Revenues from our ophthalmic products constituted 57.2 percent and 56.0 percent of our total revenues for the nine months ended May 4, 2009, and for the fiscal year ended July 31, 2008, respectively. Revenues from our neurosurgical products represented 26.5 percent and 25.8 percent for the nine months ended May 4, 2009, and for the fiscal year ended July 31, 2008, respectively. Revenues from our marketing partners (i.e. Original Equipment Manufacturer relationships ("OEM")) represented 15.4 percent and 16.7 percent of our total revenues for the nine months ended May 4, 2009, and the fiscal year ended July 31, 2008, respectively. In addition, other revenue was 0.9 percent of our total revenues for the nine months ended May 4, 2009, and 1.5 percent of our total revenues for the fiscal year ended July 31, 2008.
International revenues of $12.5 million constituted 32.0 percent of our total revenues for the nine months ended May 4, 2009, as compared to 28.4 percent for the fiscal year ended July 31, 2008. We expect that the relative revenue contribution of our international sales will continue to rise for the remainder of fiscal 2009 and fiscal 2010 as a result of our continued efforts to expand our international distribution and direct sales.
The Company initially engineered and produced instruments designed to assist retinal surgeons in treating acute subretinal pathologies such as histoplasmosis and age-related macular degeneration. The Company developed a number of specialized lines of precision engineered microsurgical instruments, which today have grown to comprise a product catalogue of over 1,400 retinal surgical items including scissors, fiber optics, cannulas, forceps and other reusable and disposable surgical instruments.
The Company has a neurosurgical product line which includes the Omni® ultrasonic aspirator, Malis® electrosurgical generators and precision neurosurgical instruments. Our neurosurgical product catalogue consists of over 700 neurosurgical items including energy source devices, disposable and reusable instruments and other disposable and reusable accessories.
The primary use of the Company's Omni® ultrasonic aspirator in neurosurgery is tumor removal. The Company distributes the Omni® control module, handpieces, soft-tissue and bone cutting tips and accessories in georgraphies including the United States, Canada, Australia, New Zealand, a portion of Latin and South Americas and in all but two countries in Europe, Spain and Portugal. The control module and handpieces are manufactured by Mutoh Co. Ltd. of Japan. The tips and certain accessories are manufactured at the Company's facility in O'Fallon, Missouri.
In intracranial neurosurgery, a bipolar electrosurgical system is the modality of choice for tissue coagulation and cutting as compared to monopolar products. The popularity of the bipolar system is largely due to the efforts of the late Dr. Leonard I. Malis, who designed and developed the first commercial bipolar coagulator in 1955 and pioneered the use of bipolar electrosurgery for use in the brain. The Company manufactures several bipolar electrosurgical generators under the Malis® brand name.
The Company's sales of its core neurosurgical products grew 16.2 percent during the nine months ended May 4, 2009, compared to the prior year period. Recent Developments
On March 19, 2009, the Company announced that Mr. Dave Dallam's position of Executive Vice President of Sales and Marketing of the Company was eliminated as a result of the Company's ongoing efforts to streamline and eliminate duplicative job responsibilities in the sales and marketing functions. In connection with Mr. Dallam's departure, the Company terminated the Letter Agreement between the Company and Mr. Dallam dated as of December 10, 2007, which governed the terms of Mr. Dallam's compensation and provided for an annual salary, eligibility for bonuses, participation in the Company's benefits programs and certain payments in the event of a change of control.
On April 2, 2009, the Company announced the signing of a new, three-year agreement with Codman retroactively effective to January 1, 2009. Under the terms of the new agreement, Codman will continue to market and distribute certain bipolar generators and related disposables and accessories supplied by the Company. Additionally, the Company and Codman extended the license agreement providing for the continued licensing of Synergetics' Malis® trademark to Codman for use with certain of its products, including those covered by the distribution agreement.

