~~Table~~UNITED ofSTATES ~~Contents~~SECURITIES AND EXCHANGE COMMISSION

~~UNITED~~Washington, ~~STATES SECURITIES AND EXCHANGE COMMISSION~~ D.C. 20549

~~Washington, D.C. 20549~~ FORM 10-K

~~Form 10-K~~ x Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended October 31, 2010
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

For the fiscal year ended October 31, 2011

~~Commission file number: 0-13907~~ or

~~Synovis~~o Transition ~~Life~~report ~~Technologies, Inc.~~ pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

~~(Exact~~For ~~name~~the oftransition ~~Registrant~~period ~~as specified~~from in___ ~~its~~to ~~charter)~~ ____

Minnesota		41-1526554
(State of Incorporation)		(I.R.S. Employer Identification No.)

Commission file number: 0-13907

~~2575~~SYNOVIS ~~University~~LIFE ~~Avenue~~TECHNOLOGIES, WINC.,

~~St.~~(Exact ~~Paul,~~name ~~Minnesota 55114-1024~~ of Registrant as specified in its charter)

(Address of principal executive offices)

Minnesota		41-1526554
(State of Incorporation)		(I.R.S. Employer Identification No.)

~~Telephone~~2575 ~~Number:~~ UNIVERSITY AVENUE W., ST. PAUL, MINNESOTA 55114-1024

(~~651~~Address of principal executive offices) ~~796-7300~~

~~Securities~~TELEPHONE ~~Registered~~NUMBER: ~~Pursuant to Section 12~~(b651) ~~of the Act:~~ 796-7300

Title of Each Class:		Name on Each Exchange on Which Registered:
Common Stock, $.01 par value
Common Stock Purchase Rights		The Nasdaq Stock Market

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

		Name on each exchange on
Title of each class:		which registered;
Common Stock, $.01 par value		The NASDAQ Stock Market
Common Stock Purchase Rights

~~Indicate~~Securities byRegistered ~~check~~Pursuant ~~mark~~to ifSection ~~the~~12(g) ~~registrant is a well-known seasoned issuer, as defined in Rule 405~~ of the ~~Securities~~ Act~~. Yes o No þ~~ : None

Indicate by check mark if the registrant is ~~not~~a ~~required~~well-known toseasoned ~~file reports~~issuer, ~~pursuant~~as todefined ~~Section 13~~in orRule ~~Section 15(d)~~405 of the ~~Exchange~~ Securities Act. Yes o No þ No x

Indicate by check mark ~~whether~~if the registrant ~~(1) has~~is ~~filed all~~not ~~reports~~ required to befile ~~filed~~reports bypursuant to Section 13 or Section 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 o þ No o x

Indicate by check mark whether the registrant (1) has ~~submitted electronically~~filed ~~and~~all ~~posted~~reports ~~on its corporate Web site, if any, every Interactive Data File~~ required to be ~~submitted~~filed ~~and~~by ~~posted pursuant~~Section to13 ~~Rule 405~~or ~~of Regulation S-T~~ 15(~~§ 232.405~~d) of ~~this~~the ~~chapter)~~Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to ~~submit~~file such reports), and ~~post~~(2) has been subject to such ~~files)~~filing requirements for the past 90 days. Yes ~~o No~~x No o

Indicate by check mark ifwhether ~~disclosure~~the ofregistrant ~~delinquent~~has ~~filers pursuant~~submitted toelectronically ~~Item 405~~and ~~of Regulation S-K is~~posted ~~not~~on ~~contained~~its ~~herein~~corporate Web site, ~~and~~if ~~will~~any, ~~not~~every Interactive Data File required to be ~~contained,~~submitted and posted pursuant to ~~the~~Rule ~~best~~ 405 of ~~registrant’s~~Regulation ~~knowledge,~~S-T in(§232.405 ~~definitive~~of ~~proxy~~this chapter) during the preceding 12 months (or ~~information~~ ~~statements~~for ~~incorporated~~such byshorter ~~reference~~period ~~in Part III~~that ofthe ~~this Form 10-K or~~registrant ~~any~~was ~~amendment~~required to ~~this Form 10-K~~submit and post such files). þ Yes x No o

Indicate by check mark ~~whether~~if ~~the~~disclosure ~~registrant~~of isdelinquent afilers ~~large accelerated~~pursuant ~~filer,~~to anItem ~~accelerated~~405 ~~filer,~~of aRegulation ~~non~~S-~~accelerated filer~~K is not contained herein, orand awill ~~smaller~~not ~~reporting~~be ~~company.~~contained, ~~See~~to the ~~definitions~~best of ~~“large~~ ~~accelerated~~registrant's ~~filer~~knowledge,” ~~“accelerated filer”~~in ~~and~~definitive ~~“smaller~~proxy ~~reporting~~or ~~company”~~information statements incorporated by reference in ~~Rule 12b-2~~ Part III of ~~the~~this ~~Exchange~~Form ~~Act.~~10-K ~~(Check~~or ~~one):~~ any amendment to this Form 10-K. x

~~Large~~Indicate by check mark whether the registrant is a large accelerated filer, oan ~~Accelerated~~accelerated filer, þa ~~Non~~non-accelerated filer oor ~~(Do~~a ~~not~~smaller ~~check~~reporting ifcompany. See athe definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company)” ~~Smaller~~in ~~reporting~~Rule ~~company~~12b-2 oof the Exchange Act. (Check one):

~~Indicate~~Large byaccelerated ~~check~~filer ~~mark~~o ~~whether~~Accelerated ~~the~~filer ~~registrant~~x isNon-accelerated afiler ~~shell~~o ~~company (as~~Smaller ~~defined~~reporting ~~in Rule 12b-2 of~~company ~~the Exchange Act). Yes~~ o ~~No þ~~

AsIndicate ofby ~~April 30,~~check ~~2010,~~mark ~~the~~whether ~~last business day of~~ the ~~registrant’s~~ ~~second quarter of fiscal 2010, 11,298,157 shares of Common Stock of the~~ registrant ~~were outstanding,~~is ~~and~~a ~~the~~shell ~~aggregate~~company ~~market value of the registrant’s outstanding Common Stock~~ (~~based~~as ~~upon~~defined ~~the closing~~in ~~price~~Rule 12b-2 of the ~~Common~~Exchange ~~Stock on that date as reported by the Nasdaq Global Market~~Act),. Yes ~~excluding~~o No ~~outstanding shares owned beneficially by executive officers, directors and affiliates, was approximately $160,085,000.~~ x

As of ~~December 20~~April 30, ~~2010~~2011, the last business day of the registrant’s second quarter of fiscal 2011, 11,~~258~~460,~~033~~ 644 shares of Common Stock of the registrant were outstanding, and the aggregate market value of the registrant’s outstanding Common Stock ~~were~~(based upon the closing price of the Common Stock on that date as reported by the NASDAQ Global Market), excluding outstanding shares owned beneficially by executive officers, directors and affiliates, was approximately $223,540,000.

~~Part III~~As of ~~this~~December ~~Annual~~1, ~~Report~~2011, ~~on Form 10-K incorporates~~11,167,690 byshares ~~reference~~of ~~(to~~ the ~~extent specific sections are referred to herein) information from the~~ registrant’s ~~Proxy Statement~~Common ~~for~~Stock ~~its~~were ~~Annual Meeting of Shareholders to be held March 3, 2011 (the “2011 Proxy Statement”)~~outstanding.

~~TABLE~~Except OFwhere ~~CONTENTS~~the context otherwise requires, references in this Annual Report on Form 10-K to “Synovis”, “Company”, “we”, and “our” are to Synovis Life Technologies, Inc. and its subsidiaries collectively.

PART I
	Item 1 -- Business
Item 1A -- Risk Factors
	Item 1B -- Unresolved Staff Comments
	Item 2 -- Properties
	Item 3 -- Legal Proceedings
	Item 4 -- [RESERVED]
PART II
	Item 5 -- Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6 -- Selected Financial Data
	Item 7 -- Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A -- Quantitative and Qualitative Disclosures about Market Risk
	Item 8 -- Financial Statements and Supplementary Data
	Item 9 -- Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A -- Controls and Procedures
	ITEM 9B -- Other information
PART III
	Item 10 -- Directors, Executive Officers and Corporate Governance
	Item 11 -- Executive Compensation
	Item 12 -- Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13 -- Certain Relationships and Related Transactions, and Director Independence
	Item 14 -- Principal Accountant Fees and Services
PART IV
	ITEM 15 -- Exhibits, Financial Statement Schedule
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES
EX-10.10
EX-10.11
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1

Registered Trademarks

~~Table~~APEX processing®, Dura-Guard®, Flo-Rester®, Flo-Thru Flo-Rester®, Flo-thru Intraluminal Shunt®, Flow Coupler®, Neurotube®, OrthAdapt®, Peri-Guard®, Peri-Strips®, Peri-Strips Dry®, Supple Peri-Guard®, Synovis®, Ultifix®, Ultister®, Unite®, Vascu-Guard® and Veritas® are registered trademarks of ~~Contents~~the Company.

~~Except where the context otherwise requires, references in this Annual Report on Form 10-K to “~~Synovis”, ~~“Company”, “we”, and “our” are to Synovis Life Technologies, Inc. and its subsidiaries collectively.~~ Website

~~Registered Trademarks:~~ Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available through our website (www.synovislife.com under the “Investor Information” caption and “SEC Filings” subcaption) free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).

~~APEX processing®, Dura-Guard®, Flo-Rester®, Flo-Thru Flo-Rester®, Flo-thru~~Information ~~Intraluminal Shunt®, Flow Coupler®, Neurotube®, OrthAdapt®, Peri-Guard®, Peri-Strips®, Peri-Strips Dry®, Supple Peri-Guard®,~~ relating to corporate governance at Synovis®, ~~Ultifix®~~ including our Principles of Corporate Governance, ~~Ultister®~~ Code of Business Conduct & Ethics, ~~Unite®~~ Whistleblower Policy, ~~Vascu-Guard®~~ and ~~Veritas®~~ information concerning our executive officers, ~~are~~ ~~registered~~directors, ~~trademarks~~and ofBoard committees is available on or through our website at www.synovislife.com under the ~~Company~~“Investor Information” caption and the “Corporate Governance” subcaption.

~~Forward-Looking Statements~~ Available Information

~~Certain~~The ~~statements~~SEC ~~contained~~maintains ina ~~this~~website ~~Annual~~that ~~Report~~contains ~~on Form 10-K are “forward — looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose~~reports, ~~any~~proxy ~~statements~~and ~~contained~~information ~~in this Form 10-K that are not~~ statements, ofand ~~historical~~other ~~fact~~information ~~may~~regarding beissuers, ~~deemed~~including ~~to be forward-looking statements. Without limiting~~ the ~~foregoing~~Company, ~~words~~ ~~such~~that asfile ~~“may”,~~electronically ~~“should”, “will”,~~with ~~“expect”, “believe”, “anticipate”, “estimate,” “continue” or~~ the ~~negative or other variations thereof or comparable terminology are intended to identify forward-looking statements~~SEC. The ~~All~~public ~~forward-looking~~can ~~statements~~obtain ~~in this~~any ~~document~~documents ~~are~~that ~~based on information available to~~ the Company as offiles with the ~~date~~SEC ~~hereof,~~at ~~and~~http://www.sec.gov. ~~the~~The Company ~~assumes~~files noannual ~~obligation~~reports, ~~to update~~quarterly ~~any~~reports, ~~forward-looking~~proxy statements~~. You are advised~~, ~~however, to~~and ~~consult~~other ~~any~~documents ~~future disclosures we make on related subjects in future filings~~ with the ~~Securities~~SEC ~~and~~under the Exchange ~~Commission (“SEC”)~~Act. ~~Forward-looking~~The ~~statements~~public ~~involve~~may ~~known~~read and ~~unknown~~ ~~risks,~~copy ~~uncertainties~~any ~~and~~materials ~~other~~that ~~factors~~the ~~which~~Company ~~may~~files ~~cause~~ with the ~~actual~~SEC ~~results~~at tothe ~~differ~~SEC’s ~~materially~~Public ~~from~~Reference ~~any~~Room ~~future~~at ~~results, performance~~100 orF ~~achievements~~Street, ~~expressed~~N.E., orRoom ~~implied~~1580, byWashington, ~~such forward-looking~~D.C. ~~statements~~20549. ~~Such~~The ~~factors~~public may ~~include,~~obtain ~~among others,~~information ~~those~~on ~~factors~~the ~~set~~operation ~~forth~~of ~~under~~ the ~~heading~~Public ~~“Risk Factors”~~Reference ~~beginning~~Room inby ~~Part I,~~calling ~~Item 1A~~the onSEC ~~this Form 10~~at 1-K800-SEC-0330.

~~PART I~~ Forward-Looking Statements

Certain statements contained in this Annual Report on Form 10-K are “forward–looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may”, “should”, “will”, “expect”, “believe”, “anticipate”, “estimate,” “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. All forward-looking statements in this document are based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statements. You are advised, however, to consult any future disclosures we make on related subjects in future filings with the Securities and Exchange Commission. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors may include, among others, those factors set forth under the heading “Risk Factors” beginning in Part I, Item 11A —on ~~Business~~this Form 10-K.

~~(a)~~PART ~~General Development of Business~~I

~~Introduction~~ ITEM 1 – Business

~~Synovis~~Significant ~~Life~~Recent Technologies, Inc., a diversified medical device company, develops, manufactures and markets biological and mechanical products used by several surgical specialties to facilitate the repair and reconstruction of soft tissue damaged or destroyed by disease or injury. Our products include implantable biomaterials for soft tissue repair, devices for microsurgery and surgical tools — all designed to reduce risks and/or facilitate critical surgeries, improve patient outcomes and reduce healthcare costs. Development

~~History~~ On December 12, 2011, Synovis, Baxter International Inc., a Delaware corporation (“Baxter”), and Twins Merger Sub, Inc., a Minnesota corporation and wholly owned subsidiary of Baxter (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Baxter will acquire all of the outstanding shares of Synovis for $28.00 per share in cash, without interest, and pursuant to which Merger Sub will be merged with and into the Company with the Company continuing as the surviving corporation and a wholly owned subsidiary of Baxter (the “Merger”).

Synovis Life Technologies, Inc. was incorporated in July of 1985. In 1985, the Company was spun-off to the shareholders of its then parent company, thereafter operating as a separate public company. 2

InOn ~~2001~~the terms and subject to the conditions set forth in the Merger Agreement, wewhich ~~acquired~~has ~~Micro~~been ~~Companies~~unanimously ~~Alliance~~approved by the Board of Directors of the Company, ~~Inc.~~ at the effective time of the Merger (the “~~MCA~~Effective Time”), and as a ~~Birmingham~~result thereof, ~~Alabama~~each ~~company~~share of common stock, par value $0.01 per share, of Synovis (“Synovis Common Stock”) that ~~provides products~~is issued and outstanding immediately prior to the ~~microsurgery~~Effective ~~market.~~Time ~~MCA’s~~(other ~~products include,~~than ~~among~~Synovis ~~others~~Common Stock owned directly or indirectly by Baxter or any subsidiary of Synovis, ~~the~~which ~~Microvascular~~will ~~Anastomotic~~be ~~Coupler~~canceled without payment of any consideration, ~~a patented~~and ~~technology~~Synovis Common Stock for ~~connecting~~which ~~small~~dissenters’ ~~veins~~rights have been validly exercised and ~~arteries faster~~not withdrawn) will be converted at the Effective Time into the right to receive $28.00 in cash, ~~easier~~without ~~and~~interest as(the ~~effectively~~“Merger Consideration”), subject to adjustment under certain conditions as ~~conventional~~described ~~suturing~~in the Merger Agreement. ~~MCA’s~~ Each ~~name~~option ~~has~~to ~~since~~purchase ~~been~~Synovis ~~changed~~Common Stock that is outstanding as of the Effective Time will become fully vested and will be canceled in exchange for the right to ~~Synovis~~receive ~~Micro Companies~~in ~~Alliance~~cash the amount by which the Merger Consideration exceeds the exercise price, ~~Inc~~multiplied by the number of shares of Synovis Common Stock subject to such option.

~~During~~Baxter ~~fiscal~~and ~~2006~~the Company have made customary representations, warranties and ~~fiscal~~covenants ~~2007~~in the Merger Agreement, weincluding, ~~transitioned~~among ~~from~~others, covenants that: (i) the Company will conduct its business in the ordinary course consistent with past practice during the interim period between the execution of the Merger Agreement and the Effective Time, (ii) the Company will not engage in certain kinds of transactions during such period without the consent of Baxter, (iii) the Company will cause a ~~third~~ meeting of the Synovis shareholders to be held to consider approval of the Merger Agreement, (iv) subject to certain customary exceptions, the Board of Directors of Synovis will recommend approval by its shareholders of the Merger Agreement, and (v) Baxter and the Company will use their commercially reasonable efforts to obtain prompt termination of any waiting period under the Hart-~~party~~Scott-Rodino ~~distribution~~Antitrust ~~sales~~Improvements ~~force~~Act of 1976, as amended, (the “HSR Act”) and other applicable antitrust laws. The Company has also made certain additional customary covenants, including, among others, covenants not to: a(i) ~~direct~~solicit ~~sales~~proposals ~~force~~relating to alternative business combination transactions or (ii) subject to certain exceptions designed to allow the Board of Directors to fulfill its fiduciary duties to shareholders of the Company, enter into discussions concerning or provide confidential information in connection with any proposals for alternative business combination transactions. Consummation of the UMerger is subject to customary conditions, including (i) approval of the holders of a majority of the outstanding shares of Synovis Common Stock, (ii) the absence of any law or order prohibiting the consummation of the Merger, (iii) the expiration or termination of any applicable waiting period under the HSR Act and the receipt of approvals under any applicable foreign antitrust laws, and (iv) the absence of a material adverse effect with respect to the Company.S.

InThe ~~January~~Merger ~~2008~~Agreement contains certain termination rights for both Baxter and Synovis, weand ~~sold~~further ~~substantially~~provides ~~all~~that, upon termination of the ~~assets~~Merger ofAgreement ~~our former~~under ~~interventional~~certain ~~business~~specified circumstances, Synovis would be required to ~~Heraeus~~pay ~~Vadnais,~~Baxter ~~Inc.~~a ~~and~~termination ~~its related~~fee ~~entities~~of $9,750,000. The ~~Our~~Merger ~~interventional~~is ~~business~~expected ~~developed~~to ~~and manufactured~~be ~~metal~~completed ~~and~~in ~~polymer~~the ~~components~~first ~~and~~calendar ~~assemblies~~quarter ~~used~~of ~~in or~~2012, ~~with~~subject ~~implantable~~to orthe ~~minimally~~affirmative ~~invasive~~vote ~~devices~~of ~~for~~the ~~cardiac rhythm~~holders ~~management,~~of ~~neurostimulation,~~the ~~vascular~~majority ~~and~~of ~~other procedures.~~shares ~~Operating~~of ~~results~~Synovis ~~pertaining~~Common Stock as well as satisfaction or waiver of all other conditions to ~~our~~ closing specified in the Merger Agreement.

In connection with the parties’ entry into the Merger Agreement, the directors and executive officers of Synovis (the “Voting Parties”), have entered into voting agreements (the “Voting Agreements”) covering a total of 1 ,034,927 shares of Synovis Common Stock (including 407,500 shares which may be acquired within 60 days upon the exercise of options) legally or beneficially owned by the Voting Parties (the “Voting Party Shares”), which represent approximately 8.9% of Synovis’s outstanding shares (assuming the exercise of such options). Under the Voting Agreements, each Voting Party has agreed to vote his or her Voting Party Shares in favor of the Merger and has also agreed to certain restrictions on the disposition of such Voting Party Shares, subject to the terms and conditions set forth in the Voting Agreements. The Voting Agreements provide that they will terminate concurrently with any termination of the Merger Agreement.

