**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)


x
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the quarterly period ended October 29, 2007**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 000-51602**





**SYNERGETICS
      USA, INC.**


(Exact
      name of registrant as specified in its charter)





Delaware
            
            20-5715943(State
                or other jurisdiction of
            
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)





3845
                Corporate Centre DriveO’Fallon,
                Missouri
            
            63368(Address
                of principal executive offices)
            
            (Zip
                Code)





(636)
                939-5100(Registrant’s Telephone Number, Including Area Code)





Indicate
      by check mark whether registrant (1) has filed all reports required to be filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No £





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




Large
      Accelerated Filer o    Accelerated
      Filer x    Non-Accelerated
      Filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x





The
      number of shares outstanding of the issuer’s common stock, $0.001 value per
      share, as of December 3, 2007 was 24,311,012 shares.












SYNERGETICS
      USA, INC.


Index
      to
      Form 10-Q





**Page****PART
                I**
            **Financial
                Information****Item
                1.**
            **Unaudited
                Condensed Consolidated Financial Statements**Balance
                Sheets — October 29, 2007 and July 31, 2007
            3Statements
                of Income for the three months ended October 29, 2007 and October
                29,
                2006
            4Statements
                of Cash Flows for the three months ended October 29, 2007 and
                October 29, 2006
            5Notes
                to Unaudited Condensed Consolidated Financial Statements
            6**Item
                2.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**
            11**Item
                3.**
            **Quantitative
                and Qualitative Disclosures about Market Risk**
            18**Item
                4.**
            **Controls
                and Procedures**
            18**PART
                II**
            **Other
                Information****Item
                1.**
            **Legal
                Proceedings**
            19**Item
                1A.**
            **Risk
                Factors**
            19**Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of Proceeds**
            19**Item
                3.**
            **Defaults
                Upon Senior Securities**
            19**Item
                4.**
            **Submission
                of Matters to a Vote of Security Holders**
            19**Item
                5.**
            **Other
                Information**
            19**Item
                6.**
            **Exhibits**
            20**Signatures**Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002Certification
                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002Certification
                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002Certification
                of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002





2


**Part
      I — Financial Information**





**Item
      1 — Unaudited Condensed Consolidated Financial Statements**





**Synergetics
      USA, Inc. and Subsidiaries**





**Condensed
      Consolidated Balance Sheets**


**As
      of October 29, 2007 (Unaudited) and July 31, 2007**


**(Dollars
      in thousands, except share data)**


****
              
              **October 29, 2007**
              
              **July 31, 2007****Assets**Current
                  AssetsCash
                  and cash equivalents
              
              **$**
              **160**
              
              $
              167Accounts
                  receivable, net of allowance for doubtful accounts for approximately
                  $314
                  and $227, respectively
              
              
              **7,305**
              
              
              8,264Income
                  taxes receivable
              
              
              **723**
              
              
              726Inventories
              
              
              **14,782**
              
              
              14,247Prepaid
                  expenses
              
              
              **457**
              
              
              343Deferred
                  income taxes
              
              
              **554**
              
              
              516**Total
                  current assets**
              
              
              **23,981**
              
              
              24,263Property
                  and equipment, net
              
              
              **8,081**
              
              
              8,031Goodwill
              
              
              **10,660**
              
              
              10,660Other
                  intangible assets, net
              
              
              **14,564**
              
              
              14,782Patents,
                  net
              
              
              **888**
              
              
              871Deferred
                  expenses
              
              
              **211**
              
              
              216Cash
                  value of life insurance
              
              
              **46**
              
              
              46**Total
                  assets**
              
              **$**
              **58,431**
              
              $
              58,869**Liabilities
                  and Stockholders’ Equity**Current
                  LiabilitiesExcess
                  of outstanding checks over bank balance
              
              **$**
              **149**
              
              $
              531Lines-of-credit
              
              
              **6,757**
              
              
              5,715Current
                  maturities of long-term debt
              
              
              **1,975**
              
              
              2,161Current
                  maturities of revenue bonds payable
              
              
              **249**
              
              
              249Accounts
                  payable
              
              
              **1,002**
              
              
              2,262Accrued
                  expenses
              
              
              **2,786**
              
              
              2,739Income
                  taxes payable
              
              
              **477**
              
              
              253**Total
                  current****liabilities**
              
              **$**
              **13,395**
              
              $
              13,910Long-Term
                  LiabilitiesLong-term
                  debt, less current maturities
              
              
              **4,748**
              
              
              5,014Revenue
                  bonds payable, less current maturities
              
              
              **3,829**
              
              
              3,891Deferred
                  income taxes
              
              
              **2,585**
              
              
              2,619**Total
                  long-term****liabilities**
              
              
              **11,162**
              
              
              11,524**Total
                  liabilities**
              
              
              **24,557**
              
              
              25,434Commitments
                  and contingencies (Note 6)Stockholders’
                  EquityCommon
                  stock at October 29, 2007 and July 31, 2007, $.001 par value, 50,000,000
                  shares authorized; 24,302,012 and 24,265,500 shares issued and
                  outstanding, respectively
              
              
              **24**
              
              
              24Additional
                  paid-in capital
              
              
              **24,125**
              
              
              24,083Retained
                  earnings
              
              
              **9,725**
              
              
              9,328**Total
                  stockholders’ equity**
              
              
              **33,874**
              
              
              33,435**Total
                  liabilities and****stockholders’
                  equity**
              
              **$**
              **58,431**
              
              $
              58,869




See
      Notes
      to Unaudited Condensed, Consolidated Financial Statements.




3


**Synergetics
      USA, Inc. and Subsidiaries**





**Unaudited
      Condensed Consolidated Statements of Income**


**Three
      Months Ended October 29, 2007 and October 29, 2006**


**(Dollars
      in thousands, except per share information)**





****
            
            **Three Months Ended**
              **October 29, 2007**
            
            
            Three****Months****Ended
              October****29,****2006Sales
            
            **$**
            **10,469**
            
            
            $
            9,906Cost
                of sales
            
            
            **3,944**
            
            
            
            3,600**Gross
                profit**
            
            
            **6,525**
            
            
            
            6,306Operating
                expensesResearch
                and development
            
            
            **449**
            
            
            
            651Selling,
                general and administrative
            
            
            **5,291**
            
            
            
            4,937**5,740**
            
            
            
            5,588**Operating
                income**
            
            
            **785**
            
            
            
            718Other
                income (expense)Interest
                income
            
            
            **1**
            
            
            
            —Interest
                expense
            
            
            **(260**
            **)**
            
            
            (165
            )Miscellaneous
            
            
            **20**
            
            
            
            9**(239**
            **)**
            
            
            (156
            )**Income
                before provision for income taxes**
            
            
            **546**
            
            
            
            562**Provision
                for income taxes**
            
            
            **149**
            
            
            
            185**Net
                income**
            
            **$**
            **397**
            
            
            $
            377Earnings
                per share:Basic
            
            **$**
            **0.02**
            
            
            $
            0.02Diluted
            
            **$**
            **0.02**
            
            
            $
            0.02Basic
                weighted average common shares outstanding
            
            
            **24,296,309**
            
            
            
            24,210,680Diluted
                weighted average common shares outstanding
            
            
            **24,433,288**
            
            
            
            24,377,889





See
      Notes
      to Unaudited Condensed, Consolidated Financial Statements.




