e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 31, 2010
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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)
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Delaware
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20-5715943 |
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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3845 Corporate Centre Drive |
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OFallon, Missouri
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63368 |
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(Address of principal executive offices)
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(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):
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Large Accelerated Filer o
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Accelerated Filer o
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Non-Accelerated Filer o
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Smaller Reporting Company þ
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(Do not check if a smaller reporting company) |
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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, $0.001 value per share, as of
December 3, 2010 was 24,842,441 shares.
SYNERGETICS USA, INC.
Index to Form 10-Q
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Trademark Acknowledgements |
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26 |
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Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
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Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
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Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
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Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
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EX-31.1 |
EX-31.2 |
EX-32.1 |
EX-32.2 |
1
Part I Financial Information
Item 1 Unaudited Condensed Consolidated Financial Statements
Synergetics USA, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
As of October 31, 2010 (Unaudited) and July 31, 2010
(Dollars in thousands, except share data)
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October 31, 2010 |
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July 31, 2010 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
18,519 |
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$ |
18,669 |
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Accounts receivable, net of allowance for
doubtful accounts of $293 and $282,
respectively |
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9,132 |
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9,056 |
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Inventories |
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13,421 |
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11,891 |
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Prepaid expenses |
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530 |
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792 |
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Deferred income taxes |
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658 |
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658 |
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Total current assets |
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42,260 |
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41,066 |
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Property and equipment, net |
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8,044 |
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8,044 |
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Intangible and other assets |
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Goodwill |
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10,690 |
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10,690 |
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Other intangible assets, net |
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12,180 |
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12,353 |
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Patents, net |
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897 |
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870 |
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Cash value of life insurance |
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72 |
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72 |
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Total assets |
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$ |
74,143 |
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$ |
73,095 |
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Liabilities and stockholders equity |
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Current Liabilities |
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Current maturities of long-term debt |
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$ |
1,407 |
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$ |
1,398 |
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Current maturities of revenue bonds payable |
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116 |
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116 |
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Accounts payable |
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1,844 |
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1,800 |
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Accrued expenses |
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2,694 |
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2,624 |
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Income taxes payable |
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254 |
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11 |
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Deferred revenue |
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400 |
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400 |
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Total current liabilities |
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6,715 |
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6,349 |
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Long-Term Liabilities |
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Long-term debt, less current maturities |
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784 |
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939 |
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Revenue bonds payable, less current maturities |
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1,583 |
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1,612 |
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Deferred revenue |
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18,630 |
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18,630 |
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Deferred income taxes |
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1,264 |
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1,339 |
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Total long-term liabilities |
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22,261 |
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22,520 |
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Total liabilities |
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28,976 |
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28,869 |
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Commitments and contingencies (Note 8) |
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Stockholders Equity
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Common stock at October 31, 2010 and July 31,
2010, $0.001 par value, 50,000,000 shares
authorized; 24,842,441 and 24,772,155 shares
issued and outstanding, respectively |
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25 |
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25 |
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Additional paid-in capital |
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25,087 |
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24,905 |
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Retained earnings |
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19,952 |
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19,319 |
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Accumulated other comprehensive income (loss): |
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Foreign currency translation adjustment |
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103 |
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(23 |
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Total stockholders equity |
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$ |
45,167 |
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$ |
44,226 |
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Total liabilities and stockholders equity |
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$ |
74,143 |
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$ |
73,095 |
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See Notes to Unaudited Condensed Consolidated Financial Statements.
2
Synergetics USA, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months Ended October 31, 2010, and 2009
(Dollars in thousands, except share and per share data)
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Three Months Ended |
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Three Months Ended |
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October 31, 2010 |
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October 31, 2009 |
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Net sales |
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$ |
12,076 |
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$ |
12,146 |
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Cost of sales |
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5,053 |
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5,219 |
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Gross profit |
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7,023 |
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6,927 |
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Operating expenses |
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Research and development |
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719 |
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659 |
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Sales and marketing |
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3,023 |
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3,259 |
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General and administrative |
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2,252 |
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2,030 |
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5,994 |
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5,948 |
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Operating income |
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1,029 |
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979 |
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Other income (expenses) |
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Investment income |
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32 |
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Interest expense |
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(80 |
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(168 |
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Miscellaneous |
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(7 |
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(10 |
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(55 |
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(178 |
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Income before provision for income taxes |
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974 |
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801 |
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Provision for income taxes |
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341 |
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259 |
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Net income |
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$ |
633 |
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$ |
542 |
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Earnings per share: |
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Basic |
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$ |
0.03 |
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$ |
0.02 |
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Diluted |
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$ |
0.03 |
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$ |
0.02 |
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Basic
weighted average common shares outstanding |
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24,782,913 |
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24,458,089 |
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Diluted
weighted average common shares outstanding |
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24,862,420 |
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24,496,554 |
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See Notes to Unaudited Condensed Consolidated Financial Statements.
3
Synergetics USA Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended October 31, 2010 and 2009
(Dollars in thousands, except share data)
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Three Months Ended |
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Three Months Ended |
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October 31, 2010 |
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October 31, 2009 |
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Cash Flows from Operating Activities |
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Net income |
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$ |
633 |
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$ |
542 |
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Adjustments to reconcile net income to net cash
provided by operating activities |
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Depreciation |
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285 |
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257 |
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Amortization |
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196 |
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223 |
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Provision for doubtful accounts receivable |
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4 |
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(4 |
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Stock-based compensation |
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70 |
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74 |
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Deferred income taxes |
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(75 |
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(86 |
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(Gain) loss on sale of equipment |
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(15 |
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Changes in assets and liabilities
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(Increase) decrease in: |
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Accounts receivable |
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(13 |
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1,086 |
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Inventories |
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(1,490 |
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179 |
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Prepaid expenses |
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265 |
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9 |
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(Decrease) increase in: |
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Accounts payable |
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37 |
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(652 |
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Accrued expenses |
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65 |
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(34 |
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Income taxes payable |
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243 |
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16 |
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Net cash provided by operating activities |
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220 |
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1,595 |
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Cash Flows from Investing Activities |
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Proceeds on the sale of equipment |
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15 |
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Purchase of property and equipment |
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(285 |
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(198 |
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Acquisition of patents and other intangibles |
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(50 |
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(40 |
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Net cash used in investing activities |
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(335 |
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(223 |
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Cash Flows from Financing Activities |
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Excess of outstanding checks over bank balance |
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354 |
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Net borrowings (repayments) on lines-of-credit |
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(1,211 |
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Principal payments on revenue bonds payable |
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(29 |
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(51 |
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Principal payments on long-term debt |
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(123 |
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Payment on debt incurred for acquisition of trademark |
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(146 |
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(138 |
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Tax benefit associated with the exercise of non-qualified stock options |
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43 |
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Proceeds from the issuance of common stock |
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69 |
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Net cash used in financing activities |
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(63 |
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(1,169 |
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Foreign exchange rate effect on cash and cash equivalents |
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28 |
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Net (decrease) increase in cash and cash equivalents |
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(150 |
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203 |
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Cash and cash equivalents |
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Beginning |
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18,669 |
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160 |
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Ending |
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$ |
18,519 |
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$ |
363 |
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See Notes to Unaudited Condensed Consolidated Financial Statements.
