##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended January 31, 2011
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM _______________ TO _______________
 Commission file number 001-10382
 SYNERGETICS USA, INC.
  Delaware
    
    20-5715943(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 3845 Corporate Centre Drive 
OFallon, Missouri
    
    63368(Address of principal executive offices)
    
    (Zip Code)
  (Registrants Telephone Number, Including Area Code)
 þ o
 o o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company þ(Do not check if smaller reporting company)
 o þ




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##### 



PagePART I Financial Information
    
    
    3Item 1. Unaudited Condensed Consolidated Financial Statements
    
    
    3Balance Sheets as of January 31, 2011 and July 31, 2010
    
    
    3Statements of Income for the three and six months ended
January 31, 2011 and 2010
    
    
    4Statements of Cash Flows for the three and six months ended
January 31, 2011 and 2010
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30PART II Other Information
    
    
    31Item 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. [Removed and Reserved]
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    32Trademark Acknowledgements
    
    
    32Signatures
    
    
    33Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



Part I  Financial Information
 
 Item 1  Unaudited Condensed Consolidated Financial Statements  Synergetics USA, Inc. and Subsidiaries
 
 Condensed Consolidated Balance Sheets  As of January 31, 2011 (Unaudited) and July 31, 2010  (Dollars in thousands, except share data)
 January 31, 2011
    
    
    July 31, 2010AssetsCurrent AssetsCash and cash equivalents
    
    $
    17,919
    
    
    $
    18,669Accounts receivable, net of allowance for
doubtful accounts of $267 and $282,
respectively
    
    
    8,948
    
    
    
    9,056Inventories
    
    
    13,940
    
    
    
    11,891Prepaid expenses
    
    
    955
    
    
    
    792Income taxes refundable
    
    
    422
    
    
    
    Deferred income taxes
    
    
    696
    
    
    
    658Total current assets
    
    
    42,880
    
    
    
    41,066Property and equipment, net
    
    
    8,608
    
    
    
    8,044Intangible and other assetsGoodwill
    
    
    10,690
    
    
    
    10,690Other intangible assets, net
    
    
    12,051
    
    
    
    12,353Patents, net
    
    
    969
    
    
    
    870Cash value of life insurance
    
    
    72
    
    
    
    72Total assets
    
    $
    75,270
    
    
    $
    73,095Liabilities and stockholders equityCurrent LiabilitiesCurrent maturities of long-term debt
    
    $
    1,416
    
    
    $
    1,398Current maturities of revenue bonds payable
    
    
    116
    
    
    
    116Accounts payable
    
    
    1,946
    
    
    
    1,800Accrued expenses
    
    
    2,277
    
    
    
    2,624Income taxes payable
    
    
    
    
    
    
    11Deferred revenue
    
    
    400
    
    
    
    400Total current liabilities
    
    
    6,155
    
    
    
    6,349Long-Term LiabilitiesLong-term debt, less current maturities
    
    
    627
    
    
    
    939Revenue bonds payable, less current maturities
    
    
    1,553
    
    
    
    1,612Deferred revenue
    
    
    18,935
    
    
    
    18,630Deferred income taxes
    
    
    1,379
    
    
    
    1,339Total long-term liabilities
    
    
    22,494
    
    
    
    22,520Total liabilities
    
    
    28,649
    
    
    
    28,869Commitments and contingencies (Note 8)Stockholders EquityCommon stock at January 31, 2011 and July 31,
2010, $0.001 par value, 50,000,000 shares
authorized; 24,968,301 and 24,772,155 shares
issued and outstanding, respectively
    
    
    25
    
    
    
    25Additional paid-in capital
    
    
    25,315
    
    
    
    24,905Retained earnings
    
    
    21,272
    
    
    
    19,319Accumulated other comprehensive income (loss):Foreign currency translation adjustment
    
    
    9
    
    
    
    (23
    )Total stockholders equity
    
    
    46,621
    
    
    
    44,226Total liabilities and stockholders equity
    
    $
    75,270
    
    
    $
    73,095
  3




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##### Table of Contents



Synergetics USA, Inc. and Subsidiaries
 
 Consolidated Statements of Income  Three and Six Months Ended January 31, 2011 and 2010  (Dollars in thousands, except share and per share data)
 Three Months Ended
    