~~Table~~Additionally on December 12, 2011, Synovis entered into a First Amendment (the “Rights Amendment”) to its Rights Agreement dated as of ~~Contents~~June 1, 2006, by and between Synovis and American Stock Transfer & Trust Company, LLC, a New York limited liability trust company (the “Rights Agreement”). The Rights Amendment amends the Rights Agreement to (i) render it inapplicable to the Merger Agreement, the Voting Agreements and the transactions contemplated thereby, and (ii) render the Rights (as defined in the Rights Agreement) issued pursuant to the Rights Agreement inapplicable to the Merger, the execution and delivery of the Merger Agreement and the Voting Agreements and consummation of the transactions contemplated thereby and ensure that none of the execution and delivery of the Merger Agreement and the Voting Agreements or the consummation of the transactions contemplated thereby will (A) result in the Rights becoming exercisable, (B) cause Baxter or any of its Affiliates or Associates (each as defined in the Rights Agreement) to become an Acquiring Person (as defined in the Rights Agreement), or (C) give rise to a Distribution Date (as defined in the Rights Agreement) or a Stock Acquisition Date (as defined in the Rights Agreement).

former interventional business for the fiscal year ended October 31, 2008 has been reclassified and presented as discontinued operations. Unless otherwise indicated, the following description of our business refers only to our continuing operations. 3

~~On July 17, 2009, the Company, through its wholly-owned subsidiary Synovis Orthopedic and Woundcare, Inc.~~ (~~“Ortho & Wound”~~a), ~~completed~~General ~~the~~Development ~~acquisition~~ of substantially all of the assets of Pegasus Biologics, Inc., a Delaware corporation. Our Ortho & Wound business is focused on developing advanced biological solutions for soft tissue repair, primarily within the orthopedic and wound care markets. Business

Our principal executive offices are located at 2575 University Avenue W., St. Paul, Minnesota 55114-1024. We can be contacted by telephone at (651) 796-7300, by facsimile at (651) 642-9018, or by electronic mail at info@synovislife.com. Our website is www.synovislife.com. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after filing such material with, or furnishing it to, the SEC. Overview

~~(b)~~Synovis ~~Financial~~Life ~~Information~~Technologies, ~~about~~Inc., ~~Industry~~a ~~Segments~~diversified medical device company, develops, manufactures, and markets biological and mechanical products used by several surgical specialties to facilitate the repair and reconstruction of soft tissue damaged or destroyed by disease or injury. Our products include implantable biomaterials for soft tissue repair, devices for microsurgery, and surgical tools – all designed to reduce risks and/or facilitate critical surgeries, improve patient outcomes, and reduce healthcare costs.

WeOur ~~operate~~surgical asbusiness ~~three~~develops, ~~segments~~manufactures, ~~but~~markets, ~~these~~and ~~segments~~sells ~~have~~implantable ~~similar economic~~biomaterial ~~characteristics~~products and ~~are~~surgical ~~similar~~tools. Our insurgical ~~the~~business ~~nature of~~ products ~~sold~~include Peri-Strips, ~~types~~Tissue ofGuard, ~~customers~~Veritas, ~~methods used to sell our products~~ and ~~regulatory~~Surgical ~~environment~~Tools. ~~Accordingly,~~These ~~management believes~~products ~~that~~serve weseveral ~~meet~~surgical ~~the~~markets ~~criteria~~including ~~for~~plastic ~~aggregating~~reconstructive, ~~our~~general, ~~operating segments~~bariatric, ofvascular, ~~our~~and ~~operations into a singular reporting segment~~cardiac.

~~(c)~~Our ~~Narrative~~microsurgical ~~Description~~business develops, manufactures, markets, and sells devices serving the niche market of ~~Business~~microsurgery. Our microsurgical products include the Coupler and the Flow Coupler, as well as several other products serving the microsurgery market.

~~The~~Our ~~table~~Ortho ~~below~~& ~~summarizes~~Wound business develops, manufactures, markets, and sells advanced biological solutions for soft tissue repair, serving primarily the ~~revenue~~orthopedic ~~contributed~~and bywound ~~our significant~~care markets. Our Ortho & Wound products orinclude ~~product~~the ~~lines~~OrthADAPT ~~for~~Bioimplant which is used in numerous orthopedic applications, and the ~~periods~~Unite ~~indicated~~Biomatrix, which serves the wound care market.

	Years Ended October 31,
	2010					2009					2008
	$		%			$		%			$		%
	($ in thousands)
Net Revenue:
Veritas®	$	14,368		21	%	$	8,757		15	%	$	4,468		9	%
Peri-Strips®		19,414		28	%		19,384		33	%		17,653		35	%
Tissue-Guard		16,550		24	%		15,806		27	%		14,477		29	%
Microsurgery		11,020		16	%		8,668		15	%		7,749		16	%
Surgical Tools and other		5,335		8	%		5,531		10	%		5,453		11	%
Orthopedic and Wound		1,878		3	%		65		0	%		—		0	%
Total Net Revenue	$	68,565		100	%	$	58,211		100	%	$	49,800		100	%
Domestic	$	57,700		84	%	$	49,290		85	%	$	42,190		85	%
International		10,865		16	%		8,921		15	%		7,610		15	%
Worldwide	$	68,565		100	%	$	58,211		100	%	$	49,800		100	%

Operations that are not included in any of the operating segments are reported in the category “corporate and other.” The corporate and other segment captures costs that are not directly assignable to one of the operating business segments, primarily the costs of operating a public company and the time of management personnel in support of administrative activities.

~~Products, Markets and Competition~~ History

~~Business Description~~Synovis Life Technologies, Inc. was incorporated in the state of Minnesota in July of 1985. In 1985, the Company was spun-off to the shareholders of its then parent company, thereafter operating as a separate public company.

WeIn ~~are~~2001, awe ~~diversified~~acquired ~~medical~~Micro ~~device~~Companies ~~company~~Alliance, ~~which develops~~Inc., ~~manufactures~~ ~~and~~a ~~markets~~Birmingham, ~~biological~~Alabama ~~and~~company ~~mechanical~~that provides products ~~used by several surgical specialties~~ to ~~facilitate~~ the ~~repair~~microsurgery ~~and reconstruction of soft tissue damaged or destroyed by disease or injury. Our products include implantable biomaterials for soft tissue repair~~market, ~~devices~~which ~~for~~has ~~microsurgery~~since ~~and~~changed ~~surgical tools —~~its ~~all~~name ~~designed~~ to ~~reduce~~Synovis ~~risks and/or facilitate~~Micro ~~critical~~Companies ~~surgeries~~Alliance, ~~improve~~Inc. ~~patient outcomes and reduce healthcare costs~~(“MCA”).

2 On July 17, 2009, the Company, through its wholly-owned subsidiary Synovis Orthopedic and Woundcare, Inc. (“Ortho & Wound”) completed the acquisition of substantially all of the assets of Pegasus Biologics, Inc., a Delaware corporation. Our Ortho & Wound business is focused on developing advanced biological solutions for soft tissue repair, primarily within the orthopedic and wound care markets.

~~Table~~Our ofprincipal ~~Contents~~executive offices are located at 2575 University Avenue W., St. Paul, Minnesota 55114-1024. We can be contacted by telephone at (651) 796-7300, by facsimile at (651) 642-9018, or by electronic mail at info@synovislife.com.

~~Biomaterial Products~~ (b) Financial Information about Industry Segments

AThe ~~core~~Company’s ~~competency~~operations, ofwhich ~~our~~are ~~business~~presently isbased ~~the development and manufacture of implantable biomaterial products for use by surgeons~~ in ~~various~~Minnesota, ~~procedures where reinforcing~~Alabama, ~~reconstructing~~ and ~~repairing~~California, ~~tissue~~are orcomprised ~~preventing~~of ~~leaks~~three ofoperating ~~air~~segments, ~~blood~~the orsurgical ~~other bodily~~business, ~~fluids~~the ismicrosurgical ~~desirable~~business, toand ~~achieve~~the aOrtho ~~favorable~~& ~~outcome.~~Wound ~~The historical~~business, ~~choice~~with ~~when~~segmentation ~~tissue~~based ~~repair~~upon isthe ~~necessary~~similarities ~~has~~of ~~been~~the ~~to use~~underlying ~~autologous~~business ~~tissues~~operations, ~~requiring~~products, ~~the~~and ~~surgeon~~markets. The toCompany ~~excise~~evaluates ~~tissue from~~the ~~another~~performance ~~part~~ of ~~the~~its ~~patient’s~~business ~~body.~~segments ~~Harvesting~~and ~~tissue from~~allocates aresources ~~second~~based ~~surgical~~upon ~~site~~their ~~may~~respective ~~increase~~current ~~procedure~~or ~~cost,~~future ~~time and~~earnings ~~the~~contribution ~~risk of complications, leading~~ to ~~additional pain and recovery time for~~ the ~~patient.~~consolidated ~~Use~~earnings of ~~an available, off-~~the~~-shelf implantable~~ ~~medical~~Company ~~product,~~as ~~whether~~well ~~tissue-based~~as orupon ~~synthetic, is~~each ansegment’s ~~alternative~~organizational toinitiatives ~~harvesting autologous tissue from the patient~~ and isactivities ain ~~means~~process toat ~~reduce~~that ~~surgical costs and improve patient outcomes~~time.

Our biomaterial products are produced from bovine and equine pericardium. Many of our product’s characteristics and competitive advantages are derived from the pericardium’s collagen composition. Collagen, a fibrous protein, makes the pericardium durable and provides performance characteristics superior to synthetics and similar to autologous tissue. 4

WeOperations ~~process~~that ~~pericardium~~are ~~using~~not ~~proprietary~~included in any of the operating segments are included in the category “corporate and ~~patented technologies~~other.” The corporate and other segment captures costs that are not directly assignable to ~~create~~one ~~three~~of ~~distinct~~the ~~product~~operating ~~platforms:~~ business segments, primarily the costs of operating a public company and the estimated time of management personnel in support of corporate activities.

• Our Veritas tissue processing results in an extremely strong and conformable biomaterial. Once implanted, Veritas acts as a scaffold that is rapidly revascularized and repopulated by the patient’s surrounding tissue. Animal studies have demonstrated the formation of new blood vessels (~~angiogenesis~~c) ~~and~~Narrative ~~cell~~Description in-growth with Veritas as early as 28 days post-implant. The Veritas tissue format is used to manufacture our Veritas Collagen Matrix, Peri-Strips Veritas and Peri-Strips Veritas Circular products. • Our Apex tissue processing creates a permanent patch or buttress that provides enduring strength and reinforcement to a repair site or staple line. Apex processing is used to manufacture our Tissue-Guard and Peri-Strips Apex products. • Our flexible cross-linking technologies are based on proprietary stabilization and sterilization processes, resulting in a safe, sterile, structurally sound, biologic scaffold of highly organized collagen for soft tissue repair. We have exclusive worldwide licenses for these processes for use in orthopedic, oral/dental, spinal and neurological, abdominal and thoracic, breast and wound applications and such licenses are used to manufacture our Ortho & Wound OrthADAPT® Bioimplant and Unite® Biomatrix products.Business

~~Veritas. Veritas~~The istable ~~used~~below insummarizes ~~surgery~~the ~~to repair~~revenue ~~soft~~contributed ~~tissue.~~by ~~Veritas accounted for 21% of~~ our ~~revenue~~significant ~~in fiscal~~products ~~2010,~~or ~~compared~~product ~~with~~lines ~~15%~~for ~~in fiscal 2009. We launched Veritas into~~ the ~~complex~~periods ~~ventral hernia repair market in the U.S. during fiscal 2007, following our 510(k) market clearance which~~ indicated ~~Veritas as having minimal tissue attachment~~. We launched Veritas into the breast reconstruction market in the U.S. in fiscal 2008. Veritas has been used by surgeons in a broad range of procedures since launch, including breast reconstruction, chest wall repair and repair of complex ventral, hiatal, and parastomal hernias. Overall surgical results and experience with Veritas in these applications have been favorable. In the fourth quarter of fiscal 2009, we launched Veritas in Europe after obtaining CE Mark approval for soft tissue repair of breast reconstruction, chest wall repair and a variety of hernia indications.

Peri-Strips. Peri-Strips (“PSD”) is a biomaterial stapling buttress used as reinforcement at a surgical staple line to reduce the risk of potentially fatal leaks, most significantly in bariatric surgery, a treatment for morbid obesity, as well as in certain thoracic procedures. Peri-Strips accounted for 28% of our revenue in fiscal 2010, compared to 33% in fiscal 2009.

	Years Ended October 31,
Net Revenue:	2011				2010				2009
($ in thousands)		$	%			$	%			$	%
Peri-Strips	$	23,675	29	%	$	19,414	28	%	$	19,384	33	%
Tissue-Guard		18,407	22	%		16,550	24	%		15,806	27	%
Veritas		15,829	19	%		14,368	21	%		8,757	15	%
Microsurgery		15,190	19	%		11,020	16	%		8,668	15	%
Surgical Tools and other		5,748	7	%		5,335	8	%		5,531	10	%
Orthopedic & Wound		3,514	4	%		1,878	3	%		65	0	%
Total Net Revenue	$	82,363	100	%	$	68,565	100	%	$	58,211	100	%

Domestic	$	70,130	85	%	$	57,700	84	%	$	49,290	85	%
International		12,233	15	%		10,865	16	%		8,921	15	%
Worldwide	$	82,363	100	%	$	68,565	100	%	$	58,211	100	%

~~In bariatric surgery~~Products, ~~Peri-Strips~~Markets ~~are proven to reduce the incidence of gastric leaks~~ and to reduce bleeding at the staple line. Because of the clean visual field provided by the improved hemostasis and the atraumatic tissue manipulation provided by Peri-Strips, it can also facilitate a quicker and safer surgical procedure. Peri-Strips is typically applied during the formation of the gastric pouch in a Roux-en-Y gastric bypass procedure. Peri-Strips may also be applied to other gastric stapling sites such as the J-J anastomosis of the Competition

3 Business Description

~~Table~~We are a diversified medical device company which develops, manufactures, and markets biological and mechanical products used by several surgical specialties to facilitate the repair and reconstruction of ~~Contents~~soft tissue damaged or destroyed by disease or injury. Our products include implantable biomaterials for soft tissue repair, devices for microsurgery, and surgical tools all designed to reduce risks and/or facilitate critical surgeries, improve patient outcomes, and reduce healthcare costs.

~~Roux-en-Y~~Biomaterial procedure and the gastric sleeve staple line of the sleeve gastrectomy procedure. Peri-Strips are also utilized in certain thoracic surgeries (blebectomies, bullectomies, wedge resections, segmentectomies, and lobectomies) and are proven to reduce bleeding and air leaks at the staple line during lung resection procedures. Products

~~Tissue-Guard. Our~~A ~~Tissue-Guard~~core ~~family~~ competency of ~~products~~our business is ~~used~~the todevelopment ~~repair~~ and ~~replace~~manufacture ~~damaged~~of ~~tissue~~implantable inbiomaterial ~~an array~~products offor ~~surgical~~use by surgeons in various procedures, ~~including~~where ~~cardiac~~reinforcing, ~~vascular~~reconstructing, ~~thoracic,~~ and ~~neurologic~~repairing ~~procedures.~~tissue ~~Apex~~or ~~Processing,~~preventing ~~used~~leaks ~~to manufacture~~of ~~Tissue-Guard~~air, ~~products~~blood, or other bodily fluids is ~~designed~~desirable to ~~retain~~achieve ~~the intrinsic~~a ~~nature~~favorable ofoutcome. The ~~bovine~~historical ~~pericardial~~choice ~~collagen~~when ~~with~~tissue ~~improved biocompatibility~~repair is necessary has been to use autologous tissues, ~~performance~~requiring ~~and~~the ~~safety.~~surgeon ~~Tissue-Guard~~to ~~products accounted~~excise ~~for~~tissue ~~24%~~from another part of ~~our~~the ~~revenue~~patient’s inbody. Harvesting ~~fiscal~~tissue ~~2010,~~from ~~compared~~a tosecond ~~27% in~~surgical ~~fiscal~~site ~~2009.~~may ~~Tissue-Guard~~increase ~~products~~procedure ~~offer~~cost, ~~exceptional~~procedure ~~strength~~ time, and ~~durability,~~the ~~resistance~~risk toof ~~leakage~~complications, ~~autologous-like~~leading ~~handling characteristics~~to additional pain and ~~proven~~recovery ~~clinical~~time ~~performance~~for the patient. Use ~~Since~~of ~~their introduction~~an available, ~~Tissue~~off-~~Guard~~the-shelf, ~~products~~implantable ~~have~~medical ~~been~~product, ~~used~~whether intissue-based ~~over 950,000~~or ~~procedures~~synthetic, ~~including~~is ~~use~~an ~~for~~alternative ~~pericardial~~to ~~closure, intracardiac~~harvesting ~~defect~~autologous ~~repair,~~tissue ~~peripheral~~from ~~vascular~~the ~~repair~~patient and ~~reconstruction,~~ ~~dural~~is ~~closure~~a means to reduce surgical costs and ~~soft~~improve ~~tissue~~patient ~~repairs~~outcomes.

~~Ortho & Wound.~~ Our ~~Ortho &~~ ~~Wound~~biomaterial products ~~include~~are ~~the~~produced ~~OrthADAPT Bioimplant~~from bovine and ~~Unite~~equine ~~Biomatrix products~~pericardium. Many ~~OrthADAPT~~of ~~Bioimplant received~~our ~~FDA~~products’ ~~marketing~~characteristics ~~clearance in fiscal 2005~~ and iscompetitive ~~used~~advantages ~~in numerous~~are ~~orthopedic~~derived ~~applications,~~from ~~including~~the ~~rotator~~pericardium’s ~~cuff~~collagen ~~and Achilles tendon repair~~composition. Collagen, ~~where there is~~ a ~~clinical~~fibrous ~~need~~protein, ~~to reinforce~~makes the ~~repair.~~pericardium ~~Unite~~durable ~~Biomatrix received FDA marketing clearance in fiscal 2006~~ and ~~offers treatment for chronic wounds, such as diabetic foot ulcers and pressure ulcers. Unite Biomatrix~~ provides aperformance ~~durable,~~characteristics ~~collagen~~superior ~~structure that can be applied~~ to ~~the~~synthetics ~~wound easily~~ and ~~maintains~~similar ~~its~~to ~~integrity~~autologous ~~while promoting wound healing~~tissue.

~~Microsurgery~~ 5

InWe ~~addition~~process topericardium ~~our~~using ~~biomaterial~~proprietary products, our business offers medical devices for microsurgery. The primary device within this product group is the Microvascular Anastomotic Coupler (the “Coupler”), a mechanical anastomotic product comprised of a pair of implantable, single-use rings. The Coupler is available in seven sizes, ranging from 1.0mm to 4.0mm in diameter, in half millimeter increments. The Coupler enables microsurgeons in numerous surgical specialties, including plastic and ~~reconstructive,~~patented ~~head~~technologies ~~and neck, orthopedic and hand,~~ to ~~perform~~create ~~highly~~three ~~effective~~distinct ~~anastomotic~~product ~~microsurgical procedures (the connecting of small veins or arteries) faster, easier and as or more dependably than traditional suture or sleeve anastomosis.~~ platforms:

In· ~~the~~Our ~~third~~Veritas ~~quarter~~tissue ofprocessing ~~fiscal~~results ~~2010,~~in wean ~~initiated~~extremely ~~our~~strong ~~full U~~and conformable biomaterial.~~S. market~~ ~~launch~~Once ofimplanted, Veritas acts as a scaffold that is rapidly revascularized and repopulated by the ~~Flow Coupler®~~patient’s surrounding tissue. ~~The~~ ~~Flow~~Animal ~~Coupler~~studies ~~enhances~~have ~~our~~demonstrated ~~Microsurgery~~the ~~product~~formation ~~offerings~~of ~~by combining~~new ~~our~~blood ~~existing~~vessels ~~Coupler~~(angiogenesis) and cell in-growth with ~~Doppler~~Veritas ~~technology,~~as ~~enabling physicians~~early as 28 days post-implant. The Veritas tissue process is used to ~~verify~~manufacture our Veritas Collagen Matrix and ~~monitor~~our ~~blood~~Peri-Strips ~~flow~~Veritas products.

