##### 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 April 30, 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.
  Delaware
    
    20-5715943(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)3845 Corporate Centre DriveOFallon, Missouri
    
    63368(Address of principal executive offices)
    
    (Zip Code)
  (Registrants Telephone Number, Including Area Code)
 þ o
  o þ o
 o þ




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##### 



PagePART I
    
    Financial InformationItem 1.
    
    Unaudited Condensed Consolidated Financial StatementsBalance Sheets  April 30, 2007 and July 31, 2006
    
    3Statements of Income for the three months and nine months ended April 30, 2007 and April 30, 2006
    
    4Statements of Cash Flows for the nine months ended April 30, 2007 and April 30, 2006
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    21Item 4.
    
    Controls and Procedures
    
    22PART II
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    22Item 1A.
    
    Risk Factors
    
    23Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    24Item 3.
    
    Defaults Upon Senior Securities
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    25Item 5.
    
    Other Information
    
    25Item 6.
    
    Exhibits
    
    25SignaturesCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  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 April 30, 2007 (Unaudited) and July 31, 2006
 (Dollars in thousands, except share data)
 April 30, 2007
    
    
    July 31, 2006AssetsCurrent AssetsCash and cash equivalents
    
    $
    217
    
    
    $
    557Investment in trading securities
    
    
    
    
    
    
    50Accounts receivable, net of allowance for
doubtful accounts of approximately $226 and
$179, respectively
    
    
    7,543
    
    
    
    6,807Notes receivable, officer-stockholder
    
    
    4
    
    
    
    20Income taxes receivable
    
    
    832
    
    
    
    513Inventories
    
    
    13,913
    
    
    
    13,243Prepaid expenses
    
    
    436
    
    
    
    422Deferred income taxes
    
    
    453
    
    
    
    296Other
    
    
    16
    
    
    
    Total current assets
    
    
    23,414
    
    
    
    21,908Property and equipment, net
    
    
    8,067
    
    
    
    8,497Goodwill
    
    
    10,660
    
    
    
    10,660Other intangible assets, net
    
    
    15,817
    
    
    
    10,463Deferred expenses
    
    
    274
    
    
    
    83Cash value of life insurance
    
    
    33
    
    
    
    32Total assets
    
    $
    58,265
    
    
    $
    51,643Liabilities and Stockholders EquityCurrent LiabilitiesLines-of-credit
    
    $
    6,957
    
    
    $
    3,330Current maturities of long-term debt
    
    
    2,158
    
    
    
    967Current maturities of revenue bonds payable
    
    
    249
    
    
    
    249Accounts payable
    
    
    1,535
    
    
    
    2,255Accrued expenses
    
    
    2,477
    
    
    
    2,503Deferred revenue
    
    
    
    
    
    
    6Total current liabilities
    
    
    13,376
    
    
    
    9,310Long-Term LiabilitiesLong-term debt, less current maturities
    
    
    2,125
    
    
    
    3,215Revenue bonds payable, less current maturities
    
    
    3,953
    
    
    
    4,140Settlement obligation
    
    
    3,194
    
    
    
    Deferred income taxes
    
    
    2,629
    
    
    
    2,663Deferred compensation
    
    
    
    
    
    
    10Total long-term liabilities
    
    
    11,901
    
    
    
    10,028Total liabilities
    
    
    25,277
    
    
    
    19,338Stockholders EquityCommon stock at April 30, 2007 and July 31, 2006,
$.001 par value, 50,000,000 shares authorized;
24,221,892 and 24,206,970 shares issued and
outstanding, respectively
    
    
    24
    
    
    
    24Additional paid-in capital
    
    
    24,015
    
    
    
    23,798Retained earnings
    
    
    8,949
    
    
    
    8,483Total stockholders equity
    
    
    32,988
    
    
    
    32,305Total liabilities and stockholders equity
    
    $
    58,265
    
    
    $
    51,643
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##### Table of Contents



Synergetics USA, Inc. and Subsidiaries
 
 Unaudited Condensed Consolidated Statements of Income
 Three and Nine Months Ended April 30, 2007 and April 30, 2006
 (Dollars in thousands, except per share information)
 Three Months Ended
    
    
    Three Months Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedApril 30, 2007
    
