**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-Q**
 
 x
              **Quarterly
                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934**
 
 For
        the
        quarterly period ended September 30, 2007
 
 or
  o
                **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(pending legal opinion), 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
        November 12, 2007, there were 54,000,713 shares of Common Stock, par value
        $0.0001 per share, issued and outstanding
  
  **SYNUTRA
        INTERNATIONAL, INC.**
  **FORM
        10-Q**
 For
        the
        Quarter Ended September 30, 2007
 
 **INDEX**
  PART
                  I. FINANCIAL INFORMATIONItem
                  1. Financial Statements (unaudited):Condensed
                  Consolidated Statements of Income for the Three and Six Months Ended
                  September 30, 2007 and 2006
              
              
              3Condensed
                  Consolidated Balance Sheets as of September 30, 2007 and March
                  31,
                  2007
              
              
              4Condensed
                  Consolidated Statements of Cash Flows for the Six Months Ended
                  September
                  30, 2007 and 2006
              
              
              5Notes
                  to the Condensed Consolidated Financial Statements
              
              
              6Item
                  2. Management’s Discussion and Analysis of Financial Condition and Results
                  of Operations
              
              
              14Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              
              
              25Item
                  4T. Controls and Procedures
              
              
              26PART
                  II. OTHER INFORMATIONItem
                  1. Legal Proceedings
              
              
              28Item
                  1A. Risk Factors
              
              
              28Item
                  2. Unregistered Sales of Equity Securities and Use of Proceeds
              
              
              28Item
                  3. Defaults Upon Senior Securities
              
              
              28Item
                  4. Submission of Matters to a Vote of Security Holders
              
              
              28Item
                  5. Other Information
              
              
              28Item
                  6. Exhibits
              
              
              29Signatures
              
              
              30
  2
  **PART
        I**
 **FINANCIAL
        INFORMATION**
 **ITEM
        1. FINANCIAL STATEMENTS**
 **SYNUTRA
        INTERNATIONAL, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF INCOME**
 **(in
        thousands, except earning per share data)**
 **(unaudited)**
 
 **Three
                  Months Ended**
              
              **Six
                  Months Ended****September
                  30,**
              
              **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**(in
                  thousands)Net
                  sales
              
              $
              86,202
              
              $
              45,617
              
              $
              153,694
              
              $
              94,724Cost
                  of sales
              
              
              39,576
              
              
              22,208
              
              
              70,006
              
              
              49,855**Gross
                  profit**
              
              
              **46,626**
              
              
              **23,409**
              
              
              **83,688**
              
              
              **44,869**Selling
                  & distribution expense
              
              
              8,316
              
              
              5,194
              
              
              15,890
              
              
              10,236Advertising
                  and promotion expenses
              
              
              22,006
              
              
              11,060
              
              
              40,454
              
              
              17,534General
                  & administrative expenses
              
              
              3,667
              
              
              1,372
              
              
              6,547
              
              
              2,404Total
                  operating expense
              
              
              33,989
              
              
              17,626
              
              
              62,891
              
              
              30,174**Income
                  from operations**
              
              
              **12,637**
              
              
              **5,783**
              
              
              **20,797**
              
              
              **14,695**Interest
                  expense
              
              
              2,594
              
              
              427
              
              
              4,768
              
              
              772Interest
                  income
              
              
              (848
              )
              
              (60
              )
              
              (1,200
              )
              
              (121
              )Other
                  income, net
              
              
              (223
              )
              
              (156
              )
              
              42
              
              
              (294
              )**Income
                  before provision for income tax**
              
              
              **11,114**
              
              
              **5,572**
              
              
              **17,187**
              
              
              **14,338**Provision
                  for income tax
              
              
              1,334
              
              
              651
              
              
              2,063
              
              
              1,446**Net
                  income before minority interests**
              
              
              **9,780**
              
              
              **4,921**
              
              
              **15,124**
              
              
              **12,892**Minority
                  interests
              
              
              8
              
              
              -
              
              
              12
              
              
              -**Net
                  income attributable to shareholders**
              
              $
              **9,772**
              
              $
              **4,921**
              
              $
              **15,112**
              
              $
              **12,892**Other
                  comprehensive income
              
              
              (1,500
              )
              
              (591
              )
              
              (2,598
              )
              
              (629
              )**Comprehensive
                  income**
              
              
              **11,272**
              
              
              **5,512**
              
              
              **17,710**
              
              
              **13,521****Earning
                  per share—basic**
              
              **$**
              0.18
              
              **$**
              0.10
              
              **$**
              0.29
              
              **$**
              0.26**Earning
                  per share-diluted**
              
              **$**
              0.18
              
              $
              0.10
              
              $
              0.29
              
              $
              0.26**Weighted
                  average common share outstanding-basic**
              
              
              **54,001**
              
              
              **50,001**
              
              
              **52,339**
              
              
              **50,001****Weighted
                  average common share outstanding-diluted**
              
              
              **54,132**
              
              
              **50,001**
              
              
              **52,465**
              
              
              **50,001**
 
 The
        accompanying notes are an integral part of the unaudited condensed consolidated
        financial statements.
  3
  **SYNUTRA
        INTERNATIONAL, INC.**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(in
        thousands, except per share information)**
 **(Unaudited)**
 
 **September 30,**
                **2007**
              
              **March 31,**
                **2007****ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              98,195
              
              $
              20,836Restricted
                  cash
              
              
              5,984
              
              
              12,930Accounts
                  receivable, net of allowance for doubtful accounts of $224 and
                  $241,
                  respectively
              
              
              8,233
              
              
              6,760Inventories
              
              
              33,074
              
              
              16,406Due
                  from related parties
              
              
              12,549
              
              
              11,742Deferred
                  tax assets-current
              
              
              262
              
              
              432Prepaid
                  expenses and other current assets
              
              
              5,903
              
              
              3,477**Total
                  current assets**
              
              
              164,200
              
              
              72,583Property,
                  plant and equipment, net
              
              
              70,142
              
              
              51,472Land
                  use rights, net
              
              
              3,104
              
              
              3,024Deferred
                  tax assets-non-current
              
              
              720
              
              
              —Other
                  assets
              
              
              1,204
              
              
              192**TOTAL
                  ASSETS**
              
              **$**
              239,370
              
              $
              127,271**LIABILITIES
                  AND SHAREHOLDERS' EQUITY****Current
                  Liabilities:**Bank
                  loans
              
              $
              58,038
              
              $
              53,104Accounts
                  payable
              
              
              31,417
              
              
              12,085Due
                  to related parties
              
              
              2,818
              
              
              2,935Advances
                  from customers
              
              
              3,739
              
              
              4,263Tax
                  payables
              
              
              1,921
              
              
              1,329Other
                  current liabilities
              
              
              6,019
              
              
              6,716Current
                  portion of long term debts
              
              
              1,797
              
              
              —**Total
                  current liabilities**
              
              
              105,749
              
              
              80,432Deferred
                  income
              
              
              4,261
              
              
              4,138Other
                  long term liabilities
              
              
              456
              
              
              —**Total
                  liabilities**
              
              
              110,466
              
              
              84,570**Minority
                  interest**
              
              
              375
              
              
              —**Shareholders'
                  equity:**Common
                  Stock, $.0001 par value: 250,000 authorized; 54,001 and 50,001
                   issued and outstanding at September 30, 2007 and March 31,2007,
                  respectively
              
              
              5
              
              
              5Additional
                  paid-in capital
              
              
              76,669
              
              
              8,226Retained
                  earnings
              
              
              46,325
              
              
              31,538Accumulated
                  other comprehensive income
              
              
              5,530
              
              
              2,932**Total
                  shareholders' equity**
              
              
              128,529
              
              
              42,701**TOTAL
                  LIABILITIES AND SHAREHOLDERS' EQUITY**
              
              **$**
              239,370
              
              $
              127,271
 
 The
        accompanying notes are an integral part of the unaudited condensed consolidated
        financial statements.
  4
  **SYNUTRA
        INTERNATIONAL, INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)**
 
 **(in
        thousands)**
 
 **Six
                  Months Ended**
                **September
                  30****2007**
              
              **2006****Cash
                  flow from operating activities:**Net
                  income
              
              $
              15,112
              
              $
              12,892Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Amortization
                  of discount on bank loans
              
              
              2,325
              
              
              —Depreciation
                  and amortization
              
              
              2,014
              
              
              804Bad
                  debt expense
              
              
              (3
              )
              
              (45
              )Gained
                  on short term investment
              
              
              —
              
              
              (6
              )Loss
                  on disposal of property, plant and equipment
              
              
              128
              
              
              —Deferred
                  income tax
              
              
              (129
              )
              
              —Minority
                  interest
              
              
              12
              
              
              —Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (1,813
              )
              
              (5,907
              )Inventories
              
              
              (14,012
              )
              
              (1,051
              )Due
                  from related parties
              
              
              (454
              )
              
              1,834Prepaid
                  expenses and other current assets
              
              
              (1,067
              )
              
              (4,038
              )Accounts
                  payable
              
              
              17,330
              
              
              (4,034
              )Due
                  to related parties
              
              
              (1,692
              )
              
              (1,522
              )Advances
                  from customers
              
              
              (494
              )
              
              1,052Tax
                  payables
              
              
              155
              
              
              679Other
                  liabilities
              
              
              (3,441
              )
              
              4,274**Net
                  cash provided by operating activities**
              
              
              **13,971**
              
              
              **4,932****Cash
                  flow from investing activities:**Acquisition
                  of property, plant and equipment
              
              
              (13,925
              )
              
              (5,563
              )Disposal
                  of investment in a subsidiary
              
              
              (1,046
              )
              
              —Purchases
                  of intangible assets
              
              
              (49
              )
              
              (24
              )Change
                  in restricted cash
              
              
              7,204
              
              
              (3,184
              )Advance
                  to related companies
              
              
              (3,324
              )
              
              —Advance
                  repaid by related companies
              
              
              3,324
              
              
              —Acquisition
                  of a subsidiary
              
              
              190
              
              
              —**Net
                  cash (used in) provided by investing activities**
              
              
              **(7,626**
              **)**
              
              **(8,771**
              **)****Cash
                  flow from financing activities****:**Proceeds
                  from bank loans
              
              
              61,656
              
              
              40,366Repayment
                  of bank loans
              
              
              (57,898
              )
              
              (27,005
              )Proceeds
                  from issuance of common stock, net of issuance costs of
                  $145
              
