##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
July 31, 2006 or
 o
    
    Transition report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition
period from           to
 Commission file number 001-10382
 SYNERGETICS USA, INC.
  Delaware
    
    23-2131580(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)3845 Corporate Centre DriveOFallon, Missouri
    
    63368(Address of principal executive offices)
    
    (Zip Code)
 (636) 939-5100
  Title of each class
    
    Name of each exchange on which registeredCommon stock
    
    The Nasdaq Capital Market
   
  o þ
 o þ
 þ o
 o
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



PART IItem 1.
    
    BusinessItem 1A.
    
    Risk FactorsItem 1 B.
    
    Unresolved Staff CommentsItem 2.
    
    PropertiesItem 3.
    
    Legal ProceedingsItem 4.
    
    Submission of Matters to a Vote of Security HoldersPART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Repurchases of Equity SecuritiesItem 6.
    
    Selected Financial DataItem 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of OperationsItem 7A.
    
    Quantitative and Qualitative Disclosures about Market RiskItem 8.
    
    Financial Statements and Supplementary DataItem 9.
    
    Changes in and Disagreements With Accountants on Accounting
and Financial DisclosureItem 9A.
    
    Controls and ProceduresItem 9B.
    
    Other InformationPART IIIItem 10.
    
    Directors and Executive Officers of the RegistrantItem 11.
    
    Executive CompensationItem 12.
    
    Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder MattersItem 13.
    
    Certain Relationships and Related TransactionsItem 14.
    
    Principal Accountant Fees and ServicesPART IVItem 15.
    
    Exhibits and Financial Statement SchedulesSignaturesExhibit Index




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SYNERGETICS USA, INC.
  The Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act), provide a safe harbor for forward-looking statements made by or
on behalf of the Company. The Company and its representatives may from time to time make written or
oral statements that are forward-looking, including statements contained in this report and other
filings with the Securities and Exchange Commission (SEC) and in our reports to stockholders. In
some cases forward-looking statements can be identified by words such as believe, expect,
anticipate, plan, potential, continue or similar expressions. Such forward-looking
statements include risks and uncertainties and there are important factors that could cause actual
result to differ materially from those expressed or implied by such forward-looking statements.
These factors, risks and uncertainties are discussed in Part I,
Item 1A, Risk Factors.
 Although we believe the expectations reflected in our forward-looking statements are based
upon reasonable assumptions, it is not possible to foresee or identify all facts that could have a
material effect on the future financial performance of the Company. The forward-looking statements
in this report are made on the basis of managements assumptions and analyses, as of the time the
statements are made, in light of their experience and perception of historical conditions, expected
future developments and other factors believed to be appropriate under the circumstances.
 In addition, certain market data and other statistical information used throughout this report
are based on independent industry publications. Although we believe these sources to be reliable,
we have not independently verified the information and cannot guarantee the accuracy and
completeness of such sources.
 Except as otherwise required by the federal securities laws, we disclaim any obligation or
undertaking to publicly release any updates or revisions to any forward-looking statement contained
in this annual report on Form 10-K and the information incorporated by reference in this report to
reflect any change in our expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.
 
 PART I
 
  Overview




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®
 ® ® TM
 Other Recent Events
  TM TM ® TM
 Strategy




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##### 




    
    Introducing new technology that can be easily differentiated from our competition;
    
    Identifying microsurgical niches that may offer the prospect for substantial growth and higher profit margins;
    
    Accelerating our international growth;
    
    Utilizing the full breadth and depth of knowledge, experience and resources in our research and development department;
    
    Branding and marketing a substantial portion of our neurosurgical products with the Malis® trademark;
    
    Continuing to develop our distribution channels;
    
    Continuing to grow our disposables revenue stream;
    
    Introducing the Malis®AdvantageTM, the newest multifunctional bipolar electrosurgical generator, into neurosurgery;
    
    Expanding the Malis®AdvantageTM into other surgical markets;
    
    Expanding the use of our Sonopet Omni®, our ultrasonic aspirator, into other surgical markets; and
    
    Exploring opportunities for growth through strategic partnering with other companies, such
as our current relationships with Codman & Shurtleff, Inc. (Codman), an affiliate of Johnson &
Johnson, Stryker Corporation (Stryker) and Quantel.
  Products and Services
 Ophthalmic and Vitreoretinal Surgical Market




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##### 



TM TM TM TM
 TM TM
 TM TM TM TM
  Neurosurgery Market




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##### 



®
 ® ® ® o
  TM
 ® TM TM
 Pain Control Market




---



##### 



Dental Market
 ® TM ®
 Manufacturing and Supplies
 ® TM ® TM




---



##### 



Marketing and Sales
 Ophthalmic and Vitreoretinal Surgical Market
 TM TM
  Neurosurgery Market
 ® TM ® TM ® ® ®




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®
 Pain Control Market
  Competition
  Ophthalmic and Vitreoretinal Surgical Market
 TM TM
 Neurosurgery Market
 ® ® TM




---



##### 



Pain Control Market
  Dental Market
 ®
 Research and Development
 ® TM ® TM ®
 ® TM TM




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##### 



Government Regulations




---



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Safety Approvals
  Patents and Intellectual Property
 TM TM TM




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##### 



® ® ®
  Employees
  Available Information
 www.synergeticsusa.com
 
   A significant part of our sales of our neurosurgical products comes from a single customer,
which makes us vulnerable to the loss of that customer.




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##### 



If any of our single source suppliers were to cease providing components, we may not be able
to produce our products.
 ® ® TM ®
  The medical device industry is highly competitive, and we may be unable to compete effectively
with other companies.
   Our future results are dependent, in part, upon the successful introduction of our fourth
generation multifunctional bipolar electrosurgical generator, marketed as the Malis ® Advantage TM .




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
    
    their acceptance by surgeons;
    
    the recognition of hospitals and surgical centers that the new generator and instruments
offer sufficient advantages and benefits to warrant the cost of purchasing the Malis®
AdvantageTM;
    
    our ability to create an effective sales network;
    
    our ability to sustain our average selling price through this network; and
    
    the reaction of our competitors in this market.
 Our products may not be accepted in the market.
   
    
    convince third-party distributors and customers that our technology is an attractive alternative to other technologies;
    
    manufacture products in sufficient quantities and at acceptable costs; and
    
    supply and service sufficient quantities of our products directly or through distribution alliances.
 If we do not introduce new commercially successful products in a timely manner, our products
may become obsolete over time, thereby decreasing our revenue and profitability.
  
    
    properly identify and anticipate customer needs;
    
    commercialize new products in a cost-effective and timely manner;
    
    manufacture and deliver products in sufficient volumes on time;
    
    obtain regulatory approval for new products;
    
    differentiate our products from those of our competitors;




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##### 




    
    achieve positive clinical outcomes;
    
    satisfy the increased demands by health care payors, providers and patients for lower-cost
procedures and shorter hospital stays and recovery times;
    
    innovate and develop new materials, product designs and surgical techniques; and
    
    provide adequate medical and/or customer education relating to new products and attract key
surgeons to advocate these new products.
  Our operating results may fluctuate.
  
    
    the introduction of new product lines;
    
    product modifications;
    
    the level of market acceptance of new products;
    
    the timing of research and development expenditures;
    
    timing of the receipt of orders from, and product shipments to, distributors and customers;
    
    timing of expenditures;
    
    changes in the distribution arrangements for our products;
    
    manufacturing or supply delays;
    
    the time needed to educate and train additional sales personnel;
    
    costs associated with product introductions;
    
    product returns; and
    
    receipt of necessary regulatory approvals.




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Changes in the health care industry may require us to decrease the selling price for our
products or could result in a reduction in the size of the market for our products, each of which
could have a negative impact on our financial performance.
  
    
    there has been a consolidation among health care facilities and purchasers of medical
devices in the United States who prefer to limit the number of suppliers from whom they purchase
medical products and these entities may decide to stop purchasing their products or demand
discounts on our prices;
    
    major third-party payors of hospital services, including Medicare, Medicaid and private
health care insurers could substantially revise their payment methodologies or could impose
reimbursement cutbacks that could create downward price pressure on our products;
    
    numerous legislative proposals have been considered that would result in major reforms in
the United States health care system that could have an adverse effect on our business;
    
    there is economic pressure to contain health care costs in international markets; and
    
    there have been initiatives by third-party payors to challenge the prices charged for
medical products that could affect our ability to sell products on a competitive basis.
  We will first need to obtain regulatory approval to market our products under development.




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##### 



We may be subject to penalties and may be precluded from marketing our products if we fail to
comply with extensive governmental regulations.
  
    
    warning letters;
    
    fines, injunctions and civil penalties against us;
    
    recall or seizure of our products;
    
    operating restrictions, partial suspension or total shutdown of our production;
    
    refusing our requests for premarket clearance or approval of new products;
    
    withdrawing product approvals already granted; and
    
    criminal prosecution.
  We will first need to obtain electrical safety approval to market our applicable products
under development.
  Our intellectual property rights may not provide meaningful commercial protection for our
products and could adversely affect our ability to compete in the market.




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##### 



We may have product liability claims, and our insurance may not cover all claims.




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##### 



The loss of key personnel could harm our business.
  If we are unable to hire, train and retain additional sales, marketing, manufacturing,
engineering and finance personnel, our growth could be impaired.
  We plan to expand our international sales and distribution operations, and the success of our
international expansion is subject to significant uncertainties.
  
    
    difficulties and costs of staffing and managing international operations;
    
    fluctuations in currency exchange rates;
    
    unexpected changes in regulatory requirements, including imposition of currency exchange controls;
    
    longer accounts receivable collection cycles;
    
    import or export licensing requirements;
    
    potentially adverse tax consequences;
    
    political and economic instability;
    
    obtaining regulatory approval for our products;
    
    end-market and/or regional competition that may have competitive advantages;
    
    potentially reduced protection for intellectual property rights; and




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##### 




    
    subjectivity of foreign laws.
  The market price of our stock may be highly volatile.
  
    
    our ability to successfully commercialize our products;
    
    the execution of new agreements and material changes in our relationships with companies with whom we contract;
    
    quarterly fluctuations in results of operations;
    
    announcements regarding technological innovations or new commercial products by us or our
competitors or the results of regulatory filings;
    
    market reaction to trends in sales, marketing and research and development and reaction to acquisitions;
    
    sales of common stock by existing shareholders;
    
    economic and political condition, including worldwide geopolitical events; and
    
    fluctuations in the United States financial markets.
 Synergetics USA has anti-takeover defenses that could delay or prevent an acquisition and
could adversely affect the price of its common stock.




