e10vq
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 January 31, 2010
|
|
|
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.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
20-5715943 |
|
|
|
(State or other jurisdiction of
|
|
(I.R.S. Employer Identification No.) |
incorporation or organization) |
|
|
|
|
|
3845 Corporate Centre Drive |
|
|
OFallon, Missouri
|
|
63368 |
|
|
|
(Address of principal executive offices)
|
|
(Zip Code) |
(636) 939-5100
Registrants Telephone Number, Including Area Code)
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large Accelerated Filer o | |
Accelerated Filer o | |
Non-Accelerated Filer o | |
Smaller Reporting Company þ |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the issuers common stock, $0.001 value per share, as of March
8, 2010 was 24,687,056 shares.
SYNERGETICS USA, INC.
Index to Form 10-Q
|
|
|
|
|
|
|
Page |
|
|
1 |
|
|
|
1 |
|
|
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
13 |
|
|
25 |
|
|
26 |
|
|
|
26 |
|
|
|
26 |
|
|
27 |
|
|
27 |
|
|
27 |
|
|
27 |
|
|
28 |
|
|
28 |
|
|
28 |
|
|
|
29 |
|
|
|
|
|
Part I Financial Information
Item 1 Unaudited Condensed Consolidated Financial Statements
Synergetics USA, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
As of January 31, 2010 (Unaudited) and July 31, 2009
(Dollars in thousands, except share information)
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010 |
|
|
July 31, 2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
478 |
|
|
$ |
160 |
|
Accounts receivable, net of allowance for
doubtful accounts of $277 and $330,
respectively |
|
|
8,722 |
|
|
|
9,105 |
|
Inventories |
|
|
14,418 |
|
|
|
15,025 |
|
Prepaid expenses |
|
|
661 |
|
|
|
416 |
|
Deferred income taxes |
|
|
608 |
|
|
|
654 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
24,887 |
|
|
|
25,360 |
|
Property and equipment, net |
|
|
7,673 |
|
|
|
7,914 |
|
Goodwill |
|
|
10,690 |
|
|
|
10,690 |
|
Other intangible assets, net |
|
|
12,743 |
|
|
|
13,135 |
|
Patents, net |
|
|
940 |
|
|
|
918 |
|
Cash value of life insurance |
|
|
63 |
|
|
|
63 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
56,996 |
|
|
$ |
58,080 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Excess of outstanding checks over bank balance |
|
$ |
288 |
|
|
$ |
75 |
|
Lines-of-credit |
|
|
3,563 |
|
|
|
5,035 |
|
Current maturities of long-term debt |
|
|
1,873 |
|
|
|
1,856 |
|
Current maturities of revenue bonds payable |
|
|
249 |
|
|
|
249 |
|
Accounts payable |
|
|
1,746 |
|
|
|
1,822 |
|
Accrued expenses |
|
|
2,451 |
|
|
|
2,874 |
|
Income taxes payable |
|
|
26 |
|
|
|
37 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
10,196 |
|
|
|
11,948 |
|
|
|
|
|
|
|
|
Long-Term Liabilities |
|
|
|
|
|
|
|
|
Long-term debt, less current maturities |
|
|
2,124 |
|
|
|
2,665 |
|
Revenue bonds payable, less current maturities |
|
|
3,301 |
|
|
|
3,414 |
|
Deferred income taxes |
|
|
1,667 |
|
|
|
1,923 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
7,092 |
|
|
|
8,002 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
17,288 |
|
|
|
19,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
Common stock at January 31, 2010 and July 31,
2009, $0.001 par value, 50,000,000 shares
authorized; 24,687,056 and 24,454,256 shares
issued and outstanding, respectively |
|
|
25 |
|
|
|
24 |
|
Additional paid-in capital |
|
|
24,678 |
|
|
|
24,520 |
|
Retained earnings |
|
|
15,005 |
|
|
|
13,586 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
39,708 |
|
|
|
38,130 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
56,996 |
|
|
$ |
58,080 |
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
1
Synergetics USA, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
Three and Six Months Ended January 31, 2010 and February 3, 2009
(Dollars in thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, 2010 |
|
|
February 3, 2009 |
|
|
January 31, 2010 |
|
|
February 3, 2009 |
|
Net sales |
|
$ |
13,014 |
|
|
$ |
13,652 |
|
|
$ |
25,160 |
|
|
$ |
25,898 |
|
Cost of sales |
|
|
5,688 |
|
|
|
5,811 |
|
|
|
11,015 |
|
|
|
10,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
7,326 |
|
|
|
7,841 |
|
|
|
14,145 |
|
|
|
14,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
731 |
|
|
|
854 |
|
|
|
1,331 |
|
|
|
1,506 |
|
Sales and marketing expenses |
|
|
3,045 |
|
|
|
3,940 |
|
|
|
6,304 |
|
|
|
7,183 |
|
General and administrative |
|
|
2,045 |
|
|
|
2,140 |
|
|
|
4,064 |
|
|
|
4,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,821 |
|
|
|
6,934 |
|
|
|
11,699 |
|
|
|
12,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,505 |
|
|
|
907 |
|
|
|
2,446 |
|
|
|
2,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Interest expense |
|
|
(131 |
) |
|
|
(221 |
) |
|
|
(299 |
) |
|
|
(403 |
) |
Miscellaneous |
|
|
|
|
|
|
(5 |
) |
|
|
28 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129 |
) |
|
|
(226 |
) |
|
|
(269 |
) |
|
|
(402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision
for income taxes |
|
|
1,376 |
|
|
|
681 |
|
|
|
2,177 |
|
|
|
1,668 |
|
Provision for income taxes |
|
|
499 |
|
|
|
292 |
|
|
|
758 |
|
|
|
617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
877 |
|
|
$ |
389 |
|
|
$ |
1,419 |
|
|
$ |
1,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
$ |
0.06 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
$ |
0.06 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average
common shares outstanding |
|
|
24,584,393 |
|
|
|
24,451,904 |
|
|
|
24,521,241 |
|
|
|
24,446,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average
common shares outstanding |
|
|
24,614,628 |
|
|
|
24,459,568 |
|
|
|
24,554,522 |
|
|
|
24,457,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
Synergetics USA, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
Six Months Ended January 31, 2010 and February 3, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, 2010 |
|
|
February 3, 2009 |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,419 |
|
|
$ |
1,051 |
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
967 |
|
|
|
887 |
|
Provision for doubtful accounts receivable |
|
|
(53 |
) |
|
|
5 |
|
Stock-based compensation |
|
|
147 |
|
|
|
128 |
|
Deferred income taxes |
|
|
(210 |
) |
|
|
(202 |
) |
(Gain) on sales of property and equipment |
|
|
(15 |
) |
|
|
|
|
Change in assets and liabilities |
|
|
|
|
|
|
|
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
436 |
|
|
|
161 |
|
Income taxes receivable |
|
|
|
|
|
|
(290 |
) |
Inventories |
|
|
607 |
|
|
|
(2,202 |
) |
Prepaid expenses |
|
|
(245 |
) |
|
|
(345 |
) |
(Decrease) increase in: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(76 |
) |
|
|
(499 |
) |
Accrued expenses |
|
|
(423 |
) |
|
|
(18 |
) |
Income taxes payable |
|
|
(11 |
) |
|
|
(1,071 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
2,543 |
|
|
|
(2,395 |
) |
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from the sale of property and equipment |
|
|
15 |
|
|
|
|
|
Purchase of property and equipment |
|
|
(281 |
) |
|
|
(425 |
) |
Acquisition of patents and other intangibles |
|
|
(75 |
) |
|
|
(56 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(341 |
) |
|
|
(481 |
) |
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Excess of outstanding checks over bank balance |
|
|
213 |
|
|
|
|
|
Net borrowings (repayments) on lines-of-credit |
|
|
(1,472 |
) |
|
|
3,357 |
|
Principal payments on long-term debt |
|
|
(246 |
) |
|
|
(246 |
) |
Principal payments on revenue bonds payable |
|
|
(113 |
) |
|
|
(124 |
) |
Payments on debt incurred for acquisition of trademark |
|
|
(278 |
) |
|
|
(262 |
) |
Proceeds from stock options exercises |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(1,884 |
) |
|
|
2,725 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
318 |
|
|
|
(151 |
) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Beginning |
|
|
160 |
|
|
|
500 |
|
|
|
|
|
|
|
|
Ending |
|
$ |
478 |
|
|
$ |
349 |
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
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: Synergetics USA, Inc. (Synergetics USA or the Company) is a Delaware
corporation incorporated on June 2, 2005, in connection with the reverse merger of Synergetics,
Inc. (Synergetics) and Valley Forge Scientific Corp. (Valley Forge) and the subsequent
reincorporation of Valley Forge (the predecessor to Synergetics USA) in Delaware. Synergetics USA
is a medical device company. Through continuous improvement and development of our people, our
mission is to design, manufacture and market innovative microsurgical instruments, capital
equipment, accessories and disposables of the highest quality in order to assist and enable
surgeons who perform microsurgery around the world to provide a better quality of life for their
patients. The Companys primary focus is on the microsurgical disciplines of ophthalmology and
neurosurgery. Our distribution channels include a combination of direct and independent sales
organizations and important strategic alliances with market leaders. The Company is located in
OFallon, Missouri and King of Prussia, Pennsylvania. During the ordinary course of its business,
the Company grants unsecured credit to its domestic and international customers.
Reporting period: The Companys year end is July 31 of each calendar year. For interim periods
in fiscal 2010, the Company now uses a calendar month reporting cycle. Formerly, in fiscal 2009,
the Company used a 21 business day per month reporting cycle. As such, the information presented
in this Form 10-Q is for the three and six month periods ended November 1, 2009 through January 31,
2010 and August 1, 2009, through January 31, 2010, respectively, and from October 29, 2008 through
February 3, 2009 and August 1, 2008, through February 3, 2009, respectively. As such, the three
month period in fiscal 2010 contains 61 business days and the six month period in fiscal 2010
contains 125 business days, while the three month period in fiscal 2009 contains 63 business days
and the six month period in fiscal 2009 contains 126 business days. The additional business day(s)
included in operations for the periods ended February 3, 2009 did not have a material impact on the
results of the operations for the periods then ended.
Basis of presentation: The unaudited condensed consolidated financial statements include the
accounts of Synergetics USA, Inc., and its wholly owned subsidiaries: Synergetics, Synergetics
Development Company, LLC, Synergetics Delaware, Inc. and Synergetics IP, Inc. All significant
intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (GAAP) for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and notes required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring items) considered necessary for a fair
presentation have been included. Operating results for the three and six months ended January 31,
2010, are not necessarily indicative of the results that may be expected for the fiscal year ending
July 31, 2010. These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements of the Company for the year ended
July 31, 2009, and notes thereto filed with the Companys Annual Report on Form 10-K filed with the
Securities and Exchange Commission on October 28, 2009 (the Annual Report).