4
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 devices, 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.
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 months ended October 31, 2010, are
not necessarily indicative of the results that may be expected for the fiscal year ending July 31,
2011. 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, 2010,
and notes thereto filed with the Companys Annual Report on Form 10-K filed with the Securities and
Exchange Commission (SEC) on October 12, 2010 (the Annual Report).
Note 2. Comprehensive Income
Comprehensive income was $126,000 for the three months ended October 31, 2010. The Companys
only component of other comprehensive income is the foreign currency translation adjustment.
Note 3. Summary of Significant Accounting Policies
Reclassifications: Certain reclassifications have been made to the prior quarters quarterly
financial statements to conform to the current quarters presentation which increased gross profit
margin by $109,000, increased operating income by $39,000 and increased the miscellaneous expense
by $39,000. However, net income was not affected.
The Companys significant accounting policies are disclosed in the Annual Report. In the first
three months of fiscal 2011, no significant accounting policies were changed.
Note 4. Marketing Partner Agreements
The Company sells most of its electrosurgery generators and a portion of its neurosurgery
instruments and accessories to two U.S. based national and international marketing partners as
described below:
5
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 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 has the exclusive right to
market and distribute the Companys Malis® branded disposable 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 in the three
months ended October 31, 2010 and October 31, 2009, including the historical sales of generators,
accessories and disposable cord tubing that the Company has supplied in the past, as well as the
disposable bipolar forceps sales resulting from the addendum to the existing distribution
agreement, were as follows (dollars in thousands):
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Three Months Ended |
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Three Months Ended |
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October 31, 2010 |
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October 31, 2009 |
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Net Sales |
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$ |
2,107 |
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$ |
885 |
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Percent of net sales |
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17.4 |
% |
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7.3 |
% |
Stryker Corporation (Stryker)
The Company supplies a lesion generator used for minimally invasive pain treatment to Stryker
pursuant to a supply and distribution agreement dated as of October 25, 2004. The original term of
the agreement was for slightly over five years, commencing on November 11, 2004 and ending on
December 31, 2009. On August 1, 2007, the Company negotiated a one-year extension to the agreement
through December 31, 2010 and increased the minimum purchase obligation to 300 units per year for
the remaining contract period. The Company is in the process of extending this agreement with
Stryker.
On March 31, 2010, the Company entered into an additional strategic agreement with Stryker
including the sale of accounts receivable, open sales orders, inventory and certain intellectual
property related to the Omni® ultrasonic aspirator product line. The gain
from the sale of the Omni® product line to Stryker was $817,000 in the third
quarter of fiscal 2010. In addition, the agreement provides for the Company to supply disposable
ultrasonic instrument tips and certain other consumable products used in conjunction with the
ultrasonic aspirator console and handpieces and to pursue certain development projects for new
products associated with Strykers ultrasonic aspirator products.
Total sales to Stryker and its respective percent of the Companys net sales in the three
months ended October 31, 2010, and October 31, 2009, including the historical sales of pain control
generators, and accessories that the Company has supplied in the past, as well as the disposable
ultrasonic instrument tips sales and certain other consumable products resulting from the new
agreements, were as follows (dollars in thousands):
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Three Months Ended |
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Three Months Ended |
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|
October 31, 2010 |
|
|
October 31, 2009 |
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Net Sales |
|
$ |
1,360 |
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|
$ |
589 |
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Percent of net sales |
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11.3 |
% |
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4.8 |
% |
No other customer comprises more than 10 percent of sales in any given quarter.
6
Note 5. Stock-Based Compensation
Stock Option Plans
The following table provides information about stock-based awards outstanding at October 31,
2010:
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|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
Average Fair |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Value |
|
Options outstanding beginning of period |
|
|
576,695 |
|
|
$ |
1.71 |
|
|
$ |
2.08 |
|
For the period August 1, 2010 through
October 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
62,000 |
|
|
$ |
0.99 |
|
|
$ |
1.13 |
|
Options outstanding, end of period |
|
|
514,695 |
|
|
$ |
1.80 |
|
|
$ |
2.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period |
|
|
419,112 |
|
|
$ |
1.97 |
|
|
$ |
2.40 |
|
There were no options granted in the first quarter of fiscal 2011. 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. These options vest pro-ratably on a
quarterly basis over the next year of service on the Board. During the second quarter of fiscal
2010, there were options to purchase 40,000 shares of the Companys Common Stock granted to the
Companys independent directors, which vest pro-ratably on a quarterly basis over the next year of
service. The Company recorded $11,000 of compensation expense for the three months ended October
31, 2010 with respect to these options.
During the second quarter of fiscal 2010, there were options to purchase 35,000 shares of
Common Stock granted to the Chief Executive Officer (CEO), and options to purchase 17,500 shares
of Common Stock 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 $8,000 of compensation expense for the three months ended October 31, 2010 with respect to
these options.
The Company expects to issue new shares as options are exercised. As of October 31, 2010, the
future compensation cost expected to be recognized for currently outstanding stock options is
approximately $31,000 for the remainder of 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.