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et
al inter alia




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PART II
 
    High
    
    LowYear ended July 31, 2005Quarter ended October 31, 2004
    
    $
    2.05
    
    
    $
    1.35Quarter ended January 31, 2005
    
    
    2.10
    
    
    
    1.40Quarter ended April 30, 2005
    
    
    1.90
    
    
    
    1.32Quarter ended July 31, 2005
    
    
    5.79
    
    
    
    1.86Year ended July 31, 2006Period ended September 21, 2005
    
    $
    6.70
    
    
    $
    4.05Period ended October 27, 2005
    
    
    5.75
    
    
    
    3.51Quarter ended January 30, 2006
    
    
    6.24
    
    
    
    3.18Quarter ended April 30, 2006
    
    
    8.78
    
    
    
    5.10Quarter ended July 31, 2006
    
    
    8.30
    
    
    
    4.10
   Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers




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##### 



For the Fiscal Years Ended July 31,2006
    
    2005*
    
    2004*
    
    2003*
    
    2002*(in thousands, except per share data)Statements of Income Data:Net sales
    
    $
    38,246
    
    
    $
    21,792
    
    
    $
    16,887
    
    
    $
    13,017
    
    
    $
    10,447Cost of Sales
    
    
    14,238
    
    
    
    8,289
    
    
    
    6,514
    
    
    
    4,483
    
    
    
    3,609Gross profit
    
    
    24,008
    
    
    
    13,503
    
    
    
    10,373
    
    
    
    8,534
    
    
    
    6,838Income from operations
    
    
    5,002
    
    
    
    2,383
    
    
    
    1,690
    
    
    
    1,866
    
    
    
    1,572Net income
    
    
    3,081
    
    
    
    1,458
    
    
    
    1,094
    
    
    
    1,091
    
    
    
    1,004Earnings per common share Basic
    
    $
    0.15
    **
    
    $
    0.43
    
    
    $
    0.32
    
    
    $
    0.32
    
    
    $
    0.31Diluted
    
    $
    0.15
    **
    
    $
    0.42
    
    
    $
    0.32
    
    
    $
    0.32
    
    
    $
    0.31
 
 *
    
    This tabular information reflects Synergetics results only and does not reflect the effect of
the combination of Synergetics and Valley Forge.**
    
    The fiscal years 2005, 2004, 2003 and 2002 have not been adjusted to reflect the 4.59 shares
received by the private company shareholders at the time of the reverse merger between Valley
Forge and Synergetics forming Synergetics USA, Inc. For the Fiscal Years Ended July 31,2006
    
    2005*
    
    2004*
    
    2003*
    
    2002*(in thousands)Balance Sheets Data:Cash and cash equivalents
    
    $
    557
    
    
    $
    1,817
    
    
    $
    1,540
    
    
    $
    1,049
    
    
    $
    943Current assets
    
    
    21,908
    
    
    
    12,757
    
    
    
    9,563
    
    
    
    7,709
    
    
    
    5,920Total assets
    
    
    51,643
    
    
    
    20,116
    
    
    
    14,474
    
    
    
    12,254
    
    
    
    7,724Current liabilities
    
    
    9,310
    
    
    
    3,969
    
    
    
    2,862
    
    
    
    1,687
    
    
    
    1,396Long-term liabilities
    
    
    10,028
    
    
    
    6,008
    
    
    
    3,113
    
    
    
    3,251
    
    
    
    254Retained earnings
    
    
    8,483
    
    
    
    5,402
    
    
    
    3,944
    
    
    
    2,851
    
    
    
    1,760Stockholders equity
    
    
    32,305
    
    
    
    10,139
    
    
    
    8,499
    
    
    
    7,316
    
    
    
    6,074
 
 *
    
    This tabular information reflects Synergetics results only and does not reflect the effect of
the combination of Synergetics and Valley Forge. 
  Overview




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##### 




    
    Our Business  a general description of the key drivers that affect our business
and the industries in which we operate.
    
    Our Business Strategy  a description of the strategic initiatives on which we
focus and the goals we seek to achieve.
    
    Results of Operations  an analysis of our Companys results of operations for
the three years presented in our financial statements.
    
    Liquidity and Capital Resources  an analysis of cash flows, sources and uses of
cash, currency exchange and an overview of our financial position.
    
    Contractual Obligations  an analysis of contracts entered into in the normal
course of business that will require future payments.
    
    Use of Estimates and Critical Accounting Policies  a description of critical
accounting policies including those that affect the more significant judgments and
estimates used in the preparation of our consolidated financial statements.
 Our Business
  New Product Sales
  Growth in Minimally Invasive Surgery Procedures




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##### 



TM ® TM
 Demand Trends
  Pricing Trends
   Our Business Strategy
  
    
    Introducing new technology that can be easily differentiated from our competition
by capitalizing on our combined successes in delivering minimally invasive products that
enable concentrated application to a surgical area with decreased impact beyond the
specific desired surgical effects, resulting in improved recovery times and shorter
hospital stays;
    
    Identifying microsurgical niches that may offer the prospect for substantial
growth and higher profit margins that allow us an opportunity to build upon our existing
technologies, such as expanding the use of our products in ENT (ear, nose and throat),
spine surgery, plastic surgery and other forms of microsurgery;
    
    Accelerating our international (including Canada) growth by continuing to build
on our recent successes supported by Valley Forges long-established relationships and
reputation in global markets;
    
    Utilizing the full breadth and depth of knowledge, experience and resources in
our research and development department to deliver precision-engineered capital
equipment, instruments and disposables based on our own proprietary technologies and
innovations;




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
    
    Branding and marketing a substantial portion of our neurosurgical products with
the Malis® trademark;
    
    Continuing to develop our distribution channels by hiring direct territory
managers and independent sales agents to assure that our products and their associated
benefits are seen by those making or influencing the purchasing decisions;
    
    Continuing to grow our disposables revenue stream by focusing on the development
of a full offering of disposable adjuncts, such as instruments, adapters and fiber
optics, to our capital equipment offerings and emphasizing disposables designed to
eliminate hospital repair costs and minimize patient-to-patient disease transfer;
    
    Introducing the Malis® AdvantageTM with our new proprietary
single-use, hand-switching bipolar instruments with enhanced features and functionality
to expand the array of procedures they are designed to perform;
    
    Expanding the use of the Malis® AdvantageTM into other
surgical markets as its increased power and functionality allows the surgeon to perform
functions similar to traditional monopolar systems, without the inherent safety
limitations;
    
    Expanding the use of the Sonopet Omni®, our ultrasonic aspirator, into
other surgical markets as its torsional bone cutting capability allows the surgeon to
perform delicate procedures safely; and
    
    Exploring opportunities for growth through strategic partnering with other
companies with complimentary products and technologies to facilitate strategic growth in
our defined niche markets, such as our current relationships with Codman, Stryker and
Quantel.
 Results of Operations
 ®




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##### 



Year-Ended July 31, 2006 Compared to Year-Ended July 31, 2005
   Year Ended July 31,2006*
    
    
    2005*
    
    
    % IncreaseSynergetics:Ophthalmic
    
    $
    22,730
    
    
    $
    17,752
    
    
    
    28.0
    %Neurosurgery
    
    
    8,014
    
    
    
    4,040
    
    
    
    98.4Valley Forge, Neurosurgery
    
    
    7,502
    
    
    
    
    
    
    
    N/MTOTAL
    
    $
    38,246
    
    
    $
    21,792
    
    
    
    75.5
    %
 
 *
    
    For 2005, this tabular information reflects Synergetics results only and does not reflect the
effect of the combination of Synergetics and Valley Forge. For 2006, this tabular information
reflects the net sales of Valley Forge from September 22, 2005 through July 31, 2006. Valley
Forges sales for the twelve months ended June 30, 2005 were approximately $6.1 million. The
percentage increase over the pro forma numbers would have been 37.2%.
N/M  Not meaningful. TM TM ® ® TM
  Year Ended July 31,2006*
    
    
    2005*
    
    
    % IncreaseUnited
States  Synergetics
    
    $
    22,588
    
    
    $
    16,384
    
    
    
    37.9
    %United
States  Valley Forge
    
    
    7,502
    
    
    
    
    
    
    
    N/MInternational (including Canada)
    
    
    8,156
    
    
    
    5,408
    
    
    
    50.8TOTAL
    
    $
    38,246
    
    
    $
    21,792
    
    
    
    75.5
    %
 
 *
    
    For 2005, this tabular information reflects Synergetics results only and does not reflect the
effect of the combination of Synergetics and Valley Forge. For 2006, this tabular information
reflects the net sales of Valley Forge from September 22, 2005 through July 31, 2006. Valley
Forges sales for the twelve months ended June 30, 2005 were approximately $6.1 million. The
percentage increase over the pro forma numbers would have been 37.2%.
N/M  Not meaningful. ® ® TM




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##### 



® ® TM
  ®
  ® TM TM




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---



##### 



®
  Year-Ended July 31, 2005 Compared to Year-Ended July 31, 2004
   Year Ended July 31,*2005
    
    
    2004
    
    
    % IncreaseOphthalmic
    
    $
    17,752
    
    
    $
    14,061
    
    
    
    26.2
    %Neurosurgery
    
    
    4,040
    
    
    
    2,826
    
    
    
    43.0TOTAL
    
    $
    21,792
    
    
    $
    16,887
    
    
    
    29.0
    %
 
 *
    
    This tabular information reflects Synergetics results only and does not reflect the effect of
the combination of Synergetics and Valley Forge. TM ® TM ®
  Year Ended July 31,*2005
    
    
    2004
    
    
    % IncreaseUnited States
    
    $
    16,384
    
    
    $
    13,462
    
    
    
    21.7
    %International (including Canada)
    
    
    5,408
    
    
    
    3,425
    
    
    
    57.9TOTAL
    
    $
    21,792
    
    
    $
    16,887
    
    
    
    29.0
    %
 
 *
    
    This tabular information reflects Synergetics results only and does not reflect the effect of
the combination of Synergetics and Valley Forge.




