x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period ended October 29, 2007
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
FOR
THE TRANSITION PERIOD FROM _______________ TO
_______________
|
Delaware
|
20-5715943
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
|
incorporation
or organization)
|
3845
Corporate Centre Drive
|
||
O’Fallon,
Missouri
|
63368
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(636)
939-5100
|
||
(Registrant’s Telephone Number, Including Area Code)
|
Page
|
|||
PART
I
|
Financial
Information
|
||
Item
1.
|
Unaudited
Condensed Consolidated Financial Statements
|
||
Balance
Sheets — October 29, 2007 and July 31, 2007
|
3
|
||
Statements
of Income for the three months ended October 29, 2007 and October
29,
2006
|
4
|
||
Statements
of Cash Flows for the three months ended October 29, 2007 and
October 29, 2006
|
5
|
||
Notes
to Unaudited Condensed Consolidated Financial Statements
|
6
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
11
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
18
|
|
Item
4.
|
Controls
and Procedures
|
18
|
|
PART
II
|
Other
Information
|
||
Item
1.
|
Legal
Proceedings
|
19
|
|
Item
1A.
|
Risk
Factors
|
19
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
19
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
19
|
|
Item
5.
|
Other
Information
|
19
|
|
Item
6.
|
Exhibits
|
20
|
|
Signatures
|
|||
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|||
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|||
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|||
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
October 29, 2007
|
July 31, 2007
|
|||||
Assets
|
|||||||
Current
Assets
|
|||||||
Cash
and cash equivalents
|
$
|
160
|
$
|
167
|
|||
Accounts
receivable, net of allowance for doubtful accounts for approximately
$314
and $227, respectively
|
7,305
|
8,264
|
|||||
Income
taxes receivable
|
723
|
726
|
|||||
Inventories
|
14,782
|
14,247
|
|||||
Prepaid
expenses
|
457
|
343
|
|||||
Deferred
income taxes
|
554
|
516
|
|||||
Total
current assets
|
23,981
|
24,263
|
|||||
Property
and equipment, net
|
8,081
|
8,031
|
|||||
Goodwill
|
10,660
|
10,660
|
|||||
Other
intangible assets, net
|
14,564
|
14,782
|
|||||
Patents,
net
|
888
|
871
|
|||||
Deferred
expenses
|
211
|
216
|
|||||
Cash
value of life insurance
|
46
|
46
|
|||||
Total
assets
|
$
|
58,431
|
$
|
58,869
|
|||
Liabilities
and Stockholders’ Equity
|
|||||||
Current
Liabilities
|
|||||||
Excess
of outstanding checks over bank balance
|
$
|
149
|
$
|
531
|
|||
Lines-of-credit
|
6,757
|
5,715
|
|||||
Current
maturities of long-term debt
|
1,975
|
2,161
|
|||||
Current
maturities of revenue bonds payable
|
249
|
249
|
|||||
Accounts
payable
|
1,002
|
2,262
|
|||||
Accrued
expenses
|
2,786
|
2,739
|
|||||
Income
taxes payable
|
477
|
253
|
|||||
Total
current liabilities
|
$
|
13,395
|
$
|
13,910
|
|||
Long-Term
Liabilities
|
|||||||
Long-term
debt, less current maturities
|
4,748
|
5,014
|
|||||
Revenue
bonds payable, less current maturities
|
3,829
|
3,891
|
|||||
Deferred
income taxes
|
2,585
|
2,619
|
|||||
Total
long-term liabilities
|
11,162
|
11,524
|
|||||
Total
liabilities
|
24,557
|
25,434
|
|||||
Commitments
and contingencies (Note 6)
|
|||||||
Stockholders’
Equity
|
|||||||
Common
stock at October 29, 2007 and July 31, 2007, $.001 par value, 50,000,000
shares authorized; 24,302,012 and 24,265,500 shares issued and
outstanding, respectively
|
24
|
24
|
|||||
Additional
paid-in capital
|
24,125
|
24,083
|
|||||
Retained
earnings
|
9,725
|
9,328
|
|||||
Total
stockholders’ equity
|
33,874
|
33,435
|
|||||
Total
liabilities and stockholders’
equity
|
$
|
58,431
|
$
|
58,869
|
|
Three Months Ended
October 29, 2007
|
Three Months Ended
October 29, 2006
|