As of October 31, 2010, there was approximately $338,000 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 October 31,
2010:
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant Date Fair |
|
|
|
Number of Shares |
|
|
Value |
|
Balance as of July 31, 2010 |
|
|
286,961 |
|
|
$ |
2.04 |
|
Granted |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2010 |
|
|
286,961 |
|
|
$ |
2.04 |
|
|
|
|
|
|
|
|
Note 6. 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 October 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 7. Supplemental Balance Sheet Information
Inventories: Inventories as of October 31, 2010 and July 31, 2010 were as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
July 31, 2010 |
|
Raw material and component parts |
|
$ |
5,614 |
|
|
$ |
5,225 |
|
Work in progress |
|
|
2,807 |
|
|
|
2,050 |
|
Finished goods |
|
|
5,000 |
|
|
|
4,616 |
|
|
|
|
|
|
|
|
|
|
$ |
13,421 |
|
|
$ |
11,891 |
|
|
|
|
|
|
|
|
Property and Equipment: Property and equipment as of October 31, 2010 and July 31, 2010 were as
follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
July 31, 2010 |
|
Land |
|
$ |
730 |
|
|
$ |
730 |
|
Building and improvements |
|
|
5,930 |
|
|
|
5,929 |
|
Machinery and equipment |
|
|
6,554 |
|
|
|
6,136 |
|
Furniture and fixtures |
|
|
720 |
|
|
|
736 |
|
Software |
|
|
363 |
|
|
|
363 |
|
Construction in progress |
|
|
97 |
|
|
|
232 |
|
|
|
|
|
|
|
|
|
|
|
14,394 |
|
|
|
14,126 |
|
Less accumulated depreciation |
|
|
6,350 |
|
|
|
6,082 |
|
|
|
|
|
|
|
|
|
|
$ |
8,044 |
|
|
$ |
8,044 |
|
|
|
|
|
|
|
|
Other Intangible Assets: Information regarding the Companys other intangible assets as of October
31, 2010 are as follows (dollars in thousands):
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Value |
|
|
Amortization |
|
|
Net |
|
|
|
October 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Proprietary know-how |
|
$ |
4,057 |
|
|
$ |
1,606 |
|
|
$ |
2,451 |
|
Trademark |
|
|
5,923 |
|
|
|
|
|
|
|
5,923 |
|
Licensing agreement |
|
|
5,834 |
|
|
|
2,028 |
|
|
|
3,806 |
|
Patents |
|
|
1,437 |
|
|
|
540 |
|
|
|
897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,251 |
|
|
$ |
4,174 |
|
|
$ |
13,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary know-how |
|
$ |
4,057 |
|
|
$ |
1,544 |
|
|
$ |
2,513 |
|
Trademark |
|
|
5,923 |
|
|
|
|
|
|
|
5,923 |
|
Licensing agreement |
|
|
5,834 |
|
|
|
1,917 |
|
|
|
3,917 |
|
Patents |
|
|
1,387 |
|
|
|
517 |
|
|
|
870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,201 |
|
|
$ |
3,978 |
|
|
$ |
13,223 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill of $10,660,000 and proprietary know-how of $4,057,000 are a result of the reverse
merger transaction completed on September 21, 2005.
The Company did not incur costs to renew or extend the term of acquired intangible assets
during the period ended October 31, 2010. Estimated amortization expense on other intangibles for
the remaining nine months of the fiscal year ending July 31, 2011, and the next four years
thereafter is as follows:
|
|
|
|
|
|
|
Amount |
|
Fiscal Year 2011 (remaining 9 months) |
|
$ |
440 |
|
Fiscal Year 2012 |
|
|
587 |
|
Fiscal Year 2013 |
|
|
587 |
|
Fiscal Year 2014 |
|
|
587 |
|
Fiscal Year 2015 |
|
|
587 |
|
Amortization expense for the three months ended October 31, 2010 was $196,000.
Pledged assets; short and long-term debt (excluding revenue bonds payable): Short-term debt as of
October 31, 2010 and July 31, 2010, consisted of the following:
Revolving Credit Facility: The Company has a credit facility with a bank which allows for
borrowings of up to $9.5 million (collateral available on October 31, 2010 permits borrowings up to
$8.2 million) with 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 October 31, 2010, interest
under the facility is charged at 2.26 percent. The unused portion of the facility is charged at a
rate of 0.20 percent. There were no borrowings under this facility at October 31, 2010. Outstanding
amounts are collateralized by the Companys domestic receivables and inventory. This credit
facility was amended on November 30, 2010, to extend the termination date through November 30,
2011.
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 October 31, 2010, the leverage ratio was 1.36 times
and the minimum fixed charge coverage ratio was 1.88 times. Collateral availability under the line
as of October 31, 2010, was approximately $8.2 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 had a non-U.S. receivables credit
facility with a bank which allowed for borrowings of up to $1.75 million with an interest rate
based on LIBOR plus 3.0%. Pursuant to the terms of this facility, under no circumstances shall the
rate be less than
9
3.5 percent per annum. The facility charged an administrative fee of 1.0 percent. There were no
borrowings under this facility at October 31, 2010. Outstanding amounts were collateralized by the
Companys non-U.S. receivables. This credit facility had no financial covenants and was terminated
on November 30, 2010.
Equipment Line of Credit: Under this credit facility, the Company may borrow up to $1.0
million, with interest at one-month LIBOR plus 3.0 percent. Pursuant to the terms of the equipment
line of credit, under no circumstances 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
at October 31, 2010. The equipment line of credit was amended on November 30, 2010, to extend the
maturity date to November 30, 2011.
Long-term debt as of October 31, 2010 and July 31, 2010 consisted of the following (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
July 31, 2010 |
|
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 $799,520 including the effects of
imputing interest, due December 2011,
collateralized by the
Malis® trademark |
|
$ |
765 |
|
|
$ |
911 |
|
Settlement obligation to Iridex
Corporation (Iridex), due in annual
installments of $800,000 which
includes interest at an imputed rate
of 8.0 percent; remaining balance of
$1,600,000 including the effects of
imputing interest, due April 15, 2012 |
|
|
1,426 |
|
|
|
1,426 |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,191 |
|
|
$ |
2,337 |
|
Less current maturities |
|
|
1,407 |
|
|
|
1,398 |
|
|
|
|
|
|
|
|
Long-term portion |
|
$ |
784 |
|
|
$ |
939 |
|
|
|
|
|
|
|
|
Note 8. Commitments and Contingencies
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, the agreements were made effective with other
compensation changes as of August 1, 2009. On October 12, 2010, the Company entered into a change
of control agreement with its CFO, which agreement was contemplated in conjunction with the
Companys annual review of compensation; therefore, the agreement was made effective with other
compensation changes as of August 1, 2010. The change in control agreements with the CEO, COO, CFO
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 or her 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 they are 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 or
her employment termination, he or she shall receive the following: (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 or her 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 or her 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 or her
employment termination.