Note 2. Summary of Significant Accounting Policies
Reclassifications: Certain reclassifications have been made to the prior years quarterly and
annual financial statements to conform with the current quarters presentation. Operating income
and net income were not affected.
The Companys significant accounting policies are disclosed in the Annual Report. In the first
six months of fiscal 2010, no significant accounting policies were changed other than the
implementation of the new accounting pronouncements described below.
4
In June 2009, the Financial Accounting Standards Board (FASB) launched the FASB Accounting
Standards Codification (ASC) as the single source of authoritative U.S. GAAP recognized by the
FASB. The ASC reorganizes various U.S. GAAP pronouncements into accounting topics and displays
them using a consistent structure. All existing accounting standards documents are superseded as
described in Statement of Financial Accounting Standards (SFAS) No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. All of the
contents of the ASC carry the same level of authority, effectively superseding SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles, which identified and ranked the sources of
accounting principles and the framework for selecting the principles used in preparing financial
statements in conformity with U.S. GAAP. Also included in the ASC are rules and interpretive
releases of the Securities and Exchange Commission (SEC), under authority of federal securities
laws that are also sources of authoritative U.S. GAAP for SEC registrants. The ASC is effective
for interim and annual periods ending after September 15, 2009. The adoption of the ASC as of
August 1, 2009, had no impact on our financial statements other than changing the way specific
accounting standards are referenced in our financial statements.
In September 2006, the FASB issued a new accounting and reporting standard for requiring a
fair value measurement which is principally applied to financial assets and liabilities such as
marketable equity securities and debt instruments. Derivatives include cash flow hedges,
freestanding derivative forward contracts, net investment hedges and interest rate swaps. These
items were previously, and will continue to be, marked-to-market at each reporting period; however,
the definition of fair value is now applied using this new standard. The adoption of this standard
on August 1, 2009, for such assets and liabilities did not have an impact on our condensed
consolidated financial statements (see related disclosures in Note 5 Fair Value Information).
In December 2007, the FASB issued a new accounting and reporting standard for the
noncontrolling interest (previously referred to as minority interest) in a subsidiary and the
accounting for the deconsolidation of a subsidiary. The standard clarifies that changes in a
parents ownership interest in a subsidiary that do not result in deconsolidation are equity
transactions if the parent retains its controlling financial interest, and the standard requires
that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. The gain
or loss will be measured using the fair value of the noncontrolling equity investment on the
deconsolidation date. In addition, the standard also includes expanded disclosures requiring the
ownership interest in subsidiaries held by parties other than the parent be clearly identified and
presented in the consolidated balance sheet within equity, but separate from the parents equity;
the amount of consolidated net income attributable to the parent and noncontrolling interest be
clearly identified and presented on the face of the consolidated statement of operations; and
changes in the parents ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently. The adoption of this standard on August
1, 2009, had no impact on our financial statements.
In December 2007, the FASB issued an accounting standard which establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling interests in the acquiree
and the goodwill acquired. This standard retains the underlying purchase method of accounting for
acquisitions, but incorporates a number of changes, including the capitalization of purchased
in-process research and development, expensing of acquisition related costs and the recognition of
contingent purchase price consideration at fair value at the acquisition date. In addition,
changes in accounting for deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period will be recognized in earnings rather than as an
adjustment to the cost of the acquisition. The adoption of this standard will be applied
prospectively to business combinations consummated after August 1, 2009.
In April 2008, the FASB finalized an accounting standard which delineates the factors that
should be considered in developing renewal or extension assumptions used to determine the useful
life of a recognized intangible asset. The intent of this standard was to improve the consistency
between the useful life of a recognized asset and the period of expected cash flows used to measure
the fair value of the asset. In addition, this standard requires additional disclosures concerning
recognized intangible assets which
5
would enable users of financial statements to assess the extent to which the expected future
cash flows associated with the asset are affected by the entitys intent and/or ability to renew or
extend the arrangement. The adoption of this standard did not have a material impact on our
condensed consolidated financial statements.
In May 2008, the FASB issued an accounting standard which changes the accounting treatment for
convertible debt instruments which requires or permits partial cash settlement upon conversion.
The new standard requires issuers to separate convertible debt instruments into two components: a
non-convertible bond and a conversion option. The separation of the conversion options creates an
original issue discount in the bond component which is to be accreted as interest expense over the
term of the instrument using the interest method, resulting in an increase to interest expense and
a decrease in net income and earnings per share. The adoption of this standard did not have an
impact on our condensed consolidated financial statements.
In June 2008, the FASB issued an accounting standard which provides that unvested share-based
payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method. The adoption of this standard did not have a material
impact on our reported earnings per share.
In April 2009, the FASB issued a new accounting standard which requires summarized disclosure
in interim period of the fair value of all financial instruments for which it is practicable to
estimate that value, whether recognized or not recognized in the financial statements. The
adoption of this standard on August 1, 2009, resulted in additional disclosures in our unaudited
interim condensed consolidated financial statements.
Subsequent events: The Company has evaluated subsequent events through the date of issuance of
the financial statements.
Note 3. Marketing Partner Agreements
The Company sells a portion of its electrosurgical generators and accessories to a U.S. based
national and international marketing partner as described below.
Codman & Shurtleff, Inc. (Codman)
In the neurosurgical market, the bipolar electrosurgical system manufactured by Valley Forge
prior to the merger has been sold for over 25 years through a series of distribution agreements
with Codman, an affiliate of Johnson & Johnson. On April 2, 2009, the Company executed a new,
three-year distribution agreement with Codman for the continued distribution by Codman of certain
bipolar generators and related disposables and accessories effective as of January 1, 2009. In
addition, the Company entered into a new, three-year license agreement, which provides for the
continued licensing of the Companys Malis® trademark to Codman for use with
certain Codman products, including those covered by the distribution agreement. Both agreements
expire on December 31, 2011.
On November 16, 2009, the Company announced the signing of an addendum to its three-year
agreement with Codman. Under the terms of the revised agreement, Codman will have the exclusive
right to market and distribute the Companys branded disposable bipolar forceps produced by
Synergetics. Codman began distribution of the disposable bipolar forceps on December 1, 2009,
domestically and February 1, 2010, internationally.
Total
sales to Codman and its respective percent of the Companys net
sales for the three and six month periods ended January 31, 2010, and
February 3, 2009, include the historical sales of generators,
accessories and disposable cord tubing that the Company has supplied
in the past as well as the disposable bipolar forcep sales resulting
from the addendum to the existing distribution agreement were as
follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
|
|
|
Six months |
|
|
|
|
ended January 31, |
|
Three months ended |
|
ended January |
|
Six months ended |
|
|
2010 |
|
February 3, 2009 |
|
31, 2010 |
|
February 3, 2009 |
Net Sales |
|
$ |
1,588 |
|
|
$ |
1,439 |
|
|
$ |
2,473 |
|
|
$ |
2,341 |
|
Percent of net sales |
|
|
12.2 |
% |
|
|
10.5 |
% |
|
|
9.8 |
% |
|
|
9.0 |
% |
No other Company customer comprises more than 10 percent of the Companys sales for the
six month period ended January 31, 2010.
6
Note 4. Stock-Based Compensation
Stock Option Plans
The following table provides information about stock-based awards outstanding at January 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended January 31, 2010 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
|
|
|
|
|
Exercise |
|
|
Average |
|
|
|
Shares |
|
|
Price |
|
|
Fair Value |
|
Options outstanding, beginning of period |
|
|
527,735 |
|
|
$ |
2.10 |
|
|
$ |
1.74 |
|
For the period from August 1, 2009 through January 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
127,500 |
|
|
|
1.37 |
|
|
|
1.10 |
|
Forfeited |
|
|
14,770 |
|
|
|
0.94 |
|
|
|
0.78 |
|
Exercised |
|
|
13,770 |
|
|
|
0.87 |
|
|
|
0.72 |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period |
|
|
626,695 |
|
|
$ |
2.01 |
|
|
$ |
1.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period |
|
|
454,184 |
|
|
$ |
2.28 |
|
|
$ |
1.89 |
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of fiscal 2010 there were 40,000 options granted to the Companys
independent directors, which vest pro-ratably on a quarterly basis over the next year of service.
Each independent director receives an option to purchase 10,000 shares of the Companys Common
Stock each year in which he or she is elected, appointed, or re-elected to serve as a director
pursuant to the Amended and Restated 2005 Non-Employee Directors Stock Option Plan. The Company
recorded $4,000 of compensation expense for the six months ended January 31, 2010 with respect to
these options.
During the second quarter of fiscal 2010 there were 35,000 options granted to the Chief Executive
Officer (CEO), and 17,500 options granted to each of the Chief Operations Officer (COO), the
Chief Scientific Officer (CSO) and the Chief Financial Officer (CFO). The options granted to
the officers of the Company were granted in conjunction with the Companys annual review of
compensation as of August 1, 2009 and vest pro-ratably on a quarterly basis over the next five
years of service. The Company recorded $2,000 of compensation expense for the six months ended
January 31, 2010 with respect to these options.
The fair values of all options granted during the second fiscal quarter were determined at the date
of the grant using a Black-Sholes options-pricing model and the following assumptions:
|
|
|
|
|
Expected average risk-free interest rate |
|
|
2.35 |
% |
Expected average life (in years) |
|
|
10 |
|
Expected volatility |
|
|
77.8 |
% |
Expected dividend yield |
|
|
0.0 |
% |
The expected average risk-free rate is based on the 10 year U.S. treasury yield curve in December
of 2009. The expected average life represents the period of time that the options granted are
expected to be outstanding giving consideration to vesting schedules, historical exercises and
forfeiture patterns. Expected volatility is based on historical volatilities of Synergetics USA,
Inc.s common stock. The expected dividend yield is based on historical information and
managements plan.
7
The Company recorded additional compensation expense of $17,700 for options granted in prior
periods for the six months ended January 31, 2010. The Company expects to issue new shares as
options are exercised. As of January 31, 2010, the future compensation cost expected to be
recognized for outstanding stock options is approximately $40,000 for the remainder of fiscal 2010,
$50,000 in fiscal 2011, $22,000 in fiscal 2012, $19,000 in fiscal 2013, $19,000 in fiscal 2014 and
$8,000 in fiscal 2015.
Restricted Stock Plans
Under our Amended and Restated Synergetics USA, Inc. 2001 Stock Plan (2001 Plan), our common
stock may be granted at no cost to certain employees and consultants of the Company. Certain plan
participants are entitled to cash dividends and voting rights for their respective shares.
