##### 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 October 27, 2005
 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
    
    23-2131580(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)
  
  þ o
 o þ
 o þ




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##### 



PagePART I
    
    Financial InformationItem 1.
    
    Unaudited Condensed Consolidated Financial StatementsBalance Sheets  October 27, 2005 and July 31, 2005
    
    
    3Statements of Income for the three months ended October 27, 2005 and October 28, 2004
    
    
    5Statements of Cash Flows for the three months ended October 27, 2005 and October 28, 2004
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22PART II
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    23Item 1A.
    
    Risk Factors
    
    
    24Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3.
    
    Defaults Upon Senior Securities
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    25Item 6.
    
    Exhibits
    
    
    25SignaturesExhibit IndexCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



Part I  Financial Information
 
 Item 1
 Unaudited Condensed Consolidated Financial Statements
 Synergetics USA, Inc. and Subsidiaries
 
 Unaudited Condensed Consolidated Balance Sheets
 As of October 27, 2005
and July 31, 2005
 October
27, 2005
    
    

July
31, 2005AssetsCurrent AssetsCash and cash equivalents
    
    $
    1,092,685
    
    
    $
    1,816,823Investment in trading securities
    
    
    29,333
    
    
    
    29,333Accounts receivable, net of allowance for doubtful accounts
of approximately $145,000 and $40,000, respectively
    
    
    4,157,590
    
    
    
    3,344,214Notes receivable, officer-stockholder
    
    
    29,232
    
    
    
    Inventories
    
    
    9,492,566
    
    
    
    7,188,636Prepaid expenses
    
    
    499,877
    
    
    
    220,903Deferred income taxes
    
    
    246,242
    
    
    
    157,000Other
    
    
    282,077
    
    
    
    Total current assets
    
    
    15,829,602
    
    
    
    12,756,909Property and equipment, net
    
    
    7,449,196
    
    
    
    6,483,307Goodwill
    
    
    10,771,196
    
    
    
    Other intangible assets, net
    
    
    10,594,373
    
    
    
    846,008Other assets, cash value of life insurance
    
    
    29,545
    
    
    
    29,545Total assets
    
    $
    44,673,912
    
    
    $
    20,115,769Liabilities and Stockholders EquityCurrent LiabilitiesLines-of-credit
    
    $
    236,000
    
    
    $
    235,000Current maturities of long-term debt
    
    
    946,324
    
    
    
    276,771Current maturities of revenue bonds payable
    
    
    248,750
    
    
    
    248,750Accounts payable
    
    
    1,341,379
    
    
    
    1,148,082Accrued
construction costs and expenses
    
    
    1,646,265
    
    
    
    1,748,686Income taxes payable
    
    
    304,176
    
    
    
    311,684Total current liabilities
    
    
    4,722,894
    
    
    
    3,968,973Long-Term LiabilitiesLong-term debt, less current maturities
    
    
    3,940,130
    
    
    
    1,250,939Revenue bonds payable, less current maturities
    
    
    4,326,354
    
    
    
    4,388,542Deferred income taxes
    
    
    2,839,059
    
    
    
    343,000Deferred compensation
    
    
    25,519
    
    
    
    25,519Total long-term liabilities
    
    
    11,131,062
    
    
    
    6,008,000Total liabilities
    
    
    15,853,956
    
    
    
    9,976,973
 3




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##### Table of Contents





10/27/2005
    
    
    7/31/2005Stockholders EquityCommon stock, $.001 par value, 50,000,000 shares authorized and $0.01667 par
value,
8,000,000,shares authorized, respectively; 23,913,863 and 3,542,111
shares issued,
respectively; 23,913,863 and 3,411,364 shares outstanding, respectively
    
    
    23,914
    
    
    
    59,047Additional paid-in capital
    
    
    22,908,235
    
    
    
    4,985,936Retained earnings
    
    
    5,887,807
    
    
    
    5,401,81628,819,956
    
    
    
    10,446,799Less: Treasury stock
    
    
    
    
    
    
    308,003Total stockholders equity
    
    
    28,819,956
    
    
    
