##### Table of Contents



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, 2007 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
    
    20-5715943(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)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
  
 Yes o No þ
 Yes o No þ
 Yes þ No o
 o
 o þ o
 Yes o No þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



PagePART I
    
    
    
    
    
    
    3Item 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    15Item 1B.
    
    Unresolved Staff Comments
    
    
    24Item 2.
    
    Properties
    
    
    24Item 3.
    
    Legal Proceedings
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25PART II
    
    
    
    
    
    
    25Item 5.
    
    Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
    
    
    25Item 6.
    
    Selected Financial Data
    
    
    27Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    41Item 8.
    
    Financial Statements and Supplementary Data
    
    
    42Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    42Item 9A.
    
    Controls and Procedures
    
    
    42Item 9B.
    
    Other Information
    
    
    43PART III
    
    
    
    
    
    
    43Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    43Item 11.
    
    Executive Compensation
    
    
    43Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    43Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    44Item 14.
    
    Principal Accountant Fees and Services
    
    
    44PART IV
    
    
    
    
    
    
    44Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    44Signatures
    
    
    
    
    
    
    70Exhibit Index
    
    
    
    
    
    
    71Exhibit 21Exhibit 23.1Exhibit 23.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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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, 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 the negative of these terms
and similar expressions. Such forward-looking statements include risks and uncertainties and there
are important factors that could cause actual results 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
   3




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® TM
 ® ® TM
 Other Recent Events
    Strategy
   4




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
    
    Introducing new technology that easily differentiates our products 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 of
our research and development department;
 
    
    Branding and marketing a substantial portion of our neurosurgical and ENT
products with the Malis® trademark;
 
    
    Continuing to develop our distribution channels, including the expansion of our
domestic ophthalmic, neurosurgical and ENT sales forces, development of an international
direct ophthalmic sales force and continued expansion of our international neurosurgical
distributor relationships;
    
    Continuing to grow our disposables revenue stream across our product lines;
 
    
    Expanding the PhotonTM product line into other surgical markets, such
as neurosurgery, ENT and general surgery markets;
 
    
    Continuing penetration of the Malis® AdvantageTM, our
newest multifunctional bipolar electrosurgical generator, into the neurosurgery market;
 
    
    Developing the Malis® AdvantageTM applications with our new
proprietary single-use, hand-switching bipolar instruments with enhanced features and
functionality further into the neurosurgical market and into other surgical markets such
as spine, ENT and plastic markets;
 
    
    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 Omni®, our ultrasonic aspirator, into other
surgical markets, such as spine and the ENT markets;
 
    
    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; and
 
    
    Exploring opportunities for growth through strategic, accretive mergers or
acquisitions.
   5




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##### Table of Contents



Products and Services
  Years Ended July 31,2007
    
    
    2006*
    
    
    2005Ophthalmic
    
    $
    24,433
    
    
    $
    22,730
    
    
    $
    17,752Neurosurgery
    
    
    17,552
    
    
    
    12,824
    
    
    
    4,040Other
    
    
    3,960
    
    
    
    2,692
    
    
    
    TOTAL
    
    $
    45,945
    
    
    $
    38,246
    
    
    $
    21,792
 *
    
    For 2006, this tabular information includes the net sales of Valley Forge from September 22,
2005 through July 31, 2006
 Ophthalmic and Vitreoretinal Surgical Market
    TM TM TM TM
  6




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TM TM TM TM
 TM TM TM TM
  Neurosurgery Market
   ®
  7




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® ® ® ® o
  TM
 ® TM TM TM
 TM
 Pain Control Market
    8




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##### Table of Contents



Dental Market
 ® TM ®
 Manufacturing and Supplies
 ® TM TM ® TM
   9




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##### Table of Contents



Marketing and Sales
  Ophthalmic and Vitreoretinal Surgical Market
 TM TM TM
  Neurosurgery Market
 ® TM ® TM ® ® ®
  10




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##### Table of Contents



®
 Pain Control Market
  Competition
  Ophthalmic and Vitreoretinal Surgical Market
 TM TM
 Neurosurgery Market
 ® TM TM
  11




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Pain Control Market
  Dental Market
 ®
 Research and Development
 ® TM ® TM ®
 ® TM TM
    12




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Government Regulations
         13




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Safety Approvals
  Patents and Intellectual Property
 TM TM TM
   14




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® ® ®
  Employees
  Available Information
  
   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.
 TM
  15




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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
 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 market penetration of our fourth
generation multifunctional bipolar electrosurgical generator marketed as the Malis ® Advantage TM .
 ® TM
  16




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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;
  17




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##### Table of Contents




    
    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 and other expenditures;
    
    timing of the receipt of orders from, and product shipments to, distributors and
customers;
    
    timing of capital and other selling and general 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.
  18




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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;
 
    
    recently, there has been an FDA provided incentive for surgeons to move certain
procedures from hospitals to ambulatory surgical centers, which may impact the demand
for and distribution of our surgical products;
 
    
    numerous legislative proposals have been considered that, if adopted, 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.
  Delays in the receipt or failure to receive clearances or approvals, the loss of previously
received clearances or approvals, or failure to comply with existing or future regulatory
requirements could have a material adverse effect on our business, financial condition, results of
operations and future growth prospects.
    19




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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 may be unable to maintain our ISO certification which allows us to sell our products in the
European medical market.
   20




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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,
which could adversely affect our ability to compete in the market.
     21




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We may have product liability claims, and our insurance may not cover all claims.
  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;
  22




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
    
    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
    
    subjectivity of foreign laws.
 We have international suppliers of various products, including the Omni ® ultrasonic
aspirator console and handpieces.
  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.
 
  23




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Synergetics USA has anti-takeover defenses that could delay or prevent an acquisition and could
adversely affect the price of its common stock.
  
   
     
    24




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et al
  
   
 PART II
 
    High
    
    
    LowYear 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
    
    
    $
    4.10Year ended July 31, 2007Quarter ended October 29, 2006
    
    $
    5.95
    
    
    $
    3.77Quarter ended January 30, 2007
    
    $
    4.85
    
    
    $
    3.74Quarter ended April 30, 2007
    
    $
    5.15
    
    
    $
    3.36Quarter ended July 31, 2007
    
    $
    4.75
    
    
    $
    3.35
  25




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STOCK PERFORMANCE GRAPH
  
  26




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Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
    27




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For the Fiscal Years Ended July 31,2007
    
    
    2006
    
    
    2005*
    
    
    2004*
    
    
    2003*(in thousands, except per share data)Statements of Income Data:Sales
    
    $
    45,945
    
    
    $
    38,246
    
    
    $
    21,792
    
    
    $
    16,887
    
    
    $
    13,017Cost of Sales
    
    
    18,943
    
    
    
    14,238
    
    
    
    8,289
    
    
    
    6,514
    
    
    
    4,483Gross profit
    
    
    27,002
    
    
    
    24,008
    
    
    
    13,503
    
    
    
    10,373
    
    
    
    8,534Operating Income
    
    
    1,518
    
    
    
    5,002
    
    
    
    2,383
    
    
    
    1,690
    
    
    
    1,866Net income
    
    
    845
    
    
    
    3,081
    
    
    