              
              65,857
              
              
              —**Net
                  cash provided by financing activities**
              
              
              **69,615**
              
              
              **13,361**Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              1,399
              
              
              629**Net
                  change in cash and cash equivalents**
              
              **$**
              **75,960**
              
              **$**
              **9,522**Cash
                  and cash equivalents, beginning of period
              
              
              20,836
              
              
              5,677**Cash
                  and cash equivalents, end of period**
              
              $
              **98,195**
              
              $
              **15,828****Supplementary
                  cash flows disclosure**Interest
                  paid
              
              $
              **2,375**
              
              $
              **772**Income
                  taxes paid
              
              $
              **1,538**
              
              $
              **1,116**
 
 The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.
  5
  **SYNUTRA
        INTERNATIONAL, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **1.
        DESCRIPTION OF BUSINESS**
 
 Synutra
        International, Inc. (“Synutra” or “the Company”), through its subsidiary
        companies in the People’s Republic of China (“PRC” or “China”), is principally
        engaged in the production, distribution, and sales of dairy based pediatric
        and
        adult nutrition products. The Company’s extensive sales network covers 24
        provinces, 264 cities, and more than 1,320 counties throughout China. The
        Company’s fiscal year end is March 31.
  **2.
        BASIS OF PRESENTATION**
 
 The
        Company is responsible for the unaudited condensed consolidated financial
        statements included in this document, which have been prepared in accordance
        with accounting principles generally accepted in the United States of America
        (“GAAP”) and include all normal and recurring adjustments that management of the
        Company considers necessary for a fair presentation of its financial position
        and operating results.  The Company prepared these statements following the
        requirements of the SEC for interim reporting.  As permitted under those
        rules, the Company condensed or omitted certain footnotes or other financial
        information that are normally required by GAAP for annual financial
        statements.  These statements should be read in combination with the
        consolidated financial statements in the Company’s Annual Report on Form 10-K/A
        for the year ended March 31, 2007.
  These
        statements include the accounts of the Company and its subsidiaries.  All
        significant intercompany accounts and transactions have been eliminated in
        consolidation.
  Revenues,
        expenses, assets and liabilities can vary during each quarter of the year.
        Therefore, the results and trends in these interim financial statements may
        not
        be the same as those for the full year.
  **Segment
        Reporting**
  Statement
        of Financial Accounting Standards (“SFAS”) No. 131, "Disclosures About Segments
        of an Enterprise and Related Information," establishes standards for reporting
        information about operating segments in annual financial statements and requires
        selected information of these segments be presented in interim financial
        statements. Operating segments are defined as components of an enterprise
        about
        which separate financial information is available that is evaluated regularly
        by
        the chief operating decision maker, or decision making group, in making
        decisions on how to allocate resources and assess performance. The Company
        has
        determined that it operates its business in one reportable segment based
        upon
        the manner in which internal information is produced and evaluated by its
        chief
        operating decision making group, as defined under SFAS No. 131, which consists
        of the Company’s chief executive officer and chief financial officer.
 
 **Recently
        Issued Accounting Pronouncements**
  In
        September 2006, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards No. 157, “Defining Fair Value
        Measurement” (“SFAS 157”), which defines fair value, establishes a framework for
        measuring fair value in generally accepted accounting principles and expands
        disclosures about fair value measurements. SFAS 157 is effective for financial
        statements issued for fiscal years beginning after November 15, 2007, which
        is
        the Company’s fiscal 2009. The Company is currently evaluating the impact of
        adopting FAS 157 on its financial statements.
  In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS 159”), which permits companies to choose to measure many financial
        instruments and certain other items at fair value. SFAS 159 is effective
        for
        financial statements issued for fiscal years beginning after November 15,
        2007, which is the Company’s fiscal 2009. The Company is currently evaluating
        the impact of adopting SFAS 159 on its financial statements.
  6
  **3.
        BUSINESS COMBINATION**
  In
          May
          2007, the Company acquired the 80% equity interest, held by Mr. Liang Zhang,
          our
          Chief Executive
          Officer, in Baoquanling Shengyuan Diary Co., Ltd. (BQL) for $1.41 million,
          which
          was settled in November 2007. This acquisition has been reflected as a
          transfer
          of assets between entities under common
          control with the $1.41 million purchase consideration recorded as a dividend
          to
          Mr. Liang Zhang. The acquisition resulted in a change in reporting entity
          in accordance
          with SFAS 154, “Accounting Changes
          and Error Corrections.” However,
          the
          Company has elected not to recast prior period financial statements and
          financial information for comparative purposes as BQL was not determined
          to be
          material.
 
 Immediately
          after the acquisition, the Company made a capital injection of $4.74 million
          into BQL. These proceeds are for the purpose of erecting a new dairy processing
          facility to produce infant formula products. Upon completion, BQL will
          have
          total production capacity of 18,000 tons per year of infant and pediatric
          nutritional products. The production technology upgrade and capacity
          augmentation are integral parts of the company’s long-term
          technological development strategy to move from the current industry practice
          of spray-drying technologies to dry-blending technologies in China. The
          minority
          interest holder in
          BQL
          (holding a 20% equity interest), Junchuan Ranch of Heilongjiang Province
          (“Junchuan Ranch”),
          elected not to
          participate in the additional capital raise. As a
          result
          of issuing additional shares to the Company, the Company’s ownership
          interest in BQL was increased to 94.62%. This transaction was not deemed
          to
          be an acquisition of minority interests as Junchuan Ranch did not participate
          in
          the capital transaction.
 **4.
        INVENTORIES**
 
 The
        Company's inventories at September 30, 2007 and March 31, 2007 are summarized
        as
        follows:
  **September 30,**
                **2007**
              
              **March 31,**
                **2007**(In
                  thousands )Raw
                  materials
              
              $
              4,663
              
              $
              4,522Work-in-progress
              
              
              22,909
              
              
              7,714Finished
                  goods
              
              
              3,846
              
              
              3,217Packing
                  materials and other consumables
              
              
              1,656
              
              
              953**Total
                  Inventories******
              
              **$**
              **33,074**
              
              **$**
              **16,406**
  **5.
        DUE FROM/(TO) RELATED PARTIES**
 
 **A.
        Classification of related party balances by name**
 
 **a.
        Due from related parties**
 
 **September 30,**
                **2007**
              
              **March 31,**
                **2007**(In
                  thousands)Beijing
                  Honnete Dairy Corporation Ltd
              
              $
              10,547
              
              $
              7,207Beijing
                  Kelqin Dairy Co. Ltd
              
              
              1,545
              
              
              3,015Beijing
                  Luding Xueyuan Trading Co. Ltd
              
              
              420
              
              
              80St.AngelBeiJing
                  Business Service
              
              
              37
              
              
              -Heilongjiang
                  Baoquanling Sheng Yuan Dairy Co. Ltd
              
              
              -
              
              
              978Beijing
                  Ao Naier Feed Stuff LLC
              
              
              -
              
              
              462**Total
                  Due from Related Companies**
              
              **$**
              **12,549******
              
              **$**
              **11,742******
  7
  **b.
        Due to related parties**
 
 **September 30,**
                **2007**
              
              **March 31,**
                **2007**(In
                  thousands )Sheng
                  Zhi Da Dairy Group Corporation
              
              $
              2,816
              
              $
              1,338St.
                  Angel (Beijing Business Service)
              
              
              2
              
              
              5Beijing
                  Kelqin Dairy Co. Ltd
              
              
              -
              
              
              863Beijing
                  Luding Xueyuan Trading Co. Ltd
              
              
              -
              
              
              1Heilongjiang
                  Baoquanling Sheng Yuan Dairy Co.,Ltd
              
              
              -
              
              
              728**Total
                  Due to Related Companies**
              
              **$**
              **2,818**
              
              **$**
              **2,935**
 
 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.
 
 **B.
        Classification of related party balances by nature**
 
 **a. Due
        from related parties**
 
 **September 30,**
                **2007**
              
              **March 31,**
                **2007**(In
                  thousands)Trade
                  receivables
              
              $
              1,965
              
              $
              4,535Advance
                  to suppliers
              
              
              10,552
              
              
              7,207Other
                  advance
              
              
              32
              
              
              —**Total**
              
              **$**
              **12,549**
              
              **$**
              **11,742**
 
 Advance
        to suppliers relates to an agreement between the Company and Beijing Honnette
        Dairy Corporation Limited for a guaranteed whey protein supply of 3,000 tons
        within the period of six months from July 1 to December 31, 2007.
 
 **b.
        Due to related parties**
 
 **September 30,**
                **2007**
              
              **March 31,**
                **2007**(In
                  thousands)Trade
                  payables
              
              $
              -
              
              $
              1,685Other
                  payables
              
              
              2,818
              
              
              1,250**Total**
              
              **$**
              **2,818**
              
              **$**
              **2,935**
 
 Of
        the
        above-mentioned other payable, an amount of $1.4 million relates the
        consideration to be paid to Sheng Zhi Da Dairy Group Corporation for the
        acquisition of BQL.
  8
  **6.
        PROPERTY, PLANT AND EQUIPMENT, NET**
 
 **September 30,**
                **2007**
              
              **March 31,**
                **2007**(In
                  thousands)**Cost:**Buildings
                  and leasehold improvements
              
              $
              24,360
              
              $
              16,638Plant
                  and machinery
              
              
              33,214
              
              
              23,284Office
                  equipment and furnishings
              
              
              2,855
              
              
              1,984Motor
                  vehicles
              
              
              1,227
              
              
              1,04061,656
              
              
              42,946**Less:
                  Accumulated depreciation:**Buildings
                  and leasehold improvement
              
              
              2,238
              
              
              1,798Plant
                  and machinery
              
              
              4,860
              
              
              3,450Office
                  equipment and furnishings
              
              
              653
              
              
              472Motor
                  vehicles
              
              
              572
              
              
              590Total
                  of accumulated depreciation
              
              
              8,323
              
              
              6,310Construction
                  in progress
              
              
              16,809
              
              
              14,836Property,
                  plant and equipment, net
              
              $
              70,142
              
              $
              51,472
 
 **7.
        LAND USE RIGHTS**
 
 **September 30,**
                **2007**
              
              **March 31,**
                **2007**(In
                  thousands)Cost:
              
              $
              3,285
              
              $
              3,177Less:
                  Accumulated amortization:
              
              
              181
              
              
              153Land
                  use right, net
              
              $
              3,104
              
              $
              3,024
 
 The
        Company recorded amortization expense of $7,000 and $10,000 for the three
        months
        ended September 30, 2007 and 2006, and $26,000 and $19,000 for the six months
        ended September 30,2007 and 2006, respectively.
 