4


**Synergetics
      USA, Inc. and Subsidiaries**


**Unaudited
      Condensed Consolidated Statements of Cash Flows**


**Three
      months Ended October 29, 2007 and October 29, 2006**


**(Dollars
      in thousands)**





**Three Months Ended**
              **October 29, 2007**
            
            
            **Three Months Ended**
              **October 29, 2006**Cash
                Flows from Operating ActivitiesNet
                income
            
            **$**
            **397**
            
            
            $
            377Adjustments
                to reconcile net income to net cash used in operating
                activitiesDepreciation
                and amortization
            
            
            **485**
            
            
            
            356Provision
                for doubtful accounts receivable
            
            
            **86**
            
            
            
            21Stock-based
                compensation
            
            
            **42**
            
            
            
            33Deferred
                income taxes
            
            
            **(72**
            **)**
            
            
            **—**Change
                in assets and liabilities:(Increase)
                decrease in:Receivables
            
            
            **872**
            
            
            
            (23
            )Income
                tax receivable
            
            
            **3**
            
            
            
            **—**Inventories
            
            
            **(535**
            **)**
            
            
            (1,557
            )Prepaid
                expenses
            
            
            **(127**
            **)**
            
            
            (52
            )Other
                current assets
            
            
            **—**
            
            
            
            152(Decrease)
                increase in:Accounts
                payable
            
            
            **(1,260**
            **)**
            
            
            268Accrued
                expenses and other liabilities
            
            
            **47**
            
            
            
            (612
            )Income
                taxes payable
            
            
            **224**
            
            
            
            36**Net
                cash provided by (used in) operating activities**
            
            
            **162**
            
            
            
            (1,001
            )Cash
                Flows from Investing ActivitiesNet
                decrease in notes receivable, officer-stockholder
            
            
            **—**
            
            
            
            4Purchase
                of property and equipment
            
            
            **(272**
            **)**
            
            
            (75
            )Acquisition
                of patents and other intangibles
            
            
            **(43**
            **)**
            
            
            (112
            )Sales
                of trading securities
            
            
            **—**
            
            
            
            50**Net
                cash used in investing activities**
            
            
            **(315**
            **)**
            
            
            (133
            )Cash
                Flows from Financing ActivitiesExcess
                of outstanding checks over bank balance
            
            
            **(382**
            **)**
            
            
            (140
            )Net
                borrowings on lines-of-credit
            
            
            **1,042**
            
            
            
            319Principal
                payments on revenue bonds payable
            
            
            **(62**
            **)**
            
            
            (63
            )Proceeds
                from long-term debt
            
            
            **—**
            
            
            
            919Principal
                payments on long-term debt
            
            
            **(330**
            **)**
            
            
            (125
            )Payments
                on debt incurred for acquisition of trademark
            
            
            **(122**
            **)**
            
            
            (115
            )**Net
                cash provided by financing activities**
            
            
            **146**
            
            
            
            795Net
                decrease in cash and cash equivalents
            
            
            **(7**
            **)**
            
            
            (339
            )Cash
                and cash equivalentsBeginning
            
            
            **167**
            
            
            
            557Ending
            
            **$**
            **160**
            
            
            $
            218





See
      Notes
      to Unaudited Condensed, Consolidated Financial Statements.




5


**Synergetics
      USA, Inc. and Subsidiaries**





**Notes
      to Unaudited Condensed Consolidated Financial Statements**


**(Tabular
      information reflects dollars in thousands, except share and per share
      information)**





**Note
      1. General**





*Nature
      of business:* Synergetics USA, Inc. (“Synergetics USA” or the “Company”) is a Delaware
      corporation incorporated on June 2, 2005 in connection with the merger of
      Synergetics, Inc. (“Synergetics”) and Valley Forge Scientific Corp. (“Valley
      Forge”) and the subsequent reincorporation of Valley Forge (the predecessor to
      Synergetics USA) in Delaware. Synergetics USA is a leading medical device
      company focused on progressing the standard of care for microsurgeons and their
      patients by seeking to improve surgical patient outcomes through the delivery
      of
      innovative improvements in quality, delivery and cost. The Company focuses
      on
      the ophthalmology, neurosurgery and ear, nose and throat surgery (“ENT”)
      markets. The distribution channels include a combination of direct and
      independent sales organizations, and important strategic alliances with market
      leaders. The Company is located in O’Fallon, Missouri and King of Prussia,
      Pennsylvania. During the ordinary course of its business, the Company grants
      unsecured credit to its domestic and international customers.





*Reporting
      period:* The
      Company’s year end is July 31 of each calendar year. For interim periods, the
      Company uses a 21 business day per month reporting cycle with the exception of
      leap year when the extra shipping day will be included in the second quarter.
      As
      such, the information presented in the Form 10-Q is for the three month periods
      August 1, 2007 through October 29, 2007 and August 1, 2006 through October
      29,
      2006, respectively and the three month periods contain 63 business
      days.





*Basis
      of presentation:* The
      unaudited condensed consolidated financial statements include the accounts
      of
      Synergetics USA, Inc., and its wholly owned subsidiaries: Synergetics,
      Synergetics Development Company, LLC, Synergetics DE, Inc. and Synergetics
      IP,
      Inc. All significant intercompany accounts and transactions have been
      eliminated. The accompanying unaudited condensed consolidated financial
      statements have been prepared in accordance with accounting principles generally
      accepted in the United States for interim financial information and with the
      instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
      do
      not include all of the information and notes required by generally accepted
      accounting principles for complete financial statements. In the opinion of
      management, all adjustments (consisting of normal recurring items) considered
      necessary for a fair presentation have been included. Operating results for
      the
      three months ended October 29, 2007 are not necessarily indicative of the
      results that may be expected for the fiscal year ending July 31, 2008. These
      unaudited condensed consolidated financial statements should be read in
      conjunction with the audited consolidated financial statements of the Company
      for the fiscal year ended July 31, 2007, and notes thereto filed with the
      Company’s Annual Report on Form 10-K filed with the Securities and Exchange
      Commission on October 15, 2007 (the “Annual Report”).





**Note
      2. Summary of Significant Accounting Policies**





The
      Company’s significant accounting policies are disclosed in the Annual Report. In
      the first three months of fiscal 2008, no significant accounting policies were
      changed other than the implementation of policies for the accounting for
      uncertainties in income taxes as described below.




Reclassifications: Certain
        reclassifications have been made to the prior year financial statements and
        to the financial statements for the three months ended October 29, 2007 to conform
        with the current quarter presentation. Total assets, total liabilities and
        net
        income were not affected.




Accounting
      for Uncertainties in Income Taxes: Effective August 1, 2007, the Company adopted Financial Accounting Standards
      Interpretation, or FIN, No. 48, “Accounting for Uncertainty in Income Taxes
– an
      interpretation of FASB Statement No. 109.” FIN No. 48 clarifies the
      accounting for uncertainty in income taxes recognized in an enterprise’s
      financial statements. This Interpretation prescribes a recognition threshold
      and
      measurement attribute for the financial statement recognition and measurement
      of
      uncertain tax positions taken or expected to be taken in the income tax return,
      and also provides guidance on derecognition, classification, interest and
      penalties, accounting in interim periods, disclosure, and transition. FIN
      No. 48 utilizes a two-step approach for evaluating uncertain tax positions
      accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes”
(SFAS No. 109). Step one, recognition, requires a company to determine if
      the weight of available evidence indicates that a tax position is more likely
      than not to be sustained upon audit, including resolution of related appeals
      or
      litigation processes, if any. Step two, measurement, is based on the largest
      amount of benefit, which is more likely than not to be realized on ultimate
      settlement. The cumulative effect of adopting FIN No. 48 is to be
      recognized as a change in accounting principle, recorded as an adjustment to
      the
      opening balance of retained earnings on the adoption date. As a result of the
      adoption of FIN No. 48, the Company had no uncertain tax positions taken in
      prior periods.




6




The
      Company generally recognizes interest and penalties related to uncertain tax
      positions through income tax expense. As of the date of adoption, the 2005
– 2006 tax
      years
      remain subject to examination by major tax jurisdictions. There are no federal,
      state or foreign income tax audits in process as of October 29,
      2007.