Restrictions limit the sale or transfer of these shares during a vesting period whereby the
restrictions lapse either pro-ratably over a five-year vesting period or at the end of the fifth
year. These shares also vest upon a change of control event. Upon issuance of stock under the
2001 Plan, unearned compensation equivalent to the market value at the date of the grant is charged
to stockholders equity and subsequently amortized to expense over the applicable restriction
period. The shares granted of 164,207 during the fiscal 2nd quarter of 2010 represent
shares to management personnel for their performance during calendar year 2009. As of January 31,
2010, there was approximately $404,000 of total unrecognized compensation cost related to
non-vested share-based compensation arrangements granted under the 2001 Plan. The cost is expected
to be recognized over a weighted-average period of five years. The following table provides
information about restricted stock grants during the three-month period ended January 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
Weighted-Average
Grant Date Fair Value |
|
Balance as of July 31, 2009 |
|
|
112,076 |
|
|
$ |
3.13 |
|
Granted |
|
|
164,207 |
|
|
$ |
1.37 |
|
Forfeited |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Balance as of January 31, 2010 |
|
|
276,283 |
|
|
$ |
2.08 |
|
|
|
|
|
|
|
|
Note 5. Fair Value Information
Fair value is an exit price that represents the amount that would be received upon sale of an
asset or paid to transfer a liability in an orderly transaction between market participants.
The Company does not have any financial assets which are required to be measured at fair value
on a recurring basis. Non-financial assets such as goodwill, intangible assets and property, plant
and equipment are measured at fair value when there is an indicator of impairment and recorded at
fair value only when impairment is recognized. No impairment indicators existed as of January 31,
2010.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses approximate fair value because of the short maturity of these items. The carrying
amount of the Companys notes and revenue bonds payable and long-term debt is estimated to
approximate fair value because the variable interest rates or the fixed interest rates are based on
estimated current rates offered to the Company for debt with similar terms and maturities.
Note 6. Supplemental Balance Sheet Information
Inventories
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010 |
|
|
July 31, 2009 |
|
Raw material and component parts |
|
$ |
5,815 |
|
|
$ |
6,058 |
|
Work-in-progress |
|
|
2,564 |
|
|
|
2,723 |
|
Finished goods |
|
|
6,039 |
|
|
|
6,244 |
|
|
|
|
|
|
|
|
|
|
$ |
14,418 |
|
|
$ |
15,025 |
|
|
|
|
|
|
|
|
8
Property and equipment
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010 |
|
|
July 31, 2009 |
|
Land |
|
$ |
730 |
|
|
$ |
730 |
|
Building and improvements |
|
|
5,906 |
|
|
|
5,782 |
|
Machinery and equipment |
|
|
5,414 |
|
|
|
5,363 |
|
Furniture and fixtures |
|
|
736 |
|
|
|
720 |
|
Software |
|
|
363 |
|
|
|
336 |
|
Construction in process |
|
|
79 |
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
13,228 |
|
|
|
13,097 |
|
Less accumulated depreciation |
|
|
5,555 |
|
|
|
5,183 |
|
|
|
|
|
|
|
|
|
|
$ |
7,673 |
|
|
$ |
7,914 |
|
|
|
|
|
|
|
|
Other intangible assets
Information regarding the Companys other intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Value |
|
|
Amortization |
|
|
Net |
|
|
|
January 31, 2010 |
|
|
|
|
Proprietary know-how |
|
$ |
4,057 |
|
|
$ |
1,421 |
|
|
$ |
2,636 |
|
Trademark |
|
|
5,923 |
|
|
|
|
|
|
|
5,923 |
|
Licensing agreements |
|
|
5,834 |
|
|
|
1,650 |
|
|
|
4,184 |
|
Patents |
|
|
1,410 |
|
|
|
470 |
|
|
|
940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,224 |
|
|
$ |
3,541 |
|
|
$ |
13,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2009 |
|
|
|
|
Proprietary know-how |
|
$ |
4,057 |
|
|
$ |
1,295 |
|
|
$ |
2,762 |
|
Trademark |
|
|
5,923 |
|
|
|
|
|
|
|
5,923 |
|
Licensing agreements |
|
|
5,834 |
|
|
|
1,384 |
|
|
|
4,450 |
|
Patents |
|
|
1,335 |
|
|
|
417 |
|
|
|
918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,149 |
|
|
$ |
3,096 |
|
|
$ |
14,053 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill of $10,690,000 and proprietary know-how of $4,057,000 are a result of the reverse
merger transaction with Valley Forge completed on September 21, 2005. Proprietary know-how
consists of the patented technology which is included in one of the Companys core products,
bipolar electrosurgical generators. As the proprietary technology is a distinguishing feature of
the Companys products, it represents a valuable intangible asset.
The Company did not incur costs to renew or extend the term of acquired intangible assets
during the period ended January 31, 2010.
Estimated amortization expense on other intangibles for the remaining six months of the fiscal
year ending July 31, 2010, and the next four years thereafter is as follows:
|
|
|
|
|
Periods Ending July 31: |
|
Amount |
|
Fiscal Year 2010 (remaining 6 months) |
|
$ |
399 |
|
Fiscal Year 2011 |
|
|
629 |
|
Fiscal Year 2012 |
|
|
575 |
|
Fiscal Year 2013 |
|
|
573 |
|
Fiscal Year 2014 |
|
|
573 |
|
Amortization expense for the three and six months ended January 31, 2010, was $222,000 and $445,000
respectively.
9
Pledged assets; short and long-term debt (excluding revenue bonds payable)
Short-term debt as of January 31, 2010, and July 31, 2009, consisted of the following:
Revolving Credit Facility: The Company has a credit facility with Regions Bank (Regions),
which allows for borrowings of up to $9.5 million (collateral available on January 31, 2010 permits
borrowings up to $8.0 million) with interest at an interest rate based on either the one-, two- or
three-month LIBOR plus 2.0 percent and adjusting each quarter based upon our leverage ratio. As of
January 31, 2010, interest under the facility was charged at 2.23 percent. The unused portion of
the facility is charged at a rate of 0.20 percent. Borrowings under this facility at January 31,
2010, were $3.6 million. Outstanding amounts are collateralized by the Companys domestic
receivables and inventory. This credit facility was amended on November 30, 2009, to extend the
termination date through November 30, 2010.
The facility has two financial covenants: a maximum leverage ratio of 3.75 times and a minimum
fixed charge coverage ratio of 1.1 times. As of January 31, 2010, the leverage ratio was 1.13 times
and the minimum fixed charge coverage ratio was 1.99 times. Collateral availability under the line
at January 31, 2010, was approximately $4.4 million. The facility restricts the payment of
dividends if, following the distribution, the fixed charge coverage ratio would fall below the
required minimum.
Non-U.S. Receivables Revolving Credit Facility: The Company has a non-U.S. receivables
revolving credit facility with Regions which allows for borrowings of up to $1.75 million with an
interest rate based on LIBOR plus 3.0 percent. Pursuant to the terms of this facility, under no
circumstance shall the rate be less than 3.5 percent per annum. The facility is charged an
administrative fee of 1.0 percent. There were no borrowings under this facility at January 31,
2010. Outstanding amounts are collateralized by the Companys non-U.S. receivables. This credit
facility has no financial covenants and was amended on November 30, 2009, to extend the termination
date through November 30, 2010. Collateral availability under the facility was approximately $1.1
million at January 31, 2010.
Equipment Line of Credit: Under this credit facility, the Company may borrow up to
$1.0 million, with interest currently at one-month LIBOR plus 3.0 percent. Pursuant to the terms of
the equipment line of credit, under no circumstance shall the rate be less than 3.5 percent per
annum. The unused portion of the facility is not charged a fee. There were no borrowings under
this line as of January 31, 2010. The equipment line of credit was amended on November 30, 2009,
to extend the maturity date to November 30, 2010.
Long-term debt as of January 31, 2010, and July 31, 2009, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
July 31, |
|
|
|
2010 |
|
|
2009 |
|
Note 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 |
|
$ |
738 |
|
|
$ |
984 |
|
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 6.0
percent, remaining balance of $1,279,232,
including contractual interest payments,
due December 2011, collateralized by the
Malis® trademark |
|
|
1,197 |
|
|
|
1,475 |
|
Settlement obligation to Iridex
Corporation, due in annual installments of
$800,000 which includes interest at an
imputed rate of 8.0 percent, remaining
balance of $2,400,000 including the
effects of imputing interest, due April
15, 2012 |
|
|
2,062 |
|
|
|
2,062 |
|
|
|
|
|
|
|
|
|
|
|
3,997 |
|
|
|
4,521 |
|
Less current maturities |
|
|
1,873 |
|
|
|
1,856 |
|
|
|
|
|
|
|
|
Long-term portion |
|
$ |
2,124 |
|
|
$ |
2,665 |
|
|
|
|
|
|
|
|
10
Note 7. Commitments and Contingencies
On August 1, 2007, the Company entered into a three-year employment agreement with its
Executive Vice President and CFO, Pamela Boone. In the event she is terminated without cause, or if
she resigns for good reason, she shall be entitled to her base salary and health care benefits for
fifteen additional months.
On July 31, 2008, the Companys Board of Directors formally accepted the resignation of
Gregg Scheller who was the Companys President, CEO and Chairman of the Board. The Company believes
the non-compete covenant contained in Mr. Schellers employment agreement survives until July 31,
2010.
Effective January 29, 2009, the Companys Board of Directors appointed David M. Hable to
serve as President and CEO. Also on that date, the Company entered into a change in control
agreement with Mr. Hable. On December 9, 2009, the Company entered into a change in control
agreement with each of its COO and CSO, which agreements were contemplated in conjunction with the
Companys annual review of compensation and therefore were made effective with other compensation
changes as of August 1, 2009. The change in control agreements with the CEO, COO and CSO each
provide that if employment is terminated within one year following a change in control for cause or
disability (as each term is defined in the change in control agreement), as a result of the
officers death, or by the officer other than as an involuntary termination (as defined in the
change in control agreement), the Company shall pay the officer all compensation earned or accrued
through his employment termination date, including (i) base salary; (ii) reimbursement for
reasonable and necessary expenses; (iii) vacation pay; (iv) bonuses and incentive compensation; and
(v) all other amounts to which he is entitled under any compensation or benefit plan of the Company
(Standard Compensation Due).
If the officers employment is terminated within one year following a change in control
without cause and for any reason other than death or disability, including an involuntary
termination, and provided the officer enters into a separation agreement within 30 days of his
employment termination, he shall receive the following (Ordinary Severance): (i) all Standard
Compensation Due and any amount payable as of the termination date under the Companys
objectives-based incentive plan, the sum of which shall be paid in a lump sum immediately upon such
termination; and (ii) an amount equal to one times his annual base salary at the rate in effect
immediately prior to the change in control, to be paid in 12 equal monthly installments beginning
in the month following his employment termination. Furthermore, all of the officers awards of
shares or options shall immediately vest and be exercisable for one year after the date of his
employment termination.
Various claims, incidental to the ordinary course of business, are pending against the
Company. In the opinion of management, after consultation with legal counsel, resolution of these
matters is not expected to have a material effect on the accompanying financial statements.