    
    Three Months Ended
    
    
    Six Months Ended
    
    
    Six Months EndedJanuary 31, 2011
    
    
    January 31, 2010
    
    
    January 31, 2011
    
    
    January 31, 2010Net sales
    
    $
    13,278
    
    
    $
    13,014
    
    
    $
    25,354
    
    
    $
    25,160Cost of sales
    
    
    5,544
    
    
    
    5,599
    
    
    
    10,598
    
    
    
    10,818Gross profit
    
    
    7,734
    
    
    
    7,415
    
    
    
    14,756
    
    
    
    14,342Operating expensesResearch and development
    
    
    986
    
    
    
    775
    
    
    
    1,705
    
    
    
    1,434Sales and marketing
    
    
    2,734
    
    
    
    3,045
    
    
    
    5,757
    
    
    
    6,304General and administrative
    
    
    2,176
    
    
    
    2,051
    
    
    
    4,427
    
    
    
    4,0815,896
    
    
    
    5,871
    
    
    
    11,889
    
    
    
    11,819Operating income
    
    
    1,838
    
    
    
    1,544
    
    
    
    2,867
    
    
    
    2,523Other income (expenses)Investment income
    
    
    28
    
    
    
    1
    
    
    
    60
    
    
    
    2Interest expense
    
    
    (65
    )
    
    
    (131
    )
    
    
    (145
    )
    
    
    (300
    )Loss on sale of product line
    
    
    (99
    )
    
    
    (38
    )
    
    
    (99
    )
    
    
    (76
    )Miscellaneous
    
    
    (4
    )
    
    
    
    
    
    
    (11
    )
    
    
    28(140
    )
    
    
    (168
    )
    
    
    (195
    )
    
    
    (346
    )Income before provision
for income taxes
    
    
    1,698
    
    
    
    1,376
    
    
    
    2,672
    
    
    
    2,177Provision for income taxes
    
    
    378
    
    
    
    499
    
    
    
    719
    
    
    
    758Net income
    
    $
    1,320
    
    
    $
    877
    
    
    $
    1,953
    
    
    $
    1,419Earnings per share:Basic
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.06Diluted
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.06Basic weighted average common shares
outstanding
    
    
    24,937,463
    
    
    
    24,584,393
    
    
    
    24,860,188
    
    
    
    24,521,241Diluted weighted average common shares
outstanding
    
    
    25,074,230
    
    
    
    24,614,628
    
    
    
    24,977,399
    
    
    
    24,554,522
  4




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Synergetics USA Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows  Six Months Ended January 31, 2011 and 2010  (Dollars in thousands, except share data)
 Six Months Ended
    
    
    Six Months EndedJanuary 31, 2011
    
    
    January 31, 2010Cash Flows from Operating ActivitiesNet income
    
    $
    1,953
    
    
    $
    1,419Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation
    
    
    559
    
    
    
    522Amortization
    
    
    343
    
    
    
    445Provision for doubtful accounts receivable
    
    
    (16
    )
    
    
    (53
    )Stock-based compensation
    
    
    161
    
    
    
    147Deferred income taxes
    
    
    2
    
    
    
    (210
    )Loss on sale of product line
    
    
    99
    
    
    
    76(Gain) loss on sale of equipment
    
    
    50
    
    
    
    (15
    )Changes in assets and liabilities(Increase) decrease in:Accounts receivable
    
    
    66
    
    
    
    360Inventories
    
    
    (2,031
    )
    
    
    607Prepaid expenses
    
    
    (158
    )
    
    
    (245
    )Income taxes refundable
    
    
    (422
    )
    
    
    (Decrease) increase in:Accounts payable
    
    
    143
    
    
    
    (76
    )Accrued expenses
    
    
    (361
    )
    
    
    (423
    )Deferred revenue
    
    
    305
    
    
    
    Income taxes payable
    
    
    (11
    )
    
    
    (11
    )Net cash provided by operating activities
    
    
    682
    
    
    
    2,543Cash Flows from Investing ActivitiesProceeds from the sale of equipment
    
    
    11
    
    
    
    15Purchase of property and equipment
    
    
    (1,185
    )
    
    
    (281
    )Acquisition of patents and other intangibles
    
    
    (140
    )
    