Accounting
      for Taxes Collected from Customers and Remitted to Governmental
      Authorities :
      In June
      2006, the Financial Accounting Standards Board (“FASB”) ratified the consensus
      reached by the Emerging Issues Tax Force in Issue No. 06-3 (“EITF 06-3”), “How
      Taxes Collected from Customers and Remitted to Governmental Authorities Should
      Be Presented in the Income Statement (That is, Gross versus Net Presentation).”
The scope of EITF 06-3 includes any tax assessed by a governmental authority
      that is directly imposed on a revenue-producing activity between a seller and
      a
      customer and may include, but is not limited to, sales, use, value added, and
      some excise taxes. EITF 06-3 also concluded that the presentation of taxes
      within its scope on either a gross (included in revenues and costs) or net
      (excluded from revenues) basis is an accounting policy decision subject to
      appropriate disclosure. EITF 06-3 is effective for periods beginning after
      December 15, 2006. The Company currently presents these taxes on a net basis
      and
      has elected not to change its presentation method.





**Note
      3. Distribution Agreements**





The
      Company sells a portion of its electrosurgical generators to a U.S. based
      national and international distributor as described below:





*Codman
      and Shurtleff, Inc. (“Codman”)*





In
      the
      neurosurgery market, our bipolar electrosurgical system has been sold for over
      20 years through a distribution agreement with Codman. On January 9, 2006,
      the Company executed a three-year distribution agreement with Codman for the
      continued distribution by Codman of certain bipolar generators and related
      disposables and accessories. In addition, the Company entered into a three-year
      license agreement, which provides for the continued licensing of the Company’s
      Malis ® trademark to Codman for use with certain Codman products, including those
      covered by the distribution agreement. Both agreements expire on
      December 31, 2008.





Net
      sales
      to Codman amounted to approximately $1,314,000 for the three month period ended
      October 29, 2007 and $1,725,000 for the three month period ended October 29,
      2006. This represented 12.6 and 17.4 percent of net sales for the three months
      ended October 29, 2007 and October 29, 2006, respectively.





**Note
      4. Stock-Based Compensation**





*Stock
      Option Plans*





The
      following table provides information about awards outstanding at October 29,
      2007:





**Three
                Months Ended October 29, 2007****Shares**
            
            **Weighted-**
              **Average**
              **Exercise**
              **Price**
            
            **Weighted-**
              **Average**
              **Fair
                Value**Options
                outstanding, beginning of period
            
            
            428,735
            
            $
            2.18
            
            $
            1.79For
                the period from August 1, 2007 through October 29, 2007:Granted
            
            
            —
            
            
            —
            
            
            —Forfeited
            
            
            —
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —
            
            
            —Options
                outstanding, end of period
            
            
            428,735
            
            $
            2.18
            
            $
            1.79Options
                exercisable, end of period
            
            
            369,700
            
            $
            2.46
            
            $
            2.03





7





*Restricted
      Stock Plans*





Under
      our
      2001 Plan, our common stock may be granted at no cost to certain employees
      and
      consultants of the Company. Pursuant to the 2001 Plan, grantees are entitled
      to
      dividends and voting rights for their respective shares. Restrictions limit
      the
      sale or transfer of these shares during a vesting period during which the
      restrictions lapse either pro-ratably over a five year vesting period or at
      the
      end of the fifth year. Upon issuance of stock under the 2001 Plan, unearned
      compensation equivalent to the market value at the date of the grant is charged
      to stockholders’ equity and subsequently amortized to expense over the
      applicable restriction period. During the three months ended October 29, 2007,
      34,515 shares were granted under the restricted stock plan. Compensation expense
      related to shares granted in the both the current and the previous year was
      $25,000. As of October 29, 2007, there was approximately $140,000 of total
      unrecognized compensation cost related to nonvested share-based compensation
      arrangements granted under the Company’s 2001 Plan. The cost is expected to be
      recognized over a weighted average period of five years.





**Note
      5. Supplemental Balance Sheet Information**





*Inventories
      (Dollars in thousands)*





**October
                29,**
              **2007**
            
            **July
                31,**
              **2007**Raw
                material and component parts
            
            **$**
            **6,658**
            
            $
            6,754Work-in-progress
            
            
            **2,492**
            
            
            1,948Finished
                goods
            
            
            **5,632**
            
            
            5,545**$**
            **14,782**
            
            $
            14,247





*Property
      and equipment (Dollars in thousands)*





**October
                29,**
              **2007**
            
            **July
                31,**
              **2007**Land
            
            **$**
            **730**
            
            $
            730Building
                and improvements
            
            
            **5,436**
            
            
            5,436Machinery
                and equipment
            
            
            **4,541**
            
            
            4,428Furniture
                and fixtures
            
            
            **610**
            
            
            610Software
            
            
            **115**
            
            
            115Construction
                in process
            
            
            **193**
            
            
            34**11,625**
            
            
            11,353Less
                accumulated depreciation
            
            
            **3,544**
            
            
            3,322**$**
            **8,081**
            
            $
            8,031





*Other
      intangible assets (Dollars in thousands)*





Information
      regarding the Company’s other intangible assets is as follows:





**Gross**
              **Carrying**
              **Value**
            
            **Accumulated**
              **Amortization**
            
            **Net****October
                29, 2007**Patents
            
            $
            1,143
            
            $
            255
            
            $
            888Proprietary
                know-how
            
            
            4,057
            
            
            809
            
            
            3,248Trademark
            
            
            5,923
            
            
            —
            
            
            5,923Licensing
                agreements
            
            
            5,834
            
            
            441
            
            
            5,393$
            16,957
            
            $
            1,505
            
            $
            15,452





**July
                31, 2007**Patents
            
            $
            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
            
            $
            15,653




8




Goodwill
      of $10,660,000 is a result of the reverse merger transaction completed on
      September 21, 2005. Synergetics Acquisition Corporation, a wholly owned
      subsidiary of Valley Forge, merged with and into Synergetics and Synergetics
      thereby became a wholly owned subsidiary of Valley Forge. Pursuant to the terms
      of the merger agreement, stockholders of Synergetics common stock received
      in
      the aggregate 15,960,648 shares of Valley Forge common stock, or 4.59 Valley
      Forge shares for each share of Synergetics resulting in Synergetics’ former
      private stockholders owning approximately 66 percent of Valley Forge’s
      outstanding common stock upon completion of the reverse merger. The reverse
      merger was accounted for as a purchase business combination with Synergetics
      deemed the accounting acquirer and Valley Forge’s assets acquired and
      liabilities assumed recorded at fair value.





Estimated
      amortization expense on other intangibles for the remaining nine months of
      fiscal year ending July 31, 2008 and the next four years thereafter is as
      follows (dollars in thousands):




**Periods
                Ending July 31:**
            
            **Amount**Fiscal
                Year 2008 (remaining 9 months)
            
            $
            622Fiscal
                Year 2009
            
            
            857Fiscal
                Year 2010
            
            
            828Fiscal
                Year 2011
            
            
            605Fiscal
                Year 2012
            
            
            552





Amortization
      expense for the three months ended October 29, 2007 was $263,000.





*Pledged
      assets; short and long-term debt (excluding revenue bonds
      payable)*





Short-term
      debt as of October 29, 2007 and July 31, 2007 consisted of the
      following:





*Revolving
      Credit Facility:* Under
      this credit facility, the Company may 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 October 29, 2007 were $6.5 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 October 29, 2007, the leverage ratio was
      3.14
      times and the fixed charge coverage ratio was 1.62 times. Availability under
      the
      line was approximately $2.0 million.





*Revolving
      Credit Facility* :
      Under
      this credit facility, the Company may 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 October 29, 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 October 29, 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 October 29, 2007. Outstanding amounts were secured
      by
      the purchased equipment. The equipment line of credit facility of
      $1.0 million was renewed with a new expiration date of October 31,
      2008 and has availability of $790,000.