10
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.
Note 9. Enterprise-wide Sales Information
Enterprise-wide sales information as of October 31, 2010 and 2009, respectively, consisted of
the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
October 31, 2010 |
|
|
October 31, 2009 |
|
Net Sales |
|
|
|
|
|
|
|
|
Ophthalmic |
|
$ |
7,976 |
|
|
$ |
7,522 |
|
Neurosurgery Direct |
|
|
487 |
|
|
|
2,900 |
|
Marketing Partners (Codman, Stryker) |
|
|
1,762 |
|
|
|
|
|
OEM (Codman, Stryker, Iridex) |
|
|
1,837 |
|
|
|
1,690 |
|
Other |
|
|
14 |
|
|
|
34 |
|
|
|
|
|
|
|
|
Total |
|
$ |
12,076 |
|
|
$ |
12,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
8,470 |
|
|
$ |
8,489 |
|
International |
|
|
3,606 |
|
|
$ |
3,657 |
|
|
|
|
|
|
|
|
|
|
$ |
12,076 |
|
|
$ |
12,146 |
|
|
|
|
|
|
|
|
Note 10. Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued the Accounting
Standards Update (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 for the roll forward reconciliations is 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.
In July 2010, the FASB issued ASU 2010-20, Receivables, which requires enhanced disclosures
regarding the nature of credit risk inherent in an entitys portfolio of receivables, how that risk
is analyzed and the changes and reasons for those changes in the allowance for credit losses. The
new disclosures will require information for both the financing receivables and the related
allowance for credit losses at more disaggregated levels. The effective date is the third quarter
of fiscal 2011. As these changes only relate to disclosures, they will not have an impact on the
Companys 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.
11
Item 2 Managements Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Synergetics USA, Inc. is a leading supplier of precision microsurgical devices. 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, handheld devices and the delivery of various energy modalities for the
performance of minimally invasive microsurgery including: (i) laser energy, (ii) ultrasonic energy,
(iii) radio frequency energy for electrosurgery and lesion generation and (iv) visible light energy
for illumination, and where applicable, simultaneous infusion (irrigation) of fluids into the
operative field. Enterprise-wide sales information is included in Note 9 to the consolidated
unaudited financial statements.
The Company is a Delaware corporation incorporated on June 2, 2005 in connection with the
reverse merger of Synergetics, Inc. and Valley Forge Scientific Corp. 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.
Recent Developments
We had several developments in fiscal 2010 that we expect will contribute to the growth of our
business in the foreseeable future.
On April 1, 2010, the Company announced the closing of a definitive agreement with Stryker in
conjunction with the acquisition by Stryker of certain assets from Mutoh Co., Ltd. and its
affiliates, used to produce the Sonopet Ultrasonic Aspirator control consoles and handpieces
(previously marketed under the Omni® brand by Synergetics in the U.S., Canada and
several other countries). The agreement included the sale of accounts receivable, open sales
orders, inventory and certain intellectual property related to the Omni® product line.
The gain from the sale of the Omni® product line to Stryker was $817,000 in fiscal 2010.
In addition, the agreement provides for the Company to 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 ultrasonic aspirator products. The Stryker relationship has been
proceeding well and is meeting the Companys expectations for unit and dollar sales volumes.
On November 16, 2009, the Company announced the signing of an addendum to its three-year
agreement (effective as of January 1, 2009) with Codman. Under the terms of the revised agreement,
Codman will have the exclusive right to market and distribute the Companys Malis®
branded disposable bipolar forceps. 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 unit and
dollar sales volumes.
It is anticipated that once these two new marketing partner relationships have transitioned
and the Company has experienced a full twelve months of sales under these new agreements with
Stryker and Codman, contribution margins for the products supplied to these marketing partners
should increase, primarily due to the elimination of commercial expenses associated with the
distribution of these products. However, sales and gross profit for these products may decrease as
the transfer prices to these marketing partners are lower than the previous average direct selling
prices.
12
On April 27, 2010, the Company announced that it had entered into a Settlement and License
Agreement with Alcon, Inc. (Alcon) pursuant to which Alcon agreed to pay the Company $32.0
million, and the Company agreed to produce certain products for distribution by Alcon. The net
proceeds to the Company were $21.4 million after contingency payments to attorneys. The Company
recognized a gain from this agreement of $2.4 million in the third fiscal quarter. The remaining
$19.0 million has been accounted for as deferred revenue on the balance sheet. As units are
shipped to Alcon under a Supply Agreement entered pursuant to the settlement, the Company will be
paid an incremental transfer price and will also recognize a portion of the deferred revenue as
earned over a period of up to fifteen years. Shipments to Alcon of the first of two products
covered by the agreement are expected to begin in the second half of fiscal 2011.
On October 26, 2010, the Company announced record sales leads generated from the presentation
of recently released ophthalmic products at the 2010 Annual Meeting of the American Academy of
Ophthalmology.
On November 30, 2010, the Company extended its Revolving Credit Facility and its Equipment
Line of Credit through November 30, 2011.
