UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549







FORM
10-Q





(Mark
One)




[
      X]
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934





For
the Quarterly Period Ended December 31, 2008





OR





[    
      ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934





For the
transition period from______to_______





Commission
file number 0-12992





SYNTHETECH,
INC.


(Exact
name of registrant as specified in its charter)






OREGON
              
              84-0845771(State
      or Other Jurisdictionof
      Incorporation or Organization)
              
              (I.R.S. Employer
      Identification No.)




1290
Industrial Way


PO
Box 646


Albany,
Oregon  97321


(Address
of Principal Executive Offices)




(541)
967-6575


(Registrant's
Telephone Number, Including Area Code)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.




Yes   X   No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer.  See the definition of
“large accelerated filer and accelerated filer” in Rule 12b-2 of the Exchange
Act.  (Check one)




Large accelerated filer
            Accelerated filer
            Non-accelerated
      filerX




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


Yes      No   X




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:




Class:
Common Stock, $0.001 par value


Shares
outstanding as of February 12, 2009:  14,648,614







SYNTHETECH,
INC




INDEX






PagePart
      I.
                Financial
      InformationItem 1
                Condensed Financial StatementsBalance Sheets
                1Statements of Operations
                3Statements of Cash Flows
                4Notes to Unaudited Condensed Financial
    Statements
                5Item 2
                Management’s Discussion and
      Analysis of FinancialCondition
      and Results of Operations
                16Item 3
                Quantitative and Qualitative
      Disclosure about MarketRisk
                29Item 4T
                Controls and Procedures
                29Part
      II.
                Other
      InformationItem 1
                Legal Proceedings
                30Item 1A.
                Risk Factors
                30Item 6
                Exhibits
                31Signatures
                32


























PART
I. FINANCIAL
INFORMATION




Item 1.
            Financial
      Statements






SYNTHETECH, INC.


Condensed
Balance Sheets


(unaudited)






December
      31,
                    
                    
                    March
      31,2008
                    
                    
                    2008AssetsCurrent
      Assets:Cash
      and cash equivalents
                    
                    $
                    89,000
                    
                    
                    $
                    1,062,000Accounts
      receivable, less allowancefor
      doubtful accounts of $15,000 forboth
      periods
                    
                    
                    3,232,000
                    
                    
                    
                    2,460,000Inventories
                    
                    
                    5,861,000
                    
                    
                    
                    4,340,000Prepaid
      expenses
                    
                    
                    448,000
                    
                    
                    
                    338,000Total
      Current Assets
                    
                    
                    9,630,000
                    
                    
                    
                    8,200,000Property,
      plant and equipment, net
                    
                    
                    4,459,000
                    
                    
                    
                    3,911,000Total
      Assets
                    
                    $
                    14,089,000
                    
                    
                    $
                    12,111,000




























The
accompanying notes are an integral part of these condensed financial
statements.
 1


SYNTHETECH,
INC.


Condensed
Balance Sheets


(continued)


(unaudited)


December
      31,
                    
                    
                    March
      31,2008
                    
                    
                    2008Liabilities
      and Shareholders’ EquityCurrent
      Liabilities:Line
      of credit
                    
                    $
                    1,571,000
                    
                    
                    $
                    905,000Current
      portion of long-term debt
                    
                    
                    210,000
                    
                    
                    
                    -Notes
      payable
                    
                    
                    245,000
                    
                    
                    
                    135,000Accounts
      payable
                    
                    
                    1,733,000
                    
                    
                    
                    1,349,000Accrued
      compensation
                    
                    
                    572,000
                    
                    
                    
                    324,000Deferred
      revenue
                    
                    
                    51,000
                    
                    
                    
                    1,004,000Other
      accrued liabilities
                    
                    
                    20,000
                    
                    
                    
                    35,000Total
      Current Liabilities
                    
                    
                    4,402,000
                    
                    
                    
                    3,752,000Long-term
      debt
                    
                    
                    767,000
                    
                    
                    
                    -Total
      Liabilities
                    
                    
                    5,169,000
                    
                    
                    
                    3,752,000Shareholder’s
      Equity:Common
      Stock, $.001 par value; authorized
                      100,000,000
      shares; issued and outstanding,
                      14,649,000
      and 14,632,000 shares
                    
                    
                    15,000
                    
                    
                    
                    15,000Paid-in
      capital
                    
                    
                    9,445,000
                    
                    
                    
                    9,378,000Retained
      deficit
                    
                    
                    (540,000
                    )
                    
                    
                    (1,034,000
                    )Total
      Shareholders’ Equity
                    
                    
                    8,920,000
                    
                    
                    
                    8,359,000Total
      Liabilities and Shareholders’ Equity
                    
                    $
                    14,089,000
                    
                    
                    $
                    12,111,000






The
accompanying notes are an integral part of these condensed financial
statements.
 2


SYNTHETECH, INC.


Condensed
Statements of Operations


(unaudited)


For
      the Three Months
                          Ended
                          December
      31,
                        
                        
                        For
      the Nine Months
                          Ended
                          December
      31,2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007Revenue
                        
                        $
                        5,037,000
                        
                        
                        $
                        2,851,000
                        
                        
                        $
                        13,245,000
                        
                        
                        $
                        10,004,000Cost
      of revenue
                        
                        
                        3,416,000
                        
                        
                        
                        2,449,000
                        
                        
                        
                        9,693,000
                        
                        
                        
                        8,270,000Gross
      Income
                        
                        
                        1,621,000
                        
                        
                        
                        402,000
                        
                        
                        
                        3,552,000
                        
                        
                        
                        1,734,000Research
      and development
                        
                        
                        318,000
                        
                        
                        
                        308,000
                        
                        
                        
                        950,000
                        
                        
                        
                        982,000Selling,
      general and administrative
                        
                        
                        680,000
                        
                        
                        
                        628,000
                        
                        
                        
                        1,998,000
                        
                        
                        
                        1,991,000Total
      operating expenses
                        
                        
                        998,000
                        
                        
                        
                        936,000
                        
                        
                        
                        2,948,000
                        
                        
                        
                        2,973,000Operating
      income (loss)
                        
                        
                        623,000
                        
                        
                        
                        (534,000
                        )
                        
                        
                        604,000
                        
                        
                        
                        (1,239,000
                        )Interest
      income
                        
                        
                        1,000
                        
                        
                        
                        4,000
                        
                        
                        
                        6,000
                        
                        
                        
                        16,000Interest
      expense
                        
                        
                        (58,000
                        )
                        
                        
                        (15,000
                        )
                        
                        
                        (116,000
                        )
                        
                        
                        (64,000
                        )Income
      (loss) before income taxes
                        
                        
                        566,000
                        
                        
                        
                        (545,000
                        )
                        
                        
                        494,000
                        
                        
                        
                        (1,287,000
                        )Income
      tax
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Net
      income (loss)
                        
                        $
                        566,000
                        
                        
                        $
                        (545,000
                        )
                        
                        $
                        494,000
                        
                        
                        $
                        (1,287,000
                        )Net
      income (loss) per common share:Basic
      and diluted income (loss) per share
                        
                        $
                        0.04
                        
                        
                        $
                        (0.04
                        )
                        
                        $
                        0.03
                        
                        
                        $
                        (0.09
                        )Weighted
      average shares outstanding:Basic
                        
                        
                        14,648,179
                        
                        
                        
                        14,566,614
                        
                        
                        
                        14,638,356
                        
                        
                        
                        14,558,178Diluted
                        
                        
                        14,889,293
                        
                        
                        
                        14,566,614
                        
                        
                        
                        15,196,423
                        
                        
                        
                        14,558,178







The accompanying
notes are an integral part of these condensed financial
statements.
 3
 
 SYNTHETECH, INC.
 Condensed
Statements of Cash Flows
 (unaudited)


For The Nine MonthsEndedDecember
      31,2008
                                      
                                      
                                      2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
      (loss)
                                      
                                      $
                                      494,000
                                      
                                      
                                      $
                                      (1,287,000
                                      )Adjustments
      to reconcile net income (loss) tonet
      cash provided by (used in) operating activities:Depreciation
      expense
                                      
                                      
                                      374,000
                                      
                                      
                                      
                                      355,000Loss
      on retirement of
      equipment
                                      
                                      
                                      4,000
                                      
                                      
                                      
                                      80,000Stock-based
      compensation
      expense
                                      
                                      
                                      62,000
                                      
                                      
                                      
                                      148,000(Increase)
      decrease in assets:Accounts
      receivable,
      net
                                      
                                      
                                      (772,000
                                      )
                                      
                                      
                                      (61,000
                                      )Inventories
                                      
                                      
                                      (1,521,000
                                      )
                                      
                                      
                                      487,000Prepaid
      expenses
                                      
                                      
                                      212,000
                                      
                                      
                                      
                                      241,000Increase
      (decrease) in liabilities:Accounts
      payable
                                      
                                      
                                      384,000
                                      
                                      
                                      
                                      344,000Accrued
      compensation
                                      
                                      
                                      248,000
                                      
                                      
                                      
                                      (13,000
                                      )Accrued
      termination
      benefits
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (124,000
                                      )Deferred
      revenue
                                      
                                      
                                      (953,000
                                      )
                                      
                                      
                                      707,000Other
      accrued
      liabilities
                                      
                                      
                                      (15,000
                                      )
                                      
                                      
                                      3,000Cash
      Provided By (Used In) Operating Activities
                                      
                                      
                                      (1,483,000
                                      )
                                      
                                      
                                      880,000CASH
      FLOWS FROM INVESTING ACTIVITIES:Property,
      plant and equipment
      purchases
                                      