    
    (75
    )Net cash used in investing activities
    
    
    (1,314
    )
    
    
    (341
    )Cash Flows from Financing ActivitiesExcess of outstanding checks over bank balance
    
    
    
    
    
    
    213Net borrowings (repayments) on lines-of-credit
    
    
    
    
    
    
    (1,472
    )Principal payments on revenue bonds payable
    
    
    (58
    )
    
    
    (246
    )Principal payments on long-term debt
    
    
    
    
    
    
    (113
    )Payment on debt incurred for acquisition of trademark
    
    
    (295
    )
    
    
    (278
    )Tax benefit associated with the exercise of non-qualified stock options
    
    
    97
    
    
    
    Proceeds from the issuance of common stock
    
    
    152
    
    
    
    12Net cash used in financing activities
    
    
    (104
    )
    
    
    (1,884
    )Foreign exchange rate effect on cash and cash equivalents
    
    
    (14
    )
    
    
    Net (decrease) increase in cash and cash equivalents
    
    
    (750
    )
    
    
    318Cash and cash equivalentsBeginning
    
    
    18,669
    
    
    
    160Ending
    
    $
    17,919
    
    
    $
    478
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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 mission
 Basis of presentation:
 Note 2. Comprehensive Income
  Note 3. Summary of Significant Accounting Policies
 Deferred revenue:
 6




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Reclassifications:
  Subsequent Events:
 Note 4. Marketing Partner Agreements
  Codman
 ®
 ®
  Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded January
    
    Ended January
    
    Ended January
    
    Ended January31, 2011
    
    31, 2010
    
    31, 2011
    
    31, 2010Net Sales
    
    $
    2,434
    
    
    $
    1,588
    
    
    $
    4,540
    
    
    $
    2,473Percent
of net
sales
    
    
    18.3
    %
    
    
    12.2
    %
    
    
    17.9
    %
    
    
    9.8
    %
 Stryker Corporation (Stryker)
  7




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® ® ®
  Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded January
    
    Ended January
    
    Ended January
    
    Ended January31, 2011
    
    31, 2010
    
    31, 2011
    
    31, 2010Net Sales
    
    $
    1,997
    
    
    $
    670
    
    
    $
    3,357
    
    
    $
    1,259Percent of net sales
    
    
    15.0
    %
    
    
    5.1
    %
    
    
    13.2
    %
    
    
    5.0
    %
  Note 5. Stock-Based Compensation
 Stock Option Plans
  Weighted
    
    WeightedAverage
    
    Average FairShares
    
    Exercise Price
    
    ValueOptions outstanding beginning of period
    
    
    576,695
    
    
    $
    2.08
    
    
    $
    1.71For the period August 1, 2010 through
January 31, 2011Granted
    
    
    108,751
    
    
    $
    4.43
    
    
    $
    3.56Forfeited
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (116,417
    )
    
    $
    1.31
    
    
    $
    1.13Options outstanding, end of period
    
    
    569,029
    
    
    $
    2.69
    
    
    $
    2.18Options exercisable, end of period
    
    
    384,216
    
    
    $
    2.51
    
    
    $
    2.04
  8




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Expected average risk-free interest rate
    
    
    3.30
    %Expected average life (in years)
    
    
    10Expected volatility
    
    
    75.38
    %Expected dividend yield
    
    
    0.0
    %
    Restricted Stock Plans
  Weighted AverageGrant Date FairNumber of Shares
    
    ValueBalance as of July 31, 2010
    
    
    286,961
    
    
    $
    2.04Granted
    
    
    71,443
    
    
    $
    2.59Forfeited
    
    
    
    
    
    
    Balance as of January 31, 2011
    
    
    358,404
    
    
    $
    2.15
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##### Table of Contents



Note 6. Fair Value Information
    Note 7. Supplemental Balance Sheet Information
 Inventories:
 January 31, 2011
    
    
    July 31, 2010Raw material and component parts
    
    $
    6,550
    
    
    $
    5,225Work in progress
    
    
    2,524
    
    
    
    2,050Finished goods
    
    
    4,866
    
    
    
    4,616$
    13,940
    
    
    $
    11,891
 Property and Equipment:
 January 31, 2011
    
    
    July 31, 2010Land
    
    $
    730
    
    
    $
    730Building and improvements
    
    
    5,932
    
    
    