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 |
|
|
|
|
|
|
October 31, 2010 |
|
|
Mix |
|
|
October 31, 2009 |
|
|
Mix |
|
Ophthalmology |
|
$ |
7,976 |
|
|
|
66.1 |
% |
|
$ |
7,522 |
|
|
|
61.9 |
% |
Direct Neurosurgery |
|
|
487 |
|
|
|
4.0 |
% |
|
|
2,900 |
|
|
|
23.9 |
% |
Marketing Partners (1) |
|
|
1,762 |
|
|
|
14.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Neurosurgery |
|
$ |
2,249 |
|
|
|
18.6 |
% |
|
$ |
2,900 |
|
|
|
23.9 |
% |
Original Equipment
Manufacturers (OEM) (2) |
|
|
1,837 |
|
|
|
15.2 |
% |
|
|
1,690 |
|
|
|
13.9 |
% |
Other |
|
|
14 |
|
|
|
0.1 |
% |
|
|
34 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,076 |
|
|
|
|
|
|
$ |
12,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Marketing partners sales include disposable bipolar forceps and disposable
instrument tips and accessories which were previously sold by our direct neurosurgery
sales force and our distribution partners, which have been transitioned to our marketing
partners. |
|
(2) |
|
Revenues from OEM represent sales of generators, related accessories and certain
laser probes to Stryker, Codman and Iridex. |
The decrease in sales in the first quarter of fiscal 2011 compared with the first quarter of fiscal
2010 was primarily due to the transition of our direct neurosurgery sales to our marketing
partners, which resulted in a $651,000 decrease in our net sales, and a decline in our capital
equipment sales. In the first quarter of fiscal 2010, the Company sold $444,000 of
Omni® capital equipment, which was previously included in our direct neurosurgery sales
and which the Company no longer sells. Sales of capital equipment in the first quarter of fiscal
2011, including the sales of Omni® capital equipment, declined by $636,000, or 23.5
percent compared with the first quarter of fiscal 2010. However, the sales of our disposable
products grew $566,000, or 6.0%, in the first quarter of fiscal 2011 as compared to the first
quarter fiscal 2010.
13
RESULTS OF OPERATIONS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
October 31, 2010 |
|
|
October 31, 2009 |
|
|
(Decrease) |
|
Net Sales |
|
$ |
12,076 |
|
|
$ |
12,146 |
|
|
|
(0.6 |
%) |
Gross Profit |
|
|
7,023 |
|
|
|
6,927 |
|
|
|
1.4 |
% |
Gross Profit Margin % |
|
|
58.2 |
% |
|
|
57.0 |
% |
|
|
2.1 |
% |
Commercial Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing |
|
|
3,023 |
|
|
|
3,259 |
|
|
|
(7.2 |
%) |
General and Administrative |
|
|
2,252 |
|
|
|
2,030 |
|
|
|
10.9 |
% |
Research and Development |
|
|
719 |
|
|
|
659 |
|
|
|
9.1 |
% |
Operating Income |
|
|
1,029 |
|
|
|
979 |
|
|
|
5.1 |
% |
Operating Margin |
|
|
8.5 |
% |
|
|
8.1 |
% |
|
|
4.9 |
% |
EBITDA (1) |
|
|
1,535 |
|
|
|
1,449 |
|
|
|
5.9 |
% |
Net Income |
|
$ |
633 |
|
|
$ |
542 |
|
|
|
16.8 |
% |
Earnings per share |
|
$ |
0.03 |
|
|
$ |
0.02 |
|
|
|
50.0 |
% |
Return on equity (1) |
|
|
1.4 |
% |
|
|
1.4 |
% |
|
|
0.0 |
% |
Return on assets (1) |
|
|
1.0 |
% |
|
|
1.2 |
% |
|
|
(16.7 |
%) |
|
|
|
(1) |
|
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 |
|
|
|
(Dollars in Thousands) |
|
|
|
October 31, 2010 |
|
|
October 31, 2009 |
|
Net income |
|
$ |
633 |
|
|
$ |
542 |
|
Interest |
|
|
80 |
|
|
|
168 |
|
Income taxes |
|
|
341 |
|
|
|
259 |
|
Depreciation and |
|
|
|
|
|
|
|
|
Amortization |
|
|
481 |
|
|
|
480 |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
1,535 |
|
|
$ |
1,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
633 |
|
|
$ |
542 |
|
Average Equity: |
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
45,167 |
|
|
|
|
|
July 31, 2010 |
|
|
44,226 |
|
|
|
|
|
October 31, 2009 |
|
|
|
|
|
|
38,746 |
|
July 31, 2009 |
|
|
|
|
|
|
38,130 |
|
Average Equity |
|
|
44,697 |
|
|
|
38,438 |
|
Return on Equity |
|
|
1.4 |
% |
|
|
1.4 |
% |
14
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
(Dollars in Thousands) |
|
|
|
October 31, 2010 |
|
|
October 31, 2009 |
|
Net income |
|
$ |
633 |
|
|
$ |
542 |
|
Interest |
|
|
80 |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
Net income + interest expense |
|
|
713 |
|
|
|
710 |
|
|
|
|
|
|
|
|
|
|
Average Assets: |
|
|
|
|
|
|
|
|
October 31, 2010 |
|
|
74,143 |
|
|
|
|
|
July 31, 2010 |
|
|
73,095 |
|
|
|
|
|
October 31, 2009 |
|
|
|
|
|
|
56,737 |
|
July 31, 2009 |
|
|
|
|
|
|
58,080 |
|
Average Assets |
|
|
73,619 |
|
|
|
57,409 |
|
Return on Assets |
|
|
1.0 |
% |
|
|
1.2 |
% |
Non-GAAP Financial Measures
We measure our performance primarily through our operating profit. In addition to our
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 these limitations, 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 as a percentage of sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
October 31, 2010 |
|
|
October 31, 2009 |
|
Ophthalmology |
|
|
66.1 |
% |
|
|
61.9 |
% |
Neurosurgery |
|
|
4.0 |
% |
|
|
23.9 |
% |
Marketing Partners |
|
|
14.6 |
% |
|
|
|
|
OEM |
|
|
15.2 |
% |
|
|
13.9 |
% |
Other |
|
|
0.1 |
% |
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
International revenues of $3.6 million constituted 29.9 percent of our total revenues for the
three months ended October 31, 2010, as compared to 30.1 percent as of the three months ended
October 31, 2009. We expect that the relative revenue contribution of our international sales will
rise for the remainder of fiscal 2011 as a result of our continued efforts to expand our
international ophthalmology distribution and direct sales force. In addition, many of the products
we sell to our marketing partners and OEM customers are shipped to their non-U.S. customers in
various countries around the world.
15
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 devices 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 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. In fiscal 2011, our driving strategic priorities
are to drive the Company onto a different growth trajectory and to continue to enhance the
profitability of our operational platform by focusing on manufacturing efficiencies.