||||||
Sales
|
$
|
10,469
|
$
|
9,906
|
||||
Cost
of sales
|
3,944
|
3,600
|
||||||
Gross
profit
|
6,525
|
6,306
|
||||||
Operating
expenses
|
||||||||
Research
and development
|
449
|
651
|
||||||
Selling,
general and administrative
|
5,291
|
4,937
|
||||||
5,740
|
5,588
|
|||||||
Operating
income
|
785
|
718
|
||||||
Other
income (expense)
|
||||||||
Interest
income
|
1
|
—
|
||||||
Interest
expense
|
(260
|
)
|
(165
|
)
|
||||
Miscellaneous
|
20
|
9
|
||||||
(239
|
)
|
(156
|
)
|
|||||
Income
before provision for income taxes
|
546
|
562
|
||||||
Provision
for income taxes
|
149
|
185
|
||||||
Net
income
|
$
|
397
|
$
|
377
|
||||
Earnings
per share:
|
||||||||
Basic
|
$
|
0.02
|
$
|
0.02
|
||||
Diluted
|
$
|
0.02
|
$
|
0.02
|
||||
Basic
weighted average common shares outstanding
|
24,296,309
|
24,210,680
|
||||||
Diluted
weighted average common shares outstanding
|
24,433,288
|
24,377,889
|
|
Three Months Ended
October 29, 2007
|
Three Months Ended
October 29, 2006
|
||||||
Cash
Flows from Operating Activities
|
||||||||
Net
income
|
$
|
397
|
$
|
377
|
||||
Adjustments
to reconcile net income to net cash used in operating
activities
|
||||||||
Depreciation
and amortization
|
485
|
356
|
||||||
Provision
for doubtful accounts receivable
|
86
|
21
|
||||||
Stock-based
compensation
|
42
|
33
|
||||||
Deferred
income taxes
|
(72
|
)
|
—
|
|||||
Change
in assets and liabilities:
|
||||||||
(Increase)
decrease in:
|
||||||||
Receivables
|
872
|
(23
|
)
|
|||||
Income
tax receivable
|
3
|
—
|
||||||
Inventories
|
(535
|
)
|
(1,557
|
)
|
||||
Prepaid
expenses
|
(127
|
)
|
(52
|
)
|
||||
Other
current assets
|
—
|
152
|
||||||
(Decrease)
increase in:
|
||||||||
Accounts
payable
|
(1,260
|
)
|
268
|
|||||
Accrued
expenses and other liabilities
|
47
|
(612
|
)
|
|||||
Income
taxes payable
|
224
|
36
|
||||||
Net
cash provided by (used in) operating activities
|
162
|
(1,001
|
)
|
|||||
Cash
Flows from Investing Activities
|
||||||||
Net
decrease in notes receivable, officer-stockholder
|
—
|
4
|
||||||
Purchase
of property and equipment
|
(272
|
)
|
(75
|
)
|
||||
Acquisition
of patents and other intangibles
|
(43
|
)
|
(112
|
)
|
||||
Sales
of trading securities
|
—
|
50
|
||||||
Net
cash used in investing activities
|
(315
|
)
|
(133
|
)
|
||||
Cash
Flows from Financing Activities
|
||||||||
Excess
of outstanding checks over bank balance
|
(382
|
)
|
(140
|
)
|
||||
Net
borrowings on lines-of-credit
|
1,042
|
319
|
||||||
Principal
payments on revenue bonds payable
|
(62
|
)
|
(63
|
)
|
||||
Proceeds
from long-term debt
|
—
|
919
|
||||||
Principal
payments on long-term debt
|
(330
|
)
|
(125
|
)
|
||||
Payments
on debt incurred for acquisition of trademark
|
(122
|
)
|
(115
|
)
|
||||
Net
cash provided by financing activities
|
146
|
795
|
||||||
Net
decrease in cash and cash equivalents
|
(7
|
)
|
(339
|
)
|
||||
Cash
and cash equivalents
|
||||||||
Beginning
|
167
|
557
|
||||||
Ending
|
$
|
160
|
$
|
218
|
|
Three
Months Ended October 29, 2007
|
|||||||||
|
Shares
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Fair
Value
|
|||||||
Options
outstanding, beginning of period
|
428,735
|
$
|
2.18
|
$
|
1.79
|
|||||
For
the period from August 1, 2007 through October 29, 2007:
|
||||||||||
Granted
|
—
|
—
|
—
|
|||||||
Forfeited
|
—
|
—
|
—
|
|||||||
Exercised
|
—
|
—
|
—
|
|||||||
Options
outstanding, end of period
|
428,735
|
$
|
2.18
|
$
|
1.79
|
|||||
Options
exercisable, end of period
|
369,700
|
$
|
2.46
|
$
|
2.03
|
|
October
29,
2007
|
July
31,
2007
|
|||||
Raw
material and component parts
|
$
|
6,658
|
$
|
6,754
|
|||
Work-in-progress
|
2,492
|
1,948
|
|||||
Finished
goods
|
5,632
|
5,545
|
|||||
$
|
14,782
|
$
|
14,247
|
|
October
29,
2007
|
July
31,
2007
|
|||||
Land
|
$
|
730
|
$
|
730
|
|||
Building