    5,929Machinery and equipment
    
    
    6,508
    
    
    
    6,136Furniture and fixtures
    
    
    719
    
    
    
    736Software
    
    
    363
    
    
    
    363Construction in progress
    
    
    774
    
    
    
    23215,026
    
    
    
    14,126Less accumulated depreciation
    
    
    6,418
    
    
    
    6,082$
    8,608
    
    
    $
    8,044
 10




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##### Table of Contents



Other Intangible Assets
 Gross Carrying
    
    
    AccumulatedValue
    
    
    Amortization
    
    
    NetJanuary 31, 2011Proprietary know-how
    
    $
    4,057
    
    
    $
    1,668
    
    
    $
    2,389Trademark
    
    
    5,923
    
    
    
    
    
    
    
    5,923Licensing agreement
    
    
    5,834
    
    
    
    2,095
    
    
    
    3,739Patents
    
    
    1,527
    
    
    
    558
    
    
    
    969$
    17,341
    
    
    $
    4,321
    
    
    $
    13,020July 31, 2010Proprietary know-how
    
    $
    4,057
    
    
    $
    1,544
    
    
    $
    2,513Trademark
    
    
    5,923
    
    
    
    
    
    
    
    5,923Licensing agreement
    
    
    5,834
    
    
    
    1,917
    
    
    
    3,917Patents
    
    
    1,387
    
    
    
    517
    
    
    
    870$
    17,201
    
    
    $
    3,978
    
    
    $
    13,223
   AmountFiscal Year 2011 (remaining 6 months)
    
    $
    293Fiscal Year 2012
    
    
    587Fiscal Year 2013
    
    
    587Fiscal Year 2014
    
    
    587Fiscal Year 2015
    
    
    587
  Pledged assets; short and long-term debt (excluding revenue bonds payable):
 Revolving Credit Facility:
  11




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##### Table of Contents



Non-U.S. Receivables Revolving Credit Facility:
 Equipment Line of Credit:
  January 31, 2011
    
    
    July 31, 2010Note 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 6.0 percent; remaining balance of $639,616 including the effects of
imputing interest, due December 2011,
collateralized by the
Malis® trademark
    
    $
    617
    
    
    $
    911Settlement obligation to Iridex
Corporation (Iridex), due in annual
installments of $800,000 which
includes interest at an imputed rate
of 8.0 percent; remaining balance of
$1,600,000 including the effects of
imputing interest, due April 15, 2012
    
    
    1,426
    
    
    
    1,426Total
    
    $
    2,043
    
    
    $
    2,337Less current maturities
    
    
    1,416
    
    
    
    1,398Long-term portion
    
    $
    627
    
    
    $
    939
 Note 8. Commitments and Contingencies
  12




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Note 9. Enterprise-wide Sales Information
  Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded January
    
    
    Ended January
    
    
    Ended January
    
    
    Ended January31, 2011
    
    
    31, 2010
    
    
    31, 2011
    
    
    31, 2010Net SalesOphthalmic
    
    $
    7,837
    
    
    $
    7,801
    
    
    $
    15,812
    
    
    $
    15,323Neurosurgery  Direct
    
    
    557
    
    
    
    2,829
    
    
    
    1,044
    
    
    
    5,729Marketing Partners
(Codman, Stryker)
    
    
    2,250
    
    
    
    462
    
    
    
    4,012
    
    
    
    462Total Neurosurgery
    
    
    2,807
    
    
    
    3,291
    
    
    
    5,056
    
    
    
    6,191OEM (Codman, Stryker, Iridex)
    
    
    2,611
    
    
    
    1,891
    
    
    
    4,448
    
    
    
    3,581Other
    
    
    23
    
    
    
    31
    
    
    
    38
    
    
    
    65Total
    
    $
    13,278
    
    
    $
    13,014
    
    
    $
    25,354
    
    
    $
    25,160Net SalesDomestic
    
    $
    9,484
    
    
    $
    8,751
    
    
    $
    17,954
    
    
    $
    17,240International
    
    
    3,794
    
    
    
    4,263
    
    
    