The Company is subject to regulatory requirements throughout the world. In the normal
course of business, these regulatory agencies may require companies in the medical industry to
change their products or operating procedures, which could affect the Company. The Company
regularly incurs expenses to comply with these regulations and may be required to incur additional
expenses. Management is not able to estimate any additional expenditures outside the normal course
of operations which will be incurred by the Company in future periods in order to comply with these
regulations.
11
Note 8. Enterprise-wide Information
The following tables present the Companys entity-wide disclosures for net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
January 31, |
|
|
February 3, |
|
|
January 31, |
|
|
February 3, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Product Line: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ophthalmic |
|
$ |
7,801 |
|
|
$ |
7,466 |
|
|
$ |
15,323 |
|
|
$ |
14,850 |
|
Neurosurgery |
|
|
2,829 |
|
|
|
3,816 |
|
|
|
5,729 |
|
|
|
6,769 |
|
Marketing partners
(Codman, Stryker
Corporation and
Iridex Corporation) |
|
|
2,353 |
|
|
|
2,263 |
|
|
|
4,043 |
|
|
|
4,045 |
|
Other (ENT and Dental) |
|
|
31 |
|
|
|
107 |
|
|
|
65 |
|
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,014 |
|
|
$ |
13,652 |
|
|
$ |
25,160 |
|
|
$ |
25,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Region Specific: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
8,751 |
|
|
$ |
9,195 |
|
|
$ |
17,240 |
|
|
$ |
17,941 |
|
International |
|
|
4,263 |
|
|
|
4,457 |
|
|
|
7,920 |
|
|
|
7,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,014 |
|
|
$ |
13,652 |
|
|
$ |
25,160 |
|
|
$ |
25,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues are attributed to countries based upon the location of end-user customers or
distributors.
Note 9. Recent Accounting Pronouncements
In June 2009, the FASB issued an accounting standard limiting the circumstances in which a
financial asset may be derecognized when the transferor has not transferred the entire financial
asset or has continuing involvement with the transferred asset. The concept of a qualifying
special-purpose entity, which had previously facilitated sales accounting for certain asset
transfers, is removed by this standard. The new standard is effective for the Company beginning
August 1, 2010 and early application is prohibited. We have not completed our evaluation of the
potential impact, if any, of the adoption of this standard on our consolidated financial position,
results of operations or cash flows.
In June 2009, the FASB issued an accounting standard which amends the accounting for variable
interest entities (VIEs) and changes the process as to how an enterprise determines which party
consolidates a VIE. This also defines the party that consolidates the VIE (the primary beneficiary)
as the party with (1) the power to direct activities of the VIE that most significantly affect the
VIEs economic performance and (2) the obligation to absorb losses of the VIE or the right to
receive benefits from the VIE. Upon adoption of this accounting standard, the reporting enterprise
must reconsider its conclusions on whether an entity should be consolidated, and should a change
result, the effect on its net assets will be recorded as a cumulative effect adjustment to retained
earnings. This accounting standard will be effective for the Company beginning August 1, 2010 and
early application is prohibited. We have not completed our evaluation of the potential impact, if
any, of the adoption of this standard on our consolidated financial position, results of operations
or cash flows.
In October 2009, the FASB issued an accounting standard requiring an entity to allocate
revenue arrangement consideration at the inception of a multiple-deliverable revenue arrangement to
all of its deliverables based on their relative selling prices. This accounting is effective for
revenue arrangements entered into or materially modified by the Company beginning August 1, 2011
with early adoption permitted. We have not completed our evaluation of the potential impact, if
any, of the adoption of this standard on our consolidated financial position, results of operations
or cash flows.
In October 2009, the FASB issued an accounting standard addressing how entities account for
revenue arrangements that contain both hardware and software elements. Due to the significant
difference in the level of evidence required for separation of multiple deliverables within
different accounting standards, this particular accounting standard will modify the scope of
accounting guidance for software revenue recognition. Many tangible products containing software
and nonsoftware components that
12
function together to deliver the tangible products essential functionality will be
accounted for under the revised multiple-element arrangement revenue recognition guidance disclosed
above. This accounting standard is effective for revenue arrangements entered into or materially
modified by the Company beginning August 1, 2011 with early adoption permitted. We have not
completed our evaluation of the potential impact, if any, of the adoption of this standard on our
consolidated financial position, results of operations or cash flows.
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value
Measurements, which amends ASC 820 Fair Value Measurements and Disclosures. This ASU requires
disclosures of transfers into and out of Levels 1 and 2, more detailed roll forward reconciliations
of Level 3 recurring fair value measurement on a gross basis, fair value information by class of
assets and liabilities and descriptions of valuation techniques and inputs for Level 2 and 3
measurements. The effective date is the second quarter of fiscal 2011 except for the roll forward
reconciliations, which are required in the first quarter of fiscal 2012. The Company does not
believe the adoption of this ASU will have a material effect on its consolidated financial
statements.
We have reviewed all other recently issued, but not yet effective, accounting
pronouncements and do not believe any such pronouncements will have a material impact on our
financial statements.
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
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 Companys Form 10-K for the fiscal year ended July 31, 2009.
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 managements 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.
13
Mission
Through continuous improvement and development of our people, our mission is to design,
manufacture and market innovative microsurgical instruments, capital equipment, accessories and
disposables of the highest quality in order to assist and enable surgeons who perform microsurgery
around the world to provide a better quality of life for their patients.
Overview
Synergetics USA, Inc. (Synergetics USA or the Company) is a leading supplier of precision
microsurgery instrumentation. The Companys primary focus is on the microsurgical disciplines of
ophthalmology and neurosurgery. Our distribution channels include a combination of direct and
independent sales organizations and important strategic alliances with market leaders. The
Companys product lines focus upon precision engineered, microsurgical, hand-held instruments and
the microscopic delivery of laser energy, ultrasound, electrosurgery, aspiration, illumination and
irrigation, often delivered in multiple combinations. Enterprise-wide information is included in
Note 8 to the unaudited condensed consolidated financial statements.
The Company is a Delaware corporation incorporated on June 2, 2005, in connection with the
reverse merger of Synergetics, Inc. (Synergetics) and Valley Forge Scientific Corp. (Valley
Forge). Synergetics was founded in 1991. Valley Forge was incorporated in 1980 and became a
publicly-held company in November 1989. Prior to the merger of Synergetics and Valley Forge, Valley
Forges common stock was listed on The NASDAQ Small Cap Market (now known as The NASDAQ Capital
Market) and the Boston Stock Exchange under the ticker symbol VLFG. On September 21, 2005,
Synergetics Acquisition Corporation, a wholly-owned Missouri subsidiary of Valley Forge, merged
with and into Synergetics, and Synergetics thereby became a wholly-owned subsidiary of Valley
Forge. On September 22, 2005, Valley Forge reincorporated from a Pennsylvania corporation to a
Delaware corporation and changed its name to Synergetics USA, Inc. Upon consummation of the
merger, the Companys securities began trading on The NASDAQ Capital Market under the ticker symbol
SURG, and its shares were voluntarily delisted from the Boston Stock Exchange.
Summary of Financial Information
The following tables present net sales by category and our results of operations (dollars in
thousands):
NET SALES BY CATEGORY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
January 31, 2010 |
|
|
Mix |
|
|
February 3, 2009 |
|
|
Mix |
|
Ophthalmic |
|
$ |
7,801 |
|
|
|
60.0 |
% |
|
$ |
7,466 |
|
|
|
54.7 |
% |
Neurosurgery |
|
|
2,829 |
|
|
|
21.7 |
% |
|
|
3,816 |
|
|
|
27.9 |
% |
Marketing Partners (1) |
|
|
2,353 |
|
|
|
18.1 |
% |
|
|
2,263 |
|
|
|
16.6 |
% |
Other |
|
|
31 |
|
|
|
0.2 |
% |
|
|
107 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,014 |
|
|
|
|
|
|
$ |
13,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
January 31, 2010 |
|
|
Mix |
|
|
February 3, 2009 |
|
|
Mix |
|
Ophthalmic |
|
$ |
15,323 |
|
|
|
60.9 |
% |
|
$ |
14,850 |
|
|
|
57.4 |
% |
Neurosurgery |
|
|
5,729 |
|
|
|
22.8 |
% |
|
|
6,769 |
|
|
|
26.1 |
% |
Marketing Partners (1) |
|
|
4,043 |
|
|
|
16.1 |
% |
|
|
4,045 |
|
|
|
15.6 |
% |
Other |
|
|
65 |
|
|
|
0.2 |
% |
|
|
234 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
25,160 |
|
|
|
|
|
|
$ |
25,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information with respect to the breakdown of revenue by geographical region is included in
Note 8 to the unaudited condensed consolidated financial statements.
14
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
January 31, 2010 |
|
February 3, 2009 |
|
(Decrease) |
Net Sales |
|
$ |
13,014 |
|
|
$ |
13,652 |
|
|
|
(4.7 |
%) |
Gross Profit |
|
|
7,326 |
|
|
|
7,841 |
|
|
|
(6.6 |
%) |
Gross Profit Margin % |
|
|
56.3 |
% |
|
|
57.4 |
% |
|
|
(1.9 |
%) |
Commercial Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing |
|
|
3,045 |
|
|
|
3,940 |
|
|
|
(22.7 |
%) |
General and Administrative |
|
|
2,045 |
|
|
|
2,140 |
|
|
|
(4.4 |
%) |
Research and Development |
|
|
731 |
|
|
|
854 |
|
|
|
(14.4 |
%) |
Operating Income |
|
|
1,505 |
|
|
|
907 |
|
|
|
65.9 |
% |
Operating Margin |
|
|
11.6 |
% |
|
|
6.6 |
% |
|
|
75.8 |
% |
EBITDA (2) |
|
|
1,992 |
|
|
|
1,323 |
|
|
|
50.6 |
% |
Net Income |
|
$ |
877 |
|
|
$ |
389 |
|
|
|
125.4 |
% |
Earnings per share |
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
|
100.0 |
% |
Return on equity (2) |
|
|
2.2 |
% |
|
|
1.0 |
% |
|
|
120.0 |
% |
Return on assets (2) |
|
|
1.8 |
% |
|
|
1.0 |
% |
|
|
80.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
January 31, 2010 |
|
February 3, 2009 |
|
(Decrease) |
Net Sales |
|
$ |
25,160 |
|
|
$ |
25,898 |
|
|
|
(2.8 |
%) |
Gross Profit |
|
|
14,145 |
|
|
|
14,921 |
|
|
|
(5.2 |
%) |
Gross Profit Margin % |
|
|
56.2 |
% |
|
|
57.6 |
% |
|
|
(2.4 |
%) |
Commercial Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing |
|
|
6,304 |
|
|
|
7,183 |
|
|
|
(12.2 |
%) |
General and Administrative |
|
|
4,064 |
|
|
|
4,162 |
|
|
|
(2.4 |
%) |
Research and Development |
|
|
1,331 |
|
|
|
1,506 |
|
|
|
(11.6 |
%) |
Operating Income |
|
|
2,446 |
|
|
|
2,070 |
|
|
|
18.2 |
% |
Operating Margin |
|
|
9.7 |
% |
|
|
8.0 |
% |
|
|
21.3 |
% |
EBITDA (2) |
|
|
3,441 |
|
|
|
2,956 |
|
|
|
16.4 |
% |
Net Income |
|
$ |
1,419 |
|
|
$ |
1,051 |
|
|
|
35.0 |
% |
Earnings per share |
|
$ |
0.06 |
|
|
$ |
0.04 |
|
|
|
50.0 |
% |
Return on equity (2) |
|
|
3.7 |
% |
|
|
2.8 |
% |
|
|
32.1 |
% |
Return on assets (2) |
|
|
3.0 |
% |
|
|
2.4 |
% |
|
|
25.0 |
% |
|
|
|
(1) |
|
Sales from our marketing partners are primarily neurosurgery and pain control revenues. |
|
(2) |
|
EBITDA, return on equity and return on assets are not financial measures recognized by U.S.