 **8.
        BANK LOANS AND WARRANTS**
  On
        April
        19, 2007, the Company entered into a Loan Agreement with ABN AMRO Bank N.V.,
        Hong Kong branch (“ABN”), in an amount of $35 million. The principal amount and
        any unpaid accrued interest thereon, are due on October 19, 2007. The
        proceeds of the Loans have been used to make investments in one of our
        subsidiaries, BQL, to fund the construction of new production facilities,
        to
        establish a joint venture for the production of Chondroitin (a dietary and
        nutritional supplement), to purchase fixed assets for the production of
        nutritional food bars, and to establish a joint venture that will offer prenatal
        diagnostic and genetic testing services. The loan was personally guaranteed
        by Mr. Liang Zhang, the Company’s Chief Executive Officer, and his
        spouse.
  In
        addition, pursuant to a USD facility side letter agreement dated April 19,
        2007
        between the Company and ABN, the Company is obligated to issue warrants to
        purchase up to 400,000 shares of the common stock. Upon Closing,
        200,000 warrants were issued at $8.84 per share. The remaining 200,000
        shares will be issued on the earlier of (i) the completion of a private
        placement of debt or a loan to the Company in amount sufficient to repay
        the
        loans, or (ii) on October 19, 2007.
  The
        200,000 warrants issued upon consummation of the loan agreement are exercisable.
        All of the warrants may be exercised up to the third anniversary of the
        completion of a “Qualified
        Public
        Offering”, as
        defined in the warrant agreement.
  9
  The
        fair
        value of the warrants was $2,711,760 at the grant date, estimated on the
        basis
        of the Black-Scholes-Merton option-pricing formula with the following
        assumptions:
  **2007**Expected
                  volatility
              
              
              43.86
              %Risk-free
                  interest rate
              
              
              4.66
              %Expected
                  dividend yield
              
              
              0.00
              %Contractual
                  life of the warrant (years)
              
              
              4.2
  The
        proceeds of the 2007 loan were allocated to the debt and the warrants based
        on
        their relative values, resulting in $32,413,313 and $2,586,687 being allocated
        to the debt and warrants, respectively. This amount has been recorded as
        an
        increase to additional paid in capital with a corresponding debt discount,
        which
        is being amortized over the term of the loan utilizing the effective interest
        method.
  The
        above
        loan agreement was attached with financial covenants that do not permit (1)
        the
        Company’s consolidated interest coverage ratio as of the end of any fiscal
        quarter to be lower than 4.00; (2) the Company’s consolidated leverage ratio as
        of the end of any fiscal quarter to be higher than 4.25. The Company has
        performed an analysis of the above ratios and confirmed that these financial
        covenants have been satisfied as of September 30, 2007.
  In
        addition to the above loan agreement with ABN, as at September 30, 2007 and
        March 31, 2007, the Company had short-term loans from banks in the amount
        of
        $23.3 million and $53.1 million, respectively, bearing interest ranging from
        6.12% to 7.82% per annum. Such loans are extendable for terms of no less
        than
        one year to September 2008. 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 $6.0 million and $32.7 million as of September 30, 2007
        and
        March 31, 2007, respectively.
  As
        at
        September 30, 2007, BQL had a 3 year long-term loan from Junchuan Ranch of
        Heilongjiang Province in the amount of $1.8 million bearing interest at 3.24%
        per annum. The loan, maturing on August 16, 2008, is secured by the pledge
        of
        certain fixed assets held by BQL and by a personal guarantee from the Company’s
        Chief Executive Officer and his spouse.
 
 **9.
        INCOME TAXES**
 
 The
        Company’s income before income taxes was comprised of the following for the
        three and six months ended September 30, 2007 and 2006, respectively.
 
 **Three
                  Months**
                **Ended**
              
              **Six
                  Months**
                **Ended****September
                  30,**
              
              **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**(in
                  thousands)United
                  States
              
              $
              (1,036
              )
              $
              (176
              )
              $
              (2,503
              )
              $
              (150
              )PRC
              
              
              12,150
              
              
              5,748
              
              
              19,690
              
              
              14,488**Total
                  Income Before Tax**
              
              **$**
              **11,114**
              
              **$**
              **5,572**
              
              **$**
              **17,187**
              
              **$**
              **14,338**
 
 In
        July 2006, the FASB issued Interpretation No. 48,
        Accounting for Uncertainty in Income Taxes—an
        interpretation of FASB Statement No. 109 (“FIN 48”), which
        clarifies the accounting and disclosure for
        uncertainty in tax positions. FIN 48 prescribes a
        more-likely-than-not threshold for financial statement
        recognition and measurement of a tax position taken or
        expected to be taken in a tax return. This interpretation
        also provides guidance on de-recognition of
        income tax assets and liabilities, classification of
        current and deferred income tax assets and
        liabilities, accounting for interest and
        penalties associated with tax positions,
        accounting for income taxes in interim periods and
        income tax disclosures.
  10
  The
        Company adopted the provisions of FIN 48 effective April 1, 2007, with the
        adoption of FIN 48 liabilities of approximately USD 375,473 and interest
        and/or
        penalties associated to the uncertain tax positions of USD 31,515. Based
        on its
        FIN 48 analysis documentation, the Company has made its assessment of the
        level
        of tax authority for each tax position (including the potential application
        of
        interest and penalties) based on the technical merits, and has measured the
        unrecognized tax benefits associated with the tax positions. As of September
        30,
        2007, the Company has recorded FIN 48 liabilities of approximately USD 397,854
        for its PRC subsidiaries. It also recognized interest and/or penalties
        associated to the uncertain tax positions of USD 58,516 in the FIN 48 tax
        provision.
  The
        years
        2001 to 2007 remain subject to examination by the PRC tax
        authorities.
 
 The
        Company has concluded that there are no material uncertain tax positions
        for the
        U.S. subsidiary. The years 2003 to 2007 remain subject to examination by
        the
        United States tax authorities.
  Undistributed
        earnings of the Company’s PRC subsidiaries of approximately US$ 51.1 million at
        September 30, 2007, are considered to be indefinitely reinvested and,
        accordingly, no provision for federal and state income taxes have been provided
        thereon. Upon distribution of those earnings in the form of dividends or
        otherwise, the Company would be subject to both U.S. income taxes (subject
        to an
        adjustment for foreign tax credits) and withholding taxes payable in the
        PRC.
  On
        March
        16, 2007, the National People’s Congress of the PRC approved and promulgated a
        new tax law, which will take effect beginning January 1, 2008. The Company’s PRC
        subsidiaries will then measure and pay enterprise income tax pursuant to
        the New
        Tax Law. Under the new tax law, foreign investment enterprise and domestic
        companies are subject to a uniform tax rate of 25%. The new tax law provides
        a
        five-year transition period from its effective date for those enterprises
        which
        were established before the promulgation date of the new tax law and which
        were
        entitled to a preferential lower tax rate under the then effective tax laws
        or
        regulations.
 
 Income
        taxes are calculated on a separate entity basis. The provisions for income
        taxes
        for the three and six months ended September 30, 2007 and 2006, respectively,
        are summarized as follows:
 **Three
                    Months**
                
                **Six
                    Months****Ended**
                
                **Ended****September
                    30,**
                
                **September
                    30,****2007**
                
                **2006**
                
                **2007**
                
                **2006**(in
                    thousands)Current-PRC
                
                $
                1,202
                
                $
                651
                
                $
                2,192
                
                $
                1,446Deferred
                    tax benefit-PRC
                
                
                135
                
                
                -
                
                
                373
                
                
                -Deferred
                    tax benefit-US
                
                
                (3
                )
                
                -
                
                
                (502
                )
                
                -**Total**
                
                **$**
                **1,334**
                
                **$**
                **651**
                
                **$**
                **2,063**
                
                **$**
                **1,446**
  **10.
        COMMON STOCK**
 
 On
        May
        24, 2007, the Company entered into a Common Stock Purchase Agreement (the
        “Purchase Agreement”) with Warburg Pincus Private Equity IX, L.P. (the
“Investor”), pursuant to which the Investor agreed to acquire 4 million shares
        of common stock (the “Common Shares”), par value $0.0001 per share, of the
        Company for an aggregate purchase price of $66 million, net of issuance costs
        of
        $ 145,000. The closing of the transaction took place on June 15, 2007. The
        Company intends to use the net proceeds from this financing for general
        corporate purposes. Pursuant to the terms of the Purchase Agreement so long
        as
        the Investor owns at least 50% of the Common Shares acquired by the Investor
        pursuant to the Purchase Agreement, the Investor shall have the right to
        designate a person to serve on the Board of Directors of the Company (the
        “Investor Designee”), and the Company agreed to use its best efforts to
        nominate and cause the Investor Designee to be elected to the
        Company’s Board of Directors.
  11
  **11.
        COMPREHENSIVE INCOME**
  Comprehensive
        income includes charges and credits to equity from nonowner sources and
        comprises two subsets: net earnings and other comprehensive income. Total
        comprehensive income comprises the following:
 
 **Three
                  Months**
                **Ended**
              
              **Six
                  Months**
                **Ended****September
                  30,**
              
              **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**(in
                  thousands)Net
                  income
              
              $
              9,772
              
              $
              4,921
              
              $
              15,112
              
              $
              12,892Other
                  comprehensive income
              
              
              1,500
              
              
              591
              
              
              2,598
              
              
              629**Total
                  comprehensive income**
              
              **$**
              **11,272**
              
              **$**
              **5,512**
              
              **$**
              **17,710**
              
              **$**
              **13,521**
 
 **12.
        NET INCOME PER SHARE (EPS)**
 
 For
        purposes of calculating basic and diluted earnings per share, we used the
        following weighted average common shares outstanding (in thousands):
 
 **Three
                  Months**
                **Ended**
              
              **Six
                  Months**
                **Ended****September
                  30,**
              
              **September
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**(in
                  thousands)Net
                  income
              
              $
              9,772
              
              $
              4,921
              
              $
              15,112
              
              $
              12,892Basic
                  weighted average common shares outstanding
              
              
              54,001
              
              
              50,001
              
              
              52,339
              
              
              50,001Dilutive
                  potential common shares from warrants****
              
              
              131
              
              
              -
              
              
              126
              
              
              **-**Diluted
                  weighted average shares outstanding
              
              
              54,132
              
              
              50,001
              
              
              52,465
              
              
              50,001Net
                  income per share - basic
              
              $
              0.18
              
              $
              0.10
              
              $
              0.29
              
              $
              0.26Net
                  income per share - diluted
              
              $
              0.18
              
              $
              0.10
              
              $
              0.29
              
              $
              0.26
 
 **13.
        COMMITMENTS AND CONTINGENCIES**
 
 **A.
        Purchase Commitments**
 
 As
        of
        September 30, 2007, the Company had outstanding commitments in the amount
        of
        $11.1 million for the purchase of whey protein during the period from July
        to
        December 2007
 
 **B.
        Capital commitments**
 
 As
        of
        September 30, 2007, the Company’s capital commitments amounted to $6.8 million
        in relation to asset improvement and plant expansion within the next 12 months. **
 
 **C.
        Lease commitments**
 
 The
        Company is a party to various operating leases involving offices and warehouses.
        Total rental expenses for operating leases are $98,000 and $66,000 for the
        three
        months ended September 30, 2007 and 2006, and are $198,000 and $133,000 for
        the
        six months ended September 30, 2007 and 2006, respectively.
  12
  **D.
        Legal proceedings**
 
 None.
 