In· ~~addition~~Our toApex ~~the~~tissue ~~Coupler,~~processing wecreates ~~sell~~a ~~several~~permanent ~~other~~patch ~~products~~or ~~to the~~buttress ~~microsurgery~~that ~~market.~~provides ~~These~~enduring ~~include~~strength ~~the~~and ~~GEM~~reinforcement ~~Microclip, a hemostatic clip designed~~ to ~~securely ligate vessels and provide for atraumatic occlusion, as well as the Neurotube,~~ a ~~device designed~~repair tosite ~~assist~~or instaple ~~the reconnection of severed nerves~~line. ~~We also~~Apex ~~distribute~~processing ~~product~~is ~~lines~~used ~~for~~to ~~other~~manufacture ~~companies~~our inTissue-Guard ~~the microsurgery~~and ~~market,~~Peri-Strips ~~including~~Apex ~~the S&T microsurgery instrument product line~~products.

~~Competition~~ · Our flexible cross-linking technologies are based on proprietary stabilization and sterilization processes, resulting in a safe, sterile, structurally sound, biologic scaffold of highly organized collagen for soft tissue repair. We have exclusive worldwide licenses for these processes for use in orthopedic, oral/dental, spinal and neurological, abdominal and thoracic, breast and wound applications and such licenses are used to manufacture our Ortho & Wound OrthADAPT Bioimplant and Unite Biomatrix products.

~~Our~~Peri-Strips. Peri-Strips ~~products~~is ~~compete~~a ~~primarily~~biomaterial onstapling ~~the~~buttress ~~basis~~used ofas ~~product performance,~~reinforcement ~~quality~~at ~~and~~a ~~service. The~~ surgical ~~markets~~staple inline ~~which we~~to ~~compete~~reduce ~~worldwide~~the ~~are~~risk ~~characterized~~of bypotentially ~~intense~~fatal ~~competition. These markets are typically dominated by very large~~leaks, ~~established manufacturers~~most ~~that~~significantly ~~have~~in ~~broader~~bariatric ~~product lines~~surgery, ~~greater distribution~~a ~~capabilities,~~treatment ~~substantially~~for ~~greater~~morbid ~~capital resources and larger marketing~~obesity, ~~research~~as ~~and~~well ~~development~~as ~~staffs and facilities. Many of these competitors offer broader product lines within our specific product market, particularly~~ in ~~our surgical~~certain ~~tool~~thoracic ~~markets and/or in the general field of medical devices and supplies~~procedures. ~~Broad product lines give many of our competitors the ability to negotiate exclusive, long~~ Peri-~~term~~Strips ~~medical~~accounted ~~device supply contracts and, consequently, the ability to offer comprehensive pricing~~ for ~~their~~ ~~products,~~29% ~~including~~of ~~those that compete with~~ our ~~products. By~~revenue ~~offering a broader product line~~ in ~~the~~fiscal ~~general field of medical devices and supplies~~2011, ~~competitors~~compared ~~may~~to ~~also~~28% ~~have an advantage~~ in ~~marketing~~fiscal competing products to group purchasing organizations, health maintenance organizations and other managed care organizations that increasingly seek to reduce costs by centralizing and consolidating their purchasing functions2010.

4 In bariatric surgery, Peri-Strips are proven to reduce the incidence of gastric leaks and to reduce bleeding at the staple line. Because of the clean visual field provided by the improved hemostasis and the atraumatic tissue manipulation provided by Peri-Strips, it can also facilitate a quicker and safer surgical procedure. Peri-Strips are typically applied during the formation of the gastric pouch in a Roux-en-Y gastric bypass procedure. Peri-Strips may also be applied to other gastric stapling sites such as the J-J anastomosis of the Roux-en-Y procedure and the gastric sleeve staple line of the sleeve gastrectomy procedure. Peri-Strips are also utilized in certain thoracic surgeries (blebectomies, bullectomies, wedge resections, segmentectomies, and lobectomies) and are proven to reduce bleeding and air leaks at the staple line during lung resection procedures.

~~Table~~Tissue-Guard. Our Tissue-Guard family of ~~Contents~~products is used to repair and replace damaged tissue in an array of surgical procedures, including cardiac, vascular, thoracic, and neurologic procedures. Tissue-Guard products accounted for 22% of our revenue in fiscal 2011, compared to 24% in fiscal 2010. Apex Processing, used to manufacture our Tissue-Guard products, is designed to retain the intrinsic nature of bovine pericardial collagen with improved biocompatibility, performance and safety. Tissue-Guard products offer exceptional strength and durability, resistance to leakage, autologous-like handling characteristics and proven clinical performance. Since their introduction, Tissue-Guard products have been used in over 1,075,000 procedures, including use for pericardial closure, intracardiac defect repair, peripheral vascular repair and reconstruction, dural closure, and other soft tissue repairs.

~~Competition~~Veritas. Veritas ~~for~~is ~~our~~used ~~biomaterial~~in ~~products~~surgery isto ~~primarily~~repair ~~from products~~soft ~~comprised~~tissue. Veritas accounted for 19% of ~~synthetic~~our ~~materials,~~revenue ~~other~~in ~~xenograft tissues~~fiscal ~~and~~2011, ~~human~~compared ~~cadaveric~~with ~~tissue.~~21% ~~The~~in ~~ability~~fiscal of2010. We ~~these products~~launched toVeritas ~~compete~~into ~~with~~the ~~our~~complex ~~biomaterial~~ventral ~~products~~hernia ~~varies~~repair ~~based on~~market ~~each~~in ~~such~~the ~~product’s~~U.S. ~~indications~~during ~~for~~fiscal ~~use~~2007, ~~relative features~~following ~~and~~our ~~benefits~~510(k) ~~and~~market ~~surgeon~~clearance ~~preference.~~which Weindicated ~~believe~~Veritas ~~that the~~as ~~collagen~~having ~~characteristics~~minimal ~~exclusive~~tissue toattachment. Veritas ~~pericardial~~has ~~tissue, the~~been ~~strength~~used ofby ~~the~~surgeons ~~multi-directional~~in ~~fibers~~a broad range of ~~the~~procedures ~~pericardial substrate,~~since ~~the~~launch ~~proprietary~~for small tissue~~-treatment~~ ~~process~~repair and ~~the purification~~reconstruction. Overall ~~process~~surgical weresults ~~employ~~and ~~offer~~experience ~~significant~~with ~~benefits~~Veritas in ~~product~~ ~~performance~~these ~~over~~applications ~~competitive~~have ~~cadaveric~~been ~~tissue and synthetic materials~~favorable.

~~Currently,~~Ortho we& ~~believe~~Wound. ~~the~~Our ~~major~~Ortho ~~competitors~~& toWound ~~Veritas~~products ~~include KCI~~accounted ~~Corporation,~~for ~~Covidien,~~4% ~~Ltd.,~~of ~~Ethicon,~~our ~~Inc.,~~revenue ~~C.R.~~and ~~Bard,~~include ~~Inc.,~~ the OrthADAPT Bioimplant and ~~Cook~~Unite ~~Group,~~Biomatrix ~~Inc~~products. WeOrthADAPT ~~believe~~Bioimplant ~~the~~received ~~major~~FDA ~~competitors~~marketing toclearance ~~our Tissue-Guard~~in ~~products~~fiscal ~~include~~2005 ~~Cook~~and ~~Group,~~is ~~Inc.,~~used ~~Integra Lifesciences~~in ~~Corporation~~numerous orthopedic applications, including rotator cuff and ~~Getinge~~Achilles ~~AB.~~tendon Werepair, ~~believe~~where ~~the~~there ~~major competitors~~is a clinical need to ~~our~~reinforce ~~Ortho &~~the ~~Wound~~repair. ~~products~~Unite ~~include Wright~~Biomatrix ~~Medical~~received ~~Group~~FDA marketing clearance in fiscal 2006 and offers treatment for chronic wounds, ~~Inc~~such as diabetic foot ulcers and pressure ulcers., Unite ~~Integra~~Biomatrix ~~Lifesciences~~provides ~~Corporation, Advanced~~a ~~BioHealing~~durable, ~~Inc.~~collagen structure that can be applied to the wound easily and ~~Organogenesis~~maintains its integrity while promoting wound healing.

At the beginning of fiscal 2009, there were two primary companies, W.L. Gore & Associates, Inc. and Cook Group, Inc., which offered buttress products that competed with Peri-Strips. In the second quarter of fiscal 2009, Covidien Ltd., one of the two primary companies which offer surgical staplers on which our Peri-Strips products are used, launched a buttress product supplied integral with their stapler cartridges. We are addressing the Covidien competitive threat by highlighting the clinical history of Peri-Strips through our expanded direct sales force, the development of product enhancements and strengthened efforts to convert additional non-buttressing surgeons. Microsurgery

~~Peri-Strips~~In ~~also~~addition ~~face~~to ~~indirect~~our ~~forms~~biomaterial ~~of competition~~products, ~~which include~~our ~~alternate~~business ~~surgical~~offers ~~techniques~~medical ~~such~~devices asfor ~~oversewing~~microsurgery. ~~the staple~~Microsurgery ~~line~~products ~~and~~accounted ~~alternative~~for ~~bariatric~~19% ~~procedures~~of ~~which~~our dorevenue ~~not use~~in ~~surgical~~fiscal ~~staplers~~2011, orcompared ~~buttresses~~to ~~such~~16% asin ~~gastric~~fiscal ~~banding~~2010. ~~Synthetic~~ The ~~materials~~primary ~~may~~device bewithin ~~less~~this ~~expensive~~product togroup ~~produce~~is ~~and to~~ the ~~extent~~ ~~that~~Microvascular ~~comparable~~Anastomotic ~~synthetic~~Coupler ~~materials~~(the ~~are available and effective in surgical procedures~~“Coupler”), wea ~~face~~mechanical ~~significant~~anastomotic ~~price competition~~product ~~for~~comprised ~~our~~of ~~biomaterial~~a ~~products.~~pair ~~There are other multi-purpose patches made from bovine and other types~~ of ~~animal tissue that compete with our products. Cadaveric tissue from tissue banks or from commercial distributors is utilized in breast reconstruction~~implantable, ~~hernia~~single-use ~~repair, neurological surgery and urologic procedures~~rings. ~~There~~A ~~can~~variation ~~be no assurance that competing products or indirect forms~~ of ~~competition~~the ~~will~~Coupler ~~not~~incorporates ~~achieve greater~~a ~~acceptance~~miniature orDoppler ~~that~~sensor ~~future~~to ~~products~~confirm orblood ~~alternative treatments~~flow ~~for~~through ~~morbid~~the ~~obesity will not offer similar or enhanced performance advantages~~anastomosis.

Within our microsurgical products, our Coupler faces indirect forms of competition, primarily hand suturing as an alternative surgical technique. Competition to our Flow Coupler includes blood flow monitoring products from Cook Group and ViOptix Inc. 6

~~Intellectual Property~~ The Coupler is available in seven sizes, ranging from 1.0mm to 4.0mm in diameter, in half millimeter increments. The Coupler enables microsurgeons in numerous surgical specialties, including plastic and reconstructive, head and neck, orthopedic and hand, to perform highly effective anastomotic microsurgical procedures (the connecting of small veins or arteries) faster, easier and as or more dependably than traditional suture anastomosis. The Flow Coupler enhances our Microsurgery product offerings by combining our existing Coupler with Doppler technology, enabling physicians to verify and monitor blood flow.

WeIn ~~believe~~addition ~~that~~to inthe ~~order~~Coupler and Flow Coupler, we sell several other products to ~~maintain~~the amicrosurgery ~~competitive~~market. These ~~advantage~~include in the ~~marketplace~~GEM Microclip, wea ~~must~~hemostatic ~~develop~~clip designed to securely ligate vessels and ~~maintain~~provide ~~protection~~for ofatraumatic occlusion, as well as the ~~proprietary~~ ~~aspects~~Neurotube, ofa ~~our~~device ~~technology.~~designed Weto ~~rely~~assist onin athe ~~combination~~ reconnection of ~~patent,~~severed ~~trademark,~~nerves. We ~~confidentiality,~~also ~~trade~~distribute ~~secret~~product ~~and~~lines for other ~~intellectual~~ ~~property~~companies ~~rights~~in ~~and~~the ~~measures~~microsurgery tomarket, ~~aggressively protect~~including ~~intellectual~~the ~~property~~S&T wemicrosurgery ~~deem~~instrument ~~important~~product ~~to our business~~line.

We have developed a patent portfolio internally, as well as through acquisitions, that cover many aspects of our product offerings. As of October 31, 2010, we owned or licensed approximately 98 U.S. and foreign patents and 54 U.S. and foreign pending patent applications. The expiration dates of our material patents range from fiscal 2014 to fiscal 2024. Competition

~~Synovis~~Our ~~holds~~products ~~key~~compete ~~patents~~primarily ~~related~~on tothe ~~Veritas~~basis ~~Collagen~~of ~~Matrix~~product ~~in both~~performance, ~~wet~~quality, and ~~dry~~service. The ~~forms~~surgical markets in which we compete globally are characterized by intense competition. These markets are typically dominated by very large, ~~patents~~established ~~related~~manufacturers tothat ~~the~~have ~~Peri-Strip~~broader ~~Dry~~product ~~in both~~lines, ~~linear~~greater distribution capabilities, substantially greater capital resources, and ~~circular~~larger ~~formats~~marketing, asresearch, ~~well~~and asdevelopment ~~the~~staffs ~~microanastomic Coupler~~and facilities than Synovis. Many of these competitors offer broader product lines within our specific product market, particularly in our surgical tool markets, and/or ~~Flow~~in ~~Coupler~~the general field of medical devices and supplies. Broad ~~Synovis~~product ~~has~~lines give many of our competitors the ability to negotiate exclusive, ~~rights~~long-term medical device supply contracts and, consequently, the ability to ~~technology~~ ~~used~~offer comprehensive pricing for their products, including those that compete with our products. By offering a broader product line in the ~~cross-linking~~general field of medical devices and ~~sterilization~~supplies, ofcompetitors ~~our Ortho &~~may ~~Wound~~also have an advantage in marketing competing products to group purchasing organizations, health maintenance organizations, and other managed care organizations that increasingly seek to reduce costs by centralizing and consolidating their purchasing functions.

WeCompetition ~~own~~for ~~trademarks~~our ~~on Synovis® as~~biomaterial ~~well~~products asis ~~trade~~primarily ~~names~~from ~~used~~products incomprised ~~conjunction~~of synthetic materials, other xenograft tissues, and human cadaveric tissue. The ability of these products to compete with our biomaterial products varies based on each such product’s indications for use, relative features, benefits, and surgeon preference. We believe that the ~~sale~~collagen characteristics exclusive to pericardial tissue, the strength of ~~most~~ the multi-directional fibers of ~~our~~the ~~products~~pericardial substrate, ~~including~~the ~~Peri~~proprietary tissue-~~Strips~~treatment process, and ~~Veritas~~the purification process we employ offer significant benefits in product performance over competitive cadaveric tissue and synthetic materials.

5 We believe the major competitors to Peri-Strips include W.L. Gore & Associates, Inc., Cook Group, Inc., and Covidien PLC. Peri-Strips also face indirect forms of competition, which include alternate surgical techniques such as oversewing the staple line and alternative bariatric procedures which do not use surgical staplers or buttresses such as gastric banding. Synthetic materials may be less expensive to produce and to the extent that comparable synthetic materials are available and effective in surgical procedures, we face significant price competition for our biomaterial products. There are other multi-purpose patches made from bovine and other types of animal tissue that compete with our products. Cadaveric tissue from tissue banks or from commercial distributors is utilized in breast reconstruction, hernia repair, neurological surgery, and urologic procedures. There can be no assurance that competing products or indirect forms of competition will not achieve greater acceptance or that future products or alternative treatments for morbid obesity will not offer similar or enhanced performance advantages.

~~Table~~We believe the major competitors to our Tissue-Guard products include Cook Group, Inc., LeMaitre, Integra LifeSciences Corporation, and Getinge AB. We believe the major competitors to Veritas include KCI Corporation, Covidien PLC, Ethicon, Inc., C.R. Bard, Inc., and Cook Group, Inc. Within our microsurgical products, our Coupler faces indirect forms of ~~Contents~~competition, primarily hand suturing as an alternative surgical technique. Competition to our Flow Coupler includes blood flow monitoring products from Cook Group, Inc. and ViOptix Inc. We believe the major competitors to our Ortho & Wound products include Wright Medical Group, Inc., Integra LifeSciences Corporation, Shire PLC (formerly Advanced BioHealing, Inc.), and Organogenesis.

WeIntellectual manufacture, market and sell our products both under our own patents as well as license agreements. While we believe that our patents are valuable, our knowledge and experience, our product development teams and marketing staff, and our confidential information regarding our manufacturing processes, materials and product design have been equally important in providing for and maintaining our proprietary product offering. To protect this value, we have established policies and procedures, as well as requiring as a condition of employment, all employees to execute a confidentiality agreement with respect to proprietary information and the assignment of intellectual property to us. Property

We ~~also~~believe ~~rely~~that onin ~~unpatented~~order ~~proprietary~~to ~~technology~~maintain a competitive advantage in the marketplace, we must develop and ~~know-how~~maintain protection of the proprietary aspects of our technology. We ~~seek~~rely toon ~~protect~~a ~~our~~combination of patent, trademark, confidentiality, trade ~~secrets~~secret, and ~~proprietary~~other ~~know-how with~~intellectual ~~confidentiality~~property ~~agreements~~rights ~~with~~and ~~our~~measures ~~employees,~~to ~~consultants and~~aggressively ~~vendors~~protect intellectual property we deem important to our business.

There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry. We have strongly defended, and will continue to defend, our intellectual property. Despite our measures to protect our intellectual property, however, we cannot be certain that the measures we take to protect our intellectual property will be successful. These risks are discussed in more detail in this Report in Part I, Item 1A, Risk Factors under the heading “We may not be able to adequately enforce or protect our intellectual property rights or to protect ourselves against the infringement claims of others.” 7

~~Marketing~~ We have developed a patent portfolio internally, as well as through acquisitions, that cover many aspects of our product offerings. As of October 31, 2011, we owned or licensed approximately 98 U.S. and ~~Customers~~ foreign patents and 56 U.S. and foreign pending patent applications. The expiration dates of our material patents range from fiscal 2014 to fiscal 2024.

~~Our~~Synovis ~~marketing~~holds ~~and~~key ~~sales~~patents ~~strategies~~related ~~include~~to ~~supporting~~Veritas ~~our superior~~Collagen ~~quality~~Matrix ~~products~~in ~~with~~both ~~sales~~wet and ~~marketing~~dry ~~programs. These~~forms, ~~programs~~patents ~~include~~related ~~advertising~~to ~~and~~the ~~direct~~Peri-Strip ~~mail~~Dry ~~campaigns, participation~~ in ~~trade~~both ~~shows,~~linear ~~support of key surgeons’ gatherings, publication~~ and ~~presentation~~circular ~~of clinical data and new product information~~formats, ~~and~~as ~~collaboration~~well ~~with~~as ~~key~~the ~~surgeons~~microanastomotic ~~on educational~~Flow ~~activities and internet-based programs~~Coupler. Synovis Anhas ~~important strategy~~exclusive ofrights ~~our marketing programs is~~ to ~~identify~~technology ~~and~~used ~~assess customer~~in ~~needs. This is accomplished by developing and maintaining a close working relationship with~~ the ~~hospitals~~cross-linking and ~~surgeons~~ ~~who~~sterilization ~~purchase~~of ~~and use~~ our ~~products~~Ortho ~~and~~& ~~through observations~~Wound ~~and interactions with our customers~~products.

