, 2005.




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**


**Three
                Months ended**
              **June
                30****2006**
            
            **2005****(restated,**
              **unaudited)**
            
            **(restated,**
              **unaudited)****Cash
                Flows from Operating Activities:**Net
                income
            
            $
            9,220,481
            
            $
            1,724,204Adjustments
                to reconcile net income tonet
                cash provided by operating activities:Depreciation
                and amortization
            
            
            371,436
            
            
            358,370Bad
                debt expenses(Income)
            
            
            (18,566
            )
            
            -Gain
                on short term investment
            
            
            (114
            )
            
            (3,891
            )Minority
                interest
            
            
            —
            
            
            576Changes
                in operating assets and liabilities:Notes
                receivable
            
            
            (148,955
            )
            
            (4,470
            )Trade
                receivable
            
            
            (5,728,730
            )
            
            (13,649
            )Inventories
            
            
            3,324,992
            
            
            311,389Advances
                to suppliers
            
            
            (1,974,624
            )
            
            83,834Other
                receivable, net
            
            
            (763,690
            )
            
            (561,641
            )Deferred
                expenses
            
            
            46,265
            
            
            (2,436,600
            )Due
                from related parties
            
            
            1,219,073
            
            
            2,767,135Due
                to related parties
            
            
            (2,096,817
            )
            
            (1,452,258
            )Notes
                payable
            
            
            4,087,438
            
            
            1,329,064Trade
                payable
            
            
            (3,267,307
            )
            
            436,083Advances
                from customers
            
            
            (176,809
            )
            
            855,871Other
                payable & accrued expenses
            
            
            932,661
            
            
            32,061Tax
                payable
            
            
            (86,747
            )
            
            -**Cash
                Provided by Operating Activities**
            
            
            **4,939,986**
            
            
            **3,426,079****Cash
                Flows from Investing Activities:**Acquisition
                of property, plant and equipment
            
            
            (224,551
            )
            
            (1,066,068
            )Cash
                used for construction in progress
            
            
            (494,589
            )
            
            (1,208,507
            )Purchases
                of intangible assets
            
            
            (3,039
            )
            
            (302
            )**Cash
                Used in Investing Activities**
            
            
            (722,179
            )
            
            (2,274,877
            )





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)**


**Three
                Months ended**
              **June
                30****2006**
            
            **2005****(unaudited)**
            
            **(unaudited)****Cash
                Flows from Financing Activities:**Inception
                of bank loans, net
            
            
            
            
            
            1,208,240Repayment
                of bank loans, net
            
            
            (514,646
            )capital
                contribution
            
            
            —
            
            
            470,985**Cash
                Provided By (Used In) Financing Activities**
            
            
            (514,646
            )
            
            **1,679,225****Net
                Change in Cash and Cash Equivalents**
            
            
            **3,703,161**
            
            
            **2,830,427**Effect
                of Exchange Rate Changes on Cash and Cash Equivalents
            
            
            40,214
            
            
            26,877Cash
                and cash equivalents, beginning of period
            
            
            22,133,869
            
            
            16,085,403**Cash
                and cash equivalents, end of period**
            
            $
            25,877,244
            
            $
            18,942,707**Supplementary
                Cash Flows Disclosures**Interest
                paid
            
            $
            344,945
            
            $
            360,243Income
                taxes paid
            
            $
            795,699
            
            $
            7,793




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 June 30, 2006 owned 100% of six
      subsidiary companies in the People’s Republic of China (“PRC” or “China”). These
      six subsidiaries are all principally engaged in different stages of the
      production, distribution, and sales of dairy based infant formulas and other
      nutritional 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 (which include only normal
      recurring adjustments) necessary to present fairly the balance sheet of Synutra
      , Inc. and subsidiaries as of June 30, 2006, and the results of their operations
      and their cash flows for the three month periods ended June 30, 2006 and 2005.
      The results of operations for the three month periods ended June 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.