    1,458
    
    
    
    1,094
    
    
    
    1,091Earnings per common share  Basic
    
    $
    0.03
    
    
    $
    0.15
    **
    
    $
    0.43
    **
    
    $
    0.32
    **
    
    $
    0.32
    **Earnings per common share -Diluted
    
    $
    0.03
    
    
    $
    0.15
    **
    
    $
    0.42
    **
    
    $
    0.32
    **
    
    $
    0.32
    **
 *
    
    This tabular information reflects Synergetics results only and does not reflect the effect of
the combination of Synergetics and Valley Forge.**
    
    The fiscal years 2006, 2005, 2004 and 2003 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 31,2007
    
    
    2006
    
    
    2005*
    
    
    2004*
    
    
    2003*(in thousands)Balance Sheets Data:Cash and cash equivalents
    
    $
    167
    
    
    $
    243
    
    
    $
    1,817
    
    
    $
    1,540
    
    
    $
    1,049Current assets
    
    
    24,263
    
    
    
    21,594
    
    
    
    12,757
    
    
    
    9,563
    
    
    
    7,709Total assets
    
    
    58,869
    
    
    
    51,329
    
    
    
    20,116
    
    
    
    14,474
    
    
    
    12,254Current liabilities
    
    
    13,910
    
    
    
    8,996
    
    
    
    3,969
    
    
    
    2,862
    
    
    
    1,687Long-term liabilities
    
    
    11,524
    
    
    
    10,028
    
    
    
    6,008
    
    
    
    3,113
    
    
    
    3,251Retained earnings
    
    
    9,328
    
    
    
    8,483
    
    
    
    5,402
    
    
    
    3,944
    
    
    
    2,851Stockholders equity
    
    
    33,435
    
    
    
    32,305
    
    
    
    10,139
    
    
    
    8,499
    
    
    
    7,316
 
 *
    
    This tabular information reflects Synergetics results only and does not reflect the effect of the
combination of Synergetics and Valley Forge.
 
  Overview
  
    
    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.
  28




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
    
    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
 TM ® TM
 Demand Trends
   29




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Pricing Trends
  Our Business Strategy
  
    
    Introducing new technology that easily differentiates our products 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, spine surgery, plastic
surgery and other forms of microsurgery;
 
    
    Accelerating our international 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 of
our research and development department to deliver precision-engineered capital
equipment, instruments, acessories and disposables based on our own proprietary
technologies and innovations;
 
    
    Branding and marketing a substantial portion of our neurosurgical and ENT
products with the Malis® trademark;
 
    
    Continuing to develop our distribution channels, including the expansion of our
domestic ophthalmic, neurosurgical and ENT sales forces, development of an international
direct ophthalmic sales force and continued expansion of our international neurosurgical
distributor relationships 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 across our product lines 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;
 
    
    Expanding the PhotonTM product line into other surgical markets such
as neurosurgery, ENT and general surgery markets;
  30




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
    
    Continuing the penetration of the Malis® AdvantageTM, our
newest multifunctional bipolar electrosurgical generator, into the neurosurgery market;
 
    
    Developing the Malis® AdvantageTM applications with our new
proprietary single-use, hand-switching bipolar instruments with enhanced features and
functionality further into the neurosurgical market and into other surgical markets such
as spine, ENT and plastic markets;
 
    
    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 Omni®, our ultrasonic aspirator, into other
surgical markets such as spine and the ENT markets as its torsional bone cutting
capability allows the surgeon to perform delicate procedures safely;
 
    
    Exploring opportunities for growth through strategic partnering with other
companies, such as our current relationships with Codman; and
 
    
    Exploring opportunities for growth through strategic, accretive mergers or
acquisitions which would further expand our product offerings, distribution channels or
research and development capabilities.
 Results of Operations
 Year Ended July 31, 2007 Compared to Year Ended July 31, 2006
   Year Ended July 31,2007
    
    
    2006*
    
    
    % IncreaseOphthalmic
    
    $
    24,433
    
    
    $
    22,730
    
    
    
    7.5
    %Neurosurgery
    
    
    17,552
    
    
    
    12,824
    
    
    
    36.9Other
    
    
    3,960
    
    
    
    2,692
    
    
    
    47.1TOTAL
    
    $
    45,945
    
    
    $
    38,246
    
    
    
    20.1
    %
 *
    
    For 2006, this tabular information includes the net sales of the reverse merger with Valley
Forge Scientific Corp. from September 22, 2005 through July 31, 2006
 TM TM ® ® TM
  31




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Year Ended July 31,2007
    
    
    2006*
    
    
    % IncreaseUnited States (including Valley Forge)
    
    $
    35,214
    
    
    $
    30,090
    
    
    
    17.0
    %International
    
    
    10,731
    
    
    
    8,156
    
    
    
    31.6TOTAL
    
    $
    45,945
    
    
    $
    38,246
    
    
    
    20.1
    %
 *
    
    For 2006, this tabular information reflects the net sales of the reverse merger with Valley
Forge Scientific Corp.from September 22, 2005 through July 31, 2006.
 ® TM ® ® TM
    TM ® ® TM
  32




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33




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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 reverse merger with Valley Forge Scientific Corp. For 2006, this tabular
information includes the net sales of the reverse merger with Valley Forge Scientific Corp. 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%.
    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 includes Synergetics results only and does not reflect the
effect of the reverse merger Valley Forge Scientific Corp. For 2006, this tabular information
includes the net sales of the reverse merger with Valley Forge Scientific Corp. 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%.
  ® ® ® TM
  34




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®
  ® TM TM
     35




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Liquidity and Capital Resources
     36




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##### Table of Contents




    
    Revolving Credit Facility: Under this credit facility, the Company could borrow
up to $8.5 million with interest at an interest rate of the banks prime lending rate or
LIBOR plus 2.25% and adjusting each quarter based upon our leverage ratio. Currently,
interest under the facility is charged at LIBOR plus 2.75%. Borrowings under this
facility at July 31, 2007 were $5.5 million. Outstanding amounts are collateralized by
the Companys domestic receivables and inventory. This credit facility expires December
1, 2008. 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, 2007, the
leverage ratio was 3.53 times and the fixed charge coverage ratio was 1.51 times.
Availability under the line was approximately $2.5 million.
  37




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##### Table of Contents




    
    Revolving Credit Facility: Under this credit facility, the Company could borrow
up to $2.5 million. Currently, interest under the facility is charged at the banks
prime lending rate. There were no borrowings under this facility at July 31, 2007.
Outstanding amounts are collateralized by the Companys non-U.S. receivables. This
credit facility expires June 4, 2008 and has no financial covenants. The entire
facility was available at July 31, 2007.
 