InWe ~~the~~own ~~U.S.,~~trademarks weon ~~utilize~~Synovis aas ~~direct~~well ~~sales~~as ~~model~~trade ~~for~~names ~~all~~used ~~products except~~in ~~for~~conjunction ~~our~~with ~~Ortho &~~the ~~Wound~~sale ~~products.~~of Asmost of ~~October 31,~~ ~~2010~~our products, weincluding ~~have 56 direct sales representatives selling our~~ Peri-Strips, ~~Veritas, Tissue-Guard~~ and ~~Surgical tools and other products~~Veritas. ~~Additionally, we have 9 direct sales representatives selling our microsurgery products. Internationally, we utilize an independent distributor sales network to sell these products.~~

~~For~~We ~~our~~manufacture, ~~Ortho~~market, and ~~Wound~~sell our products, weboth ~~utilize~~under aour ~~hybrid~~own ~~sales model~~patents inas ~~the~~well ~~U.S. comprised~~as oflicense ~~both~~agreements. While ~~direct~~we ~~sales representatives~~believe ~~and~~that ~~independent~~our ~~representative~~patents ~~groups.~~are Asvaluable, ~~of October 31~~our knowledge, ~~2010~~experience, weproduct ~~have~~development ~~eight~~team, ~~direct sales representatives~~ and 15marketing ~~independent~~staff, ~~representative~~as ~~groups~~well ~~(each with~~as ~~multiple~~our ~~sales~~confidential ~~representatives)~~information inregarding ~~the~~our ~~U.S. This structure~~manufacturing ~~presently~~processes, ~~provides~~materials, ~~sales~~and ~~coverage~~product todesign ~~approximately three-quarters~~have ofbeen ~~the~~equally ~~U.S. population.~~important Wein ~~expect~~providing tofor ~~appoint additional~~and ~~independent~~maintaining ~~distributors~~our inproprietary ~~the~~product ~~future~~offering. To toprotect ~~complete~~ our ~~coverage in the U.S. Internationally~~patents, we have ~~three independent~~established ~~distributors~~policies ~~serving~~and ~~Italy~~procedures, ~~Spain~~as ~~and~~well ~~Germany,~~as ~~and are~~requiring ~~presently~~as ~~seeking~~a condition of employment for all employees to ~~expand~~execute ~~our~~a ~~European~~confidentiality ~~coverage~~agreement ~~through~~ with respect to proprietary information and the ~~appointment~~assignment of ~~additional~~intellectual ~~independent~~property ~~distributors~~to us.

~~Additional Information~~We ~~Regarding~~also ~~Our~~rely ~~Business~~ on unpatented proprietary technology and know-how. We seek to protect our trade secrets and proprietary know-how with confidentiality agreements with our employees, consultants, and vendors.

~~Backlog~~ There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry. We have strongly defended, and will continue to defend, our intellectual property. Despite our measures to protect our intellectual property, we cannot be certain that the measures we take to protect our intellectual property will be successful. These risks are discussed in more detail in this Form 10-K in Part I, Item 1A, Risk Factors under the heading “We may not be able to adequately enforce or protect our intellectual property rights or to protect ourselves against the infringement claims of others.”

~~Based~~Marketing onand ~~our experience, we believe that backlog is not a meaningful predictor of future revenue levels of our business.~~ Customers

~~Raw Materials~~ Our marketing and sales strategies include supporting our products with sales and marketing programs. These programs include advertising and direct mail campaigns, participation in trade shows, support of key surgeons’ gatherings, publication and presentation of clinical data and new product information, and collaboration with key surgeons on educational activities and internet-based programs. An important strategy of our marketing programs is to identify and assess customer needs. This is accomplished by developing and maintaining a close working relationship with the hospitals and surgeons who purchase and use our products and through observations and interactions with our customers.

WeIn ~~acquire~~the ~~bovine~~U.S., ~~pericardium~~we ~~for~~utilize ~~use~~a indirect ~~our~~sales ~~biomaterial products~~model ~~from~~for ~~United~~all ~~States~~products ~~Department~~except offor ~~Agriculture (“USDA”)~~our ~~inspected~~Ortho ~~abattoirs~~& asWound ~~well~~products. As asof aOctober ~~USDA approved~~31, ~~source~~2011, inwe ~~New~~have ~~Zealand.~~60 Wedirect ~~acquire~~sales ~~equine~~representatives ~~pericardium for~~selling ~~use in~~ our ~~biomaterial~~Peri-Strips, ~~products~~Veritas, ~~from~~Tissue-Guard, ~~USDA approved abattoirs located in Mexico~~ and ~~Canada.~~Surgical ~~The~~tools ~~supply of bovine~~ and ~~equine pericardium, as well as~~ other ~~raw materials~~products. Additionally, iswe ~~currently adequate. We~~ have ~~not~~12 ~~experienced~~direct ~~any~~sales ~~product~~representatives ~~shortages~~selling ~~arising from~~our ~~interruptions~~microsurgery ~~in the supply of any raw materials or components~~products. Internationally, ~~and~~we ~~have~~utilize ~~identified~~an ~~alternative~~independent ~~sources~~distributor ofsales ~~supply for~~network ~~significant~~to ~~raw~~sell ~~materials~~these ~~and components,~~ products.

6 Our Ortho & Wound business sells its products through independent sale representative groups in the U.S. Our marketing and sales group works closely with these representatives to implement marketing strategies and to provide product training and support. Written agreements with these independent sales representatives impose limited geographic exclusivity and minimum purchase requirements which approximate the representative’s estimates of growth that can be accomplished. These agreements may be terminated upon breach of the agreement by the representative, including breach of the minimum sales obligations imposed by the agreement. As of October 31, 2011, we have 32 domestic independent representative groups under contract providing sales coverage to more than 75% of the U.S. population. Internationally, we have two independent distributors serving Italy and Spain and are presently seeking to expand our European coverage through the appointment of additional independent distributors.

~~Table of Contents~~8

~~although~~Additional atInformation ~~times~~Regarding ~~certain~~Our ~~materials may be “single sourced” due either to the complex nature or minimal requirements of various components we purchase.~~ Business

~~Research and Development~~ Backlog

AsBased aon ~~component of~~ our ~~business strategy~~experience, we ~~continue~~believe tothat ~~make~~backlog ~~a significant~~is ~~investment~~not ina ~~research~~meaningful ~~and~~predictor ~~development (“R&D”)~~of asfuture ~~well~~revenue aslevels ~~new~~of ~~product~~our ~~design and engineering~~business. ~~R&D expense for fiscal 2010, 2009 and 2008 was $4,393,000, $3,798,000 and $3,248,000, respectively.~~

~~The~~Raw R&D activities we expect to advance in fiscal 2011 include expanding the size offerings and indications for use of our Veritas product into new markets, providing research and clinical data to support the use of Veritas in various surgical procedures, exploring other process improvements and product enhancements for our proprietary biomaterial products, advancing the size offerings and technology of the Flow Coupler and providing research and clinical data to support the launch of the ProCuff product, an arthroscopically delivered augmentation device for rotator cuff repair. Materials

~~Governmental Regulation~~ We acquire bovine pericardium for use in our biomaterial products from United States Department of Agriculture (“USDA”) inspected abattoirs as well as a USDA approved source in New Zealand. We acquire equine pericardium for use in our biomaterial products from USDA approved abattoirs located in Mexico and Canada. The supply of bovine and equine pericardium, as well as other raw materials, is currently adequate. We have not experienced any product shortages arising from interruptions in the supply of any raw materials or components, and have identified alternative sources of supply for significant raw materials and components.

~~General~~ Research and Development

~~Our~~As ~~business~~a ~~operates~~component inof aour ~~medical~~business ~~device~~strategy, ~~marketplace~~we ~~subject~~continue to ~~extensive~~ ~~and~~make ~~rigorous~~a ~~regulation~~significant byinvestment ~~the~~in ~~Food~~research and ~~Drug Administration~~development (“~~FDA~~R&D”) ~~and~~as bywell ~~comparable~~as ~~agencies~~new ~~in foreign~~product ~~countries~~design and engineering. R&D Inexpense ~~the~~for ~~United~~fiscal ~~States~~2011, ~~the~~2010, ~~FDA~~and ~~regulates~~2009 ~~the design~~was ~~control~~$4, ~~development~~709, ~~manufacturing~~000, ~~labeling~~$4,393,000, ~~record keeping~~ and ~~surveillance~~$3,798,000, ~~procedures for medical devices~~respectively.

~~Food~~ The R&D activities we expect to advance in fiscal 2012 include expanding the size offerings and ~~Drug~~indications ~~Administration~~ for use of our Veritas product into new markets, providing research and clinical data to support the use of Veritas in various surgical procedures, exploring other process improvements and product enhancements for our proprietary biomaterial products, advancing the size offerings and technology of the Flow Coupler and providing research and clinical data to support the launch of the ProCuff product, an arthroscopically delivered augmentation device for rotator cuff repair.

~~FDA~~Regulatory regulations classify medical devices based on perceived risk to public health as either Class I, II or III devices. Class I devices are subject to general controls, Class II devices are subject to special controls and Class III devices are subject to pre-market approval (“PMA”) requirements. While most Class I devices are exempt from pre-market submission, it is necessary for most Class II devices to be cleared by a 510(k) pre-market notification prior to marketing. 510(k) establishes that the device is “substantially equivalent” to a device that was legally marketed prior to May 28, 1976, the date on which the Medical Device Amendments of 1976 became effective. The 510(k) pre-market notification must be supported by data establishing the claim of substantial equivalence to the satisfaction of the FDA. The process of obtaining a 510(k) clearance typically can take several months to a year or longer. If the product is notably new or different and substantial equivalence cannot be established, the FDA will require the manufacturer to submit a PMA application for a Class III device that must be reviewed and approved by the FDA prior to sale and marketing of the device in the United States. The process of obtaining PMA approval can be expensive, uncertain, lengthy and frequently requires anywhere from one to several years from the date of FDA submission, if approval is obtained at all. The FDA controls the indicated uses for which a product may be marketed and strictly prohibits the marketing of medical devices for unapproved uses. The FDA can withdraw products from the market for failure to comply with laws or the occurrence of safety risks. Requirements

Our microsurgery instruments and the Lap Assist Fascia Closure System are Class I medical devices. The rest of our products are classified as Class II medical devices and have received 510(k) marketing clearance from the FDA. Our manufacturing operations are subject to periodic inspections by the FDA, whose primary purpose is to audit the Company’s compliance with the Quality System Regulations published by the FDA and other applicable government standards. Strict regulatory action may be initiated in response to audit deficiencies or to product performance problems. We believe that our manufacturing and quality control procedures are in compliance with the requirements of the FDA regulations. General

~~Recent~~Our ~~concerns~~business ~~have~~operates ~~been~~in ~~raised~~a bymedical ~~the~~device ~~public,~~marketplace ~~internal~~subject ~~FDA staffers~~to ~~and~~extensive ~~Congress whether the current FDA 510(k) program achieves its goals of making safe~~ and ~~effective~~rigorous ~~devices available~~regulation toby the ~~public~~Food ~~while also fostering innovation. In August 2010, the FDA Center for Devices~~ and ~~Radiological~~Drug ~~Health~~ Administration (“~~CDRH~~FDA”) ~~released~~and ~~two~~by ~~major~~comparable ~~FDA~~agencies ~~reports~~in ~~recommending changes~~foreign tocountries. In bethe ~~taken~~United byStates, ~~CDRH.~~the ~~The~~FDA ~~first~~regulates ~~report~~the ~~provides recommendations~~design oncontrol, ~~how~~development, tomanufacturing, ~~strengthen~~labeling, ~~the~~record ~~510(k)~~keeping, ~~program~~ and ~~the second~~surveillance onprocedures ~~how~~for tomedical ~~incorporate new scientific~~ devices.

7 United States Regulation

~~Table~~FDA regulations classify medical devices based on perceived risk to public health as Class I, II or III devices. Class I devices are subject to general controls, Class II devices are subject to special controls, and Class III devices are subject to pre-market approval (“PMA”) requirements. While most Class I devices are exempt from pre-market submission, it is necessary for most Class II devices to be cleared by a 510(k) pre-market notification prior to marketing. 510(k) establishes that the device is ''substantially equivalent'' to a device that was legally marketed prior to May 28, 1976, the date on which the Medical Device Amendments of ~~Contents~~1976 became effective. The 510(k) pre-market notification must be supported by data establishing the claim of substantial equivalence to the satisfaction of the FDA. The process of obtaining a 510(k) clearance typically can take several months to a year or longer. If the product is notably new or different and substantial equivalence cannot be established, the FDA will require the manufacturer to submit a PMA application for a Class III device that must be reviewed and approved by the FDA prior to sale and marketing of the device in the United States. The process of obtaining PMA approval can be expensive, uncertain, lengthy and frequently requires anywhere from one to several years from the date of FDA submission, if approval is obtained at all. The FDA controls the indicated uses for which a product may be marketed and strictly prohibits the marketing of medical devices for unapproved uses. The FDA can withdraw products from the market for failure to comply with laws or the occurrence of safety risks.

~~information~~Our ~~into~~microsurgery ~~regulatory~~instruments ~~decision~~and ~~making.~~the ~~The~~Lap ~~recommendations are~~Assist ~~preliminary~~Fascia ~~and~~Closure ~~the~~System ~~FDA~~are isClass ~~presently~~I ~~soliciting~~medical ~~public~~devices. The ~~input on~~rest ~~these~~of ~~recommendations.~~our Ifproducts ~~recommendations~~ are ~~adopted~~classified ~~from these~~as ~~evaluations,~~Class ~~any~~II ~~newly~~medical ~~developed~~devices ~~products~~and orhave ~~new indications~~received ~~for~~510(k) ~~use~~marketing ~~for~~clearance ~~our~~from ~~existing~~the ~~products~~FDA. Our ~~may~~manufacturing beoperations ~~subjected~~ are subject to aperiodic ~~more~~inspections ~~rigorous~~by ~~premarket~~the ~~review~~FDA, ~~process.~~whose Inprimary ~~addition,~~purpose ~~the FDA~~is ~~has~~to ~~requested~~audit the ~~Institute~~Company's ofcompliance ~~Medicine~~with ~~conduct~~the ~~an independent~~Quality ~~study~~System ofRegulations published by the ~~510(k)~~FDA ~~program~~and onother ~~whether~~applicable ~~legislative,~~ government standards. Strict regulatory action may be initiated in response to audit deficiencies or ~~administrative~~to ~~changes~~product ~~are~~performance ~~needed~~problems. We Abelieve ~~final~~that ~~report is~~our ~~expected~~manufacturing and quality control procedures are in compliance with the ~~summer~~requirements of ~~2011~~the FDA regulations.

~~International Regulation~~ 9

~~International~~The ~~regulatory~~FDA ~~bodies~~is ~~have~~considering ~~established~~a ~~varying regulations~~change ~~governing~~in ~~product~~the ~~standards~~medical device 510(k) clearance process, ~~packaging~~including its revocation and ~~labeling requirements,~~replacement ~~import~~with ~~restrictions,~~a ~~tariff~~more ~~regulations,~~stringent ~~duties and~~approval ~~tax~~process. Such ~~Many~~a ofchange ~~these~~could ~~regulations~~dramatically ~~are~~increase ~~similar~~time and costs to ~~those~~market ofa medical device in the ~~FDA~~ United States. The ~~With~~FDA is assessing comments from the ~~exception~~public ofbased on predominantly negative reactions to a report by the ~~European~~Center ~~Union~~for Devices and Radiological Health (“EUCDRH”)~~, Canada~~ ~~and~~in ~~Australia,~~2010 weand ~~typically~~a ~~rely~~second onreport ~~our~~by ~~independent distributors~~the ~~covering~~Institute aof ~~given~~Medicine ~~country~~(“IOM”) toin ~~comply~~2011. The ~~with~~CDRH ~~the~~report ~~foreign regulatory~~contains ~~requirements,~~elements ~~including~~that ~~registration~~it ofbelieves ~~our~~will ~~devices with~~create ~~the~~a ~~appropriate~~more ~~governmental~~effective ~~authorities~~510(k) process. It Wealso ~~believe~~includes wea ~~are in~~new ~~compliance~~device classification (Class IIb) with ~~the~~clinical ~~regulatory~~data requirements. The inIOM report concludes that the ~~foreign countries~~510(k) inprocess ~~which~~should ~~our~~be ~~medical~~abandoned ~~devices~~and ~~are~~be ~~marketed.~~replaced Wewith ~~do, however,~~an ~~face~~entirely ~~certain~~new regulatory ~~risks~~framework in ~~international~~which ~~markets related~~the tocurrent ~~our~~standard ~~bovine~~for ~~tissue~~clearance, ~~products~~substantial equivalence, ~~which~~is ~~are~~replaced ~~discussed~~with ~~in Part I,~~new ~~Item 1A~~pre- ofand ~~this~~post- ~~report~~market requirements.

~~The~~International registration system in the EU for our medical devices requires that our quality system conform to international quality standards and that our medical devices conform to “essential requirements” set forth by the Medical Device Directive (“MDD”). Manufacturing facilities and processes under which our Ortho & Wound medical devices are produced are inspected and audited by the National Standards Authority of Ireland (“NSAI”). Manufacturing facilities and processes under which all of our other medical devices are produced are inspected and audited by the British Standards Institute (“BSI”). These audits verify our compliance with the essential requirements of the MDD, as well as supplementary requirements for “medical devices incorporating animal tissue.” These certifying bodies verify that our quality system conforms to the international quality standard ISO 13485:2003 and that our products conform to the “essential requirements” and “supplementary requirements” set forth by the MDD for the class of medical devices we produce. These certifying bodies also certify our conformity with both the quality standards and the MDD requirements, entitling us to place the “CE” mark on all of our current medical devices. Regulation

~~Third Party~~International ~~Reimbursement~~ regulatory bodies have established varying regulations governing product standards, packaging and labeling requirements, import restrictions, tariff regulations, duties and tax. Many of these regulations are similar to those of the FDA. With the exception of the European Union (“EU”), Canada, and Australia, we typically rely on our independent distributors covering a given country to comply with the foreign regulatory requirements, including registration of our devices with the appropriate governmental authorities. We believe we are in compliance with the regulatory requirements in the foreign countries in which our medical devices are marketed. We do, however, face certain regulatory risks in international markets related to our bovine tissue products, which are discussed in Part I, Item 1A of this report.

~~The~~In ~~availability~~the EU, medical devices are regulated through the Medical Device Directive (“MDD”) and ~~level~~are classified based on risk, considering such factors as duration of ~~reimbursement~~contact ~~from~~with ~~third-party payers~~the ~~for~~body ~~procedures~~(e.g., ~~utilizing~~long term implant), body part contacted (e.g., central nervous system) and whether animal derived. Most of our products isare ~~significant~~Class III (high risk) and require design examination certificates. The registration system in the EU for our medical devices also requires that our quality system conform to international quality standards and that our ~~business~~medical devices conform to “essential requirements” set forth by the MDD. Manufacturing ~~Our~~facilities ~~products~~and processes under which our Ortho & Wound medical devices are ~~purchased~~produced ~~primarily~~are inspected and audited by ~~hospitals~~ the National Standards Authority of Ireland (“NSAI”). Manufacturing facilities and processes under which all of our other ~~end-users,~~medical ~~who~~devices inare ~~turn~~produced ~~bill~~are ~~various~~inspected ~~third~~and ~~party~~audited ~~payers for~~by the ~~services~~British ~~provided~~Standards toInstitute (“BSI”). These audits verify our compliance with the ~~patients~~essential requirements of the MDD, as well as supplementary requirements for “medical devices incorporating animal tissue.” These ~~payers,~~certifying ~~which include~~bodies ~~Medicare,~~verify ~~Medicaid,~~that ~~private~~our ~~health~~quality ~~insurance~~system ~~plans~~conforms to the international quality standard ISO 13485:2003 and ~~managed~~ ~~care~~that ~~organizations,~~our ~~reimburse~~products ~~all~~conform orto ~~part~~the “essential requirements” and “supplementary requirements” set forth by the MDD for the class of medical devices we produce. These certifying bodies also certify our conformity with both the ~~costs~~ quality standards and ~~fees~~the ~~associated~~MDD ~~with~~requirements, entitling us to place the ~~procedures~~“CE” ~~utilizing~~mark on all of our ~~products~~current medical devices.