New Product Sales
The Company's ongoing business strategy is the development, manufacture and marketing of new technologies for microsurgery applications including the ophthalmic and neurosurgical markets. New products, which management defines as products first available for sale within the prior 24-month period, accounted for approximately 10.9 percent of total sales for the Company for the nine months ended May 4, 2009, or approximately $4.3 million. The Company's past revenue growth has been closely aligned with the adoption by surgeons of new technologies introduced by the Company. In the last 24-month period, the Company has introduced 47 new items to the ophthalmic and neurosurgical markets. We expect adoption rates for the Company's new products in the future to have a similar effect on its operating performance. Growth in Minimally Invasive Surgery Procedures Minimally invasive surgery is a surgical procedure performed without making a major incision or opening. Minimally invasive surgery generally results in less patient trauma, decreased likelihood of complications related to the incision and a shorter recovery time. A growing number of surgical procedures are performed using minimally invasive techniques, creating a multi-billion dollar market for the specialized devices used in the procedures. Based on our micro-instrumentation capability, we believe we are ideally positioned to take advantage of this growing market. The Company has developed scissors having a single activating shaft as small as 30 gauge (0.012 inch, 0.3 millimeter in diameter). We are a leader in microfiber illumination technology as we believe our light sources can transmit more light through a fiber of 300 micron diameter or smaller than any other light source in the world. These products were developed for ophthalmology and neurosurgery but have wide ranging minimally invasive surgical applications.
Demand Trends
Increased international volume and domestic ophthalmology price increases contributed to the majority of sales growth for the Company during the nine months ended May 4, 2009. Ophthalmic and neurosurgical procedures volume on a global basis continues to rise at an estimated 3.0 to 4.0 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 Company's innovative instruments and disposables, to support development in procedure volume, continues to positively impact growth. The Company believes innovative surgical approaches will continue to significantly impact the ophthalmic and neurosurgical market. Further, economic conditions may continue to negatively impact capital expenditures at the hospital or surgical center and doctor level. Pricing and Volume 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 disposable products in the face of downward pressure in the healthcare industry. However, increased competition in the market for the AdvantageTM electrosurgical generator has negatively impacted the Company's selling prices on these devices. Further, economic conditions in the U.S. are negatively impacting the volume of the Company's capital equipment sales.
Results Overview
During the fiscal quarter ended May 4, 2009, we had net sales of $13.2 million, which generated $7.4 million in gross profit, operating income of $879,000 and net income of approximately $458,000, or $0.02 earnings per share. The Company had approximately $603,000 in cash and $15.7 million in interest-bearing debt and revenue bonds as of May 4, 2009. Management anticipates that cash flows from operations, together with available borrowings under our existing credit facilities, will be sufficient to meet working capital, capital expenditure and debt service needs for the remainder of fiscal 2009.

Our Business Strategy
Our mission is to design, manufacture and market innovative microsurgical instruments, capital equipment, accessories and disposables of the highest quality in order to assist and enable surgeons who perform microsurgery around the world to provide a better quality of life for their patients. Our goal is to become a global leader through:
• continuous improvement and development of our people,

• continuous improvement and development of our manufacturing processes,

• continuous improvement of our information systems; and

• continuous improvement of our research and development initiatives.

During August 2008, the Company began to introduce lean manufacturing philosophies into the production environment. These philosophies have been applied to four of our largest volume disposable product families which comprise over 20 percent of our disposable unit volumes. We have been able to cut manufacturing times and required floor space approximately in half. We plan to continue to apply the lean philosophy to one value stream at a time according to the value stream's financial importance to the Company. We will also be applying this philosophy to other departments in our organization, including purchasing, accounting and administration. In addition, the Company's most recent acquisition, Medimold LLC, an injection-molding business, is producing components which were previously supplied by outside vendors. Through the remainder of 2009 and over the next fiscal year, select high volume plastic components will be introduced to this lower cost, injection-molding process. Our annual savings from this process is now projected to be over $300,000.
During August 2008, the Company began to utilize its Material Requirements Planning ("MRP") within its information system to more efficiently schedule production work flow and priorities in its vertically integrated manufacturing processes. The Company will use this capability to manage its inventory more efficiently and gain additional benefits from its master production plan. These improvements to the information system will give the Company the tools to measure its manufacturing performance against planned costs as well as provide enhanced budgeting capabilities and build more effective monitoring controls over inventory. In February 2009, the Company began to upgrade its current Enterprise Resource Planning ("ERP") system with a focus on its sales and order entry system, lot traceability, inventory bar coding and permit monthly closing with simultaneous reporting of monthly information as necessary to provide management with the tools for more timely decisions.
In October 2008, the Company initiated a thorough review and reprioritization of its research and development projects, leading to a decision to focus available resources on high priority projects with a concurrent reduction in the total number of projects. The Company's product development pipeline included 43 active projects as of May 4, 2009. In addition, the Company is developing a uniform policies and procedures manual for its research and development initiatives.
Results of Operations
Three Month Period Ended May 4, 2009 Compared to Three Month Period Ended April 30, 2008
Net Sales
The following table presents net sales by category (dollars in thousands):