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TM ® TM




---



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Liquidity and Capital Resources
      ®




---



##### 




    
    Revolving Credit Facility: Under this credit facility, the Company could borrow
up to $5.5 million with interest at an interest rate of LIBOR plus 2.25% and adjusting
each quarter based upon our leverage ratio. Currently, interest under the facility is
charged at LIBOR plus 2.00%. Borrowings under this facility at July 31, 2006 were
$2,641,042. Outstanding amounts are collateralized by the Companys receivables and
inventory. This credit facility expires December 1, 2007. The facility has two
financial covenants: a maximum leverage ratio of 3.75 times and a minimum fixed charge
coverage ratio of 1.1 times. As of July 31, 2006, the leverage ratio was 1.73 times and
the fixed charge coverage ratio was 2.58 times. Availability under the line was
approximately $2.8 million.
    
    Equipment Line of Credit: Under this credit facility, the Company may borrow up
to $1.0 million, with interest at the banks prime lending rate. Borrowings under this
facility were $689,003 on July 31, 2006. Outstanding amounts were secured by the
purchased equipment. The
equipment line of credit facility of $1.0 million expires on October 31, 2006 and has
availability of $310,957.
  Contractual Obligations
  Payments due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsRevolving Line of Credit (1)
    
    $
    2,900,217
    
    
    $
    194,381
    
    
    $
    2,705,836
    
    
    $
    
    
    
    $
    Equipment Line of Credit (2)
    
    
    703,214
    
    
    
    703,214
    
    
    
    
    
    
    
    
    
    
    
    Consolidated Equipment Term Loan (3)
    
    
    1,102,766
    
    
    
    529,210
    
    
    
    573,556
    
    
    
    
    
    
    
    Revenue Bonds Payable (4)
    
    
    5,204,593
    
    
    
    467,867
    
    
    
    897,311
    
    
    
    669,491
    
    
    
    3,169,924Building Term Loan (5)
    
    
    186,789
    
    
    
    28,311
    
    
    
    158,478
    
    
    
    
    
    
    
    Malis® Tradename Note Payable (6)
    
    
    3,517,888
    
    
    
    639,616
    
    
    
    1,279,232
    
    
    
    1,279,232
    
    
    
    319,808Operating Leases (7)
    
    
    569,784
    
    
    
    171,568
    
    
    
    330,121
    
    
    
    68,095
    
    
    
    Other Long-Term Liabilities (8)
    
    
    9,998
    
    
    
    9,998
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    14,195,249
    
    
    $
    2,744,165
    
    
    $
    5,944,534
    
    
    $
    2,016,818
    
    
    $
    3,489,732
 
 (1)
    
    Amount represents the expected cash payment of the outstanding borrowings of $2,641,042 on
our $5.5 million revolving credit facility, including interest at 7.36% through the expiration
of the revolving credit facility on December 1, 2007.(2)
    
    Amount represents the expected cash payment for our $1.0 million revolving equipment line of
credit, including interest at 8.25% through the expiration of the equipment line of credit on
October 31, 2006.(3)
    
    Amount represents the cash payment for our consolidated equipment term loan entered into in
October 2005,




---



##### 



including interest at 6.75%.(4)
    
    Amount represents the expected cash payments for our revenue bonds payable, including
interest at the established fixed rates through September 1, 2009 and December 1, 2011.(5)
    
    Amount represents the expected cash payment for our building term loan, including interest at
9.25% through September 2007.(6)
    
    Amount represents the expected cash payment on the note payable to the estate of the late Dr.
Leonard I. Malis. The note includes interest at an imputed rate of 6.0%.(7)
    
    We enter into operating leases in the normal course of business. Some lease agreements
provide us with the option to renew the lease. Our future cash payment would change if we
exercised these renewal options or if we entered into additional operating lease agreements.(8)
    
    Other long-term liabilities represent the expected cash payment on other deferred
liabilities. As deferred taxes have not been determined beyond 2006, this amount is excluded
from this table. Use of Estimates and Critical Accounting Policies
  Principles
of Consolidation
  Revenue Recognition
   Inventories




---



##### 



Loss Contingencies
  Amortization Periods
 Impairment of Long-Lived
Assets
 Allowance for Doubtful Accounts
  Patents and Research and Development
  Goodwill and Other Intangibles




---



##### 



Impairment of Long-Lived Assets
  Deferred Tax Assets and Liabilities
  Stock-Based Compensation
  Recent Accounting Pronouncements




---



##### 



Effectiveness of Controls and Procedures
 Managements Report on Internal Control Over Financial Reporting




---



##### 



Changes in Internal Control Over Financial Reporting 




---



##### 



Attestation Report of Registered Public Accounting Firm




---



##### 



PART III




---



##### 



PART IV
 
  (a)
    
    The following documents are filed as part of this report.
 1.
    
    Financial StatementsThe consolidated financial statements and supplemental schedule of
Synergetics USA, Inc. and subsidiaries, together with the report
thereon of McGladrey & Pullen, LLP, are included following Item 15 of
this report. See Index to Financial Statements and Financial Statement
Schedules.2.
    
    Financial Statement SchedulesSchedule II  Valuation and Qualifying Accounts3.
    
    ExhibitsThe exhibits required to be filed as part of this annual report on
Form 10-K are listed in the attached Index to Exhibits.
 (b)
    
    The exhibits filed with this annual report on Form 10-K are listed in the attached
Index to Exhibits.(c)
    
    None.




---



##### 



INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 Audited Financial Statements
 Report of Independent Registered Public Accounting Firm on the Consolidated Financial StatementsReport of Independent Registered Public Accounting Firm on Internal Control over Financial ReportingConsolidated Balance Sheets as of July 31, 2006 and 2005
    
    
    51Consolidated Statements of Income for the years ended July 31, 2006, 2005 and 2004
    
    
    52Consolidated Statements of Stockholders Equity for the years ended July 31, 2006, 2005 and 2004
    
    
    53Consolidated Statements of Cash Flows for the years ended July 31, 2006, 2005 and 2004
    
    
    54Notes to Consolidated Financial Statements
    
    
    55Financial Statement SchedulesSchedule II  Valuation and Qualifying Accounts
    
    
    69




---



##### 






















Internal Control over Financial
Reporting  Guidance for Smaller Public Companies issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO)











---



##### 



Report of Independent Registered Public Accounting Firm
 
 Internal
Control over Financial Reporting  Guidance for Smaller Public Companies issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).




---



##### 



Internal Control
over Financial Reporting  Guidance for Smaller Public Companies issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control over Financial Reporting  Guidance for Smaller
Public Companies issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).




---



##### 



Synergetics USA, Inc. and Subsidiaries
 
 Consolidated Balance Sheets
July 31, 2006 and 2005
 2006
    
    
    2005AssetsCurrent AssetsCash and cash equivalents
    
    $
    557,114
    
    
    $
    1,816,823Investment in trading securities
    
    
    49,989
    
    
    
    29,333Accounts receivable, net of allowance for doubtful accounts 2006 $179,000; 2005 $135,000
    
    
    6,807,326
    
    
    
    3,344,214Note receivable, officer-stockholder
    
    
    19,968
    
    
    
    Income taxes receivable
    
    
    512,989
    
    
    
    Inventories
    
    
    13,242,778
    
    
    
    7,188,636Prepaid expenses
    
    
    421,874
    
    
    
    220,903Deferred income taxes
    
    
    296,000
    
    
    
    157,000Total current assets
    
    
    21,908,038
    
    
    
    12,756,909Property and equipment, net
    
    
    8,496,723
    
    
    
    6,483,307Intangible and other assetsGoodwill
    
    
    10,660,501
    
    
    
    Other intangible assets, net
    
    
    9,731,750
    
    
    
    Deferred expenses
    
    
    82,930
    
    
    
    Patents, net
    
    
    730,953
    
    
    
    451,556Acquisition costs
    
    
    
    
    
    
    394,452Cash value of life insurance
    
    
    32,523
    
    
    
    29,545Total Assets
    
    $
    51,643,418
    
    
    $
    20,115,769Liabilities and Stockholders EquityCurrent LiabilitiesLines-of-credit
    
    $
    3,330,045
    
    
    $
    235,000Current maturities of long-term debt
    
    
    966,918
    
    
    
    276,771Current maturities of revenue bonds payable
    
    
    248,750
    
    
    
    248,750Accounts payable
    
    
    1,964,191
    
    
    
    1,148,082Accrued construction costs
    
    
    
    
    
    
    613,469Accrued expenses
    
    
    2,793,930
    
    
    
    1,135,217Income taxes payable
    
    
    
    
    
    
    311,684Deferred revenue
    
    
    6,400
    
    
    
    Total current liabilities
    
    
    9,310,234
    
    
    
    3,968,973Long-Term LiabilitiesLong-term debt, less current maturities
    
    
    3,215,360
    
    
    
    1,250,939Revenue bonds payable, less current maturities
    
    
    4,139,792
    
    
    
    4,388,542Deferred income taxes
    
    
    2,663,000
    
    
    
    343,000Deferred compensation
    
    
    9,998
    
    
    
    25,519Total long-term liabilities
    
    
    10,028,150
    
    
    
    6,008,000Total liabilities
    
    
    19,338,384
    
    
    
    9,976,973Commitments and contingencies (Notes 9 and 16)Stockholders EquityCommon stock at July 31, 2006 and July 31, 2005, $0.001 par value, 50,000,000 shares
authorized and $0.01667 par value, 8,000,000 shares authorized, respectively;
24,206,970 and 3,542,111 shares issued, respectively; 24,206,970 and 3,456,773 shares
outstanding, respectively
    
    
    24,207
    
    
    
    59,047Additional paid-in capital
    
    
    23,797,654
    
    
    
    4,985,936Retained earnings
    
    
    8,483,173
    
    
    