**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 June 30, 2006, the related consolidated
      statements of income for the three months ended June 30, 2006 and 2005, and
      the
      related consolidated statements of cash flows and stockholders’ equity
      statements for the three months ended June 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:




9





**Name
                of subsidiaries**
            
            June 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





* *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-Jun-06**
            
            **30-Jun-05**
            
            **31-Mar-06**Cash
            
            $
            8,777,152
            
            $
            7,703,052
            
            $
            5,676,616Cash
                restricted
            
            
            17,100,092
            
            
            11,239,654
            
            
            16,457,253Total
            
            $
            25,877,244
            
            $
            18,942,707
            
            $
            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.





**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 $398,577
      and
      $202,401 as at June 30, 2006 and 2005, 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.





10


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





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





**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.





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 is0%, 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 is subject to 33% income
      tax.




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





11









**Revenue
      recognition**




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





Most
      of
      the Company’s mainline product sales are through distributors. The Company’s
      revenue arrangement with all its distributors requires distributor advance
      payment before shipment and delivery


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





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





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





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


On
      top of
      standard distributor pricing arrangements, the Company provides its larger
      distributors with a growth-based incentive mechanism that ties incremental
      discounts to the levels of incremental sales growth attained in the
      corresponding periods. 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.





12


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





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




**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 June 30, 2006 was
      $73,641 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 $246,937 at June 30, 2006 and
      $311,934 at June 30, 2005 respectively





**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 $1,387,420 and
      $604,120 during the three months ended June 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.




13




**June
                30, 2006**Balance
                sheet
            
            
            RMB
            
            
            7.9956
            
            
            to
                US
            
            $
            1.00Operating
                statement
            
            
            RMB
            
            
            8.0063
            
            
            to
                US
            
            $
            1.00**June
                30, 2005**Balance
                sheet
            
            
            RMB
            
            
            8.2765
            
            
            to
                US
            
            $
            1.00Operating
                statement
            
            
            RMB
            
            
            8.2765
            
            
            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 $40,214 and $26,877 for the three months
      ended June 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.




**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 June
      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 $950,728 and $588,181 during the three
      months ended June 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 $6,928,074 and $5,257,881 during the three months ended June
      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 $40,214 and
      $26,877 for the three months ended June 30, 2006 and 2005, respectively.





14




**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:





(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**





None.





**5.
      ACCOUNT RECEIVABLES**





The
      Company's trade receivables as at June 30, 2006 and 2005 are summarized as
      follows:





**June
                30, 2006**
            
            **June
                30, 2005**
            
            **March
                31**,**2006**Trade
                receivables
            
            $
            8,685,590
            
            $
            2,184,284
            
            $
            2,956,860Less:
                Allowance for doubtful accounts
            
            
            (398,577
            )
            
            (202,401
            )
            
            (417,143
            )Trade
                receivables, net
            
            $
            8,287,013
            
            $
            1,981,883
            
            $
            2,539,717





**6.
      PROPERTY, PLANT AND EQUIPMENT**





**June
                30, 2006**
            
            **June
                30, 2005**
            
            **March
                31**,**2006****Cost:**Buildings
                and leasehold improvement
            
            $
            7,433,559
            
            $
            7,348,308
            
            $
            7,313,860Land
                use rights
            
            
            1,668,050
            
            
            1,607,166
            
            
            1,659,542Plant
                and machinery
            
            
            7,317,238
            
            
            6,567,167
            
            
            7,206,411




15




Office
                equipment and furnishings
            
            
            947,166
            
            
            861,796
            
            
            988,330Motor
                vehicles
            
            
            1,237,656
            
            
            1,573,864
            
            
            1,210,97418,603,669
            
            
            17,958,301
            
            
            18,379,117**Less:
                Accumulated depreciation:**Buildings
                and leasehold improvement
            
            
            1,376,661
            
            
            1,079,344
            
            
            1,264,683Land
                use rights
            
            
            122,546
            
            
            83,285
            
            
            113,585Plant
                and machinery
            
            
            2,495,349
            
            
            1,737,303
            
            
            2,306,131Office
                equipment and furnishings
            
            
            323,057
            
            
            367,074
            
            
            336,235Motor
                vehicles
            
            
            684,403
            
            
            893,210
            
            
            630,6105,002,016
            
            
            4,160,216
            
            
            4,651,244Property,
                plant and equipment, net
            
            $
            13,601,653
            
            $
            13,798,085
            
            $
            13,727,873





Depreciation
      expenses relating to property, land, plant and equipment was $350,064 and
      $337,805 for the three months ended June 30, 2006 and 2005,
      respectively.