 **E.
        Guarantees**
 
 As
        at
        September 30, 2007, the Company had a guarantee given to the Zhangbei Branch
        of
        the Agriculture Bank of China in respect of bank loans of $1.1 million in
        total
        extended to 104 farmers in the Zhangbei Area. Total amount of bank loans
        under
        this guarantee arrangement was $1.1 million as of March 31, 2007. These bank
        loans mature on December 25, 2007. The potential loss from this guarantee
        could
        not be estimated as the Company was unable to assess the financial position
        of
        individual farmers. However, based on general economic information available
        for
        this area, the Company believes that these loans will be repaid by the farmers
        upon maturity. Therefore, no liability was recorded on the balance sheet
        in
        relation to these guarantees.
 
 **14.
        SUBSEQUENT EVENTS**
 
 On
        October 11, 2007, the Company entered into a loan agreement and a collateral
        agreement (collectively, the “Loan Agreement”) with ABN AMRO Bank N.V. (“ABN”)
        as Administrative Agent, Collateral Agent and Arranger, and certain other
        lenders, pursuant to which the lenders agreed to make loans (the “Loans”) to the
        Company for a period of ninety days from the closing of the Loan Agreement
        of up
        to US$35.0 million (the “Commitment Amount”). The principal amount, and any
        unpaid accrued interest, is due on October 11, 2010 (the “Maturity Date”). The
        Loans may be prepaid without penalty prior to the Maturity Date. The Loans
        bear
        interest at the three-month London interbank offered rate for deposits in
        US
        dollars plus 3.5% with interest payable on the last day of each three month
        period. The Company is required to pay to ABN a commitment fee of 1% on the
        daily amount of the unused Commitment Amount. The Loans are secured by a
        pledge
        of 10,000 shares of common stock of Synutra, Inc., an Illinois corporation
        wholly-owned by the Company. The Loans were fully drawn down on October 18,
        2007
        and the proceeds of the Loans were used to pay the obligations outstanding
        under
        the US$35.0 million loan made pursuant to the loan agreement dated as of
        April
        19, 2007 between the Company and ABN.
 
 Pursuant
        to a USD facility side letter agreement dated April 19, 2007 between the
        Company
        and ABN, the Company is obligated to issue warrants to purchase up to 400,000
        shares of the common stock. Upon Closing, 200,000 shares were issued at $8.84
        per share. The remaining 200,000 shares were issued on October 11, 2007 on
        the
        completion of the Loan Agreement.
 
 The
        Loan
        Agreement provides for mandatory prepayment upon the occurrence of certain
        events, and contains customary covenants for financings of this type, including
        restrictions on the incurrence of liens, payment of dividends, and disposition
        of properties. The Loan Agreement also contains certain financial covenants,
        including a requirement to maintain specified leverage and interest coverage
        ratios, tangible net worth, and indebtedness to tangible net worth ratio.
        Upon
        the occurrence of certain events of default, the Company’s obligations under the
        Loan Agreement may be accelerated and the lending commitments terminated.
        Such
        events include (i) failure to pay principal or interest when due, (ii) the
        breach or failure to perform certain covenants, (iii) the attachment of assets,
        and (iv) the filing of a petition in bankruptcy.
 
 In
        addition to the Commitment Fee, pursuant to a US Dollar Facility Fee Letter
        Agreement dated October 11, 2007 (the “Fee Letter Agreement”) between the
        Company and ABN, the Company is obligated to pay an Arrangement Fee and a
        Participation Fee of US$962,500 in total to ABN.
  13
  **ITEM
        2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS**
  Sections
        of this Form 10-Q including, in particular, our Management’s Discussion and
        Analysis of Financial Condition and Results of Operations above, contain
        forward-looking statements.  These forward-looking statements are not
        guarantees of future performance and are subject to certain risks, uncertainties
        and assumptions that are difficult to predict; therefore, actual results
        may
        differ materially from those expressed, implied or forecasted in any such
        forward-looking statements.
  Expressions
        of future goals and expectations or similar expressions including, without
        limitation, “may,” “should,” “could,” “expects,” “does not currently expect,”
“plans,” “anticipates,” “intends,” “believes,” “estimates,” “predicts,”
“potential,” “targets,” or “continue,” reflecting something other than
        historical fact are intended to identify forward-looking statements.  The
        factors described below in PART II. OTHER INFORMATION -- Item 1A. Risk Factors
        could cause our actual results to differ materially from those described
        in the
        forward-looking statements.  Unless required by law, we undertake no
        obligation to update publicly any forward-looking statements, whether as
        a
        result of new information, future events or otherwise.  However, readers
        should carefully review the reports and documents we file from time to time
        with
        the SEC, particularly our Quarterly Reports on Form 10-Q, Annual Report on
        Form
        10-K and any Current Reports on Form 8-K.
 
 **Available
        Information**
 
 The
        Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
        Reports on Form 8-K, and amendments to reports filed pursuant to Sections
        13(a)
        and 15(d) of the Exchange Act, are available on the SEC website. The public
        may
        read and copy any materials filed by the Company with the SEC at the SEC’s
        Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC
        20549.  The public may obtain information on the operation of the Public
        Reference Room by calling the SEC at 1-202-551-8090.  The SEC maintains an
        Internet site that contains reports, proxy and information statements and
        other
        information regarding issuers that file electronically with the SEC at
        http://www.sec.gov.  The contents of these websites are not incorporated
        into this filing.  Further, the Company’s references to the URLs for these
        websites are intended to be inactive textual references only.
 
 **EXECUTIVE
        OVERVIEW**
 
 The
        Company, through its subsidiary companies in the People’s Republic of China, is
        principally engaged in the production, distribution, and sales of dairy based
        pediatric and adult nutrition products. The Company’s extensive sales network
        covers 24 provinces, 264 cities, and more than 1,320 counties throughout
        China.
  Since
        the
        fiscal year ended March 31, 2007, the Company has continued to experience
        significant growth in the premium infant formula products and line extensions.
        These premium products and line extensions were designed to capture the fastest
        growing segment of the infant formula market in China. Building on expanded
        production capacities through new installations and acquisition in the previous
        year, the Company is implementing new production processes aimed at enhancing
        manufacturing efficiency and cost reduction. The Company is also focusing
        on
        research and development efforts to improve quality and stability of certain
        key
        ingredients and nutrients while reducing cost.
 
 The
        Company continues to carry out its integrated marketing program that leverages
        its existing sales network throughout the country and builds on expanded
        advertising and marketing campaigns targeting both national and regional
        or
        local audiences. Key to the integrated marketing program is a focused team
        of
        marketing professionals with medical and healthcare expertise and experience
        in
        the fields of women’s health and pediatric nutrition. Other components to this
        companywide program include enhancing consistency in customer communications
        on
        brand image and product messages, increasing customer care and feedback
        responses, integrating customer data collection with customer service activities
        and direct sales efforts, and expanding consumer education and outreach
        programs, all aimed at solidifying the Company’s lead in brand recognition among
        domestic manufacturers and achieving broader recognition among the market
        leaders in China.
  14
  **RESULTS
        OF OPERATIONS**
 
 **Three
        Months Ended September 30, 2007 Compared to Three Months Ended September
        30,
        2006**
 
 **Net
        Sales**
  Net
        Sales
        for the three months ended September 30, 2007 increased by $40.6 million or
        89.0% to $86.2 million from $45.6 million for the three months ended September
        30, 2006. The increase in net sales was a result of an increase in
        volume of product sold and an increase in average selling
        price. The
        increase in the volume of products sold was driven by changing demographics
        as
        more babies were born in 2007 relative to previous years and increased market
        awareness for our products as a result of our integrated marketing
        initiatives. The integrated marketing initiatives were led by a TV
        advertising campaign that started in September 2006 and were augmented by
        continued sales activities at the store level focusing on market coverage,
        product display, and sales promotion.
 
 The
        net
        sales of our traditional main products, such as the dairy based nutritional
        products for infants, children and adults under the brand names of Super,
        U-Smart, U-Strong, and National Standards, increased by $36.6 million, or
        94.2%
        to $75.4 million for the three months ended September 30, 2007 from $38.8
        million for the three months ended September 30, 2006, principally as a result
        of the following factors:
 
 a.
              The
                  tons sold of traditional products increased to 9,569 tons in the
                  three
                  months ended September 30, 2007 from 6,730 tons in the three months
                  ended
                  September 30, 2006, resulting in an increase of $16.4 million in
                  gross
                  sales.
 
 b.
              For
                  the three months ended September 30, 2007, the average selling
                  price of
                  the Company’s traditional main products increased from $5,771 to $7,883
                  per ton, resulting in an increase of $20.2 million in gross sales.
  Net
        sales
        of nutraceutical supplement ingredients, i.e. chondroitin sulfate, were $4.1
        million and $3.8 million for the three months ended September 30, 2007 and
        2006,
        respectively, an increase of $295,000 or 7.7%. The net sales of industry
        materials, such as whey protein, anhydrous butter oil, and skimmed milk powder,
        were $6.7 million and $2.9 million for the three months ended September 30,
        2007
        and 2006, respectively, an increase of $3.8 million. These increases resulted
        from increased orders from industrial customers.
 
 In
        the
        three months ended September 30, 2007, the Company achieved approximately
        98.4%
        of its sales revenue of the $75.4 million in traditional products through
        its
        wholesale distributor networks and about 1.6% through supermarket retailers.
        Of
        the total $38.8 million of main products sales generated in the three months
        ended September 30, 2006, about 99.3% were from distributors and about 0.7%
        from
        supermarket retailers.
 
