10-Q/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

R	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended October 31, 2011
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM _______________ TO _______________

Commission file number 001-10382

SYNERGETICS USA, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-5715943
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3845 Corporate Centre Drive
O’Fallon, Missouri	63368
(Address of principal executive offices)	(Zip Code)

	(636) 939-5100
(Registrant’s Telephone Number, Including Area Code)

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 R No £

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 R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer  £	Accelerated Filer  R
Non-Accelerated Filer  £	Smaller Reporting Company  £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

The number of shares outstanding of the issuer’s common stock, $0.001 value per share, as of December 2, 2011 was 24,975,474 shares.

Synergetics USA, Inc.

Explanatory Note

Synergetics USA, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (the “Amendment”) to the Company’s quarterly report on Form 10-Q for the period ended October 31, 2011 (the “Form 10-Q”), filed with the Securities and Exchange Commission on December 12, 2011 (the “Original Filing Date”), solely to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T.  Exhibit 101 consists of the following interactive data files from the Company’s Form 10-Q, formatted in XBRL (Extensible Business Reporting Language):

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

No other changes have been made to the Form 10-Q. This Amendment speaks as of the Original Filing Date, does not reflect events that may have occurred subsequent to the Original Filing Date, and does not modify or update in any way disclosures made in the Form 10-Q.

Pursuant to Rule 406T of Regulation S-T, the interactive data files attached as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Part II. OTHER INFORMATION

Item 6 — Exhibits

Exhibit No.	Description
31.1*	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
101. PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

* Previously filed with the Company’s quarterly report on Form 10-Q for the period ended October 31, 2011, which was filed with the Securities and Exchange Commission on December 12, 2011.

** Furnished herewith.  XBRL (Extensible Business Reporting Language) information is furnished and not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SYNERGETICS USA, INC.
	(Registrant)
December 29, 2011	/s/ David M. Hable
	David M. Hable,President and Chief
	Executive Officer (Principal Executive
	Officer)

December 29, 2011	/s/ Pamela G. Boone
	Pamela G. Boone, Executive Vice
	President, Chief Financial Officer, Secretary
	and Treasurer (Principal Financial and
	Principal Accounting Officer)

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Comprehensive Income

3 Months Ended

Oct. 31, 2011

Comprehensive Income [Abstract]

Comprehensive Income

Note 3.  Comprehensive Income

Comprehensive income was $742,000 and $759,000 for the three months ended October 31, 2011 and 2010, respectively.  The Company's only component of other comprehensive income is the foreign currency translation adjustment.

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Discontinued Operations

3 Months Ended

Oct. 31, 2011

Discontinued Operations [Abstract]

Discontinued Operations

Note 2.  Discontinued Operations

In September 2011, the Company adopted a plan to close its plastic injection molding operations and has transitioned this production to an outside vendor.  During the Company's first quarter of fiscal 2012, substantially all operational activities of this unit were discontinued and the Company classified them as discontinued operations.  The Company expects to complete the sale of these assets prior to the end of its fiscal second quarter.  The assets included in the disposal group are primarily equipment.  The following table summarizes the results of the discontinued operations for the first quarter of fiscal 2012 and 2011 (dollars in thousands):

	For Three Months Ended October 31, 2011			For Three Months Ended October 31, 2010
Net Sales	$	23		$	19
Operating costs		(191	)		23
Impairment, restructuring and other charges		(253	)		--
Write-off of goodwill		(29	)		--
Estimated loss on sale of fixed assets		(125	)		--
Loss from discontinued operations before provision for income taxes		(575	)		(4	)
Income tax benefit		193			1
Loss from discontinued operations	$	(382	)	$	(3	)