**7.
      INVENTORIES**





The
      Company's inventories at June 30, 2006 and 2005 are summarized as follows:




**June
                30,2006**
            
            **June
                30,2005**
            
            **March
                31**,**2006**Raw
                Materials
            
            $917,612
            
            $1,054,037
            
            $1,984,520Work
                in Process
            
            
            5,578,816
            
            
            3,324,858
            
            
            7,586,465Finished
                Goods
            
            
            1,291,860
            
            
            1,541,000
            
            
            2,131,552Packing
                Materials & Other Consumables
            
            
            676,153
            
            
            525,737
            
            
            86,896Total
            
            $
            8,464,441
            
            $
            6,445,632
            
            $
            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**





**June
                30, 2006**
            
            **June
                30, 2005**
            
            **March
                31, 2006**Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            $
            514,450
            
            $
            78,946
            
            **$**
            **226,383**Sheng
                Zhi Da Dairy Group Corporation
            
            
            629,693
            
            
            2,924,653
            
            
            (268,349
            )Beijing
                Kelqin Dairy Co. Ltd
            
            
            399,495
            
            
            625,286
            
            
            **1,708,230**St.
                Angel (Beijing Business Service)
            
            
            35,910
            
            
            1,146,200
            
            
            **1,761,265**Beijing
                Honnete Dairy Corporation Ltd
            
            
            5,481,582
            
            
            308,766
            
            
            **4,185,149**Beijing
                Ao Naier Feed Stuff LLC
            
            
            303,524
            
            
            231,466
            
            
            **297,892**Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            
            18,636
            
            
            —
            
            
            **691,793**Total
                Due from Related Companies
            
            $
            7,383,290
            
            $
            5,315,317
            
            **$**
            **8,602,363**





16





**b.
      Due to related parties**




**June
                30, 2006**
            
            **June
                30, 2005**
            
            **March
                31, 2006**Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            $
            1,200,241
            
            $
            1,673,937
            
            $
            705,602Sheng
                Zhi Da Dairy Group Corporation
            
            
            798,162
            
            
            5,682,709
            
            
            2,192,892Beijing
                Kelqin Dairy Co. Ltd
            
            
            205,916
            
            
            -
            
            
            63,909Beijing
                Honnete Dairy Corporation Lrd
            
            
            -
            
            
            -
            
            
            1,338,734Total
                Due to Related Companies
            
            $
            2,204,319
            
            $
            7,356,646
            
            $
            4,301,137





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





**a.
                Due from related
                parties**




**June
                30,2006**
            
            **June
                30,2005**
            
            **March 31, 2006**Trade
                receivables
            
            $
            35,910
            
            $
            552,627
            
            $
            2,018,344Prepayments
                for goods
            
            
            5,785,105
            
            
            1,765,543
            
            
            4,525,769Other
                receivables(other income)
            
            
            1,562,275
            
            
            2,924,653
            
            
            2,058,250Notes
                receivables
            
            
            -
            
            
            72,494
            
            
            -**Total**
            
            $
            7,383,290
            
            $
            5,315,317
            
            **$**
            **8,602,363**





**b.
                Due to related parties**




**June
                30,2006**
            
            **June
                30,2005**
            
            **March
                31, 2006**Trade
                payables
            
            $
            2,204,319
            
            $
            7,356,087
            
            $
            4,301,137Other
                payables
            
            
            -
            
            
            559
            
            
            -**Total**
            
            $
            2,204,319
            
            $
            7,356,646
            
            **$**
            **4,301,137**





Above-mentioned
      entities are considered related parties to the Company because they are
      affiliates of the Company under the common control of the Company’s major
      shareholder. These related parties act only as the Company’s suppliers or
      distributors and there are no other relationships wherein the Company has the
      ability to exercise significant influence over the operating and financial
      policies of these parties.