                                      
                                      (926,000
                                      )
                                      
                                      
                                      (634,000
                                      )Cash
      Used In  Investing
      Activities
                                      
                                      
                                      (926,000
                                      )
                                      
                                      
                                      (634,000
                                      )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from (repayments of) line of
      credit
                                      
                                      
                                      666,000
                                      
                                      
                                      
                                      (15,000
                                      )Borrowings
      under long-term debt obligations
                                      
                                      
                                      1,050,000
                                      
                                      
                                      
                                      -Principal
      payments under long-term debt obligations
                                      
                                      
                                      (73,000
                                      )
                                      
                                      
                                      -Repayment
      of note
      payable
                                      
                                      
                                      (212,000
                                      )
                                      
                                      
                                      (189,000
                                      )Proceeds
      from exercise of stock options
                                      
                                      
                                      5,000
                                      
                                      
                                      
                                      7,000Cash
      Provided By (Used In) Financing Activities
                                      
                                      
                                      1,436,000
                                      
                                      
                                      
                                      (197,000
                                      )Increase
      (Decrease) in Cash and Cash Equivalents
                                      
                                      
                                      (973,000
                                      )
                                      
                                      
                                      49,000Cash
      and Cash Equivalents at Beginning of Period
                                      
                                      
                                      1,062,000
                                      
                                      
                                      
                                      259,000Cash
      and Cash Equivalents at End of
      Period
                                      
                                      $
                                      89,000
                                      
                                      
                                      $
                                      308,000Non-Cash
      Financing Activities:Insurance
      premiums financed with notes payable
                                      
                                      $
                                      322,000
                                      
                                      
                                      $
                                      292,000






The
accompanying notes are an integral part of these condensed financial
statements.
 4


SYNTHETECH, INC.


NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


(Information
as of December 31, 2008 and for the three month and nine month


periods
ended December 31, 2008 are unaudited)




NOTE
A. GENERAL
AND BUSINESS




Synthetech,
Inc., an Oregon corporation, is a fine chemicals company specializing in organic
synthesis, biocatalysis and chiral technologies.  Synthetech develops
and manufactures amino acid derivatives, specialty amino acids, peptide
fragments, proprietary custom chiral intermediates and specialty resins,
primarily for the pharmaceutical industry.  Synthetech’s products
support the development and manufacture of therapeutic peptides and
peptidomimetic (peptide-like) small molecule drugs at every stage of a
customer’s clinical development pipeline, and are used as ingredients in drugs
for the treatment of AIDS, cancer, cardiovascular and other
diseases.  Synthetech’s products also support the production of
chemically based medical devices.




The
summary financial statements included herein have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission.  Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations, although Synthetech management
believes that the disclosures are adequate to make the information presented not
misleading.  Synthetech’s management suggests that these summary
financial statements be read in conjunction with the financial statements and
the notes thereto included in Synthetech’s Annual Report on Form 10-K for the
year ended March 31, 2008.  Synthetech's fiscal year ends March 31 of
each year.




The
interim period information included in this Quarterly Report on Form 10-Q
reflects all adjustments, consisting of normal recurring adjustments, that are,
in the opinion of Synthetech’s management, necessary for a fair statement of the
results of the respective interim periods.  Results of operations for
interim periods are not necessarily indicative of results to be expected for an
entire year.




NOTE
B. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES




Use of
Estimates:The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period.  Actual results
could differ from those estimates.  Significant items subject to such
estimates and assumptions include the valuation of inventory, accounts
receivable, deferred tax assets and the carrying amount of property, plant and
equipment.



































5


Cash and Cash
Equivalents:  Cash and cash equivalents include demand cash and
highly liquid debt instruments with maturities of three months or less when
purchased.




Cash and
cash equivalents consist of the following:




December
      31,
                  
                  
                  March
      31,2008
                  
                  
                  2008Cash
                  
                  $
                  6,000
                  
                  
                  $
                  920,000Cash
      equivalents
                  
                  
                  83,000
                  
                  
                  
                  142,000$
                  89,000
                  
                  
                  $
                  1,062,000




Accounts Receivable:Accounts receivable are recorded at the invoiced amount and do not bear
interest.  Synthetech does not finance its trade receivables by
factoring the balances to a third party.   The allowance for
doubtful accounts is established by a review of aged accounts receivable and a
review for collectibility of specific accounts.  The allowance for
doubtful accounts as of December 31, 2008 and March 31, 2008 was
$15,000.




Concentrations of
Credit Risk:  Financial instruments that potentially subject
Synthetech to significant concentrations of credit risk consist principally of
cash equivalents and trade accounts receivable. Cash equivalents primarily
consist of money market accounts with maturities at purchase of less than three
months.  Synthetech’s customers consist primarily of major
pharmaceutical, emerging biopharmaceutical and contract drug synthesis
companies.  Synthetech’s customers are primarily located in the United
States and Western Europe.  At December 31, 2008, two customers had
accounts receivable balances of approximately 32% and 20% of total accounts
receivable.  At March 31, 2008, four customers had accounts receivable
balances of 25%, 15%, 14% and 10% of total accounts
receivable.  During the first nine-months of fiscal 2009, sales to
three customers, each exceeding 10% of revenue for the nine-month period,
accounted for approximately 42% of Synthetech’s revenue.  During the
first nine months of fiscal 2008, sales to two customers, each exceeding 10% of
revenue for the nine month period, accounted for approximately 29% of
Synthetech’s revenue.  Synthetech’s reliance on major customers and
the absence of long term contracts could adversely affect operating results if a
major customer were lost or failed to pay Synthetech. Revenue from emerging
pharmaceutical or biotechnology companies could be adversely impacted if these
customers are unable to obtain necessary additional funding from the financial
markets.




Inventories:  Inventories
are stated at the lower of cost or market, determined on the first-in, first-out
basis.  Costs include direct material, direct labor, applicable
manufacturing overhead, and other direct costs.




Management
evaluates Synthetech’s inventory for impairment whenever it becomes aware that
indicators of impairment exist.  It is Synthetech’s policy to
write-down inventories to reflect an estimate for impairment in an amount equal
to the difference between the cost of inventory and the estimated market value
based upon assumptions about future demand and market
conditions.  Write-downs of inventory are reported as a component of
cost of revenue in the relevant period.





























6


Property, Plant and
Equipment:  Property, plant and equipment are recorded at
cost.  Expenditures for maintenance and repairs are expensed as
incurred.  Expenditures that materially increase values, change
capacities or extend useful lives are capitalized.  When assets are
retired, sold or otherwise disposed of, the applicable costs and accumulated
depreciation are removed from the accounts and the resulting gain or loss is
recognized.  Depreciation and amortization are provided on the
straight-line basis over the estimated useful lives of the individual assets,
which range from three to 40 years.




In
accordance with Statement of Financial Accounting Standards (SFAS) No.
144, “Accounting for
Impairment or Disposal of Long-Lived Assets”, Synthetech assesses the
impairment of property, plant and equipment whenever events or changes in
circumstances indicate that their carrying value may not be
recoverable.  If Synthetech determines that the carrying value of
property, plant and equipment may not be recoverable, Synthetech compares the
carrying values of its property, plant and equipment to the undiscounted cash
flows expected to be generated by the asset group.  If the carrying
value exceeds the undiscounted cash flows, an impairment charge may be
recorded.  An impairment charge is recognized to the extent that the
carrying amount of property, plant and equipment is in excess of their
determined fair value.




Income
Taxes:Synthetech accounts for income taxes in accordance with
SFAS No. 109, “Accounting for
Income Taxes.”  In accordance with SFAS No. 109, deferred tax
assets arise from the tax benefit of amounts expensed for financial reporting
purposes but not yet deducted for tax purposes and from unutilized tax credits
and net operating loss carryforwards.  Synthetech evaluates its
deferred tax assets on a regular basis to determine if a valuation allowance is
required.  To the extent it is determined the recoverability of the
deferred tax assets is unlikely, Synthetech records a valuation allowance
against deferred tax assets.  No income tax benefit or expense was
reported for the interim periods presented due to changes in the Company’s
valuation allowance.




Revenue
Recognition:  Synthetech recognizes revenue, including shipping
and handling charges billed to customers, upon shipment of product when title
and risk of loss pass to customers.  Shipping and handling costs are
classified as part of cost of revenue.  Deferred revenue represents
customer advances and is recognized into revenue consistent with Synthetech’s
revenue recognition policy.




Research and
Development Costs:  Research and development costs are expensed
as incurred.




Comprehensive Income
or Loss:Synthetech has no material components of
comprehensive income/ loss other than net income/loss.  Accordingly,
comprehensive income/loss was equal to net income/loss for all periods
presented.




Stock-Based
Compensation:Stock-based compensation expense for all
stock-based compensation awards is based on the grant-date fair value estimated
in accordance with the provisions of SFAS No. 123(R), “Share-Based
Payment”.  Synthetech recognizes these compensation costs net
of estimated forfeitures over the requisite service period of the award, which
is generally the vesting term of one to five years for stock
options.  Please refer to Note K to these condensed financial
statements for a further discussion of stock-based
compensation.





