 Management
        believes that the overall infant formula industry in China is experiencing
        rapid
        growth due to improved purchasing power and increased consumer recognition
        for
        branded products. Management also believes Synutra’s brand name product lines
        have gained recognition in its marketplaces and has captured a greater portion
        of the increased growth experienced by the industry.
  15
  **Cost
        of Sales**
 
 Cost
        of
        sales for the three months ended September 30, 2007 increased to $39.6 million
        from $22.2 million for the three months ended September 30, 2006. The $17.4
        million, or 78.2%, increase in cost of sales was a result of increases in
        both
        the price and volume of raw materials purchased.
 
 The
        cost
        of sales for traditional products increased by $15.5 million, or 96.9%, to
        $31.6
        million for the three months ended September 30, 2007 from $16.1 million
        for the
        three months ended September 30, 2006. The increase of 2,839 tons sold of
        the
        traditional main products resulted in a $6.8 million increase in cost. As
        the
        proportion of the sales of our premium products increased, the average cost
        per
        unit increased by $917 per metric ton, resulting in an $8.7 million increase
        in
        cost of sales for the three months ended September 30, 2007.
 
 The
        cost
        of nutraceutical supplement ingredients was $3.9 million and $3.1 million
        for
        the three months ended September 30, 2007 and 2006, respectively, an increase
        of
        $813,000 million, or 26.5%. The cost of sales of industrial materials, such
        as
        whey protein, anhydrous butter oil, and skimmed milk powder, were $4.1million
        and $3.0 million for the three months ended June, 2007 and 2006, respectively,
        an increase of $1.1million.
 
 Prices
        of
        raw milk and whey protein, which are major components of the cost of sales
        of
        our traditional products, have experienced increases during the year. Management
        expects that the prices of these materials may continue to rise due to the
        shortage of milk supply and general increases in commodities prices, especially
        for agriculture products. This will in turn affect the unit cost of sales
        for
        our products.
 
 **Gross
        Profit**
 
 Gross
        profit was $46.6 million, or 54.1%, of net sales for the three months ended
        September 30, 2007, compared to $23.4 million, or 51.3%, of net sales for
        the
        three months ended September 30, 2006, an increase of $23.2 million or 99.2%.
        The sales of traditional products contributed $43.8 million, or 94.0%, of
        gross
        profits for the three months ended September 30, 2007, versus $22.8 million,
        or
        97.3%, of gross profits for the three months ended September 30, 2006.
 
 In
        the
        three months ended September 30, 2007, the Company experienced increases
        in both
        gross profit and gross margin. This increase was primarily a result of increased
        volume of products sold and increased average selling prices recorded during
        the
        period. Due to the implementation of targeted sales incentive programs, the
        proportion of the higher margin lines of products sold increased, contributing
        to the increase in gross margin.
 
 **Selling
        and Distribution Expenses**
 
 Selling
        and distribution expenses increased by $3.1 million, or 60.1%, to $8.3 million
        for the three months ended September 30, 2007, as compared to $5.2 million
        for
        the three months ended September 30, 2006. Total compensation to the sales
        force increased by $987,000 from $2.2 million in the three months ended
        September 30, 2006 to $3.2 million in the three months ended September 30,
        2007.
        This increase was due to the implementation of an incentive program and the
        increase in the number of sales people from 1,877 at September 30, 2006 to
        2,111
        at September 30, 2007, in response to our expanding business and greater
        market
        penetration. Transportation expenses increased by $798,000 from $656,000
        in the
        three months ended September 30, 2006 to $1.5 million in the three months
        ended
        September 30, 2007, in proportion to the increase in sales. Travel expenses
        increased by $199,000 from $528,000 in the three months ended September 30,
        2006
        to $727,000 in the three months ended September 30, 2007. Entertainment,
        event,
        communication and marketing expenses increased by $1.1 million from $1.8
        million
        in the three months ended September 30, 2006 to $2.9 million in the three
        months
        ended September 30, 2007. The Company continued to expand its selling efforts
        both in rural and urban areas by utilizing motorized marketing and sales
        teams
        to expand the reach of its products and to build brand image by participating
        in
        trade shows and in other marketing activities. These efforts accounted for
        most
        of the increases in expenses.
  16
  **Advertising
        and Promotion Expenses**
 
 **Three
                  Month Ended September 30****2007**
              
              **2006**
              
              **Change in $**
              
              **Change in %**(In
                    thousands)
              
              **(Unaudited)**Advertising
              
              $
              10,391
              
              $
              2,364
              
              $
              8,027
              
              
              339.6
              %Sales
                  promotion
              
              
              11,615
              
              
              8,696
              
              
              2,919
              
              
              33.6
              %**Total**
              
              **$**
              **22,006**
              
              **$**
              **11,060**
              
              **$**
              **10,946**
              
              
              **99.0**
              **%**
 
 Advertising
        and sales promotion expenses increased by $10.9 million, or 99.0%, to $22.0
        million for the three months ended September 30, 2007, as compared to $11.1
        million for the three months ended September 30, 2006, as a result of increased
        advertising and promotional activities. The major components of advertising
        and
        sales promotion expenses are placement of advertisements with major media
        outlets and points of sale, and community promotional activities.
 
 **General
        and Administrative Expenses**
 
 General
        and administrative expenses increased by $2.3 million, or 167.3%, to $3.7
        million for the three months ended September 30, 2007, as compared to $1.4
        million for the three months ended September 30, 2006. Due to increased
        corporate transactions, legal and professional fees increased by $467,000,
        or
        159.0%, to $761,000 for the three months ended September 30, 2007, as compared
        to $294,000 for the three months ended September 30, 2006. Salary and social
        insurance increased by $1.1 million, or 225.5%, to $1.6 million for the three
        months ended September 30, 2007, as compared to $478,000 for the three months
        ended September 30, 2006.
 
 **Income
        from Operations**
 
 The
        sales
        increase of $40.6 million, or 89.0%, and the cost of sales increase of $17.4
        million, or 78.2%, for the three months ended September 30, 2007 had led
        to a
        gross profit increase by $23.2 million, or 99.2%, compared to the three months
        ended September 30, 2006. Operational expenses also increased by approximately
        $16.4 million from $17.6 million for the three months ended September 30,
        2006
        to $34.0 million for the respective period ended September 30, 2007. As a
        result, income from operations was $12.6 million for the three months ended
        September 30, 2007, as compared to $5.8 million for the three months ended
        September 30, 2006, an increase of $6.9 million, or 118.5%.
 
 **Interest
        Income**
 
 Interest
        income increased by $788,000 to $848,000 for the three months ended September
        30, 2007, as compared to $60,000 for the three months ended September 30,
        2006,
        due to significant increases in the Company’s cash and cash equivalent
        balances.
 
 **Interest
        Expense**
 
 Interest
        expense increased by $2.2 million to $2.6 million for the three months ended
        September 30, 2007, as compared to $427,000 for the three months ended September
        30, 2006, due to the amortization of debt discount and increased borrowings.
  17
  **Provision
        for Income Taxes**
 
 The
        provision for income taxes, which is computed on an individual legal entity
        basis, was $1.3 million and $651,000 for the three months ended September
        30,
        2007 and 2006, respectively. The effective tax rate of the Company was 12.0%
        and
        11.7% for the three months ended September 30, 2007 and 2006, respectively.
  **Net
        Income Attributable to Shareholders**
 
 Net
        income attributable to shareholders for the three months ended September
        30,
        2007 increased by $4.9 million, or 98.7%, to $9.8 million from $4.9 million
        for
        the three months ended September 30, 2006 due to the factors discussed above.
 
 **Earnings
        Per Share**
 
 Basic
        and
        diluted earnings per share were $0.18 for three months ended September 30,
        2007
        and $0.10 for three months ended September 30, 2006.
 
 **Six
        Months Ended September 30, 2007 Compared to Six Months Ended September 30,
        2006**
 
 **Net
        Sales**
  Net
          Sales
          for the six months ended September 30, 2007 increased by $59.0 million or
          62.3% to $153.7 million from $94.7 million for the six months ended
          September 30, 2006. The increase in net sales was a result of an
          increase in volume of product sold and an increase in average selling
          price. The
          increase in the volume of products sold was driven by changing demographics
          as
          more babies were born in 2007 relative to previous years and increased
          market
          awareness for our products as a result of our integrated marketing
          initiatives. The integrated marketing initiatives were led by a TV
          advertising campaign that started in September 2006 and were augmented
          by
          continued sales activities at the store level focusing on market coverage,
          product display, and sales promotion.
 Our
        sales
        volume has not been significantly affected by seasonal changes.
 
 The
        net
        sales of our traditional main products, such as the dairy based nutritional
        products for infants, children and adults under the brand names of Super,
        U-Smart, U-Strong, and National Standards, increased by $60.5 million, or
        83.3%,
        to $133.2 million for the six months ended September 30, 2007 from $72.7
        million
        for the six months ended September 30, 2006, principally as a result of the
        following factors:
 
 a.
              The
                  tons sold of traditional products increased to 17,776 tons in the
                  six
                  months ended September 30, 2007 from 12,436 tons in the six months
                  ended
                  September 30, 2006, resulting in an increase of $31.2 million in
                  gross
                  sales.
 
 b.
              For
                  the six months ended September 30, 2007, the average selling price
                  of the
                  Company’s traditional main products increased from $5,844 to $7,494 per
                  ton, resulting in an increase of $29.3 million in gross sales.
  Net
        sales
        of nutraceutical supplement ingredients, i.e., chondroitin sulfate, were
        $9.9
        million and $12.3 million for the six months ended September 30, 2007 and
        2006,
        respectively, a decrease of $2.4 million or 19.5%. The Company’s toll drying,
        blending, and packaging services generated $2.6 million and $6.8 million
        for the
        six months ended June, 2007 and 2006, respectively, a decrease of $4.2 million
        or 61.8%. The decreases in the revenue from these non-core business activities
        were mainly due to reduction in customer orders. The net sales of industry
        materials, such as whey protein, anhydrous butter oil, and skimmed milk powder,
        were $8.0 million and $2.9 million for the six months ended September 30,
        2007
        and 2006, respectively, an increase of $5.1 million, as orders from industrial
        customers increased.
  18
  In
        the
        six months ended September 30, 2007, the Company achieved approximately 98.4%
        of
        its sales revenue of the $133.2 million in traditional products through its
        wholesale distributor networks and about 1.6% through supermarket retailers.
        Of
        the total $72.7 million of main products sales generated in the six months
        ended
        September 30, 2006, about 99.3% were from distributors and about 0.7% from
        supermarket retailers.
 