    5,401,81632,305,034
    
    
    
    10,446,799Less: Treasury stock, 2006 none, 2005 85,338 shares, at cost
    
    
    
    
    
    
    308,00332,305,034
    
    
    
    10,138,796$
    51,643,418
    
    
    $
    20,115,769
  51




---



##### 



Synergetics USA, Inc. and Subsidiaries
 
 Consolidated Statements of Income
Years Ended July 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Sales
    
    $
    38,245,635
    
    
    $
    21,791,582
    
    
    $
    16,887,378Cost of sales
    
    
    14,237,752
    
    
    
    8,288,884
    
    
    
    6,514,120Gross profit
    
    
    24,007,883
    
    
    
    13,502,698
    
    
    
    10,373,258Operating expensesResearch and development
    
    
    1,655,122
    
    
    
    857,798
    
    
    
    796,916Selling, general and administrative
    
    
    17,351,249
    
    
    
    10,261,627
    
    
    
    7,886,01419,006,371
    
    
    
    11,119,425
    
    
    
    8,682,930Operating income
    
    
    5,001,512
    
    
    
    2,383,273
    
    
    
    1,690,328Other income (expense)Investment income
    
    
    19,255
    
    
    
    30,252
    
    
    
    17,514Interest expense
    
    
    (575,442
    )
    
    
    (215,590
    )
    
    
    (196,143
    )Miscellaneous
    
    
    55,565
    
    
    
    (223
    )
    
    
    2,476(500,622
    )
    
    
    (185,561
    )
    
    
    (176,153
    )Income before provision for income taxes
    
    
    4,500,890
    
    
    
    2,197,712
    
    
    
    1,514,175Provision for income taxes
    
    
    1,419,533
    
    
    
    740,000
    
    
    
    420,600Net income
    
    $
    3,081,357
    
    
    $
    1,457,712
    
    
    $
    1,093,575Earnings per share:Basic
    
    $
    0.15
    
    
    $
    0.43
    
    
    $
    0.32Diluted
    
    $
    0.15
    
    
    $
    0.42
    
    
    $
    0.32Basic weighted average common shares outstanding
    
    
    20,657,255
    
    
    
    3,424,030
    
    
    
    3,401,184Diluted weighted average common shares outstanding
    
    
    20,821,394
    
    
    
    3,443,000
    
    
    
    3,413,866
  52




---



##### 



Synergetics USA, Inc. and Subsidiaries
 
 Consolidated Statements of Stockholders Equity
Years Ended July 31, 2006, 2005 and 2004
 AdditionalCommon
    
    
    paid-in
    
    
    Retained
    
    
    TreasuryStock
    
    
    capital
    
    
    earnings
    
    
    stock
    
    
    TotalBalance, July 31, 2003
    
    $
    57,920
    
    
    $
    4,715,631
    
    
    $
    2,850,529
    
    
    $
    (308,003
    )
    
    $
    7,316,077Issuance of 22,200 shares of common stock
    
    
    371
    
    
    
    89,430
    
    
    
    
    
    
    
    
    
    
    
    89,801Net income
    
    
    
    
    
    
    
    
    
    
    1,093,575
    
    
    
    
    
    
    
    1,093,575Balance, July 31, 2004
    
    
    58,291
    
    
    
    4,805,061
    
    
    
    3,944,104
    
    
    
    (308,003
    )
    
    
    8,499,453Issuance of 45,409 shares of common stock
    
    
    756
    
    
    
    180,875
    
    
    
    
    
    
    
    
    
    
    
    181,631Net income
    
    
    
    
    
    
    
    
    
    
    1,457,712
    
    
    
    
    
    
    
    1,457,712Balance, July 31, 2005
    
    
    59,047
    
    
    
    4,985,936
    
    
    
    5,401,816
    
    
    
    (308,003
    )
    
    
    10,138,796Elimination of treasury shares
    
    
    
    
    
    
    (308,003
    )
    
    
    
    
    
    
    308,003
    
    
    
    Establish par value of $0.001 on
outstanding shares
    
    
    (35,137
    )
    
    
    35,137
    
    
    
    
    
    
    
    
    
    
    
    Establish fair value of Valley Forge
common stock on date of merger
    
    
    
    
    
    
    17,987,381
    
    
    
    
    
    
    
    
    
    
    
    17,987,381Restricted stock grants
    
    
    15
    
    
    
    14,873
    
    
    
    
    
    
    
    
    
    
    
    14,888Stock-based compensation
    
    
    67
    
    
    
    441,993
    
    
    
    
    
    
    
    
    
    
    
    442,060Tax benefit associated with stock option
exercises
    
    
    
    
    
    
    222,956
    
    
    
    
    
    
    
    
    
    
    
    222,956Proceeds from stock option exercises
    
    
    215
    
    
    
    417,381
    
    
    
    
    
    
    
    
    
    
    
    417,596Net income
    
    
    
    
    
    
    
    
    
    
    3,081,357
    
    
    
    
    
    
    
    3,081,357Balance, July 31, 2006
    
    $
    24,207
    
    
    $
    23,797,654
    
    
    $
    8,483,173
    
    
    $
    
    
    
    $
    32,305,034
  53




---



##### 



Synergetics USA Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
Years Ended July 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Cash Flows from Operating ActivitiesNet income
    
    $
    3,081,357
    
    
    $
    1,457,712
    
    
    $
    1,093,575Adjustments to reconcile net income to net cash provided by (used in) operating
activitiesDepreciation
    
    
    737,801
    
    
    
    510,503
    
    
    
    394,427Amortization
    
    
    435,995
    
    
    
    69,597
    
    
    
    29,273Provision for doubtful accounts receivable
    
    
    28,142
    
    
    
    123,798
    
    
    
    7,510Stock-based compensation
    
    
    456,948
    
    
    
    181,631
    
    
    
    Loss on sale of equipment
    
    
    (2,393
    )
    
    
    
    
    
    
    7,178Deferred income taxes
    
    
    (315,000
    )
    
    
    (15,000
    )
    
    
    106,000Change in assets and liabilities, net of reverse merger (Note 2):(Increase) decrease in:Trading securities
    
    
    (20,656
    )
    
    
    (29,333
    )
    
    
    Receivables
    
    
    (2,788,135
    )
    
    
    (773,939
    )
    
    
    (668,420
    )Income tax receivable
    
    
    (118,504
    )
    
    
    85,960
    
    
    
    286,681Inventories
    
    
    (5,128,653
    )
    
    
    (2,374,554
    )
    
    
    (853,673
    )Prepaid expenses
    
    
    (143,519
    )
    
    
    32,622
    
    
    
    (73,605
    )Other current assets
    
    
    
    
    
    
    99,537
    
    
    
    (29,710
    )(Decrease) increase in:Accounts payable
    
    
    556,735
    
    
    
    386,559
    
    
    
    31,918Accrued expenses
    
    
    1,414,138
    
    
    
    (133,659
    )
    
    
    582,744Deferred expenses
    
    
    (92,051
    )
    
    
    25,519
    
    
    
    Income taxes payable
    
    
    (258,214
    )
    
    
    295,278
    
    
    
    16,406Net cash provided by (used in) operating activities
    
    
    (2,156,009
    )
    
    
    (57,769
    )
    
    
    930,304Cash Flows from investing activitiesNet decrease in notes receivable, officer-stockholder
    
    
    12,789
    
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    (3,038,336
    )
    
    
    (1,795,484
    )
    
    
    (686,816
    )Proceeds from sale of equipment
    
    
    
    
    
    
    
    
    
    
    3,182Acquisition of patents
    
    
    (264,609
    )
    
    
    (195,215
    )
    
    
    (113,772
    )Cash paid for reverse merger costs
    
    
    (502,873
    )
    
    
    (394,452
    )
    
    
    Cash acquired through reverse merger
    
    
    2,023,945
    
    
    
    
    
    
    
    Increase in cash value of life insurance
    
    
    (2,978
    )
    
    
    (29,545
    )
    
    
    Net cash used in investing activities
    
    
    (1,772,062
    )
    
    
    (2,414,696
    )
    
    
    (797,406
    )Cash Flows from financing activitiesNet borrowings on lines-of-credit
    
    
    2,506,553
    
    
    
    281,097
    
    
    
    542,395Proceeds from revenue bonds payable
    
    
    
    
    
    
    2,330,000
    
    
    
    Principal payments on revenue bonds payable
    
    
    (248,750
    )
    
    
    (161,375
    )
    
    
    (132,250
    )Proceeds from long-term debt
    
    
    1,426,952
    
    
    
    542,395
    
    
    
    Principal payments on long-term debt
    
    
    (1,161,437
    )
    
    
    (242,871
    )
    
    
    (142,174
    )Tax benefit associated with the exercise of non-qualified stock options
    
    
    222,956
    
    
    
    
    
    
    
    Payment on debt incurred for acquisition of trademark
    
    
    (495,508
    )
    
    
    
    
    
    
    Proceeds from the issuance of common stock
    
    
    417,596
    
    
    
    
    
    
    
    89,801Net cash provided by financing activities
    
    
    2,668,362
    
    
    
    2,749,246
    
    
    
    357,772Net (decrease) increase in cash and cash equivalents
    
    
    (1,259,709
    )
    
    
    276,781
    
    
    
    490,670Cash and cash equivalentsBeginning
    
    
    1,816,823
    
    
    
    1,540,042
    
    
    
    1,049,372Ending
    
    $
    557,114
    
    
    $
    1,816,823
    
    
    $
    1,540,042Supplemental Disclosures of Cash Flow InformationCash paid for:Interest (Capitalized as a part of property 2006 $27,816, 2005 $67,818; 2004 none)
    
    $
    588,370
    
    
    $
    283,408
    
    
    $
    186,164Income taxes
    
    
    1,881,240
    
    
    
    373,762
    
    
    
    237,496Supplemental Schedule of Noncash Investing and Financing ActivitiesConstruction in progress financed by accounts payable
    
    $
    
    
    