**9.
      RELATED PARTY TRANSACTIONS**




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




In
      the
      three months ended June 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 Beijing Honnete Dairy Corporation, Ltd.; formulation ingredients
      to Sheng Zhi Da Dairy Group Corporation, and Heilongjiang Baoquanling Sheng
      Yuan
      Dairy Co., Ltd.; and the Company’s name brand products to St Angel (Beijing
      Business Service) and Luding Xueyuan for direct sales, catalogue sales, and
      regional retail outlets distribution. Terms of all the sales are at market
      price.





17




**Sales
      to related parties**




**Three
                Months ended**
              **June
                30,2006**
            
            **Three
                Months ended**
              **June
                30,2005**St.
                Angel (Beijing Business Service)
            
            
            31,776
            
            
            250,134Beijing
                Ludin Xueyuan Trading Co. Ltd
            
            
            15,932
            
            
            91,366Total
            
            $
            47,708
            
            $
            341,500




**Other
      income to related parties**





**Three
                Months ended**
              **June
                30,2006**
            
            **Three
                Months ended**
              **June
                30,2005**Beijing
                Kelqin Dairy Co. Ltd
            
            $
            378,526
            
            
            507,784Sheng
                Zhi Da Dairy Group Corporation
            
            
            -
            
            
            353,621Heilongjiang
                Baoquanling Shen Yuan Dairy Co. Ltd
            
            
            836,306
            
            
            563,269Beijing
                Honnete Dairy Corporation Ltd
            
            
            4,157,688
            
            
            95,593Total
            
            $
            5,372,520
            
            $
            1,520,267





In
      the
      three months ended June 30, 2006 and 2005, the Company’s purchases from related
      parties included whey protein powders from Beijing Kelgin Dairy Co. Ltd.,
      Beijing Ao Naier Feed Stuff LLC and Beijing Honnete Dairy Corporation Ltd;
      various ingredients and materials (packaging, etc.) from Sheng Zhi Da Dairy
      Group Corporation; and spray-dried milk powder from Heilongjiang Baoquanling
      Sheng Yuan Dairy Co. Ltd.. Terms of these transactions are all done at market
      prices.





**Purchases
      from related parties**




**Three
                months ended**
              **June
                30, 2006**
            
            **Three
                months ended**
              **June
                30, 2005**Beijing
                Kelqin Dairy Co. Ltd
            
            $
            157,678
            
            $
            921,657Sheng
                Zhi Da Dairy Group Corporation
            
            
            -
            
            
            617,819Heilongjiang
                Baoquanling Sheng Yuan Dairy Co.
            
            
            3,354,660
            
            
            2,158,034Beijing
                Honnete Dairy Corporation Ltd
            
            
            1,159,260
            
            
            970,682Beijing
                Ao Naier Feed Stuff LLC
            
            
            45,923
            
            
            -Beijing
                Sheng Long Media Co. Ltd
            
            
            -
            
            
            22,685Total
            
            $
            4,717,521
            
            $
            4,690,877




18




**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.





Intangible
      assets consist of the follow:





**June
                30, 2006**
            
            **June
                30, 2005**
            
            **March
                31, 2006**Gross
                Carrying
              Amount
            
            Accumulated
              Amortization
            
            Gross
                Carrying
              Amount
            
            Accumulated
              Amortization
            
            Gross
                Carrying
              Amount
            
            Accumulated
              AmortizationComputer
                software and applications
            
            $
            437,152
            
            $
            190,215
            
            $
            411,083
            
            $
            99,149
            
            $
            426,430
            
            $
            161,868**Total
                intangible assets**
            
            
            437,152
            
            
            190,215
            
            
            411,083
            
            
            99,149
            
            
            426,430
            
            
            161,868





Amortization
      expenses for the three months ended June 30, 2006 and 2005 was $21, 372 and
      $20,565 respectively