    
    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 approximately $210,000 on July 31, 2007. Outstanding amounts were secured
by the purchased equipment. The equipment line of credit facility of $1.0 million
expires on October 31, 2007 and has availability of $790,000.
  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)
    
    $
    6,140,000
    
    
    $
    447,000
    
    
    $
    5,693,000
    
    
    $
    
    
    
    $
    Non-U.S. Receivables Line (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equipment Line of Credit (3)
    
    
    214,000
    
    
    
    214,000
    
    
    
    
    
    
    
    
    
    
    
    2006 Equipment Term Loan (4)
    
    
    585,000
    
    
    
    505,000
    
    
    
    80,000
    
    
    
    
    
    
    
    2005 Equipment Term Loan (5)
    
    
    922,000
    
    
    
    287,000
    
    
    
    635,000
    
    
    
    
    
    
    
    Revenue Bonds Payable (6)
    
    
    4,751,000
    
    
    
    455,000
    
    
    
    792,000
    
    
    
    608,000
    
    
    
    2,896,000Building Term Loan (7)
    
    
    154,000
    
    
    
    154,000
    
    
    
    
    
    
    
    
    
    
    
    Malis® Tradename Note
Payable (8)
    
    
    2,878,000
    
    
    
    640,000
    
    
    
    1,279,000
    
    
    
    959,000
    
    
    
    Settlement Obligation (9)
    
    
    4,000,000
    
    
    
    800,000
    
    
    
    2,400,000
    
    
    
    800,000
    
    
    
    Operating Leases (10)
    
    
    590,000
    
    
    
    245,000
    
    
    
    343,000
    
    
    
    2,000
    
    
    
    Total Contractual Obligations
    
    $
    20,234,000
    
    
    $
    3,747,000
    
    
    $
    11,222,000
    
    
    $
    2,369,000
    
    
    $
    2,896,000
 (1)
    
    Amount represents the expected cash payment of the outstanding borrowings of $5.5 million on
our $8.5 million revolving credit facility, including interest at 8.07% through the expiration
of the revolving credit facility on December 1, 2008.(2)
    
    Amount represents the expected cash payment of the outstanding borrowings of $0.00 on our
$2.5 million non-U.S. receivables line through the expiration of the revolving credit facility
on June 4, 2008.(3)
    
    Amount represents the expected cash payment for the outstanding borrowings of $210,000 on 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, 2007.(4)
    
    Amount represents the cash payment for our equipment term loan entered into in October 2006,
including interest at 8.25%.
  38




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##### Table of Contents



(5)
    
    Amount represents the cash payment for our consolidated equipment term loan entered into in
October 2005, including interest at 8.25%.(6)
    
    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.(7)
    
    Amount represents the expected cash payment for our building term loan, including interest at
9.25% through September 2007.(8)
    
    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%.(9)
    
    Amount represents the expected cash payment on the settlement obligation to the Iridex
Corporation. The note includes interest at an imputed rate of 8.0%.(10)
    
    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.
 Use of Estimates and Critical Accounting Policies
  Principles of consolidation:
  Revenue Recognition
   Inventories
   39




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##### Table of Contents



Amortization Periods
 Impairment of
Long-Lived Assets
 Allowance for Doubtful Accounts
  Patents and Research and Development
  Goodwill and Other Intangibles
    40




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##### Table of Contents



Impairment of Long-Lived Assets
  Deferred Tax Assets and Liabilities
  Stock-Based Compensation
  Recent Accounting Pronouncements
  
     41




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##### Table of Contents



Effectiveness of Disclosure Controls and Procedures
 Managements Annual Report on Internal Control over Financial Reporting
   42




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##### Table of Contents



Changes in Internal Control Over Financial Reporting 
 Attestation Report of Registered Public Accounting Firm
 
   
 PART III
 
     
   
    43




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##### Table of Contents



EXISTING EQUITY COMPENSATION PLAN INFORMATION
  Number of Shares ofCommon Stock Availablefor Future IssuanceNumber of Shares of
    
    
    
    
    
    
    Under EquityCommon Stock to be
    
    
    
    
    
    
    Compensation Plans atIssued Upon Exercise of
    
    
    Weighted Average
    
    
    July 31, 2007Outstanding Options,
    
    
    Exercise Price of
    
    
    (Excluding SharesWarrants and Rights at
    
    
    Outstanding Options,
    
    
    Reflected in the FirstPlan Category
    

July 31, 2007
    
    
    Warrants and Rights
    
    
    Column)Equity Compensation Plans Approved
By Security Holders
    
    
    428,735
    
    
    $
    2.18
    
    
    
    1,184,278Equity Compensation Plans Not Approved
By Security Holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    428,735
    
    
    $
    2.18
    
    
    
    1,184,278
 
   
   
 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 reports
thereon of independent registered public accounting firms, are included following
Item 15 of this annual report on Form 10-K. See Index to Financial
Statements and Financial Statement Schedules on page 45, herein.2.
    
    Financial Statement SchedulesSchedule II  Valuation and Qualifying Accounts is included in Note
19 to the consolidated financial statements, which are included
following Item 15 of this annual report on Form 10-K. See Index to
Financial Statements and Financial Statement Schedules on page 45
herein.3.
    
    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.
  44




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INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 Audited Financial StatementsReport of Independent Registered Public Accounting Firm on the Consolidated Financial
Statements for July 31, 2007
    
    
    46Report of Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting
    
    
    47Report of Prior Independent Registered Public Accounting Firm on the Consolidated Financial
Statements for July 31, 2006 and 2005
    
    
    49Consolidated Balance Sheets as of July 31, 2007 and 2006
    
    
    50Consolidated Statements of Income for the years ended July 31, 2007, 2006 and 2005
    
    
    51Consolidated Statements of Stockholders Equity for the years ended July 31, 2007, 2006 and 2005
    
    
    52Consolidated Statements of Cash Flows for the years ended July 31, 2007, 2006 and 2005
    
    
    53Notes to Consolidated Financial Statements
    
    
    54Financial Statement SchedulesSchedule II  Valuation and Qualifying Accounts
    
    
    69
  45




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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)
  
  46




---



##### Table of Contents



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).
    47




---



##### Table of Contents



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).
   
  48




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49




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##### Table of Contents



Synergetics USA, Inc. and Subsidiaries
 Consolidated Balance Sheets
July 31, 2007 and 2006
(Dollars in thousands, except share data)
 2007
    
    
    2006AssetsCurrent AssetsCash and cash equivalents
    
    $
    167
    
    
    $
    243Investment in trading securities
    
    
    
    
    
    
    50Accounts receivable, net of allowance for doubtful accounts 2007, $227; 2006, $179
    
    
    8,264
    
    
    
    6,807Note receivable, officer-stockholder
    
    
    
    
    
    
    20Income taxes receivable
    
    
    726
    
    
    
    513Inventories
    
    
    14,247
    
    
    
    13,243Prepaid expenses
    
    
    343
    
    
    
    422Deferred income taxes
    
    
    516
    
    
    
    296Total current assets
    
    
    24,263
    
    
    
    21,594Property and equipment, net
    
    
    8,031
    
    
    
    8,497Intangible and other assetsGoodwill
    
    
    10,660
    
    
    
    10,660Other intangible assets, net
    
    
    14,782
    
    
    
    9,732Deferred expenses
    
    
    216
    
    
    
    83Patents, net
    
    
    871
    
    
    
    731Cash value of life insurance
    
    
    46
    
    
    
    32Total Assets
    
    $
    58,869
    
    
    $
    51,329Liabilities and Stockholders EquityCurrent LiabilitiesExcess of outstanding checks over bank balance
    