Long-term
      debt as of October 29, 2007 and July 31, 2007 consisted of the following
      (dollars in thousands):





**October
                29,**
              **2007**
            
            **July
                31,**
              **2007**Note
                payable to bank, due in monthly principal installments of $1,139
                plus
                interest at prime rate plus 1% (an effective rate of 9.25% as of
                July 31,
                2007), remaining balance due September 2007, collateralized by a
                second
                deed of trust
            
            **$**
            **—**
            
            $
            151Note
                payable, due in monthly installments of $509, including interest
                at 4.9%,
                remaining balance due May 2008, collateralized by a
                vehicle
            
            
            **1**
            
            
            3Note
                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
            
            
            **436**
            
            
            555Note
                payable to bank, due in monthly installments of $19,173 beginning
                December
                2006 plus interest at a rate of 8.25%, remaining balance due on November
                14, 2010, collateralized by substantially all assets of the
                Company
            
            
            **708**
            
            
            766Note
                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 $2,718,368, including contractual interest
                payments, due December 2011, collateralized by the Malis®trademark
            
            
            **2,384**
            
            
            2,506Settlement
                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**
            
            
            3,194**$**
            **6,723**
            
            
            7,175Less
                current maturities
            
            
            **1,975**
            
            
            2,161Long-term
                portion
            
            **$**
            **4,748**
            
            $
            5,014




9




**Note
      6. Commitments and Contingencies**





On
      September 22, 2005, the Company entered into three-year employment agreements
      with its Chief Executive Officer, its Chief Operating Officer and its Chief
      Scientific Officer in conjunction with the merger of Synergetics, Inc. and
      Valley Forge Scientific Corporation. On August 1, 2007, the Company entered
      into a three-year employment agreement with its Executive Vice President and
      Chief Financial Officer. In the event any such executive officer is terminated
      without cause, or if such executive officer resigns for good reason, such
      executive officer shall be entitled to his or her base salary and health care
      benefits through the end of the employment agreement. In addition, the Chief
      Financial Officer’s employment agreement includes a change of control provision
      whereby she will be entitled to 15 months base salary and health care benefits
      if she is terminated within twelve months following a change of control and
      all
      shares of restricted common stock shall vest.





In
      August 2007, we leased approximately 10,000 square feet of additional
      engineering and manufacturing space adjacent to our headquarters in O’Fallon,
      Missouri for a term of five years.





Subsequent
      to the end of the quarter, on November 8, 2007, the Company entered into a
      letter agreement with its new Executive Vice President of Sales and Marketing.
      In the event of a change in control, the Company shall pay the Executive Vice
      President of Sales and Marketing his base salary for one year, and all shares
      of
      restricted common stock shall vest.





Various
      other claims, incidental to the ordinary course of business, are pending against
      the Company. In the opinion of management, after consulting with legal counsel,
      resolution of these matters is not expected to have a material adverse effect
      on
      the accompanying financial statements.





The
      Company is subject to regulatory requirements throughout the world. In the
      normal course of business, these regulatory agencies may require companies
      in
      the medical industry to change their products or operating procedures, which
      could affect the Company. The Company regularly incurs expenses to comply with
      these regulations and may be required to incur additional expenses. Management
      is not able to estimate any additional expenditure outside the normal course
      of
      operations which will be incurred by the Company in future periods in order
      to
      comply with these regulations.





**Note
      7. Entity Wide Information**


.


The
      following tables presents the entity wide disclosures for net sales (dollars
      in
      thousands):





**Three
                months ended****October
                29,**
              **2007**
            
            **October
                29,**
              **2006**Product
                Line:Ophthalmic
            
            $
            6,436
            
            $
            5,306Neurosurgery
            
            
            3,732
            
            
            3,775Other
                (Pain Control, ENT and Dental)
            
            
            301
            
            
            825Total
            
            $
            10,469
            
            $
            9,906Region
                Specific:Domestic
            
            $
            7,703
            
            $
            8,038International
            
            
            2,766
            
            
            1,868Total
            
            $
            10,469
            
            $
            9,906




10




**Note
      8.**  **RECENT
      ACCOUNTING PROUNCEMENTS**





In
      September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”
which relates to the definition of fair value, the methods used to estimate
      fair
      value and the requirement of expanded disclosures about estimates of fair value.
      SFAS No. 157 is effective for financial statements issued for fiscal years
      beginning after November 15, 2007 and interim periods within those fiscal
      years. At this time, we have not completed our review and assessment of the
      impact of adoption of SFAS No. 157.





In
      February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for
      Financial Assets and Financial Liabilities.” The Statement permits entities to
      choose to measure many financial instruments and certain other items at fair
      value. The objective is to improve financial reporting by providing entities
      with the opportunity to mitigate volatility in reported earnings caused by
      measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. This Statement is expected to expand the
      use of fair value measurement, which is consistent with the FASB’s long-term
      measurement objectives for accounting for financial instruments. This Statement
      is effective as of the beginning of an entity’s fiscal year that begins after
      November 15, 2007. At this time, we have not completed our review and
      assessment of the impact of adoption of SFAS No. 159.





**Item
      2 — Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**





STATEMENT
      REGARDING FORWARD-LOOKING INFORMATION





*The
      Private Securities Litigation Reform Act of 1995 and Section 21E
      of*  *the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide a safe
      harbor for*  *forward-looking
      statements made by or on behalf of the Company. The Company and*  *its
      representatives may from time to time make written or oral statements
      that*  *are
      “forward-looking,” including statements contained in this report and
      other*  *filings
      with the Securities and Exchange Commission (“SEC”) and in our
      reports*  *to
      stockholders. In some cases forward-looking statements can be identified
      by*  *words
      such as “believe,” “expect,” “anticipate,” “plan,” “potential,”*  *“continue”
      or similar expressions. Such forward-looking statements*  *include
      risks and uncertainties and there are important factors that could cause actual
      results to differ materially from those expressed or implied by such
      forward-looking statements. These factors, risks and uncertainties can be found
      in Part I, Item 1A, “Risk Factors” section of the Company’s Form 10-K for the
      fiscal year ended July 31, 2007.*





*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 quarterly report on Form
      10-Q*  *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.*





**Overview**





Synergetics
      USA, Inc. (“Synergetics USA” or “Company”) is a Delaware corporation
      incorporated on June 2, 2005 in connection with the reverse merger of
      Synergetics, Inc. (“Synergetics”) and Valley Forge Scientific Corp. (“Valley
      Forge”). Synergetics was founded in 1991. Valley Forge was incorporated in 1980
      and became a publicly-held company in November 1989. Prior to the merger of
      Synergetics and Valley Forge, Valley Forge’s common stock was listed on The
      NASDAQ Small Cap Market (now known as The NASDAQ Capital Market) and the Boston
      Stock Exchange under the ticker symbol “VLFG.” On September 21, 2005,
      Synergetics Acquisition Corporation, a wholly owned Missouri subsidiary of
      Valley Forge, merged with and into Synergetics, and Synergetics thereby became
      a
      wholly owned subsidiary of Valley Forge. On September 22, 2005, Valley Forge
      reincorporated from a Pennsylvania corporation to a Delaware corporation and
      changed its name to Synergetics USA, Inc. Upon consummation of the merger,
      the
      Company’s securities began trading on The NASDAQ Capital Market under the ticker
      symbol “SURG,” and its shares were voluntarily delisted from the Boston Stock
      Exchange.




11




The
      Company is a leading medical device company focused on progressing the standard
      of care for microsurgeons and their patients. The Company seeks to improve
      surgical patient outcomes through the delivery of innovative improvements in
      quality delivery and cost by focusing on three common microsurgical disciplines
      including ophthalmology, neurosurgical and ENT surgery. Its distribution
      channels include a combination of direct and independent sales organizations,
      and important strategic alliances with market leaders. The Company’s product
      lines focus upon precision-engineered, microsurgical, hand-held instruments
      and
      the microscopic delivery of laser energy, ultrasound, electrosurgery,
      illumination and irrigation, often delivered in multiple combinations.