InThe ~~response~~European toCommission ~~the~~intends ~~focus~~to of“recast” ~~national~~the ~~attention~~MDD onin ~~rising~~the ~~health care~~first ~~costs,~~quarter ~~a number~~ of ~~changes~~2012 tobecause ~~reduce~~the ~~costs~~EU’s ~~have~~regulatory ~~been proposed~~regime orconsists ~~have~~of ~~begun~~a tocomplex ~~emerge.~~legal ~~There~~framework ~~have~~which ~~been,~~lacks ~~and~~uniformity ~~may continue~~across tocountries ~~be, proposals by legislators, regulators~~ and ~~third party~~has ~~payers~~difficulties toaddressing ~~curb~~emerging ~~these costs~~technologies. The ~~development~~recast orremains ~~increased use~~open ofwith ~~more~~a ~~cost~~list effective treatments for diseases could cause such payers to decrease or deny reimbursement for surgeries or devices to favor alternatives that do not utilize our products. A significant number of ~~Americans~~potential ~~enroll~~options ~~in some form of managed care plan. Higher managed care utilization typically drives down the payments for health care procedures,~~ which ininclude ~~turn places pressure on medical supply prices. This causes hospitals to implement tighter vendor selection and certification processes, by reducing~~ the ~~number~~replacement of ~~vendors~~the ~~used,~~MDD ~~purchasing more products from fewer vendors~~ and ~~trading~~the ~~discounts~~Active onImplantable ~~price~~MDD ~~for~~with ~~guaranteed higher~~one ~~volumes~~comprehensive todirective ~~vendors. Hospitals have also sought~~ to ~~control and reduce costs over~~ the ~~last~~more ~~decade~~radical byestablishment ~~joining~~of ~~group purchasing~~a ~~organizations~~centralized orEU ~~purchasing~~medical ~~alliances~~devices agency. WeAnyone ~~cannot predict~~of ~~what~~these ~~continuing~~options orcould ~~future~~ impact ~~these practices,~~ the ~~existing~~ orspeed ~~proposed~~and ~~legislation,~~cost orof ~~such~~product ~~third-party payer measures within a constantly changing healthcare landscape may have on our future business, financial condition or results of operations~~approval.

8 Third Party Reimbursement

~~Table~~The availability and level of ~~Contents~~reimbursement from third-party payers for procedures utilizing our products is significant to our business. Our products are purchased primarily by hospitals and other end-users, who in turn bill various third party payers for the services provided to the patients. These payers, which include Medicare, Medicaid, private health insurance plans, and managed care organizations, reimburse all or part of the costs and fees associated with the procedures utilizing our products.

~~Employees~~ 10

OnIn ~~October 31~~response to the focus of national attention on rising health care costs, ~~2010~~a number of changes to reduce costs have been proposed or have begun to emerge. There have been, weand ~~employed~~may ~~approximately 310 full-time~~continue to be, proposals by legislators, regulators, and ~~part-time~~third ~~individuals~~party payers to curb these costs. ~~Our~~The ~~employees~~development ~~are~~ or increased use of more cost effective treatments for diseases could cause such payers to decrease or deny reimbursement for surgeries or devices to favor alternatives that do not ~~represented~~utilize our products. A significant number of Americans enroll in some form of managed care plan. Higher managed care utilization typically drives down the payments for health care procedures, which in turn places pressure on medical supply prices. This in turn causes hospitals to implement tighter vendor selection and certification processes, by areducing ~~union~~the number of vendors used, purchasing more products from fewer vendors, and wetrading ~~consider~~discounts ~~our~~on ~~relationship with~~price ~~our~~for ~~employees~~guaranteed higher volumes to bevendors. Hospitals ~~good~~have also sought to control and reduce costs over the last decade by joining group purchasing organizations or purchasing alliances. We cannot predict the impact these practices, existing or proposed legislation, or such third-party payer measures will have on our future business, financial condition, or results of operations within a constantly changing healthcare landscape.

~~(d) Financial Information About Geographic Areas~~Employees

~~For~~On ~~information~~October ~~regarding~~31, ~~net~~2011, ~~revenue~~we employed approximately 330 full-time and part-time individuals. Our employees are not represented by ~~geographic~~a ~~area~~union, ~~please refer~~and towe ~~Note 5~~consider to our ~~consolidated~~relationship ~~financial~~with ~~statements under~~our ~~Item 8~~employees ofto ~~this~~be ~~report~~good.

~~Item~~(d) 1AFinancial —Information ~~Risk~~About ~~Factors~~Geographic Areas

~~The~~For ~~following~~information ~~factors~~regarding ~~are~~net ~~important~~revenue ~~and~~by ~~should~~geographic bearea, ~~considered carefully~~please inrefer ~~connection~~to ~~with~~Note ~~any~~5 ~~evaluation~~to of our ~~business,~~ consolidated financial ~~condition,~~statements ~~results~~under ofPart ~~operations~~II, ~~prospects~~Item ~~and~~8 ~~an investment~~of inthis ~~our common stock~~report. ~~Additionally, the following factors could cause our actual results to materially differ from those reflected in any forward-looking statements.~~

WeITEM ~~may not~~1A be- ~~able~~Risk ~~to sustain or manage our growth.~~ Factors

WeThe ~~have~~following ~~achieved~~factors ~~notable~~are ~~revenue~~important ~~growth~~and ~~over~~should ~~the~~be ~~past~~considered ~~several years.~~carefully ~~Our~~in ~~business~~connection ~~has~~with ~~increased~~any ~~revenue~~evaluation ~~18%~~of inour ~~fiscal 2010~~business, ~~17%~~ infinancial ~~fiscal~~condition, ~~2009~~results ~~and~~of ~~32%~~operations, ~~in fiscal 2008. There can be no assurance that we can manage the significant challenges that accompany such growth~~prospects, ~~including~~or ~~management of~~ an ~~increasingly diverse~~investment ~~product~~in ~~portfolio~~our ~~and~~common ~~provision of necessary infrastructure~~stock. ~~In addition~~ Additionally, ~~there~~the ~~can~~following befactors nocould ~~assurance~~cause ~~that~~our ~~we will~~actual beresults ~~able~~ to ~~identify~~materially ~~and~~differ ~~successfully~~from ~~consummate~~those ~~and integrate~~reflected ~~acquisitions or develop new products to sustain rates of revenue growth and profitability~~ in ~~future~~any ~~periods~~forward-looking ~~comparable to those experienced over the past several years~~statements.

~~Sales growth~~Risks ofRelated ~~our Ortho and Wound products in the marketplace is uncertain and we expect~~ to ~~incur~~Our ~~significant~~Proposed ~~operating~~Merger ~~losses from~~with ~~this~~Baxter ~~business~~International ~~unit in the future~~Inc.

~~While we achieved revenues of $1,878,000 from our Ortho and Wound products during fiscal 2010, we incurred an operating loss of $5,850,000 in this business unit during the year.~~ We ~~plan~~will ~~to invest~~be ~~significantly~~subject ~~in this business unit in the future~~ to ~~drive~~ ~~revenue~~various ~~growth,~~uncertainties and wecontractual ~~expect~~restrictions towhile ~~incur~~the ~~significant operating~~Merger ~~losses until a return on these investments~~ is ~~achieved.~~ ~~There~~pending ~~can be no assurance, however,~~ that our investments will result in our desired sales levels or that our Ortho and Wound business unit will be able to achieve such break-even operating performance. If long-term profitable operating results are not achieved, we may be required to record an impairment of Ortho and Wound’s identifiable intangible assets that could beadversely ~~material~~affect to our ~~results~~financial ~~of operations~~results.

WeUncertainty ~~face significant~~about ~~competition~~the ~~from~~effect ~~established~~of ~~competitors~~the inMerger on our employees and certain of our business operations may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel. Employee retention and recruitment may be particularly challenging, as employees and prospective employees may experience uncertainty about their future roles with the ~~medical~~ ~~device~~combined ~~industry~~company.

~~We face intense competition.~~ The ~~medical~~pursuit ~~device~~of ~~industry~~the ~~is highly~~Merger ~~competitive~~ and ~~characterized~~the bypreparation ~~rapid~~for ~~innovation~~the ~~and technological~~integration ~~change.~~may Weplace ~~expect~~a ~~technology~~significant toburden ~~continue~~on ~~to develop~~management ~~rapidly,~~ and ~~our~~internal ~~success~~resources. ~~will~~Any ~~depend~~significant todiversion aof ~~large~~management ~~extent on~~attention ~~our~~away ~~ability~~from toongoing ~~maintain~~business aand ~~competitive~~any ~~position~~difficulties ~~with~~encountered ~~our technology. There can be no assurance that we will be able to compete effectively~~ in the ~~marketplace~~transition orand ~~that~~integration ~~products developed~~process bycould ~~our~~affect ~~competitors will not render~~ our ~~products obsolete~~financial ~~or non-competitive~~results. Similarly, there can be no assurance that our competitors will not succeed in developing or marketing products that are viewed by surgeons as providing superior clinical performance and/or are less expensive relative to the products we currently market or may develop.

~~Established~~In ~~companies~~addition, ~~manufacture~~the ~~and~~Merger ~~sell~~Agreement ~~products~~restricts ~~that~~us, ~~compete with~~without ~~each~~Baxter’s consent, from, among other things, (i) making any material change in the conduct of our ~~products~~business or ~~capabilities.~~entering ~~Some~~into ofany transactions other than in the ~~companies with~~ordinary ~~whom~~course weduring ~~compete~~the ~~have~~interim ~~greater~~period ~~sales~~ between the execution of the Merger Agreement and~~/or distribution~~ ~~capabilities,~~consummation ~~substantially~~of ~~greater~~the ~~capital resources~~Merger, ~~larger~~(ii) ~~marketing,~~making ~~research~~changes ~~and~~in ~~development~~our ~~staffs~~organizational ~~and larger~~documents ~~facilities.~~or Inissuing ~~addition~~stock or instruments convertible into our stock, ~~many~~(iii) entering into certain transactions, (iv) subjecting any of our ~~competitors~~material ~~offer broader~~assets ~~product~~or ~~lines~~properties ~~within~~to any liens, (v) redeeming, repurchasing or otherwise acquiring our ~~specific~~stock, ~~product~~(vi) ~~markets.~~increasing ~~Broad product~~compensation ~~lines~~or ~~may~~benefits ~~give~~of any of our ~~competitors~~personnel ~~the~~(with ~~ability~~certain toexceptions), ~~negotiate exclusive~~(vii) settling, ~~long-term~~releasing ~~medical~~or ~~product~~forgiving ~~supply~~any ~~contracts~~material ~~and~~claims, ~~the ability~~litigation toor ~~offer~~regulatory ~~comprehensive~~action, ~~pricing~~or ~~for~~(viii) ~~their~~making ~~products.~~any ~~There can~~other bematerial nochanges ~~assurance~~or ~~that~~entering weinto ~~will~~any bematerial ~~able~~transactions, toin ~~compete~~each ~~effectively with~~case ~~such~~without ~~manufacturers~~the prior consent of Baxter.

9 We may be unable to obtain satisfaction of all conditions to complete the Merger, including the approval of our shareholders in the anticipated timeframe, or at all.

~~Table~~Completion of ~~Contents~~the Merger is contingent upon customary closing conditions, including approval of the Merger by our shareholders. We may be unable to satisfy all the conditions to the Merger. If the shareholders of the Company do not approve the Merger at the special shareholder meeting to be held after the related Merger proxy statement is effective, the Merger will not be consummated.

We continue to evaluate new market opportunities for our existing products. This process involves numerous steps, including, but not limited to, identifying meaningful new markets for our products, performing in-depth research and analysis to forecast the market potential for our products in these new markets, obtaining the required regulatory market clearances, developing an attractive value proposition for potential customers, and translating this value proposition into meaningful revenue. Due to the inherent complexity of this process, there can be no assurance that we will be able to effectively enter new markets with our existing or newly developed products. 11

WeIn ~~may not~~addition, besatisfying ~~able~~the conditions to, ~~adequately~~and ~~enforce~~completion orof, ~~protect~~the Merger may take longer than, and could cost more than, we expect. These closing conditions include, among others, the receipt of required approvals of our ~~intellectual property~~shareholders ~~rights~~and the expiration or totermination ~~protect~~of ~~ourselves~~all ~~against~~waiting periods under applicable antitrust laws, including the ~~infringement claims~~applicable waiting periods under the Hart–Scott–Rodino Antitrust Improvements Act of ~~others~~1976 (“HSR Act”). The Merger Agreement provides a termination right to each party if the Merger is not consummated by June 12, 2012. However, if the waiting period under the HSR Act has not terminated by June 12, 2012, then either party by written notice to the other party may extend the termination date to December 12, 2012.

WeIf ~~protect~~the ~~our~~Merger ~~technology~~is ~~through~~not ~~patents~~completed, ~~trade~~our ~~secrets,~~financial ~~and proprietary~~results ~~know-how.~~may Webe ~~also~~adversely ~~seek~~affected toand ~~protect~~we ~~our~~will ~~technology through~~be ~~confidentiality~~subject ~~agreements~~to ~~with~~several ~~employees~~risks, ~~consultants and~~including ~~other~~but ~~parties.~~ not limited to:

~~There~~● ~~can~~Payment beto noBaxter ~~assurance that our trade secrets or confidentiality agreements will adequately protect our proprietary information or, in the event~~ of a ~~breach~~termination fee of ~~any confidentiality agreement, that we will have adequate remedies~~$9. ~~Additionally,~~75 ~~there~~million ~~can be no assurance that any pending~~ or ~~future~~ ~~patent~~reimbursement ~~applications will result in issued patents, or that any current or future patent, regardless~~ of ~~whether~~Baxter’s weexpenses ~~are an owner or licensee~~ of ~~such~~up ~~patent, will not be challenged, invalidated or circumvented or that the rights granted thereunder or under our licensing agreements will provide a competitive advantage~~ to us$2.0 ~~Furthermore~~million, ~~there~~as ~~can~~specified bein ~~no assurance~~the ~~that~~Merger ~~others will not independently develop similar technologies or duplicate any technology developed by us~~Agreement, ~~or that~~depending ~~our~~on ~~technology~~the ~~does~~nature ~~not~~of orthe ~~will not infringe patents or other rights owned by others.~~ termination;

~~The~~● ~~medical~~Being ~~device~~subject ~~industry~~to ~~is characterized by frequent and substantial intellectual property~~ litigation, ~~and~~related ~~competitors may resort~~ to ~~intellectual~~any ~~property~~failure ~~litigation~~to ascomplete ~~a means of competition. Intellectual property litigation is complex and expensive, and~~ the ~~outcome of such litigation is difficult to predict~~Merger.

~~From~~Any ~~time~~delay toor ~~time,~~inability weto ~~may~~satisfy ~~become~~all ~~involved~~conditions ~~in litigation which is ordinary, routine litigation incidental~~ to ~~its~~complete ~~business. Further, product liability claims may be asserted in~~ the ~~future relative~~Merger, toor ~~events~~failure ~~not known~~ to ~~management~~complete at the ~~present~~Merger ~~time. Management~~could ~~believes~~negatively ~~that~~affect our ~~risk~~future ~~management practices~~business, ~~including~~ ~~our~~financial ~~insurance~~condition ~~coverage,~~or ~~are~~results ~~reasonably~~of ~~adequate to protect against potential material liability losses~~operation.

~~Oversight of~~No assurance can be given that the ~~medical~~required ~~device~~shareholder ~~industry~~approval ~~might~~will ~~affect~~be obtained or that the ~~manner~~required inclosing ~~which we~~conditions ~~may~~will ~~sell~~be ~~medical~~satisfied, ~~devices~~and, if all required consents and approvals are obtained and the closing conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals.

~~There~~Whether ~~are~~or ~~laws~~not ~~and regulations that govern~~ the ~~means~~Merger byis ~~which companies~~completed, in the ~~healthcare~~announcement ~~industry may market their products to healthcare professionals~~ and ~~may~~pendency ~~compete by discounting the prices~~ of ~~their products, including for example,~~ the ~~federal Anti-Kickback~~Merger ~~Statute,~~could ~~the~~cause ~~federal~~disruptions False Claims Act, the federal Health Insurance Portability and Accountability Act of 1996, and state law equivalents to these federal laws that are meant to protect against fraud and abuse. Violations of these laws are punishable by criminal and civil sanctions, including, but not limited to, in ~~some~~our ~~instances civil and criminal penalties~~business, ~~damages,~~ ~~fines,~~which ~~and~~could ~~exclusion~~have ~~from~~an ~~participation~~adverse ineffect ~~federal~~on ~~and state healthcare programs, including Medicare and Medicaid. Although we exercise care in structuring~~ our ~~sales~~business and ~~marketing practices~~financial ~~and customer discount arrangements to comply with those laws and regulations, we cannot assure you that:~~ results.

•Pending ~~government~~shareholder ~~officials~~litigation ~~charged~~could ~~with~~prevent ~~responsibility for enforcing those laws will not assert that our sales and marketing practices~~ or ~~customer~~delay ~~discount~~the ~~arrangements~~closing ~~are in violation~~ of ~~those~~the ~~laws~~Merger or ~~regulations;~~otherwise ornegatively •impact ~~government~~our ~~regulators~~business orand ~~courts will interpret those laws or regulations in a manner consistent with our interpretation~~operations.

~~ADVAMED~~On December 14, ~~the~~2011, ~~principal~~a ~~U.S. trade~~putative ~~association~~class ~~for~~action complaint challenging the ~~medical~~ ~~device~~transaction ~~industry,~~was ~~has~~filed ~~put~~by a shareholder named Colleen Witmer in ~~place~~Ramsey aCounty ~~model~~District ~~“code~~Court, Second Judicial District, State of ~~conduct”~~ ~~that~~Minnesota, ~~sets~~against ~~forth~~Baxter, ~~standards~~Merger bySub, ~~which~~Synovis ~~its~~and individual members ~~should~~ ~~abide~~of inour board of directors. The complaint generally alleges, among other things, that the ~~promotion~~members of ~~their~~our ~~products.~~board Weof ~~have policies~~directors ~~and~~breached ~~procedures~~their infiduciary ~~place~~duties ~~for~~owed ~~compliance~~to ~~that~~the weshareholders ~~believe are~~of ~~consistent~~Synovis ~~with~~by ~~those~~entering ~~set~~into ~~forth~~the inMerger Agreement, approving the ~~ADVAMED~~proposed ~~Code,~~Merger and ~~we provide~~failing ~~routine~~to ~~training~~take steps to ~~our~~maximize ~~sales~~the value of Synovis to its shareholders, and ~~marketing~~that ~~personnel~~Synovis, ~~on our~~Baxter ~~policies~~and ~~regarding~~Merger ~~sales~~Sub aided and ~~marketing~~abetted ~~practices~~such breaches of fiduciary duties. ~~Nevertheless~~ See “Item 3 – Legal Proceedings” for more detailed information concerning this lawsuit. The complaint seeks, ~~the~~among ~~sales~~other things, declaratory and ~~marketing~~injunctive ~~practices~~relief ofconcerning ~~our~~the ~~industry have~~alleged ~~been~~fiduciary ~~the~~breaches, ~~subject~~injunctive ofrelief ~~increased~~prohibiting ~~scrutiny~~the defendants from ~~federal~~consummating the Merger and ~~state~~ ~~government~~other ~~agencies,~~forms ~~and~~of weequitable ~~believe~~relief. No assurances can be given that this ~~trend~~litigation will ~~continue.~~ ~~For~~not ~~example~~result in such an injunction being issued, ~~recent~~which ~~federal~~could ~~and~~prevent ~~state~~or ~~legislation require~~delay ~~detailed~~ the closing of the Merger. It is possible that additional lawsuits may be filed against us asserting similar or different claims. There can be no assurance that we or any of the other defendants will be successful in the outcome of the pending or any potential future lawsuits.

10 Risks Related to Our Business

~~Table~~We ofmay ~~Contents~~not be able to sustain or manage our growth.

