##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended February 3, 2009
 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
    
    (I.R.S. Employer Identification No.)incorporation or organization)3845 Corporate Centre DriveOFallon, Missouri
    
    63368(Address of principal executive offices)
    
    (Zip Code)
 (Registrants Telephone Number, Including Area Code)
 þ o
  Large accelerated filer o

    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



PagePART I Financial InformationItem 1. Unaudited Condensed Consolidated Financial Statements
    
    
    3Balance Sheets  February 3, 2009 and July 31, 2008
    
    
    3Statements of Income for the three and six months ended
February 3, 2009 and January 31, 2008
    
    
    4Statements of Cash Flows for the six months ended February 3,
2009 and January 31, 2008
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    12Item 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
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    24Signatures
    
    
    25EX-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 February 3, 2009 (Unaudited) and July 31, 2008
 (Dollars in thousands, except share data)
 February 3, 2009
    
    
    July 31, 2008AssetsCurrent AssetsCash and cash equivalents
    
    $
    349
    
    
    $
    500Accounts receivable, net of allowance for doubtful accounts of
approximately $255 and $250, respectively
    
    
    8,427
    
    
    
    8,593Income taxes receivable
    
    
    290
    
    
    
    Inventories
    
    
    16,770
    
    
    
    14,568Prepaid expenses
    
    
    702
    
    
    
    361Deferred income taxes
    
    
    561
    
    
    
    527Total current assets
    
    
    27,099
    
    
    
    24,549Property and equipment, net
    
    
    8,138
    
    
    
    8,159Goodwill
    
    
    10,690
    
    
    
    10,690Other intangible assets, net
    
    
    13,541
    
    
    
    13,946Patents, net
    
    
    1,017
    
    
    
    991Deferred expenses
    
    
    4
    
    
    
    6Cash value of life insurance
    
    
    55
    
    
    
    55Total assets
    
    $
    60,544
    
    
    $
    58,396Liabilities and Stockholders EquityCurrent LiabilitiesLines-of-credit
    
    
    6,644
    
    
    
    3,287Current maturities of long-term debt
    
    
    1,839
    
    
    
    1,823Current maturities of revenue bonds payable
    
    
    249
    
    
    
    249Accounts payable
    
    
    2,277
    
    
    
    2,776Accrued expenses
    
    
    2,641
    
    
    
    2,659Income taxes payable
    
    
    
    
    
    
    1,071Total current liabilities
    
    $
    13,650
    
    
    $
    11,865Long-Term LiabilitiesLong-term debt, less current maturities
    
    
    3,785
    
    
    
    4,309Revenue bonds payable, less current maturities
    
    
    3,518
    
    
    
    3,642Deferred income taxes
    
    
    2,055
    
    
    
    2,223Total long-term liabilities
    
    
    9,358
    
    
    
    10,174Total liabilities
    
    
    23,008
    
    
    
    22,039Commitments and contingencies (Note 6)Stockholders EquityCommon stock at February 3, 2009 and July 31, 2008,
$.001 par value, 50,000,000 shares
authorized; 24,463,417 and 24,354,295
shares issued and outstanding, respectively
    
    
    24
    
    
    
    24Additional paid-in capital
    
    
    24,470
    
    
    
    24,342Retained earnings
    
    
    13,042
    
    
    
    11,991Total stockholders equity
    
    
    37,536
    
    
    
    36,357Total liabilities and stockholders equity
    
    $
    60,544
    
    
    $
    58,396
  3




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##### Table of Contents



Synergetics USA, Inc. and Subsidiaries
 
 Unaudited Condensed Consolidated Statements of Operations
 Three and Six Months Ended February 3, 2009 and January 31, 2008
 (Dollars in thousands, except per share information)
 Three Months Ended
    