                                               Quarter Ended                % Increase
                                      May 4, 2009      April 30, 2008       (Decrease)
  Ophthalmic                         $       7,476     $         7,293              2.5 %
  Neurosurgical                              3,588               3,368              6.5 %
  OEM (Codman, Stryker and Iridex)           1,957               2,612            (25.1 %)
  Other                                        140                 227            (38.3 %)

  Total                              $      13,161     $        13,500             (2.5 %)

Ophthalmic sales grew 2.5 percent in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008. Domestic ophthalmic sales decreased 8.1 percent, while international sales increased by 21.3 percent. Domestic ophthalmic sales decreased primarily due to a 37.5 percent decrease in capital equipment sales.
Neurosurgical sales for the three months ended May 4, 2009, increased 6.5 percent as compared to the three months ended April 30, 2008. Domestic neurosurgical sales decreased 4.4 percent and international sales increased 18.3 percent. Domestic neurosurgical sales decreased primarily due to a 56.1 percent decrease in capital equipment sales. The Company expects that sales of its neurosurgical disposables will continue to have a positive impact on net sales for the remainder of fiscal 2009.
OEM sales during the third fiscal quarter of 2009 decreased 25.1 percent compared to the third fiscal quarter of 2008. Sales to Codman decreased 30.7 percent compared to the third fiscal quarter of 2008. This decrease was a result of above average shipments to Codman during the third quarter of fiscal 2008 as they increased their inventory position based on the announcement made by Synergetics to move the production of the generators from King of Prussia to its O'Fallon facility and slower domestic capital equipment sales. Sales to Stryker also declined by 10.0 percent for the current fiscal quarter based on strong sales in the third quarter of fiscal 2008. Sales to Iridex Corporation ("Iridex") of $181,000 partially offset the decline in sales to Codman and Stryker.
The following table presents domestic and international net sales (dollars in thousands):

                                                        Quarter Ended
                                       May 4, 2009      April 30, 2008       % Increase
United States (including OEM sales)   $       8,636     $         9,724            (11.2 %)
International (including Canada)              4,525               3,776             19.8 %

Total                                 $      13,161     $        13,500             (2.5 %)

Domestic sales for the third quarter of fiscal 2009 compared to the same period of fiscal 2008 decreased 11.2 percent. Domestic sales decreased for our ophthalmology, neurosurgery and OEM product lines because we experienced lower capital equipment sales during the quarter. The international sales growth of 19.8 percent resulted from a 21.3 percent growth rate in ophthalmology and an 18.3 percent growth rate in neurosurgery products. Gross Profit
Gross profit as a percentage of net sales was approximately 56.2 percent in the third quarter of fiscal 2009, compared to 60.5 percent for the same period in fiscal 2008. Gross profit as a percentage of net sales for the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 decreased approximately four percentage points, primarily due to the change in mix toward higher international sales, decreased OEM capital equipment sales and pricing pressure on both ophthalmic and neurosurgical capital equipment. Operating Expenses
Research and development ("R&D") as a percentage of net sales was 5.6 percent and 5.5 percent for the third quarter of fiscal 2009 and 2008, respectively. R&D costs decreased to $741,000 in the third quarter of fiscal 2009 from $748,000 in the same period in fiscal 2008, reflecting a slight decrease in spending on active, new product development projects focused on areas of strategic significance. The Company's pipeline included approximately 43 active projects in various stages of completion as of May 4, 2009. The Company's R&D headcount decreased by 3.7 percent from April