generally accepted accounting principles (GAAP). EBITDA is defined as income before net
interest expense, income taxes, depreciation and amortization. Return on equity is defined
as net income divided by average equity. Return on assets is defined as net income plus
interest expense divided by average assets. See disclosure following regarding the use of
non-GAAP financial measures. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
January 31, 2010 |
|
February 3, 2009 |
|
January 31, 2010 |
|
February 3, 2009 |
Net income |
|
$ |
877 |
|
|
$ |
389 |
|
|
$ |
1,419 |
|
|
$ |
1,051 |
|
Interest, net |
|
|
129 |
|
|
|
221 |
|
|
|
297 |
|
|
|
401 |
|
Income taxes |
|
|
499 |
|
|
|
292 |
|
|
|
758 |
|
|
|
617 |
|
Depreciation and |
|
|
487 |
|
|
|
421 |
|
|
|
967 |
|
|
|
887 |
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
1,992 |
|
|
$ |
1,323 |
|
|
$ |
3,441 |
|
|
$ |
2,956 |
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
January 31, 2010 |
|
February 3, 2009 |
|
January 31, 2010 |
|
February 3, 2009 |
Net income |
|
$ |
877 |
|
|
$ |
389 |
|
|
$ |
1,419 |
|
|
$ |
1,051 |
|
Average Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010 |
|
$ |
39,708 |
|
|
|
|
|
|
$ |
39,708 |
|
|
|
|
|
October 31, 2009 |
|
$ |
38,746 |
|
|
|
|
|
|
$ |
38,746 |
|
|
|
|
|
July 31, 2009 |
|
|
|
|
|
|
|
|
|
$ |
38,130 |
|
|
|
|
|
February 3, 2009 |
|
|
|
|
|
|
37,536 |
|
|
|
|
|
|
|
37,536 |
|
October 29, 2008 |
|
|
|
|
|
|
37,068 |
|
|
|
|
|
|
|
37,068 |
|
July 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,357 |
|
Average Equity |
|
$ |
39,227 |
|
|
|
37,302 |
|
|
$ |
38,861 |
|
|
|
36,987 |
|
Return on Equity |
|
|
2.2 |
% |
|
|
1.0 |
% |
|
|
3.7 |
% |
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
877 |
|
|
$ |
389 |
|
|
$ |
1,419 |
|
|
$ |
1,051 |
|
Interest |
|
|
129 |
|
|
|
221 |
|
|
|
297 |
|
|
|
401 |
|
Net income + interest expense |
|
$ |
1,006 |
|
|
$ |
610 |
|
|
$ |
1,716 |
|
|
$ |
1,452 |
|
Average Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010 |
|
$ |
56,996 |
|
|
|
|
|
|
$ |
56,996 |
|
|
|
|
|
October 31, 2009 |
|
$ |
56,737 |
|
|
|
|
|
|
$ |
56,737 |
|
|
|
|
|
July 31, 2009 |
|
|
|
|
|
|
|
|
|
$ |
58,080 |
|
|
|
|
|
February 3, 2009 |
|
|
|
|
|
|
60,544 |
|
|
|
|
|
|
|
60,544 |
|
October 29, 2008 |
|
|
|
|
|
|
59,124 |
|
|
|
|
|
|
|
59,124 |
|
July 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,396 |
|
Average Assets |
|
$ |
56,867 |
|
|
|
59,834 |
|
|
$ |
57,271 |
|
|
|
59,355 |
|
Return on Assets |
|
|
1.8 |
% |
|
|
1.0 |
% |
|
|
3.0 |
% |
|
|
2.4 |
% |
Non-GAAP Financial Measures
We measure our performance primarily through our operating profit. In addition to our audited
consolidated financial statements presented in accordance with GAAP, management uses certain
non-GAAP measures, including EBITDA, return on equity and return on assets, to measure our
operating performance. We provide a definition of the components of these measurements and
reconciliation to the most directly comparable GAAP financial measure.
These non-GAAP measures are presented to enhance an understanding of our operating results and
are not intended to represent cash flow or results of operations. The use of these non-GAAP
measures provides an indication of our ability to service debt and measure operating performance.
We believe these non-GAAP measures are useful in evaluating our operating performance compared to
other companies in our industry, and are beneficial to investors, potential investors and other key
stakeholders, including creditors who use this measure in their evaluation of our performance.
EBITDA, however, does have certain material limitations primarily due to the exclusion of
certain amounts that are material to our results of operations, such as interest expense, income
tax expense, depreciation and amortization. Because of this limitation, EBITDA should not be
considered a measure of discretionary cash available to us to invest in our business and should be
utilized in conjunction with other information contained in our consolidated financial statements
prepared in accordance with GAAP.
Results Overview
Revenues from our ophthalmic products constituted 60.9 percent and 56.6 percent of our total
revenues for the six months ended January 31, 2010, and for the fiscal year ended July 31, 2009,
respectively. Revenues from our neurosurgical products represented 22.8 percent and 26.4 percent
for the six months ended January 31, 2010, and for the fiscal year ended July 31, 2009,
respectively. Revenues from our marketing partners represented 16.1 percent of our total revenues
for both the six months ended January 31, 2010, and for the fiscal year ended July 31, 2009. In
addition, other revenue was 0.2 percent of
16
our total revenues for the three months ended January 31, 2010, and 0.9 percent of our total
revenues for the fiscal year ended July 31, 2009.
International revenues of $7.9 million constituted 31.5 percent of our total revenues for the
six months ended January 31, 2010, as compared to 31.9 percent as of the fiscal year ended July 31,
2009. We expect that the relative revenue contribution of our international sales will continue to
rise for the remainder of fiscal 2010 and fiscal 2011 as a result of our continued efforts to
expand our international distribution and direct sales force.
Recent Developments
On November 10, 2009, the Company announced that it had signed a definitive agreement with
Stryker Corporation (Stryker) in conjunction with the planned acquisition (the Acquisition) by
Stryker of certain assets from Mutoh Co., Ltd. and its affiliates (Mutoh) used to produce the
Sonopet Ultrasonic Aspirator control consoles and handpieces (currently marketed under the
Omni®
brand by Synergetics in the U.S., Canada and several other
countries). As reported in our press release and our first quarter
Form 10-Q, the
agreement provides for Synergetics to do the following: sell to Stryker certain assets associated
with the marketing and sales of the Mutoh console and handpiece products; supply disposable
ultrasonic instrument tips and certain other consumable products used in conjunction with the
Sonopet/Omni® ultrasonic aspirator console and handpieces; and pursue certain
development projects for new products associated with Strykers
intraoperative ultrasound products. The closings of these
transactions are subject to certain conditions.
On November 16, 2009, the Company announced the signing of an addendum to its three-year
agreement with Codman & Shurtleff, Inc. (Codman). Under the terms of the revised agreement,
Codman will have the exclusive right to market and distribute the Companys branded disposable
bipolar forceps produced by Synergetics.
Codman began the domestic distribution of the disposable bipolar forceps on December 1, 2009
and the international distribution on February 1, 2010. The Codman relationship has been
proceeding well and is meeting the Companys expectations for volumes and sales.
It is anticipated that once these two new marketing partner relationships have transitioned
and the Company has experienced a full twelve months of sales to Stryker and Codman, sales and
gross profit margin may decrease. However, contribution margin including the elimination of
commercial expenses associated with the distribution of these products is anticipated to increase
significantly.
On March 17, 2010, the Company announced the introduction of its first line of fully disposable,
hand-held instrument for retinal surgery. The launch occurred at Vail Vitrectomy 2010, a surgical
meeting held on March 13-17, 2010. Synergetics unique design of the PinnacleTM 360 product includes
an actuation grip that allows the surgeon to approach the retina from
any angle. The handle provides
the abilty to change the tips position relative to the retina without performing an awkward maneuver
or repositioning the instrument. The handle has the same tactile response from any location on its grip.
Its reduced actuation pressure minimizes hand fatigue and its design fits and feels like an extention of
the surgeons hand.
Our Business Strategy
The Companys key strategy is to enhance shareholder value through profitable revenue growth
in ophthalmology and neurosurgery markets through the identification and development of reusable
and disposable instrumentation in conjunction with leading surgeons and marketing partners and to
build out a strong operational infrastructure and financial foundation within which prudently
financed growth opportunities can be realized and implemented. At the same time, we will strive to
maintain vigilance and sensitivity to new challenges which may arise from changes in the definition
and delivery of appropriate healthcare in our fields of interest.
17
Improve Profitability and Cash Efficiency through:
Manufacturing Efficiencies
Lean Manufacturing The Company continues to implement lean manufacturing in its
production facilities. During the fiscal year ended July 31, 2009, four product families were
converted to the lean manufacturing methodology, with the realization of cost savings. As of
January 31, 2010, five product families have been converted to this methodology. We plan to
continue to implement lean manufacturing techniques in all disposable product lines during the
fiscal year ending July 31, 2010.
Plastic Molding The Companys most recent acquisition, Medimold, is producing plastic
components which were previously supplied by outside vendors. In addition to lower costs for
certain parts, we continue to convert select high volume plastic machined parts and metal
machined parts to lower cost injection molded, plastic parts. Our annual savings from the
continued introduction of new parts to this process is projected to be over $258,000 for
fiscal year 2010.
Supply Chain Management During the fiscal year 2009, the Company implemented Material
Requirements Planning (MRP) in planning and controlling its production processes. The
implementation of MRP helped reduce days in inventory on hand from 275 days at February 3,
2009, to 233 days at July 31, 2009, to 223 days at January 31, 2010.