    10,138,796Total liabilities and stockholders equity
    
    $
    44,673,912
    
    
    $
    20,115,769




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##### Table of Contents



Synergetics USA, Inc. and Subsidiaries
 
 Unaudited Condensed Consolidated Statements of Income
Three Months Ended October 27, 2005 and October 28, 2004
 Three Months Ended
    
    
    Three Months EndedOctober
27, 2005
    
    

October
28, 2004Sales
    
    $
    7,147,119
    
    
    $
    4,974,607Cost of sales
    
    
    2,307,796
    
    
    
    1,695,191Gross profit
    
    
    4,839,323
    
    
    
    3,279,416Operating expensesResearch and development
    
    
    277,261
    
    
    
    175,610Selling, general and administrative
    
    
    3,801,779
    
    
    
    2,462,1584,079,040
    
    
    
    2,637,768Operating income
    
    
    760,283
    
    
    
    641,648Other income (expense)Interest income
    
    
    11,717
    
    
    
    4,063Interest expense
    
    
    (35,348
    )
    
    
    (50,800
    )Miscellaneous
    
    
    (304
    )
    
    
    823(23,935
    )
    
    
    (45,914
    )Income before provision for income taxes
    
    
    736,348
    
    
    
    595,734Provision for income taxes
    
    
    250,359
    
    
    
    224,511Net income
    
    $
    485,989
    
    
    $
    371,223Earnings per share:Basic
    
    $
    0.04
    
    
    $
    0.11Diluted
    
    $
    0.04
    
    
    $
    0.11Basic weighted average common shares
outstanding
    
    
    11,825,344
    
    
    
    3,411,364Diluted weighted average common shares
outstanding
    
    
    11,927,031
    
    
    
    3,424,045
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Synergetics USA, Inc. and Subsidiaries
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 Three Months Ended
October 27, 2005 and October 28, 2004
 Three Months Ended
    
    
    Three Months EndedOctober 27, 2005
    
    
    October 28, 2004Cash Flows from Operating ActivitiesNet income
    
    $
    485,989
    
    
    $
    371,223Adjustments to reconcile net income to net cash
used in operating activitiesDepreciation and amortization
    
    
    243,404
    
    
    
    138,879Provision for doubtful accounts receivable
    
    
    3,413
    
    
    
    4,005Stock-based compensation
    
    
    201,246
    
    
    
    Change in assets and liabilities:(Increase) decrease in:Receivables, net
    
    
    (113,670
    )
    
    
    5,629Inventories
    
    
    (1,378,441
    )
    
    
    (1,078,870
    )Prepaid expenses
    
    
    (221,522
    )
    
    
    145,571Other current assets
    
    
    (7,077
    )
    
    
    17,189(Decrease) increase in:Accounts payable
    
    
    (66,077
    )
    
    
    228,572Other accrued expenses
    
    
    269,553
    
    
    
    (291,161
    )Income taxes
payable
    
    
    (43,221
    )
    
    
    (16,406
    )Net cash used in operating activities
    
    
    (626,403
    )
    
    
    (475,369
    )Cash Flows from Investing ActivitiesNet decrease
in notes receivable, officer-stockholder
    
    
    3,525
    
    
    
    Purchase of property and equipment
    
    
    (1,451,058
    )
    
    
    (122,649
    )Acquisition of patents
    
    
    (8,028
    )
    
    
    (21,358
    )Cash paid
for reverse merger costs
    
    
    (498,077
    )
    
    
    Cash
acquired through reverse merger
    
    
    2,023,945
    
    
    
    Net cash provided by (used in) investing
activities
    
    
    70,307
    
    
    
    (144,007
    )Cash Flows from Financing ActivitiesNet borrowings on lines-of-credit, equipment
    
    
    1,000
    
    
    
    321,806Principal payments on revenue bonds payable
    
    
    (62,188
    )
    
    
    (33,063
    )Proceeds from long-term debt
    
    
    114,787
    
    
    
    Principal payments on long-term debt
    
    
    (69,192
    )
    
    
    913Downpayment
for acquisition of trademark
    
    
    (159,904
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (15,000
    )Proceeds from stock options exercised
    