    $
    613,469
    
    
    $
    
  54




---



##### 



Synergetics USA Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements
 Note 1. Nature of Business and Significant Accounting Policies
 Nature of business
  Use of estimates in the preparation of financial statements
 Principles of consolidation
 Cash and cash equivalents
 Investment in trading securities
 Accounts receivable
 Concentration of credit risk
 Inventories
 Property and equipment
 Useful livesBuilding and improvements
    
    
    7-39Machinery and equipment
    
    
    5-7Furniture and fixtures
    
    
    5-7Software
    
    
    3-5
 55




---



##### 



Goodwill and other intangibles
 Patents
 Impairment of long-lived assets (excluding goodwill and other intangibles)
 Deferred income taxes
 Fair value of financial instruments
 Revenue recognition
  Product warranty
 Advertising
 Royalties
 Earnings per share
 56




---



##### 



Stock compensation
  2005
    
    
    2004Net income:As reported
    
    $
    1,457,712
    
    
    $
    1,093,575Add: stock-based
employee compensation
expense included in
reported net income, net
of related tax effects
    
    
    
    
    
    
    Deduct: compensation
expense determined under
fair value based method
for all awards, net of
related tax effects
    
    
    9,559
    
    
    
    10,766Pro forma
    
    $
    1,448,153
    
    
    $
    1,082,809Earnings per share:As reportedBasic
    
    
    0.43
    
    
    
    0.32Diluted
    
    
    0.42
    
    
    
    0.32Pro formaBasic
    
    
    0.42
    
    
    
    0.32Diluted
    
    
    0.42
    
    
    
    0.32
 Reclassifications
 Segment information ®
 57




---



##### 



Note 2. Reverse Merger
  Assets:Cash, net of
merger expenses of $891,620
    
    $
    1,132,325Accounts receivable
    
    
    703,119Inventories
    
    
    925,489Prepaid expenses and other current assets
    
    
    573,936Property and equipment
    
    
    323,962Other intangibles:
    
    
    10,182,533Definite lived
    
    
    4,419,240Indefinite lived
    
    
    5,763,293Goodwill
    
    
    10,660,501Liabilities assumed:Accounts payable and accrued expenses
    
    
    (509,659
    )Income taxes payable
    
    
    (35,713
    )Note payable issued in connection with Malis® trademark
    
    
    (3,473,053
    )Deferred income taxes
    
    
    (2,496,059
    )Net assets acquired
    
    $
    17,987,381
   Twelve Months
    
    
    Twelve MonthsEnded
    
    
    EndedJuly 31,
    
    
    July 31,2006
    
    
    2005 (1)Net sales
    
    $
    39,117,696
    
    
    $
    27,867,779Net income
    
    
    2,940,784
    
    
    
    1,462,275Basic earnings per share
    
    
    0.13
    
    
    
    0.06Diluted earnings per share
    
    
    0.13
    
    
    
    0.06
 
   58




---



##### 



Note 3. Distribution Agreements
  Codman and Shurtleff, Inc. (Codman)
 ®
  Stryker Corporation (Stryker)
    Note 4. Inventories
  2006
    
    
    2005Raw materials and component parts
    
    $
    5,614,239
    
    
    $
    2,398,238Work in progress
    
    
    2,493,117
    
    
    
    1,295,976Finished goods
    
    
    5,135,422
    
    
    
    3,494,422$
    13,242,778
    
    
    $
    7,188,636
 59




---



##### 



Note 5. Property and Equipment
  2006
    
    
    2005Land
    
    $
    729,753
    
    
    $
    729,753Building and improvements
    
    
    5,339,754
    
    
    
    2,568,612Machinery and equipment
    
    
    4,196,084
    
    
    
    2,888,687Furniture and fixtures
    
    
    545,505
    
    
    
    266,225Software
    
    
    105,208
    
    
    
    39,734Construction in progress
    
    
    
    
    
    
    1,688,35510,916,304
    
    
    
    8,181,366Less accumulated depreciation
    
    
    2,419,581
    
    
    
    1,698,059$
    8,496,723
    
    
    $
    6,483,307
    Note 6. Other Intangible Assets
  Gross Carrying
    
    
    AccumulatedValue
    
    
    Amortization
    
    
    NetJuly 31, 2006Patents
    
    $
    914,836
    
    
    $
    183,883
    
    
    $
    730,953Proprietary know-how
    
    
    4,057,115
    
    
    
    336,711
    
    
    
    3,720,404Licensing agreements
    
    
    140,000
    
    
    
    51,850
    
    
    
    88,150Trademark
    
    
    5,923,196
    
    
    
    
    
    
    
    5,923,196$
    11,035,147
    
    
    $
    572,444
    
    
    $
    10,462,703July 31, 2005Patents
    
    $
    588,005
    
    
    $
    136,449
    
    
    $
    451,556Acquisition costs
    
    
    394,452
    
    
    
    
    
    
    
    394,452$
    982,457
    
    
    $
    136,449
    
    
    $
    846,008
 Note 7. Accrued Expenses
  2006
    
    
    2005Payroll, commissions and employee benefits
    
    $
    597,543
    
    
    $
    401,684Royalties
    
    
    63,968
    
    
    
    134,077Warranty
    
    
    42,900
    
    
    
    Other
    
    
    2,089,519
    
    
    
    599,456$
    2,793,930
    
    
    $
    1,135,217
 60




---



##### 



Note 8. Pledged Assets, Short and Long-Term Debt
 Revolving Credit Facility:
 Equipment Line of Credit:
  2006
    
    
    2005Note payable to bank, due in
monthly installments of $1,139 plus
interest at prime rate plus 1% (an
effective rate of 9.25% as of July 31,
2006), remaining balance due September
2007, collateralized by second deed of
trust
    
    $
    165,140
    
    
    $
    178,806Note payable, due in monthly
installments of $509 including interest
at 4.9%, remaining balance due May 2008,
collateralized by a vehicle
    
    
    9,060
    
    
    
    15,170Note payable to bank, due in monthly
principal installments of $39,642
beginning November 2005 plus interest at
the banks prime lending rate (an
effective rate of 8.25% as of July 31,
2006), remaining balance due September
30, 2008, collateralized by
substantially all assets of the Company
    
    
    1,030,534
    
    
    
    Note payable to the estate of the late
Dr. Leonard I. Malis, due in quarterly
installments of $159,904 which includes
interest at an imputed rate of 6.00%,
remaining balance of $3,517,888
including the effects of imputing
interest, due December 2011,
collateralized by the Malis®
trademark
    
    
    2,977,544
    
    
    
    Note payable to bank, due in monthly
principal installments of $3,033 plus
interest at prime rate (an effective
rate of 6.25% as of July 31, 2005),
remaining balance due May 2007
collateralized by substantially all
assets of the Company, refinanced in
October 2005
    
    
    
    
    
    
    63,713Note payable to bank, due in monthly
principal installments of $7,083 plus
interest at prime rate (an effective
rate of 6.25% as of July 31, 2005),
remaining balance due June 2008,
collateralized by machinery and
equipment, refinanced in October 2005
    
    
    
    
    
    
    240,833Note payable to bank, due in monthly
principal installments of $11,300 plus
interest at prime rate (an effective
rate of 6.25% as of July 31, 2005),
remaining balance due September 2008,
collateralized by machinery and
equipment, refinanced in October 2005
    
    
    
    
    
    
    440,6964,182,278
    
    
    
    939,218Less current maturities
    
    
    966,918
    
    
    
    276,771Long-term portion
    
    $
    3,215,360
    
    
    $
    662,447
  Year Ending July 31,:
    
    Amount2007
    
    $
    966,9182008
    
    
    1,130,4922009
    
    
    610,2032010
    
    
    563,6612011
    
    
    598,2492012
    
    
    312,755$
    4,182,278
 61




---



##### 



Note 9. Revenue Bonds Payable
     Year Ending July 31,:
    
    Amount2007
    
    $
    248,7502008
    
    
    248,7502009
    
    
    248,7502010
    
    
    248,7502011
    
    
    248,750Thereafter
    
    
    3,144,792$
    4,388,542
 Note 10. Operating Leases
   Year Ending July 31,:
    
    Amount2007
    
    $
    171,5682008
    
    
    168,0422009
    
    
    162,0792010
    
    
    67,6002011
    
    
    495$
    569,784
  Note 11. Income Tax Matters
  62




---



##### 



2006
    
    
    2005Deferred tax assets:Accounts receivable
    
    $
    66,000
    
    
    $
    54,000Inventories
    
    
    110,000
    
    
    
    59,000Accrued liabilities
    
    
    115,000
    
    
    
    44,000Other
    
    
    5,000
    
    
    
    296,000
    
    
    
    157,000Deferred tax liabilities:Property and equipment
    
    
    294,000
    
    
    
    343,000Other intangible assets
    
    
    2,369,000
    
    
    
    2,663,000
    
    
    
    343,000$
    (2,367,000
    )
    
    $
    (186,000
    )
  2006
    
    
    2005Current assets
    
    $
    296,000
    
    
    $
    157,000Long-term liabilities
    
    
    (2,663,000
    )
    
    
    (343,000
    )$
    (2,367,000
    )
    
    $
    (186,000
    )
  2006
    
    
    2005
    
    
    2004Currently payable
    
    $
    1,734,533
    
    
    $
    755,000
    
    
    $
    314,600Deferred
    
    
    (315,000
    )
    
    
    (15,000
    )
    
    
    106,000$
    1,419,533
    
    
    $
    740,000
    
    
    $
    420,600
  2006
    
    2005
    
    2004Computed at the statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes net of federal tax benefit
    
    
    4.6
    
    
    
    8.2
    
    
    
    3.8Extraterritorial income exclusion
    
    
    (3.0
    )
    
    
    (4.0
    )
    
    
    (4.0
    )Production deduction for domestic manufacturers
    
    
    (3.5
    )
    
    
    
    
    
    
    Research and development
    
    
    
    
    
    
    (6.9
    )
    
    
    (8.8
    )Other
    
    
    (0.6
    )
    
    
    2.4
    
    
    
    2.831.5
    %
    
    
    33.7
    %
    
    
    27.8
    %
 Note 12. Employee Benefit Plan
  Note 13. Stock Based Compensation Plans
 Stock Option Plans
  63