**11.
      BANK LOANS**





As
      at
      June 30, 2006 and 2005, the Company had short-term loans from banks in the
      amount of $17,551,071 and $13,508,125 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 $9.95 million during the three months ended June 30, 2006
      and
      2005, 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 June 30,2006 and 2005,respectively





**Three
                months ended**
              **June
                30, 2006**
            
            **Three
                months ended**
              **June
                30, 2005**United
                States
            
            $
            26,211
            
            $
            68,116PRC
            
            
            9,988,905
            
            
            1,682,230Total
            
            $
            10,015,116
            
            $
            1,750,346





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 June 30, 2006 and 2005,
      respectively, are summarized as follows:




19




**Three
                months ended**
              **June
                30, 2006**
            
            **Three
                months ended**
              **June
                30, 2005**Current
            
            $
            794,635
            
            $
            25,566Total
            
            $
            794,635
            
            $
            25,566





**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 June 30, 2006****Income**
            
            **Shares**
            
            **Per-Share****(Numerator)**
            
            **(Denominator)**
            
            **Amount****Basic
                EPS**Income
                available to common stockholders
            
            $
            **9,220,481**
            
            
            **50,000,713**
            
            **$**
            **0.18****Effect
                of Dilutive Securities**Warrants
                and options
            
            
            -
            
            
            -Convertible
                preferred stock
            
            
            -
            
            
            -**Diluted
                EPS**Income
                available to common stockholders + assumed conversions
            
            $
            **9,220,481**
            
            
            **50,000,713**
            
            **$**
            **0.18**





**14.
      COMMITMENTS AND CONTINGENCIES**





**A.
      CAPITAL COMMITMENTS**





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





**B.
      LEASE COMMITMENTS**





The
      lease
      commitments of the Company as at June 30, 2006 and 2005 were as follows:




20




**Expiration
                date**
            
            **Monthly**
              **payment**
            
            **Mar-07**
            
            **Mar-08**
            
            **Mar-09**
            
            **Mar-10**
            
            **Mar-11**Office
                facilities in Beijing (SOHO)
            
            
            20-Apr-05
            
            
            -
                14-Dec-07
            
            $
            7,239
            
            $
            86,863
            
            $
            57,909
            
            
            —
            
            
            —
            
            
            —Office
                facilities in Beijing (SOHO 2903-2905)
            
            
            15-Dec-04
            
            
            -
                14-Dec-07
            
            
            10,975
            
            
            131,700
            
            
            87,800
            
            
            —
            
            
            —
            
            
            —Office
                facilities in Beijing
            
            
            1-Jan-06
            
            
            -
                31-Dec-07
            
            
            3,950
            
            
            47,400
            
            
            35,550
            
            
            —
            
            
            —
            
            
            —Warehouses
                in Qingdao
            
            
            21-Nov-05
            
            
            -
                20-May-06
            
            
            2,640
            
            
            4,400
            
            
            —
            
            
            —
            
            
            —
            
            
            —Warehouses
                in Qingdao
            
            
            21-Nov-05
            
            
            -
                10-May-06
            
            
            1,401
            
            
            1,868
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Total
                rent expenses**
            
            
            
            
            
            
            
            
            
            
            **$**
            **272,230**
            
            **$**
            **181,258**
            
            
            —
            
            
            —
            
            
            —





**C.
      LEGAL PROCEEDINGS**





N/A





**15.
      RESTATEMENT**





As
      noted
      in the Company’s Form 10-Q/A Amendment No. 1 for the fiscal quarter ended June
      30, 2006 filed with the Securities and Exchange Commission (“SEC”) on September
      29, 2006,  the
      financial statements for the period ended June 30, 2006 have been restated
      to
      give effect to the fair value of the 2,879,500 shares of common stocks issued
      to
      consultants for the services related to the recapitalization transaction of
      the
      company going public. The financial statement for the periods ended June 30,
      2006 and 2005 have also been restated to reflect the historical shares of common
      stock of Vorsatech that were issued and the related earnings per share for
      the period prior to the merger. The effects on current liabilities,
      additional paid in capital, retained earnings, earnings per share, and weighted
      average common shares outstanding are summarized as follows:





Current
                Liabilities as of
              June
                30, 2006
            
            Additional
                Paid In Capital as of
              June
                30, 2006
            
            Retained
                Earnings as of
              June
                30, 2006As
                previously stated
            
            $
            60,918,320
            
            $
            7,676,394
            
            $
            21,405,996Stock
                compensation and recapitalization
            
            $
            17,361
            
            $
            549,639
            
            
            ($567,000
            )Restated
            
            $
            60,935,681
            
            $
            8,226,033
            
            $
            20,838,996





For
                the three months ended
              June
                30, 2006
            
            For
                the three months ended
              June
                30, 2005Earnings
                per share as previously stated
            
            $
            0.18
            
            $
            0.03Earnings
                restated
            
            $
            0.18
            
            $
            0.04Weighted
                average common shares outstanding as previously stated
            
            
            50,000,713
            
            
            50,000,713Weighted
                average common shares outstanding restated
            
            
            50,000713
            
            
            46,000,000





The
      weighted average common shares outstanding have been restated to reflect the
      actual time outstanding of common shares issued in connection with the
      recapitalization transaction of the company.





Subsequent
      to the filing of its Form 10-Q/A Amendment No. 1 for the fiscal quarter ended
      June 30, 2006, the Company conducted further review and as a result, is filing
      Form 10-Q/A Amendment No. 2 to revise information necessary to improve the
      disclosures as follows:




21




·
            The
                Consolidated Statements of Income for the three months ended June
                30, 2006
                and 2005 have been restated to reclassify certain sales and related
                costs
                of nutritional supplement ingredients, anhydrous milk-fat, non-fat
                dry
                milk, and toll packaging and blending services as part of revenue
                and cost
                of sales instead of other income (expense).





·
            The
                Company has decided to present the Consolidated Statement of Shareholders’
                Equity for the three months ended June 30, 2006 as required by the
                SEC,
                and waived to present the Consolidated Statement of Shareholders’ Equity
                for the three months ended June 30, 2006. There has been no change
                in the
                Consolidated Statement of Shareholders’ Equity for the three months ended
                June 30, 2006.





·
            Disclosures
                have been added to Note 2 to the Consolidated Financial Statements
                to
                clearly describe the return rights of distributors and retailers.
                Related
                disclosures have been revised to resolve a confusion that had mixed
                the
                discussion of a sales expense provision together with product return
                policy discussions.





·
            Disclosures
                have been added to Note 8 to the Consolidated Financial Statements
                to
                elaborate upon how the Company evaluated the related
                parties.





The
      following items in the Consolidated Statements of Income have been restated
      as
      follows:





**Three
                Months Ended June 30, 2006**
            
            **Three
                Months Ended June 30, 2005****Previously
                Reported**
            
            **Restated**
            
            **Previously
                Reported**
            
            **Restated**Sales
            
            $
            42,676,120
            
            $
            49,336,638
            
            $
            17,401,827
            
            $
            21,164,189Including
                sales to related parties
            
            
            47,708
            
            
            5,420,228
            
            
            341,500
            
            
            1,861,767Cost
                of sales
            
            
            20,644,247
            
            
            27,422,672
            
            
            8,456,140
            
            
            11,655,407Including
                cost of sales to related parties
            
            
            23,091
            
            
            5,516,179
            
            
            165,969
            
            
            1,583,125Gross
                profit
            
            
            22,031,873
            
            
            21,913,967
            
            
            8,945,687
            
            
            9,508,782Income
                from operations
            
            
            9,067,909
            
            
            8,950,002
            
            
            1,013,328
            
            
            1,576,423Other
                income/(expenses)
            
            
            (92,551
            )
            
            25,356
            
            
            484,355
            
            
            (78,740
            )







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





22


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.





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.





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.





23


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.





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




**Sales**





Sales
      for
      the three months ended June 30, 2006 increased by $28,172,450 or 133% to
      $49,336,638 from $21,164,189 for the three months ended June 30, 2005.