7


NOTE
C.NET INCOME (LOSS)
PER SHARE




Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted-average number of shares of common stock outstanding during the
period.  Diluted net income per share is computed by dividing net
income by the weighted-average number of shares of common stock and common stock
equivalents outstanding during the period, calculated using the treasury stock
method as defined in SFAS No. 128, "Earnings per
Share."  For
the three and nine month periods ended December 31, 2008, the weighted-average
number of shares used to compute diluted income per share includes certain
common stock equivalents.  For the three and nine month periods ended
December 31, 2007, the weighted-average number of shares used to compute diluted
loss per share did not differ from the weighted-average number of shares used to
compute basic loss per share.  The following table shows common stock
equivalents that were excluded from the dilutive loss per share computations
because their effect would have been anti-dilutive:




For
      the Three Months
                  
                  
                  For
      the Nine MonthsEnded
      December 31,
                  
                  
                  Ended
      December 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Common
      stock options outstanding
                  
                  
                  2,605,067
                  
                  
                  
                  2,243,700
                  
                  
                  
                  2,605,067
                  
                  
                  
                  2,243,700Less
      common stock options used incalculating
      diluted loss per share
                  
                  
                  1,316,000
                  
                  
                  
                  -
                  
                  
                  
                  1,318,500
                  
                  
                  
                  -Common
      stock options not used incalculating
      diluted loss per share
                  
                  
                  1,289,067
                  
                  
                  
                  2,243,700
                  
                  
                  
                  1,286,567
                  
                  
                  
                  2,243,700




NOTE
D. STATEMENTS
OF CASH FLOWS




Supplemental
cash flow disclosures:






Cash
      Paid
                  
                  For
      the Three Months Ended December 31,
                  
                  
                  For
      the Nine Months Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Interest
                  
                  $
                  58,000
                  
                  
                  $
                  15,000
                  
                  
                  $
                  116,000
                  
                  
                  $
                  64,000





























8


NOTE
E. INVENTORIES




The major
components of inventories, net of reserves, are as follows:




December
      31,
                  
                  
                  March
      31,2008
                  
                  
                  2008Finished
      products
                  
                  $
                  1,951,000
                  
                  
                  $
                  1,678,000Work
      in process
                  
                  
                  1,344,000
                  
                  
                  
                  902,000Raw
      materials
                  
                  
                  2,566,000
                  
                  
                  
                  1,760,000$
                  5,861,000
                  
                  
                  $
                  4,340,000




NOTE
F. PROPERTY,
PLANT AND EQUIPMENT




Property,
plant and equipment and depreciable lives are summarized as
follows:




Depreciable
      Life
                  
                  
                  December
      31,
                  
                  
                  March
      31,In
      Years
                  
                  
                  2008
                  
                  
                  2008Land
                  
                  
                  
                  
                  $
                  241,000
                  
                  
                  $
                  241,000Buildings
                  
                  
                  15
      – 40
                  
                  
                  
                  1,617,000
                  
                  
                  
                  1,617,000Machinery
      and equipment
                  
                  
                  5 –
      17
                  
                  
                  
                  3,386,000
                  
                  
                  
                  2,660,000Laboratory
      equipment
                  
                  
                  5 –
      17
                  
                  
                  
                  1,441,000
                  
                  
                  
                  1,323,000Furniture
      and fixtures
                  
                  
                  3 –
      5
                  
                  
                  
                  114,000
                  
                  
                  
                  99,000Construction
      in process
                  
                  
                  
                  
                  
                  
                  67,000
                  
                  
                  
                  13,0006,866,000
                  
                  
                  
                  5,953,000Less:Accumulated
      depreciation
                  
                  
                  
                  
                  
                  
                  (2,407,000
                  )
                  
                  
                  (2,042,000
                  )$
                  4,459,000
                  
                  
                  $
                  3,911,000























9


NOTE
G. LINE
OF CREDIT




Synthetech’s
credit facility, with a finance company, provides for borrowings of up to $2
million or the maximum available under the borrowing base, whichever is
less.  Interest is payable at the prime rate plus 5%, or 9%, whichever
is higher.  The annual fee for the credit facility is $20,000.
Additionally, the credit facility has a minimum monthly fee of $2,500, which is
reduced by interest charges.  The facility contains no financial
covenants and is collateralized by cash, cash equivalents, accounts receivable,
inventories and property, plant and equipment.  The credit facility is
scheduled to expire on September 15, 2010, which was extended from June 15,
2009.  The amount outstanding under the facility as of December 31,
2008 was $1,571,000.




NOTE
H. LONG-TERM
DEBT




Synthetech
has entered into term loan facilities from the same finance company that
provided Synthetech’s line of credit facility.  The loans contain no
financial covenants and are collateralized by cash, cash equivalents, accounts
receivable, inventories, and property, plant and equipment.  Terms of
the loans are as follows:


- On
  November 5, 2008, Synthetech entered into a term loan facility under which it
  borrowed $500,000.  The loan matures on November 5, 2011, and
  requires 36 monthly principal payments equal to $8,333, plus interest,
  beginning on December 1, 2008, with a balloon payment of $200,000 due on
  maturity.  The note bears interest at the prime rate plus 5% or 9%,
  whichever is higher.
- On May
  5, 2008, Synthetech entered into a term loan facility under which it borrowed
  $550,000. The loan matures on May 5, 2011, and requires 36 monthly principal
  payments equal to $9,167, plus interest, beginning on June 1, 2008, with a
  balloon payment of $220,000 due on maturity.  The note bears
  interest at the prime rate plus 4% or 8%, whichever is higher.  In
  May 2009 and 2010, Synthetech will pay an annual loan fee equal to 1% of
  the then outstanding principal balance of the loan.

Scheduled long-term debt principal repayments under the
term loan facilities are as follows:




Fiscal
      2009 (fourth quarter)
                  
                  $
                  53,000Fiscal
      2010
                  
                  
                  210,000Fiscal
      2011
                  
                  
                  210,000Fiscal
      2012
                  
                  
                  504,000$
                  977,000































10


NOTE
I. NOTES
PAYABLE




During
November and December 2008, Synthetech financed $322,000 of annual premiums for
certain of its insurance policies.  As of December 31, 2008, remaining
payments under two of the financings consisted of six monthly installments of
$46,427, including interest at a weighted-average rate of
5.7%.  Remaining monthly payments under a third financing consists of
eight monthly payments of $1,875, plus interest, at a rate of 8%. The aggregate
amount outstanding under the finance agreements as of December 31, 2008 was
$245,000.




NOTE
J. SHAREHOLDERS'
EQUITY




Amended
and Restated Shareholders Rights Agreement




In July
1998, Synthetech adopted a Shareholder Rights Plan (the Original Rights
Agreement).  Under the Original Rights Agreement, Synthetech
declared a dividend of one common share purchase right (each a Right) for
each share of common stock outstanding at the close of business on August 4,
1998.  The Rights are attached to, and automatically trade with, the
outstanding shares of Synthetech’s common stock.  In July 2008,
Synthetech adopted an Amended and Restated Shareholder Rights Agreement (the
Current
Rights
Agreement).  The Current Rights Agreement extends the Rights'
expiration date and adjusts the purchase price from $30.00 to $2.00 per share,
subject to adjustment.  If any person or group other than Synthetech,
a Synthetech subsidiary or a Synthetech employee benefit plan acquires 15% or
more of Synthetech's common stock, then that person or group's Rights will be
void and proper provision will be made so that every other Rights holder will
have the right to receive upon exercise an amount of Synthetech common stock
with a market value twice that of the Right exercise price.  In
addition, if Synthetech is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold
after a person or group has acquired 15% or more of Synthetech's common stock,
then proper provision will be made so that each Rights holder will have the
right to receive, upon the exercise of its Rights at the then current Right
exercise price, an amount of common stock of the acquiring company that at the
time of such a transaction will have a market value twice that of the exercise
price.  Synthetech may redeem the Rights at a price of $0.0001 per
Right at any time prior to the earlier of (i) the expiration of the Rights in
August 2018 or (ii) a certain amount of time after a person or group has begun
to acquire or announced that it plans to acquire 15% or more of the outstanding
shares of Synthetech common stock.  Until a Rights holder exercises
its Rights, the Rights holder does not have rights as a shareholder of
Synthetech, including, without limitation, voting or distribution
rights.













































11


NOTE
K. EMPLOYEE
STOCK BENEFITS




Description
of the Plans




Stock
Plan


Synthetech
grants equity-based compensation under its 2005 Equity Incentive Plan (the 2005
Plan).  Stock options, restricted stock awards and stock
appreciation rights are authorized for issuance to employees, consultants and
non-employee directors under the 2005 Plan.  Stock options are granted
with an exercise price equal to the fair market value of Synthetech’s common
stock on the date of grant.  Employee options generally vest (a)
one-third on the date of grant and in equal annual installments between the date
of grant and the subsequent two years or (b) over a three year period on their
annual anniversary dates. On occasion, individual options may have different
vesting terms.  Options granted to non-management Directors generally
vest ratably over the five succeeding years from the date of
grant.  All options expire no later than ten years from the date of
grant.  As of December 31, 2008, 57,850 shares were available for
issuance under the 2005 Plan.




On
November 13, 2008, the Compensation Committee of the Board of Directors awarded
key employees options to purchase an aggregate of 452,000 shares of Synthetech
common stock. The options were awarded at $0.50 per share, the market price of
Synthetech common stock on the date of grant.  The incentive stock
options were issued as part of the 2005 Plan.  One-third of these
options will vest on each of the first three anniversaries of the grant
date.  On November 13, 2008, the Compensation Committee awarded an
employee an option to purchase 45,000 shares of Synthetech common stock pursuant
to the terms of an employment agreement.  The options were awarded at
$0.50 per share, the market price of Synthetech common stock on the date of
grant.  The incentive stock options were issued as part of the 2005
Plan.  One-third of these options vested on the date of grant and an
additional one-third will vest on each of the first two anniversaries of the
grant date.