    $
    531
    
    
    $
    237Lines-of-credit
    
    
    5,715
    
    
    
    3,330Current maturities of long-term debt
    
    
    2,161
    
    
    
    967Current maturities of revenue bonds payable
    
    
    249
    
    
    
    249Accounts payable
    
    
    2,262
    
    
    
    1,413Accrued expenses
    
    
    2,739
    
    
    
    2,794Income taxes payable
    
    
    253
    
    
    
    Deferred revenue
    
    
    
    
    
    
    6Total current liabilities
    
    
    13,910
    
    
    
    8,996Long-Term LiabilitiesLong-term debt, less current maturities
    
    
    5,014
    
    
    
    3,215Revenue bonds payable, less current maturities
    
    
    3,891
    
    
    
    4,140Deferred income taxes
    
    
    2,619
    
    
    
    2,663Deferred compensation
    
    
    
    
    
    
    10Total long-term liabilities
    
    
    11,524
    
    
    
    10,028Total liabilities
    
    
    25,434
    
    
    
    19,024Commitments and contingencies (Notes 10 and 17)Stockholders EquityCommon stock at July 31, 2007 and July 31, 2006, $0.001 par value, 50,000,000
shares authorized; 24,265,500 and 24,206,970 shares issued and outstanding,
respectively
    
    
    24
    
    
    
    24Additional paid-in capital
    
    
    24,083
    
    
    
    23,798Retained earnings
    
    
    9,328
    
    
    
    8,48333,435
    
    
    
    32,305$
    58,869
    
    
    $
    51,329
   50




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##### Table of Contents



Synergetics USA, Inc. and Subsidiaries
 Consolidated Statements of Income
Years Ended July 31, 2007, 2006 and 2005
(Dollars in thousands, except share data)
 2007
    
    
    2006
    
    
    2005Sales
    
    $
    45,945
    
    
    $
    38,246
    
    
    $
    21,792Cost of sales
    
    
    18,943
    
    
    
    14,238
    
    
    
    8,289Gross profit
    
    
    27,002
    
    
    
    24,008
    
    
    
    13,503Operating expensesResearch and development
    
    
    2,584
    
    
    
    1,655
    
    
    
    858Selling, general and administrative
    
    
    22,900
    
    
    
    17,351
    
    
    
    10,26225,484
    
    
    
    19,006
    
    
    
    11,120Operating income
    
    
    1,518
    
    
    
    5,002
    
    
    
    2,383Other income (expense)Investment income
    
    
    1
    
    
    
    19
    
    
    
    30Interest expense
    
    
    (974
    )
    
    
    (575
    )
    
    
    (215
    )Miscellaneous
    
    
    28
    
    
    
    55
    
    
    
    (945
    )
    
    
    (501
    )
    
    
    (185
    )Income before provision for income taxes
    
    
    573
    
    
    
    4,501
    
    
    
    2,198Provision for income taxes
    
    
    189
    
    
    
    1,420
    
    
    
    740Provision for re-enactment of the research and
experimentation credit
    
    
    (461
    )
    
    
    
    
    
    
    (272
    )
    
    
    1,420
    
    
    
    740Net income
    
    $
    845
    
    
    $
    3,081
    
    
    $
    1,458Earnings per share:Basic
    
    $
    0.03
    
    
    $
    0.15
    
    
    $
    0.43Diluted
    
    $
    0.03
    
    
    $
    0.15
    
    
    $
    0.42Basic weighted average common shares outstanding
    
    
    24,220,507
    
    
    
    20,657,256
    
    
    
    3,424,030Diluted weighted average common shares outstanding
    
    
    24,404,653
    
    
    
    20,821,394
    
    
    
    3,443,000
   51




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##### Table of Contents



Synergetics USA, Inc. and Subsidiaries
 Consolidated Statements of Stockholders Equity
Years Ended July 31, 2007, 2006 and 2005
(Dollars in thousands, except share data)
 AdditionalCommon
    
    
    Paid-in
    
    
    Retained
    
    
    TreasuryStock
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    TotalBalance, July 31, 2004
    
    $
    58
    
    
    $
    4,805
    
    
    $
    3,944
    
    
    $
    (308
    )
    
    $
    8,499Issuance of 45,409 shares of common stock
    
    
    1
    
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    182Net income
    
    
    
    
    
    
    
    
    
    
    1,458
    
    
    
    
    
    
    
    1,458Balance, July 31, 2005
    
    
    59
    
    
    
    4,986
    
    
    
    5,402
    
    
    
    (308
    )
    
    
    10,139Elimination of treasury shares
    
    
    
    
    
    
    (308
    )
    
    
    
    
    
    
    308
    
    
    
    Establish par value of $0.001 on outstanding shares
    
    
    (35
    )
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    Establish fair value of Valley Forge common stock
on date of merger
    
    
    
    
    
    
    17,987
    
    
    
    
    
    
    
    
    
    
    
    17,987Restricted stock grants
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    15Stock-based compensation
    
    
    
    
    
    
    442
    
    
    
    
    
    
    
    
    
    
    
    442Tax benefit associated with stock option exercises
    
    
    
    
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    223Proceeds from stock option exercises
    
    
    
    
    
    
    418
    
    
    
    
    
    
    
    
    
    
    
    418Net income
    
    
    
    
    
    
    
    
    
    
    3,081
    
    
    
    
    
    
    
    3,081Balance, July 31, 2006
    
    
    24
    
    
    
    23,798
    
    
    
    8,483
    
    
    
    
    
    
    
    32,305Restricted stock grants
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    89Stock-based compensation
    
    
    
    
    
    
    146
    
    
    
    
    
    
    
    
    
    
    
    146Proceeds from stock option exercises
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    37Tax benefit associated with stock option exercises
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    13Net income
    
    
    
    
    
    
    
    
    
    
    845
    
    
    
    
    
    
    
    845Balance, July 31, 2007
    
    $
    24
    
    
    $
    24,083
    
    
    $
    9,328
    
    
    $
    
    
    
    $
    33,435
   52




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Synergetics USA Inc. and Subsidiaries
 Consolidated Statements of Cash Flows
Years Ended July 31, 2007, 2006 and 2005
(Dollars in thousands, except share data)
 2007
    
    
    2006
    
    
    2005Cash Flows from Operating ActivitiesNet income
    
    $
    845
    
    
    $
    3,081
    
    
    $
    1,458Adjustments to reconcile net income to net cash provided by (used in)
operating activitiesDepreciation
    
    
    887
    
    
    
    738
    
    
    
    510Amortization
    
    
    747
    
    
    
    436
    
    
    
    70Provision for doubtful accounts receivable
    
    
    49
    
    
    
    28
    
    
    
    124Stock-based compensation
    
    
    235
    
    
    
    457
    
    
    
    182Loss on sale of equipment
    
    
    
    
    
    
    (2
    )
    
    
    Deferred income taxes
    
    
    (264
    )
    
    
    (315
    )
    
    
    (15
    )Change in assets and liabilities, net of reverse merger (Note 2):(Increase) decrease in:Sales (purchases) of trading securities
    
    
    50
    
    
    
    (21
    )
    