and improvements
|
5,436
|
5,436
|
|||||
Machinery
and equipment
|
4,541
|
4,428
|
|||||
Furniture
and fixtures
|
610
|
610
|
|||||
Software
|
115
|
115
|
|||||
Construction
in process
|
193
|
34
|
|||||
11,625
|
11,353
|
||||||
Less
accumulated depreciation
|
3,544
|
3,322
|
|||||
$
|
8,081
|
$
|
8,031
|
|
Gross
Carrying
Value
|
Accumulated
Amortization
|
Net
|
|||||||
October
29, 2007
|
||||||||||
Patents
|
$
|
1,143
|
$
|
255
|
$
|
888
|
||||
Proprietary
know-how
|
4,057
|
809
|
3,248
|
|||||||
Trademark
|
5,923
|
—
|
5,923
|
|||||||
Licensing
agreements
|
5,834
|
441
|
5,393
|
|||||||
$
|
16,957
|
$
|
1,505
|
$
|
15,452
|
|
July
31, 2007
|
|||||||||
Patents
|
$
|
1,103
|
$
|
232
|
$
|
871
|
||||
Proprietary
know-how
|
4,057
|
740
|
3,317
|
|||||||
Trademark
|
5,923
|
—
|
5,923
|
|||||||
Licensing
agreements
|
5,834
|
292
|
5,542
|
|||||||
$
|
16,917
|
$
|
1,264
|
$
|
15,653
|
Periods
Ending July 31:
|
Amount
|
|||
Fiscal
Year 2008 (remaining 9 months)
|
$
|
622
|
||
Fiscal
Year 2009
|
857
|
|||
Fiscal
Year 2010
|
828
|
|||
Fiscal
Year 2011
|
605
|
|||
Fiscal
Year 2012
|
552
|
|
October
29,
2007
|
July
31,
2007
|
|||||
Note
payable to bank, due in monthly principal installments of $1,139
plus
interest at prime rate plus 1% (an effective rate of 9.25% as of
July 31,
2007), remaining balance due September 2007, collateralized by a
second
deed of trust
|
$
|
—
|
$
|
151
|
|||
Note
payable, due in monthly installments of $509, including interest
at 4.9%,
remaining balance due May 2008, collateralized by a
vehicle
|
1
|
3
|
|||||
Note
payable to bank, due in monthly principal installments of $39,642
beginning November 2005 plus interest at a rate of 8.25%, remaining
balance due September 30, 2010, collateralized by substantially all
assets
of the Company
|
436
|
555
|
|||||
Note
payable to bank, due in monthly installments of $19,173 beginning
December
2006 plus interest at a rate of 8.25%, remaining balance due on November
14, 2010, collateralized by substantially all assets of the
Company
|
708
|
766
|
|||||
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 $2,718,368, including contractual interest
payments, due December 2011, collateralized by the Malis®
trademark
|
2,384
|
2,506
|
|||||
Settlement
obligation to Iridex Corporation, due in annual installments of $800,000
which includes interest at an imputed rate of 8.00%, remaining balance
of
$4,000,000 including the effects of imputing interest, due April
15,
2012
|
3,194
|
3,194
|
|||||
$
|
6,723
|
7,175
|
|||||
Less
current maturities
|
1,975
|
2,161
|
|||||
Long-term
portion
|
$
|
4,748
|
$
|
5,014
|
Three
months ended
|
|||||||
October
29,
2007
|
October
29,
2006
|
||||||
Product
Line:
|
|||||||
Ophthalmic
|
$
|
6,436
|
$
|
5,306
|
|||
Neurosurgery
|
3,732
|
3,775
|
|||||
Other
(Pain Control, ENT and Dental)
|
301
|
825
|
|||||
Total
|
$
|
10,469
|
$
|
9,906
|
|||
Region
Specific:
|
|||||||
Domestic
|
$
|
7,703
|
$
|
8,038
|
|||
International
|
2,766
|
1,868
|
|||||
Total
|
$
|
10,469
|
$
|
9,906
|
•
|
Introducing
new technology that easily differentiates our products from our
competition by capitalizing on our combined successes in delivering
minimally invasive products that enable concentrated application
to a
surgical area with decreased impact beyond the specific desired
surgical
effects, resulting in improved recovery times and shorter hospital
stays;
|
•
|
Identifying
microsurgical niches that may offer the prospect for substantial
growth
and higher profit margins that allow us an opportunity to build
upon our
existing technologies, such as expanding the use of our products
in ENT,
spine surgery, plastic surgery and other forms of
microsurgery;
|
|
|
•
|
Accelerating
our international growth by continuing to build on our recent successes