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Oct. 31, 2011	Jul. 31, 2011
Current Assets
Cash and cash equivalents	$ 13,743	$ 18,399
Accounts receivable, net of allowance for doubtful accounts of $289 and $282, respectively	10,436	11,148
Inventories	12,298	12,082
Prepaid expenses	892	961
Deferred income taxes	824	792
Assets held for sale	406	868
Total current assets	38,599	44,250
Property and equipment, net	8,825	8,561
Goodwill	10,661	10,660
Other intangible assets, net	11,664	11,792
Deferred income taxes	4,717	4,915
Patents, net	1,123	1,050
Cash value of life insurance	82	82
Total assets	75,671	81,310
Current Liabilities
Current maturities of long-term debt	898	1,053
Accounts payable	1,906	1,567
Accrued expenses	2,798	3,193
Income taxes payable	351	6,233
Deferred revenue	375	540
Total current liabilities	6,328	12,586
Long-Term Liabilities
Deferred revenue	17,827	18,060
Total long-term liabilities	17,827	18,060
Total liabilities	24,155	30,646
Commitments and contingencies (Note 9)
Stockholders' Equity
Common stock at October 31, 2011 and July 31, 2011, $0.001 par value, 50,000,000 shares authorized; 24,975,474 and 24,970,884 shares issued and outstanding, respectively	25	25
Additional paid-in capital	25,708	25,598
Retained earnings	25,723	24,952
Accumulated other comprehensive income:
Foreign currency translation adjustment	60	89
Total stockholders' equity	51,516	50,664
Total liabilities and stockholders' equity	$ 75,671	$ 81,310

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Oct. 31, 2011	Oct. 31, 2010
Cash Flows from Operating Activities
Net income	$ 771	$ 633
Plus: Loss from discontinued operations - net of tax	(382)	(3)
Income from continuing operations	1,153	636
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	290	262
Amortization	162	196
Provision for doubtful accounts receivable	22	4
Stock-based compensation	98	70
Deferred income taxes	166	(75)
(Increase) decrease in:
Accounts receivable	677	7
Inventories	(231)	(1,353)
Prepaid expenses	59	265
(Decrease) increase in:
Accounts payable	369	55
Accrued expenses	(262)	63
Deferred revenue	(398)	0
Income taxes payable	(5,688)	243
Net cash (used in) provided by continuing operating activities	(3,583)	373
Net cash used in discontinued operations	(15)	(153)
Net (used in) provided by operating activities	(3,598)	220
Cash Flows from Investing Activities
Purchase of property and equipment	(802)	(226)
Acquisition of patents and other intangibles	(105)	(50)
Net cash used in continuing investing activities	(907)	(276)
Net cash used in discontinued operations	0	(50)
Net cash used in investing activities	(907)	(335)
Cash Flows from Financing Activities
Principal payments on revenue bonds payable	0	(29)
Principal payments on long-term debt	0	0
Payment on debt incurred for acquisition of trademark	(155)	(146)
Tax benefit associated with the exercise of non-qualified stock options	8	43
Proceeds from the issuance of common stock	5	69
Net cash used in financing activities	(142)	(63)
Foreign exchange rate effect on cash and cash equivalents	(9)	28
Net decrease in cash and cash equivalents	(4,656)	(150)
Cash and cash equivalents
Beginning	18,399	18,669
Ending	$ 13,743	$ 18,519

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General

3 Months Ended

Oct. 31, 2011

General [Abstract]

General

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 its people, the Company's mission is to design, manufacture and market innovative disposable and reusable surgical devices, procedural kits, capital equipment and accessories of the highest quality in order to enable surgeons who perform surgery around the world to provide a better quality of life for their patients.   The Company's primary focus is on the surgical disciplines of ophthalmology and neurosurgery. Its distribution channels include a combination of direct and independent distributor sales organizations and important strategic alliances with market leaders. The Company is located in O'Fallon, 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 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, 2011, are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2012. 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, 2011, and notes thereto included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 11, 2011 (the “Annual Report”).

Reclassifications:   Certain reclassifications have been made to the prior quarter's quarterly financial statements to conform to the current quarter's presentation with respect to the plastic injection molding operations being classified as discontinued.