    
    Three Months Ended
    
    
    Six Months Ended
    
    
    Six Months EndedFebruary 3, 2009
    
    
    January 31, 2008
    
    
    February 3, 2009
    
    
    January 31, 2008Sales
    
    $
    13,652
    
    
    $
    11,636
    
    
    $
    25,898
    
    
    $
    22,106Cost of sales
    
    
    5,811
    
    
    
    4,882
    
    
    
    10,977
    
    
    
    8,826Gross profit
    
    
    7,841
    
    
    
    6,754
    
    
    
    14,921
    
    
    
    13,280Operating expensesResearch and development
    
    
    854
    
    
    
    697
    
    
    
    1,506
    
    
    
    1,147Selling and marketing expenses
    
    
    3,940
    
    
    
    3,275
    
    
    
    7,183
    
    
    
    6,327General and administrative
    
    
    2,140
    
    
    
    2,549
    
    
    
    4,162
    
    
    
    4,7886,934
    
    
    
    6,521
    
    
    
    12,851
    
    
    
    12,262Operating income
    
    
    907
    
    
    
    233
    
    
    
    2,070
    
    
    
    1,018Other income (expense)Interest income
    
    
    
    
    
    
    3
    
    
    
    2
    
    
    
    4Interest expense
    
    
    (221
    )
    
    
    (305
    )
    
    
    (403
    )
    
    
    (565
    )Miscellaneous
    
    
    (5
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    18(226
    )
    
    
    (304
    )
    
    
    (402
    )
    
    
    (543
    )Income (loss) before
provision for Income taxes
    
    
    681
    
    
    
    (71
    )
    
    
    1,668
    
    
    
    475Provision (benefit) for income taxes
    
    
    292
    
    
    
    (17
    )
    
    
    617
    
    
    
    132Net income (loss)
    
    $
    389
    
    
    $
    (54
    )
    
    $
    1,051
    
    
    $
    343Earnings per share:Basic
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    0.01Diluted
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    0.01Basic weighted-average common
shares outstanding
    
    
    24,451,904
    
    
    
    24,312,930
    
    
    
    24,446,561
    
    
    
    24,304,800Diluted weighted-average common
shares outstanding
    
    
    24,459,568
    
    
    
    24,387,064
    
    
    
    24,457,399
    
    
    
    24,411,689
  4




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Synergetics USA, Inc. and Subsidiaries
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 Six months Ended February 3, 2009 and January 31, 2008
 (Dollars in thousands)
 Six Months Ended
    
    
    Six Months EndedFebruary 3, 2009
    
    
    January 31, 2008Cash Flows from Operating ActivitiesNet income
    
    $
    1,051
    
    
    $
    343Adjustments to reconcile net income to net cash used
in operating activitiesDepreciation and amortization
    
    
    887
    
    
    
    992Provision for doubtful accounts receivable
    
    
    5
    
    
    
    40Stock-based compensation
    
    
    128
    
    
    
    92Deferred income taxes
    
    
    (202
    )
    
    
    (119
    )Loss on sale of assets
    
    
    
    
    
    
    5Change in assets and liabilities:(Increase) decrease in:Accounts receivable
    
    
    161
    
    
    
    (115
    )Income taxes receivable
    
    
    (290
    )
    
    
    152Inventories
    
    
    (2,202
    )
    
    
    (602
    )Prepaid expenses
    
    
    (341
    )
    
    
    (89
    )(Decrease) in:Accounts payable
    
    
    (499
    )
    
    
    (1,127
    )Accrued expenses
    
    
    (18
    )
    
    
    (102
    )Income taxes payable
    
    
    (1,071
    )
    
    
    Net cash used in operating activities
    
    
    (2,391
    )
    
    
    (530
    )Cash Flows from Investing ActivitiesIncrease in deferred expenses
    
    
    (4
    )
    
    
    (51
    )Proceeds from sale of equipment
    
    
    
    
    
    
    19Purchase of property and equipment
    
    
    (425
    )
    
    
    (621
    )Acquisition of patents and other intangibles
    
    
    (56
    )
    