 Management
        believes that the overall infant formula industry in China is experiencing
        rapid
        growth due to improved purchasing power and increased consumer recognition
        for
        branded products. Management also believes Synutra’s brand name product lines
        have gained recognition in its marketplaces and has captured a greater portion
        of the increased growth experienced by the industry.
  **Cost
        of Sales**
 
 Cost
        of
        sales for the six months ended September 30, 2007 increased to $70.0 million
        from $49.9 million for the six months ended September 30, 2006. The $20.1
        million, or 40.4%, increase in cost of sales was a result of increases in
        both
        the price and volume of raw materials purchased.
 
 The
        cost
        of sales for traditional products increased by $23.9 million, or 54.0%, to
        $53.3
        million for the six months ended September 30, 2007 from $29.4 million for
        the
        six months ended September 30, 2006. The increase of 5,340 tons sold of the
        traditional main products resulted in a $12.6 million increase in cost. Due
        to
        the increase in sales of our premium products, the average cost per unit
        increased by $631 per metric ton, resulting in an $11.2 million increase
        in cost
        of sales for the six months ended September 30, 2007.
 
 The
        cost
        of nutraceutical supplement ingredients was $9.2 million and $10.5 million
        for
        the six months ended September 30, 2007 and 2006, respectively, a decrease
        of
        $1.3 million, or 12.1%. The cost of ancillary services for toll drying,
        blending, and packaging was $2.5 million and $6.9 million for the six months
        ended September 30, 2007 and 2006, respectively, a decrease of $4.4 million,
        or
        63.1%. The cost of sales of industrial materials, such as whey protein,
        anhydrous butter oil, and skimmed milk powder, were $4.9 million and $3.0
        million for the six months ended June, 2007 and 2006, respectively, an increase
        of $1.9 million.
 
 Prices
        of
        raw milk and whey protein, which are major components of the cost of sales
        of
        our traditional products, have experienced increases during the year. Management
        expects that the prices of these materials may continue to rise due to a
        shortage of milk supply and a general increases in commodities prices,
        especially for agriculture products. This will in turn affect the unit cost
        of
        sales for our products.
 
 **Gross
        Profit**
 
 Gross
        profit was $83.7 million, or 54.5%, of sales for the six months ended September
        30, 2007, compared to $44.9 million, or 47.4%, of sales for the six months
        ended
        September 30, 2006, an increase of $38.8 million, or 86.5%. The sales of
        traditional products contributed $79.9 million, or 95.5%, of gross profits
        for
        the six months ended September 30, 2007, versus $43.2 million, or 96.4%,
        of
        gross profits for the six months ended September 30, 2006.
 
 In
        the
        six months ended September 30, 2007, the Company experienced increases in
        both
        gross profit and gross margin. This increase was primarily a result of increased
        volume of products sold and increased average selling prices recorded during
        the
        period. Due to the implementation of targeted sales incentive programs, the
        sales of our higher margin product lines recorded significant increases,
        contributing to the increase in gross margin. For the six months ended September
        30, 2007, the sales of our premium brands, i.e., the Golden U-Smart and the
        Super Baby series, accounted for 46.9% of our total sales of infant formula
        products, representing an increase of approximately 19 percentage points
        as
        compared to the six months ended September 30, 2006.
  19
  **Selling
        and Distribution Expenses**
 
 Selling
        and distribution expenses increased by $5.7 million, or 55.2%, to $15.9 million
        for the six months ended September 30, 2007, as compared to $10.2 million
        for
        the six months ended September 30, 2006. Total compensation to the sales
        force increased by $1.8 million from $3.8 million in the six months ended
        September 30, 2006 to $5.6 million in the six months ended September 30,
        2007.
        This increase was due to the implementation of an incentive program and the
        increase in the number of sales people from 1,877 at September 30, 2006 to
        2,111at September 30, 2007, in response to an expanding business and greater
        market penetration. Transportation expenses increased by $1.0 million from
        $1.6
        million in the six months ended September 30, 2006 to $2.6 million in the
        six
        months ended September 30, 2007, in proportion to the increase in sales.
        Travel
        expenses increased by $400,000 from $938,000 in the six months ended September
        30, 2006 to $1.3 million in the six months ended September 30, 2007.
        Entertainment, event, communication and market expenses increased by $2.5
        million from $3.9 million in the six months ended September 30, 2006 to $6.4
        million in the six months ended September 30, 2007.The Company continued
        to
        expand its selling efforts both in rural and urban areas by utilizing motorized
        marketing and sales teams to expand the reach of its products and to build
        brand
        image by participating in trade shows and in other marketing activities.
        These
        efforts accounted for most of the increases in expenses.
  **Advertising
        and Promotion Expenses**
 
 **Six
                  Month Ended September 30****2007**
              
              **2006**
              
              **Change in $**
              
              **Change in %**(In
                    thousands)
              
              **(Unaudited)**Advertising
              
              $
              15,912
              
              $
              3,080
              
              $
              12,832
              
              
              416.6
              %Sales
                  promotion
              
              
              24,542
              
              
              14,454
              
              
              10,088
              
              
              69.8
              %**Total**
              
              **$**
              **40,454**
              
              **$**
              **17,534**
              
              **$**
              **22,920**
              
              
              **130.7**
              **%**
 
 Advertising
        and sales promotion increased by $22.9 million, or 130.7%, to $40.5 million
        for
        the six months ended September 30, 2007, as compared to $17.5 million for
        the
        six months ended September 30, 2006, as a result of increased advertising
        and
        promotional activities. The major components of advertising and sales promotion
        expenses are placement of advertisements with major media outlets and points
        of
        sale, and community promotional activities.
 
 **General
        and Administrative Expenses**
 
 General
        and administrative expenses increased by $4.1 million, or 172.3%, to $6.5
        million for the six months ended September 30, 2007, as compared to $2.4
        million
        for the six months ended September 30, 2006. Most of the increases were for
        staff salaries, management expenses, and legal, accounting, and consulting
        costs
        related to corporate transactions and the costs associated with operating
        as a
        U.S. public company.
 
 **Income
        from Operations**
 
 The
        sales
        increase of $59.0 million, or 62.3%, and the cost of sales increase of $20.1
        million, or 40.4%, for the six months ended September 30, 2007 had led to
        a
        gross profit increase of $38.8 million, or 86.5% compared to the six months
        ended September 30, 2006. Operational expenses also increased by approximately
        $32.7 million from $30.2 million for the six months ended September 30, 2006
        to
        $62.9 million for the respective period ended September 30, 2007. As a result,
        income from operations was $20.8 million for the six months ended September
        30,
        2007, as compared to $14.7 million for the six months ended September 30, 2006,
        an increase of $6.1 million, or 41.5%.
  20
  **Interest
        Income**
 
 Interest
        income increased by $1.1 million to $1.2 million for the six months ended
        September 30, 2007, as compared to $121,000 for the six months ended September
        30, 2006, due to significant increases in the Company’s cash and cash equivalent
        balances.
 
 **Interest
        Expense**
 
 Interest
        expense increased by $4.0 million to $4.8 million for the six months ended
        September 30, 2007, as compared to $772,000 for the six months ended September
        30, 2006, due to the amortization of debt discount and increased borrowings.
 
 **Provision
        for Income Taxes**
 
 The
        provision for income taxes, which is computed on an individual legal entity
        basis, was $2.1 million and $1.4 million for the six months ended September
        30,
        2007 and 2006, respectively. The effective tax rate of the Company was 12%
        and
        10% for the six months ended September 30, 2007 and 2006, respectively. The
        effective income tax rate for the six months ended September 30, 2007 differs
        from the prior period amount due to a tax holiday affecting certain PRC
        entities.
  **Net
        Income Attributable to Shareholders**
 
 Net
        income attributable to shareholders for the six months ended September 30,
        2007
        increased by $2.2 million, or 17.3%, to $15.1 million from $12.9 million
        for the
        six months ended September 30, 2006 due to the factors discussed above.
 
 **Earnings
        Per Share**
 
 Basic
        and
        diluted earnings per share were $0.29 for six months ended September 30,
        2007
        and $0.26 for six months ended September 30, 2006.
 
 **CHANGE
        IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES**
 
 The
        Company’s financial condition has improved during the six months ended September
        30, 2007. The cash and cash equivalent balance increased by $77.4 million
        to
        $98.2 million at September 30, 2007, as compared to $20.8 million at March
        31,
        2007.
 
 In
        April
        2007, we entered a loan agreement with ABN AMRO Bank, N.V., Hong Kong branch
        (“ABN”) pursuant to which ABN agreed to loan us $35.0 million with the principal
        and interest due in six months. The proceeds of the loans have been used
        to make
        investments in one of our subsidiaries, BQL, to fund the construction of
        new
        production facilities, to establish a joint venture for the production of
        Chondroitin (a dietary and nutritional supplement), to purchase fixed assets
        for
        the production of nutritional food bars, and to establish a joint venture
        that
        will offer prenatal diagnostic and genetic testing services.
  The
        above
        loan agreement was attached with financial covenants that do not permit (1)
        the
        Company’s consolidated interest coverage ratio as of the end of any fiscal
        quarter to be lower than 4.00; (2) the Company’s consolidated leverage ratio as
        of the end of any fiscal quarter to be higher than 4.25. The Company has
        performed an analysis of the above ratios and confirmed that these financial
        covenants have been satisfied as of September 30, 2007.
  21
  As
        disclosed in footnote 14 to the unaudited Condensed Consolidated Financial
        Statements, the above loan was settled on October 18, 2007 following the
        completion of a loan agreement and a collateral agreement with ABN, pursuant
        to
        which the Company obtained a three-year loan maturing on October 11, 2010.
  On
        June
        15, 2007, we also completed a transaction pursuant to a purchase agreement
        dated
        May 24, 2007 with Warburg Pincus Private Equity IX, L.P. (“Warburg”) whereby
        Warburg purchased 4 million shares of common stock, par value $0.0001 per
        share,
        for an aggregate purchase price of $66 million, net of issuance costs of
        $145,000. The proceeds from this transaction are intended for general corporate
        purposes.
 