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Oct. 31, 2011	Jul. 31, 2011
Current Assets
Accounts receivable, allowance for doubtful accounts	$ 289	$ 282
Stockholders' Equity
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares issued (in shares)	24,975,474	24,970,884
Common stock, shares outstanding (in shares)	24,975,474	24,970,884

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Recent Accounting Pronouncements

3 Months Ended

Oct. 31, 2011

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 11. Recent Accounting Pronouncements

Recently Adopted

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 Accounting Standards Cofification 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. As the Company does not have any level 3 assets, the adoption of this ASU did not have a material effect on its consolidated financial statements.

Recently Issued

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” (“ASU No. 2011-05”). ASU No. 2011-05 amends current guidance to allow a company the option of presenting the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions do not change the items that must be reported in other comprehensive income or when an item of other comprehensive must be reclassified to net income. The amendments do not change the option for a company to present components of other comprehensive income, either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense (benefit) related to the total of other comprehensive income items. The amendments do not affect how earnings per share is calculated or presented. The provisions of ASU No. 2011-05 are effective for the Company's reporting periods beginning after December 15, 2011 and should be applied retrospectively. Early adoption is permitted, although the Company has not yet adopted ASU 2011-05, and there are no required transition disclosures. The Company does not believe the adoption of ASU 2011-05 will have a material impact on the consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Intangibles – Goodwill and Other” (“ASU No. 2011-08”). ASU No 2011-08 amends current guidance to allow a company to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this amendment an entity would not be required to calculate the fair value of a reporting unit unless the entity determines based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. ASU No. 2011-08 applies to all companies that have goodwill reported in their financial statements. The provisions of ASU No. 2011-08 are effective for the Company's reporting periods beginning after December 15, 2011. The Company does not believe the adoption of ASU No. 2011-08 will have a material impact on the consolidated financial statements.

The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe any such pronouncements will have a material impact on its financial statements.

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Document And Entity Information (USD $)	3 Months Ended
	Oct. 31, 2011	Dec. 02, 2011	Jul. 31, 2011
Entity Registrant Name	SYNERGETICS USA INC
Entity Central Index Key	0000836429
Current Fiscal Year End Date	--07-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 97,805,062
Entity Common Stock, Shares Outstanding		24,975,474
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Oct. 31, 2011

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Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Oct. 31, 2011	Oct. 31, 2010
Consolidated Statements of Income [Abstract]
Net sales	$ 13,505	$ 12,057
Cost of sales	5,589	5,030
Gross profit	7,916	7,027
Operating expenses
Research and development	790	719
Sales and marketing	3,076	3,023
General and administrative	2,538	2,252
Total operating expenses	6,404	5,994
Operating income	1,512	1,033
Other income (expenses)
Investment income	14	32
Interest expense	(18)	(80)
Miscellaneous	(2)	(7)
Total other income (expense)	(6)	(55)
Income from continuing operations before provision for income taxes	1,506	978
Provision for income taxes	353	342
Income from continuing operations	1,153	636
Loss from discontinued operations, net of income tax benefit of $193 and $1, respectively	382	3
Net income	$ 771	$ 633
Basic
Income from Continuing Operations (in dollars per share)	$ 0.05	$ 0.03
Loss from Discontinued Operations (in dollars per share)	$ (0.02)	$ 0.00
Net Income (in dollars per share)	$ 0.03	$ 0.03
Diluted
Income from Continuing Operations (in dollars per share)	$ 0.05	$ 0.03
Loss from Discontinued Operations (in dollars per share)	$ (0.02)	$ 0.00
Net Income (in dollars per share)	$ 0.03	$ 0.03
Basic weighted average common shares outstanding (in shares)	24,971,034	24,782,913
Diluted weighted average common shares outstanding (in shares)	25,136,727	24,862,420

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Stock-Based Compensation

3 Months Ended

Oct. 31, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 6. Stock-Based Compensation

Stock Option Plans

The following table provides information about stock-based awards outstanding at October 31, 2011:

	Shares		Weighted Average Exercise Price		Weighted Average Fair Value
Options outstanding beginning of period		517,029	$	2.68	$	2.16
For the period August 1, 2011 through October 31, 2011
Granted		--		--		--
Forfeited		--		--		--
Exercised		4,590	$	1.09	$	0.91
Options outstanding, end of period		512,439	$	2.69	$	2.17
Options exercisable, end of period		393,063	$	2.60	$	2.10

There were no options granted in the first quarter of fiscal 2012.   Each independent director receives an option to purchase 10,000 shares of the Company's 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 2011, there were options to purchase 40,000 shares of the Company's Common Stock granted to the Company's independent directors, which vest pro-ratably on a quarterly basis over the next year of service. The Company recorded $35,000 of compensation expense for the three months ended October 31, 2011 with respect to these options.