    
    (62
    )Net cash used in investing activities
    
    
    (485
    )
    
    
    (715
    )Cash Flows from Financing ActivitiesExcess of outstanding checks over bank balance
    
    
    
    
    
    
    (41
    )Net borrowings on lines-of-credit
    
    
    3,357
    
    
    
    2,145Principal payments on revenue bonds payable
    
    
    (124
    )
    
    
    (124
    )Principal payments on long-term debt
    
    
    (246
    )
    
    
    (525
    )Payments on debt incurred for acquisition of trademark
    
    
    (262
    )
    
    
    (246
    )Proceeds from stock options exercised
    
    
    
    
    
    
    22Net cash provided by financing activities
    
    
    2,725
    
    
    
    1,231Net decrease in cash and cash equivalents
    
    
    (151
    )
    
    
    (14
    )Cash and cash equivalentsBeginning
    
    
    500
    
    
    
    167Ending
    
    $
    349
    
    
    $
    153
  5




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##### Table of Contents



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
 6




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Note 3. Distribution Agreements
  Codman & Shurtleff, Inc. (Codman)
 ®
  Note 4. Stock-Based Compensation
 Stock Option Plans
  Six Months Ended February 3, 2009Weighted-Average
    
    
    Weighted-Exercise
    
    
    AverageShares
    
    
    Price
    
    
    Fair ValueOptions outstanding, beginning of period
    
    
    436,735
    
    
    $
    2.35
    
    
    $
    1.94For the period from August 1, 2008 through February 3, 2009:Granted
    
    
    93,000
    
    
    
    0.95
    
    
    
    0.75Forfeited
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    Options outstanding, end of period
    
    
    529,735
    
    
    $
    2.11
    
    
    $
    1.73Options exercisable, end of period
    
    
    400,630
    
    
    $
    2.46
    
    
    $
    2.03
  Expected average risk-free interest rate
    
    
    1.5
    %Expected average life (in years)
    
    
    5Expected volatility
    
    
    69.2
    %Expected dividend yield
    
    
    0.0
    %
 7




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##### Table of Contents



Restricted Stock Plans
  Note 5. Supplemental Balance Sheet Information
 Inventories
 February 3,
    
    
    July 31,2009
    
    
    2008Raw material and component parts
    
    $
    6,794
    
    
    $
    5,499Work-in-progress
    
    
    3,102
    
    
    
    2,495Finished goods
    
    
    6,874
    
    
    
    6,574$
    16,770
    
    
    $
    14,568
 Property and equipment
 February 3,
    
    
    July 31,2009
    
    
    2008Land
    
    $
    730
    
    
    $
    730Building and improvements
    
    
    5,727
    
    
    
    5,720Machinery and equipment
    
    
    5,039
    
    
    
    4,959Furniture and fixtures
    
    
    708
    
    
    
    680Software
    
    
    333
    
    
    
    332Construction in process
    
    
    340
    
    
    
    3012,877
    
    
    
    12,451Less accumulated depreciation
    
    
    4,739
    
    
    
    4,292$
    8,138
    
    
    $
    8,159
 Other Intangible Assets
  GrossCarrying
    
    
    AccumulatedValue
    
    
    Amortization
    
    
    NetFebruary 3, 2009Proprietary know-how
    
    $
    4,057
    
    
    $
    1,156
    
    
    $
    2,901Trademark
    
    
    5,923
    
    
    
    
    
    
    
    5,923Licensing agreements
    
    
    5,834
    
    
    
    1,117
    
    
    
    4,717Patents
    
    
    1,387
    
    
    
    370
    
    
    
    1,017$
    17,201
    
    
    $
    2,643
    
    
    $
    14,558
 July 31, 2008Proprietary know-how
    
    $
    4,057
    
    
    $
    1,017
    
    
    $
    3,040Trademark
    
    
    5,923
    
    
    
    
    
    
    