Revenues
      from our ophthalmic products constituted 61.5 percent and 53.6 percent of our
      total revenues for the three months ended October 29, 2007 and for the fiscal
      year ended July 31, 2007, respectively. Revenues from our neurosurgical products
      represented 35.6 percent and 38.1 percent for the three months ended October
      29,
      2007 and for the fiscal year ended July 31, 2007, respectively. In addition,
      other revenue, which includes our pain control management, dental and ear,
      nose
      and throat (“ENT”) products was 2.9 percent and 8.3 percent of our total
      revenues for the three months ended October 29, 2007 and for the fiscal year
      ended July 31, 2007, respectively. We expect that the relative revenue
      contribution of our neurosurgical products will rise in 2008 as a result of
      our
      continued efforts to expand our neurosurgical product line. International
      revenues of $2.8 million constituted 26.4 percent of our total revenues for
      the
      three months ended October 29, 2007. We expect that the relative revenue
      contribution of our international sales will rise in 2008 as a result of our
      continued efforts to expand our international distribution and direct sales
      and
      our expanded core product, neurosurgical product offerings including the
      Omni ® ultrasonic aspirator and the Malis ® Advantage TM .





On
      August
      27, 2007, the Company announced the extension to its contract with Stryker.
      On
      October 25, 2004, Synergetics USA, Inc.'s predecessor, Valley Forge Scientific
      executed a Supply and Distribution Agreement (the "Agreement") with Stryker,
      a
      Michigan corporation, which provides for the Company to supply to Stryker and
      for Stryker to distribute exclusively, on a world-wide basis, a unique radio
      frequency ("RF") generator for the percutaneous treatment of pain. The original
      agreement was for a term of five years commencing on November 11, 2004 and
      ending on December 31, 2009. On August 1, 2007, the companies negotiated a
      one
      year extension to the contract date and increased the minimum purchase
      obligation each year for the remaining contract period. Net sales to Stryker
      amounted to approximately $50,000 for the three months ended October 29, 2007
      which represents 0.5 percent of net sales for that time period compared to
      $577,000 for the three months ended October 29, 2006. Sales to Stryker decreased
      during the quarter due to a model changeover. The Company anticipates that
      these
      sales will return to their typical pattern as the final software changes should
      be complete by the end of the Company’s third fiscal quarter of
      2008.





On
      September 11, 2007, the Company entered into two new distribution agreements
      with Volk Optical, granting Synergetics rights over the next three years to
      sell
      Volk’s products to vitreoretinal surgeons in the United States.  The
      agreements cover Volk’s line of ophthalmic lenses, used for detailed examination
      and treatment of the retina, and exclusive right to sell Volk’s new OptiflexTM
Surgical Assistant in the United States.  This new vitreoretinal system,
      compatible with most leading surgical microscopes, enhances a surgeon’s visual
      ability with precision focus and control.





Through
      Synergetics, the Company initially engineered and produced prototype instruments
      designed to assist retinal surgeons in treating acute subretinal pathologies
      such as histoplasmosis and age-related macular degeneration. Synergetics
      developed a number of specialized lines of finely engineered, microsurgical
      instruments, which today have grown to comprise a product catalogue of over
      1,400 retinal surgical items including scissors, retractors, cannulas, forceps
      and other reusable and disposable surgical instruments. The Company is a leading
      supplier of 25, 23 and 20 gauge instrumentation to the ophthalmic surgical
      market which enable surgeons to make smaller, less invasive, stitch-less
      incisions. The Company’s illumination devices can deliver concentrated light to
      the site providing improved viewing by using a xenon light or gas-arc lamp
      source. The ability of the Photon TM or
      Photon II TM to
      deliver both laser energy and illumination through the same fiber line is
      unique, as is the number of accessories which can be attached to the devices.





The
      Company has a complementary neurosurgical product line which includes the
      Omni ® ultrasonic aspirator, which uses ultrasonic waves to cause vibration of a tip,
      that is predominately - used for tumor removal, an electrosurgical generator
      that is bipolar and the modality of choice for tissue cutting and coagulation
      as
      compared to monopolar products and precision neurosurgical instruments. In
      addition, the Company has developed and released on a limited basis, a line
      of
      bipolar instruments in both disposable and reusable formats, some of which
      will
      connect to all electrosurgical generators and some of which are for use only
      with the Malis ® Advantage TM .
      Our
      neurosurgery product catalogue consists of over 300 neurosurgical items
      including capital equipment, disposable and reusable instruments and other
      disposable items. The Company’s sales of neurosurgical products did not grow as
      anticipated this quarter. The Company views this as an order timing issue and
      it
      is not the result of any competitive market pressures. The Company expects
      the
      normal growth pattern to return for the third quarter of fiscal
      2008.




12




We
      anticipate that the Company is strategically positioned for future growth of
      our
      neurosurgical product line, and we expect that the relative revenue contribution
      of our neurosurgical products will increase in fiscal 2008.





*New
      Product Sales*





The
      Company’s business strategy has been, and is expected to continue to be, the
      development and marketing of new technologies for the ophthalmic, neurosurgical
      and ENT markets. New products, which management defines as products introduced
      within the prior 24-month period, accounted for approximately 14.1 percent
      of
      total sales for the Company on a consolidated basis for the three months ended
      October 29, 2007, approximately $1.5 million. Our past revenue growth has been
      closely aligned with the adoption by surgeons of new technologies introduced
      by
      the Company. Since August 1, 2007, the Company has introduced over 8 new
      products to the ophthalmic and neurosurgery markets. We expect adoption rates
      for the Company’s new products in the future to have a similar effect on its
      operating performance.




*Growth
      in Minimally Invasive Surgery Procedures*





Minimally
      invasive surgery (“MIS”) is surgery performed without making a major incision or
      opening. MIS generally results in less patient trauma, less likelihood of
      complications related to the incision and a shorter recovery time. A growing
      number of surgical procedures are performed using minimally invasive techniques,
      creating a multi-billion dollar market for the specialized devices used in
      the
      procedures. The Company feels it is ideally positioned to take advantage of
      this
      growing market. We believe our micro-instrumentation capability is unsurpassed.
      The Company has made scissors as small as 30 gauge (0.012 inch, 0.3 millimeter)
      in diameter with a single activating shaft. The Company also feels that it
      is
      the world leader in small-fiber illumination technology. The Company’s
      Photon TM and
      Photon TM II light
      sources can put more light down a fiber of 300 micron diameter or smaller than
      any other source in the world. This product was developed for ophthalmology
      but
      has wide ranging MIS applications. The Company’s Malis ® line
      of
      electrosurgical bipolar generators are the marketshare leading, neurosurgical
      generators worldwide. These generators produce a unique and patented waveform
      that has been proven over many decades of use to cause less collateral tissue
      damage as compared to other competing generators. The Omni® power
      ultrasound technology provides a new method for the minimally invasive removal
      of soft and fibrotic tissue, as well as microscopic bone removal. This
      technology is in its infancy and the Company anticipates that it will become
      a
      standard of care in multiple MIS applications. The Company has benefited from
      the overall growth in this market and expects to continue to benefit as it
      continues to introduce new and improved technologies targeting this
      market





*Demand
      Trends*





Volume
      and mix improvements contributed to the majority of sales growth for the
      Company. Ophthalmic and neurosurgical procedures volume on a global basis
      continues to rise at an estimated 5.0% growth rate driven by an aging global
      population, new technologies, advances in surgical techniques and a growing
      global market resulting from ongoing improvements in healthcare delivery in
      third world countries, among other factors. In addition, the demand for high
      quality products and new technologies, such as the Company’s innovative
      instruments and disposables, to support growth in procedures volume continues
      to
      positively impact growth. The Company believes innovative surgical approaches
      will continue to significantly impact the ophthalmic, neurosurgical and ENT
      markets.