On
November 6, 2008, the Board of Directors revised the non-employee Board of
Director’s compensation policy as it relates to stock-based
compensation.  Pursuant to the prior policy, members of the Board of
Directors received a grant of 15,000 shares once every five years, which vested
3,000 shares per year, over five years.  The Board of Directors
modified this policy to increase the standard five-year award to non-employee
Directors from 15,000 options to 37,500 options.  To phase-in this
transition in light of existing stock option grants made in different years to
various directors, the Board of Directors approved transition grants to increase
each non-employee Director’s annual vesting to 7,500 shares from the present
3,000 shares, taking into account currently outstanding and unvested
grants.  Consequently, on November 13, 2008, the Compensation
Committee of the Board of Directors awarded non-employee Directors an aggregate
of 186,000 options to purchase Synthetech’s common stock.  The options
were awarded at $0.50 per share, the market price of Synthetech’s common stock
on the date of grant.  The nonqualified stock options were issued as
part of the 2005 Plan.







































12


Stock Option
Agreements –The right to purchase shares pursuant to existing stock
option agreements typically vests pro-rata at each option anniversary date over
a one to five-year period.  The options, which are granted with option
exercise prices equal to the fair market value of Synthetech shares on the date
of grant, expire within ten years from the date of grant.  Synthetech
has not issued any options to consultants or advisors.  Stock options
are a component of director’s compensation.




Restricted stock
awards (RSAs) –Awards of restricted stock may be either grants of
restricted stock, restricted stock units or performance-based stock units that
are issued at no cost to the recipient.  For RSAs, at the date of
grant the recipient has the rights of a shareholder, subject to certain
restrictions on transferability and a risk of
forfeiture.  Synthetech’s most recently issued RSAs had an original
vesting period of two years.  Synthetech has not awarded restricted
stock units or performance-based stock units.  Compensation cost for
RSAs is determined using the market value of Synthetech’s common stock on the
date of grant and the resulting expense is recognized on a straight-line basis
over the vesting term.




Other
Stock Grants


On April
17, 2007, the Compensation Committee of the Board of Directors awarded key
employees options to purchase a total of 525,000 shares of Synthetech’s common
stock. The exercise price of the options is $0.87 per share, the market price of
Synthetech common stock on the date of grant.  The nonqualified stock
options were not issued as part of the 2005 Plan and Synthetech has registered
the underlying shares under the Securities Act of 1933.  One-third of
these options vested on each of the date of grant and the first anniversary of
the grant date; the remaining one-third will vest on the second anniversary of
the date of grant.  As of December 31, 2008, 98,333 of these options
had been forfeited due to the termination of the employee option holders and are
not available for reissuance.




Stock
Option Activity




A summary
of the changes in stock options outstanding under Synthetech’s 2005 Plan and
otherwise during the quarter ended December 31, 2008 is presented
below:




NumberOf Options
                  
                  
                  WeightedAverageExercise Price
                  
                  
                  Weighted
      AverageRemainingContractual Term (years)
                  
                  
                  AggregateIntrinsic ValueOptions
      outstanding, March 31, 2008
                  
                  
                  2,004,067
                  
                  
                  $
                  1.07
                  
                  
                  
                  6.0Granted
                  
                  
                  683,000
                  
                  
                  $
                  0.50Exercised
                  
                  
                  (17,000
                  )
                  
                  $
                  0.30Forfeited
                  
                  
                  (65,000
                  )
                  
                  $
                  1.52Options
      outstanding, December 31, 2008
                  
                  
                  2,605,067
                  
                  
                  $
                  0.92
                  
                  
                  
                  6.9
                  
                  
                  $
                  250,000Options
      exercisable, December 31, 2008
                  
                  
                  1,765,408
                  
                  
                  $
                  1.08
                  
                  
                  
                  5.7
                  
                  
                  $
                  165,000
























13


The
aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value (the difference between Synthetech’s closing stock price on the
last trading day of the quarter ended December 31, 2008 and the exercise price,
multiplied by the number of in-the-money options) that would have been received
by the option holders had option holders exercised their options on December 31,
2008.  This amount changes based upon changes in the fair market value
of Synthetech’s stock.




As of
December 31, 2008, $197,000 of total unrecognized compensation cost, net of
estimated forfeitures, related to nonvested stock options is expected to be
recognized over a weighted-average period of approximately 1.8
years.




The
weighted-average fair value of stock options was determined utilizing the
assumptions below:




For
      the Three Months
                  
                  
                  For
      the Nine MonthsEnded
      December 31,
                  
                  
                  Ended
      December 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Expected
      price volatility
                  
                  
                  61%
                  
                  
                  
                  -
                  
                  
                  
                  61%
                  
                  
                  
                  50%Risk-free
      interest rate
                  
                  
                  1.58%
                  
                  
                  
                  -
                  
                  
                  
                  1.58%
                  
                  
                  
                  4.96%Expected
      term in years
                  
                  
                  6.00
                  
                  
                  
                  -
                  
                  
                  
                  6.00
                  
                  
                  
                  6.1Dividend
      yield
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Weighted
      average grant date fair value
                  
                  $
                  0.28
                  
                  
                  
                  -
                  
                  
                  $
                  0.28
                  
                  
                  $
                  0.48




Stock-based
compensation expense was allocated as follows:




For
      the Three Months
                    
                    
                    For
      the Nine MonthsEnded
      December 31,
                    
                    
                    Ended
      December 31,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Stock-based
      compensation expense:Cost
      of revenue
                    
                    $
                    18,000
                    
                    
                    $
                    4,000
                    
                    
                    $
                    48,000
                    
                    
                    $
                    32,000Operating
      expenses
                    
                    
                    9,000
                    
                    
                    
                    18,000
                    
                    
                    
                    14,000
                    
                    
                    
                    116,000Stock-based
      compensation expensebefore
      income taxes
                    
                    
                    27,000
                    
                    
                    
                    22,000
                    
                    
                    
                    62,000
                    
                    
                    
                    148,000Income
      tax benefit
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      stock-based compensationexpense
      after income taxes
                    
                    $
                    27,000
                    
                    
                    $
                    22,000
                    
                    
                    $
                    62,000
                    
                    
                    $
                    148,000



















14


NOTE
L. RELATED
PARTY TRANSACTIONS




Synthetech
has engaged Paul Ahrens, a Director, to assist with Synthetech’s new product
development efforts.  Aggregate expenses incurred by Synthetech under
this arrangement during the first nine months of fiscal 2009 and 2008
approximated $-0- and $3,000, respectively.




NOTE
M. LIQUIDITY




During
fiscal 2008, Synthetech incurred a net loss of $1.2 million, or $0.08 per share,
and working capital decreased $1.1 million to $4.4 million at March 31,
2008.  During the first nine months of fiscal 2009, Synthetech
reported net income of $494,000, or $0.03 per share, and working capital
increased $780,000 to $5.2 million at December 31, 2008.  As discussed
in Notes G and H above, on November 5, 2008 Synthetech borrowed $500,000
pursuant to a promissory note and extended the maturity of its line of credit
from June 15, 2009 to September 15, 2010.




Management
believes that Synthetech’s existing cash and cash equivalents, anticipated
availability under its credit facility, any funds generated from operations and
a customer’s advance of $2.0 million in January 2009 (to fund a large order as
discussed in Item 2 "Management Discussion and Analysis" of this Report on
Form 10-Q), will be sufficient to support operations for the next twelve
months.  However, any projections of future cash needs and cash flows
are subject to substantial uncertainty.  There can be no assurance
that current cash and cash equivalent balances and any proceeds that may be
available under the credit facility or from any funds generated from operations
or from other sources will be sufficient to satisfy Synthetech’s liquidity
requirements.




If
sources of liquidity are insufficient, Synthetech will need to seek debt or
equity financing to satisfy liquidity requirements, which Synthetech may be
unable to obtain on favorable terms or at all, or to sell assets or further
reduce the size of its operations or to discontinue operations.  Any
financing Synthetech obtains may dilute the ownership interests of its
shareholders or increase leverage and interest expense.
















































15


Item 2.
            Management's Discussion and Analysis of Financial
      Condition and Results of
  Operations




The
following discussion of the results of Synthetech’s operations and financial
condition should be read in conjunction with the accompanying condensed
financial statements and the notes thereto included within this
report.