Sales
      increased due to greater market penetration as a result of various measures
      including changes made by management to incentive programs and policies
      affecting the Synutra sales force. Such changes strengthened promotional efforts
      in the medium-sized city markets and rural markets of China by modifying sales
      force incentive programs through aligning rewards with sales performance.





24


The
      sales
      of traditional main products, such as the dairy based nutritional products
      for
      infants, children and adults under its brand names of Super, U-Smart, U-Strong,
      and National Standards, mostly contributed to the increasing trend of
      revenue.




a.
            The
                tons sold of such products increased 2,204 tons for the three months
                ended
                June 30, 2006, resulting in $10,951,921 increase of gross sales.





b.
            The
                average selling price also contributed to the increase of gross sales.
                For
                the period ended June 30, 2006, the average selling price increased
                $881
                per ton, resulting in an increase of $3,504,923 in gross sales.





c.
            Sales
                growth attributable to combined factor of the increase of the volume
                and
                the price was $2,205,839;d.
            New
                product launched contributed $8,661,610 in gross sales growth.e.
            Further
                contributing to the sales growth is an increase of $2.8 million from
                processing and packaging of nutritional supplement ingredients, anhydrous
                mild-fat, non-fat dry milk, and toll packaging and blending services.
                .





For
      the
      three months ended June 30, 2006, the Company realized and earned close to
      99.6%
      of the $43 million of traditional main products through its wholesale
      distributor networks and about 0.4% through the supermarket retailers. Of the
      total $17.4 million of main products sales earned in the 3 months period ended
      June 30, 2005, about 98.5% was from distributors and about 1.5% 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 June 30, 2006 increased to $27,422,672 from
      $11,655,407 for the three months ended June 30, 2005. The 135% increase in
      cost
      of sales of $15,767,265 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 2,204 tons sold of the traditional main products resulted in
      $5,321,911 increase of cost. The average cost per unit decreased by $109 per
      metric ton, resulting in $381,789 cost reduction for the three months ended
      June
      30, 2006. Additionally, the combined factor of production volume and reduction
      of unit cost led to $240,286 decline of cost of products sold. The launch of
      new
      products accounted for $7,488,280 in the total cost of sales for the three
      months ended June 30, 2006. Further contributing to the cost of sales growth
      is
      an increase of $3.6 million from processing and packaging of nutritional
      supplement ingredients, anhydrous mild-fat, non-fat dry milk, and toll packaging
      and blending services. .




25


**Gross
      Profit**





Gross
      profit was $21,913,967 or 44% of sales for the three months ended June 30,
      2006,
      compared to $9,508,782 or 45% of sales for the three months ended June 30,
      2005.
      It was an increase of $12,405,185or 130%.





The
      sales
      of traditional main products mostly contributed $20,908,544 or 95% of gross
      profits for the three months ended June 30, 2006. Such main products contributed
      $8,945,687 or 94% gross profits for the three months ended June 30, 2005.





With
      sales increasing in the three months ended June 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 $3,227,371 or 177.82% to $5,042,348
      for
      the three months ended June 30, 2006, as compared to $1,814,977 for the three
      months ended June 30, 2005. The increase in selling and distribution expenses
      in
      the three months ended June 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 major components of such expenses such as wages,
      supermarket expenses and service expenses. ** The
      increase in total compensation to the sales force constitutes most of the
      increase in selling and distribution expenses.





**Advertising
      and Sales Promotion**





Advertising
      and sales promotion increased by $1,670,193 or 31.77% to $6,928,074 for the
      three months ended June 30, 2006, as compared to $5,257,881 for the three months
      ended June 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**
              **June
                30, 2006**
            
            **Three
                months ended**
              **June
                30, 2005**
            
            **change
                in $**
            
            **change
                in %**Advertising
            
            $
            715,878
            
            $
            691,881
            
            $
            23,997
            
            
            3.47
            %Sales
                promotion
            
            
            6,212,196
            
            
            4,566,000
            
            
            1,646,196
            
            
            36.05
            %**Totals**
            
            **$**
            **6,928,074**
            
            **$**
            **5,257,881**
            
            $
            1,670,193
            
            
            **31.77**
            **%**





**General
      and Administrative Expenses**





General
      and administrative expenses increased by $134,041 or 15.6% to $993,542 for
      the
      three months ended June 30, 2006, as compared to $859,501 for the three months
      ended June 30, 2005. The major increases of general and administrative expenses
      were for staff salaries, management expenses and expenses relating to the
      Company’s public status.