 Net
        cash
        provided by operating activities for the six months ended September 30, 2007
        was
        $14.0 million, resulting from net income of $15.1 million, non-cash items
        not
        affecting cash flows of $4.3 million, partly offset by $5.5 million of changes
        in working capital. The changes in working capital for the six months ended
        September 30, 2007 were primarily related to (i) a $1.8 million increase
        in
        accounts receivable; (ii) a $15.1 million increase in inventory and prepaid
        expenses and other current assets and (iii) a $17.3 million increase in accounts
        payable, partly offset by a $1.7 million decrease in amounts due to related
        parties and a $3.4 million decrease in other liabilities. The increase in
        these
        working capital balances was primarily related to increases in business
        volume. Non-cash items were primarily associated with deferred income tax
        benefit, depreciation and amortization of property and equipment and
        amortization of debt discount.  Net cash provided by operating activities
        for the six months ended September 30, 2006 was $4.9 million, resulting from
        net
        income of $12.9 million, non-cash items not affecting cash flows of $753,000
        and
        $8.7 million of changes in working capital.  The changes in working capital
        for the six months ended September 30, 2006 were primarily related to (i)
        a $5.9
        million increase in accounts receivable; (ii) a $5.1 million increase in
        inventory and prepaid expenses and other current assets; (iii) a $1.8 million
        decrease in amounts due from related parties; (iv) a $4.0 million decrease
        in
        accounts payable; (v) a $1.5 million decrease in amounts due to related parties,
        offset by a $6.0 million increase in advances from customers, tax payables
        and
        other liabilities. The change in these working capital balances are
        primarily related to increases in business volume.  Non-cash items were
        primarily associated with depreciation and amortization of property and
        equipment.
 
 Net
        cash
        used in investing activities was $7.6 million for the six months ended September
        30, 2007, as compared to $8.8 million for the six months ended September
        30,
        2006. This was due primarily to the Company’s plant expansion to increase its
        production capabilities. Cash invested in purchases of property and equipment
        was $13.9 million and $5.6 million in the six months ended September 30,
        2007
        and 2006, respectively. Restricted cash decreased by $7.2 million in the
        six
        months ended September 30, 2007, as compared to an increase of $3.2 million
        in
        the six months ended September 30, 2006.
 
 Net
        cash
        provided by financing activities was $69.6 million for the six months ended
        September 30, 2007, as compared to $13.4 million for the six months ended
        September 30, 2006. The cash provided by financing activities during the
        six
        months ended September 30, 2007 was primarily related to the proceeds from
        short
        term bank loans of $61.7 million and proceeds from the issuance of common
        stock
        of $65.8 million, partially offset by the repayment of short term borrowings
        of
        $57.9 million. Net cash provided by financing activities for the six months
        ended September 30, 2006 was primarily related to the proceeds from short
        term
        bank loans of $40.4 million partially offset by the repayment of short term
        borrowings of $27.0 million.
  During
        the fiscal year ending March 31, 2008, we intend to continue to work to expand
        our product lines and product mix, as well as our product distribution network
        throughout China. We believe our existing cash, cash from operations and
        credit
        facilities at September 30, 2007 are adequate to fund our operations for
        at
        least the next twelve months.
 
 **OFF-BALANCE
        SHEET ARRANGEMENTS**
 
 As
        disclosed in footnote 13 to the unaudited Condensed Consolidated Financial
        Statements, we do not have any special purpose entities or off-balance sheet
        financing arrangements. However, we do guarantee certain bank loans to farmers
        as discussed below. As at September 30, 2007, the Company had a guarantee
        given
        to the Zhangbei Branch of the Agriculture Bank of China in respect of bank
        loans
        of $1.1 million in total extended to 104 farmers in the Zhangbei Area. The
        total
        amount of bank loans under this guarantee arrangement was $1.1 million as
        of
        March 31, 2007. These bank loans mature on December 25, 2007. The potential
        loss
        from this guarantee could not be estimated as the Company was unable to assess
        the financial position of individual farmers. However, based on general economic
        information available for this area, the Company believes that these loans
        will
        be repaid by the farmers upon maturity. Therefore, no liability was recorded
        on
        the balance sheet in relation to these guarantees.


22
  **COMMITMENTS
        AND CONTINGENCIES**
 
 **A.
        Purchase Commitments**
 
 As
        of
        September 30, 2007, the Company had outstanding commitments in the amount
        of
        $11.1 million for the purchase of whey protein during the period from July
        to
        December 2007.
 
 **B.
        Capital commitments**
 
 As
        of
        September 30, 2007, the Company’s capital commitments amounted to $6.8 million
        in relation to asset improvement and plant expansion within the next 12 months. **
 
 **C.
        Lease commitments**
 
 The
        Company is a party to various operating leases involving offices and warehouses.
        Total rental expenses for operating leases are $98,000 and $66,000 for the
        three
        months ended September 30, 2007 and 2006, and are $198,000 and $133,000 for
        the
        six months ended September 30, 2007 and 2006, respectively.
 
 **D.
        Legal proceedings**
 
 None.
  **CRITICAL
        ACCOUNTING ESTIMATES AND JUDGEMENTS**
 
 We
        follow
        certain significant accounting policies when preparing our consolidated
        financial statements. A summary of these policies is included in our latest
        Annual Report on Form 10-K/A. The preparation of these financial statements
        in
        conformity with accounting principles generally accepted in the United States
        of
        America requires us to make estimates and judgments that affect our reported
        amounts of assets, liabilities, revenues and expenses, and the related
        disclosures of contingent assets and liabilities at the date of the financial
        statements. We evaluate these estimates and judgments on an ongoing basis
        and
        base our estimates on historical experience, current conditions and various
        other assumptions that are believed to be reasonable under the circumstances.
        The results of these estimates form the basis for making judgments about
        the
        carrying values of assets and liabilities as well as identifying and assessing
        the accounting treatment with respect to commitments and contingencies. Our
        actual results may differ from these estimates.
 
 We
        believe that the estimates, assumptions and judgments involved in the accounting
        policies described in the “Management’s Discussion and Analysis of Financial
        Condition and Results of Operations” section of our most recent Annual Report on
        Form 10-K/A have the greatest potential impact on our financial statements,
        so
        we consider these to be our critical accounting policies.
  23
  Additionally,
        due to the adoption of FIN 48 (as described in Note 10 to the unaudited
        condensed consolidated financial statements), we have revised our policy
        on
        income taxes with respect to accounting for uncertain tax positions. We consider
        our policy on income taxes to be a critical accounting policy due to the
        significant level of estimates, assumptions and judgments and its potential
        impact on our consolidated financial statements. We have included below a
        description of our accounting policy for income taxes, which reflects changes
        to
        our accounting policy for uncertain tax positions.
 
 **Income
        Taxes**
 
 Our
        effective tax rate is based on expected income, statutory tax rates and tax
        planning opportunities available in the various jurisdictions in which we
        operate. For interim financial reporting, we estimate the annual tax rate
        based
        on projected taxable income for the full year and record a quarterly income
        tax
        provision in accordance with the anticipated annual rate. As the year
        progresses, we refine the estimates of the year’s taxable income as new
        information becomes available, including year-to-date financial results.
        This
        continual estimation process often results in a change to our expected effective
        tax rate for the year. When this occurs, we adjust the income tax provision
        during the quarter in which the change in estimate occurs so that the
        year-to-date provision reflects the expected annual tax rate. Significant
        judgment is required in determining our effective tax rate and in evaluating
        our
        tax positions.
 
 In
        accordance with SFAS No. 109, “Accounting for Income Taxes,” we recognize
        deferred tax assets and liabilities based on the differences between the
        financial statement carrying amounts and the tax basis of assets and
        liabilities. Deferred tax assets represent items to be used as a tax deduction
        or credit in future tax returns for which we have already properly recorded
        the
        tax benefit in the income statement. At least quarterly, we assess the
        likelihood that the deferred tax asset balance will be recovered from future
        taxable income. We take into account such factors as prior earnings history,
        expected future earnings, carry-back and carry-forward periods, and tax
        strategies that could potentially enhance the likelihood of a realization
        of a
        deferred tax asset. To the extent recovery is unlikely, a valuation allowance
        is
        established against the deferred tax asset, increasing our income tax expense
        in
        the year such determination is made.
  APB
        Opinion No. 23, “Accounting for Income Taxes, Special Areas,” does not
        require U.S. income taxes to be provided on foreign earnings when such earnings
        are indefinitely reinvested offshore. We periodically evaluate our investment
        strategies with respect to each foreign tax jurisdiction in which we operate
        to
        determine whether foreign earnings will be indefinitely reinvested offshore
        and,
        accordingly, whether U.S. income taxes should be provided when such earnings
        are
        recorded.
 
 We
        adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income
        Taxes, an Interpretation of FASB Statement No. 109” (FIN 48) effective
        April 1, 2007. In accordance with FIN 48, we recognize a tax benefit associated
        with an uncertain tax position when, in our judgment, it is more likely than
        not
        that the position will be sustained upon examination by a taxing authority.
        For
        a tax position that meets the more-likely-than-not recognition threshold,
        we
        initially and subsequently measure the tax benefit as the largest amount
        that we
        judge to have a greater than 50% likelihood of being realized upon ultimate
        settlement with a taxing authority. Our liability associated with unrecognized
        tax benefits is adjusted periodically due to changing circumstances, such
        as the
        progress of tax audits, case law developments and new or emerging legislation.
        Such adjustments are recognized entirely in the period in which they are
        identified. Our effective tax rate includes the net impact of changes in
        the
        liability for unrecognized tax benefits and subsequent adjustments as considered
        appropriate by management.
 
 A
        number
        of years may elapse before a particular matter for which we have recorded
        a
        liability related to an unrecognized tax benefit is audited and finally
        resolved. The number of years with open tax audits varies by jurisdiction.
        While
        it is often difficult to predict the final outcome or the timing of resolution
        of any particular tax matter, we believe our liability for unrecognized tax
        benefits is adequate. Favorable resolution of an unrecognized tax benefit
        could
        be recognized as a reduction in our effective tax rate in the period of
        resolution. Unfavorable settlement of an unrecognized tax benefit could increase
        the effective tax rate and may require the use of cash in the period of
        resolution. Our liability for unrecognized tax benefits is generally presented
        as non-current. However, if we anticipate paying cash within one year to
        settle
        an uncertain tax position, the liability is presented as current.
  24
  We
        classify interest and penalties recognized on the liability for unrecognized
        tax
        benefits as income tax expense. For the quarter ended September 30,
        2007, the unrecognized tax benefit did not change significantly and the amount
        of interest and penalties related to uncertain tax position is
        immaterial.
 