FORWARD
LOOKING STATEMENTS




This Quarterly
Report on Form 10-Q contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995.  All statements,
other than statements of historical fact, including statements regarding
industry prospects and future results of operations or financial position, made
in this Quarterly Report are forward looking. Words such as “anticipates,”
“believes,” “expects,” “future” and “intends” and similar expressions may
identify forward-looking statements. In particular, forward-looking statements
in this report include statements regarding:  our future performance
and operating results; whether our cash and cash equivalents, borrowing
capacity, any internally-generated funds and any customer advances will be
adequate to continue to operate our business; expected revenue from and shipping
dates for customer orders; recurrence of large-scale projects; the conditions of
the fine chemicals industry; obtaining regulatory approval for new drugs and
other matters relating to drug development progress; financing our current and
future capital expenditures and the timing and amount of such expenditures; the
effect any change in foreign currency exchange rates would have on our operating
results; and our inability to recognize deferred tax assets. Forward-looking
statements reflect management’s current expectations, plans or projections and
are inherently uncertain.  Actual results could differ materially from
management's expectations, plans
or projections.  Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. The risks and uncertainties that may cause actual results to vary
materially from any forward-looking statements include, but are not limited to,
the following: the uncertain market for our products; potential loss of a
significant customer; customer concentration; potential termination or
suspension by customers of significant projects or orders; potential production
or shipping delays; potential period-to-period revenue or expense fluctuations;
our limited financial and other resources, including cash and cash equivalents;
our potential failure to generate positive cash flow from operations, higher
than expected cash use, or inability to borrow funds under our line of credit or
to raise other debt or equity capital required to continue operations; potential
inability to obtain cash advances from customers for significant projects;
current capital and credit market conditions, which may adversely affect our
access to capital and the cost of capital; the current economic downturn, which
may impair purchases by our customers or the ability of our customers to pay for
our products; production factors and timely access to raw materials; industry
cost factors; competition; government regulation; labor disputes; technological
change; future incentive stock awards; and international business
risks.  Investors are urged to read our filings with the Securities
and Exchange Commission, including our Annual Report on Form 10-K for the fiscal
year ended March 31, 2008, for a further description of risks and uncertainties
related to forward-looking statements made by us as well as to other aspects of
our business. Synthetech does not intend to release any revisions to these
forward-looking statements to reflect events or circumstances that may occur or
arise after the date hereof or to reflect the occurrence of unanticipated
events.









































16


OVERVIEW


Synthetech,
Inc., based in Albany, Oregon, is a fine chemicals company specializing in
organic synthesis, biocatalysis and chiral technologies.  We develop
and manufacture amino acid derivatives, specialty amino acids, peptide
fragments, proprietary custom chiral intermediates and specialty resins,
primarily for the pharmaceutical industry.  Synthetech produces
advanced pharmaceutical intermediates in accordance with Current Good
Manufacturing Practices (cGMP) in
compliance with U.S. Food and Drug Administration (FDA)
regulations.  Our products support the development and manufacture of
therapeutic peptides and peptidomimetic (peptide-like) small molecule drugs from
early stages of a customer’s clinical development through market launch and into
commercial production.  Synthetech’s products also support the
production of chemically-based medical devices.  Synthetech’s domestic
and international customer base includes major pharmaceutical, contract drug
synthesis, emerging biotechnology (virtual pharmaceutical) and medical device
companies.  We also supply catalog quantities of specialty amino acids
to research institutions, universities and drug discovery firms.




Financial
Results


Synthetech
reported revenue of $5.0 million for the third quarter of fiscal
2009.  Related gross income was $1.6 million, or 32% of revenue, and
net income was $566,000, or $0.04 per share.  Revenue for the first
nine months of fiscal 2009 was $13.2 million, related gross income was $3.6
million, or 27% of revenue, and net income was $494,000, or $0.03 per
share.  Gross income for the third quarter of fiscal 2009 was
favorably impacted by sufficient revenue to cover fixed costs, a favorable
product mix and production efficiencies.  For the third quarter and
first nine months of fiscal 2009, cost of revenue and operating expenses
included $70,000 and $130,000, respectively, of accrued non-sales related
employee incentives; there were no non-sales related employee incentives
recorded in fiscal 2008.




Market
Overview


Synthetech’s
revenue has benefited from the improvement in the fine chemicals
market.  Custom projects have increased significantly over the last
few years.  We believe that Synthetech has been able to capitalize on
new revenue opportunities because of our proprietary technology positions in
both amino acid chemistry and multi-step chiral organic synthetic chemistry. In
addition, several large multi-national pharmaceutical companies have made a
strategic decision to outsource more of their manufacturing requirements. We
believe we are well positioned to compete for these new opportunities because of
our long association with the pharmaceutical industry, large-scale domestic
manufacturing facility, and experienced chemists and research and development
group.




We have
increasingly targeted rapidly expanding market opportunities at
biopharmaceutical and medical device companies. This growth opportunity is being
driven in large part by the need of large pharmaceutical companies to develop
new drugs. A number of block-buster drugs will lose patent protection and become
generic over the next five years, and large pharmaceutical companies are seeking
to offset the impact of this development with increased internal drug
development efforts augmented by the in-licensing of promising new drug
candidates from emerging pharmaceutical companies. Most biopharmaceutical
companies have limited manufacturing expertise, which we believe provides a
company like Synthetech with additional market opportunities.





































17


Business
Conditions


Synthetech’s
order backlog as of December 31, 2008 and 2007 was approximately $10.1 million
and $6.5 million, respectively.  We expect that a majority of the
December 31, 2008 backlog will ship during the fourth quarter of fiscal
2009.  The domestic and Western European drug development market is
currently very active.  Synthetech has commercial relationships with a
variety of Western European pharmaceutical companies.  The existing
favorable exchange rate of the  Euro relative to the US Dollar appears
to have generated further interest from Western European customers in
Synthetech’s capabilities and products.




Our
primary competition is from a variety of fine chemical companies headquartered
in Western Europe.  We also continue to encounter competition,
primarily for more basic products, from developing countries such as South
Korea, India and China that have substantially lower cost
structures.  This trend has resulted in pricing pressures in the
United States and is affecting our ability to maintain historical margins and to
retain and attract business for some of our products.




Customer
Project Pipeline


Our
portfolio of clinical pipeline projects remains active and consists of a variety
of projects with significant revenue generating potential.  Many of
these projects have the potential to grow into large-scale projects in the
future.




Synthetech
is involved in many active customer projects.  Large-scale customer
projects represent our main source of revenue.  We are unable to
determine with reasonable certainty our revenues relating to large-scale
projects beyond our current order base, in part due to unpredictable drug
approval processes and the short-term supply chain planning by many of our
customers.



























































18


RESULTS
OF OPERATIONS




The
following table sets forth, for the periods indicated, the percentage of
revenues represented by each item included in our condensed Statements of
Operations.




Percentage
      of RevenueFor
      the Three Months Ended
                                            
                                            
                                            For
      the Nine Months EndedDecember
      31,
                                            
                                            
                                            December
      31,2008
                                            
                                            
                                            2007
                                            
                                            
                                            2008
                                            
                                            
                                            2007Revenue
                                            
                                            100.0%
                                            
                                            
                                            100.0%
                                            
                                            
                                            100.0%
                                            
                                            
                                            100.0%Cost
      of revenue
                                            
                                            67.8
                                            
                                            
                                            85.9
                                            
                                            
                                            73.2
                                            
                                            
                                            82.7Gross
      income
                                            
                                            32.2
                                            
                                            
                                            14.1
                                            
                                            
                                            26.8
                                            
                                            
                                            17.3Research
      and development
                                            
                                            6.3
                                            
                                            
                                            10.8
                                            
                                            
                                            7.2
                                            
                                            
                                            9.8Selling,
      general and administrative
                                            
                                            13.5
                                            
                                            
                                            22.0
                                            
                                            
                                            15.1
                                            
                                            
                                            19.9Total
      operating expenses
                                            
                                            19.8
                                            
                                            
                                            32.8
                                            
                                            
                                            22.3
                                            
                                            
                                            29.7Operating
      income (loss)
                                            
                                            12.4
                                            
                                            
                                            (18.7)
                                            
                                            
                                            4.5
                                            
                                            
                                            (12.4)Interest
      income
                                            
                                            0.0
                                            
                                            
                                            0.1
                                            
                                            
                                            0.0
                                            
                                            
                                            0.1Interest
      expense
                                            
                                            (1.2)
                                            
                                            
                                            (0.5)
                                            
                                            
                                            (0.8)
                                            
                                            
                                            (0.6)Income
      (loss) before income taxes
                                            
                                            11.2
                                            
                                            
                                            (19.1)
                                            
                                            
                                            3.7
                                            
                                            
                                            (12.9)Income
      tax
                                            
                                            -
                                            
                                            
                                            -
                                            
                                            
                                            -
                                            
                                            
                                            -Net
      income (loss)
                                            
                                            11.2%
                                            
                                            
                                            (19.1)%
                                            
                                            
                                            3.7%
                                            
                                            
                                            (12.9)%




Revenue




Revenue
of $5.0 million for the third quarter of fiscal 2009 increased by $2.2 million,
or 77%, from revenue of $2.9 million for the third quarter of fiscal
2008.  Revenue of $13.2 million for the first nine months of fiscal
2009 increased by $3.2 million, or 32%, from revenue of $10.0 million for the
first nine months of fiscal 2008.














19


Because
large-scale customer projects represent our primary source of revenue, the size
and timing of shipments related to these projects can cause significant
fluctuations in quarter-to-quarter revenue.Revenue
earned from six large-scale projects was $3.6 million during the third quarter
of fiscal 2009.  Four large-scale projects contributed $1.3 million of
revenue during the third quarter of fiscal 2008.  During the first
nine months of fiscal 2009, eight large-scale projects contributed $7.4 million
to revenue, compared to five large-scale projects contributing $4.7 million
during the comparable period in fiscal 2008.  Large-scale project
revenue for the first nine months of fiscal 2009 includes $1.9 million in
revenue in support of two medical device projects.




The
market environment for smaller customer projects continues to be
active.  While generally individually smaller in dollar value, these
projects support a wide variety of programs for our major pharmaceutical,
emerging biopharmaceutical and contract drug synthesis
customers.  Synthetech’s large-scale projects typically originate from
our portfolio of successful small-scale, early-stage drug development
projects.




International
sales, mainly to Europe, were $2.5 million and $6.5 million in the third quarter
and first nine months of fiscal 2009, respectively, compared to $1.1 million and
$4.4 million in the third quarter and first nine months of fiscal 2008,
respectively.  International sales, like all of our revenues, are
subject to significant quarterly fluctuations.




To the
extent successful customer projects develop into larger volumes, either during
late stage clinical trials, pre-launch or as a marketed product, Synthetech’s
per unit pricing may decline.  There is a risk that the impact on
future sales and profitability from declines in pricing may not be offset by an
increase in volume.