~~disclosure~~We ofhave ~~gifts~~achieved ~~and~~notable ~~other~~revenue ~~remuneration~~growth ~~made~~over tothe ~~health~~past ~~care professionals~~several years. Our Inbusiness ~~addition,~~has ~~prosecutorial~~increased ~~scrutiny~~revenue ~~and governmental~~20% ~~oversight,~~in onfiscal ~~the~~2011, ~~state~~18% ~~and~~in ~~federal~~fiscal ~~levels~~2010, ~~over some~~and ~~major~~17% ~~device~~in ~~companies~~fiscal ~~regarding~~2009. There ~~the~~can ~~retention~~be ~~of healthcare~~no ~~professionals~~assurance asthat ~~consultants~~we ~~has~~can ~~limited~~manage the ~~manner in~~significant ~~which~~challenges ~~medical~~that ~~device~~accompany ~~companies~~such ~~may~~growth, ~~retain~~including ~~healthcare professionals~~management asof ~~consultants.~~an Weincreasingly ~~have~~diverse inproduct ~~place~~portfolio ~~policies~~and ~~to govern~~provision ~~how~~of wenecessary ~~may~~infrastructure. In ~~retain~~addition, ~~healthcare~~there ~~professionals~~can asbe ~~consultants that~~no ~~reflect~~assurance ~~the~~that ~~current~~we ~~climate~~will onbe ~~this~~able ~~issue~~to identify and ~~provide training~~successfully onconsummate ~~these policies. Finally, various hospital organizations, medical societies~~ and ~~trade~~integrate ~~associations~~acquisitions ~~are establishing~~or ~~their~~develop ~~own~~new ~~practices~~products ~~that~~to ~~may~~sustain ~~require~~rates ~~detailed disclosures~~ of ~~relationships~~revenue ~~between~~growth ~~healthcare professionals~~ and ~~medical~~profitability ~~device~~in ~~companies~~future orperiods ~~ban~~comparable orto ~~restrict~~those ~~certain marketing~~experienced ~~and~~over ~~sales~~the ~~practices~~past ~~such~~several ~~as gifts and business meals~~years.

~~Quality issues with our processes, goods and services could harm our reputation for producing high quality products and erode our competitive advantage.~~ 12

~~Quality~~Sales isgrowth ~~extremely important to us and our customers due to the serious and costly consequences~~ of ~~product failure. Our quality certifications are critical to the marketing success of~~ our ~~products.~~Ortho If& ~~our~~Wound products ~~fail~~in tothe ~~meet~~marketplace ~~these~~is ~~standards~~uncertain ~~or fail~~and towe ~~adapt~~expect to ~~evolving~~incur ~~standards,~~significant ~~our~~operating ~~reputation~~losses asfrom ~~a manufacturer~~this ofbusiness ~~high~~unit ~~quality~~in ~~products~~the ~~could be harmed, our competitive advantage could be damaged, we could lose customers and market share, and our revenues and results of operations could decline~~future.

~~Our failure~~While we achieved revenues of $3,514,000 from our Ortho & Wound products during fiscal 2011, we incurred an operating loss of $5,471,000 in this business unit during the year. We plan to ~~obtain~~invest ~~regulatory~~significantly ~~clearance/approval~~in this business unit in the future to drive revenue growth, and ~~maintain regulatory~~we ~~compliance~~expect ~~for~~to ~~any~~incur ofsignificant operating losses until a return on these investments is achieved. There can be no assurance that our ~~products~~investments ~~would~~will ~~impact~~result in our ~~ability~~ desired sales levels or that our Ortho & Wound business unit will be able to ~~generate~~achieve ~~revenue~~such ~~from~~break-even ~~those~~operating ~~products~~performance. If long-term profitable operating results are not achieved, we may be required to record an impairment of Ortho & Wound’s identifiable intangible assets that could be material to our results of operations.

We ~~must~~face ~~comply~~significant ~~with~~competition ~~FDA~~from ~~regulations~~established tocompetitors ~~market our products~~ in the ~~United States. The~~ medical device industry ~~in which our business operates is subject to extensive and rigorous regulation by the FDA and by comparable agencies in foreign countries~~. ~~In the United States, the FDA regulates the design control, development, manufacturing, labeling, record keeping and surveillance procedures for our medical devices.~~

~~The~~We ~~process~~face ofintense ~~obtaining~~competition. The ~~marketing~~medical ~~clearance~~device orindustry ~~approvals~~is ~~from the~~highly ~~FDA~~competitive ~~for new products~~ and ~~new~~characterized ~~applications~~by ~~for~~rapid ~~existing products~~innovation ~~can be time-consuming~~ and ~~expensive,~~technological ~~and~~change. We ~~there~~expect istechnology ~~no assurance~~to ~~that~~continue ~~such~~to ~~clearance/approvals~~develop ~~will be granted~~rapidly, orand ~~that the~~our ~~FDA~~success ~~review~~ will ~~not~~depend ~~involve~~on ~~delays that would adversely affect~~ our ability to ~~commercialize~~maintain ~~additional~~a ~~products~~competitive ~~or additional~~position ~~applications~~with ~~for~~our ~~existing products~~technology. There ~~Some~~can ofbe ~~our products~~no assurance that ~~are~~we inwill ~~the research and development stage may~~ be ~~subject~~ able to acompete ~~lengthy~~effectively ~~and~~in ~~expensive~~the ~~pre-market~~marketplace ~~approval~~or ~~process with~~that ~~the~~products ~~FDA.~~developed ~~The~~by ~~FDA~~our ~~has~~competitors ~~the~~will ~~authority~~not torender ~~control~~our ~~the~~products ~~indicated uses~~obsolete ofor ~~a medical device~~non-competitive. Similarly, ~~Products~~there can ~~also~~ be ~~withdrawn~~no ~~from the~~assurance ~~market~~that ~~due~~our tocompetitors ~~failure~~will tonot ~~comply~~succeed ~~with~~in ~~regulatory~~developing ~~standards~~ or ~~the~~ ~~occurrence~~marketing ofproducts ~~unforeseen~~that ~~problems.~~are ~~The~~viewed ~~FDA~~by ~~regulations depend~~surgeons ~~heavily~~as onproviding ~~administrative~~superior ~~interpretation,~~clinical performance and/or ~~there~~are ~~can be~~less noexpensive ~~assurance~~relative ~~that~~to ~~future~~the ~~interpretations~~products ~~made~~we bycurrently ~~the~~market ~~FDA~~ or ~~other~~ ~~regulatory~~may ~~bodies, with possible retroactive effect, will not adversely affect us~~develop.

~~Our~~Reputable ~~facilities~~companies manufacture and ~~processes~~sell ~~are~~products ~~subject~~that ~~to regulation. The~~compete ~~FDA,~~with ~~various~~each ~~state~~of ~~agencies~~our ~~and foreign~~products ~~regulatory~~or ~~agencies~~capabilities. Some ~~inspect~~of ~~our~~the ~~facilities~~companies towith ~~determine whether~~whom we ~~are~~compete inhave ~~compliance~~greater ~~with~~sales ~~various~~and/or ~~regulations~~distribution ~~relating to~~capabilities, ~~quality~~substantially ~~systems,~~greater ~~such~~capital asresources, ~~manufacturing~~larger ~~practices~~marketing, ~~validation~~research and development staffs, ~~testing,~~ ~~quality~~and ~~control~~larger facilities. In addition, many of our competitors offer broader product ~~labeling~~lines ~~and~~within our specific product ~~surveillance~~ markets. Broad Aproduct ~~determination~~lines ~~that~~may wegive ~~are~~our incompetitors ~~violation~~the ofability ~~such regulations~~to ~~could~~negotiate ~~lead~~exclusive, long-term medical product supply contracts and the ability to ~~imposition~~offer ofcomprehensive ~~civil~~pricing ~~penalties, including~~for ~~fines,~~their ~~product~~products. There ~~recalls~~can orbe ~~product~~no ~~seizures~~assurance ~~and,~~that ~~in extreme~~we ~~cases,~~will ~~criminal~~be ~~sanctions,~~able ~~depending~~to oncompete ~~the~~effectively ~~nature~~with ~~of the~~such ~~violation~~manufacturers.

We ~~must~~continue ~~obtain~~to ~~regulatory~~evaluate ~~approvals~~new to market opportunities for our existing products ~~internationally~~. ~~The~~This ~~registration~~process ~~scheme~~involves innumerous ~~the majority~~steps, ofincluding, ~~international~~but ~~markets~~not ~~(e.g.~~limited ~~Europe~~to, ~~Canada)~~identifying meaningful new markets for our products, ~~requires~~performing ~~that~~in-depth ~~our~~research ~~quality~~and ~~system~~analysis ~~conforms~~ to ~~international~~ ~~quality~~forecast ~~standards.~~the Wemarket ~~must~~potential ~~remain~~for ~~compliant~~our ~~with~~ products in these ~~requirements~~new asmarkets, ~~well~~obtaining asthe ~~product~~required ~~standards~~regulatory inmarket ~~order~~clearances, todeveloping ~~sell our~~an ~~products~~attractive invalue ~~these~~proposition ~~countries.~~for ~~There~~potential ~~can~~customers, beand notranslating ~~assurance~~this ~~that we~~value ~~will~~proposition beinto ~~able~~meaningful revenue. Due to ~~maintain~~the ~~compliance~~inherent ~~with~~complexity ~~these~~of ~~regulations. In~~this ~~addition~~process, there can be no assurance that we will be ~~successful~~ inable ~~obtaining~~to ~~registration~~effectively ~~for~~enter new ~~product introductions~~markets with our existing or newly developed products.

Further, international regulatory bodies have established varying additional regulations governing product standards, packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. We ~~rely,~~may innot ~~part,~~be onable ~~our independent distributors~~ to ~~comply~~adequately ~~with such~~enforce ~~foreign~~or ~~regulatory~~protect ~~requirements. As a result,~~ our ~~communication~~ ~~with~~intellectual ~~foreign~~property ~~regulatory~~rights ~~agencies~~or ~~may~~to beprotect ~~indirect as~~ourselves itagainst ~~occurs through~~ the ~~foreign~~infringement ~~distributor.~~claims ~~The inability or failure~~ of ~~independent distributors to comply with the varying~~ others.

11 We protect our technology through patents, trade secrets, and proprietary know-how. We also seek to protect our technology through confidentiality agreements with employees, consultants, and other parties.

~~Table~~There can be no assurance that our trade secrets or confidentiality agreements will adequately protect our proprietary information or, in the event of ~~Contents~~a breach of any confidentiality agreement, that we will have adequate remedies. Additionally, there can be no assurance that any pending or future patent applications will result in issued patents, or that any current or future patent, regardless of whether we are an owner or licensee of such patent, will not be challenged, invalidated, or circumvented or that the rights granted thereunder or under our licensing agreements will provide a competitive advantage to us. Furthermore, there can be no assurance that others will not independently develop similar technologies or duplicate any technology developed by us, or that our technology does not or will not infringe patents or other rights owned by others.

~~regulations~~The ormedical ~~the~~device ~~imposition~~industry ofis ~~new~~characterized ~~regulations~~by ~~could~~frequent ~~restrict such~~and ~~distributors’~~substantial ~~ability~~intellectual property litigation, and competitors may resort to ~~sell~~intellectual ~~our~~property ~~medical~~litigation ~~products internationally~~as ~~and~~a ~~thereby~~means ~~adversely~~of ~~affect~~competition. Intellectual ~~our~~property ~~business, financial~~litigation ~~condition~~is complex and ~~results~~expensive, and the outcome of ~~operations~~such litigation is difficult to predict.

~~Because many~~From oftime ~~our~~to ~~biomaterial~~time, ~~products~~we ~~are~~may ~~manufactured~~become ~~from~~involved ~~bovine pericardium,~~in ~~perceptions~~litigation ~~about~~which ~~Bovine~~is ~~Spongiform~~an ~~Encephalopathy~~ ordinary and routine incidental to a business. Further, product liability claims may ~~impact~~be asserted in the future relative to events not known to management at the present time. Management believes that our ~~sales~~risk management practices, including our insurance coverage, are reasonably adequate to protect against potential material liability losses.

Under the direction of the United States Department of Agriculture (“USDA”), the U.S. government has had an active program of surveillance and import controls since the late 1980s designed to prevent the introduction of Bovine Spongiform Encephalopathy (“BSE”) into U.S. cattle. The USDA program includes certain feed restrictions which began in 1997. The World Health Organization has categorized the levels of BSE infectivity of tissue. This characterization places pericardium (which primarily consists of collagen) as having no detectable infectivity, the lowest risk category. The European authorities have specifically reviewed our biomaterial sourcing and manufacturing processes and have also certified our bovine pericardium products. 13

WeOversight ~~obtain~~of our raw bovine pericardium for our biomaterial products from USDA-inspected abattoirs as well as from a USDA approved source in New Zealand. The bovine pericardium is collected under strict conditions; inspectors examine each heart for disease and anomalies prior to harvesting the ~~pericardium. Additional~~medical ~~measures~~device ~~are~~industry ~~also~~might ~~taken~~affect ~~to ensure brain and spinal cord matter does not come into contact with~~ the ~~bovine pericardium.~~manner Our bovine-based tissue products are manufactured with sodium hydroxide, a processing technique recommended by international experts to remove or inactivate the prion, the agent believed to cause BSE, should it exist in ~~the~~which ~~tissue.~~we ~~The bovine~~may ~~pericardium~~sell ~~used~~medical ~~in our products is sourced from animals who are 30 months or younger~~devices. Sourcing from these younger animals markedly decreases the likelihood of BSE transmission. Notwithstanding these safeguards, if the perception of risk associated with BSE increases, it could have a material adverse effect on our business, financial condition and results of operations.

InThere ~~2004,~~are ~~the~~laws EUand ~~enacted medical device~~ regulations that ~~require product~~govern ~~specific~~the ~~evaluation~~means ofby ~~bovine-based~~which ~~products~~companies ~~for potential BSE patient health risks. All bovine-based medical products currently sold~~ in the EUhealthcare ~~are~~industry ~~subject~~may tomarket ~~this evaluation.~~its ~~Our bovine-based~~ products ~~have~~to ~~been~~healthcare ~~evaluated~~professionals and ~~have~~ ~~obtained~~may ~~approval,~~compete ~~although~~by ~~our~~discounting ~~Dura-Guard~~the ~~product~~prices ~~has not been approved for sale in France. Currently, none~~ of ~~our bovine-based~~its products, ~~are~~including ~~approved~~ for ~~sale in Japan or Taiwan. In August 2006~~example, the ~~government~~federal ofAnti-Kickback ~~China~~Statute, ~~began prohibiting~~ the ~~sale~~ offederal ~~U.S. bovine-based~~False ~~products.~~Claims WeAct, ~~understand that regulatory approvals will not be granted in~~ the ~~present environment~~federal ~~within~~Health ~~those~~Insurance ~~countries~~Portability ~~for~~and ~~products~~Accountability ~~derived~~Act ~~from bovine~~of ~~pericardium~~1996, ~~unless~~and westate ~~source~~law ~~bovine~~equivalents ~~pericardium~~to ~~from countries~~these ~~which~~federal ~~they~~laws ~~consider~~that atare nomeant ~~risk~~to ~~for~~protect ~~BSE~~against ~~(e.g.~~fraud ~~New Zealand~~ and ~~Australia)~~abuse. Violations ~~Total international sales~~ of ~~our bovine-based~~these ~~products~~laws ~~accounted~~are ~~for~~punishable ~~11.3%~~by criminal and ~~11.5%~~civil ofsanctions, ~~our consolidated~~including, ~~net~~but ~~sales~~not ~~for~~limited ~~the~~to, ~~fiscal~~in ~~years~~some ~~ended October 31,~~instances ~~2010~~civil and ~~2009~~criminal penalties, ~~respectively~~damages, fines, and ~~increased~~exclusion ~~15%~~ from participation in ~~fiscal~~federal ~~2010.~~and ~~Any~~state ~~prohibition~~healthcare byprograms, ~~certain~~including ~~other~~Medicare ~~countries~~and ~~of U~~Medicaid.~~S. bovine~~ Although ~~pericardium~~we ~~products~~exercise ascare ain ~~result~~structuring ofour ~~concerns related~~sales, tomarketing ~~BSE~~practices, ~~could~~and ~~have~~customer andiscount ~~adverse~~arrangements ~~effect~~to oncomply ~~our~~with ~~ability~~those ~~to maintain~~laws orand ~~grow~~regulations, ~~international~~we ~~sales~~cannot ofassure ~~these~~you ~~products.~~ that:

We● ~~may face~~Government officials charged with the ~~risk~~responsibility offor ~~product~~enforcing ~~liability~~those ~~claims~~laws ~~and~~will ~~product~~not ~~recalls~~ assert that ~~could~~our ~~result~~sales inand ~~costly~~marketing ~~and~~practices ~~time~~or ~~consuming~~customer ~~litigation~~discount ~~and significant~~arrangements ~~liability.~~ are in violation of those laws or regulations;

~~The~~● ~~medical~~Government ~~device~~regulators industry historically has been litigious, and the manufacture and sale of our products entails an inherent risk of product liability claims. In particular, our principal medical devices are designed to be permanently placed in the human body, and production or ~~other~~courts errors could result in an unsafe product and injury to the patient. Although we maintain product liability insurance in amounts believed to be adequate, based upon the nature and risks of our business in general and our actual experience to date, there can be no assurance that one or more liability claims will ~~not~~interpret ~~exceed~~those ~~the~~laws ~~coverage limits of such policies~~ or ~~that~~regulations ~~such~~in insurance will continue to be available on commercially reasonable terms, if at all. Furthermore, we do not have nor do we expect to obtain insurance covering our costs and losses as the result of any recall of our products due to alleged defects, whether such a ~~recall~~manner ~~is instituted~~consistent ~~by us or required by a regulatory agency. A product liability claim, recall or other claim~~ with ~~respect to uninsured liabilities or in excess of~~ our ~~insured liabilities could have a material adverse effect on our business, financial condition and results of operations~~interpretation.

12 ADVAMED, the principal U.S. trade association for the medical device industry, has put in place a model “Code of Conduct” that sets forth standards by which its members should abide in the promotion of their products. We have policies and procedures in place for compliance that we believe are consistent with those set forth in the ADVAMED Code, and we provide routine training to our sales and marketing personnel on our policies regarding sales and marketing practices. Nevertheless, the sales and marketing practices of our industry have been the subject of increased scrutiny from federal and state government agencies, and we believe that this trend will continue. For example, recent federal and state legislation require detailed disclosure of gifts and other remuneration made to health care professionals. In addition, prosecutorial scrutiny and governmental oversight, on the federal and state levels, over some major device companies regarding the retention of healthcare professionals as consultants has limited the manner in which medical device companies may retain healthcare professionals as consultants. We have in place policies to govern how we may retain healthcare professionals as consultants that reflect the current climate on this issue and provide training on these policies. Finally, various hospital organizations, medical societies, and trade associations are establishing their own practices that may require detailed disclosures of relationships between healthcare professionals and medical device companies or that ban or restrict certain marketing and sales practices such as gifts and business meals.

~~Table~~Quality ofissues ~~Contents~~with our processes, goods, and services could harm our reputation for producing high quality products and erode our competitive advantage.

~~Due~~Quality is extremely important to us and our customers due to the ~~unpredictability~~serious and costly consequences of product failure. Our quality certifications are critical to the ~~health~~marketing ~~care~~success ~~industry,~~of our ~~customers may~~products. If ~~not~~our beproducts ~~able~~fail to ~~receive third-party reimbursement~~meet ~~for~~these ~~the~~standards ~~medical~~or ~~procedures~~fail ~~utilizing~~to adapt to evolving standards, our reputation as a manufacturer of high quality products could be harmed, our competitive advantage could be damaged, we could lose customers and market share, and our revenues and results of operations could decline.

Our ~~products~~failure ~~are~~to ~~purchased~~obtain ~~primarily~~regulatory byclearance/approval ~~hospitals~~ and ~~other end-users.~~maintain ~~Hospitals~~regulatory ~~and~~compliance ~~end-users~~for any of our products ~~bill~~would ~~various third-party~~impact ~~payers,~~our ~~including~~ability ~~government health programs, private health insurance plans, managed care organizations and other similar programs, for the health care goods and services provided~~ to ~~their~~generate ~~patients.~~revenue Third-party payers may deny reimbursement if they determine that a procedure was not in accordance with established third-party payer protocol regarding treatment methods. Our products are covered by procedure costs as a component of the overall medical procedure reimbursement obtained from ~~the~~those ~~third-party payer~~products.