    7,400
    
    
    $
    7,920$
    13,278
    
    
    $
    13,014
    
    
    $
    25,354
    
    
    $
    25,160
 13




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Note 10. Recent Accounting Pronouncements
    14




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Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   Recent Developments
  ® ® ® ®
 ®
 15




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##### Table of Contents



Summary of Financial Information
  NET SALES BY CATEGORY
 Three Months EndedJanuary 31, 2011
    
    
    Mix
    
    
    January 31, 2010
    
    
    MixOphthalmology
    
    $
    7,837
    
    
    
    59.0
    %
    
    $
    7,801
    
    
    
    59.9
    %Direct Neurosurgery
    
    
    557
    
    
    
    4.2
    %
    
    
    2,829
    
    
    
    21.7
    %Marketing Partners (1)
    
    
    2,250
    
    
    
    16.9
    %
    
    
    462
    
    
    
    3.6
    %Total Neurosurgery
    
    
    2,807
    
    
    
    21.1
    %
    
    
    3,291
    
    
    
    25.3
    %Original Equipment
Manufacturers (OEM) (2)
    
    
    2,611
    
    
    
    19.7
    %
    
    
    1,891
    
    
    
    14.5
    %Other
    
    
    23
    
    
    
    0.2
    %
    
    
    31
    
    
    
    0.3
    %Total
    
    $
    13,278
    
    
    
    
    
    
    $
    13,014
 16




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##### Table of Contents



Six Months EndedJanuary 31, 2011
    
    
    Mix
    
    
    January 31, 2010
    
    
    MixOphthalmology
    
    $
    15,812
    
    
    
    62.4
    %
    
    $
    15,323
    
    
    
    60.9
    %Direct Neurosurgery
    
    
    1,044
    
    
    
    4.1
    %
    
    
    5,729
    
    
    
    22.8
    %Marketing Partners (1)
    
    
    4,012
    
    
    
    15.8
    %
    
    
    462
    
    
    
    1.8
    %Total Neurosurgery
    
    
    5,056
    
    
    
    19.9
    %
    
    
    6,191
    
    
    
    24.6
    %OEM
    
    
    4,448
    
    
    
    17.5
    %
    
    
    3,581
    
    
    
    14.2
    %Other
    
    
    38
    
    
    
    0.2
    %
    
    
    65
    
    
    
    0.3
    %Total
    
    $
    25,354
    
    
    
    
    
    
    $
    25,160
 
 (1)
    
    Marketing partners sales include disposable bipolar forceps, disposable ultrasonic
instrument tips and accessories which were previously sold by our direct neurosurgery
sales force and our distribution partners. These products have been transitioned to our
marketing partners.(2)
    
    Revenues from OEM represent sales of electrosurgical and pain control generators,
related accessories and certain laser probes to Stryker, Codman and Iridex. ® ®
 ® ®
 RESULTS OF OPERATIONS
(Dollars in Thousands)
 Three Months EndedIncreaseJanuary 31, 2011
    
    
    January 31, 2010
    
    
    (Decrease)Net Sales
    
    $
    13,278
    
    
    $
    13,014
    
    
    
    2.0
    %Gross Profit
    
    
    7,734
    
    
    
    7,415
    
    
    
    4.3
    %Gross Profit Margin %
    
    
    58.2
    %
    
    
    57.0
    %
    
    
    2.1
    %Commercial ExpensesSales and Marketing
    
    
    2,734
    
    
    
    3,045
    
    
    
    (10.2
    %)General and Administrative
    
    
    2,176
    
    
    
    2,051
    
    
    
    6.1
    %Research and Development
    
    
    986
    
    
    
    775
    
    
    
    27.2
    %Operating Income
    
    
    1,838
    
    
    
    1,544
    
    
    
    19.0
    %Operating Margin
    
    
    13.8
    %
    
    
    11.9
    %
    
    
    16.0
    %EBITDA (1)
    
    
    2,184
    
    
    
    1,994
    
    
    
    9.5
    %Net Income
    
    $
    1,320
    
    
    $
    877
    
    
    
    50.5
    %Earnings per share
    
    $
    0.05
    
    
    $
    0.04
    
    
    
    25.0
    %Return on equity (1)
    
    
    2.9
    %
    
    
    2.2
    %
    
    
    31.8
    %Return on assets (1)
    