The level
of Synthetech’s business from period to period is largely unpredictable.
Although revenue associated with marketed products is more likely to provide a
longer term, on-going revenue stream than revenue associated with drugs at the
clinical or discovery stages, continuation of customer demand for our products
from customers with marketed products remains subject to various market
conditions, including potential use of alternative manufacturing methods,
continued market demand for drugs that we support, and competition from other
suppliers.  Accordingly, while significant orders related to marketed
products provide substantial and more predictable revenue, we expect revenue to
continue to fluctuate from period to period.




Gross
income




Gross
income for the third quarter of fiscal 2009 increased $1.2 million, to $1.6
million, or 32% of revenue, compared to gross income of $402,000, or 14% of
revenue, for the third quarter of fiscal 2008.  Gross income for the
first nine months of fiscal 2009 increased $1.8 million, to $3.6 million, or 27%
of revenue, compared to gross income of $1.7 million, or 17% of revenue, for the
first nine months of fiscal 2008.  The increase in gross income
between the respective periods was primarily the result of the increase in sales
between the corresponding periods of fiscal 2009 and
2008.  Additionally, compared to their respective periods in fiscal
2008, fiscal 2009 charges for impaired inventory decreased, partially offset by
continued increases in manufacturing costs, as each such factor is discussed in
more detail below.


20


Manufacturing
department costs incurred during the third quarter and first nine months of
fiscal 2009 increased $233,000 and $589,000, respectively, compared to the
comparable periods of fiscal 2008.  Variable operating costs such as
labor and supplies increased between the respective periods as a result of both
cost increases and increased production activity.  For the third
quarter and first nine months of fiscal 2009, cost of revenue included $70,000
of employee non-sales related incentives; there were no non-sales related
incentives recorded in fiscal 2008.  In response to production
difficulties, in May 2008 Synthetech engaged Dr. Frederic Farkas, a
manufacturing consultant with a background in amino acid and peptide
chemistries.  Related consulting fees and costs for the third quarter
and first nine months of fiscal 2009 were $-0- and $55,000, respectively.
Effective, October 1, 2008, Synthetech hired Dr. Farkas as its new Director of
Production.  Going forward, it is expected that costs for
manufacturing consulting will cease or reduce significantly, these savings will
be offset by costs associated with the hiring of Dr.
Farkas.  Maintenance costs for the third quarter of fiscal 2009 were
stable compared to the third quarter of fiscal 2008.  Maintenance
costs for the first nine months of fiscal 2009 increased $42,000 compared to the
first nine months of fiscal 2008.


Gross
income for the third quarter and first nine months of fiscal 2009 reflect
charges for impaired inventory of $204,000 and $559,000,
respectively.  Gross income for the third quarter and first nine
months of fiscal 2008 reflect charges for impaired inventory of $405,000 and
$919,000, respectively. Synthetech
routinely develops manufacturing processes to produce new products or to refine
procedures for existing products.  It is not unusual for manufacturing
costs associated with new processes or certain existing processes to exceed the
selling price for batches of product, which results in an inventory
write-off.  It remains difficult to rework certain materials on a cost
effective basis.  Synthetech writes off inventory that is specific to
any customer project that has been discontinued.




Cost of
revenue includes raw materials, direct labor, manufacturing overhead, other
direct costs, and adjustments to inventory.




Operating
Expenses




R&D
Expense.  Research and development (R&D)
expense for the third quarter of fiscal 2009 increased $10,000 to $318,000, or
6% of revenue, compared to $308,000, or 11% of revenue, for the third quarter of
fiscal 2008.  R&D expense in the first nine months of fiscal 2009
decreased $32,000 to $950,000, or 7% of revenue, compared to $982,000, or 10% of
revenue, in the first nine months of fiscal 2008.  The changes in
R&D expense between these periods included:


- decreases
  during the third quarter and first nine months of fiscal 2009 of $19,000 and
  $61,000, respectively, arising from increases in the amount of R&D
  department costs allocated to inventory for the manufacture of customer
  products, as described below;
- aggregate
  decreases during the third quarter and first nine months of fiscal 2009 in
  compensation and related costs (excluding
  employee non-sales related incentives) of $20,000 and $60,000,
  respectively, primarily composed of the transfer of an R&D chemist to the
  Production Department and a vacancy in a senior position, partially offset by
  general increases in salaries and benefits;





























21


- net
  decreases during the third quarter and the first nine months of fiscal 2009 in
  various expenses of $7,000;
- an
  increase during the third quarter and first nine months of fiscal 2009 of
  $30,000 for employee non-sales related incentives; there were no non-sales
  related incentives recorded in fiscal 2008;
- increases
  during the third quarter and first nine months of fiscal 2009 in contract
  research services of $11,000 and $30,000, respectively; and
- increases
  during the third quarter and first nine months of fiscal 2009 in laboratory
  supplies of $15,000 and $36,000, respectively.

Synthetech’s
R&D department primarily develops processes to manufacture and optimize the
production of our products and their related scale-up to manufacturing
quantities.  Additionally, the R&D department will manufacture
small-scale products for sale.  The cost of producing these
small-scale products is captured in inventory and not reflected in R&D
expense.  The amount of R&D department costs charged to the
manufacture of small-scale products can cause fluctuations between reporting
periods in the amount of reported R&D expense.  R&D department
costs charged to inventory in the first nine months of fiscal 2009 and 2008 were
$179,000 and $118,000, respectively.




SG&A
Expense.  Selling, general and administrative (SG&A)
expense in the third quarter of fiscal 2009 increased $52,000 to $680,000, or
14% of revenue, compared to $628,000, or 22% of revenue, in the third quarter of
fiscal 2008.




The
increase of $52,000 in SG&A expense between these two periods
includes:


- an
  aggregate $129,000 increase in compensation expense for the third quarter of
  fiscal 2009, comprised of $100,000 of non-sales related employee incentives;
  there were no non-sales related incentives recorded in fiscal 2008; increase
  in sales and marketing incentives of $27,000;  and net increases in
  salaries and benefits of $2,000;

partially
offset by:


- a net
  decrease in professional fees of $71,000, the decrease is primarily related to
  professional fees incurred in the third quarter of fiscal 2008 in support of
  the initial implementation of Section 404 of the Sarbanes-Oxley Act;
  and
- a net
  decrease in various expenses of $6,000.

SG&A
expense in the first nine months of fiscal 2009 increased $7,000 to $2.0
million, or 15% of revenue, compared to $2.0 million, or 20% of revenue, in the
first nine months of fiscal 2008.




The
increase of $7,000 in SG&A expense between the two nine-month periods
included:


- an
  aggregate
  $48,000 increase in compensation expense for the first nine months of fiscal
  2009, comprised of $100,000 of non-sales related employee
  incentives; there were no non-sales related incentives recorded in fiscal
  2008; a decrease in stock-based compensation expense of $59,000 and net
  increases in salaries and benefits; and
- a net
  increase in various expenses of $39,000;

partially
offset by:


- a
  decrease in professional fees of $49,000, the decrease is primarily related to
  professional fees incurred in support of the initial implementation of Section
  404 of the Sarbanes-Oxley Act; and
- a
  decrease in investor relations expenses of $31,000.

SG&A
expense consists of compensation and related fringe benefits for sales and
administrative employees, costs of professional services, marketing costs, costs
associated with being a public company, and costs related to administrative
facilities and information services.




22


Interest
Expense




Interest
expense in the third quarter and first nine months of fiscal 2009 was $58,000
and $116,000 respectively, compared to $15,000 and $64,000, respectively, in the
comparable periods of fiscal 2008.  The increase in interest expense
between the periods primarily relates to increased borrowings and interest rates
under Synthetech’s line of credit and long-term debt.




Income
Taxes




Based on
Synthetech’s history of losses in certain prior years and management’s
evaluation of available tax planning strategies, we have concluded that for the
foreseeable future Synthetech may be unable to recognize its net deferred tax
assets as an income tax benefit, continuing for an uncertain period of
time.




Net Income
(Loss)




As a
result of the foregoing factors, net income for the third quarter and first nine
months of fiscal 2009 was $566,000 and $494,000, respectively, compared to a net
loss of $545,000 and $1.3 million, respectively, for the comparable period of
fiscal 2008.






CRITICAL
ACCOUNTING POLICIES AND ESTIMATES




The
discussion and analysis of Synthetech’s financial condition and results of
operations are based upon its financial statements, which have been prepared in
conformity with generally accepted accounting principles in the United States.
The preparation of these financial statements requires Synthetech to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses and related disclosure of contingent assets and
liabilities.  On an on-going basis, Synthetech evaluates its
estimates, including those related to deferred tax asset realization, inventory
realization, allowance for doubtful accounts and long-lived asset
impairments.  Synthetech bases its estimates on historical experience
and on various other assumptions. Actual results may differ from these estimates
under different assumptions or conditions.  Synthetech believes the
following are among the critical accounting policies and the related judgments
and estimates that affect the preparation of its financial
statements.  Please refer to Note B to these Condensed Financial
Statements that accompany this Report.







































23


Allowance
for Doubtful Accounts


We
analyze a customer’s creditworthiness by reviewing the customer’s payment
history and financial stability.  We establish the allowance for
doubtful accounts by reviewing aged accounts receivables and the collectibility
of specific accounts.  The allowance for doubtful accounts as of
December 31, 2008 and March 31, 2008 was $15,000.  For the quarters
and nine month periods ended December 31, 2008 and 2007, Synthetech’s provision
for credit losses was insignificant.  If circumstances related to a
specific customer change, Synthetech’s estimate of the recoverability of
receivables could materially change.