During the second quarter of fiscal 2011, there was an option to purchase 10,164 shares of Common Stock granted to the Chief Executive Officer (“CEO”), an option to purchase 18,633 shares of Common Stock granted to the Chief Operating Officer (“COO”), an option to purchase 12,125 shares of Common Stock granted to each of the Chief Scientific Officer (“CSO”) and the Chief Financial Officer (“CFO”) and an option to purchase 7,852 shares of Common Stock to each of the Vice President of Domestic Sales and the Vice President of International Sales and Marketing. The options granted to the officers of the Company were granted in conjunction with the Company's annual review of compensation as of August 1, 2010 and vest pro-ratably on a quarterly basis over the next five years of service. The Company recorded $20,000 of compensation expense for the three months ended October 31, 2011 with respect to these options.

The Company expects to issue new shares as options are exercised. As of October 31, 2011, the future compensation cost expected to be recognized for currently outstanding stock options is approximately $74,000 for the remainder of fiscal 2012, $68,000 in fiscal 2013, $68,000 in fiscal 2014, $56,000 in fiscal 2015 and $20,000 in fiscal 2016.

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, 2011, there was approximately $366,000 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 four years. The following table provides information about restricted stock grants during the three-month period ended October 31, 2011:

	Number of Shares		Weighted Average Grant Date Fair Value
Balance as of July 31, 2011		330,807	$	2.36
Granted		--		--
Forfeited		--		--
Balance as of October 31, 2011		330,807	$	2.36

The Company expects to grant additional stock options and restricted stock under its long-term incentive plan in conjunction with its annual shareholders' meeting.

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Marketing Partner Agreements

3 Months Ended

Oct. 31, 2011

Marketing Partner Agreements [Abstract]

Marketing Partner Agreements

Note 5. 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:

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 Company's Malis® trademark to Codman for use with certain Codman products, including those covered by the distribution agreement.  Both agreements expire on December 31, 2011 and may renew for an additional three-year period.  In December 2010, Codman elected to exercise its option of exclusive distribution with respect to the bipolar generators and related disposables and accessories.

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 Company's 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 Company's net sales in the three months ended October 31, 2011 and October 31, 2010, 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):

	Three Months Ended October 31, 2011			Three Months Ended October 31, 2010
Net Sales	$	2,221		$	2,107
Percent of net sales		16.4	%		17.4	%

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 has negotiated a four-year extension to the agreement through December 31, 2015.

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 the second quarter of fiscal 2011, the Company recorded a $99,000 loss on the sale of this product line, as certain receivables were deemed uncollectible.  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 Stryker's ultrasonic aspirator products.  This agreement expires on March 31, 2014.

Total sales to Stryker and its respective percent of the Company's net sales in the three months ended October 31, 2011, and October 31, 2010, 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):

	Three Months Ended October 31, 2011			Three Months Ended October 31, 2010
Net Sales	$	1,954		$	1,360
Percent of net sales		14.5	%		11.3	%

No other customer comprises more than 10 percent of sales in any given quarter.

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Commitments and Contingencies

3 Months Ended

Oct. 31, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 9. Commitments and Contingencies

Effective January 29, 2009, the Company's 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 Company's 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 Company's annual review of compensation and therefore, the agreement was made effective with other compensation changes as of August 1, 2010.  On March 3, 2011, the Company entered into a change of control agreement with each of its Vice President of Domestic Sales and Vice President of International Sales and Marketing; which agreements were contemplated in conjunction with the Company's annual review of compensation and therefore, the agreements were made effective with other compensation changes as of August 1, 2010.  The change in control agreements with its executive officers provide that if employment is terminated within one year for cause or disability following a change in control (as each term is defined in the change in control agreements), as a result of the officers' death, or by the officer other than as an involuntary termination (as defined in the change in control agreements), 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 officer's 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 Company's 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 officer's awards of shares or options shall immediately vest and be exercisable for one year after the date of his or her employment termination.