Human Resource Rationalization Starting with a hiring freeze in January 2009, the
Company redeployed certain human resources and reduced the number of employees and temporary
workers by 10% during fiscal 2009. These changes were made possible by the introduction of
manufacturing efficiencies in certain product lines, the implementation of improvements in our
enterprise-wide information system, the implementation of MRP and supply chain management and
related consolidations, and the shift from direct sales of certain neurosurgery products in
the U.S. to the sales of these same products through marketing partners. The hiring freeze
has continued to this day and certain positions are only added based upon a resource need or
when a position has been eliminated. At January 31, 2010, our head count was 377 as compared
to February 3, 2009 when it was 453, a decrease of approximately
17 percent.
Cash Management The Company is focused on its debt level and intends to continue to
monitor and reduce its leverage by focusing on the reduction in days sales in accounts
receivable and inventory and where appropriate, increase the days in accounts payable. The Company paid down over $1.5 million
in debt during the six months ended January 31, 2010, increased its cash position and improved cash flow generated by
operations from a negative $2.4 million to a positive $2.5 million as compared to the prior year.
During
the six months ended January 31, 2010, the Company improved its leverage ratio (total debt
divided by total debt plus total stockholders equity) to 21.9 percent from 25.7 percent at
July 31, 2009.
Accelerate growth through:
Research & Development (R&D) In order to focus resources on the most important
projects, in October 2008, the Company completed a thorough review of its R&D efforts leading
to a reduction in the number of active projects in the R&D pipeline to 39 such projects. In
addition, we developed a uniform policies and procedures manual for our top 10 R&D
initiatives. In July 2009, the Company reorganized its R&D resources into an advanced
technology group which works on longer-term, highly complex R&D initiatives, an instrument
development group which works on strategically targeted products and a manufacturing
engineering group which works on product line extensions. These three groups focus on projects
in both ophthalmology and neurosurgery. The engineering team at the King of Prussia,
Philadelphia location has been strengthened to provide capacity for new electrosurgery
products.
New Business Development The Companys core assets, including a history of customer
driven innovation, quality differentiated products and an extensive distribution network, make
it a logical
component of value-creating business combinations. We continue to evaluate such potential
opportunities that can expand the Companys product offerings.
18
Assess Distribution Alternatives:
The Company competes in two distinct medical device markets, ophthalmology and
neurosurgery. These markets are very different in terms of the number and size of the
competitors in each and the size and maturity of their respective distribution networks. The
Company has been actively engaged in pursuing marketing partner opportunities versus the
opportunities afforded by its distribution network. As discussed in the Recent Developments
section above, the Company has signed a definitive agreement with Stryker in conjunction with
the planned acquisition by Stryker of certain assets from Mutoh used to produce the Sonopet
Ultrasonic Aspirator control consoles and handpieces (currently marketed under the
Omni® brand by Synergetics in the U.S., Canada and several other countries). The
Company will supply disposable ultrasonic instrument tips and certain other consumable
products used in conjunction with the Sonopet/Omni® ultrasonic aspirator console
and handpieces. In addition, the Company announced the signing of an addendum to its
three-year agreement with Codman for the exclusive right to market and distribute the
Companys branded disposable bipolar forceps produced by Synergetics.
Improve Sales Force Productivity:
The professionalism and the productivity of the Companys sales force is one of its true
assets. Significant effort was made in the last year aligning the incentives and promotional
direction of the sales force with those of the Companys interests as a whole. It is
anticipated that this change will result in enhanced productivity.
Key
Trends
New Product Sales
The Companys business strategy has been, and is expected to continue to be, the development,
manufacture and marketing of new technologies for microsurgery applications including the
ophthalmic and neurosurgical markets. New products, which management defines as products first
available for sale within the prior 24-month period, accounted for approximately 8.0 percent of
total sales for the Company for the six months ended January 31, 2010, or approximately $2.0
million through six months ended January 31, 2010. The Companys past revenue growth has been
closely aligned with the adoption by surgeons
of new technologies introduced by Synergetics. In the last 24-month period, the Company has
added 84 new line items comprising 3 significant new product
categories in both
the ophthalmic and neurosurgery markets. We expect adoption rates for
the Companys new products in the future to have a similar effect on its operating performance.
Demand Trends
International sales remained relatively flat while domestic sales declined by 3.9 percent
contributing to a majority of the sales decline for the Company during the six months ended January
31, 2010. The decrease in neurosurgery sales is due to Omni® generators and handpieces
being on backorder from the manufacturer during the quarter.
A recent study performed by Market Scope LLC predicts a steady growth of 3.4 percent per year
in vitrectomy surgery worldwide. Neurosurgical procedures volume on a global basis continues to
rise at an estimated 5.0 percent growth rate driven by an aging global population, new
technologies, advances in surgical techniques and a growing global market resulting from ongoing
improvements in healthcare delivery in third world countries, among other factors. In addition, the
demand for high quality products and new technologies, such as the Companys innovative instruments
and disposables, to support growth in procedures volume continues to positively impact growth. The
Company believes innovative surgical approaches will continue to significantly impact the
ophthalmic and neurosurgical market.
Pricing Trends
Through its strategy of delivering new and higher quality technologies, the Company has
generally been able to maintain the average selling prices for its products in the face of downward
pressure in the healthcare industry. However, low cost providers of disposable products and
increased competition in the market for the Companys capital equipment market segments, in
combination with customer budget
19
constraints and capital scarcity, has in some instances negatively
impacted the Companys selling prices on these devices. The Company has no major domestic group
purchasing agreements.
Economic Trends
Economic conditions may continue to negatively impact capital expenditures at the hospital or
surgical center and doctor level. Further, global economic conditions are negatively impacting the
volume of the Companys capital equipment sales.
Results Overview
During the fiscal quarter ended January 31, 2010, we had net sales of $13.0 million, which
generated $7.3 million in gross profit, operating income of $1.5 million and net income of
approximately $877,000, or $0.04 earnings per share. The Company had $478,000 in cash and $11.1
million in interest-bearing debt and revenue bonds as of January 31, 2010. Management anticipates
that cash flows from operations, together with available borrowings under our existing credit
facilities, will be sufficient to meet working capital, capital expenditure and debt service needs
for the next twelve months.
Results of Operations
Three-Month Period Ended January 31, 2010 Compared to Three-Month Period Ended February 3, 2009
Net Sales
The following table presents net sales by category (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
|
|
|
|
|
|
|
|
% Increase |
|
|
|
January 31, 2010 |
|
|
February 3, 2009 |
|
|
(Decrease) |
|
Ophthalmic |
|
$ |
7,801 |
|
|
$ |
7,466 |
|
|
|
4.5 |
% |
Neurosurgery |
|
|
2,829 |
|
|
|
3,816 |
|
|
|
(25.9 |
%) |
Marketing
partners (Codman,
Stryker and
Iridex
Corporation) |
|
|
2,353 |
|
|
|
2,263 |
|
|
|
4.0 |
% |
Other |
|
|
31 |
|
|
|
107 |
|
|
|
(71.0 |
%) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,014 |
|
|
$ |
13,652 |
|
|
|
(4.7 |
%) |
|
|
|
|
|
|
|
|
|
|
Ophthalmic sales grew 4.5 percent in the second quarter of fiscal 2010 compared to the second
quarter of fiscal 2009. Domestic ophthalmic sales increased 0.7 percent, while international sales
increased 10.1 percent primarily due to sales of disposable products. When comparing neurosurgery,
net sales during the first quarter of fiscal 2010 were 25.9 percent less than second quarter of
fiscal 2009 primarily due to approximately $900,000 of Omni® generators and handpieces being on backorder from the
manufacturer during the quarter. Domestic neurosurgery sales decreased 20.9 percent and
international sales decreased 33.9 percent. Sales to our marketing partners of $2.4 million were
4.0 percent more than sales in the comparable quarter of the prior year, primarily due to higher
sales of disposable product lines and royalty payments. The Company expects that in fiscal 2010,
the PhotonTM, the Optiflex® Surgical Assistant and Malis®
electrosurgical generator sales will improve as signs of an economic turnaround begin to take shape
and that the related disposables will continue to have a positive impact on net sales.
20
The following table presents domestic and international net sales (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
% Increase |
|
|
|
January 31, 2010 |
|
|
February 3, 2009 |
|
|
(Decrease) |
|
United States (including OEM sales) |
|
$ |
8,751 |
|
|
$ |
9,195 |
|
|
|
(4.8 |
%) |
International (including Canada) |
|
|
4,263 |
|
|
|
4,457 |
|
|
|
(4.3 |
%) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,014 |
|
|
$ |
13,652 |
|
|
|
(4.7 |
%) |
|
|
|
|
|
|
|
|
|
|
Domestic sales for the second quarter of fiscal 2010 compared to the same period of fiscal
2009 decreased 4.8 percent as sales of domestic neurosurgery decreased 20.9 percent. This domestic
sales decrease was partially offset by a 0.7 percent increase in domestic ophthalmology sales and a
4.0 percent increase in sales to our marketing partners. International sales decreased 4.3 percent
as the ophthalmology product line grew 10.1 percent partially offset by international neurosurgery
sales decreasing 33.9 percent.
Gross Profit
Gross profit as a percentage of net sales was 56.3 percent in the second quarter of fiscal
2010, compared to 57.4 percent for the same period in fiscal 2009. Gross profit as a percentage of
net sales for the second quarter of fiscal 2010 compared to the second quarter of fiscal 2009
decreased approximately 1 percentage point, primarily due to the change in mix toward higher
international sales and reduced absorption of both labor and overhead on our capital equipment
product lines.
Operating Expenses
R&D as a percentage of net sales was 5.6 percent and 6.3 percent for the second quarter of
fiscal 2010 and 2009, respectively. R&D costs decreased by $123,000 in the second quarter of fiscal
2010 compared to the same period in fiscal 2009. The Companys pipeline included approximately 22
active projects in various stages of completion as of January 31, 2010. The Companys R&D
investment is driven by the opportunities to develop new products to meet the needs of its
customers, and reflecting the need to keep such spending in line with what the Company can afford
to spend, results in an investment rate that the Company believes is comparable to such spending by
other medical device companies. The Company expects over the next few years to invest in R&D at a
rate of approximately 4.0 to 6.0 percent of net sales.
Sales and marketing expenses decreased by approximately $895,000 to $3.0 million, or 23.4
percent of net sales, for the second fiscal quarter of 2010, compared to $3.9 million, or 28.9
percent of net sales for the second fiscal quarter of 2009. The decrease in sales and marketing
expenses as a percentage of net sales was primarily due to sales decreasing 4.7 percent and
elimination of our neurosurgery sales force as of July 31, 2009.
General and administrative expenses decreased $95,000 to $2.0 million, or 15.7 percent of net
sales, for the second fiscal quarter of 2010, compared to $2.1 million, or 15.7 percent of net
sales for the second fiscal quarter of 2009.