*Pricing
      Trends*





Through
      its strategy of delivering new and higher quality technologies, the Company
      has
      generally been able to maintain the average selling prices for its products
      in
      the face of downward pressure in the healthcare industry. However, competition
      in the markets for our electrosurgical generators and ultrasonic aspirators
      has
      negatively impacted the Company’s selling prices on these medical
      devices.





*Results
      Overview*





During
      the fiscal quarter ended October 29, 2007, we had net sales of $10.5 million,
      which generated $6.5 million in gross profit, an operating income of $785,000
      and net income of $397,000, or $0.02 earnings per share. During the three months
      ended October 29, 2006, we had net sales of $9.9 million, which generated $6.3
      million in gross profit, operating income of $718,000 and net income of
      $377,000, or $0.02 earnings per share. The Company had $160,000 in cash
      and  $17.6
      million in interest-bearing debt and revenue bonds as of October 29, 2007.
      We
      anticipate that cash flows from operations, together with available borrowings
      under our existing credit facilities, will be sufficient to meet our working
      capital, capital expenditure and debt service needs for the next twelve months.





13




**Our
      Business Strategy**





Our
      goal
      is to become a global leader in the development, manufacturing and marketing
      of
      precision-engineered, microsurgical instruments and capital equipment for use
      in
      minimally invasive ophthalmic, neurosurgical and ENT applications and to grow
      our product lines in other specialty surgical markets. We are taking the
      following steps toward achieving our goal:




**•**
              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, accessories and disposables to
                  the MIS
                  market 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 direct sales forces,
                  continued
                  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
                  reprocessing and 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;**•**
              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
                  microsurgical 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.




14




**Results
      of Operations**





*Three
      Month Period Ended October 29, 2007 Compared to Three Month Period Ended October
      29, 2006*





*Net
      Sales*





The
      following table presents net sales by category (dollars in
      thousands):





**Quarter Ended October 29,**
            
            **% Increase****2007**
            
            **2006**
            
            **(Decrease)**Ophthalmic
            
            $
            6,436
            
            $
            5,306
            
            
            21.3
            %Neurosurgery
            
            
            3,732
            
            
            3,775
            
            
            (1.1
            )%Other
            
            
            301
            
            
            825
            
            
            (63.5
            )%Total
            
            $
            10,469
            
            $
            9,906
            
            
            5.7
            %





Ophthalmic
      sales growth was 21.3 percent from the first quarter of fiscal 2007. Domestic
      ophthalmic sales increased 8.7 percent for the first quarter of fiscal 2008
      while international ophthalmic sales increased 38.4 percent as compared to
      the
      first quarter of the previous fiscal year. Domestic ophthalmic sales management
      was reorganized on August 1, 2007. The Company continues to train its new,
      recently added territory managers and is beginning to see a return on its
      investment in a direct sales force in certain countries.





Neurosurgery
      net sales during the first fiscal quarter of 2008 were 1.1 percent less than
      the
      first quarter of fiscal 2007. Domestic neurosurgery sales increased 9.4 percent
      and international neurosurgery sales increased 76.9 percent, offset by a
      decrease in sales to Codman of 23.8 percent. The increases in domestic and
      international were primarily attributable to the sales in the core technology
      area of Omni ® power
      ultrasonic aspirators, the Malis ® Advantage TM and
      their
      related disposables. The Company expects that sales of these products will
      continue to have a positive impact on net sales for the remainder of fiscal
      2008. Sales to Codman decreased due to restocking orders received in the first
      quarter of the prior year which were not required during the current fiscal
      quarter.





Other
      net
      sales during the first fiscal quarter of 2008 decreased 63.5 percent compared
      to
      the first fiscal quarter of 2007, primarily attributable to sales to Stryker
      in
      the pain control market as the model changeover was not complete and
      was not yet ready for production in the first quarter of fiscal
      2008.





The
      following table presents domestic and international net sales (dollars in
      thousands):





**Quarter Ended October 29,**
            
            **% Increase****2007**
            
            **2006**
            
            **(Decrease)**United
                States
            
            $
            7,703
            
            $
            8,038
            
            
            (4.2
            )%International
                (including Canada)
            
            
            2,766
            
            
            1,868
            
            
            48.1
            %Total
            
            $
            10,469
            
            $
            9,906
            
            
            5.7
            %





Domestic
      sales for the first quarter of fiscal 2008 compared to the same period of fiscal
      2007 decreased 4.2% as increases in domestic ophthalmology were offset by a
      decrease in sales to Codman. International sales growth of 48.1 percent for
      the
      first quarter of fiscal 2008 compared to the first quarter of fiscal 2007 was
      primarily attributable to the sales increases in both ophthalmology and
      neurosurgery equipment and their related disposables.





*Gross
      Profit*





Gross
      profit as a percentage of net sales was 62.3 percent in the first quarter of
      fiscal 2008 compared to 63.7 percent for the same period in fiscal 2007. Gross
      profit as a percentage of net sales from the first quarter of fiscal 2008 to
      the
      first quarter of fiscal 2007 decreased slightly. However, it increased
      approximately 3.5 percentage points from the average gross profit margin for
      fiscal 2007. This was primarily due to a selling price increase instituted
      at
      the beginning of the fiscal year, a change in mix toward higher disposable
      product sales, offset by pricing pressure on both ophthalmic and neurosurgical
      capital equipment. In June of 2007, the Company instituted a program to
      aggressively pursue cost savings. It has already had a reduction in force,
      implemented an incentive-based buyer’s program and gained additional control
      over its use of manufacturing supplies.





15




*Operating
      Expenses*





Research
      and development (“R&D”) as a percentage of net sales was 4.3 percent and 6.6
      percent for the first quarter of fiscal 2008 and 2007, respectively. R&D
      costs decreased to $449,000 in the first quarter of fiscal 2008 from $651,000
      in
      the same period in fiscal 2007, reflecting a decrease in costs associated with
      newly introduced products and a slight decrease in spending on active, new
      product projects focused on areas of strategic significance. Synergetics’
pipeline included approximately 85 active, major projects in various stages
      of
      completion as of October 29, 2007. The Company has strategically targeted
      R&D spending as a percentage of net sales to be consistent with what
      management believes to be an average range for the industry. The Company expects
      over the next few years to invest in R&D at a rate of approximately 4% to 6%
      of net sales.





Selling,
      general and administrative expenses (“SG&A”) increased by $354,000 to
      approximately $5.3 million during the first quarter of fiscal 2008 compared
      to
      approximately $4.9 million during the first quarter of fiscal 2007. The
      percentage of SG&A to net sales increased from 49.8 percent for the first
      quarter of fiscal 2007 to 50.5 percent for the first quarter of fiscal 2008.
      Selling expenses, which consist of salaries, commissions and direct expenses,
      the largest component of SG&A, increased approximately $800,000 to
      approximately $2.8 million, or 26.8 percent of net sales, for the first quarter
      of fiscal 2008, compared to $2.0 million, or 20.4 percent of net sales, for
      the
      first quarter of fiscal 2007. This increase was due to the mix of sales and
      additional direct selling cost associated with sales during the quarter. As
      sales to Codman and Stryker decreased and sales of the Company’s core products
      increased, it led to a significant increase in commissionable sales on a
      percentage basis. Commissionable sales increased from 77.9 percent of sales
      during the first quarter of fiscal 2007 to 88.5 percent in the first quarter
      of
      fiscal 2008. Selling headcount increased by 5.6 percent from October 29, 2006
      to
      October 29, 2007. General and administrative headcount increased approximately
      27.8 percent over that same timeframe primarily due to the addition of
      accounting and legal personnel to handle the growing volume of transactions
      and
      the Sarbanes-Oxley internal control requirements, which resulted in an increase
      in general salaries and benefits of approximately $66,000 in the first quarter
      of fiscal 2008, compared to the first quarter of fiscal 2007. The Company’s
      legal expenses decreased by $353,000 during the first quarter of fiscal 2008
      compared to the first quarter of fiscal 2007 as the cost associated with the
      Iridex lawsuit and subsequent settlement are no longer a significant factor.
      In
      addition, the Company also experienced a decrease of approximately $26,000
      in
      outside consulting costs on the Company’s Sarbanes-Oxley compliance efforts
      primarily due to the completion of documentation and testing of the former
      Valley Forge location in fiscal 2007 and the Company’s efforts to internalize a
      portion of the documentation procedures. As mentioned above, the Company has
      instituted a cost savings initiative in June of 2007 and SG&A costs are
      targeted as well.