    
    1.9
    %
    
    
    1.8
    %
    
    
    5.6
    %
 17




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##### Table of Contents



Six Months EndedIncreaseJanuary 31, 2011
    
    
    January 31, 2010
    
    
    (Decrease)Net Sales
    
    $
    25,354
    
    
    $
    25,160
    
    
    
    0.8
    %Gross Profit
    
    
    14,756
    
    
    
    14,342
    
    
    
    2.9
    %Gross Profit Margin %
    
    
    58.2
    %
    
    
    57.0
    %
    
    
    2.1
    %Commercial ExpensesSales and Marketing
    
    
    5,757
    
    
    
    6,304
    
    
    
    (8.7
    %)General and Administrative
    
    
    4,427
    
    
    
    4,081
    
    
    
    8.5
    %Research and Development
    
    
    1,705
    
    
    
    1,434
    
    
    
    18.9
    %Operating Income
    
    
    2,867
    
    
    
    2,523
    
    
    
    13.6
    %Operating Margin
    
    
    11.3
    %
    
    
    10.0
    %
    
    
    13.0
    %EBITDA (1)
    
    
    3,719
    
    
    
    3,444
    
    
    
    8.0
    %Net Income
    
    $
    1,953
    
    
    $
    1,419
    
    
    
    37.6
    %Earnings per share
    
    $
    0.08
    
    
    $
    0.06
    
    
    
    33.3
    %Return on equity (1)
    
    
    4.3
    %
    
    
    3.7
    %
    
    
    16.2
    %Return on assets (1)
    
    
    2.8
    %
    
    
    3.0
    %
    
    
    (6.7
    %)
 
 (1)
    
    EBITDA, return on equity and return on assets are not financial measures recognized by U.S.
GAAP. EBITDA is defined as income before net interest expense, income taxes, depreciation and
amortization. Return on equity is defined as net income divided by average equity. Return
on assets is defined as net income plus interest expense divided by average assets. See
disclosure following regarding the use of non-GAAP financial measures. 18




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##### Table of Contents



Three Months Ended
    
    
    Six Months Ended(Dollars in Thousands)
    
    
    (Dollars in Thousands)January 31, 2011
    
    
    January 31, 2010
    
    
    January 31, 2011
    
    
    January 31, 2010Net income
    
    $
    1,320
    
    
    $
    877
    
    
    $
    1,953
    
    
    $
    1,419Interest
    
    
    65
    
    
    
    131
    
    
    
    145
    
    
    
    300Income taxes
    
    
    378
    
    
    
    499
    
    
    
    719
    
    
    
    758Depreciation and amortization
    
    
    421
    
    
    
    487
    
    
    
    902
    
    
    
    967EBITDA
    
    $
    2,184
    
    
    $
    1,994
    
    
    $
    3,719
    
    
    $
    3,444Net income
    
    $
    1,320
    
    
    $
    877
    
    
    $
    1,953
    
    
    $
    1,419Average Equity:January 31, 2011
    

    $
    46,621
    
    
    
    
    
    

    $
    46,621October 31, 2010
    
    $
    45,167
    
    
    
    
    
    
    $
    45,167July 31, 2010
    
    
    
    
    
    
    
    
    

    $
    44,226January 31, 2010
    
    
    
    
    

    $
    39,708
    
    
    
    
    
    
    $
    39,708October 31, 2009
    
    
    
    
    

    $
    38,746
    
    
    
    
    
    
    $
    38,746July 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    38,130Average Equity
    
    $
    45,894
    
    
    $
    39,227
    
    
    $
    45,338
    
    
    $
    38,861Return on Equity
    
    
    2.9
    %
    
    
    2.2
    %
    
    
    4.3
    %
    
    
    3.7
    %Net Income
    
    $
    1,320
    
    
    $
    877
    
    
    $
    1,953
    
    
    $
    1,419Interest
    
    
    65
    
    
    
    131
    
    
    
    145
    
    
    
    300Net income + interestExpense
    
    $
    1,385
    
    
    $
    1,008
    
    
    $
    2,098
    
    
    $
    1,719Average Assets:January 31, 2011
    
    $
    75,270
    
    
    
    
    
    
    $
    75,270October 31, 2010
    
    $
    74,143
    
    
    
    
    