    
    April 30, 2006
    
    
    April 30, 2007
    
    
    April 30, 2006Sales
    
    $
    11,482
    
    
    $
    10,450
    
    
    $
    32,741
    
    
    $
    27,465Cost of sales
    
    
    4,937
    
    
    
    3,612
    
    
    
    13,372
    
    
    
    9,654Gross profit
    
    
    6,545
    
    
    
    6,838
    
    
    
    19,369
    
    
    
    17,811Operating expensesResearch and development
    
    
    548
    
    
    
    444
    
    
    
    1,979
    
    
    
    1,138Selling, general and administrative
    
    
    6,044
    
    
    
    4,469
    
    
    
    16,537
    
    
    
    12,5326,592
    
    
    
    4,913
    
    
    
    18,516
    
    
    
    13,670Operating income
    
    
    (47
    )
    
    
    1,925
    
    
    
    853
    
    
    
    4,141Other income (expense)Interest income
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    18Interest expense
    
    
    (226
    )
    
    
    (157
    )
    
    
    (635
    )
    
    
    (354
    )Miscellaneous
    
    
    (2
    )
    
    
    (35
    )
    
    
    7
    
    
    
    (36
    )(228
    )
    
    
    (192
    )
    
    
    (627
    )
    
    
    (372
    )Income before provision for income taxes
    
    
    (275
    )
    
    
    1,733
    
    
    
    226
    
    
    
    3,769Provision for income taxes
    
    
    (143
    )
    
    
    612
    
    
    
    66
    
    
    
    1,304Provision for re-enactment of the research and
experimentation credit
    
    
    (40
    )
    
    
    
    
    
    
    (306
    )
    
    
    (183
    )
    
    
    612
    
    
    
    (240
    )
    
    
    1,304Net income
    
    $
    (92
    )
    
    $
    1,121
    
    
    $
    466
    
    
    $
    2,465Earnings per share:Basic
    
    $
    0.00
    
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    0.13Diluted
    
    $
    0.00
    
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    0.13Basic weighted average common shares outstanding
    
    
    24,219,507
    
    
    
    24,090,511
    
    
    
    24,214,831
    
    
    
    19,469,352Diluted weighted average common shares
outstanding
    
    
    24,423,364
    
    
    
    24,326,847
    
    
    
    24,423,547
    
    
    
    19,678,767
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Synergetics USA, Inc. and Subsidiaries
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 Nine Months Ended April 30, 2007 and April 30, 2006
 (Dollars in thousands)
 Nine Months Ended
    
    
    Nine Months EndedApril 30, 2007
    
    
    April 30, 2006Cash Flows from Operating ActivitiesNet income
    
    $
    466
    
    
    $
    2,465Adjustments to reconcile net income to net cash used in operating activitiesDepreciation and amortization
    
    
    1,123
    
    
    
    912Provision for doubtful accounts receivable
    
    
    78
    
    
    
    (8
    )Stock-based compensation
    
    
    217
    
    
    
    453Tax benefit associated with the exercise of non-qualified options
    
    
    
    
    
    
    168Deferred income taxes
    
    
    (191
    )
    
    
    90Change in assets and liabilities, net of fiscal year 2006 acquisition of Valley Forge:(Increase) decrease in:Receivables, net
    
    
    (815
    )
    
    
    (2,031
    )Inventories
    
    
    (670
    )
    
    
    (3,877
    )Prepaid expenses
    
    
    (14
    )
    
    
    (290
    )Other current assets
    
    
    (333
    )
    
    
    (27
    )(Decrease) increase in:Accounts payable
    
    
    (721
    )
    
    
    328Accrued expenses and other liabilities
    
    
    (43
    )
    
    
    308Income taxes payable
    
    
    
    
    
    
    147Net cash used in operating activities
    
    
    (903
    )
    
    
    (1,362
    )Cash Flows from Investing ActivitiesNet decrease in notes receivable, officer-stockholder
    
    
    16
    
    
    
    11Purchase of property and equipment
    
    
    (230
    )
    
    
    (2,528
    )Acquisition of patents and other intangibles
    
    
    (2,815
    )
    
    
    (134
    )Cash paid for reverse merger costs
    
    
    
    
    
    
    (494
    )Cash acquired through reverse merger
    
    
    
    
    
    
    2,024Sales of trading securities
    
    
    50
    
    
    
    (16
    )Net cash used in investing activities
    
    
    (2,979
    )
    