In fiscal 2010, we were and continue to be focused on the following strategies:
Improve Profitability and Cash Efficiency through:
Manufacturing Efficiencies
Lean Manufacturing During the fiscal year ended July 31, 2010, we implemented lean
manufacturing in virtually all of our disposable illumination and laser probe product
lines. We restructured our production operations from a traditional departmental model into
six value streams. Each value stream has a dedicated management team to support the
production, technical and quality aspects of our products. Lean concepts were also
implemented within select machining and instrument value streams with great success. We
will continue to implement our lean initiative throughout the production value streams and
expand into our accounting operations in the coming fiscal year. We estimate that we
realized approximately $1.4 million of direct labor cost savings from these initiatives
during fiscal 2010 and $240,000 during the first fiscal quarter of 2011. In addition, we
have entered the phase in which we are conducting Kaizen events (Kaizen in Japanese means
change for the better), which we anticipate will produce significant incremental cost
savings.
Component Cost Savings The Companys most recent acquisition, Medimold, Inc., 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 machined parts
to injection molded, plastic parts. Our annual savings from the continued introduction of
new parts to this process was approximately $200,000 during fiscal year 2010 and $50,000
during the first fiscal quarter of 2011. In addition, the Company continues to pursue
select outsourcing opportunities for high volume components.
Supply Chain Management During fiscal 2009, the Company implemented Material
Requirements Planning (MRP) in planning and controlling its production processes. The
implementation of MRP helped reduce days of inventory on hand from 265 days at July 31,
2008 compared with 233 days at July 31, 2009 and 196 days at July 31, 2010. Days of
inventory on hand increased to 223 days as of October 31, 2010 due to the Companys
preparation for new product launches and a decision to increase our domestic and
international inventory to make sure customer demands are being fulfilled on a timely
basis. The Company is in the process of implementing a new Enterprise Resource Planning
(ERP) System and has completed the selection process. It is anticipated that the new ERP
system will be installed in the first quarter of fiscal 2012.
In addition, our fill rate on our A products (those products which provide over 80
percent of our sales) was 96.4 percent as of October 31, 2010 based upon inventory
availability to fulfill customer orders at the time the order is placed.
16
Human Resource Rationalization Starting with a hiring freeze in October 2008 and
ending with a reduction in force in July 2009 of approximately 40 people, including our
direct neurosurgery sales force, 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 through the first
quarter of fiscal 2011 and certain positions are only added based upon a resource need or a
replacement hire. At October 31, 2010 our head count was 350 as compared with 356 at July
31, 2010, a decrease of approximately 1.7 percent. However, a fully staffed operation,
including planned replacements, is approximately 360 employees.
Cash Management The Company has been focused on its debt level which it reduced to
$3.9 million as of October 31, 2010 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, the increase in days in accounts payable. During the first quarter
of fiscal 2011, the Companys leverage ratio (defined as debt divided by debt plus total
stockholders equity) was 7.9 percent which was an improvement from 8.4 percent as of July
31, 2010.
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 23. In addition, we developed a uniform
policies and procedures manual for our top ten 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, a primary development group which works on strategically targeted products
and a manufacturing engineering group which works on product line extensions. These three groups
continue to focus on projects in both ophthalmology and neurosurgery. Additionally, the engineering
team at the King of Prussia, Pennsylvania location has been strengthened to provide capacity for
the development of 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.
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 successfully effected
the transition of the sale of its neurosurgery products to its marketing partners.
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.
In fiscal 2011, our driving strategic priorities are:
|
|
|
To move the Company onto a higher growth trajectory. This means, simply, new
products, some in new categories. The focus on our top four R&D opportunities will
allow us access |
17
|
|
|
to different segments within the vitreoretinal and intracranial
markets to drive organic growth, along with new business development opportunities
that the Company is aggressively pursuing. We believe that this focus will revitalize
the Companys compound annual growth rate. |
|
|
|
|
To continue to enhance the profitability of our operational platform by focusing
on our manufacturing efficiencies, including lean manufacturing and select
outsourcing of high quality components, and cost savings. In the first quarter of
fiscal 2011, we enhanced our operating margins from 8.1 percent to 8.5 percent. |
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 included in 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 7.6 percent of
total sales for the Company for the three months ended October 31, 2010, or approximately $914,000
through the three months ended October 31, 2010. In order to focus resources on the most important
projects, the Company completed a thorough review of its R&D efforts and reorganized these
resources in fiscal 2009. The Company currently has 23 active projects in its R&D pipeline,
including a small core of significant projects. Due to the R&D reorganization and the advanced
technical challenges presented by these core projects, it will take a longer time for a significant
impact on revenue to come to fruition.
Demand Trends
The Companys sales declined less than one percent during the fiscal quarter ended October 31,
2010 compared with the previous fiscal quarter. The two most significant factors impacting this
decrease were the transitioning of our neurosurgery sales to our marketing partners and a $636,000,
or 23.5 percent, decrease in capital equipment sales, including
the sales of
Omni® capital equipment, compared to the first
quarter of fiscal 2010. These decreases were primarily offset
by the growth in our disposable product sales of $566,000, or 6.0 percent.
A study performed for the Company by Market Scope LLC predicts a steady growth of 3.4 percent
per year in vitrectomy surgery worldwide. Neurosurgical procedures on a global basis continue 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 devices and disposables, to support growth in procedure 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, increased competition in the market for the Companys
capital equipment
market segments, in combination with customer budget 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.