*Other
      Expenses*





Other
      expenses for the first quarter of fiscal 2008 increased 53.2 percent to $239,000
      from $156,000 for the first quarter of fiscal 2007. The increase was due
      primarily to increased interest expense for the increased borrowings on the
      Company’s working capital line due to working capital needs and the interest on
      the settlement obligation with Iridex which amounted to approximately
      $64,000.





*Operating
      Income, Income Taxes and Net Income*





Operating
      income for the first quarter of fiscal 2008 was $785,000 as compared to $718,000
      in the comparable 2007 fiscal period. The increase in operating income was
      primarily the result of a slight decrease in gross profit margin on 5.7 percent
      more net sales, a decrease of $202,000 in research and development costs and
      an
      increase of $354,000 in SG&A expenses primarily related to an additional
      $800,000 in selling expense offset by a decrease of $353,000 in legal costs
      and
      $26,000 in Sarbanes-Oxley consulting costs.





The
      Company recorded a $149,000 provision on a pre-tax income of $546,000, a
      27.3 percent tax provision, compared to a 33.0 percent tax provision for the
      first fiscal quarter of 2007.





Net
      income increased by $20,000 to $397,000 for the first quarter of fiscal 2008,
      from $377,000 income for the same period in fiscal 2007. Basic and diluted
      earnings per share of $0.02 for the first quarter of fiscal 2008 remained flat
      for the first quarter of fiscal 2007. Basic weighted average shares outstanding
      increased from 24,210,680 to 24,296,309.





**Liquidity
      and Capital Resources**





The
      Company had $160,000 in cash and total interest-bearing debt and revenue bonds
      payable of $17.6 million as of October 29, 2007.





16




Working
      capital, including the management of inventory and accounts receivable, is
      a key
      management focus. At October 29, 2007, the Company had an average of 62 days
      of
      sales outstanding (“DSO”) for the three month period ending October 29, 2007,
      unfavorable to July 31, 2007 by five days. The Company utilized the three month
      period to calculate DSO as it included the current growth in sales. The
      collection time for non-U.S. receivables is generally longer than comparable
      U.S. receivables.





At
      October 29, 2007, the Company had 296 days sales in inventory on hand,
      unfavorable to July 31, 2007 by 21 days. The 296 days sales in
      inventory on hand at October 29, 2007 is high based on the Company’s
      anticipated levels of 250 to 275 days sales. In the first quarter of fiscal
      2008, the Company utilized a twelve month period to calculate days sales in
      inventory as first quarter being seasonally slow normally will have the lowest
      cost of goods sold, resulting in an overstated result. Using the prior method
      which would have used a three month reporting period, the days sales in
      inventory on hand would have been 342 days.





Cash
      flows provided by operating activities were $162,000 for the three months ended
      October 29, 2007, compared to cash flows used in operating activities of $1.0
      million for the comparable fiscal 2007 period. The increase in cash provided
      of
      $1.2 million was attributable to net usage decreases applicable to net
      receivables, inventories and accrued expenses of $2.6 million. Such decreases
      were somewhat offset by higher other current assets and accounts payable of
      approximately $1.7 million and other net working capital and other adjustment
      components of approximately $267,000 for the first three months of fiscal 2008.
      The Company has been utilizing cash from operations at a decreasing rate and
      expects this trend to continue.





Cash
      flows used in investing activities was $315,000 for the three months ended
      October 29, 2007, compared to cash used in investing activities of $133,000
      for
      the comparable fiscal 2007 period. During the three months ended October 29,
      2007, cash additions to property and equipment were $272,000, compared to
      $75,000 for the first three months of fiscal 2007. Increases in cash additions
      in fiscal 2008 to property and equipment were primarily to support the purchase
      of machinery and equipment for the newly leased R&D space adjacent to our
      current facility in O’Fallon, Missouri.





Cash
      flows provided by financing activities were $146,000 for the three months ended
      October 29, 2007, compared to cash provided by financing activities of $795,000
      for the three months ended October 29, 2006. The decrease of $649,000 was
      applicable primarily to the increase in the excess of outstanding checks over
      the bank balance of $242,000, the decrease in proceeds of long-term debt of
      $919,000 and the increase in principal payments on long-term debt of $205,000.
      These increases were offset by higher net borrowings on line-of-credit of
      $723,000.





The
      Company had the following committed financing arrangements as of October 29,
      2007:





*Revolving
      Credit Facility:* Under
      this credit facility, the Company may 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 October 29, 2007 were $6.5 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 October 29, 2007, the leverage ratio was
      3.14
      times and the fixed charge coverage ratio was 1.62 times. Availability under
      the
      line was approximately $2.0 million.





*Revolving
      Credit Facility* :
      Under
      this credit facility, the Company may 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 October 29, 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 October 29, 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 October 29, 2007. Outstanding amounts are secured
      by
      the purchased equipment. The equipment line of credit facility of
      $1.0 million was renewed during the quarter and expires on October 31,
      2008 and has availability of $790,000.




Management
      believes that cash flows from operations, together with available borrowings
      under its new credit facilities will be sufficient to meet the Company’s working
      capital, capital expenditure and debt service needs for the next twelve months.





17




**Critical
      Accounting Policies**





The
      Company’s significant accounting policies which require management’s judgment
      are disclosed in our Annual Report on Form 10-K for the year ended July 31,
      2007. In the first three months of fiscal 2008, there were no changes to the
      significant accounting policies. The Company did implement new accounting
      standards FIN No. 48, “Accounting for Uncertainty in Income Taxes” and EITF
      06-3 “ Accounting
      for Taxes Collected from Customers and Remitted to Governmental
      Authorities.”





**Item
      3 — Quantitative and Qualitative Disclosures about Market Risk**





The
      Company’s primary market risks include fluctuations in interest rates and
      exchange rate variability.





At
      October 29, 2007, the Company had two revolving credit facilities and an
      equipment line of credit facility in place. The Company’s revolving credit
      facilities had an outstanding balance of $6.5 million at October 29, 2007 and
      its equipment line of credit facility had an outstanding balance of $210,000
      at
      October 29, 2007. The equipment line of credit facility bears interest at the
      bank’s prime lending rate. The first revolving credit facility bears interest at
      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%. The
      second revolving credit facility bears interest at the bank’s prime lending
      rate. Interest expense from these credit facilities is subject to market risk
      in
      the form of fluctuations in interest rates and credit risk. Assuming the current
      levels of borrowings at variable rates and a two-percentage-point increase
      in
      the average interest rate on these borrowings, it is estimated that our interest
      expense would have increased by approximately $135,000. The Company does not
      perform any interest rate hedging activities related to these three
      facilities.





Additionally,
      the Company has exposure to foreign currency fluctuation through export sales
      to
      international accounts. Less than 5.0 percent of our sales revenue is
      denominated in foreign currencies, we estimate that a change in the relative
      strength of the U.S. dollar to foreign currencies would not have a material
      impact on the Company’s results of operations. The Company does not conduct any
      hedging activities related to foreign currency.