---



##### 



WeightedAverage
    
    
    WeightedExercise
    
    
    AverageShares
    
    
    Price
    
    
    Fair ValueOptions outstanding as of August 1, 2003
    
    
    19,916
    
    
    $
    1.46Granted
    
    
    14,000
    
    
    $
    3.57Options outstanding as of July 31, 2004
    
    
    33,916
    
    
    $
    2.33
    
    
    $
    2.22Granted
    
    
    24,584
    
    
    $
    4.00
    
    
    
    Options outstanding as of July 31, 2005
    
    
    58,500
    
    
    $
    2.33
    
    
    $
    2.97Exercised prior to September 21, 2005
    
    
    (20,500
    )
    
    
    
    
    
    $
    3.92Options outstanding, September 21, 2005
    
    
    38,000
    
    
    $
    4.64
    
    
    $
    2.46Conversion ratio applied at September 21, 2005
    
    
    4.59
    
    
    
    4.59
    
    
    
    Converted options
    
    
    174,420
    
    
    $
    1.01
    
    
    $
    2.46Existing options assumed under the Valley Forge Stock option plan
    
    
    441,500
    
    
    $
    2.18
    
    
    $
    1.88For the period from September 22, 2005 through July 31, 2006:Granted
    
    
    20,000
    
    
    $
    5.00
    
    
    $
    3.32Forfeited
    
    
    (9,180
    )
    
    $
    1.09
    
    
    $
    0.91Exercised
    
    
    (214,990
    )
    
    $
    1.87
    
    
    $
    1.62Options outstanding, July 31, 2006
    
    
    411,750
    
    
    $
    1.98
    
    
    $
    1.63Options exercisable, July 31, 2006
    
    
    354,375
    
    
    $
    2.12
    
    
    $
    1.75
  Weighted Average GrantShares
    
    Date ValueUnvested options, beginning of period
    
    
    36,834
    
    
    $
    3.42Vested upon change of control
    
    
    11,334
    
    
    $
    4.00Unvested options outstanding September 21, 2005
    
    
    25,500
    
    
    $
    3.16Conversion ratio applied at September 21, 2005
    
    
    4.59Converted options
    
    
    117,045
    
    
    $
    0.90From September 22, 2005 through July 31, 2006:Forfeited
    
    
    9,180
    
    
    $
    1.09Vested
    
    
    50,490
    
    
    $
    0.89Unvested options, period end
    
    
    57,375
    
    
    $
    0.91
  Fiscal Year EndedJuly 31, 2006
    
    July 31, 2005
    
    July 31, 2004Proceeds of options exercised
    
    $
    417,596
    
    
    $
    
    
    
    $
    89,801Related tax benefit recognized
    
    
    222,956
    
    
    
    
    
    
    
    Intrinsic value of options exercised
    
    
    361,729
    
    
    
    
    
    
    
    
 64




---



##### 



ExercisableOptions Outstanding
    
    OptionsNumber
    
    
    411,750
    
    
    
    354,375Weighted average exercise price
    
    $
    1.98
    
    
    $
    2.12Aggregate intrinsic value
    
    $
    671,681
    
    
    $
    619,470Weighted average contractual term
    
    6.2 years
    
    5.8 years
  Options Outstanding
    
    Exercisable OptionsWeighted Average
    
    
    
    
    
    Weighted AverageRemaining Contractual
    
    
    
    
    
    Remaining ContractualShares
    
    Life (in Years)
    
    Shares
    
    Life (in Years)< $1.00
    
    
    58,375
    
    
    5.9 years
    
    
    58,375
    
    
    5.9 years$1.00  $2.00
    
    
    211,375
    
    
    6.0 years
    
    
    154,000
    
    
    5.1 years$2.00  $5.00
    
    
    142,000
    
    
    6.5 years
    
    
    142,000
    
    
    6.5 yearsTotal
    
    
    411,750
    
    
    6.2 years
    
    
    354,375
    
    
    5.8 years
  Expected average risk-free interest rate
    
    
    4.0
    %Expected average life (in years)
    
    
    5Expected volatility
    
    
    79.7
    %Expected dividend yield
    
    
    0
    %
  Restricted Stock Plans
  Restricted StockNumber
    
    
    14,601Stock price at date of grant
    
    $
    5.48Aggregate value
    
    $
    80,013Weighted average contractual term
    
    
    3.9 years
 65




---



##### 



Note 14. Research and Development Costs
  Note 15. Segment Information
  Synergetics
    
    Valley Forge
    
    ConsolidatedFor the fiscal year ended July 31, 2006Net sales:Domestic
    
    $
    22,588,265
    
    
    $
    7,501,656
    
    
    $
    30,089,921International
    
    
    8,155,714
    
    
    
    
    
    
    
    8,155,714Operating Income
    
    
    2,778,475
    
    
    
    2,223,037
    
    
    
    5,001,512Identifiable Assets
    
    
    28,140,803
    
    
    
    23,502,615
    
    
    
    51,643,418Capital Expenditures
    
    
    2,982,795
    
    
    
    55,541
    
    
    
    3,038,336For the fiscal year ended July 31, 2005Net sales:Domestic
    
    $
    16,383,432
    
    
    $
    
    
    
    $
    16,383,432International
    
    
    5,408,150
    
    
    
    
    
    
    
    5,408,150Operating Income
    
    
    2,383,273
    
    
    
    
    
    
    
    2,383,273Identifiable Assets
    
    
    20,115,769
    
    
    
    
    
    
    
    20,115,769Capital Expenditures
    
    
    1,795,484
    
    
    
    
    
    
    
    1,795,484
 Note 16. Related Party Transactions
  66




---



##### 



Note 17. Commitments and Contingencies
      Note 18. Quarterly Financial Data (Unaudited)
 Quarters Ended
    
    July 31, 2006
    
    April 30, 2006
    
    January 30, 2006
    
    October 27, 2005Net Sales
    
    $
    10,780,551
    
    
    $
    10,449,516
    
    
    $
    9,868,449
    
    
    $
    7,147,119Gross Profit
    
    
    6,518,567
    (1)
    
    
    6,698,864
    (1)
    
    
    6,134,127
    (1)
    
    
    4,656,323
    (1)Income from Operations
    
    
    1,182,463
    
    
    
    1,785,405
    
    
    
    1,456,358
    
    
    
    577,283Net Income
    
    
    837,193
    
    
    
    1,026,116
    
    
    
    858,053
    
    
    
    359,989Earnings per ShareBasic
    
    $
    0.03
    (2)
    
    $
    0.05
    (2)
    
    $
    0.04
    (2)
    
    $
    0.04
    (2)Diluted
    
    $
    0.03
    (2)
    
    $
    0.05
    (2)
    
    $
    0.04
    (2)
    
    $
    0.04
    (2)Basic weighted average common shares outstanding
    
    
    24,181,547
    
    
    
    24,090,511
    
    
    
    23,934,598
    
    
    
    11,825,684Diluted weighted average common shares outstanding
    
    
    24,406,778
    
    
    
    24,326,847
    
    
    
    24,148,742
    
    
    
    11,927,372
 
 (1)
    
    During the fourth quarter of the fiscal year ended July 31, 2006, the Company recorded an
additional $322,000 charge to the Companys earnings. 67




---



##### 



During fiscal 2006, the Company
completed a review of all of its purchased inventory and a substantial portion of its
manufactured products in response to a material weakness identified in the prior year. The Company also completed a review of the complete inventory
process as part of its compliance with the provisions of Sarbanes-Oxley and identified another weakness. The Company has updated
its inventory system and implemented additional controls including monitoring processes and
procedures to correct both weaknesses. The Company has analyzed the additional amount charged to earnings during the fourth quarter and has determined that the amount of the charge that would
have been applicable to the prior year was immaterial. The amounts in the above table have been adjusted to reflect the
estimated charges which would have been applicable to each quarter.
The first quarter has been reduced by $183,000 in gross profit and
income from operations and $126,000 in net income. The third quarter
has been reduced by $139,000 in gross profit and income from
operations and $95,000 in net income. The fourth quarter has been
increased by $322,000 in gross profit and income from operations and
$221,000 in net income.(2)
    
    The accumulation of four quarters in fiscal year 2006 for earnings per share may not
equal the related per share amounts for the year ended July 31, 2006 due to the timing and
amount of shares issued in the reverse merger transaction.
 Quarters Ended
    
    July 31, 2005
    
    April 29, 2005
    
    January 31, 2005
    
    October 28, 2004Net Sales
    
    $
    5,719,939
    
    
    $
    5,750,074
    
    
    $
    5,346,962
    
    
    $
    4,974,607Gross Profit
    
    
    3,326,914
    
    
    
    3,529,413
    
    
    
    3,366,955
    
    
    
    3,279,416Income from Operations
    
    
    323,952
    
    
    
    710,902
    
    
    
    706,771
    
    
    
    641,648Net Income
    
    
    275,614
    
    
    
    387,277
    
    
    
    423,597
    
    
    
    371,223Earnings per ShareBasic
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    0.12
    
    
    $
    0.11Diluted
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    0.12
    
    
    $
    0.11Basic weighted average common shares outstanding
    
    
    3,456,773
    
    
    
    3,412,996
    
    
    
    3,411,364
    
    
    
    3,411,364Diluted weighted average common shares outstanding
    
    
    3,437,803
    
    
    
    3,425,667
    
    
    
    3,424,045
    
    
    
    3,424,045
 Note 19. Recent Accounting Pronouncements
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and
Hedging Activities Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities
 Accounting for Servicing of Financial Assetsan
amendment to FASB Statement No. 140
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 (FIN 48). Accounting for Income Taxes
  68




---



##### 



Synergetics, Inc. and Subsidiaries
 
 Schedule II  Valuation and Qualifying Accounts
 Balance at
    
    Charged to
    
    Charged toBeginning of
    
    Cost and
    
    Other
    
    Deductions
    
    Balance at EndClassifications
    
    Year
    
    Expenses
    
    Accounts
    
    from Reserves(2)
    
    of YearYear ended July 31, 2004Allowance for Doubtful Accounts
    
    $
    40,000
    
    
    $
    7,510
    
    
    $
    
    
    