    
    (29
    )Receivables
    
    
    (1,506
    )
    
    
    (2,788
    )
    
    
    (774
    )Income tax receivable
    
    
    (213
    )
    
    
    (118
    )
    
    
    86Inventories
    
    
    (1,004
    )
    
    
    (5,129
    )
    
    
    (2,375
    )Prepaid expenses
    
    
    79
    
    
    
    (144
    )
    
    
    33Other current assets
    
    
    
    
    
    
    
    
    
    
    99(Decrease) increase in:Accounts payable
    
    
    849
    
    
    
    6
    
    
    
    386Accrued expenses
    
    
    (55
    )
    
    
    1,414
    
    
    
    (134
    )Deferred expenses
    
    
    (16
    )
    
    
    (92
    )
    
    
    26Income taxes payable
    
    
    253
    
    
    
    (258
    )
    
    
    295Net cash provided by (used in) operating activities
    
    
    936
    
    
    
    (2,707
    )
    
    
    (58
    )Cash Flows from investing activitiesNet decrease in notes receivable, officer-stockholder
    
    
    20
    
    
    
    13
    
    
    
    Increase in
deferred expenses
    
    
    (105
    )Purchase of property and equipment
    
    
    (421
    )
    
    
    (3,038
    )
    
    
    (1,795
    )Acquisition of patents and other Intangibles
    
    
    (2,771
    )
    
    
    (265
    )
    
    
    (195
    )Cash paid for reverse merger costs
    
    
    
    
    
    
    (503
    )
    
    
    (394
    )Cash acquired through reverse merger
    
    
    
    
    
    
    2,024
    
    
    
    Increase in cash value of life insurance
    
    
    (14
    )
    
    
    (3
    )
    
    
    (30
    )Net cash used in investing activities
    
    
    (3,291
    )
    
    
    (1,772
    )
    
    
    (2,414
    )Cash Flows from financing activitiesExcess of outstanding checks over bank balance
    
    
    294
    
    
    
    237
    
    
    
    Net borrowings on lines-of-credit
    
    
    2,385
    
    
    
    2,506
    
    
    
    281Proceeds from revenue bonds payable
    
    
    
    
    
    
    
    
    
    
    2,330Principal payments on revenue bonds payable
    
    
    (249
    )
    
    
    (249
    )
    
    
    (161
    )Proceeds from long-term debt
    
    
    919
    
    
    
    1,427
    
    
    
    542Principal payments on long-term debt
    
    
    (649
    )
    
    
    (1,161
    )
    
    
    (243
    )Tax benefit associated with the exercise of non-qualified stock options
    
    
    13
    
    
    
    223
    
    
    
    Payment on debt incurred for acquisition of trademark
    
    
    (471
    )
    
    
    (496
    )
    
    
    Proceeds from the issuance of common stock
    
    
    37
    
    
    
    418
    
    
    
    Net cash provided by financing activities
    
    
    2,279
    
    
    
    2,905
    
    
    
    2,749Net (decrease) increase in cash and cash equivalents
    
    
    (76
    )
    
    
    (1,574
    )
    
    
    277Cash and cash equivalentsBeginning
    
    
    243
    
    
    
    1,817
    
    
    
    1,540Ending
    
    $
    167
    
    
    $
    243
    
    
    $
    1,817Supplemental Disclosures of Cash Flow InformationCash paid for:Interest (Capitalized as a part of property 2007, None; 2006, $28;
2005, $68)
    
    $
    913
    
    
    $
    588
    
    
    $
    283Income taxes paid (refunded)
    
    
    (74
    )
    
    
    1,881
    
    
    
    374Supplemental Schedule of Non-cash Investing and Financing ActivitiesConstruction in progress financed by accounts payable
    
    $
    
    
    
    $
    
    
    
    $
    613Licensed intangible assets financed by settlement obligations
    
    
    3,194
    
    
    
    
    
    
    
    
   53




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##### Table of Contents



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
  54




---



##### Table of Contents



Inventories
 Property and equipment
 Useful livesBuilding and improvements
    
    
    7-39Machinery and equipment
    
    
    5-7Furniture and fixtures
    
    
    5-7Software
    
    
    3-5
 Goodwill and other intangibles
 Patents
 Accounting for settlement agreement
 Impairment of long-lived assets (excluding goodwill and other intangibles)
 Deferred
income taxes
  55




---



##### Table of Contents



Fair value of financial instruments
 Revenue recognition
  Product warranty
 Advertising
 Royalties
 Earnings per share
 2007
    
    
    2006
    
    
    2005Numerator:Net income
    
    $
    845
    
    
    $
    3,081
    
    
    $
    1,458Denominator:Weighted average common shares and
denominator
for basic calculation
    
    
    24,220,507
    
    
    
    20,657,256
    
    
    
    3,424,030Stock options and restricted stock
    
    
    184,146
    
    
    
    164,138
    
    
    
    18,970Denominator for diluted calculation
    
    
    24,404,653
    
    
    
    20,821,394
    
    
    
    3,423,000Earnings per share  basic
    
    $
    0.03
    
    
    $
    0.15
    
    
    $
    0.43Earnings per share  diluted
    
    $
    0.03
    
    
    $
    0.15
    
    
    $
    0.42
  56




---



##### Table of Contents



Stock compensation
  2005Net income:As reported
    
    $
    1,458Add: 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
    
    
    10Pro forma
    
    $
    1,448Earnings per share:As reportedBasic
    
    
    0.43Diluted
    
    
    0.42Pro formaBasic
    
    
    0.42Diluted
    
    
    0.42
 Segment reporting Disclosures about Segments of an Enterprise and Related
Information
 ® TM
  57




---



##### Table of Contents



Reclassifications
 Note 2. Reverse Merger
   Twelve Months
    
    
    Twelve MonthsEnded
    
    
    EndedJuly 31,
    
    
    July 31,2006
    
    
    2005 (1)Net sales
    
    $
    39,118
    
    
    $
    27,868Net income
    
    
    2,941
    
    
    
    1,462Basic earnings per share
    
    
    0.13
    
    
    
    0.06Diluted earnings per share
    
    
    0.13
    
    
    
    0.06
 (1)
    
    Prior to the reverse merger, Valley Forge had a fiscal year end of September 30 with quarterly
results reported on calendar quarters. Accordingly, the unaudited pro forma condensed combined
statement of income for the year ended July 31, 2005 was derived by adding the results of the year
ended July 31, 2005 for Synergetics and the results of the twelve months ended June 30, 2005, for
Valley Forge (which was derived by taking the results of the year ended September 30, 2004 less the
results of the nine months ended June 30, 2004 plus the results of the nine months ended June 30,
2005).
  Note 3. Distribution Agreements
  Codman and Shurtleff, Inc. (Codman)
 ®
  58




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##### Table of Contents



Note 4. Inventories
  2007
    
    
    2006Raw materials and component parts
    
    $
    6,754
    
    
    $
    5,614Work in progress
    
    
    1,948
    
    
    
    2,493Finished goods
    
    
    5,545
    
    
    
    5,136$
    14,247
    
    
    $
    13,243
 Note 5. Property and Equipment
  2007
    
    
    2006Land
    
    $
    730
    
    
    $
    730Building and improvements
    
    
    5,436
    
    
    