    
    $
    74,143July 31, 2010
    
    
    
    
    
    
    
    
    
    $
    73,095January 31, 2010
    
    
    
    
    

    $
    56,996
    
    
    
    
    
    
    $
    56,996October 31, 2009
    
    
    
    
    

    $
    56,737
    
    
    
    
    
    
    $
    56,737July 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    58,080Average Assets
    
    $
    74,707
    
    
    $
    56,867
    
    
    $
    74,169
    
    
    $
    57,271Return on Assets
    
    
    1.9
    %
    
    
    1.8
    %
    
    
    2.8
    %
    
    
    3.0
    %
     19




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##### Table of Contents



Three Months EndedJanuary 31, 2011
    
    
    January 31, 2010Ophthalmology
    
    
    59.0
    %
    
    
    59.9
    %Neurosurgery
    
    
    4.2
    %
    
    
    21.7
    %Marketing Partners
    
    
    16.9
    %
    
    
    3.6
    %OEM
    
    
    19.7
    %
    
    
    14.5
    %Other
    
    
    0.2
    %
    
    
    0.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Six Months EndedJanuary 31, 2011
    
    
    January 31, 2010Ophthalmology
    
    
    62.4
    %
    
    
    60.9
    %Neurosurgery
    
    
    4.1
    %
    
    
    22.8
    %Marketing Partners
    
    
    15.8
    %
    
    
    1.8
    %OEM
    
    
    17.5
    %
    
    
    14.2
    %Other
    
    
    0.2
    %
    
    
    0.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Our Business Strategy
  fiscal 2011 strategies
 Improve Profitability and Cash Efficiency through:
  Lean Manufacturing
 20




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Component Cost Savings
 Supply Chain Management
 Human Resource Rationalization
 Cash Management
 Accelerate Growth through:
 Research & Development (R&D) 
 21




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New Business Development 
 Assess Distribution Alternatives:
  Improve Sales Force Productivity:
  fiscal 2011 driving strategic priorities are
 
    
    To move the Company onto a higher growth trajectory. This means, simply, new
products, some in new categories. Our top four R&D projects will allow us access to
different categories within the vitreoretinal and intracranial markets to drive
organic growth, along with new business development opportunities that the Company is
aggressively pursuing. We believe that this focus will revitalize the Companys
compound annual growth rate.
    
    To continue to enhance the profitability of our operational platform by focusing
on our manufacturing efficiencies, including lean manufacturing and select
outsourcing of high quality components, and cost savings. In the second quarter of
fiscal 2011, we enhanced our operating margins from 11.9 percent to 13.8 percent when
compared to the second quarter of fiscal 2010.
 New Product Sales
  Demand Trends
 ®
 22




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Pricing Trends
  Economic Trends
  Results Overview
  Results of Operations
 Three-Month Period Ended January 31, 2011 Compared to Three-Month Period Ended January 31, 2010
 Net Sales
  Quarter Ended% IncreaseJanuary 31, 2011
    
    
    January 31, 2010
    
    
    (Decrease)Ophthalmic
    
    $
    7,837
    
    
    $
    7,801
    
    
    
    0.5
    %Direct Neurosurgery
    
    
    557
    
    
    
    2,829
    
    
    
    (80.3
    %)Marketing partners (Codman,
Stryker)
    
    
    2,250
    
    
    
    462
    
    
    
    *N/MTotal Neurosurgery
    
    
    2,807
    
    
    
    3,291
    
    
    
    (14.7
    %)OEM (Codman, Stryker, Iridex)
    
    
    2,611
    
    
    
    1,891
    
    
    
    38.1
    %Other
    
    
    23
    
    
    
    31
    
    
    
    (25.8
    %)Total
    
    $
    13,278
    
    
    $
    13,014
    
    
    
    2.0
    %
 
 *
    
    N/M  Not meaningful. 23




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® ®
  Three Months Ended% IncreaseJanuary 31, 2011
    
    
    January 31, 2010
    
    
    (Decrease)United States (including Marketing
Partner and OEM sales)
    
    $
    9,484
    
    
    $
    8,751
    
    
    
    8.4
    %International (including Canada)
    
    
    3,794
    
    
    
    4,263
    
    
    