Inventories


Inventories
are valued at the lower of cost or market, determined on the first-in first-out
(FIFO) basis.  Costs include raw material, direct labor, applicable
manufacturing overhead, and other direct costs.




Management
evaluates Synthetech’s inventory for impairment whenever it becomes aware that
indicators of impairment exist.  Factors contributing to inventory
impairment include, but are not limited to: decreases in selling price; changes
in customer specifications; project terminations or holds; variations in
material produced by Synthetech from customer specifications; and production
costs materially in excess of current market price.  It is our policy
to write-down inventories to reflect an estimate for impairment in an amount
equal to the excess, if any, of the cost of inventory compared to the estimated
market value based upon assumptions about future demand and market
conditions.  If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required in the
future.  Write-downs of inventory are reported as a component of cost
of revenue in the relevant period.




Long-Lived
Asset Impairment


In
accordance with the provisions of SFAS No. 144, Synthetech assesses the
impairment of long-lived assets, such as property, plant and equipment, whenever
events or changes in circumstances indicate that their carrying value may not be
recoverable.  Factors that could trigger an impairment review include,
among others:


- a
  significant change in the extent or manner in which a long-lived asset is
  being used;
- a
  significant change in the business climate that could affect the value of a
  long-lived asset; and
- a
  significant decrease in the market value of assets.

If
Synthetech determines that the carrying value of long-lived assets may not be
recoverable, based upon the existence of one or more indicators of impairment,
we compare the carrying value of the asset group to the undiscounted cash flows
expected to be generated by the asset group.  If the carrying value
exceeds the undiscounted cash flows, we may record an impairment
charge.  We recognize an impairment charge to the extent that the
carrying amount of the asset group exceeds its fair value and will reduce only
the carrying amount of the long-lived assets.

































24


Revenue
Recognition


Synthetech
recognizes revenue, including shipping and handling charges billed to customers,
when the following criteria are met:


- Persuasive
  evidence of an arrangement exists;
- Delivery
  has occurred or services have been rendered;
- Synthetech’s
  price to our customer is fixed or determinable; and
- Collectibility
  is reasonably assured.

Shipping
and handling costs are classified as part of cost of revenue.




INDUSTRY
FACTORS




Market
Factors


The
market for Synthetech’s products is driven by the market for the drugs into
which they are incorporated. The drug development process is dictated by the
marketplace, drug companies and the regulatory
environment.  Synthetech has no control over the pace of these drug
development efforts, which drugs get selected for clinical trials, which drugs
are approved by the FDA or, even if approved, the ultimate market potential of
the drugs.




The three
stages of the drug development process include R&D (or discovery stage),
clinical trial stage and marketed drug stage. Synthetech’s customers can spend
years researching and developing new drugs, and take only a small percentage to
clinical trials and fewer yet to commercial market. A substantial amount of
activity continues to occur at the earlier stages of R&D and clinical
trials. The market for peptide and peptidomimetic small molecule drugs is still
developing.




Recurring
sales of our products for development programs are sporadic.  Because
of the high cancellation rate for drug development programs, there is a
significant likelihood that there will be no subsequent or “follow-on” sales for
any particular drug development program. Accordingly, the level and timing of
customer orders relating to specific drug development programs vary
substantially from period to period and we cannot rely on any one customer as a
constant source of revenue.




The size
of customer orders for marketed drugs can be substantially larger than those for
the discovery or clinical trial stages. Sales of Synthetech’s products for
marketed drugs may provide an opportunity for continuing, longer-term sales.
While not subject to the same high cancellation rates faced by discovery and
clinical trial-stage drug development programs, the demand for approved drugs
remains subject to many uncertainties, including price, side effects and the
existence of competing drugs. These factors, which are outside of Synthetech’s
control, affect the level of demand for the drug itself and, therefore, the
demand for Synthetech’s products. Also, industry cost pressures can cause
pharmaceutical companies to explore and ultimately adopt alternative
manufacturing processes that may not include Synthetech’s products as an
intermediate.  In recent years, the international fine chemicals
industry has been marked by overcapacity and a resulting downward pressure on
pricing.  While downward pressure on pricing remains persistent, the
demand side in the industry has improved.  To the extent we are able
to enter into longer-term, significant or large-scale orders with customers, we
expect increased competition to supply these products.





















25


Due to
the foregoing industry factors, Synthetech cannot predict with reasonable
certainty future demand beyond its current order base, and existing orders may
be subject to cancellation or delay by customers. Until there is stable demand
for our products, we are likely to continue to experience significant
fluctuations in our periodic results.




Production
Factors


Synthetech
has a full cycle “grams to tons” production capability and has made over 500
products. With over 20 years' of experience, Synthetech has developed extensive
process technology and is recognized as one of the leaders in our area of
expertise.  Nevertheless, initial batches of new products and scaling
up production processes for existing products may result in significantly lower
than expected yields and extended processing time, and may require substantial
rework to meet the required customer specifications.  These factors
could cause increased costs and delayed shipments, either of which could
negatively affect periodic operating results.




LIQUIDITY
AND CAPITAL RESOURCES




Synthetech’s
cash and cash equivalents totaled $89,000 at December 31, 2008, compared to $1.1
million at March 31, 2008.  In January 2009, Synthetech received a $2
million advance from a major pharmaceutical company in support of a large order
placed in November 2008.




At
December 31, 2008, Synthetech reported working capital of $5.2 million, an
increase of $780,000 from March 31, 2008.  The $780,000 increase in
working capital was primarily the result of net income for the nine month period
of $494,000, adjusted for non-cash charges for depreciation of $374,000, loss on
retirement of equipment of $4,000 and for stock based compensation of $62,000,
net additions to long-term debt of $767,000 and proceeds from the exercise of
stock options of $5,000, partially offset by capital expenditures of
$926,000.




Synthetech
maintains a line of credit facility and two term loan facilities with a finance
company.  None of these facilities contains financial
covenants.  Liens and security interests on all of our assets
collateralize our obligations under these facilities.  These credit
and term loan facilities are summarized below.




Line of Credit
Facility.The line of credit facility, which was amended in
November 2008 and is now scheduled to expire in September 2010, provides for
borrowings of up to $2 million or the maximum available under the borrowing
base, whichever is less.  The borrowing base, which was amended in
November 2008, now equals the sum of (a) the lesser of $750,000 or 50% of the
value of our raw materials and finished goods inventory plus (b) the lesser of
$1.25 million or 85% of the value of our eligible accounts
receivable.  Interest is payable at a fluctuating rate equal to the
prime rate plus 5%, or 9%, whichever is higher.  The annual fee for
the credit facility is $20,000. The credit facility has a minimum monthly fee of
$2,500, which is reduced by interest charges.  As of December 31,
2008, Synthetech had $1.6 million in borrowings outstanding under the credit
facility.





































26


Term Loan
Facilities.  On November 5, 2008, Synthetech entered into a
term loan facility under which it borrowed $500,000.  The term loan
matures in December 2011, and requires 36 monthly principal payments equal to
$8,333, plus interest, beginning on November 1, 2008, and a balloon payment of
$200,000 due on maturity.  The loan bears interest at the prime rate
plus 5%, or 9%, whichever is higher.  At the closing of the loan,
Synthetech paid a $15,000 loan fee.  The note contains no financial
covenants.  Synthetech used the term loan proceeds to increase its
present level of working capital in anticipation of larger than normal
requirements for raw material purchases in conjunction with customer
orders.  As of December 31, 2008, $492,000 was outstanding under this
term loan.




On May 5,
2008, Synthetech entered into a term loan facility under which it borrowed
$550,000.  The note matures on May 5, 2011, and requires 36 monthly
principal payments equal to $9,167, plus interest, beginning on June 1, 2008,
with a balloon payment of $220,000 due on maturity.  The interest rate
on the note is the prime rate plus 4%, or 8%, whichever is higher.  On
May 6, 2009 and 2010, Synthetech will pay an annual loan fee equal to 1% of
the then outstanding principal balance of the loan.  Synthetech used
the term loan proceeds to expand its large-scale reactor capacity and to install
a distillation column and equipment intended to recycle spent
solvents.  As of December 31, 2008, $485,000 was outstanding under
this term loan.




We
utilized cash in our operating activities of $1.5 million in the first nine
months of fiscal 2009, compared to cash generated in operating activities of
$880,000 in the first nine months of fiscal 2008.




In the
first nine months of fiscal 2009, net income of $494,000, adjusted for non-cash
charges for depreciation, loss on retirement of equipment and stock-based
compensation expense of $374,000, $4,000 and $62,000, respectively, contributed
a net $934,000 in cash provided by operating activities.  Accounts
receivable increased $772,000 to $3.2 million at December 31, 2008, from $2.5
million at March 31, 2008, primarily due to the timing and level of shipments
between the two quarters.  Primarily in support of product shipments
scheduled for the fourth quarter of fiscal 2009, inventory increased $1.5
million to $5.9 million at December 31, 2008, from $4.3 million at March 31,
2008.  Including $322,000 of insurance premiums financed with notes
payable and reflecting the amortization of insurance premiums and property taxes
over the periods that they benefit, prepaid expenses increased $110,000 to
$448,000 at December 31, 2008, from $338,000 at March 31, 2008. Accounts payable
increased $384,000 to $1.7 million at December 31, 2008, from $1.3 million at
March 31, 2008.  The increase in accounts payable between the two
periods is primarily the result of raw material purchases relating to the large
increase in customer orders.  Accrued compensation, which is primarily
composed of accrued vacation pay, KEPP incentives, accrued wages and sales and
marketing incentives increased $248,000 to $572,000 at December 31, 2008, from
$324,000 at March 31, 2008.  Deferred revenue decreased $953,000 to
$51,000 at December 31, 2008, reflecting the application of advance payments on
customer shipments.  Other accrued liabilities decreased $15,000 to
$20,000 at December 31, 2008, from $35,000 at March 31, 2008.




