Chinese infant formula maker Synutra is in talks with its lenders after a slump in sales led to a quarterly loss and the company breaking its loan agreements.

Synutra swung to a quarterly loss as last year's melamine scandal hit sales. The company today (11 August) posted a net loss of US$9.95m for the three months to the end of June - compared to net income of $15.6m a year earlier.

Sales tumbled by more than 62% thanks to the "lingering impact" of becoming embroiled in last year's melamine contamination scandal in China.

Batches of Synutra's U-Smart formula were among the products of 22 Chinese firms discovered to be contaminated with melamine. The presence of the industrial chemical caused thousands of infants to fall sick and the deaths of at least six babies.

Synutra said today that the recall had caused "significant damage" to its brand equity and added that it had yet to see its market share recover to the level of before the scandal broke.

The company admitted that, at the end of June, it was not in compliance with an agreement with ABN Amro. Synutra said it was in talks with its lenders on whether it could waive the covenant but was unsure if it would be granted.

Synutra also revealed it had negotiated with some suppliers to extend payment terms.

Chairman and CEO Liang Zhang said: "This was a challenging first quarter following an extraordinarily difficult fiscal year, but we remain confident in our belief in Synutra's core business, which still produces nearly $190m in annualised sales, despite the events of 2008."

Zhang added: ""The company has assets - including approximately $145m in property, plant and equipment - that could play a role in possible solutions to its current liquidity issues."