    5,340Machinery and equipment
    
    
    4,428
    
    
    
    4,129Furniture and fixtures
    
    
    610
    
    
    
    546Software
    
    
    115
    
    
    
    105Construction in progress
    
    
    34
    
    
    
    6711,353
    
    
    
    10,917Less accumulated depreciation
    
    
    3,322
    
    
    
    2,420$
    8,031
    
    
    $
    8,497
   Note 6. Other Intangible Assets
  Gross Carrying
    
    
    AccumulatedValue
    
    
    Amortization
    
    
    NetJuly 31, 2007Patents
    
    $
    1,103
    
    
    $
    232
    
    
    $
    871Proprietary know-how
    
    
    4,057
    
    
    
    740
    
    
    
    3,317Trademark
    
    
    5,923
    
    
    
    
    
    
    
    5,923Licensing agreements
    
    
    5,834
    
    
    
    292
    
    
    
    5,542$
    16,917
    
    
    $
    1,264
    
    
    $
    15,653July 31, 2006Patents
    
    $
    915
    
    
    $
    184
    
    
    $
    731Proprietary know-how
    
    
    4,057
    
    
    
    336
    
    
    
    3,721Licensing agreements
    
    
    140
    
    
    
    52
    
    
    
    88Trademark
    
    
    5,923
    
    
    
    
    
    
    
    5,923$
    11,035
    
    
    $
    572
    
    
    $
    10,463
   59




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##### Table of Contents



Note 7. Accrued Expenses
  2007
    
    
    2006Payroll, commissions and employee benefits
    
    $
    675
    
    
    $
    598Royalties
    
    
    204
    
    
    
    64Interest
    
    
    83
    
    
    
    Warranty
    
    
    15
    
    
    
    43Other
    
    
    1,762
    
    
    
    2,089$
    2,739
    
    
    $
    2,794
 Note 8. Pledged Assets, Short and Long-Term Debt
 Revolving Credit Facility:
 Revolving Credit Facility:
 Equipment Line of Credit:
  2007
    
    
    2006Note payable to bank, due in
monthly installments of $1,139 plus
interest at prime rate plus 1.0% (an
effective rate of 9.25% as of July 31,
2007), remaining balance due September
2007, collateralized by second deed of
trust
    
    $
    151
    
    
    $
    165Note payable, due in monthly
installments of $509 including interest
at 4.9%, remaining balance due May 2008,
collateralized by a vehicle
    
    
    3
    
    
    
    9Note payable to bank, due in monthly
principal installments of $39,642
beginning November 2005 plus interest at
a rate of 8.25%, remaining balance due
September 30, 2010, collateralized by
substantially all assets of the Company
    
    
    555
    
    
    
    1,030Note payable to bank, due in monthly
principal installments of $19,173
beginning December 2006 plus interest at
rate of 8.25%, remaining balance due on
November 14, 2010 collateralized by
substantially all assets of the Company
    
    
    766
    
    
    
    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 $2,878,272
including the effects of imputing
interest, due December 2011,
collateralized by the Malis®
trademark
    
    
    2,506
    
    
    
    2,978Settlement obligation to Iridex
Corporation, due in annual installments
of $800,000 which includes interest at
an imputed rate of 8.00%, remaining
balance of $4,000,000 including the
effects of imputing interest, due April
15, 2012
    
    
    3,194
    
    
    
    7,175
    
    
    
    4,182Less current maturities
    
    
    2,161
    
    
    
    967Long-term portion
    
    $
    5,014
    
    
    $
    3,215
  60




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##### Table of Contents



Year Ending July 31,:
    
    Amount2008
    
    $
    2,1612009
    
    
    1,6902010
    
    
    1,1522011
    
    
    1,2332012
    
    
    9392013
    
    
    $
    7,175
 Note 9. Revenue Bonds Payable
     Year Ending July 31,:
    
    Amount2008
    
    $
    2492009
    
    
    2492010
    
    
    2492011
    
    
    2492012
    
    
    249Thereafter
    
    
    2,895$
    4,140
  61




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##### Table of Contents



Note 10. Operating Leases
   Year Ending July 31,:
    
    Amount2008
    
    $
    2452009
    
    
    2442010
    
    
    942011
    
    
    52012
    
    
    2$
    590
  Note 11. Income Tax Matters
  2007
    
    
    2006Deferred tax assets:Accounts receivable
    
    $
    84
    
    
    $
    66Inventories
    
    
    180
    
    
    
    110Accrued liabilities
    
    
    111
    
    
    
    115Other
    
    
    67
    
    
    
    5Research and experimentation
tax credit carryforward
    
    
    74
    
    
    
    516
    
    
    
    296Deferred tax liabilities:Property and equipment
    
    
    309
    
    
    
    294Other intangible assets
    
    
    2,310
    
    
    
    2,3692,619
    
    
    
    2,663$
    (2,103
    )
    
    $
    (2,367
    )
  2007
    
    
    2006Current assets
    
    $
    516
    
    
    $
    296Long-term liabilities
    
    
    (2,619
    )
    
    
    (2,663
    )$
    (2,103
    )
    
    $
    (2,367
    )
  62




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005Currently payable
    
    $
    (8
    )
    
    $
    1,735
    
    
    $
    755Deferred
    
    
    (264
    )
    
    
    (315
    )
    
    
    (15
    )$
    (272
    )
    
    $
    1,420
    
    
    $
    740
  2007
    
    
    2006
    
    
    2005Computed at the statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes, net of federal tax benefit
    
    
    4.0
    
    
    
    4.6
    
    
    
    8.2Extraterritorial income exclusion
    
    
    (9.2
    )
    
    
    (3.0
    )
    
    
    (4.0
    )Production deduction for domestic
manufacturers
    
    
    (3.4
    )
    
    
    (3.5
    )
    
    
    Research and development
    
    
    (80.5
    )
    
    
    
    
    
    
    (6.9
    )Other
    
    
    7.6
    
    
    
    (0.6
    )
    
    
    2.4(47.5
    )%
    
    
    31.5
    %
    
    
    33.7
    %
  Note 12. Employee Benefit Plan
  Note 13. Stock Based Compensation Plans
 Stock Option Plans
   63




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##### Table of Contents



WeightedAverage
    
    
    WeightedExercise
    
    
    AverageShares
    
    
    Price
    
    
    Fair ValueOptions 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
    
    
    $
    1.63For the period from August 1, 2006 through
July 31, 2007:Granted
    
    
    55,000
    
    
    $
    3.72
    
    
    $
    2.98Forfeited
    
    
    (4,590
    )
    
    $
    1.09
    
    
    $
    0.91Exercised
    
    
    (33,425
    )
    