30, 2008, to May 4, 2009. The Company has strategically targeted R&D spending as a percentage of net sales to be approximately 5.0 to 7.0 percent.
Sales and marketing expenses increased by approximately $463,000 to $3.6 million, or 27.0 percent of net sales, for the third fiscal quarter of 2009, compared to $3.1 million, or 22.9 percent, for the third fiscal quarter of 2008. The increase in sales and marketing expenses as a percentage of net sales was primarily due to commissions paid on a 2.9 percent increase in commissionable sales (i.e. excluding OEM sales) and an increase in sales and marketing headcount by 6.9 percent from April 30, 2008 to May 4, 2009. However, in March 2009, the Company eliminated two positions within sales and marketing.
General and administrative ("G&A") expenses increased by $51,000 during the third fiscal quarter of 2009 and as a percentage of net sales were 16.9 percent for the third fiscal quarter of 2009 as compared to 16.1 percent for the third fiscal quarter ended April 30, 2008. The Company's legal expenses increased by approximately $115,000 and outside consulting costs, specifically those related to Sarbanes-Oxley compliance efforts, decreased approximately $100,000 due to further internalization of the documentation processes and procedures. Other Expenses
Other expenses for the third quarter of fiscal 2009 decreased 37.0 percent to $218,000 from $346,000 for the third quarter of fiscal 2008. The decrease was primarily due to a lower interest rate on the Company's working capital line of credit borrowings.
Operating Income, Income Taxes and Net Income Operating income for the third quarter of fiscal 2009 was $879,000 as compared to operating income of $2.2 million in the comparable 2008 fiscal period. The decrease in operating income was primarily the result of a 2.5 percent decrease in sales, an increase in the cost of sales of $430,000, a $463,000 increase in sales and marketing expenses and an increase of $51,000 in G&A expense.
The Company recorded a $203,000, or 30.7 percent, tax provision, on pre-tax income of $661,000 in the quarter ended May 4, 2009. In the quarter ended April 30, 2008, the Company recorded a $692,000, or 38.3 percent, tax provision on a pre-tax income of $1.8 million. The decrease in the effective tax rate during the third quarter was primarily attributed to the manufacturing deduction and the research and experimentation credit comprising a larger percentage on reduced pre-tax income.
Net income decreased by $659,000 to $458,000 for the third quarter of fiscal 2009, compared to net income of $1.1 million for the same period in fiscal 2008. Basic and diluted earnings per share for the third quarter of fiscal 2009 decreased to $0.02 from $0.05 for the third quarter of fiscal 2008. Basic weighted-average shares outstanding increased from 24,321,274 at April 30, 2008 to 24,470,755 at May 4, 2009.
Nine Month Period Ended May 4, 2009 Compared to Nine Month Period Ended April 30, 2008
Net Sales
The following table presents net sales by category (dollars in thousands):

                                                     Nine Months Ended
                                                                            % Increase
                                      May 4, 2009      April 30, 2008       (Decrease)
  Ophthalmic                         $      22,326     $        20,521              8.8 %
  Neurosurgical                             10,357               8,911             16.2 %
  OEM (Codman, Stryker and Iridex)           6,003               5,528              8.6 %
  Other                                        373                 646            (42.3 %)

  Total                              $      39,059     $        35,606              9.7 %

Ophthalmic sales grew 8.8 percent in the first nine months of fiscal 2009 compared to the same period of fiscal 2008. Domestic ophthalmic sales decreased 1.4 percent, while international sales increased 28.6 percent. Domestic ophthalmic sales decreased primarily due to a 14.3 percent decrease in capital equipment sales.
Neurosurgical sales growth for the nine months ended May 4, 2009 increased 16.2 percent as compared to the nine months ended April 30, 2008. Domestic neurosurgical sales increased 7.9 percent and international sales increased 19.3 percent. The Company expects that sales of its neurosurgical disposables will continue to have a positive impact on net sales for the remainder of fiscal 2009.
OEM sales during the first nine months of fiscal 2009 increased 8.6 percent compared to the first nine months of fiscal 2008. Sales to Codman decreased 15.5 percent compared to the first nine months of fiscal 2008. This decrease was impacted by the decision to defer the consolidation of the King of Prussia operations into the O'Fallon operations, as this changed the timing of requested inventory deliveries. In addition, sales to Stryker increased during the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008, as the new generator we now produce for Stryker had not been released in the first six months of fiscal 2008 and was not available until April of 2008. Sales to Iridex of $387,000 added to the OEM sales growth.
The following table presents domestic and international net sales (dollars in thousands):

                                                       Nine Months Ended
                                        May 4, 2009      April 30, 2008      % Increase
 United States (including OEM sales)   $      26,578     $        25,679             3.5 %
 International (including Canada)             12,481               9,927            25.7 %

 Total                                 $      39,059     $        35,606            9.7. %

Domestic sales for the first nine months of fiscal 2009 compared to the same period of fiscal 2008 increased 3.5 percent. Domestic ophthalmology sales decreased as sales of capital equipment decreased, partially offset by increased sales of disposable products. Domestic neurosurgery sales have increased as sales of disposable products increased partially offset by decreased sales of capital equipment. Both the ophthalmology and neurosurgery product lines contributed to the international sales growth of 25.7 percent for the first nine . . .