**Income
      from Operations**





Based
      on
      the sales increase of $28.1 million or 133% and the cost of sales increase
      of
      $15.8 million or 135% for the three months ended June 30, 2006, gross profit
      was
      up by $12.4 million or 130% compared to the three months ended June 30, 2005.
      In
      the meantime, operational expenses also increased by approximately $5 million
      for the three months. As a result, income from operations was $8,950,002 for
      the
      three months ended June 30, 2006, as compared to $1,576,423 for the three months
      ended June 30, 2005, an increase of $7.3 million or 468%.





26




**Finance
      costs**





Finance
      costs decreased by $6,492 or 1.56% to $408,794 for the three months ended June
      30, 2006, as compared to $415,286 for the three months ended June 30, 2005.





**Subsidy
      income**





Subsidy
      income from local governments increased by $783,300 to $1,387,420 for the three
      months ended June 30, 2006 as compared to $604,120 for the three months ended
      June 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 (Expenses)**





Other
      income, net was $25,356 for the three months ended June 30, 2006, as compared
      to
      other expenses, net of $78,740 for the three months ended June 30, 2005. These
      other expenses were incurred as a result of costs associated with disposal
      of
      returned products.





**Three
                Months ended**
              **June
                30,2006**
            
            **Three
                Months ended**
              **June
                30,2005**Other
                income
            
            $
            55,129
            
            $
            10,994Other
                expenses
            
            $
            29,772
            
            $
            89,734**Other
                income/(expenses),net**
            
            $
            25,355
            
            $
            (78,740
            )





**Provision
      for Income Taxes**





The
      provision for income taxes, which is computed on a per subsidiary basis, was
      $794,635 and $25,566 for the three months ended June 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 three months ended June 30, 2006
      increased by $7,496,277 or 434.77% to $9,220,481 from $1,724,204 for the three
      months ended June 30, 2005 due to the factors discussed above.





**Earnings
      Per Share**





Basic
      and
      diluted Earnings Per Share were $0.18 for three months ended June 30, 2006
      and
      $0.03 for three months ended June 30, 2005.




**FINANCIAL
      CONDITION**





**LIQUIDITY
      AND CAPITAL RESOURCES**





27




**Cash**





The
      cash
      balance increased by $3,743,375 to $25,877,244 at June 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 $4,939,986, being offset by cash
      spent
      in construction projects on plant and acquisition of fixed assets which amounted
      to$722,179 and repayment of bank loans which amounted to $514,646. The remaining
      $40,214 was the effect of exchange rate changes on cash items.





Cash
      flow
      generated from operations was $4,939,986 for the three months ended June 30,
      2006. Trade receivables increased by $5,728,730 and advances to suppliers
      increased by $1,974,624. Expanded scale of operations from the increase in
      sales
      revenues in the three months ended June 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 $722,179. During this quarter,
      we
      used $494,589 for the construction of a new factory plant and facilities. The
      facilities are expected to be completed in the year 2006 *.* We
      also
      spent around $224,551 for new machinery and equipment.





Cash
      used
      in repayment of bank loans was $514,646.





**Working
      Capital**





Working
      capital increased by $4 million to negative $5.3 million at June 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 91.28% from 83.73% over the period in discussion.





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





The
      Company currently generates its cash flow through operations which it believes
      will be sufficient to sustain operations for at least the next twelve months.
      During the fiscal year ending March 31, 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.




28


**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.




29


**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: February
                7, 2007
            By:
            /s/ Liang
                ZhangName: 
                Liang ZhangTitle:  
                Chief Executive Officer





30