 **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 as its export of protein product
        to
        North America is through a single importer in the US. Amount due from this
        importer accounts for a significant proportion of the Company’s total account
        receivables.
 
 (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
        bank borrowings are approximately 7% per annum. The Company's income and
        cash
        flows are substantially independent of changes in market interest rates.
        The
        Company also has significant interest-bearing assets in the form of cash
        deposits with financial institutions both in the US and in PRC. The Company's
        policy is to maintain all of its borrowings in fixed rate
        instruments.
 
 **RECENTLY
        ISSUED ACCOUNTING PRONOUNCEMENTS**
 
 In
        September 2006, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards No. 157, “Defining Fair Value
        Measurement” (“SFAS 157”), which defines fair value, establishes a framework for
        measuring fair value in generally accepted accounting principles and expands
        disclosures about fair value measurements. SFAS 157 is effective for financial
        statements issued for fiscal years beginning after November 15, 2007, which
        is
        the Company’s fiscal 2009. The Company is currently evaluating the impact of
        adopting FAS 157 on its financial statements.
  In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS 159”), which permits companies to choose to measure many financial
        instruments and certain other items at fair value. SFAS 159 is effective
        for
        financial statements issued for fiscal years beginning after November 15,
        2007, which is the Company’s fiscal 2009. The Company is currently evaluating
        the impact of adopting SFAS 159 on its financial statements.
 
 **ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
 
 There
        were no material changes in quantitative or qualitative disclosure about
        market
        risk during the three months ended September 30, 2007. For additional
        information, refer to Management’s Discussion and Analysis of Financial
        Condition and Results of Operations as presented in our Annual Report on
        Form
        10-K/A for the year ended March 31, 2007.
  25
  The
        objective of our policies is to mitigate potential income statement, cash
        flow
        and fair value exposures resulting from possible future adverse fluctuations
        in
        rates. We evaluate our exposure to market risk by assessing the anticipated
        near-term and long-term fluctuations in interest rates and foreign exchange
        rates. This evaluation includes the review of leading market indicators,
        discussions with financial analysts and investment bankers regarding current
        and
        future economic conditions and the review of market projections as to expected
        future rates.
  We
        did
        not experience any material changes in interest rate exposures during the
        three
        and six months ended September 30, 2007.  Based upon economic conditions
        and leading market indicators at September 30, 2007, we do not foresee a
        significant adverse change in interest rates in the near future.
  As
        of
        September 30, 2007, the carrying value of our debt is $59.8 million.  We
        estimate that the fair market value of our debt approximated the carrying
        value
        as of September 30, 2007 due to the short term nature of these
        obligations.
 
 We
        conduct essentially all of our business outside the United States through
        subsidiaries with Renminbi ("RMB") as their functional currency.  As a
        result, we face exposure to adverse movements in currency exchange rates
        as the
        financial results of our international operations are translated from local
        currency into U.S. dollars upon consolidation.  If the U.S. dollar
        weakens against the local currency, the translation of these
        foreign-currency-denominated balances will result in increased net assets,
        net
        revenues, operating expenses, and net income or loss.  Similarly, our net
        assets, net revenues, operating expenses, and net income or loss will decrease
        if the U.S. dollar strengthens against local currency. Additionally,
        foreign exchange rate fluctuations on transactions denominated in currencies
        other than the functional currency result in gains and losses that are reflected
        in our unaudited condensed consolidated statement of income.  Our
        international operations are subject to risks typical of international business,
        including, but not limited to, differing economic conditions, changes in
        political climate, differing tax structures, other regulations and restrictions,
        and foreign exchange rate volatility.
  **ITEM
        4T. CONTROLS AND PROCEDURES**
 
 **Disclosure
        Controls and Procedures**
 
 As
        of
        September 30, 2007, the end of the period covered by this report, our Chief
        Executive Officer and our Chief Financial Officer reviewed and evaluated
        the
        effectiveness of our disclosure controls and procedures (as defined in Exchange
        Act Rule 13a-15(e) and 15d-15(e)), which are designed to ensure that material
        information we are required to disclose in our reports filed or submitted
        under
        the Exchange Act is recorded, processed, summarized, and reported within
        required time periods. Disclosure controls and procedures include, without
        limitation, controls and procedures designed to ensure that information required
        to be disclosed is accumulated and communicated to the Company’s management
        including its Chief Executive Officer and Chief Financial Officer, as
        appropriate, to allow timely decisions regarding required disclosures. We
        have
        concluded, based on that evaluation, that as of the end of the period covered
        by
        this report, our disclosure controls and procedures were not effective at
        the
        reasonable assurance level because of the identification of material weaknesses
        in our internal control over financial reporting, which we view as an integral
        part of our disclosure controls and procedures.
 
 Management’s
        assessment identified the following material weaknesses:
 
 1.
        The
        Company did not maintain a sufficient complement of personnel with an
        appropriate level of technical accounting knowledge, experience, and training
        in
        the application of generally accepted accounting principles commensurate
        with
        the Company’s complex financial accounting and reporting requirements and low
        materiality thresholds.
  26
  2.
        The
        Company did not have a robust antifraud and risk assessment process in place
        to
        regularly monitor and document the procedures, programs and controls related
        to
        its financial reporting.
 
 3.
        The
        Company did not have effective controls to ensure that significant non-routine
        transactions, accounting estimates, and other adjustments were appropriately
        reviewed, analyzed, and monitored on a timely basis.
 
 Due
        to
        these material weaknesses in internal control over financial reporting --
        as
        evidenced by the significant number and magnitude of out-of-period adjustments
        identified during the year-end and period-end closing process and the resulting
        restatements -- management has concluded that the Company’s disclosure controls
        and procedures were not effective at the reasonable assurance level. Further,
        management understands that these material weaknesses, if not remediated,
        could
        result in the Company not being able to meet its regulatory filing deadlines
        or
        cause a material misstatement in the future.
  **Remediation
        and Changes in Internal Control over Financial Reporting**
 
 The
        Company is in the process of developing and implementing remediation plans
        to
        address our material weaknesses in our internal control over financial reporting
        by adopting and implementing the Sarbanes-Oxley Act for the Company's fiscal
        year ending March 31, 2008. During the fiscal quarter ended September 30,
        2007,
        management conducted a program to plan the remediation of all identified
        material weaknesses and significant deficiencies using a risk-based approach
        based on the “Internal Control — Integrated Framework” issued by the
        Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
        These
        plans contemplate various changes in process, procedures, policy, training
        and
        organizational design, and are currently being implemented. In addition,
        the
        Company will hire and/or appoint new managers in the accounting area and
        engage
        accounting professionals from external resources to address internal control
        weaknesses related to technical accounting.
 
 The
        following specific remedial actions are in process to address the material
        weaknesses in our internal control over financial reporting described above:
 
 1.
        Reorganize and restructure the Company’s corporate accounting staff (“Corporate
        Accounting”) by (1) hiring a new Chief Financial Officer, (2) revising the
        reporting structure and establishing clear roles, responsibilities, and
        accountability, (3) hiring additional technical accounting personnel to address
        the Company's complex accounting and financial reporting requirements, and
        (4)
        assessing the technical accounting capabilities at our subsidiaries to ensure
        the right complement of knowledge, skills, and training.
 
 2.
        Improve period-end closing procedures by (1) requiring all significant
        non-routine transactions to be reviewed by Corporate Accounting, (2) ensuring
        that account reconciliations and analyses for significant financial statement
        accounts are reviewed for completeness and accuracy by qualified accounting
        personnel, (3) implementing a process that ensures the timely review and
        approval of complex accounting estimates by qualified accounting personnel
        and
        subject matter experts, where appropriate, and (4) developing better monitoring
        controls at Corporate Accounting and at our subsidiaries and (5) documenting
        and
        implementing antifraud programs and controls as well as comprehensive risk
        assessment procedures, programs and controls.
 
 As
        previously noted, management has augmented the resources in Corporate Accounting
        by utilizing external resources in technical accounting areas and will implement
        additional closing procedures during the remainder of fiscal 2008. As a result,
        management believes that there are no material inaccuracies or omissions
        of
        material fact and, to the best of its knowledge, believes that the condensed
        consolidated financial statements as and for the fiscal quarter and six months
        ended September 30, 2007 in this Form 10-Q, fairly present in all material
        respects the financial condition and results of operations of the Company
        in
        conformity with accounting principles generally accepted in the United States
        of
        America.
  27
  **PART
        II**
 **OTHER
        INFORMATION**
 
 **ITEM
        1. LEGAL PROCEEDINGS**
 
 **None.**
 
 **ITEM
        1A. RISK FACTORS**
 
 For
        information regarding risk factors, please refer to Part II Item 1A as presented
        in our Form 10-Q for the three months ended June 30, 2007. There has been
        no
        material changes in our risk factors during the three months ended September
        30,
        2007.
 
 **ITEM
        2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS**
 
 On
        May
        24, 2007, the Company entered into a Common Stock Purchase Agreement (the
        “Purchase Agreement”) with Warburg Pincus Private Equity IX, L.P. (the
“Investor”), pursuant to which the Investor agreed to acquire 4 million shares
        of common stock (the “Common Shares”), par value $0.0001 per share, of the
        Company for an aggregate purchase price of $66,000,000. The Company claims
        an
        exemption from the registration Requirements of the Securities Act of 1933
        (the
“Act”) for the private placement of these securities pursuant to Section 4(2)
        of
        the Act and/or Regulation D promulgated thereunder since, among other things,
        the transaction did not involve a public offering, the investors are accredited
        investors and/or qualified institutional buyers, the investors had access to
        information about the Company and their investment, the investors took the
        securities for investment and not resale, and the Company took appropriate
        measures to restrict the transfer of the securities.
 
 **ITEM
        3. DEFAULTS UPON SENIOR SECURITIES**
 
 **None.**
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 **None.**
 
 **ITEM
        5. OTHER INFORMATION**
 
 **None.**
  28
  **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)10.3
              
              Agreement
                  between he Company and the Department of Finance of Zheng Lan Qi
                  (County)
                  of Inner Mongolia, with Amendment and Schedule (4)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.(4)
              Incorporated
                  herein by reference from the Registrant’s Form 8-K filed with the
                  Securities and Exchange Commission on November 9,
                  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:
                  November 12, 2007
              By:
              /s/ Liang
                  ZhangName: 
                  Liang ZhangTitle: 
                  Chief Executive Officer
  30