    
    7,455
    
    
    
    Proceeds from the issuance of common stock
    
    
    
    
    
    
    15,000Net cash
provided by (used in) financing activities
    
    
    (168,042
    )
    
    
    289,656Net decrease in cash and cash equivalents
    
    
    (724,138
    )
    
    
    (329,720
    )Cash and cash equivalentsBeginning
    
    
    1,816,823
    
    
    
    1,540,042Ending
    
    $
    1,092,685
    
    
    $
    1,210,322
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##### Table of Contents



Synergetics USA, Inc. and Subsidiaries
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 Note 1. General
 Nature of business:
 Reporting period:
 Basis of presentation:
 Note 2. Summary of Significant Accounting Policies
  7




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##### Table of Contents



Principles
of consolidation:
 Property and equipment:
 Goodwill and other intangibles:
 Revenue recognition:
  Stock-based
compensation:
 Segment information : ®
 Note 3. Reverse Merger
  8




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##### Table of Contents



Assets:Cash
    
    $
    2,023,945Accounts receivable
    
    
    703,119Inventories
    
    
    925,489Prepaid expenses and other current assets
    
    
    454,451Property and equipment
    
    
    323,962Other intangibles
    
    
    10,182,533Goodwill
    
    
    10,771,196Liabilities assumed:Accounts payable and accrued expenses
    
    
    (500,869
    )Income taxes
payable
    
    
    (35,713
    )Note payable issued in connection with Malis® trademark
    
    
    (3,473,053
    )Deferred income taxes
    
    
    (2,496,022
    )Net assets acquired
    
    $
    18,879,038
   Three Months
    
    
    Three MonthsEnded
    
    
    EndedOctober 27,
    
    
    October 28,2005
    
    
    2004 (1)Net sales
    
    $
    8,019,180
    
    
    $
    6,124,417Net income
    
    
    320,754
    
    
    
    146,934Basic earnings per share
    
    
    0.01
    
    
    
    0.01Diluted earnings per share
    
    
    0.01
    
    
    
    0.01
    Note 4. Distribution Agreements
  Codman and Shurtleff, Inc. (Codman)
   9




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Stryker Corporation (Stryker)
    Note 5. Stock-Based Compensation
  Three Months Ended October 27, 2005Using
    
    
    SFASPrevious
    
    
    123(R)
    
    
    AsAccounting
    
    
    Adjustments
    
    
    ReportedIncome before income taxes
    
    $
    835,094
    
    
    $
    98,746
    
    
    $
    736,348Income taxes
    
    
    283,933
    
    
    
    33,574
    
    
    
    250,359Net income
    
    $
    551,161
    
    
    $
    65,172
    
    
    $
    485,989Basic earnings per share
    
    $
    0.05
    
    
    ($
    0.01
    )
    
    $
    0.04Diluted earnings per share
    
    $
    0.05
    
    
    ($
    0.01
    )
    
    $
    0.04
 10




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##### Table of Contents



Three Months Ended October 27, 2005Weighted-Average
    
    
    Weighted-Exercise
    
    
    AverageShares
    
    
    Price
    
    
    Fair ValueOptions outstanding,
beginning of period
    
    
    58,500
    
    
    $
    2.33
    
    
    $
    2.97Exercised prior to September
21, 2005
    
    
    (20,500
    )
    
    
    
    
    
    $
    3.92Options outstanding, September
21, 2005
    
    
    38,000
    
    
    $
    4.64
    
    
    $
    2.46Conversion
ratio applied at September
21, 2005
    
    
    4.59
    
    
    
    4.59
    
    
    
    Converted options
    
    
    174,420
    
    
    $
    1.01
    
    
    $
    2.46Existing options assumed under the Valley
Forge Stock option plan
    
    
    441,500
    
    
    $
    2.18
    
    
    $
    1.92Granted
    
    
    20,000
    
    
    $
    5.00
    
    
    $
    4.15Forfeited
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (3,500
    )
    
    $
    2.13
    
    
    $
    0.99Options outstanding,
end of period
    
    
    632,420
    
    
    $
    2.11
    
    
    $
    2.15
   Expected average risk-free interest rate
    
    
    4.0
    %Expected average life (in years)
    