~~Third-party~~We ~~payers~~must ~~are~~comply ~~also~~with ~~increasingly~~FDA ~~challenging~~regulations ~~the~~to ~~prices charged~~market ~~for~~our ~~medical~~ products ~~and services and,~~ in ~~some instances,~~the ~~have~~United ~~put~~States. The ~~pressure on~~ medical device ~~suppliers~~industry ~~to lower~~in ~~their~~which ~~prices. While we believe~~ our ~~pricing~~business operates is ~~appropriate for~~subject ~~the~~to ~~niche~~extensive ~~markets~~ and ~~technology~~rigorous ofregulation ~~our~~by ~~products, we are unable to predict what changes will occur in~~ the ~~reimbursement methods~~FDA ~~used~~and by ~~third-party~~comparable ~~payers.~~agencies ~~There can be no assurance that medical procedures~~ in ~~which~~foreign ~~our~~countries. In ~~products~~the ~~are~~United ~~used will continue to be considered cost-effective by third-party payers~~States, ~~that~~ ~~reimbursement~~the ~~for~~FDA ~~such~~regulates ~~procedures~~the ~~will~~design ~~be available or~~control, ~~if available~~development, ~~will continue~~manufacturing, or that third-party payers’ reimbursement levels will not adversely affect our ability to sell our products on a profitable basis. The cost of health care has risen significantly over the past decadelabeling, ~~and~~record ~~there have been and may continue to be proposals by legislators~~keeping, ~~regulators~~ and ~~third-party~~surveillance ~~payers~~procedures tofor ~~curb~~our ~~these~~medical ~~costs~~devices.

~~Failure~~The byprocess ~~hospitals~~of obtaining marketing clearance or approvals from the FDA for new products and ~~other~~new ~~users~~applications offor ~~our~~existing products can be time-consuming and expensive, and there is no assurance that such clearance or approvals will be granted, or that the FDA review will not involve delays that would adversely affect our ability to ~~obtain reimbursement~~commercialize ~~from~~additional ~~third-party~~products ~~payers~~or additional applications for ~~procedures~~existing inproducts. Some ~~which~~ of our products that are ~~used,~~in ~~changes~~the inresearch ~~third~~and development stage may be subject to a lengthy and expensive pre-~~party~~market ~~payers’ policies~~approval ~~towards~~process ~~reimbursement~~with ~~for~~the ~~procedures~~FDA. The ~~using~~FDA ~~our~~has ~~products or~~the ~~legislative~~authority ~~action~~to ~~could~~control ~~have~~the indicated uses of a ~~material~~medical ~~adverse~~device. Products ~~effect~~can also be withdrawn from the market due to failure to comply with regulatory standards or the occurrence of unforeseen problems. The FDA regulations depend heavily on ~~our~~ ~~business~~administrative interpretation, ~~financial~~and ~~condition~~there ~~and~~can ~~results~~be ofno ~~operations~~assurance that future interpretations made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect us.

Our business, financial condition, results of operations and cash flows could be significantly and adversely affected by the recently adopted legislation reforming the United States healthcare system and if other administration and legislative proposals are enacted into law. 14

OnOur ~~March 30,~~facilities ~~2010~~and processes are subject to regulation. The FDA, ~~the~~various ~~Health~~state ~~Care~~agencies, and ~~Education Reconciliation~~foreign ~~Act~~regulatory ofagencies ~~2010~~inspect ~~(the~~our ~~“Reconciliation~~facilities ~~Bill”) was~~to ~~signed~~determine ~~into~~whether ~~law~~we byare ~~President~~in ~~Obama.~~compliance ~~The~~with ~~Reconciliation~~various ~~Bill amended~~regulations ~~the~~relating ~~Patient~~to ~~Protection~~quality ~~and~~systems, ~~Affordable~~such ~~Care~~as ~~Act~~manufacturing practices, ~~which was~~validation, ~~signed~~testing, ~~into~~quality ~~law~~control, onproduct ~~March 23~~labeling, ~~2010~~and product surveillance. A ~~Among~~determination ~~other initiatives,~~that ~~these~~we ~~bills~~are ~~impose~~in aviolation ~~2.3%~~of ~~excise~~such ~~tax~~regulations oncould ~~domestic sales~~lead to imposition of ~~medical~~civil ~~devices~~penalties, ~~following~~including ~~December 31~~fines, ~~2012.~~product ~~This enacted~~recalls, ~~excise~~or ~~tax~~product onseizures ~~medical~~and, ~~devices~~in ~~could~~extreme ~~materially~~cases, ~~and adversely~~criminal ~~affect~~sanctions, ~~our~~depending ~~operating~~on ~~results~~the nature of the violation.

~~Other~~We ~~elements~~must obtain regulatory approvals to market our products internationally. The registration scheme in the ~~Reconciliation~~majority ~~Bill,~~of ~~such~~international asmarkets ~~comparative effectiveness~~(e.g. ~~research~~Europe, anCanada) ~~independent~~for ~~payment~~our ~~advisory~~products ~~board and~~require ~~other~~that ~~provisions~~our ~~could~~quality ~~meaningfully~~system ~~change~~conforms ~~the~~to ~~way healthcare~~international isquality ~~developed~~standards. We ~~and~~must ~~delivered~~remain compliant with these requirements, ~~and~~as ~~may~~well ~~materially~~as ~~impact~~ product standards in order to sell our ~~business~~products in these countries. There can be no assurance that we will be able to maintain compliance with these regulations. In addition, there can be no assurance that we will be successful in obtaining registration for new product introductions.

~~Various~~Further, ~~healthcare~~international ~~reform~~regulatory ~~proposals~~bodies ~~also~~ have ~~emerged~~established atvarying ~~the state~~additional ~~level.~~regulations Wegoverning ~~cannot~~product ~~predict~~standards, ~~what~~packaging ~~healthcare initiatives~~requirements, ~~if any~~labeling requirements, ~~will~~import berestrictions, ~~implemented~~tariff atregulations, ~~the~~duties, ~~state~~and ~~level~~tax orrequirements. We ~~the~~rely, ~~exact~~in ~~effect newly~~part, ~~enacted~~on ~~laws~~our orindependent ~~any~~distributors ~~future~~to ~~legislation~~comply orwith ~~regulation~~such ~~will have~~foreign onregulatory usrequirements. As ~~However~~a result, anour ~~expansion~~communication inwith ~~government’s~~foreign ~~role~~regulatory in agencies may be indirect as it occurs through the Uforeign distributor.~~S. healthcare~~ The ~~industry~~inability ~~may~~or ~~lower~~failure ~~reimbursements~~of ~~for our~~independent ~~products,~~distributors ~~reduce~~to comply with the varying regulations or the imposition of new regulations could restrict such distributors’ ability to sell our medical ~~procedure~~products ~~volumes~~internationally and thereby adversely affect our business, financial condition, and results of operations~~, possibly materially~~.

~~The current~~Because ~~global~~many ~~economic~~of ~~downturn~~our ~~could~~biomaterial ~~continue~~products toare ~~adversely~~ manufactured from bovine pericardium, perceptions about Bovine Spongiform Encephalopathy may impact our ~~business~~sales.

AUnder ~~significant~~the ~~portion~~direction of ~~our~~the ~~product~~United ~~sales~~States ~~are~~Department ~~used~~of inAgriculture ~~medical procedures~~(“USDA”), ~~are~~the ~~covered~~U.S. bygovernment ~~patient~~has ~~health~~had ~~insurance. Additionally,~~an aactive ~~notable~~program ~~percentage~~ of ~~medical~~surveillance ~~procedures utilizing~~and ~~our~~import ~~products~~controls ~~may~~since bethe ~~considered~~late ~~elective~~1980s bydesigned to prevent the ~~patient~~ introduction of Bovine Spongiform Encephalopathy (“BSE”) into U.S. cattle. The ~~current~~USDA ~~global~~program ~~economic~~includes ~~downturn~~certain ~~may~~feed ~~have~~restrictions ~~a meaningful~~which ~~impact~~began onin ~~availability~~1997. The World Health Organization continues to orevaluate ~~affordability~~the levels of ~~health insurance,~~BSE orinfectivity ~~may~~of ~~impact~~tissue. This ~~patient~~characterization ~~decisions~~places topericardium ~~have~~(which anprimarily ~~elective medical~~consists ~~procedure~~of ~~performed.~~collagen) ~~This~~as ~~may~~having inlow ~~turn~~infectivity. The ~~also~~European ~~impact~~authorities ~~the financial~~have ~~condition~~specifically ofreviewed our ~~customers.~~biomaterial ~~Accordingly,~~sourcing aand ~~pronounced~~ manufacturing processes and ~~sustained~~have ~~economic~~certified ~~downturn~~our ~~could~~bovine ~~have~~pericardium aproducts. The ~~material,~~European ~~adverse effect~~Medicines onAgency (“EMA”) has approved our ~~business,~~bovine ~~financial~~pericardium ~~condition~~as ~~and~~a ~~results~~base ~~of operations~~material in pharmaceuticals.

13 We obtain our raw bovine pericardium for our biomaterial products from USDA-inspected abattoirs as well as from a USDA approved source in New Zealand. The bovine pericardium is collected under strict conditions; inspectors examine each heart for disease and anomalies prior to harvesting the pericardium. Additional measures are also taken to ensure brain and spinal cord matter does not come into contact with the bovine pericardium. Our bovine-based tissue products are manufactured with sodium hydroxide, a processing technique recommended by international experts to remove or inactivate the prion, the agent believed to cause BSE, should it exist in the tissue. The bovine pericardium used in our products is sourced from animals who are 30 months of age or younger. Sourcing from these younger animals markedly decreases the likelihood of BSE transmission. Notwithstanding these safeguards, if the perception of risk associated with BSE increases, it could have a material adverse effect on our business, financial condition and results of operations.

~~Table~~In 2004, the EU enacted medical device regulations that require product specific evaluation of ~~Contents~~bovine-based products for potential BSE patient health risks. All bovine-based medical products currently sold in the EU are subject to this evaluation. Our bovine-based products have been evaluated and have obtained approval, although our Dura-Guard product has not been approved for sale in France. Currently, none of our bovine-based products are approved for sale in Japan or Taiwan. In August 2006, the government of China began prohibiting the sale of U.S. bovine-based products. We understand that regulatory approvals will not be granted in the present environment within those countries for products derived from bovine pericardium, unless we source bovine pericardium from countries which they consider at no risk for BSE (e.g. New Zealand and Australia). Total international sales of our bovine-based products accounted for 10.7% and 11.3% of our consolidated net sales for the fiscal years ended October 31, 2011 and 2010, respectively, and increased 14% in fiscal 2011. Any prohibition by certain other countries of U.S. bovine pericardium products as a result of concerns related to BSE could have an adverse effect on our ability to maintain or grow international sales of these products.

~~We depend on highly specialized equipment to manufacture our products and loss of or damage to one of our manufacturing facilities could result in reduced revenues and significant losses.~~ 15

We ~~presently~~may ~~have~~face ~~two~~the ~~manufacturing~~risk ~~facilities:~~of ~~our~~product ~~Irvine, California~~liability ~~facility~~claims ~~which manufactures our Ortho & Wound products,~~ and ~~our~~product ~~St.~~recalls ~~Paul,~~that Minnesota facility which manufactures substantially all of our other products. The loss of or damage to either of our manufacturing facilities due to natural disaster, equipment failure or other difficulty could result in ~~significant~~costly delays in production. In the event of such disaster, re-starting manufacturing activity at our other location, or locating third-party manufacturers to manufacture our products in any such event would likely be difficult given the specialized equipment and ~~processes~~time ~~necessary~~consuming tolitigation produce those products. Although we maintain business interruption insurance to mitigate the financial impact on our business, any sustained period of suspended production would likely have a material adverse effect on our business, financial condition and ~~results~~ ofsignificant ~~operations~~liability.

WeThe ~~cannot predict~~medical device industry historically has been litigious, and the ~~outcome~~manufacture and sale of our ~~clinical~~products ~~studies~~entails an inherent risk of product liability claims. In particular, our principal medical devices are designed to be permanently placed in the human body, and production or other errors could result in an unsafe product and injury to the patient. Although we maintain product liability insurance in amounts believed to be adequate, based upon the nature and risks of our business in general and our actual experience to date, there can be no assurance that one or more liability claims will not exceed the coverage limits of such policies or that such insurance will continue to be available on commercially reasonable terms, if at all. Furthermore, we do not have, nor do we expect to obtain insurance covering our costs and losses as the result of any recall of our products due to alleged defects, whether such a recall is instituted by us or required by a regulatory agency. A product liability claim, recall, or other claim with respect to uninsured liabilities or in excess of our insured liabilities could have a material adverse effect on our business, financial condition and results of operations.

InDue ~~fiscal 2011, we expect~~ to ~~perform~~the ~~several~~unpredictability ~~post-clearance marketing clinical studies for certain~~ of ~~our products, which are designed to document~~ the ~~comparative~~health ~~strengths~~care ofindustry, our ~~products~~ ~~versus~~customers ~~competitive~~may ~~products,~~not ~~and~~be ~~also~~able to ~~more~~receive ~~fully understand~~third-party ~~the~~reimbursement ~~role~~for ~~implant techniques and other factors may affect clinical outcomes. We expect these clinical studies will require significant investment and may span several years. We cannot predict~~ the ~~outcome~~medical ofprocedures utilizing our ~~clinical studies, nor what impact, if any, they may have in the marketplace~~products.

Our ~~strategy~~ toproducts ~~acquire~~are ~~complementary~~purchased ~~businesses~~primarily by hospitals and ~~technologies involves~~other ~~risk~~end-users. Hospitals and ~~may~~end-users ~~result~~of inour ~~disruptions~~products tobill ~~our~~various ~~business~~third-party bypayers, ~~among~~ including government health programs, private health insurance plans, managed care organizations and other ~~things~~similar programs, ~~distracting~~for ~~management~~the ~~time~~health care goods and ~~diverting financial~~services ~~resources~~provided to their patients. Third-party payers may deny reimbursement if they determine that a procedure was not in accordance with established third-party payer protocol regarding treatment methods. Our products are covered by procedure costs as a component of the overall medical procedure reimbursement obtained from the third-party payer.

~~One~~Third-party ofpayers ~~our~~are ~~growth~~also ~~strategies~~increasingly ischallenging the ~~acquisition~~prices ofcharged ~~complementary businesses~~for ~~and~~medical ~~technologies.~~products Weand ~~may~~services ~~not~~and, bein ~~able~~some ~~to identify suitable acquisition candidates~~instances, orhave ifput wepressure ~~do,~~on wemedical ~~may~~device ~~not~~suppliers ~~be able~~ to ~~make~~lower ~~such~~their ~~acquisitions~~prices. While onwe ~~commercially~~believe ~~acceptable~~our ~~terms.~~pricing ~~If we~~is ~~make~~appropriate ~~acquisitions,~~for athe ~~significant~~niche ~~amount~~markets ofand ~~management~~technology ~~time and~~of ~~financial~~our ~~resources~~products, ~~may~~we beare ~~required~~unable to ~~evaluate~~predict orwhat ~~complete the~~changes ~~acquisition~~will ~~and~~occur ~~integrate~~in the ~~acquired~~reimbursement ~~business~~methods ~~into~~used ~~our existing~~by ~~operations~~third-party payers. There ~~Even~~can ~~with~~be ~~this~~no ~~investment~~assurance ofthat ~~management time~~medical ~~and~~procedures ~~financial~~in ~~resources,~~which anour ~~acquisition~~products ~~may~~are ~~not~~used ~~produce~~will ~~the desired~~continue ~~revenue,~~to ~~earnings~~be orconsidered ~~business~~cost-effective ~~synergies.~~by ~~Acquisitions involve~~third-party ~~numerous~~payers, ~~other~~that ~~potential~~reimbursement ~~risks~~for ~~including:~~such ~~assumption~~procedures ~~of unanticipated~~will ~~operating~~be ~~problems~~available or, ~~legal~~if ~~liabilities~~available, ~~problems integrating~~will ~~the purchased operations~~continue, ~~technologies~~ or ~~products, diversion~~that ofthird-party ~~management~~payers’s ~~attention~~reimbursement ~~from~~levels ~~our~~will ~~core businesses,~~not ~~adverse~~adversely ~~effects~~affect onour ~~existing~~ability ~~business~~to ~~relationships with~~sell ~~suppliers~~our ~~and~~products ~~customers,~~on ~~inaccurate~~a ~~estimates~~profitable basis. The cost of ~~fair~~health ~~value made~~care inhas ~~the~~risen ~~accounting~~significantly ~~for~~over ~~acquisitions~~the ~~and~~past ~~amortization~~decade, ~~of acquired~~and ~~intangible~~there ~~assets~~have ~~which~~been ~~would~~and ~~reduce~~may ~~future~~continue ~~reported earnings,~~to ~~and~~be ~~potential~~proposals ~~loss~~by oflegislators, ~~customers~~regulators, orand ~~key~~third-party ~~employees~~payers ~~of acquired~~to ~~businesses,~~curb ~~among~~these ~~others~~costs.

WeFailure ~~may not~~by behospitals ~~able~~and other users of our products to ~~hire~~obtain reimbursement from third-party payers for procedures in which our products are used, changes in third-party payers’ policies towards reimbursement for procedures using our products or ~~retain~~legislative ~~key~~action ~~personnel~~could have a material adverse effect on our business, financial condition, and results of operations.

WeOur ~~depend on key management~~business, ~~sales~~financial ~~and technical personnel. Moreover~~condition, ~~because~~results of ~~the~~operations ~~highly~~and ~~technical~~cash ~~nature~~flows ofcould ~~our business,~~be ~~our~~significantly ~~ability to continue our technological developments~~ and toadversely ~~market~~affected ~~and~~by ~~sell~~the ~~our~~recently ~~products~~adopted ~~depends~~legislation inreforming ~~large~~the ~~part~~United onStates ~~our ability~~healthcare tosystem ~~attract~~ and ~~retain~~if ~~qualified~~other ~~technical,~~administration ~~sales~~ and ~~key management~~legislative ~~personnel.~~proposals ~~Competition~~are ~~for~~enacted ~~qualified~~into ~~personnel is intense, and we cannot ensure that we will be able to attract and retain the individuals we need~~law. ~~The loss of key personnel, or our inability to hire or retain qualified personnel, could have a materially adverse effect on our business, financial condition and results of operations.~~

~~Item~~On 1BMarch —30, ~~Unresolved~~2010, ~~Staff~~the ~~Comments~~Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Bill”) was signed into law by President Obama. The Reconciliation Bill amended the Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010. Among other initiatives, these bills impose a 2.3% excise tax on domestic sales of medical devices following December 31, 2012. This enacted excise tax on medical devices could materially and adversely affect our operating results.

~~None~~Other elements in the Reconciliation Bill, such as comparative effectiveness research, an independent payment advisory board and other provisions could meaningfully change the way healthcare is developed and delivered, and may materially impact our business.

~~Item 2 — Properties~~16

WeVarious healthcare reform proposals also have aemerged ~~lease~~at ~~for~~the ~~our~~state ~~corporate~~level. We ~~headquarters~~cannot ~~and~~predict ~~manufacturing facility,~~what ~~totaling~~healthcare 65initiatives,~~000 square~~ ~~feet~~if any, ~~located~~will be implemented at ~~2575 University~~the ~~Ave.~~state Wlevel or the exact effect newly enacted laws or any future legislation or regulation will have on us. However, ~~St.~~an ~~Paul,~~expansion ~~Minnesota~~in government’s role in the U.S. ~~The~~healthcare ~~lease~~industry ~~expires~~may ~~on December 31,~~lower ~~2013~~reimbursements for our products, reduce medical procedure volumes and ~~the~~adversely ~~base~~affect ~~rent~~our isbusiness ~~currently~~and ~~$724~~results of operations,~~000 annually~~ possibly materially.

14 The current global economic downturn could continue to adversely impact our business.

~~Table~~Significant portions of ~~Contents~~our product sales are used in medical procedures are covered by patient health insurance. Additionally, a notable percentage of medical procedures utilizing our products may be considered elective by the patient. The current global economic downturn may have a meaningful impact on availability to or affordability of health insurance, or may impact patient decisions to have an elective medical procedure performed. This may in turn also impact the financial condition of our customers. Accordingly, a pronounced and sustained economic downturn could have a material, adverse effect on our business, financial condition, and results of operations.