    $
    (7,510
    )
    
    $
    40,000Year ended July 31, 2005Allowance for Doubtful Accounts
    
    $
    40,000
    
    
    $
    123,798
    
    
    $
    
    
    
    $
    (28,798
    )
    
    $
    135,000Year ended July 31, 2006Allowance for Doubtful Accounts
    
    $
    135,000
    
    
    $
    145,926
    
    
    $
    16,000
    (1)
    
    $
    (117,926
    )
    
    $
    179,000Allowance for Excess and Obsolete Inventory
    
    
    
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    75,000
 
 (1)
    
    Allowance for Doubtful Accounts recorded by Valley Forge Scientific Corp. as of September 22,
2005.(2)
    
    Adjustments represent write-offs of uncollectible accounts receivable. 69




---



##### 



Synergetics USA, Inc.(registrant)October 16, 2006/s/ Pamela G. Boone

Pamela G. Boone, Executive Vice President, ChiefFinancial Officer, Secretary and Treasurer
  October 16, 2006
    
    /s/ Gregg D. Scheller

Gregg D. Scheller, President and Chief Executive Officer(Principal Executive Officer) and DirectorOctober 16, 2006
    
    /s/ Pamela G. Boone

Pamela G. Boone, Executive Vice President, ChiefFinancial Officer, Secretary and Treasurer (PrincipalFinancial and Accounting Officer)October 16, 2006
    
    /s/ Lawrence C. Cardinale

Lawrence C. Cardinale, DirectorOctober 16, 2006
    
    /s/ Robert H. Dick

Robert H. Dick, DirectorOctober 16, 2006
    
    /s/ Kurt W. Gampp, Jr.

Kurt W. Gampp, Jr., DirectorOctober 16, 2006
    
    /s/ Guy Guarch

Guy Guarch, DirectorOctober 16, 2006
    
    /s/ Juanita H. Hinshaw

Juanita H. Hinshaw, DirectorOctober 16, 2006
    
    /s/ Jerry L. Malis

Jerry L. Malis, Director
 70




---



##### 



Index to Exhibits
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger by and among Valley Forge
Scientific Corp. (Valley Forge), Synergetics Acquisition
Corporation and Synergetics, Inc. dated May 2, 2005. (Filed
as Exhibit 2.1 to Valley Forges Current Report on Form 8-K
filed on May 4, 2005 and incorporated herein by reference.)2.2
    
    Amendment No. 1 to Agreement and Plan of Merger by and among
Valley Forge, Synergetics Acquisition Corporation and
Synergetics, Inc. dated June 2, 2005. (Filed as Exhibit 2.1
to Valley Forges Current Report on Form 8-K filed on June
3, 2005 and incorporated herein by reference.)2.3
    
    Amendment No. 2 to Agreement and Plan of Merger by and among
Valley Forge, Synergetics Acquisition Corporation and
Synergetics, Inc. dated July 15, 2005. (Filed as Exhibit 2.1
to Valley Forges Current Report on Form 8-K filed on July
15, 2005 and incorporated herein by reference.)2.4
    
    Agreement and Plan of Reincorporation Merger, dated as of
September 22, 2005, between Valley Forge and VFSC Delaware,
Inc. (Filed as Exhibit 2.1 to the Registrants Current
Report on Form 8-K filed on September 27, 2005 and
incorporated herein by reference.)3.1
    
    Amended and Restated Certificate of Incorporation of the
Registrant. (Filed as Exhibit 3.1 to the Registrants
Current Report on Form 8-K filed on September 27, 2005 and
incorporated herein by reference.)3.2
    
    Amended and Restated Bylaws of the Registrant. (Filed as
Exhibit 3.2 to the Registrants Current Report on Form 8-K
filed on September 27, 2005 and incorporated herein by
reference.)4.1
    
    Form of common stock certificate of the Registrant. (Filed
as Exhibit 4.1 to the Registrants Current Report on Form
8-K filed on September 27, 2005 and incorporated herein by
reference.)10.1
    
    Amended and Restated Synergetics USA, Inc. 2001 Stock Plan.
(Filed as Exhibit 10.1 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended April 30, 2006 and
incorporated herein by reference.)10.2
    
    Valley Forge Scientific Corp. 2000 Non-Employee Directors
Stock Option Plan. (Filed as Exhibit 4.3 to Valley Forges
Registration Statement on Form S-8, Registration No.
333-72134 and incorporated herein by reference.)10.3
    
    Valley Forge Scientific Corp. 1988 Non-Qualified Employee
Stock Option Plan, as amended. (Filed as Exhibit 10.1 to
Valley Forges Registration Statement on Form S-8,
Registration No. 333-63637 and incorporated herein by
reference).10.4
    
    Amended and Restated Synergetics USA, Inc. 2005 Non-Employee
Directors Stock Option Plan. (Filed as Exhibit 10.3 to the
Registrants Quarterly Report on Form 10-Q for the quarter
ended April 30, 2006 and incorporated herein by reference.)10.5
    
    401(k) and Profit-Sharing Plan. (Filed as Exhibit 10(x) to Valley
Forges Registration Statement on Form S-18, Registration No.
33-35668-NY and incorporated herein by reference.)10.6
    
    Employment Agreement, dated as of September 21, 2005, between Valley
Forge and Gregg D. Scheller. (Filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on September 27, 2005
and incorporated herein by reference.)10.7
    
    Employment Agreement, dated as of September 21, 2005, between Valley
Forge and Jerry L. Malis. (Filed as Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on September 27, 2005 and
incorporated herein by reference.)10.8
    
    Employment Agreement, dated as of September 21, 2005, between Valley
Forge and Kurt W. Gampp, Jr. (Filed as Exhibit 10.3 to the
Registrants Current Report on Form 8-K filed on September 27, 2005
and incorporated herein by reference.)10.9
    
    Shareholders Agreement, dated as of September 21, 2005, between
Valley Forge and each of Gregg D. Scheller,
 71




---



##### 



ExhibitNumber
    
    DescriptionDonna M. Scheller, Kurt
W. Gampp, Jr., Jerry L. Malis and the Leonard Malis and Ruth Malis
Family Limited Partnership, individually and/or through revocable
trusts or family partnerships. (Filed as Exhibit 10.4 to the
Registrants Current Report on Form 8-K filed on September 27, 2005
and referenced in the Registrants Current Report on Form 8-K filed
on October 18, 2005 and incorporated herein by reference.)10.10
    
    Assignment of Know-How Agreement, dated June 30, 1989. (Filed as
Exhibit 10(I) to Valley Forges Registration Statement on Form S-18,
Registration No. 33-35668-NY and incorporated herein by reference.)10.11
    
    Assignment of Patents  Bipolar Electrosurgical Systems, June 30,
1989. (Filed as Exhibit 10(h) to Valley Forges Registration
Statement on Form S-18, Registration No. 33-31008-NY and
incorporated herein by reference.)10.12
    
    Assignment of Patents  Binocular Magnification System, June 30,
1989. (Filed as Exhibit 10(i) to Valley Forges Registration
Statement on Form S-18, Registration No. 33-31008-NY and
incorporated herein by reference.)10.13
    
    Assignment of Malis® trademark, dated June 30, 1989. (Filed as
Exhibit 10(j) to Valley Forges Registration Statement on Form S-18,
Registration No. 33-31008-NY and incorporated herein by reference.)10.14
    
    Option Agreement for Malis® Trademark with Leonard I. Malis dated
October 22, 2004. (Filed as Exhibit 10.14 to Valley Forges Annual
Report on Form 10-K for the year ended September 30, 2004 and
incorporated herein by reference.)10.15
    
    Promissory Note from the Company and Synergetics IP, Inc. to the
Estate of Dr. Leonard I. Malis dated October 12, 2005 in the
Principal Amount of $3,997,600. (Filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on October 18, 2005
and incorporated herein by reference.)10.16
    
    Promissory Note from Jerry L. Malis to Valley Forge. (Filed as
Exhibit 10(k) to Valley Forges Annual Report on Form 10-K for the
year ended September 30, 1994 and incorporated herein by reference.)10.17
    
    Promissory Note from Jerry L. Malis to Valley Forge. (Filed as
Exhibit 10(p) to Valley Forges Annual Report on Form 10-K for the
year ended September 30, 1998 and incorporated herein by reference.)10.18
    
    Commercial Lease Agreement between GMM Associates and Valley Forge
dated July 1, 1995. (Filed as Exhibit 10(p) to Valley Forges Annual
Report on Form 10-K for the year ended September 30, 1995 and
incorporated herein by reference.)10.19
    
    Addendum to Commercial Lease Agreement between Valley Forge and GMM
Associates dated as of July 1, 2000. (Filed as Exhibit 10.2 to
Valley Forges Quarterly Report on Form 10-Q for the quarter ended
December 31, 2000 and incorporated herein by reference.)10.20
    
    Agreement with Codman & Shurtleff, Inc. dated October 15, 2004.
(Filed as Exhibit 10.12 to Valley Forges Annual Report on Form 10-K
for the year ended September 30, 2004 and incorporated herein by
reference.)10.21
    
    Amendment No. 1 to the Agreement dated as of October 1, 2004 between
Valley Forge and Codman & Shurtleff, Inc. (Filed as Exhibit 10(a) to
Valley Forges Current Report on Form 8-K filed on March 16, 2005
and incorporated herein by reference.)10.22
    
    Supply and Distribution Agreement with Stryker Corporation dated
October 25, 2004. (Filed as Exhibit 10.13 to Valley Forges Annual
Report on Form 10-K for the year ended September 30, 2004 and
incorporated herein by reference.)10.23
    
    Agreement of Lease between Liberty Property Limited Partnership and
Valley Forge. (Filed as Exhibit 10.16 to Valley Forges to
Registration Statement on Form S-4, Registration No. 333-125521 and
incorporated herein by reference.)10.24
    
    Agreement for Sale of Commercial Real Estate between Diversified
Electronics Co., Inc. and Steve Smith, dated April 21, 2005. (Filed
as Exhibit 10.17 to Valley Forges Registration Statement on Form
S-4, Registration No. 333-125521 and incorporated herein by
reference.)10.25
    