    
    5Expected volatility
    
    
    79.7
    %Expected dividend yield
    
    
    0
    %
  11




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##### Table of Contents



Note 6: Supplemental Balance Sheets Information
 Inventories
 October 27,
    
    
    July 31,2005
    
    
    2005Raw material and component parts
    
    $
    3,659,359
    
    
    $
    2,398,238Work-in-progress
    
    
    2,070,882
    
    
    
    1,295,976Finished goods
    
    
    3,762,325
    
    
    
    3,494,422$
    9,492,566
    
    
    $
    7,188,636
 Property and equipment
 October 27,
    
    
    July 31,2005
    
    
    2005Land
    
    $
    729,753
    
    
    $
    729,753Building and improvements
    
    
    2,713,855
    
    
    
    2,568,612Machinery and equipment
    
    
    3,012,900
    
    
    
    2,888,687Furniture and fixtures
    
    
    320,738
    
    
    
    266,225Software
    
    
    39,734
    
    
    
    39,734Construction in process
    
    
    2,525,937
    
    
    
    1,688,3559,342,917
    
    
    
    8,181,366Less accumulated depreciation
    
    
    1,893,721
    
    
    
    1,698,059$
    7,449,196
    
    
    $
    6,483,307
 Other intangible assets
  GrossCarrying
    
    
    AccumulatedValue
    
    
    Amortization
    
    
    NetOctober 27, 2005Patents
    
    $
    658,255
    
    
    $
    147,850
    
    
    $
    510,405Proprietary know-how
    
    
    4,057,115
    
    
    
    31,158
    
    
    
    4,025,957Licensing agreements
    
    
    140,000
    
    
    
    5,185
    
    
    
    134,815Trademark
    
    
    5,923,196
    
    
    
    
    
    
    
    5,923,196$
    10,778,566
    
    
    $
    184,193
    
    
    $
    10,594,373July 31, 2005Patents
    
    $
    588,005
    
    
    $
    136,449
    
    
    $
    451,556Acquisition
costs
    
    
    394,452
    
    
    
    
    
    
    
    394,452$
    982,457
    
    
    $
    136,449
    
    
    $
    846,008
  Years Ending July 31:

    Amount2006
    
    $
    400,5002007
    
    
    475,2002008
    
    
    472,9002009
    
    
    470,1002010
    
    
    468,900
 12




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




Revolving Credit Facilities:






October 27,
    
    
    July 31,2005
    
    
    2005Note payable to bank, due in
monthly installments of $3,033 plus
interest at prime rate (an
effective rate of 6.25% as of July
31, 2005), remaining balance due
May 7, 2007, collateralized by
substantially all assets of the
Company, refinanced in October 2005
    
    $
    
    
    
    $
    63,713Note payable to bank, due in
monthly principal installments of
$7,083 plus interest at prime rate
(an effective rate of 6.25% as of
July 31, 2005), remaining balance
due June 2008, collateralized by
machinery and equipment, refinanced
in October 2005
    
    
    
    
    
    
    240,833Note payable to bank, due in
monthly principal installments of
$11,300 plus interest at prime rate
(an effective rate of 6.25% as of
July 31, 2005), remaining balance
due September 2008, collateralized
by machinery and equipment,
refinanced in October 2005
    
    
    
    
    
    
    440,696Equipment
line of credit note payable to bank, available borrowings up to
$1.0 million, with interest at the banks prime lending
rate, collateralized by applicable equipment financed, due
September 30, 2005, refinanced in October 2005.
    