Various claims, incidental to the ordinary course of business, are pending against the Company.  In the opinion of management, after consultation with legal counsel, resolution of these matters is not expected to have a material effect on the accompanying financial statements.

The Company is subject to regulatory requirements throughout the world. In the normal course of business, 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.

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Fair Value Information

3 Months Ended

Oct. 31, 2011

Fair Value Information [Abstract]

Fair Value Information

Note 7. 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 or at least annually and recorded at fair value only when impairment is recognized. No impairment indicators existed as of October 31, 2011.

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 Company's notes 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.

Certain of the Company's assets have been measured on a non-recurring basis as a result of the Company's decision to close its plastic injection molding operations.  The following table presents these fair value measurements (dollars in thousands):

	Fair Value Measurements
Description	Quarter Ended 10/31/11		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses
Goodwill	$	--	--		$	--	$	29
Assets held for sale		406		230		176	$	250
Total		406		230		176	$	289

Goodwill with a carrying amount of $29,000 associated with discontinued operations was written off, resulting in an impairment charge of $29,000.  Assets held for sale associated with the discontinued operations with a carrying value of $656,000 were written down to their implied fair value of $406,000, resulting in an impairment charge of $250,000.  The impairment charges recorded during the period were included in the loss from discontinued operations.

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Supplemental Balance Sheet Information

3 Months Ended

Oct. 31, 2011

Supplemental Balance Sheet Information [Abstract]

Supplemental Balance Sheet Information

Note 8. Supplemental Balance Sheet Information

Inventories: Inventories as of October 31, 2011 and July 31, 2011 were as follows (dollars in thousands):

	October 31,2011		July 31, 2011
Raw material and component parts	$	5,774	$	6,205
Work in progress		1,803		1,185
Finished goods		4,721		4,692
	$	12,298	$	12,082

Property and Equipment: Property and equipment as of October 31, 2011 and July 31, 2011 were as follows (dollars in thousands):

	October 31, 2011		July 31, 2011
Land	$	730	$	730
Building and improvements		5,885		5,965
Machinery and equipment		7,124		6,861
Furniture and fixtures		937		730
Software		996		363
Construction in progress		192		685
		15,864		15,334
Less accumulated depreciation		7,039		6,773
	$	8,825	$	8,561

Other Intangible Assets:  Information regarding the Company's other intangible assets as of October 31, 2011 and July 31, 2011 were as follows (dollars in thousands):

	Gross Carrying Value		Accumulated Amortization		Net
	October 31, 2011
Proprietary know-how	$	4,057	$	1,853	$	2,204
Trademark		5,923		--		5,923
Licensing agreement		5,834		2,297		3,537
Patents		1,765		642		1,123
	$	17,579	$	4,792	$	12,787
	July 31, 2011
Proprietary know-how	$	4,057	$	1,792	$	2,265
Trademark		5,923		--		5,923
Licensing agreement		5,834		2,230		3,604
Patents		1,659		609		1,050
	$	17,473	$	4,631	$	12,842

Goodwill of $10,661,000 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, 2011. Estimated amortization expense on other intangibles for the remaining nine months of the fiscal year ending July 31, 2012, and the next four years thereafter is as follows (dollars in thousands):

	Amount
Fiscal Year 2012 (remaining 9 months)	$	477
Fiscal Year 2013		636
Fiscal Year 2014		636
Fiscal Year 2015		636
Fiscal Year 2016		636

Amortization expense for the three months ended October 31, 2011 was $162,000.

Pledged assets; short and long-term debt (excluding revenue bonds payable):  Short-term debt as of October 31, 2011 and July 31, 2011, 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, 2011 permits borrowings up to $8.6 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, 2011, interest under the facility is charged at 2.25 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, 2011. Outstanding amounts are collateralized by the Company's domestic receivables and inventory. This credit facility was amended on November 30, 2011, to extend the termination date through November 30, 2013.