    (11.0
    %)Total
    
    $
    13,278
    
    
    $
    13,014
    
    
    
    2.0
    %
  Gross Profit
  Operating Expenses
  24




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Other Income/(Expenses)
 ®
 Operating Income, Income Taxes and Net Income
    25




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Six-Month Period Ended January 31, 2011 Compared to Six-Month Period Ended January 31, 2010
 Net Sales
  Six Months Ended% IncreaseJanuary 31, 2011
    
    
    January 31, 2010
    
    
    (Decrease)Ophthalmic
    
    $
    15,812
    
    
    $
    15,323
    
    
    
    3.2
    %Direct Neurosurgery
    
    
    1,044
    
    
    
    5,729
    
    
    
    (81.8
    %)Marketing partners (Codman,
Stryker)
    
    
    4,012
    
    
    
    462
    
    
    
    *N/MTotal Neurosurgery
    
    
    5,056
    
    
    
    6,191
    
    
    
    (18.3
    %)OEM (Codman, Stryker, Iridex)
    
    
    4,448
    
    
    
    3,581
    
    
    
    24.2
    %Other
    
    
    38
    
    
    
    65
    
    
    
    (41.5
    %)Total
    
    $
    25,354
    
    
    $
    25,160
    
    
    
    0.8
    %
 
 *
    
    N/M  Not meaningful.  ® ®
  Six Months Ended% IncreaseJanuary 31, 2011
    
    
    January 31, 2010
    
    
    (Decrease)United States (including Marketing
Partner and OEM sales)
    
    $
    17,954
    
    
    $
    17,240
    
    
    
    4.1
    %International (including Canada)
    
    
    7,400
    
    
    
    7,920
    
    
    
    (6.6
    %)Total
    
    $
    25,354
    
    
    $
    25,160
    
    
    
    0.8
    %
  26




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Gross Profit
  Operating Expenses
    Other Income/(Expenses)
 ®
 Operating Income, Income Taxes and Net Income
   27




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Liquidity and Capital Resources
        Revolving Credit Facility:
 28




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Equipment Line of Credit:
   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, 2010.
 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 factors 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.
 29




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##### Table of Contents



Critical Accounting P olicies
  
 Item 3  Quantitative and Qualitative Disclosures about Market Risk
     
 Item 4  Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  30




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##### Table of Contents



Part II  Other Information
 
 Item 1  Legal Proceedings
  
 Item 1A  Risk Factors
  
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3  Defaults Upon Senior Securities
  
 Item 4  [Removed and Reserved]
 
 Item 5  Other Information
 (a)
    
    None.(b)
    
    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
Quarterly Report on Form 10-Q for the quarter ended October 31, 2010.
 31




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##### Table of Contents



Item 6  Exhibits
 Exhibit No.
    
    Description10.1
    
    Change in Control Agreement between Synergetics USA,
Inc. and Michael Fanning, effective as of August 1,
2010 (filed herewith).10.2
    
    Change of Control Agreement between Synergetics USA,
Inc. and Jason Stroisch, effective as of August 1, 2010
(filed herewith).10.3
    
    Eighth Amendment to Credit and Security Agreement by and
among Synergetics Inc. and Synergetics USA, Inc. as
Borrowers and Regions Bank as Lender, dated as of
November 30, 2010 (incorporated by reference to Exhibit
10.1 to the Registrants Current Report on Form 8-K
filed with the Commission on December 6, 2010).10.4
    
    Termination of Foreign Accounts Credit and Security
Agreement by and among Synergetics USA, Inc.,
Synergetics, Inc., Synergetics Germany, GmbH,
Synergetics Italia, Srl and Synergetics France SARL as
Borrowers and Regions Bank as Lender, dated as November
30, 2010 (incorporated by reference to Exhibit 10.2 to
the Registrants Current Report on Form 8-K filed with
the Commission on December 6, 2010).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
  32




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##### Table of Contents



SYNERGETICS USA, INC.
(Registrant)March 9, 2011
    /s/ David M. HableDavid M. Hable, President and ChiefExecutive Officer (Principal Executive
Officer)March 9, 2011
    /s/ Pamela G. BoonePamela G. Boone, Executive VicePresident, Chief Financial Officer, Secretary
and Treasurer (Principal Financial and
Principal Accounting Officer) 33