    Loan Agreement between The Industrial Development Authority of St.
Charles County, Missouri and Synergetics Development Company, L.L.C.
dated as of September 1, 2002. (Filed as Exhibit 10.25 to the
Registrants Annual Report on Form 10-K for the year ended July 31,
2005 and incorporated herein by reference.)
 72




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##### 



ExhibitNumber
    
    Description10.26
    
    Promissory Note from Synergetics Development Company, L.L.C. to The
Industrial Development Authority of St. Charles County, Missouri
dated September 1, 2002 in the Principal Amount of $2,645,000 (Filed
as Exhibit 10.26 to the Registrants Annual Report on Form 10-K for
the year ended July 31, 2005 and incorporated herein by reference.)10.27
    
    Security Agreement (Equipment) dated as of September 1, 2002 from
Synergetics, Inc. for the benefit of The Industrial Development
Authority of St. Charles County, Missouri. (Filed as Exhibit 10.27
to the Registrants Annual Report on Form 10-K for the year ended
July 31, 2005 and incorporated herein by reference.)10.28
    
    Future Advance Deed of Trust and Security Agreement dated as of
September 1, 2002 between Synergetics Development Company, L.L.C.
and Victor Zarrilli, as trustee, and The Industrial Development
Authority of St. Charles County, Missouri. (Filed as Exhibit 10.28
to the Registrants Annual Report on Form 10-K for the year ended
July 31, 2005 and incorporated herein by reference.)10.29
    
    Guaranty Agreement dated as of September 1, 2002 by and among
William L. Bates, Gregg D. Scheller and Kurt W. Gampp, Jr. and
Synergetics, Inc. and The Industrial Development Authority of St.
Charles County, Missouri. (Filed as Exhibit 10.29 to the
Registrants Annual Report on Form 10-K for the year ended July 31,
2005 and incorporated herein by reference.)10.30
    
    Guaranty of Unassigned Issuers Rights dated as of September 1, 2002
by and among William L. Bates, Gregg D. Scheller and Kurt W. Gampp,
Jr. and Synergetics, Inc. and The Industrial Development Authority
of St. Charles County, Missouri. (Filed as Exhibit 10.30 to the
Registrants Annual Report on Form 10-K for the year ended July 31,
2005 and incorporated herein by reference.)10.31
    
    Bond Purchase Agreement dated as of September 1, 2002 by and among
The Industrial Development Authority of St. Charles County,
Missouri, Union Planters Bank, N.A. and Synergetics Development
Company, L.L.C. (Filed as Exhibit 10.31 to the Registrants Annual
Report on Form 10-K for the year ended July 31, 2005 and
incorporated herein by reference.)10.32
    
    First Supplemental Loan Agreement between The Industrial Development
Authority of St. Charles County, Missouri and Synergetics
Development Company, L.L.C. dated as of December 1, 2004. (Filed as
Exhibit 10.32 to the Registrants Annual Report on Form 10-K for the
year ended July 31, 2005 and incorporated herein by reference.)10.33
    
    Promissory Note from Synergetics Development Company, L.L.C. to The
Industrial Development Authority of St. Charles County, Missouri
dated December 1, 2004 in the Principal Amount of $2,330,000.
(Filed as Exhibit 10.33 to the Registrants Annual Report on Form
10-K for the year ended July 31, 2005 and incorporated herein by
reference.)10.34
    
    First Supplemental Future Advance Deed of Trust and Security
Agreement dated as of December 1, 2004 between Synergetics
Development Company, L.L.C. and Victor Zarrilli, as trustee, and The
Industrial Development Authority of St. Charles County, Missouri.
(Filed as Exhibit 10.34 to the Registrants Annual Report on Form
10-K for the year ended July 31, 2005 and incorporated herein by
reference.)10.35
    
    First Supplemental Guaranty of Unassigned Issuers Rights dated as
of December 1, 2004 by and between Synergetics, Inc. and the
Industrial Development Authority of St. Charles County, Missouri.
(Filed as Exhibit 10.35 to the Registrants Annual Report on Form
10-K for the year ended July 31, 2005 and incorporated herein by
reference.)10.36
    
    Bond Purchase Agreement dated as of December 1, 2004 by and among
The Industrial Development Authority of St. Charles County,
Missouri, Union Planters Bank, N.A. and Synergetics Development
Company, L.L.C. (Filed as Exhibit 10.36 to the Registrants Annual
Report on Form 10-K for the year ended July 31, 2005 and
incorporated herein by reference.)10.37
    
    Business Loan Agreement dated September 30, 2005 made and executed between Synergetics, Inc. and Union Planters
Bank NA for Principal Amount of $1,000,000. (Filed as Exhibit 10.37 to the Registrants Annual Report on Form 10-K
for the year ended July 31, 2005 and incorporated herein by reference.)10.38
    
    Change in Terms Agreement dated as of September 30, 2005 by Synergetics, Inc. in favor of Union Planters Bank NA in
the Principal Amount of $1,000,000. (Filed as Exhibit 10.38 to the Registrants Annual Report on Form 10-K for the
year ended July 31, 2005 and incorporated herein by reference.)10.39
    
    Commercial Guaranty made by Synergetics USA, Inc. regarding Indebtedness of Synergetics, Inc. to Union Planters
Bank NA for Principal Amount of $1,000,000. (Filed as Exhibit 10.39 to the Registrants Annual Report on Form 10-K
 73




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##### 



ExhibitNumber
    
    Descriptionfor the year ended July 31, 2005 and incorporated herein by reference.)10.40
    
    Commercial Security Agreement dated September 30, 2005 between Synergetics, Inc. and Union Planters Bank NA
regarding Indebtedness of Synergetics, Inc. to Union Planters Bank NA for Principal Amount of $1,000,000. (Filed
as Exhibit 10.40 to the Registrants Annual Report on Form 10-K for the year ended July 31, 2005 and incorporated
herein by reference.)10.41
    
    Business Loan Agreement dated March 10, 2000 made and executed between Synergetics, Inc. and Union Planters Bank NA
for Principal Amount of $1,250,000. (Filed as Exhibit 10.41 to the Registrants Annual Report on Form 10-K for the
year ended July 31, 2005 and incorporated herein by reference.)10.42
    
    Change in Terms Agreement dated as of February 15, 2005 by Synergetics, Inc. in favor of Union Planters Bank NA in
the Principal Amount of $1,250,000. (Filed as Exhibit 10.42 to the Registrants Annual Report on Form 10-K for the
year ended July 31, 2005 and incorporated herein by reference.)10.43
    
    Commercial Security Agreement dated March 10, 2000 between Synergetics, Inc. and Union Planters Bank NA regarding
Indebtedness of Synergetics, Inc. to Union Planters Bank NA for Principal Amount of $1,250,000. (Filed as Exhibit
10.43 to the Registrants Annual Report on Form 10-K for the year ended July 31, 2005 and incorporated herein by
reference.)10.44
    
    Business Loan Agreement dated as of September 30, 2005 between Synergetics, Inc. and Union Planters Bank NA for
Principal Amount of $1,427,105. (Filed as Exhibit 10.44 to the Registrants Annual Report on Form 10-K for the
year ended July 31, 2005 and incorporated herein by reference.)10.45
    
    Promissory Note dated as of September 30, 2005 by Synergetics, Inc. in favor of Union Planters Bank NA in the
Principal Amount of $1,427,105. (Filed as Exhibit 10.45 to the Registrants Annual Report on Form 10-K for the
year ended July 31, 2005 and incorporated herein by reference.)10.46
    
    Commercial Guaranty made by Synergetics USA, Inc. regarding Indebtedness of Synergetics, Inc. to Union Planters
Bank NA for Principal Amount of $1,427,105. (Filed as Exhibit 10.46 to the Registrants Annual Report on Form 10-K
for the year ended July 31, 2005 and incorporated herein by reference.)10.47
    
    Commercial Security Agreement dated September 30, 2005 between Synergetics, Inc. and Union Planters Bank NA in the
Principal Amount of $1,427,105. (Filed as Exhibit 10.47 to the Registrants Annual Report on Form 10-K for the
year ended July 31, 2005 and incorporated herein by reference.)10.48
    
    Form of Employee Restricted Stock Agreement for the Amended and Restated Synergetics USA, Inc. 2001 Stock Plan
(Filed as Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the quarter ended April 30, 2006 and
incorporated herein by reference).10.49
    
    Letter Agreement between Synergetics, Inc. and Regions Bank, dated February 22, 2006 (Filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on March 2, 2006 and incorporated herein by reference.)10.50
    
    Credit and Security Agreement among Synergetics USA, Inc., Synergetics, Inc. and Regions Bank, dated March 13, 2006
(Filed as Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on March 15, 2006 and incorporated
herein by reference.)10.51
    
    Revolving Note from Synergetics USA, Inc. and Synergetics, Inc. in favor of Regions Bank, dated March 13, 2006
(Filed as Exhibit 10.2 to the Registrants Current Report on Form 8-K filed on March 15, 2006 and incorporated
herein by reference.)10.52*
    
    First Amendment to Credit and Security Agreement by and among Synergetics, Inc., Synergetics USA, Inc., Regions
Bank, as Agent and Lender, and Wachovia Bank, National Association, as Lender, dated September 26, 2006.10.53*
    
    Revolving Note from Synergetics USA, Inc. and Synergetics, Inc. in favor of Regions Bank, dated September 26, 2006.10.54*
    
    Revolving Note from Synergetics USA, Inc. and Synergetics, Inc. in favor of Wachovia Bank, National Association,
dated September 26, 2006.10.55*
    
    Letter Agreement between Synergetics, Inc. and Regions Bank, dated September 28, 2006.
 74




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##### 



ExhibitNumber
    
    Description14.1
    
    Code of Business Conduct and Ethics of the Registrant. (Filed as Exhibit 14.1 to the Registrants Current Report on
Form 8-K filed on September 27, 2005 and incorporated herein by reference.)21*
    
    Subsidiaries of Registrant.23.1*
    
    Consent of McGladrey & Pullen, LLP.31.1*
    
    Certification of the Registrants Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of the Registrants Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of the Registrants Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of the Registrants Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 75