    $
    0.96
    
    
    $
    0.82Options outstanding, July 31, 2007
    
    
    428,735
    
    
    $
    2.18
    
    
    $
    1.79Options exercisable, July 31, 2007
    
    
    362,200
    
    
    $
    2.43
    
    
    $
    1.99
  Weighted Average GrantShares
    
    
    Date ValueUnvested options, beginning of period
    
    
    57,375
    
    
    $
    0.91Granted
    
    
    55,000
    
    
    $
    3.72Forfeited
    
    
    4,590
    
    
    $
    1.09Vested
    
    
    41,250
    
    
    $
    3.75Unvested options, period end
    
    
    66,535
    
    
    $
    1.60
  Fiscal Year EndedJuly 31, 2007
    
    
    July 31, 2006
    
    
    July 31, 2005Proceeds of options exercised
    
    $
    37
    
    
    $
    418
    
    
    $
    Related tax benefit recognized
    
    
    13
    
    
    
    223
    
    
    
    Intrinsic value of options exercised
    
    
    32
    
    
    
    362
    
    
    
    
  64




---



##### Table of Contents



ExercisableOptions Outstanding
    
    
    OptionsNumber
    
    
    428,735
    
    
    
    362,200Weighted average exercise price
    
    $
    2.18
    
    
    $
    2.43Aggregate intrinsic value
    
    $
    765
    
    
    $
    721Weighted average contractual term
    
    5.9 years
    
    
    5.8 years
  Options Outstanding
    
    
    Exercisable OptionsWeighted Average
    
    
    
    
    
    
    Weighted AverageRemaining Contractual
    
    
    
    
    
    
    Remaining ContractualShares
    
    
    Life (in Years)
    
    
    Shares
    
    
    Life (in Years)< $1.00
    
    
    23,950
    
    
    3.3 years
    
    
    23,950
    
    
    3.3 years$1.00 - $2.00
    
    
    202,785
    
    
    5.2 years
    
    
    150,000
    
    
    4.3 years$2.00 - $5.00
    
    
    202,000
    
    
    6.8 years
    
    
    188,250
    
    
    7.3 yearsTotal
    
    
    428,735
    
    
    5.9 years
    
    
    362,200
    
    
    5.8 years
  Expected average risk-free interest rate
    
    
    4.0
    %Expected average life (in years)
    
    
    5Expected volatility
    
    
    79.7
    %Expected dividend yield
    
    
    0.0
    %
  Restricted Stock Plans
   65




---



##### Table of Contents



Restricted StockNumber
    
    
    13,101Stock price at date of grant
    
    $
    5.48Aggregate value
    
    $
    72Weighted average contractual term
    
    5.0 years
    Note 14. Research and Development Costs
  Note 15. Segment Information
  Synergetics
    
    
    Valley Forge
    
    
    ConsolidatedFiscal Year Ended July 31, 2007Net salesDomestic
    
    $
    27,241
    
    
    $
    7,973
    
    
    $
    35,214International
    
    
    10,731
    
    
    
    
    
    
    
    10,731Operating income
    
    
    (387
    )
    
    
    1,905
    
    
    
    1,518Identifiable assets
    
    
    35,458
    
    
    
    23,411
    
    
    
    58,869Capital Expenditures
    
    
    376
    
    
    
    46
    
    
    
    422
 Fiscal Year Ended July 31, 2006Net salesDomestic
    
    $
    22,588
    
    
    $
    7,502
    
    
    $
    30,090International
    
    
    8,156
    
    
    
    
    
    
    
    8,156Operating income
    
    
    2,779
    
    
    
    2,223
    
    
    
    5,002Identifiable assets
    
    
    27,826
    
    
    
    23,503
    
    
    
    51,329Capital Expenditures
    
    
    2,983
    
    
    
    55
    
    
    
    3,038
  66




---



##### Table of Contents



Fiscal Years Ended July 31,2007
    
    
    2006
    
    
    2005Net salesOphthalmic
    
    $
    24,433
    
    
    $
    22,730
    
    
    $
    17,752Neurosurgery
    
    
    17,552
    
    
    
    12,824
    
    
    
    4,040Other
    
    
    3,960
    
    
    
    2,692
    
    
    
    Total
    
    $
    45,945
    
    
    $
    38,246
    
    
    $
    21,792
 Note 16. Related Party Transactions
  Note 17. Commitments and Contingencies
    Note 18. Quarterly Financial Data (Unaudited)
  Quarters Ended
    
    July 31, 2007
    
    
    April 30, 2007
    
    
    January 30, 2007
    
    
    October 29, 2006Net Sales
    
    $
    13,203
    
    
    $
    11,482
    
    
    $
    11,353
    
    
    $
    9,906Gross Profit
    
    
    7,633
    
    
    
    6,545
    
    
    
    6,518
    (1)
    
    
    6,306
    (1)Income from Operations
    
    
    665
    
    
    
    (47
    )
    
    
    182
    
    
    
    718Net Income
    
    
    379
    
    
    
    (92
    )
    
    
    182
    
    
    
    377Earnings per ShareBasic
    
    $
    0.02
    (2)
    
    $
    0.00
    (2)
    
    $
    0.01
    (2)
    
    $
    0.02
    (2)Diluted
    
    $
    0.02
    (2)
    
    $
    0.00
    (2)
    
    $
    0.01
    (2)
    
    $
    0.02
    (2)Basic weighted
average common shares
outstanding
    
    
    24,237,350
    
    
    
    24,219,507
    
    
    
    24,214,322
    
    
    
    24,210,680Diluted weighted
average common shares
outstanding
    
    
    24,417,030
    
    
    
    24,423,364
    
    
    
    24,410,302
    
    
    
    24,412,468
  67




---



##### Table of Contents



Quarters Ended
    
    July 31, 2006
    
    
    April 30, 2006
    
    
    January 30, 2006
    
    
    October 27, 2005Net Sales
    
    $
    10,781
    
    
    $
    10,450
    
    
    $
    9,868
    
    
    $
    7,147Gross Profit
    
    
    6,519
    (3)
    
    
    6,699
    (3)
    
    
    6,134
    (3)
    
    
    4,656
    (3)Income from Operations
    
    
    1,183
    
    
    
    1,786
    
    
    
    1,456
    
    
    
    577Net Income
    
    
    837
    
    
    
    1,026
    
    
    
    858
    
    
    
    360Earnings per ShareBasic
    
    $
    0.03
    (4)
    
    $
    0.04
    (4)
    
    $
    0.04
    (4)
    
    $
    0.03
    (4)Diluted
    
    $
    0.03
    (4)
    
    $
    0.04
    (4)
    
    $
    0.04
    (4)
    
    $
    0.03
    (4)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 second and third quarters of the fiscal year ended July 31, 2007, the Company
reclassified the cost of labor, material, overhead and rework costs of production prior to
final validation of new products from cost of goods sold to research and development costs for
the previous two quarters.(2)
    
    The accumulation of four quarters in fiscal year 2007 for earnings per share does not equal
the related per share amounts for the year ended July 31, 2007 due to rounding differences.(3)
    
    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. 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 a 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.(4)
    
    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.
 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 Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 (FIN 48). Accounting for Income Taxes
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Note 20. Valuation Allowances and Qualifying Accounts
 
 Schedule II  Valuation and Qualifying Accounts
 Balance at
    
    
    Charged to
    
    
    Charged to
    
    
    DeductionsBeginning of
    
    
    Cost and
    
    
    Other
    
    
    From
    
    
    Balance at EndClassifications
    
    Year
    
    
    Expenses
    
    
    Accounts
    
    
    Reserves(2)
    
    
    of YearYear ended July 31, 2005Allowance for Doubtful
Accounts
    
    $
    40
    
    
    $
    124
    
    
    $
    
    
    