    
    (1,137
    )Cash Flows from Financing ActivitiesNet borrowings on lines-of-credit
    
    
    3,627
    
    
    
    1,067Principal payments on revenue bonds payable
    
    
    (186
    )
    
    
    (186
    )Proceeds from long-term debt
    
    
    1,129
    
    
    
    1,427Principal payments on long-term debt
    
    
    (677
    )
    
    
    (1,038
    )Payments on debt incurred for acquisition of trademark
    
    
    (351
    )
    
    
    (382
    )Proceeds from the exercise of stock options
    
    
    
    
    
    
    296Net cash provided by financing activities
    
    
    3,542
    
    
    
    1,184Net decrease in cash and cash equivalents
    
    
    (340
    )
    
    
    (1,315
    )Cash and cash equivalentsBeginning
    
    
    557
    
    
    
    1,817Ending
    
    $
    217
    
    
    $
    502Supplemental Non-Cash Investing and Financing Activities:Licensed
intangible assets financed by settlement obligations
    
    $
    3,194
    
    
    $
    
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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:
 Reporting period:
 Basis of presentation:
 Note 2. Summary of Significant Accounting Policies
  Reclassifications
 Segment information
 ® TM
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##### Table of Contents



Accounting for Settlement Agreement
 Note 3. Reverse Merger
  Assets:Cash, net of merger expenses of $892
    
    $
    1,132Accounts receivable
    
    
    703Inventories
    
    
    926Prepaid expenses and other current assets
    
    
    574Property and equipment
    
    
    324Other intangibles
    
    
    10,183Goodwill
    
    
    10,660Liabilities assumed:Accounts payable and accrued expenses
    
    
    (510
    )Income taxes payable
    
    
    (36
    )Note payable issued in connection with Malis® trademark
    
    
    (3,473
    )Deferred income taxes
    
    
    (2,496
    )Net assets acquired
    
    $
    17,987
   Nine MonthsEndedApril 30, 2006Net sales
    
    $
    28,337Net income
    
    
    2,324Basic earnings per share
    
    
    0.12Diluted earnings per share
    
    
    0.12
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Note 4. Distribution Agreements
  Codman and Shurtleff, Inc. (Codman)
 ®
  Note 5. Stock-Based Compensation
 Stock Option Plans
  Nine Months Ended April 30, 2007Weighted-Average
    
    
    Weighted-Exercise
    
    
    AverageShares
    
    
    Price
    
    
    Fair ValueOptions outstanding, beginning of period
    
    
    416,750
    
    
    $
    1.98
    
    
    $
    1.64For the period from August 1, 2006 through April 30, 2007:Granted
    
    
    55,000
    
    
    $
    3.72
    
    
    $
    2.98Forfeited
    
    
    (4,590
    )
    
    $
    (1.09
    )
    
    $
    (0.91
    )Exercised
    
    
    
    
    
    $
    
    
    
    $
    Options outstanding, end of period
    
    
    467,160
    
    
    $
    2.08
    
    
    $
    1.71Options exercisable, end of period
    
    
    400,625
    
    
    $
    2.29
    
    
    $
    1.88
  Expected average risk-free interest rate
    
    
    4.0
    %Expected average life (in years)
    
    
    10Expected volatility
    
    
    71.5
    %Expected dividend yield
    
    
    0
    %
  Restricted Stock Plans
  8




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##### Table of Contents



Note 6. Supplemental Balance Sheet Information
 Inventories (Dollars in thousands)
 April 30,
    
    
    July 31,2007
    
    
    2006Raw material and component parts
    
    $
    6,527
    
    
    $
    5,614Work-in-progress
    
    
    2,577
    
    
    
    2,493Finished goods
    
    
    4,809
    
    
    
    5,136$
    13,913
    
    
    $
    13,243
 Property and equipment (Dollars in thousands)
 April 30,
    
    
    July 31,2007
    
    
    2006Land
    
    $
    730
    
    
    $
    730Building and improvements
    
    
    5,427
    
    
    
    5,340Machinery and equipment
    
    
    4,233
    
    
    
    4,196Furniture and fixtures
    
    
    609
    
    
    
    546Software
    
    
    114
    
    
    
    105Construction in process
    
    
    48
    
    
    
    11,161
    
    
    
    10,917Less accumulated depreciation
    
    
    3,094
    
    
    