    
    
    
    
    
    588,492Note payable to bank, due in
monthly principal installments of
$1,139 plus interest at prime rate
plus 1% (an effective rate of 7.25%
as of October 27, 2005), remaining
balance due September 2007,
collateralized by a second deed of
trust
    
    
    175,389
    
    
    
    178,806Note payable, due in monthly
installments of $509 including
interest at 4.9%, remaining balance
due May 2008, collateralized by a
vehicle
    
    
    13,643
    
    
    
    15,170Note 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
    
    
    1,384,273
    
    
    
    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 due December 2011,
collateralized by the
Malis® trademark
    
    
    3,313,149
    
    
    
    4,886,454
    
    
    
    1,527,710Less current maturities
    
    
    946,324
    
    
    
    276,771Long-term portion
    
    $
    3,940,130
    
    
    $
    1,250,939


13



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Note 7. Related Party Transactions
  13




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##### Table of Contents



Note 8. Commitments and Contingencies
       Note 9. Segment Information
  Synergetics
    
    
    Valley Forge
    
    
    ConsolidatedThree Months Ended
October 27, 2005Net sales
    
    $
    6,390,871
    
    
    $
    756,248
    *
    
    $
    7,147,119Operating income
    
    
    655,732
    
    
    
    104,551
    *
    
    
    760,283Identifiable assets
    
    
    20,385,980
    
    
    
    24,287,932
    
    
    
    44,673,912Three Months Ended
October 27, 2004Net sales
    
    $
    4,974,607
    
    
    $
    
    
    
    $
    4,974,607Operating income
    
    
    641,648
    
    
    
    
    
    
    
    641,648Identifiable assets
    
    
    15,055,898
    
    
    
    
    
    
    
    15,055,898
 
 *
    
    For the period September 22, 2005 through October 27, 2005. 14




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##### Table of Contents



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, 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. Because such forward-looking
statements include risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. For example, uncertainty exists with
respect to: the effects of local and national economic, credit and capital market conditions on the
economy in general, and on the medical device industry in particular, and the effects of foreign
exchange rates and interest rates; the ability to timely and cost-effectively integrate the
operations of Synergetics, Inc., now a wholly owned subsidiary of the Company, and Valley Forge
Scientific Corp., including the ability to maintain our relationship with Valley Forges largest
customers; the ability to realize the synergies and other perceived advantages resulting from our
recently completed merger; the ability to attract and retain key personnel; the ability to meet all
existing and new U.S. FDA requirements and comparable non-U.S. medical device regulations in
jurisdictions in which the Company conducts its business; the ability to successfully execute our
business strategies; the extent and timing of market acceptance of new products or product
indications; the ability to procure, maintain, enforce and defend our patent and proprietary know
how; changes in laws, including increased tax rates, regulations or accounting standards,
third-party relations and approvals, and decisions of courts, regulators and governmental bodies;
the ability to continue to increase customer loyalty; the ability to recoup costs of capital
investments through higher revenues; the effects of environmental and structural building
conditions relating to the Companys properties; acts of war and terrorism incidents and the
effects of operating and market competition.
 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. Further
information concerning important factors that could cause actual events or results to be materially
different from the forward-looking statements can be found in the Risk Factors section of the
Companys Form 10-K for the fiscal year ended July 31, 2005 filed with the SEC on October 31,
2005.
 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
  15




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® ® ® ® ®
 ® ® TM ® TM
 TM
  16




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##### Table of Contents



Our Business Strategy
  
    
    Introducing new technology that can be easily differentiated from our competition
by capitalizing on our combined successes in delivering minimally invasive products that
enable concentrated application to a surgical area with decreased impact beyond the
specific desired surgical effects, resulting in improved recovery times and shorter
hospital stays;
    
    Identifying microsurgical niches that may offer the prospect for substantial
growth and higher profit margins that allow us an opportunity to build upon our existing
technologies, such as expanding the use of our products in ENT (ear, nose and throat),
plastic surgery and other forms of microsurgery;
    
    Accelerating our international (including Canada) growth by continuing to build
on our recent successes supported by Valley Forges long-established relationships and
reputation in global markets;
    
    Combining the breadth and depth of knowledge, experience and resources in Valley
Forges and Synergetics existing research and development groups to form a new combined
research and development capability aligned to deliver precision engineered instruments
based on our own proprietary technologies and innovations;
    
    Branding and marketing a substantial portion of our neurosurgical products with
the Malis® trademark;
    
    Developing hybrid direct sales/independent sales agent distribution channels to
assure that our products and benefits are seen by those making or influencing the
purchasing decisions;
    