Other Expenses
Other expenses for the second quarter of fiscal 2010 decreased 42.9 percent to $129,000 from
$226,000 for the second quarter of fiscal 2009. The decrease was due primarily to a lower interest
rate, as well as a reduced average balance on the Companys working capital line of credit
borrowings.
Operating Income, Income Taxes and Net Income
Operating income for the second quarter of fiscal 2010 was $1.5 million, as compared to
operating income of $907,000 in the comparable 2009 fiscal period. The increase in operating income
was primarily
21
the result of 4.7 percent less net sales and $123,000 less cost of sales, offset by
$123,000 less R&D costs, $895,000 less sales and marketing expenses and $95,000 less general and
administrative expenses.
The Company recorded a $499,000 provision on pre-tax income of $1.4 million, a 36.2 percent
tax provision, in the quarter ended January 31, 2010. In the quarter ended February 3, 2009, the
Company recorded a $292,000 tax provision on pre-tax income of $681,000, a 42.9 percent tax
provision.
Net income increased by $488,000 to $877,000 for the second quarter of fiscal 2010, from
$389,000 for the same period in fiscal 2009. Basic and diluted earnings per share for the second
quarter of fiscal 2010 increased to $0.04 from $0.02 for the second quarter of fiscal 2009. Basic
weighted-average shares outstanding increased from 24,451,904 at February 3, 2009, to 24,584,393 at
January 31, 2010.
Six-Month Period Ended January 31, 2010 Compared to Six-Month Period Ended February 3, 2009
Net Sales
The following table presents net sales by category (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|
|
% Increase |
|
|
|
January 31, 2010 |
|
|
February 3, 2009 |
|
|
(Decrease) |
|
Ophthalmic |
|
$ |
15,323 |
|
|
$ |
14,850 |
|
|
|
3.2 |
% |
Neurosurgery |
|
|
5,729 |
|
|
|
6,769 |
|
|
|
(15.4 |
%) |
Marketing
partners (Codman,
Stryker and
Iridex
Corporation) |
|
|
4,043 |
|
|
|
4,045 |
|
|
|
0.0 |
% |
Other |
|
|
65 |
|
|
|
234 |
|
|
|
(72.2 |
%) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
25,160 |
|
|
$ |
25,898 |
|
|
|
(2.8 |
%) |
|
|
|
|
|
|
|
|
|
|
Ophthalmic sales grew 3.2 percent in the first six months of fiscal 2010 compared to the same
period of fiscal 2009. Domestic ophthalmic sales decreased 1.3 percent, while international sales
increased 10.2 percent primarily due to sales of disposable products. When comparing neurosurgery,
net sales during the first six months of fiscal 2010 were 15.4 percent less than the first six
months of fiscal 2009. Domestic neurosurgery sales decreased 9.5 percent and international sales
decreased 27.8 percent primarily due to approximately $900,000 of Omni® generators and handpieces being on
backorder from the manufacturer during the quarter. Sales to our marketing partners of $4.0
million were basically flat with sales in the comparable six months of the prior year. The Company
expects that in fiscal 2010, the PhotonTM, the Optiflex® Surgical
Assistant and Malis® electrosurgical generator sales will improve as signs of an
economic turnaround begin to take shape and that the related disposables will continue to have a
positive impact on net sales.
The following table presents domestic and international net sales (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|
|
% Increase |
|
|
|
January 31, 2010 |
|
|
February 3, 2009 |
|
|
(Decrease) |
|
United States (including OEM sales) |
|
$ |
17,240 |
|
|
$ |
17,941 |
|
|
|
(3.9 |
%) |
International (including Canada) |
|
|
7,920 |
|
|
|
7,957 |
|
|
|
(0.5 |
%) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
25,160 |
|
|
$ |
25,898 |
|
|
|
(2.8 |
%) |
|
|
|
|
|
|
|
|
|
|
Domestic sales for the first six months of fiscal 2010 compared to the same period of fiscal
2009 decreased 3.9 percent as sales of domestic neurosurgery decreased 9.5 percent, sales of
domestic ophthalmology decreased 1.3 percent and sales to our marketing partners remained flat.
International sales were basically flat as the neurosurgery product line fell 27.8 percent mostly
offset by the ophthalmology product line growth of 10.2 percent.
22
Gross Profit
Gross profit as a percentage of net sales was 56.2 percent in the first six months of fiscal
2010, compared to 57.6 percent for the same period in fiscal 2009. Gross profit as a percentage of
net sales for the first six months of fiscal 2010 compared to the first six months of fiscal 2009
decreased approximately 1 percentage point, primarily due to the change in mix toward higher
international sales and reduced absorption of both labor and overhead on our capital equipment
product lines.
Operating Expenses
R&D as a percentage of net sales was 5.3 percent and 5.8 percent for the first six months of
fiscal 2010 and 2009, respectively. R&D costs decreased by $175,000 in the second quarter of fiscal
2010 compared to the same period in fiscal 2009. The Companys pipeline included approximately 22
active projects in various stages of completion as of January 31, 2010. The Companys R&D
investment is driven by the opportunities to develop new products to meet the needs of its surgeon
customers, and reflecting the need to keep such spending in line with what the Company can afford
to spend, results in an investment rate that the Company believes is comparable to such spending by
other medical device companies. The Company expects over the next few years to invest in R&D at a
rate of approximately 4.0 to 6.0 percent of net sales.
Sales and marketing expenses decreased by approximately $879,000 to $6.3 million, or 25.1
percent of net sales, for the first six months of fiscal 2010, compared to $7.2 million, or 27.7
percent for the first six months of fiscal 2009. The decrease in sales and marketing expenses as a
percentage of net sales was primarily due to sales decreasing 2.8 percent and elimination of our
neurosurgery sales force as of July 31, 2009.
General and administrative expenses decreased $98,000 to $4.1 million, or 16.2 percent of net
sales, for the first six months of 2010, compared to $4.2 million, or 16.1 percent of net sales for
the first six months of fiscal 2009.
Other Expenses
Other expenses for the first quarter of fiscal 2010 decreased 33.1 percent to $269,000 from
$402,000 for the first six months of fiscal 2009. The decrease was due primarily to a lower
interest rate, as well as a reduced average balance on the Companys working capital line of credit
borrowings.
Operating Income, Income Taxes and Net Income
Operating income for the first six months of fiscal 2010 was $2.4 million, as compared to
operating income of $2.1 million in the comparable 2009 fiscal period. The increase in operating
income was primarily the result of 2.8 percent less net sales and $38,000 more cost of sales,
offset by $175,000 less R&D costs, $879,000 less sales and marketing expenses and $98,000 less
general and administrative expenses.
The Company recorded a $758,000 provision on pre-tax income of $2.2 million, a 34.8 percent
tax provision, in the first six months of fiscal 2010. In the first six months of fiscal 2009, the
Company recorded a $617,000 tax provision on pre-tax income of $1.7 million, a 37.0 percent tax
provision.
Net income increased by $368,000 to $1.4 million for the first six months of fiscal 2010, from
$1.1 million for the same period in fiscal 2009. Basic and diluted earnings per share for the first
six months of fiscal 2010 increased to $0.06 from $0.04 for the first six months of fiscal 2009.
Basic weighted-average shares outstanding increased from 24,446,561 at February 3, 2009, to
24,521,241 at January 31, 2010.
23
Liquidity and Capital Resources
The Company had approximately $478,000 in cash and $11.1 million in interest-bearing debt and
revenue bonds as of January 31, 2010.
Working capital, including the management of inventory and accounts receivable, is a key
management focus. At January 31, 2010, the Company had an average of 61 days of sales outstanding
(DSO) utilizing the trailing twelve months sales for the period ending January 31, 2010. The 61
days of sales outstanding at January 31, 2010, was 2 days favorable to July 31, 2009, and 4 days
unfavorable to February 3, 2009, utilizing the trailing twelve months of sales. The collection
time for non-U.S. receivables is generally longer than comparable U.S. receivables, and as such,
the increase in non-U.S. sales to 31.5 percent during the six months ended January 31, 2010 from
30.7 percent in the six months ended February 3, 2009 is unfavorably impacting the DSO calculation.
At January 31, 2010, the Company had 223 days of cost of sales in inventory on hand utilizing
the trailing twelve months cost of sales for the period ending January 31, 2010. The trailing
twelve months cost of sales included an $826,000 inventory write-off. The 223 days of cost of
sales in inventory was favorable to July 31, 2009, by 10 days and 52 days favorable to February 3,
2009, utilizing the trailing twelve months of cost of sales. Although management believes that
meeting customer expectations regarding delivery times is important to its overall growth strategy,
inventory reduction continues to be a focus of the Company and management believes its newly
installed MRP system will continue to aid in meeting that goal during fiscal 2010.
Cash flows provided by operating activities were $2.5 million for the six months ended January
31, 2010, compared to cash flows used in operating activities of approximately $2.4 for the
comparable fiscal 2009 period. The increase of $4.9 million was primarily attributable to net
increases applicable to inventories, income taxes payable and other balance sheet and income
statement items. These increases totaled $5.4 million, offset in part by net decreases applicable
primarily to accrued expenses of $486,000.
Cash flows used in investing activities was $341,000 for the six months ended January 31,
2010, compared to cash used in investing activities of $481,000 for the comparable fiscal 2009
period. During the six months ended January 31, 2010, cash additions to property and equipment were
$281,000, compared to $425,000 for the first six months of fiscal 2009. During the six months
ended January 31, 2010, cash additions to patents and other intangibles were $75,000, compared to
$56,000 for the first six months of fiscal 2009.
Cash flows used in financing activities were $1.9 million for the six months ended January 31,
2010, compared to cash provided by financing activities of $2.7 million for the six months ended
February 3, 2009. The decrease of $4.6 million was attributable primarily to a decrease in the
balance of net borrowings on the line of credit of $4.8 million, offset in part by an increase in
excess of outstanding checks over the bank balance of $213,000.
The Company had the following committed financing arrangements as of January 31, 2010:
Revolving Credit Facility: The Company has a credit facility with Regions Bank (Regions)
which allows for borrowings of up to $9.5 million with interest at an interest rate based on either
the one-, two- or three-month LIBOR plus 2.00 percent and adjusting each quarter based upon our
leverage ratio. As of January 31, 2010, interest under the facility was charged at 2.23 percent.
The unused portion of the facility is charged at a rate of 0.20 percent. Borrowings under this
facility at January 31, 2010, were $3.6 million. Outstanding amounts are collateralized by the
Companys domestic receivables and inventory. This credit facility was amended on November 30,
2009, to extend the termination date through November 30, 2010.
The facility has two financial covenants: a maximum leverage ratio of 3.75 times and a
minimum fixed charge coverage ratio of 1.1 times. As of January 31, 2010, the Companys leverage
ratio was 1.13
times and the minimum fixed charge coverage ratio was 1.99 times. Collateral availability
under the line as
24
of January 31, 2010, was approximately $4.4 million. The facility restricts the
payment of dividends if, following the distribution, the fixed charge coverage ratio would fall
below the required minimum.