supported by Valley Forge’s long-established relationships and reputation
in global markets;
|
•
|
Utilizing
the full breadth and depth of knowledge, experience and resources
of our
research and development department to deliver precision-engineered
capital equipment, instruments, accessories and disposables to
the MIS
market based on our own proprietary technologies and
innovations;
|
•
|
Branding
and marketing a substantial portion of our neurosurgical and ENT
products
with the Malis® trademark;
|
•
|
Continuing
to develop our distribution channels, including the expansion of
our
domestic ophthalmic, neurosurgical and ENT direct sales forces,
continued
development of an international direct ophthalmic sales force and
continued expansion of our international neurosurgical distributor
relationships to assure that our products and their associated
benefits
are seen by those making or influencing the purchasing
decisions;
|
•
|
Continuing
to grow our disposables revenue stream across our product lines
by
focusing on the development of a full offering of disposable adjuncts,
such as instruments, adapters and fiber optics, to our capital
equipment
offerings and emphasizing disposables designed to eliminate hospital
reprocessing and repair costs and minimize patient-to-patient disease
transfer;
|
•
|
Expanding
the PhotonTM product line into other surgical markets such as
neurosurgery, ENT and general surgery markets;
|
•
|
Continuing
the penetration of the Malis®
AdvantageTM, our newest multifunctional bipolar
electrosurgical generator, into the neurosurgery
market;
|
•
|
Developing
the Malis® AdvantageTM applications with our new
proprietary single-use, hand-switching bipolar instruments with
enhanced
features and functionality further into the neurosurgical market
and into
other surgical markets such as spine, ENT and plastic
markets;
|
•
|
Expanding
the use of the Malis® AdvantageTM into other
microsurgical markets as its increased power and functionality
allows the
surgeon to perform functions similar to traditional monopolar systems,
without the inherent safety limitations;
|
•
|
Expanding
the use of the Omni®, our ultrasonic aspirator, into
other surgical markets such as spine and the ENT markets as its
torsional
bone cutting capability allows the surgeon to perform delicate
procedures
safely;
|
Exploring
opportunities for growth through strategic partnering with other
companies, such as our current relationships with Codman;
and
|
|
•
|
Exploring
opportunities for growth through strategic, accretive mergers or
acquisitions which would further expand our product offerings,
distribution channels or research and development
capabilities.
|
Quarter Ended October 29,
|
% Increase
|
|||||||||
2007
|
2006
|
(Decrease)
|
||||||||
Ophthalmic
|
$
|
6,436
|
$
|
5,306
|
21.3
|
%
|
||||
Neurosurgery
|
3,732
|
3,775
|
(1.1
|
)%
|
||||||
Other
|
301
|
825
|
(63.5
|
)%
|
||||||
Total
|
$
|
10,469
|
$
|
9,906
|
5.7
|
%
|
Quarter Ended October 29,
|
% Increase
|
|||||||||
2007
|
2006
|
(Decrease)
|
||||||||
United
States
|
$
|
7,703
|
$
|
8,038
|
(4.2
|
)%
|
||||
International
(including Canada)
|
2,766
|
1,868
|
48.1
|
%
|
||||||
Total
|
$
|
10,469
|
$
|
9,906
|
5.7
|
%
|
Exhibit No.
|
Description
|
|
10.1
|
Letter
Agreement by and between Synergetics USA, Inc. and Dave Dallam dated
November 8, 2007.
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SYNERGETICS
USA, INC.
|
|
(Registrant)
|
|
December
10, 2007
|
/s/
Gregg D. Scheller
|
Gregg
D. Scheller, President and Chief
|
|
Executive
Officer (Principal Executive
|
|
Officer)
|
|
December
10, 2007
|
/s/
Pamela G. Boone
|
Pamela
G. Boone, Executive Vice
|
|
President,
Chief Financial Officer, Secretary
|
|
and
Treasurer (Principal Financial and
|
|
Principal
Accounting Officer)
|