**Item
      4 — Controls and Procedures**





We
      have
      evaluated, under the supervision and with the participation of our management,
      including our Chief Executive Officer and Chief Financial Officer, the
      effectiveness of the Company’s disclosure controls and procedures as of October
      29, 2007. Based on this evaluation, our Chief Executive Officer and our Chief
      Financial Officer have concluded that the disclosure controls and procedures
      were effective at the reasonable assurance level as of October 29, 2007, to
      ensure that the information required to be disclosed by the Company in the
      reports that it files or submits under the Securities Exchange Act of 1934,
      as
      amended, (a) is recorded, processed, summarized and reported within the time
      period specified in the SEC’s rules and forms and (b) is accumulated and
      communicated to the Company’s management, including its principal executive and
      principal financial officers, as appropriate to allow timely decisions regarding
      required disclosure.





Internal
      control over financial reporting is a process designed to provide reasonable
      assurance regarding the reliability of financial reporting and preparation
      of
      financial statements for external purposes in accordance with generally accepted
      accounting principles. A material weakness is a deficiency in an internal
      control that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected. All internal controls systems, no matter how well-designed, have
      inherent limitations. Therefore, even those systems determined to be effective
      can provide only reasonable assurance with respect to financial statement
      preparation and presentation.





During
      the fiscal quarter ended October 29, 2007, there was no change in the Company’s
      internal control over financial reporting that has materially affected, or
      is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




18




**Part
      II — Other Information**





**Item
      1 — Legal Proceedings**





On
      February 11, 2004, Synergetics, the Company’s wholly-owned subsidiary,
      filed an action against two ex-employees, in which Synergetics alleged that
      the
      defendants, among other things, misappropriated trade secrets, intentionally
      interfered with Synergetics’ business relationships, and breached
      confidentiality contracts. Synergetics subsequently amended the complaint to
      add
      claims of fraud and breach of fiduciary duty. The suit was brought in the United
      States District Court, Eastern District of Missouri and was captioned
      Synergetics, Inc. v. Charles Richard Hurst, Jr. and Michael McGowan, Case
      No. 4:04-CV-318DDN. On August 10, 2005, defendants answered and filed
      counterclaims alleging tortious interference with business relationships and
      seeking a declaration that defendants had not misappropriated any confidential
      information or trade secrets of Synergetics. After the Court transferred
      defendants’ counterclaim for tortious interference to New Jersey (where it was
      subsequently dismissed by defendants), trial began on September 12, 2005,
      and on September 20, 2005 the jury returned a verdict in favor of
      Synergetics. On December 9, 2005, the Court, consistent with the jury’s
      findings, entered the judgment awarding Synergetics $1,759,165 in compensatory
      damages against defendants, and $293,194 in punitive damages against Hurst
      and
      $293,194 in punitive damages against McGowan. The Court also granted Synergetics
      certain injunctive relief against defendants and awarded costs from the
      litigation in the amount of $22,264. On January 9, 2006, defendants filed a
      notice of appeal and on February 5, 2007, the Eighth Circuit Court of
      Appeals rejected their contentions and affirmed the judgment in all respects.
      Synergetics has ongoing collection efforts against the defendants. On
      December 8, 2006, defendants moved to vacate the judgment, asserting that
      the judgment was obtained through the misconduct of witness tampering. On
      June 11, 2007, a multi-day hearing commenced on defendants’ motion to
      vacate. Subsequently, on August 21, 2007, the Court issued an order denying
      defendants’ motion, but awarding the defendants the sum of $1,172,767 as a
      sanction against Synergetics. The net effect of the ruling was to reduce by
      approximately one-half the amount of the original judgment against defendants.
      On September 17, 2007, defendants filed a Notice of Appeal from the Order
      denying their motion to vacate. Synergetics, on September 27, 2007,
      cross-appealed on the portion of the Order granting the sanction. Proceedings
      in
      the appeal are ongoing.





On
      January 10, 2006, Synergetics filed a suit in the United States District
      Court, Eastern District of Pennsylvania against Innovatech and Peregrine for
      infringement of U.S. Patent No. 6,984,230, and on April 25, 2006 the Court
      permitted Synergetics to amend its complaint to add Iridex as well. This suit
      is
      captioned Synergetics, Inc. v. Peregrine Surgical, Ltd., *et
      al* .,
      Case
      No. 2:06-cv-00107. In April 2007, Synergetics reached a settlement
      that resulted in dismissal of all of the defendants except Innovatech. The
      remaining defendant, Innovatech, has denied the allegations and asserted a
      variety of affirmative defenses and counterclaims. Among the counterclaims,
      Innovatech has alleged violations of the Lanham Act, 15 U.S.C. Section 1125
      and violation of the Sherman Act, 15 U.S.C. Sections 1 and 2, by
      Synergetics and the Company. On September 9, 2007, Innovatech moved to
      dismiss its counterclaim without prejudice. Synergetics responded on September
      24, 2007 and contemporaneously moved to amend its complaint to dismiss the
      infringement claims but assert new declaratory judgment claims corresponding
      to
      those Innovatech sought to dismiss. Synergetics explained that to the extent
      its
      motion is granted, it did not oppose Innovatech’s motion to dismiss. However,
      Synergetics did not agree to Innovatech’s dismissal of its counterclaims without
      prejudice, which would allow Innovatech to refile the claims anew at a place
      and
      time of its choosing. The Court’s decision on the respective motions is pending.





In
      addition, from time to time we may become subject to litigation claims that
      may
      greatly exceed our liability insurance limits. An adverse outcome of such
      litigation may adversely impact our financial condition, results of operations
      or liquidity. We record a liability when a loss is known or considered probable
      and the amount can be reasonably estimated. If a loss is not probable, a
      liability is not recorded. As of October 29, 2007, the Company has no litigation
      reserve recorded.





**Item
      1A — Risk Factors**





The
      Company’s business is subject to certain risks and events that, if they occur,
      could adversely affect our financial condition and results of operations and
      the
      trading price of our common stock. For a discussion of these risks, please
      refer
      to the “Risk Factors” section of the Company’s Annual Report of Form 10-K for
      the fiscal year ended July 31, 2007. In connection with its preparation of
      this
      quarterly report, management has reviewed and considered these risk factors
      and
      has determined that, except as otherwise disclosed in this Item 1A, there have
      been no material changes to the Company’s risk factors since the date of filing
      the Annual Report.





**Item
      2 — Unregistered Sales of Equity Securities and Use of
      Proceeds**





None





**Item
      3 — Defaults upon Senior Securities**





None





**Item
      4 — Submission of Matters to a Vote of Security Holders**





None





**Item
      5 — Other Information**





There
      have been no material changes to the procedures by which security holders may
      recommend nominees to the Company’s Board of Directors since the filing of the
      Company’s annual report on Form 10-K for the fiscal year ended July 31,
      2007.





19





**Item
      6 — Exhibits**





**Exhibit No.**
            
            **Description**10.1
            
            Letter
                Agreement by and between Synergetics USA, Inc. and Dave Dallam dated
                November 8, 2007.31.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2
            
            Certification
                of the Chief Financial Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.





**Trademark
      Acknowledgements**





Malis,
      Omni and Bident are our registered trademarks. Synergetics, Photon, DualWave,
      COAG, Advantage, Burst, Microserrated, Microfiber, Solution, TruMicro, DDMS,
      Krypotonite, Diamond Black, Bullseye, Claw, Micro Claw, Open Angle Micro Claw,
      One-Step, Barracuda, Pineapple, Axcess, Flexx, Veritas, Vivid and Bi-Safe
      product names are our trademarks. All other trademarks or tradenames appearing
      in the Form 10-Q are the property of their respective owners.




20


SIGNATURES





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.





SYNERGETICS
                USA, INC.(Registrant)December
                10, 2007
            /s/
                Gregg D. SchellerGregg
                D. Scheller, President and ChiefExecutive
                Officer (Principal ExecutiveOfficer)December
                10, 2007
            /s/
                Pamela G. BoonePamela
                G. Boone, Executive VicePresident,
                Chief Financial Officer, Secretaryand
                Treasurer (Principal Financial andPrincipal
                Accounting Officer)





21