Cash used
in investing activities for the first nine months of fiscal 2009 was $926,000
compared to cash used in investing activities of $634,000 in the first nine
months of fiscal 2008.  All these amounts relate to capital
expenditures.  Synthetech's capital expenditures budget for fiscal
2009 is approximately $1.2 million, although some of these capital projects
likely will be deferred until fiscal 2010 depending on the availability of
sources of cash or financing to fund these projects.  As discussed
above, Synthetech borrowed $550,000 under a term loan facility to finance a
portion of its fiscal 2009 capital expenditures.





































27


Cash
provided by financing activities for the first nine months of fiscal 2009 was
$1.4 million, compared to cash used in financing activities of $197,000 in the
first nine months of fiscal 2008.  During the first nine months of
fiscal 2009 Synthetech borrowed net proceeds of $666,000 under its line of
credit, compared to net repayments of $15,000 in the first nine months of fiscal
2008.  As discussed above, in May 2008 Synthetech borrowed $550,000
and in November 2008 borrowed an additional 500,000 pursuant to its two term
loan facilities.  Principal payments under its long-term debt
obligations and notes payable totaled $285,000 during the first nine months of
fiscal 2009, compared to $189,000 during the comparable period of fiscal
2008.  Proceeds from the exercise of stock options were $5,000 and
$7,000 during the first nine months of fiscal 2009 and 2008,
respectively.




As a
result of the foregoing, cash and cash equivalents decreased $973,000 during the
first nine months of fiscal 2009, to $89,000 at December 31, 2008, from $1.1
million at March 31, 2008.




We
believe that our existing cash and cash equivalents, anticipated availability
under our line of credit facility, any funds generated from operations and a
customer's advance of $2.0 million in January 2009 to fund a large order will be
sufficient to support our operations for the next twelve
months.  However, any projections of future cash needs and cash flows
are subject to substantial uncertainty.  There can be no assurance
that current cash and cash equivalent balances and any proceeds that may be
available under our line of credit facility or any funds generated from
operations or from other sources will be sufficient to satisfy our liquidity
requirements.




If
sources of liquidity are insufficient, we will need to seek debt or equity
financing to satisfy our liquidity requirements, which we may be unable to
obtain on favorable terms or at all, or to sell assets or further reduce the
size of our operations or discontinue our operations.  We anticipate
that we will require additional capital, which may be substantial, to implement
certain elements of our growth strategy, although we have not yet determined the
amount or timing of such additional funding.  We may not be able to
obtain required financing to implement our growth strategy.  Any
financing Synthetech obtains may dilute the ownership interests of our
shareholders or increase our leverage and interest expense.






















































28


Item 3.
            Quantitative
      and Qualitative Disclosures about Market
Risk




Synthetech's
primary market risk exposure is the impact of interest rate fluctuations on
interest income earned on our cash equivalents. The risks associated with
market, liquidity and principal are mitigated by investing in high-credit
quality securities and limiting concentrations of issuers and maturity dates.
Synthetech does not invest in derivative financial instruments.




Substantially
all of Synthetech's purchases and sales are denominated in U.S. dollars
and, as a result, it has relatively little exposure to foreign currency exchange
risk with respect to any of its purchases and sales. Should Synthetech enter
into a significant transaction denominated in a foreign currency, we may enter
into a forward exchange contract at that time.  Synthetech was not a party
to any forward exchange contracts during the three months ended December 31,
2008.  For existing company transactions denominated in a foreign currency,
the effect of an immediate 10% change in relevant exchange rates would not have
a material impact on Synthetech's operating results or cash flows.




Item 4T.
            Controls
      and Procedures




Synthetech
maintains a system of disclosure controls and procedures designed to provide
reasonable assurance as to the reliability of our published financial statements
and other disclosures included in our reports under the Securities Exchange Act
of 1934.  In accordance with Rule 13a-15(b) of the Securities and
Exchange Act of 1934, our management evaluated, under the supervision and with
the participation of our principal executive officer and principal financial
officer, the effectiveness of the design and operation of Synthetech’s
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities and Exchange Act of 1934) as of the end of the period covered by this
report.  Based upon that evaluation, our principal executive officer
and the principal financial officer concluded that Synthetech’s disclosure
controls and procedures are effective in ensuring that information required to
be disclosed in our Exchange Act reports is (1) recorded, processed, summarized
and reported in a timely manner, and (2) accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required
disclosure.


There has
been no change in our internal control over financial reporting during the third
quarter ended December 31, 2008 that has materially affected or is reasonably
likely to materially affect our internal control over financial
reporting.




Synthetech’s
principal executive officer and principal financial officer do not expect that
our disclosure controls and internal controls will prevent all errors and all
fraud.  Although our disclosure controls and procedures were designed
to provide reasonable assurance of achieving their objectives and our principal
executive officer and principal financial officer have determined that they are
effective in doing so, a control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the system are met.  Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their
costs.  Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within Synthetech have been
detected.  These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple mistakes or errors.  Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control.  The design of any
system of controls also is based partly on certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions.



























29


PART
II.  OTHER INFORMATION




Item 1.
            Legal
      Proceedings




Maurice
Walker v. Synthetech, Inc., United States District Court for the District of
Oregon, Case No. 6:08-CV-6191-AA.  On June 26, 2008,
Maurice Walker filed suit against Synthetech alleging employment discrimination
based on race and retaliation, and wrongful termination.  The lawsuit
seeks $500,000 in compensatory damages, $500,000 in punitive damages, back pay
and pay in lieu of reinstatement plus interest in an amount to be determined,
and various fees and costs.  Mr. Walker's employment with Synthetech
was terminated on September 26, 2007.  Synthetech disputes the allegations
of Mr. Walker's lawsuit and intends to defend vigorously against the
claims.  The case is in the early stages of
discovery.  Synthetech has notified its insurance carrier of this
claim and believes that any liability under this claim will be covered by
Synthetech's liability insurance, subject to a $25,000
deductible.  Synthetech does not believe that the outcome of this
lawsuit will have a material adverse effect on its financial position or results
of operations.




Item 1A.
            Risk
      Factors.




The
following risk factors supplement Synthetech's risk factors set forth in Part I,
Item 1A of the Company’s Annual Report on Form 10-K for the year ended March 31,
2008, filed with the SEC on June 9, 2008:




The
current capital and credit market conditions may adversely affect our access to
capital and cost of capital.


Over the
past 18 months, the general economic and capital market conditions in the United
States and other parts of the world have deteriorated significantly and have
adversely affected access to capital and increased the cost of capital. If these
conditions continue or become worse, Synthetech's future cost of capital and our
future access to capital could be adversely affected. Synthetech's current
lender is a finance company that receives its liquidity and lending capacity
from bank borrowings.  If Synthetech's lender is unable to borrow
funds from its banks, then our ability to continue to borrow under our line of
credit with the lender or refinance our term debt if needed would be
impaired.




The
current economic downturn may impair the financial soundness or continuing
viability of our customers, which could adversely affect Synthetech's results of
operations.


If
Synthetech's customers are unsuccessful in generating sufficient revenue or are
precluded from securing financing, they may reduce their purchases of our
products or not be able to pay, or may delay payment of, accounts receivable
that are owed to us.  In particular, revenue from emerging
pharmaceutical or biotechnology companies could be adversely affected if these
customers are unable to obtain necessary additional funding from the financial
markets.  In addition, the economic downturn may cause some of our
customers to discontinue operations.  Any inability of current or
future customers to continue to purchase products or to pay us for purchased
products may adversely affect our results of operations and cash
flow.




The
current economic crisis may adversely affect parties that control our cash
management system, which could adversely affect our liquidity and
business.
 We are
subject to a cash management system as part of our credit facility arrangement,
pursuant to which most or all of our cash flows to accounts controlled by our
lender.  If the current economic crisis or other factors were to
affect the continued viability of our lender, our access to cash subject to this
system could be harmed, which would adversely affect our financial condition,
liquidity and ability to meet our financial obligations.































30


Item 6.
            Exhibits




(a) Exhibits.




Exhibit
      3.1
              Articles
      of Incorporation of Synthetech, as amended (incorporated by reference to
      the exhibits filed with Synthetech’s Annual Report on Form 10-K for the
      fiscal year ended March 31,
1991).


Exhibit
      3.2
              Bylaws
      of Synthetech, as amended (incorporated by reference to the exhibits filed
      with Synthetech’s Annual Report on Form 10-K for the fiscal year ended
      March 31, 2005).


Exhibit
      4
              Amended
      and Restated Rights Agreement, (incorporated by reference to Synthetech’s
      Current Report on Form 8-K dated July 31,
2008).


Exhibit
      31.1
              Rule 13a-14(a) Certification of Chief Executive
      Officer.


Exhibit
      31.2
              Rule 13a-14(a) Certification of Chief Financial
      Officer.


Exhibit
      32.1
              Section 1350 Certification of Chief Executive
      Officer.


Exhibit
      32.2
              Section 1350 Certification of Chief Financial
      Officer































































31


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.






SYNTHETECH,
      INC.
                (Registrant)Date:
      February 13, 2009
              By:
              /s/
      Gregory R. HahnGregory
      R. HahnPresident
      and Chief Executive Officer




Date:
      February 13, 2009
                By:
                /s/ Gary
      A. WeberGary
      A. WeberVice
      President Finance andChief
      Financial Officer










































32