    5,923Licensing agreements
    
    
    5,834
    
    
    
    851
    
    
    
    4,983Patents
    
    
    1,315
    
    
    
    324
    
    
    
    991$
    17,129
    
    
    $
    2,192
    
    
    $
    14,937
 8




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##### Table of Contents



Periods Ending July 31:
    
    AmountFiscal Year 2009 (remaining 6 months)
    
    $
    435Fiscal Year 2010
    
    
    842Fiscal Year 2011
    
    
    619Fiscal Year 2012
    
    
    565Fiscal Year 2013
    
    
    563
  Pledged assets; short and long-term debt (excluding revenue bonds payable)
  Revolving Credit Facility:
  Non-U.S. Receivables Revolving Credit Facility
 Equipment Line of Credit
 9




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##### Table of Contents



February 3,
    
    
    July 31,2009
    
    
    2008Note payable to bank, due in monthly
installments of $41,022 beginning August 2008
plus interest at a rate of 5.0 percent,
remaining balance due July 31, 2011,
collateralized by substantially all assets of
the Company
    
    $
    1,231
    
    
    $
    1,477Note 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 percent,
remaining balance of $1,918,848, including
contractual interest payments, due
December 2011, collateralized by the
Malis® trademark
    
    
    1,744
    
    
    
    2,006Settlement obligation to Iridex Corporation,
due in annual installments of $800,000 which
includes interest at an imputed rate of
8.00 percent, remaining balance of $3,200,000
including the effects of imputing interest,
due April 15, 2012
    
    
    2,649
    
    
    
    2,6495,624
    
    
    
    6,132Less current maturities
    
    
    1,839
    
    
    
    1,823Long-term portion
    
    $
    3,785
    
    
    $
    4,309
 Note 6. Commitments and Contingencies
      10




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Note 7. Entity Wide Information
  Three Months Ended
    
    
    Six Months EndedFebruary 3,
    
    
    January 31,
    
    
    February 3,
    
    
    January 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Product Line:Ophthalmic
    
    $
    7,466
    
    
    $
    6,863
    
    
    $
    14,850
    
    
    $
    13,228Neurosurgical
    
    
    3,816
    
    
    
    3,320
    
    
    
    6,769
    
    
    
    5,970OEM (Codman, Stryker and Iridex)
    
    
    2,263
    
    
    
    1,213
    
    
    
    4,045
    
    
    
    2,489Other (ENT and Dental)
    
    
    107
    
    
    
    240
    
    
    
    234
    
    
    
    419Total
    
    $
    13,652
    
    
    $
    11,636
    
    
    $
    25,898
    
    
    $
    22,106Region Specific:Domestic
    
    $
    9,195
    
    
    $
    8,246
    
    
    $
    17,941
    
    
    $
    15,955International
    
    
    4,457
    
    
    
    3,390
    
    
    
    7,957
    
    
    
    6,151Total
    
    $
    13,652
    
    
    $
    11,636
    
    
    $
    25,898
    
    
    $
    22,106
  Note 8. Recent Accounting Pronouncements
 Determining the Fair Value of a Financial Asset When the Market
for That Asset Is Not Active
 11




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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, 2008.
 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.
 12




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##### Table of Contents



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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® ®
 ® ®
   Recent Developments
 ®
  ® ® ®
 New Product Sales
  14




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##### Table of Contents



Growth in Minimally Invasive Surgery Procedures
 TM TM TM ®
 Demand Trends
  Pricing and Volume Trends
 TM
 Results Overview
  Our Business Strategy
  
    
    continuous improvement and development of our people,
    
    continuous improvement and development of our manufacturing processes,
    
    continuous improvement of our information systems; and
    
    continuous improvement of our research and development initiatives.
 15




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##### Table of Contents



Results of Operations
 Three Month Period Ended February 3, 2009 Compared to Three Month Period Ended January 31, 2008
 Net Sales
  Quarter Ended
    