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, 2011, the leverage ratio was 0.86 times and the minimum fixed charge coverage ratio was 1.78 times. Collateral availability under the line as of October 31, 2011, was approximately $8.6 million. The facility restricts the payment of dividends if, following the distribution, the fixed charge coverage ratio would fall below the required minimum.

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, 2011. The equipment line of credit was amended on November 30, 2011, to extend the maturity date to November 30, 2013.

Long-term debt as of October 31, 2011 and July 31, 2011 consisted of the following (dollars in thousands):

	October 31, 2011		July 31, 2011
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 $159,904  including the effects of imputing interest, due December 15, 2011, collateralized by the Malis® trademark	$	160	$	313
Settlement obligation to Iridex Corporation, due in annual installments of $800,000 which includes interest at an imputed rate of 8.0 percent; remaining balance of $800,000 including the effects of imputing interest, due April 15, 2012		738		740
Total	$	898	$	1,053
Less current maturities		898		1,053
Long-term portion	$	---	$	--

Deferred revenue: Deferred revenue as of October 31, 2011 and July 31, 2011, consisted of the following (dollars in thousands):

	October 31, 2011		July 31, 2011
Deferred revenue – Alcon settlement	$	18,071	$	18,334
Deferred revenue – Codman exclusivity		131		266
Total	$	18,202	$	18,600
Less:  Short-term		375		540
Long-term portion	$	17,827	$	18,060

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Enterprise-wide Sales Information

3 Months Ended

Oct. 31, 2011

Enterprise-wide Sales Information [Abstract]

Enterprise-wide Sales Information

Note 10. Enterprise-wide Sales Information

Enterprise-wide sales information for the three months ended October 31, 2011 and 2010, respectively, consisted of the following (dollars in thousands):

	Three Months Ended October 31, 2011		Three Months Ended October 31, 2010
Net Sales
Ophthalmic	$	8,762	$	7,963
OEM (1)		4,544		3,594
Other (2)		199		500
Total	$	13,505	$	12,057
Net Sales
Domestic	$	9,801	$	8,451
International		3,704		3,606
	$	13,505	$	12,057

(1) Revenues from OEM represent sales of electrosurgery generators, disposable ultrasonic tips and related accessories, disposable bipolar forceps and related accessories, and royalties along with certain laser probes to Stryker, Codman and Iridex Corporation (“Iridex”).  In addition, deferred revenues of $398,000 from Codman and Alcon are included in this category for the first fiscal quarter of 2012.

(2) Revenues from Other represent direct neurosurgery revenues and other miscellaneous revenues.

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Consolidated Statements of Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Oct. 31, 2011	Oct. 31, 2010
Consolidated Statements of Income [Abstract]
Loss from discontinued operations, income tax benefit	$ 193	$ 1

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Summary of Significant Accounting Policies

3 Months Ended

Oct. 31, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 4. Summary of Significant Accounting Policies

Deferred revenue:  During the second quarter of fiscal 2011, the Company received a payment from Codman & Shurtleff, Inc. (“Codman”), a marketing partner, to establish exclusivity on certain electrosurgical generator products and accessories.  Revenue from the payment has been deferred and is being amortized over the expected term of the agreement.  The Company recognized $135,000 of this deferred revenue for the three months ended October 31, 2011.  In addition, included in deferred revenue is an amount the Company received pursuant to a Confidential Settlement and License Agreement with Alcon, Inc. (“Alcon”).  This payment was accounted for as an up-front licensing fee.  Recognition of the revenue pursuant to this agreement has been deferred and is being recognized over a period of up to fifteen years based upon estimated shipments to Alcon under a related Supply Agreement executed pursuant to the settlement.  The Company recognized $263,000 of this deferred revenue as the estimate of these shipments was revised for the three months ended October 31, 2011.

The Company's significant accounting policies are disclosed in the Annual Report. In the first three months of fiscal 2012, no significant accounting policies were changed.