Non-U.S. Receivables Revolving Credit Facility: The Company has a non-U.S. receivables
revolving credit facility with Regions which allows for borrowings of up to $1.75 million with an
interest rate based on LIBOR plus 3.0 percent. Pursuant to the terms of this facility, under no
circumstance shall the rate be less than 3.5 percent per annum. The facility is charged an
administrative fee of 1.0 percent. There were no borrowings under this facility at January 31,
2010. Outstanding amounts are collateralized by the Companys non-U.S. receivables. This credit
facility has no financial covenants and was amended on November 30, 2009, to extend the termination
date through November 30, 2010. Collateral availability under the facility was approximately $1.1
million at January 31, 2010.
Equipment Line of Credit: Under this credit facility, the Company may borrow up to $1.0
million, with interest currently being one-month LIBOR plus 3.0 percent. Under no circumstance
shall the rate be less than 3.5 percent per annum. The unused portion of the facility is not
charged a fee. There were no borrowings under this facility as of January 31, 2010. The equipment
line of credit was amended on November 30, 2009, to extend the maturity date to November 30, 2010.
Management believes that cash flows from operations, together with available borrowings under
its new credit facilities, will be sufficient to meet the Companys working capital, capital
expenditure and debt service needs for the next twelve months.
Critical Accounting Policies
The Companys significant accounting policies which require managements judgment are
disclosed in our Annual Report on Form 10-K for the year ended July 31, 2009. In the first six
months of fiscal 2010, there were no changes to the significant accounting policies except for the
implementation of the new accounting pronouncements as discussed in Note 2.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
The Companys primary market risks include fluctuations in interest rates and exchange rate
variability.
The Company has two revolving credit facilities and an equipment line of credit facility in
place. The primary revolving credit facility had an outstanding balance of $3.6 million at January
31, 2010, bearing interest at a current rate of LIBOR plus 2.0 percent. The non-U.S. revolving
credit facility had no outstanding balance at January 31, 2010. Balances on this credit facility
currently bear interest at one-month LIBOR plus 3.0 percent. The equipment line of credit facility
had no outstanding balance at January 31, 2010, bearing interest at one-month LIBOR plus 3.0
percent. Interest expense from these credit facilities is subject to market risk in the form of
fluctuations in interest rates. Assuming the current levels of borrowings at variable rates and a
two-percentage-point increase in the average interest rate on these borrowings, it is estimated
that our interest expense would have increased by approximately $72,000. The Company does not
perform any interest rate hedging activities related to these three facilities.
Additionally, the Company has exposure to non-U.S. currency fluctuations through export sales
to international accounts. As only approximately 5.0 percent of our sales revenue is denominated in
non-U.S. currencies, we estimate that a change in the relative strength of the dollar to non-U.S.
currencies would not have a material impact on the Companys results of operations. The Company
does not conduct any hedging activities related to non-U.S. currency.
25
Item 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our principal executive
officer and chief financial officer, has reviewed and evaluated the effectiveness of the Companys
disclosure controls and procedures as of January 31, 2010. Based on such review and evaluation, our
principal executive officer and chief financial officer have concluded that, as of January 31,
2010, the disclosure controls and procedures were effective to ensure that information required to
be disclosed by the Company in the reports that it files or submits under the Securities Exchange
Act of 1934, as amended, (a) is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms and (b) is accumulated and communicated to the
Companys management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the second fiscal quarter ended January 31, 2010, there was no change in the Companys
internal control over financial reporting that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
Part II Other Information
Item 1 Legal Proceedings
On April 17, 2008, the Company filed a lawsuit in the United States District Court for the
Southern District of New York against Swiss-based Alcon, Inc. and its primary operating subsidiary
in the U.S., Alcon Laboratories, Inc. (collectively Alcon). This suit is captioned Synergetics
USA, Inc. v. Alcon Laboratories, Inc. and Alcon, Inc., Case No. 08-CIV-003669. The Companys
attorneys in this matter have agreed to represent the Company on a contingency-fee basis. In the
complaint, the Company alleges that Alcon has used its monopoly power in the market for vitrectomy
machines to control its customers purchasing decisions in favor of Alcons surgical illumination
sources and associated accessories by, for example, tying sales of its light pipes to sales of its
patented fluid collection cassettes, which are required for each vitreoretinal surgery using
Alcons market-dominant vitrectomy machine. The complaint describes further anti-competitive
behaviors, which include commercial disparagement of the Companys products; payment of grant
monies to surgeons, hospitals and clinics in order to influence purchasing decisions; the
maintenance of a large surgeon advisory board, whose members receive benefits far beyond their
advisory contributions and are required to buy Alcons products; predatory pricing; an unlawful
rebate program; and a threat to further lock out the Company from an associated market unless
granted a license to use some of our key patented technologies. The Company requested both monetary
damages and injunctive relief. On June 23, 2008, Alcon filed a pleading responsive to the
complaint, denying all counts and asserting affirmative defenses. On June 4, 2009, the Court ruled
in the Companys favor, denying a motion by Alcon to dismiss the complaint. The Court ruled that
the Companys allegations present a legitimate legal claim for which damages may be awarded. In
response to a joint motion by the parties for purposes of continuing settlement discussions, the
Court on January 21, 2010 issued a modified scheduling order extending certain discovery deadlines
and setting additional pre-trial deadlines through early 2011.
In its pleading on June 23, 2008, Alcon also made counterclaims in which it alleged that the
Company misappropriated trade secrets from Infinitech, Inc., a company acquired by Alcon in 1998.
On July 9, 2009, the Court issued a judgment in the Companys favor, ruling that the counterclaims
are barred by the statute of limitations and cannot be the basis for a remedy.
On October 9, 2008, Alcon Research, Ltd. (Alcon Research) filed a lawsuit against the
Company and Synergetics in the Northern District of Texas, Case No. 4-08CV-609-Y, alleging
infringement of United States Patent No. 5,603,710, as such patent is amended by the Re-examination
Certificate issued July 19, 2005. On March 20, 2009, Alcon Research amended its complaint to add
claims further alleging
infringement of United States Patent No. 5,318,560 and infringement of and unfair competition
with
26
respect to three Alcon-owned trademarks, namely Alcon®, Accurus® and
Greishaber®. Alcon Research has requested enhanced damages based on an allegation of
willful infringement, and has requested an injunction to stop the alleged acts of infringement. On
April 6, 2009, the Company answered the amended complaint with a general denial of the claims, as
well as affirmative defenses and a request for the Court to make declarations of non-infringement
with respect to the patents and trademarks at issue. Based on a belief that the patents at issue
are not valid, the Company requested that the United States Patent and Trademark Office (PTO)
re-examine both patents and moved the Court for a stay of all proceedings during re-examination. On
September 18, 2009, the Court granted the Companys motion and stayed all proceedings in the
lawsuit in their entirety until such time as both of the patents at issue have completed
re-examination. The Court ruled that the stay would not prejudice or be a tactical disadvantage for
Alcon Research and that the stay may allow the re-examination to simplify or eliminate many of the
issues in question. On November 2, 2009, the court denied Alcon Researchs Motion for
Reconsideration of the ordered stay, leaving the case administratively closed until the conclusion
of the re-examination proceedings. The Company believes it has meritorious defenses to all claims
made by Alcon Research, such that no liability will arise in this case, though the amount of any
monetary damages that may be awarded is wholly indeterminable at this time. The Company is
currently awaiting the PTO re-examination results.
In addition, from time to time we may become subject to litigation claims that may greatly
exceed our product liability insurance limits. An adverse outcome of such litigation may adversely
impact our financial condition, results of operations or liquidity. We record a liability when a
loss is known or considered probable and the amount can be reasonably estimated. If a loss is not
probable, a liability is not recorded. As of January 31, 2010, the Company has no litigation
reserve recorded.
Item 1A Risk Factors
The Companys business is subject to certain risks and events that, if they occur, could
adversely affect our financial condition and results of operations and the trading price of our
common stock. For a discussion of these risks, please refer to the Risk Factors section of the
Companys Annual Report on Form 10-K for the fiscal year ended July 31, 2009. In connection with
its preparation of this quarterly report, management has reviewed and considered these risk factors
and has determined that there have been no material changes to the Companys risk factors since the
date of filing the Annual Report on Form 10-K for the fiscal year ended July 31, 2009.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
Synergetics USA, Inc.s annual meeting of stockholders was held on December 17, 2009. Of the
24,492,554 shares entitled to vote at such meeting in person or by proxy. At the meeting,
stockholders voted on (1) the election of two directors whose terms expire at the 2012 annual
meeting of the stockholders and (2) the ratification of the appointment of UHY LLP as the Companys
independent registered accounting firms for fiscal 2010.
The stockholders elected both director nominees at the meeting, and with respect to each
director, the number of shares voted for and withheld were as follows:
27
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Number of Shares |
|
|
Voted For |
|
Withheld |
Robert Dick
|
|
|
18,518,781 |
|
|
|
2,691,398 |
|
Juanita Hinshaw
|
|
|
20,704,457 |
|
|
|
505,722 |
|
The appointment of the Companys independent public accounting firm, UHY LLP, was also
ratified. The number of votes cast were as follows:
|
|
|
|
|
For |
|
Against |
|
Abstain |
20,561,231
|
|
346,203
|
|
302,744 |
Item 5 Other Information
There have been no material changes to the procedures by which security holders may recommend
nominees to the Companys Board of Directors since the filing of the Companys Annual Report on
Form 10-K for the fiscal year ended July 31, 2009.
Item 6 Exhibits
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
|
|
31.1 |
|
|
Certification of the Principal 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 Principal 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
Malis, the Malis waveform logo, Omni, Bident, Bi-Safe, Gentle Gel and Finest Energy Source for
Surgery are our registered trademarks. Synergetics, the Synergetics logo, PHOTON, DualWave, COAG,
Advantage, Microserrated, Microfiber, Solution, Tru-Micro, DDMS, Kryptonite, Diamond Black,
Bullseye, Spetzler Claw, Spetzler Micro Claw, Spetzler Open Angle Micro Claw, Spetzler Barracuda,
Spetzler Pineapple, Axcess, Veritas, Lumen and Lumenator product names are our trademarks. All
other trademarks or tradenames appearing in this Form 10-Q are the property of their respective
owners.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
SYNERGETICS USA, INC.
(Registrant)
|
|
March 17, 2010 |
/s/ David M. Hable
|
|
|
David M. Hable, President and Chief |
|
|
Executive Officer (Principal Executive
Officer) |
|
|
|
|
|
March 17, 2010 |
/s/ Pamela G. Boone
|
|
|
Pamela G. Boone, Executive Vice |
|
|
President, Chief Financial Officer, Secretary
and Treasurer (Principal Financial and
Principal Accounting Officer) |
|
|
29