    
    % IncreaseFebruary 3, 2009
    
    
    January 31, 2008
    
    
    (Decrease)Ophthalmology
    
    $
    7,466
    
    
    $
    6,863
    
    
    
    8.8
    %Neurosurgery
    
    
    3,816
    
    
    
    3,320
    
    
    
    14.9
    %OEM (Codman, Stryker and Iridex)
    
    
    2,263
    
    
    
    1,213
    
    
    
    86.6
    %Other
    
    
    107
    
    
    
    240
    
    
    
    (55.4
    %)Total
    
    $
    13,652
    
    
    $
    11,636
    
    
    
    17.3
    %
 TM TM
 16




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##### Table of Contents



Quarter EndedFebruary 3, 2009
    
    
    January 31, 2008
    
    
    % IncreaseUnited States (including OEM sales)
    
    $
    9,195
    
    
    $
    8,246
    
    
    
    11.5
    %International (including Canada)
    
    
    4,457
    
    
    
    3,390
    
    
    
    31.5
    %Total
    
    $
    13,652
    
    
    $
    11,636
    
    
    
    17.3
    %
  Gross Profit
  Operating Expenses
    17




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##### Table of Contents



Other Expenses
  Operating Income, Income Taxes and Net Income
    Six Month Period Ended February 3, 2009 Compared to Six Month Period Ended January 31, 2008
 Net Sales
  Six Months Ended% IncreaseFebruary 3, 2009
    
    
    January 31, 2008
    
    
    (Decrease)Ophthalmology
    
    $
    14,850
    
    
    $
    13,228
    
    
    
    12.3
    %Neurosurgery
    
    
    6,769
    
    
    
    5,970
    
    
    
    13.4
    %OEM (Codman, Stryker and Iridex)
    
    
    4,045
    
    
    
    2,489
    
    
    
    62.5
    %Other
    
    
    234
    
    
    
    419
    
    
    
    (44.2
    %)Total
    
    $
    25,898
    
    
    $
    22,106
    
    
    
    17.2
    %
 TM TM
   18




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##### Table of Contents



Six Months EndedFebruary 3, 2009
    
    
    January 31, 2008
    
    
    % IncreaseUnited States (including OEM sales)
    
    $
    17,941
    
    
    $
    15,955
    
    
    
    12.4
    %International (including Canada)
    
    
    7,957
    
    
    
    6,151
    
    
    
    29.4
    %Total
    
    $
    25,898
    
    
    $
    22,106
    
    
    
    17.2
    %
  Gross Profit
  Operating Expenses
    19




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##### Table of Contents



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




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Revolving Credit Facility:
  Non-U.S. Receivables 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
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 Part II  Other Information
 
 Item 1  Legal Proceedings
  22




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##### Table of Contents



® ® ®
  
 Item 1A  Risk Factors
  
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3  Defaults Upon Senior Securities
  
 Item 4  Submission of Matters to a Vote of Security Holders
  23




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##### Table of Contents



Number of Shares
    
    Number of SharesVoted For
    
    WithheldKurt Gampp
    
    
    17,525,878
    
    
    
    4,694,226Dr. Jerry Malis
    
    
    17,405,893
    
    
    
    4,814,211
  For
    
    Against
    
    Abstain
    
    Broker Non-Vote8,652,117
    
    
    4,022,224
    
    
    
    40,603
    
    
    
    9,505,160
  For
    
    Against
    
    Abstain
    
    Broker Non-Vote21,638,236
    
    
    425,348
    
    
    
    156,517
    
    
    
    0
 
 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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##### Table of Contents



SYNERGETICS USA, INC.
(Registrant)March 16, 2009
    /s/ David M. HableChief Executive Officer and DirectorMarch 16, 2009
    /s/ Pamela G. BoonePamela G. Boone, Executive VicePresident, Chief Financial Officer, Secretary
and Treasurer (Principal Financial and
Principal Accounting Officer) 25