18
Results Overview
During the fiscal quarter ended October 31, 2010, we had net sales of $12.1 million, which
generated $7.0 million in gross profit, operating income of $1.0 million and net income of
approximately $633,000, or $0.03 earnings per share. The Company had $18.5 million in cash and $3.9
million in interest-bearing debt and revenue bonds as of October 31, 2010. Management anticipates
that its available cash and cash flows from operations 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 October 31, 2010 Compared to Three-Month Period Ended October 31, 2009
Net Sales
The following table presents net sales by category (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
|
|
|
|
|
|
|
|
% Increase |
|
|
|
October 31, 2010 |
|
|
October 31, 2009 |
|
|
(Decrease) |
|
Ophthalmic |
|
$ |
7,976 |
|
|
$ |
7,522 |
|
|
|
6.0 |
% |
Direct Neurosurgery |
|
|
487 |
|
|
|
2,900 |
|
|
|
(83.2 |
%) |
Marketing partners (Codman,
Stryker) |
|
|
1,762 |
|
|
|
|
|
|
|
N/M |
* |
|
|
|
|
|
|
|
|
|
|
Total Neurosurgery |
|
$ |
2,249 |
|
|
$ |
2,900 |
|
|
|
(22.4 |
%) |
OEM (Codman, Stryker, Iridex) |
|
|
1,837 |
|
|
|
1,690 |
|
|
|
8.7 |
% |
Other |
|
|
14 |
|
|
|
34 |
|
|
|
(58.8 |
%) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,076 |
|
|
$ |
12,146 |
|
|
|
(0.6 |
%) |
|
|
|
|
|
|
|
|
|
|
Ophthalmic sales grew 6.0 percent in the first quarter of fiscal 2011 compared to the first
quarter of fiscal 2010. Domestic ophthalmic sales decreased 1.8 percent due to the decline in
capital equipment sales, while international sales increased 17.4 percent primarily due to sales of
disposable products. Direct neurosurgery sales decreased $2.4 million, or 83.2 percent, to
$487,000 in the first quarter of fiscal 2011 compared the first quarter of fiscal 2010. This
decline in neurosurgery sales was the result of the transition to Codman and Stryker under
marketing partner agreements. New sales to our domestic marketing partners comprised $1.8 million
of sales in the first quarter of fiscal 2011, partially offsetting the loss in direct neurosurgery
sales. Total OEM rose 8.7 percent to $1.8 million compared with $1.7 million in the first
quarter of fiscal 2010.
The decrease in sales in the first quarter of fiscal 2011 compared with the first quarter of
fiscal 2010 was primarily due to the transition of our direct neurosurgery sales to our marketing
partners, which resulted in a $651,000 decrease in our net sales, and a decline in our capital
equipment sales. In the first quarter of fiscal 2010, the Company sold $444,000 of
Omni® capital equipment, which was previously included in our direct neurosurgery sales
and which the Company no longer sells. Sales of capital
equipment in the first quarter of fiscal 2011, including the sales of Omni® capital
equipment, declined by $636,000, or 23.5 percent compared with the first quarter of fiscal 2010.
However, the sales or our disposable products grew $566,000, or 6.0%, in the first quarter of
fiscal 2010 as compared to the first quarter fiscal 2009.
19
The following table presents domestic and international net sales (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
% Increase |
|
|
|
October 31, 2010 |
|
|
October 31, 2009 |
|
|
(Decrease) |
|
United States (including
Marketing Partner and OEM sales) |
|
$ |
8,470 |
|
|
$ |
8,489 |
|
|
|
(0.2 |
%) |
International (including Canada) |
|
|
3,606 |
|
|
|
3,657 |
|
|
|
(1.4 |
%) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,076 |
|
|
$ |
12,146 |
|
|
|
(0.6 |
%) |
|
|
|
|
|
|
|
|
|
|
Domestic and international sales decreased primarily due to the shift in sales from direct
neurosurgery sales to our marketing partners. Sales of domestic ophthalmology decreased 1.8
percent due to the decline in capital equipment sales while international ophthalmology sales
increased 17.4 percent. Direct domestic neurosurgery sales decreased 79.9 percent and international
neurosurgery sales decreased 95.9 percent. Sales to our marketing partners represented $1.8
million in sales during the first quarter of fiscal 2011, partially offsetting the loss of
neurosurgery sales.
Gross Profit
Gross profit as a percentage of net sales was 58.2 percent in the first quarter of fiscal
2011, compared to 57.0 percent for the same period in fiscal 2010. Gross profit as a percentage of
net sales for the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010
increased 1.2 percentage points, due to improved profit margins on our ophthalmology products and
improved absorption of both labor and overhead on all products, partially offset by the margin
impact of the transition of sales to our marketing partners. The Company continues to realize
incremental savings from the lean manufacturing initiative and continues to develop our internal
resources to expand the lean initiative throughout the entire organization.
Operating Expenses
R&D expenses as a percentage of net sales was 6.0 percent and 5.4 percent for the first
quarter of fiscal 2011 and 2010, respectively. R&D costs increased by $60,000 in the first quarter
of fiscal 2011 compared to the same period in fiscal 2010. The Companys pipeline included
approximately 23 active projects in various stages of completion as of October 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 5 to 7 percent of net sales. However, in the second half of
fiscal 2011, the R&D investment may decline as a percent of sales as development revenue from
certain new products being developed with Strykers ultrasonic aspirator products will offset some
of the Companys internal R&D expenses.
Sales and marketing expenses decreased by approximately $236,000 to $3.0 million, or 25.0
percent of net sales, for the first fiscal quarter of 2011, compared to $3.3 million, or 26.8
percent of net sales, for the first fiscal quarter of 2010. The decrease in sales and marketing
expenses as a percentage of net sales was primarily due to the elimination of our neurosurgery
sales force as of July 31, 2009.
General and administrative expenses increased by approximately $222,000 to $2.3 million, or
18.6 percent of net sales, in the first fiscal quarter of 2011, compared to $2.0 million, or 16.7
percent of net sales, for the first fiscal quarter of 2010. The increase in general and
administrative expenses as a percentage of net sales was primarily due to additional employees
required to implement our lean manufacturing and quality improvement initiatives.
20
Other Income/(Expenses)
Other expense for the first quarter of fiscal 2011 decreased to $55,000 compared to an expense
of $178,000 for the first quarter of fiscal 2010. The decrease was primarily due to lower interest
expense as the Company has significantly paid down its debt as compared to the first quarter of
fiscal 2010 and higher investment income from its cash balances.
Operating Income, Income Taxes and Net Income
Operating income for the first quarter of fiscal 2011 was up $50,000 to $1.0 million, as
compared to the comparable 2010 fiscal period. The flat operating income was primarily the result
of a 7.2 percent decrease in sales and marketing expenses partially offset by a 9.1 percent
increase in R&D and a 10.9 percent increase in general and administrative expenses.
The Company recorded a $341,000 tax provision on pre-tax income of $974,000, a 35.0 percent
tax provision, in the quarter ended October 31, 2010. In the quarter ended October 31, 2009, the
Company recorded a $259,000 tax provision on pre-tax income of $801,000, a 32.3 percent tax
provision. The increase in the effective tax rate was due to the expiration of the R&D tax credit
as of December 31, 2009.