    2,420$
    8,067
    
    
    $
    8,497
 Other intangible assets (Dollars in thousands)
  GrossCarrying
    
    
    AccumulatedValue
    
    
    Amortization
    
    
    NetApril 30, 2007Patents
    
    $
    1,013
    
    
    $
    225
    
    
    $
    788Proprietary know-how
    
    
    4,057
    
    
    
    640
    
    
    
    3,417Licensing agreements
    
    
    5,834
    
    
    
    145
    
    
    
    5,689Trademark
    
    
    5,923
    
    
    
    
    
    
    
    5,923$
    16,827
    
    
    $
    1,010
    
    
    $
    15,817
 July 31, 2006Patents
    
    $
    915
    
    
    $
    184
    
    
    $
    731Proprietary know-how
    
    
    4,057
    
    
    
    337
    
    
    
    3,720Licensing agreements
    
    
    140
    
    
    
    51
    
    
    
    89Trademark
    
    
    5,923
    
    
    
    
    
    
    
    5,923$
    11,035
    
    
    $
    572
    
    
    $
    10,463
  9




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##### Table of Contents



Periods Ending July 31:
    
    AmountFourth quarter of fiscal 2007
    
    $
    338Fiscal Year 2008
    
    
    916Fiscal Year 2009
    
    
    890Fiscal Year 2010
    
    
    862Fiscal Year 2011
    
    
    614
  Pledged assets; short and long-term debt (excluding revenue bonds payable)
  Revolving Credit Facilities:
 Equipment Line of Credit:
  April 30,
    
    
    July 31,2007
    
    
    2006Note payable to bank, due in monthly
principal installments of $1,139 plus interest
at prime rate plus 1% (an effective rate of
8.25% as of January 30, 2007), remaining balance
due September 2007, collateralized by a second
deed of trust
    
    $
    155
    
    
    $
    165Note payable, due in monthly installments of
$509, including interest at 4.9%, remaining
balance due May 2008, collateralized by a
vehicle
    
    
    4
    
    
    
    9Note payable to bank, due in monthly principal
installments of $39,642 beginning November 2005
plus interest at a rate of 6.75%, remaining
balance due September 30, 2008, collateralized
by substantially all assets of the Company
    
    
    674
    
    
    
    1,031Note 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
    
    
    823
    
    
    
    Note payable to the estate of the late Dr.
Leonard I. Malis, due in quarterly installments
of $159,904 which includes interest at an
imputed rate of 6.00%, remaining balance of
$3,038,176, including contractual interest
payments, due December 2011, collateralized by
the Malis® trademark
    
    
    2,627
    
    
    
    2,9774,283
    
    
    
    4,182Less current maturities
    
    
    2,158
    
    
    
    967Long-term portion
    
    $
    2,125
    
    
    $
    3,215
 10




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##### Table of Contents



Note 7. Related Party Transactions
  Note 8. Commitments and Contingencies
      11




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##### Table of Contents



Note 9. Segment Information
  SynergeticsSynergetics
    
    East
    
    ConsolidatedThree Months Ended April 30, 2007Net sales
    
    $
    9,596
    
    
    $
    1,886
    
    
    $
    11,482Operating income
    
    
    (500
    )
    
    
    453
    
    
    
    (47
    )Identifiable assets
    
    
    39,435
    
    
    
    18,830
    
    
    
    58,265
 Three Months Ended April 30, 2006Net sales
    
    $
    7,810
    
    
    $
    2,640
    
    
    $
    10,450Operating income
    
    
    940
    
    
    
    985
    
    
    
    1,925Identifiable assets
    
    
    25,149
    
    
    
    24,063
    
    
    
    49,212
 SynergeticsSynergetics
    
    East
    
    ConsolidatedNine Months Ended April 30, 2007Net sales
    
    $
    27,444
    
    
    $
    5,298
    
    
    $
    32,741Operating income
    
    
    (186
    )
    
    
    1,039
    
    
    
    853Identifiable assets
    
    
    39,435
    
    
    
    18,830
    
    
    
    58,265
 Nine Months Ended April 30, 2006Net sales
    
    $
    21,865
    
    
    $
    5,600
    *
    
    $
    27,465Operating income
    
    
    2,494
    
    
    
    1,647
    *
    
    
    4,141Identifiable assets
    
    
    25,149
    
    
    