    Developing our new multifunctional bipolar electrosurgical system, which will be
marketed as the Malis® AdvantageTM, with our new state-of-the-art
bipolar generator and our new proprietary single use hand-switching bipolar instruments
with enhanced features and functionality to expand the array of procedures they are
designed to perform;
    
    Growing our disposables revenue stream by focusing on the development of a full
offering of disposable adjuncts, such as instruments, adapters and fiber optics, to our
capital equipment offerings and emphasizing disposables designed to eliminate hospital
repair costs and minimize patient-to-patient disease transfer;
    
    Expanding the use of our new multifunctional bipolar electrosurgical generator,
which will be marketed as the Malis® AdvantageTM, into other
surgical markets as its increased power and
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functionality allows the surgeon to perform functions similar to traditional monopolar
systems, without the inherent safety limitations; and
    
    Exploring opportunities for growth through strategic partnering with other
companies with complimentary products and technologies to facilitate strategic growth in
our defined niche markets, such as our current relationship with Stryker Corporation.
 Results of Operations
  Three Month Period Ended October 27, 2005 Compared to Three Month Period Ended October 28, 2004
 Net Sales
  Quarter Ended October*2005
    
    
    2004
    
    

%
Increase (Decrease)Ophthalmic
    
    $
    5,354
    
    
    $
    3,818
    
    
    
    40.2
    %Neurosurgery
 Synergetics
    
    
    1,037
    
    
    
    1,157
    
    
    
    (10.4
    )Neurosurgery
 Valley Forge
    
    
    756
    
    
    
    
    
    
    
    N/M$
    7,147
    
    
    $
    4,975
    
    
    
    43.7
    %
 
 *
    
    For 2005, this information is for the quarter ended October
27, and for 2004, the quarter ended October 28. This tabular
information also reflects the net sales of Valley Forge
for the period September 22, 2005 through October 27, 2005.N/M  Not meaningful. TM ® TM ® ® TM
  Quarter Ended October*2005
    
    
    2004
    
    
    % IncreaseUnited
States  Synergetics
    
    $
    4,851
    
    
    $
    4,007
    
    
    
    21.1
    %United
States  Valley Forge
    
    
    756
    
    
    
    
    
    
    
    N/MInternational (including Canada)
    
    
    1,540
    
    
    
    968
    
    
    
    59.1
    %$
    7,147
    
    
    $
    4,975
    
    
    
    43.7
    %
 
 *
    
    For 2005, this information is for the quarter ended October
27, and for 2004, the quarter ended October 28. This tabular
information also reflects the net sales of Valley Forge
for the period September 22, 2005 through October 27, 2005.N/M  Not meaningful. 18




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TM TM
 Gross Profit
  Operating Expenses
   Other Expense
  Operating Income, Income Taxes and Net Income
   19




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Liquidity and Capital Resources
        Revolving
Credit Facilities:
 20




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Equipment Line of Credit:
  Critical Accounting Policies
  Principles of consolidation:
 Property,
and equipment:
 Goodwill
and other intangibles:
 Revenue recognition:
  21




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Stock-based compensation:
 Segment information: ®
 
 Item 3
 Quantitative and Qualitative Disclosures about Market Risk
    
 Item 4
 Controls and Procedures
  22




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Part
II  Other Information
 
 Item 1
 Legal Proceedings
 Synergetics, Inc. v. Charles Richard Hurst, Jr.
and Michael McGowan
 Synergetics, Inc. v. Peregrine Surgical, Ltd. and
Innovatech Surgical, Inc.
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Synergetics,
Inc. v. Christopher Lumpkin and Protomedics, LLC
 IRIDEX Corporation v. Synergetics USA, Inc.
   
 Item 1A
 Risk Factors
  
 Item 2
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3
 Defaults upon Senior Securities
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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)December 12, 2005/s/ Gregg D. SchellerGregg D. Scheller, President and Chief Executive
Officer (Principal Executive Officer)December 12, 2005
    
    /s/ Pamela G. BoonePamela G. Boone, Executive Vice President, Chief
Financial Officer, Secretary and Treasurer (Principal
Financial and Principle Accounting Officer)
 26