Net income increased by $91,000 to $633,000 for the first quarter of fiscal 2011, from
$542,000 for the same period in fiscal 2010. Basic and diluted earnings per share for the first
quarter of fiscal 2011 increased to $0.03 from $0.02 for the first quarter of fiscal 2010. Basic
weighted average shares outstanding increased from 24,458,089 at October 31, 2009, to 24,782,913 at
October 31, 2010.
Liquidity and Capital Resources
The Company had approximately $18.5 million in cash and $3.9 million in interest-bearing debt
and revenue bonds as of October 31, 2010.
Working capital, including the management of inventory and accounts receivable, is a key
management focus. At October 31, 2010, the Company had an average of 64 days of sales outstanding
utilizing the trailing twelve months sales for the period ending October 31, 2010. The 64 days of
sales outstanding at October 31, 2010, was 1 day unfavorable to July 31, 2010, and 9 days
unfavorable to October 31, 2009, utilizing the trailing twelve months of sales. The current
unfavorable economic climate in the United States and abroad has been impacting the collection time
on our accounts receivable.
At October 31, 2010, the Company had 223 days of average cost of sales in inventory on hand
utilizing the trailing twelve months cost of sales for the period ending October 31, 2010. The
223 days of cost of sales in inventory was unfavorable to July 31, 2010, by 27 days and 6 days
favorable to October 31, 2009, utilizing the trailing twelve months of cost of sales. Days of
inventory on hand increased to 223 days as of October 31, 2010 due to the Companys preparation for
new product launches and a decision to increase our domestic and international inventory to make
sure customer demands are being fulfilled on a timely basis.
Cash flows provided by operating activities were $220,000 for the three months ended October
31, 2010, compared to cash flows provided by operating activities of approximately $1.6 million for
the
comparable fiscal 2010 period. The decrease of $1.4 million was primarily attributable to the
net increase in inventory. In addition, accounts payable and income taxes payable increased
$916,000 during the first three months of fiscal 2011, partially offset by a decrease in accounts
receivable by approximately $1.1 million.
Cash flows used by investing activities were $335,000 for the three months ended October 31,
2010, compared to cash used by investing activities of $223,000 for the comparable fiscal 2010
period. During the three months ended October 31, 2010, cash additions to property and equipment
were $285,000, compared to $198,000 and cash additions to patents and other intangibles were
$50,000, compared to $40,000 for the first three months of fiscal 2010.
21
Cash flows used in financing activities were $63,000 for the three months ended October 31,
2010, compared to cash used in financing activities of $1.2 million for the three months ended
October 31, 2009. The decrease of $1.1 million was attributable primarily to a decrease in the
balance of net borrowings on the line of credit of $1.2 million.
The Company had the following committed financing arrangements as of October 31, 2010, but had
no borrowings thereunder:
Revolving Credit Facility: The Company has a credit facility with a bank 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 October 31, 2010, interest under the facility was charged at 2.26 percent. The unused portion of
the facility is charged at a rate of 0.20 percent. There were no borrowings under this facility at
October 31, 2010. Outstanding amounts, if any, are collateralized by the Companys domestic
receivables and inventory. This credit facility was amended on November 30, 2010, to extend the
termination date through November 30, 2011.
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 October 31, 2010, the Companys leverage
ratio was 1.36 times and the minimum fixed charge coverage ratio was 1.88 times. Collateral
availability under the line as of October 31, 2010, was approximately $8.2 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 had a non-U.S. receivables
revolving credit facility with a bank which allowed 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 charged an
administrative fee of 1.0 percent. There were no borrowings under this facility at October 31,
2010. Outstanding amounts were collateralized by the Companys non-U.S. receivables. This credit
facility had no financial covenants and was amended on November 30, 2010, to terminate the
facility. Collateral availability under the facility was approximately $1.1 million at October 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 October 31, 2010. The equipment
line of credit was amended on November 30, 2010, to extend the maturity date to November 30, 2011.
Management believes that cash flows from operations, together with available cash, will be
sufficient to meet the Companys working capital (including taxes due on the Alcon settlement),
capital expenditure, and debt service needs for the next twelve months.
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, 2010.
22
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.
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, 2010. In the first three
months of fiscal 2011, there were no changes to the significant accounting policies.
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 $18.5 million in cash and cash equivalents with a substantial portion of this
cash held in short-term money market funds bearing interest at 70 basis points. Interest income
from these funds is subject to market risk in the form of fluctuations in interest rates. A
reduction in the interest on these funds to 35 basis points would decrease the amount of interest
income from these funds by approximately $65,000.
The Company currently has a revolving credit facilities and an equipment line of credit
facility in place. The revolving credit facilities had no outstanding balance at October 31, 2010,
bearing interest at a current rate of LIBOR plus 2.0 percent. The equipment line of credit facility
had no outstanding balance at October 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. Because the current levels of borrowings are zero, there would be
no market risk associated with the interest rates. 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.
Item 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the Companys
disclosure controls and procedures as of October 31, 2010. Based on such review and evaluation, our
Chief Executive Officer
23
and Chief Financial Officer have concluded that, as of October 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 first fiscal quarter ended October 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
From time to time, we may become subject to litigation claims that may greatly exceed our
liability insurance limits. An adverse outcome of such litigation may adversely impact our
financial condition 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 October 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, 2010. 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, 2010.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
None
Item 4 [Removed and Reserved]
Item 5 Other Information
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(a) |
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None. |
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(b) |
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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, 2010. |
24
Item 6 Exhibits
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Exhibit No. |
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Description |
10.1
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Change in Control Agreement between Synergetics USA,
Inc. and Pamela G. Boone, effective as of August 1, 2010
(filed as Exhibit 10.10 to the Registrants Annual
Report on Form 10-K filed on October 12, 2010 and
incorporated by reference). |
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31.1
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Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2
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Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1
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Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2
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Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
Trademark Acknowledgements
Malis, the Malis waveform logo, 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, Pinnacle 360°, Directional, Tru-Curve, 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.
25
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.
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SYNERGETICS USA, INC.
(Registrant)
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December 14, 2010 |
/s/ David M. Hable
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David M. Hable, |
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President and Chief Executive Officer
(Principal Executive Officer) |
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December 14, 2010 |
/s/ Pamela G. Boone
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Pamela G. Boone, |
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Executive Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Principal Accounting Officer) |
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26