    24,063
    *
    
    
    49,212
 
 *
    
    For the period September 22, 2005 through April 30, 2006 12




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Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
  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, 2006.
 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
    13




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® ® TM
  TM TM
  ® ® ® ® ® ® ®
  New Product Sales
  14




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##### Table of Contents



Growth in Minimally Invasive Surgery Procedures
 TM ® TM
 Demand Trends
  Pricing Trends
   Results Overview
  Our Business Strategy
  
    
    Introducing new technology that can be easily differentiated from our competition;
    
    Identifying microsurgical niches that may offer the prospect for substantial growth and higher profit margins;
 15




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##### Table of Contents




    
    Accelerating our international (including Canada) growth;
    
    Utilizing the breadth and depth of knowledge, experience and resources in our research and development department;
    
    Branding and marketing a substantial portion of our neurosurgical products with the Malis® trademark;
    
    Continuing to develop our distribution channels including the expansion of its domestic
ophthalmic sales force and development of an international direct ophthalmic sales force;
    
    Continuing to grow our disposables revenue stream;
    
    Introducing the Malis® AdvantageTM, the newest multifunctional bipolar electrosurgical generator, into neurosurgery;
    
    Expanding the Malis® AdvantageTM, into other surgical markets;
    
    Expanding the use of the Omni®, our ultrasonic aspirator, into other surgical
markets, such as spinal surgery and the ENT markets; and
    
    Exploring opportunities for growth through strategic partnering with other companies, such as
our current relationships with Codman & Shurtleff, Inc. (Codman), an affiliate of Johnson &
Johnson, Stryker Corporation (Stryker), Quantel Medical of France (Quantel) and Volk
Optical, Inc. (Volk).
 Results of Operations
 Three Month Period Ended April 30, 2007 Compared to Three Month Period Ended April 30, 2006
 Net Sales
  Quarter Ended April 30,2007
    
    
    2006
    
    
    % IncreaseOphthalmic
    
    $
    6,594
    
    
    $
    5,959
    
    
    
    10.7
    %Neurosurgery
    
    
    3,913
    
    
    
    3,651
    
    
    
    7.2
    %Other
    
    
    975
    
    
    
    840
    
    
    
    16.1
    %Total
    
    $
    11,482
    
    
    $
    10,450
    
    
    
    9.9
    %
  ® ® TM
 ®
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##### Table of Contents



Quarter Ended April 30,2007
    
    
    2006
    
    
    % IncreaseUnited States
    
    $
    8,360
    
    
    $
    8,244
    
    
    
    1.4
    %International (including Canada)
    
    
    3,122
    
    
    
    2,206
    
    
    
    41.5
    %$
    11,482
    
    
    $
    10,450
    
    
    
    9.9
    %
 ® ® TM ®
 Gross Profit
  Operating Expenses
   Other Expenses
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Operating Income, Income Taxes and Net Income
    Nine Month Period Ended April 30, 2007 Compared to Nine Month Period Ended April 30, 2006
  Net Sales
  Nine Months Ended April 30,2007
    
    
    2006
    
    
    % IncreaseOphthalmic
    
    $
    17,823
    
    
    $
    17,135
    
    
    
    4.0
    %Neurosurgery
    
    
    12,021
    
    
    
    8,248
    
    
    
    45.7
    %Other
    
    
    2,897
    
    
    
    2,082
    
    
    
    39.1
    %Total
    
    $
    32,741
    
    
    $
    27,465
    
    
    
    19.2
    %
  ® ® TM
 ®
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Nine Months Ended April 30,2007
    
    
    2006
    
    
    % IncreaseUnited States
    
    $
    25,253
    
    
    $
    21,619
    
    
    
    16.8
    %International (including Canada)
    
    
    7,488
    
    
    
    5,846
    
    
    
    28.1
    %$
    32,741
    
    
    $
    27,465
    
    
    
    19.2
    %
 ® TM ®
 Gross Profit
  Operating Expenses
   Other Expenses
  19




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Operating Income, Income Taxes and Net Income
    Liquidity and Capital Resources
      20




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®
   Revolving Credit Facility:
 Equipment Line of Credit:
   Critical Accounting Policies
  
 Item 3  Quantitative and Qualitative Disclosures about Market Risk
   21




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Item 4  Controls and Procedures
    