    $
    (29
    )
    
    $
    135Year ended July 31, 2006Allowance for Doubtful
Accounts
    
    $
    135
    
    
    $
    146
    
    
    $
    16
    (1)
    
    $
    (118
    )
    
    $
    179Allowance for Excess
and Obsolete Inventory
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Year ended July 31, 2007Allowance for Doubtful
Accounts/Returned
Goods
    
    $
    179
    
    
    $
    88
    
    
    $
    
    
    
    $
    (40
    )
    
    $
    227Allowance for Excess
and Obsolete Inventory
    
    $
    75
    
    
    $
    (49
    )
    
    
    
    
    
    $
    
    
    
    $
    26
 
 (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.
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Synergetics USA, Inc.(registrant)October 15, 2007/s/ Pamela G. BoonePamela G. Boone, Executive Vice President, ChiefFinancial Officer, Secretary and Treasurer
  October 15, 2007/s/ Gregg D. SchellerGregg D. Scheller, President and Chief Executive Officer(Principal Executive Officer) and DirectorOctober 15, 2007
    
    /s/ Pamela G. BoonePamela G. Boone, Executive Vice President, ChiefFinancial Officer, Secretary and Treasurer (PrincipalFinancial and Accounting Officer)October 15, 2007
    
    /s/ Lawrence C. CardinaleLawrence C. Cardinale, DirectorOctober 15, 2007
    
    /s/ Robert H. DickRobert H. Dick, DirectorOctober 15, 2007
    
    /s/ Kurt W. Gampp, Jr.Kurt W. Gampp, Jr., DirectorOctober 15, 2007
    
    /s/ Guy GuarchGuy Guarch, DirectorOctober 15, 2007
    
    /s/ Juanita H. HinshawJuanita H. Hinshaw, DirectorOctober 15, 2007
    
    /s/ Jerry L. MalisJerry L. Malis, Director
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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.)
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ExhibitNumber
    
    Description10.8
    
    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
    
    Employment Agreement, dated as of August 1, 2007, between
Synergetics USA, Inc. and Pamela G. Boone.  (Filed as Exhibit 10.1
to the Registrants Current Report on Form 8-K filed on August 6,
2007 and incorporated herein by reference.)10.10
    
    Shareholders Agreement, dated as of September 21, 2005, between
Valley Forge and each of Gregg D. Scheller, Donna 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.)10.11
    
    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.)10.12
    
    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.)10.13
    
    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.)10.14
    
    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.)10.15
    
    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.)10.16
    
    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.)10.17
    
    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.)10.18
    
    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.)10.19
    
    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.)10.20
    
    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.)10.21
    
    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.)10.22
    
    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.)10.23
    
    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.)
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ExhibitNumber
    
    Description10.24
    
    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.)10.25
    
    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.)10.26
    
    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.)10.27
    
    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.)10.28
    
    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.)10.29
    
    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.)10.30
    
    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.)10.31
    
    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.)10.32
    
    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.)10.33
    
    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.)10.34
    
    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.)10.35
    
    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.)
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ExhibitNumber
    
    Description10.36
    
    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.)10.37
    
    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.)10.38
    
    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.)10.39
    
    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.)10.40
    
    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 for the year ended July
31, 2005 and incorporated herein by reference.)10.41
    
    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.)10.42
    
    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.)10.43
    
    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.)10.44
    
    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.)10.45
    
    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.)10.46
    
    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.)10.47
    
    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.)10.48
    
    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.)
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ExhibitNumber
    
    Description10.49
    
    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).10.50
    
    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.)10.51
    
    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.)10.52
    
    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.  (Filed as Exhibit 10.52 to the
Registrants Annual Report on Form 10-K for the fiscal year ended
July 31, 2006 and incorporated herein by reference.)10.53
    
    Second 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 December 8, 2006 (Filed as Exhibit 10.1 to the Registrants
Current Report on Form 8-K filed on December 8, 2006 and
incorporated herein by reference.)10.54
    
    Third Amendment to Credit and Security Agreement by and among
Synergetics, Inc., Synergetics USA, Inc. and Regions Bank, as
Lender, dated June 7, 2007.  (Filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on June 8, 2007 and
incorporated herein by reference.)10.55
    
    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.)10.56
    
    Revolving Note from Synergetics USA, Inc. and Synergetics, Inc. in
favor of Regions Bank, dated September 26, 2006.  (Filed as
Exhibit 10.53 to the Registrants Annual Report on Form 10-K for
the fiscal year ended July 31, 2006 and incorporated herein by
reference.)10.57
    
    Amended and Restated Revolving Note from Synergetics USA, Inc. and
Synergetics, Inc. in favor of Regions Bank, dated December 8,
2006.  (Filed as Exhibit 10.2 to the Registrants Current Report
on Form 8-K filed on December 8, 2006 and incorporated herein by
reference.)10.58
    
    Revolving Note from Synergetics USA, Inc. and Synergetics, Inc. in
favor of Wachovia Bank, National Association, dated September 26,
2006.  (Filed as Exhibit 10.54 to the Registrants Annual Report
on Form 10-K for the fiscal year ended July 31, 2006 and
incorporated herein by reference.)10.59
    
    Amended and Restated Revolving Note from Synergetics USA, Inc. and
Synergetics, Inc. in favor of Wachovia Bank, National Association,
dated December 8, 2006.  (Filed as Exhibit 10.3 to the
Registrants Current Report on Form 8-K filed on December 8, 2006
and incorporated herein by reference.)10.60
    
    Amended and Restated Revolving Note from Synergetics USA, Inc. and
Synergetics, Inc. in favor of Regions Bank, dated June 7, 2007.
(Filed as Exhibit 10.3 to the Registrants Current Report on Form
8-K filed on June 8, 2007 and incorporated herein by reference.)10.61
    
    Letter Agreement between Synergetics, Inc. and Regions Bank, dated
September 28, 2006.  (Filed as Exhibit 10.55 to the Registrants
Annual Report on Form 10-K for the fiscal year ended July 31, 2006
and incorporated herein by reference.)10.62
    
    Foreign Accounts Credit and Security Agreement dated June 20, 2007
by and among Synergetics, Inc., Synergetics USA, Inc., Synergetics
Germany, GmbH, and Synergetics Italia, Srl as Borrowers and
Regions Bank as Lender.  (Filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on June 26, 2007 and
incorporated herein by reference.)
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ExhibitNumber
    
    Description10.63
    
    Foreign Accounts Revolving Note from Synergetics, Inc.,
Synergetics USA, Inc., Synergetics Germany, GmbH, and Synergetics
Italia, Srl in favor of Regions Bank, dated June 20, 2007.  (Filed
as Exhibit 10.2 to the Registrants Current Report on Form 8-K
filed on June 26, 2007 and incorporated herein by reference.)21*
    
    Subsidiaries of Registrant.23.1*
    
    Consent of UHY, LLP.23.2*
    
    Consent of McGladrey and 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
  76