 Part II  Other Information
 
 Item 1  Legal Proceedings
   22




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##### Table of Contents



et al inter alia,
   
 Item 1A  Risk Factors
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Our intellectual property rights may not provide meaningful commercial protection for our
products and could adversely affect our ability to compete in the market.
 Our ability to compete effectively depends, in part, on our ability to maintain the
proprietary nature of our technologies and manufacturing processes, which includes the ability to
obtain, protect and enforce patents on our technology and to protect our trade secrets. We own
patents that cover significant aspects of our products. Certain of our patents have expired and
others will expire in the future. In addition, challenges may be made to our patents and, as a
result, our patents could be narrowed, invalidated or rendered unenforceable. Competitors may
develop products similar to ours that our patents do not cover. In addition, our current and future
patent applications may not result in the issuance of patents in the United States or foreign
countries. Further, there is a substantial backlog of patent applications in the U.S. Patent and
Trademark Office, and the approval or rejection of patent applications may take several years. We
may become subject to patent infringement claims or litigation or interference proceedings declared
by the U.S. Patent and Trademark Office to determine the priority of invention.
 Our competitive position depends, in part, upon unpatented trade secrets, which can be
difficult to protect. Others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets. In an effort to protect
our trade secrets, we require all of our employees, consultants and advisors to execute proprietary
information agreements and certain of them to sign invention assignment agreements upon
commencement of employment or consulting relationships with us. These agreements typically provide
that, except in specified circumstances, all confidential information developed or made known to
the individual during the course of his or her relationship with us must be kept confidential. They
also contain provisions requiring these individuals to assign to us, without additional
consideration, any inventions conceived or reduced to practice by them while employed or retained
by us, subject to customary exceptions. Some jurisdictions limit the enforceability and scope of
these agreements and these agreements may not provide meaningful protection for our trade secrets
or other proprietary information in the event of the unauthorized use or disclosure of confidential
information.
 The medical device industry is characterized by frequent litigation regarding patent and other
intellectual property rights. Companies in the medical device industry have employed intellectual
property litigation to gain a competitive advantage. Numerous patents are held by others, including
academic institutions and our competitors. Until recently patent applications were maintained in
secrecy in the United States until after the patent had been issued. Patent applications, filed in
the United States after November 2000 generally will be published 18 months after the filing date.
However, since patent applications continue to be maintained in secrecy for at least some period of
time, we cannot assure you that our technology does not infringe any patents, patent applications
held by third parties or prior patents. We have, from time to time, been notified of, or have
otherwise been made aware of, claims that we are infringing upon patents or other proprietary
intellectual property owned by others. If it appears necessary or desirable, we may seek licenses
under such patents or proprietary intellectual property. Although patent holders may offer such
licenses, licenses under such patents or intellectual property may not be offered or the terms of
any offered licenses may not be reasonable.
 Any claims, with or without merit, and regardless of whether we are successful on the merits,
would be time-consuming, result in costly litigation and diversion of technical and management
personnel, cause shipment delays or require us to develop non-infringing technology or enter into
royalty or licensing agreements. An adverse determination could prevent us from manufacturing or
selling our products, which would have a material adverse effect on our business, results of
operations and financial condition.
 In October 2005, Iridex filed suit against Synergetics USA for infringement of a patent.
Iridex seeks damages, including treble damages and injunctive relief. We filed our answer in the
lawsuit and asked the court to declare that our products do not infringe the Iridex patent. In
addition, we countersued Iridex alleging that it engaged in false advertising, commercial
disparagement, trade libel, injurious falsehood and unfair competition under the Federal Lanham Act
and applicable Missouri law. While we believe that we have substantial meritorious defenses to
their claims, we may incur significant dedication of management resources and legal costs in
connection with this lawsuit.
  
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
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Item 3  Defaults upon Senior Securities
  
 Item 4  Submission of Matters to a Vote of Security Holders
  
 Item 5  Other Information
  
 Item 6  Exhibits
 Exhibit No.
    
    Description31.1
    
    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
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SYNERGETICS USA, INC.
(Registrant)June 8, 2007
    
    /s/ Gregg D. Scheller

Gregg D. Scheller, President and ChiefExecutive Officer (Principal ExecutiveOfficer)June 8, 2007
    
    /s/ Pamela G. BoonePamela G. Boone, Executive VicePresident, Chief Financial Officer, Secretaryand Treasurer (Principal Financial andPrincipal Accounting Officer)
 26