We ~~lease~~depend ~~approximately~~on ~~14,830 square~~highly ~~feet~~specialized ~~for~~equipment ~~our Ortho &~~to ~~Wound~~manufacture ~~facility~~our atproducts 4 and 6loss ~~Jenner~~of ~~Drive, Irvine,~~or ~~CA.~~damage ~~The~~to ~~lease~~one ~~expires~~of ~~August 31,~~our ~~2012,~~manufacturing ~~and~~facilities ~~the~~could ~~base rent~~result isin ~~currently~~reduced ~~$232,000~~revenues ~~annually~~and significant losses.

We ~~lease~~presently ~~approximately~~have 3two manufacturing facilities: our Irvine,~~750 square~~ ~~feet~~California ~~for~~facility which manufactures our ~~MCA~~ Ortho & Wound products, and our St. Paul, Minnesota facility atwhich ~~439~~manufactures ~~Industrial~~substantially ~~Lane~~all of our other products, ~~Birmingham~~except for microsurgery which relies on third-party manufacturers. The loss of or damage to either of our manufacturing facilities due to natural disaster, ~~Alabama~~equipment failure or other difficulty could result in significant delays in production. In ~~The~~the ~~lease expires~~event ~~June 30~~of such disaster, ~~2011~~re-starting manufacturing activity at our other location, or locating third-party manufacturers to manufacture our products in any such event would likely be difficult given the specialized equipment and processes necessary to produce those products. Although we maintain business interruption insurance to mitigate the ~~base~~financial ~~rent~~impact ison ~~currently $37~~our business,~~000~~ ~~annually~~any sustained period of suspended production would likely have a material adverse effect on our business, financial condition and results of operations.

We ~~pay~~cannot ~~apportioned~~predict ~~real~~the ~~estate~~outcome ~~taxes~~of ~~and common costs on~~ our ~~St. Paul,~~clinical ~~MN and Irvine, CA leased facilities~~studies.

~~Item~~In 3fiscal —2012, ~~Legal~~we ~~Proceedings~~expect to continue as well as initiate several post-clearance marketing clinical studies for certain of our products, which are designed to document the comparative strengths of our products versus competitive products, and also to more fully understand how implant techniques and other factors may affect clinical outcomes. We expect these clinical studies will require significant investment and may span several years. We cannot predict the outcome of our clinical studies, nor what impact, if any, they may have in the marketplace.

~~From~~Our ~~time~~strategy to ~~time,~~acquire wecomplementary ~~may~~businesses ~~become~~and ~~involved~~technologies ininvolves ~~routine~~risk ~~litigation incidental~~and ~~to our business. Further, product liability claims~~ may beresult ~~asserted~~ in ~~the~~disruptions ~~future relative~~ to ~~events not known to management at the present time. Management believes that~~ our ~~risk~~ ~~management~~business ~~practices~~by, ~~including~~among ~~our~~other ~~insurance coverage~~things, ~~are reasonably~~distracting ~~adequate~~management totime ~~protect~~and ~~against~~diverting ~~potential~~financial ~~material product liability losses~~resources.

~~Item~~One 4of —our ~~[RESERVED]~~growth strategies is the acquisition of complementary businesses and technologies. We may not be able to identify suitable acquisition candidates, or if we do, we may not be able to make such acquisitions on commercially acceptable terms. If we make acquisitions, a significant amount of management time and financial resources may be required to evaluate or complete the acquisition and integrate the acquired business into our existing operations. Even with this investment of management time and financial resources, an acquisition may not produce the desired revenue, earnings or business synergies. Acquisitions involve numerous other potential risks including: assumption of unanticipated operating problems or legal liabilities, problems integrating the purchased operations, technologies or products, diversion of management’s attention from our core businesses, adverse effects on existing business relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets which would reduce future reported earnings, and potential loss of customers or key employees of acquired businesses, among others.

~~Executive Officers~~We ofmay ~~the~~not ~~Registrant~~ be able to hire or retain key personnel.

~~Our~~We ~~executive~~depend ~~officers,~~on ~~their~~key ~~ages~~management, sales and technical personnel. Moreover, because of the ~~offices~~highly ~~they~~technical ~~held and~~nature ~~certain~~of ~~biographical~~our ~~information~~business, asour ofability ~~December 1~~to continue our technological developments and to market and sell our products depends in large part on our ability to attract and retain qualified, ~~2010,~~ ~~are~~technical assales ~~follows:~~ and management personnel.

Name	Age		Title
Richard W. Kramp		65	President and Chief Executive Officer
Michael K. Campbell		59	President of Synovis Micro Companies Alliance, Inc.
Timothy F. Floeder		52	Vice President of Corporate Development
Mary L. Frick		57	Vice President of Regulatory/Clinical/Quality Affairs
Daniel L. Mooradian		52	Vice President of Research and Development
Brett A. Reynolds		42	Chief Financial Officer, Vice President of Finance and Corporate Secretary

~~Richard~~Competition W.for ~~Kramp. Mr. Kramp~~qualified ~~was~~personnel ~~named Chief~~is ~~Executive~~intense, ~~Officer~~and ofwe ~~the~~cannot ~~Company~~ensure ~~effective~~that ~~January~~we ~~2007. Mr. Kramp~~will ~~has~~be ~~served~~able ~~as President of Synovis Life Technologies, Inc. since June 2006. From August 2004~~ to ~~May 2006,~~attract ~~he served as President~~ and ~~Chief~~retain ~~Operating Officer of~~ the ~~Company’s~~ ~~former~~individuals ~~interventional~~we ~~business~~need. ~~Prior~~The toloss ~~joining the Company, Mr. Kramp most recently served as the President and Chief Operating Officer~~ of ~~Medical~~key CVpersonnel, ~~Inc.~~or ~~From 1988~~our inability to ~~2003,~~hire ~~Mr. Kramp~~or ~~served~~retain asqualified ~~President and Chief Operating Officer~~personnel, ~~and~~could ~~then~~have ~~President and Chief Executive Officer, as well as~~ a ~~Board~~materially ~~Member~~adverse ateffect ~~ATS~~on ~~Medical.~~our ~~From~~business, ~~1978~~financial ~~to 1988~~condition, ~~Mr. Kramp held sales~~ and ~~marketing~~results ~~positions at St. Jude Medical, serving as Vice President~~ of ~~Sales and Marketing from 1981 to 1988~~operations.

~~Michael~~ITEM K.1B ~~Campbell. Mr. Campbell~~– ~~has served~~Unresolved asStaff President of Synovis Micro Companies Alliance, Inc. since the acquisition of MCA by the Company in July 2001. Prior to the acquisition he was President and CEO of MCA from July 2000 through July 2001. From June 1999 to May 2000, Mr. Campbell served as Executive Vice President of PrimeSource Surgical, a specialty medical products distributor. From 1979 to June 1999, he was a director and Vice President of Futuretech, Inc., a specialty medical distribution company serving the southeastern United States. Comments

~~Timothy F~~None. Floeder. Mr. Floeder has served as Vice President of Corporate Development of the Company since May 2008. Prior to joining the Company, Mr. Floeder served as Vice President of Business Development for Compex Technologies, Inc. (“Compex”) from 2003 to 2006, and upon the sale of Compex to Encore Medical Corporation, served as interim CEO/managing director of Compex’s U.S. consumer business and Compex’s European subsidiary (Compex S.A.) from 2006 to 2007. In addition, Mr. Floeder served as a non-employee director for HEI, Inc. from 2002 to 2007. From 1996 to 2002, Mr. Floeder served as Managing Director of merger and acquisition services for Miller Johnson Steichen Kinnard, Inc., advising companies in several industries, including the medical device industry.

15 ITEM 2 - Properties

~~Table~~We ofhave ~~Contents~~a lease for our corporate headquarters and manufacturing facility, totaling 65,000 square feet, located at 2575 University Ave. W., St. Paul, Minnesota. The lease expires on December 31, 2013, and the base rent is approximately $724,000 annually.

~~Mary~~We L.lease ~~Frick~~approximately 14,830 ~~M.S.C. Ms. Frick~~square ~~has served~~feet asfor ~~Vice~~our ~~President~~Ortho of& ~~Regulatory/Clinical/Quality~~Wound ~~Affairs of~~facility ~~the~~at ~~Company~~4 ~~since~~and ~~November~~6 ~~2000.~~Jenner ~~She~~Drive, ~~had previously served in several positions within the Company~~Irvine, ~~including Director of Regulatory/Clinical/Quality Affairs since November 1998 and as Group Manager of Regulatory/Clinical/Quality Affairs from June to November of 1998~~CA. ~~From~~The ~~1984~~lease toexpires ~~June~~August ~~1998~~31, ~~Ms. Frick held a series of management positions in Research~~2012, ~~Operations~~ and ~~Regulatory/Clinical~~ ~~Affairs~~the atbase ~~INCSTAR~~rent ~~Corporation,~~is aapproximately ~~diagnostic medical~~$200,000 ~~device manufacturer~~annually.

~~Daniel~~We ~~L. Mooradian, Ph.D. Dr. Mooradian~~lease ~~has served~~approximately as6,000 ~~Vice~~square ~~President~~feet offor ~~Research~~our ~~and~~MCA ~~Development~~facility ~~since December 2008. From May 2006 to November 2008, Dr. Mooradian held various positions~~ at ~~Boston~~439 ~~Scientific, including~~Industrial ~~Director of Preclinical Sciences and Director of the Research and Technology Center. From January 2005 to April 2006~~Lane, ~~Dr. Mooradian~~ ~~served as Vice President of Research and Development for QuestStar Medical~~Birmingham, ~~Inc~~Alabama. The ~~From~~lease ~~January~~expires ~~2001~~February ~~to December 2004~~28, ~~Dr. Mooradian held various positions at Synovis Life Technologies~~2014, ~~Inc., including Director of Research~~ and ~~Development~~the ~~and~~base ~~Principal~~rent ~~Scientist.~~is ~~From~~approximately ~~September 1987 to December 2000~~$55,000 Drannually. ~~Mooradian held various positions at the University of Minnesota.~~

~~Brett~~We A.pay ~~Reynolds. Mr. Reynolds~~apportioned ~~has served~~real asestate ~~Chief~~taxes ~~Financial Officer, Vice President of Finance~~ and ~~Corporate~~ ~~Secretary~~common ~~since~~costs ~~April~~on ~~2005.~~our ~~Prior to April 2005, Mr~~St. ~~Reynolds~~ ~~served as Director of Finance from September 2003. From October 2001 to September 2003~~Paul, ~~Mr. Reynolds served~~MN inand ~~several financial positions at Chiquita Processed Foods~~Irvine, ~~LLC,~~CA aleased ~~division of Chiquita Brands International, ultimately serving as Corporate Controller~~facilities. ~~From 1991 to 2001, Mr. Reynolds held a series of audit, accounting and consulting positions with Deloitte and Touche LLP.~~

16 ITEM 3 - Legal Proceedings

~~Table~~From oftime ~~Contents~~to time, we may become involved in routine litigation incidental to our business. Further, product liability claims may be asserted in the future relative to events not known to management at the present time. Management believes that our risk management practices, including our insurance coverage, are reasonably adequate to protect against potential material product liability losses.

~~PART II~~ Beginning December 14, 2011, two putative shareholder class action complaints challenging the proposed Merger were filed in Ramsey County District Court, Second Judicial District, State of Minnesota, against Baxter, Merger Sub, Synovis and individual members of our board of directors. The complaints generally allege, among other things, that the members of our board of directors breached their fiduciary duties owed to the shareholders of Synovis by entering into the Merger Agreement, approving the proposed Merger, failing to take steps to maximize the value of Synovis to its shareholders, making materially inadequate disclosures regarding the proposed merger, and that Synovis, Baxter and Merger Sub aided and abetted such breaches of fiduciary duties. In addition, the complaints allege that the transaction improperly favors Baxter and that certain provisions of the Merger Agreement unduly restrict Synovis’ ability to receive a topping bid or negotiate with rival bidders. The complaints seek, among other things, declaratory and injunctive relief concerning the alleged fiduciary breaches, injunctive relief prohibiting the defendants from consummating the Merger and other forms of equitable relief.

~~Item~~We 5believe —that ~~Market~~the ~~for~~claims ~~Registrant’s~~asserted ~~Common~~against ~~Equity~~us ~~and~~in ~~Related~~these ~~Stockholder~~proceedings ~~Matters~~are without merit; however, there can be no assurance as to the outcome or timing of the resolution of these proceedings. We therefore are unable to estimate the amount or potential range of any loss that may arise out of these proceedings. The possible resolutions could include a delay or prohibition of consummation of the Merger, a determination and ~~Issuer~~judgment ~~Purchases~~against us or a settlement that requires a substantial payment by us that could have a material adverse effect on our financial condition, results of ~~Equity~~operations ~~Securities~~and cash flows.

~~Price Range~~ ITEM 4 – [Removed and Reserved]

Our common stock is currently traded on the Nasdaq Global Market under the symbol “SYNO.” The following table sets forth, for each of the fiscal periods indicated, the range of high and low closing sale prices per share as reported by the Nasdaq Global Market. 18

	2010				2009
Fiscal Quarter Ended:	High		Low		High		Low
January 31	$	13.30	$	11.54	$	18.74	$	11.62
April 30		15.78		12.47		18.10		11.60
July 31		16.28		13.61		21.45		12.90
October 31		16.26		13.80		16.05		12.06

PART II

~~Dividends~~ ITEM 5 - Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

WePrice have not declared or paid any cash dividends on our common stock since inception, and our Board of Directors presently intends to retain all earnings for use in the business for the foreseeable future. Range

~~Shareholders~~ Our common stock is currently traded on the NASDAQ Global Market under the symbol “SYNO.” The following table sets forth, for each of the fiscal periods indicated, the range of high and low closing sale prices per share as reported by the NASDAQ Global Market.

As of November 30, 2010, there were approximately 5,500 beneficial owners and 900 registered shareholders of our common stock.

	2011				2010
Fiscal Quarter Ended:	High		Low		High		Low
January 31	$	16.98	$	14.99	$	13.30	$	11.54
April 30		21.19		15.31		15.78		12.47
July 31		20.59		16.46		16.28		13.61
October 31		19.20		13.33		16.26		13.80

~~Sales of Unregistered Securities~~ Dividends

~~None~~We have not declared or paid any cash dividends on our common stock since inception, and our Board of Directors presently intends to retain all earnings for use in the business for the foreseeable future.

~~Purchases of Equity Securities~~ Shareholders

OnAs ~~September 29, 2009, we announced that our Board~~ of ~~Directors~~ ~~had~~December ~~authorized~~1, ~~the repurchase of up to 500~~2011,~~000 shares~~ ofthere ~~its~~were ~~common~~approximately ~~stock. On March 4~~5,700 ~~2010, the~~beneficial ~~Board~~owners ofand ~~Directors~~532 ~~increased~~registered ~~the~~shareholders ~~number~~ of ~~shares we are authorized to repurchase by an incremental 1,000,000 shares of~~ our common stock~~, for a total of 1,500,000 shares to be repurchased~~. The share repurchases are to be funded using our existing cash balances and may occur either in the open market or through private transactions from time to time, in accordance with SEC regulations. The timing and extent to which we may buy back shares depends upon market conditions and other corporate considerations. The repurchase plan does not have an expiration date.

~~From~~Sales ~~inception~~ of ~~the~~Unregistered program on September 29, 2009 through October 31, 2010, we used $7,994,000 to repurchase 606,240 shares at an average price of $13.19 per share. The following table presents the total number of shares repurchased from August 1, 2010 through October 31, 2010, the average price paid per share and the number of shares that were purchased and the maximum number of shares that may yet be purchased at October 31, 2010, pursuant to our stock repurchase program: Securities

					Total Number		Maximum Number
					of Shares Purchased		of Shares That May
	Total Number				as Part of Publicly		Yet Be Purchased
	of Shares		Average Price		Announced Plan or		Under the Plan
Period	Purchased		Paid per Share		Program		or Program
August 1, 2010 — August 31, 2010		—		—		—		1,066,219
September 1, 2010 — September 30, 2010		99,559		14.61		99,559		966,660
October 1, 2010 — October 31, 2010		72,900		15.02		172,459		893,760
Total		172,459	$	14.78

None.

17 Purchases of Equity Securities

~~Table~~On September 29, 2009, we announced that our Board of ~~Contents~~Directors had authorized the repurchase of up to 500,000 shares of our common stock. On March 4, 2010, the Board of Directors increased the number of shares we are authorized to repurchase by an incremental 1,000,000 shares of our common stock, for a total of 1,500,000 shares to be repurchased. The share repurchases are to be funded using our existing cash balances and may occur either in the open market or through private transactions from time to time, in accordance with SEC regulations. The timing and extent to which we may buy back shares depends upon market conditions and other corporate considerations. The repurchase plan does not have an expiration date.

~~Performance Graph~~ From inception of the program on September 29, 2009 through October 31, 2011, we used approximately $15,574,000 to repurchase 1,056,362 shares at an average price of $14.74 per share. The following table presents the total number of shares repurchased during each of the months of the fourth quarter fiscal 2011, the average price paid per share, the number of shares that were purchased, and the maximum number of shares that may yet be purchased at October 31, 2011, pursuant to our stock repurchase program. All shares repurchased by the Company were purchased under a Securities and Exchange Commission Rule 10b5-1 plan. See note 10 to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” of this Form 10-K for further detail on repurchases of equity securities.

In accordance with the rules of the SEC, the following performance graph compares the performance of our common stock on the Nasdaq Global Market to the Nasdaq Global Market and to Nasdaq’s “Surgical and Medical Instruments and Supplies” Index. The following performance graph compares the cumulative total shareholder return as of the end of each of our last five fiscal years on $100 invested at the beginning of the period and assumes reinvestment of all dividends. 19

		Date
Period	Total Number of Shares Purchased			Average Price Paid per Share				Total number of Shares Purchased as Part of Publicly Announced Plan or Program			Maximum Number of Shares that May Yet be Purchased Under the Plan or Program
		10/31/05				10/31/06				10/31/07			10/31/08		10/31/09		10/31/10
August 1, 2011 – August 31, 2011		62,100		$	16.98				62,100			823,239
Company Index			100.0				81.9				265.0			194.1		133.9		166.5
September 1, 2011 – September 30, 2011		307,636			16.81				307,636			515,603
Nasdaq Market Index			100.0				112.1				133.3			82.5		77.3		95.7
October 1, 2011 – October 31, 2011		71,965			17.05				71,965			443,638
Nasdaq Surgical and Medical Instruments and Supplies Index			100.0				109.7				151.8			87.4		95.7		107.4
Total		441,701		$	16.87				441,701			443,638

18 Performance Graph

~~Table~~In accordance with the rules of ~~Contents~~the SEC, the following performance graph compares the performance of our common stock on the NASDAQ Global Market to the NASDAQ Global Market and to NASDAQ’s “Surgical and Medical Instruments and Supplies” Index. The following performance graph compares the cumulative total shareholder return as of the end of each of our last five fiscal years on $100 invested at the beginning of the period and assumes reinvestment of all dividends.

Item 6 — Selected Financial Data

Date	Company Index	NASDAQ Market Index	NASDAQ Surgical and Medical Instruments and Supplies Index
10/31/06	100.0	100.0	100.0
10/31/07	323.6	118.9	115.5
10/31/08	237.0	73.7	89.9
10/31/09	163.4	69.0	91.5
10/31/10	203.3	85.5	97.6
10/31/11	243.4	93.6	101.8

~~Summary Statement of Operations Data~~ 20

	For the Year Ended October 31,
	2010		2009		2008			2007		2006
	(In thousands except per share data)
Net revenue	$	68,565	$	58,211	$	49,800		$	37,691	$	27,743
Gross margin		49,540		41,767		34,144			24,370		16,435
Operating income (loss)		7,335		4,002		7,194			2,468		(3,226	)
Net income (loss) from continuing operations		4,876		2,706		6,165			3,292		(862	)
Gain on sale of discontinued operations		—		—		5,340			—		—
Income (loss) from discontinued operations		—		—		(20	)		518		(619	)
Net income (loss)	$	4,876	$	2,706	$	11,485		$	3,810	$	(1,481	)
Basic earnings (loss) per share
Continuing operations	$	0.43	$	0.23	$	0.50		$	0.27	$	(0.07	)
Discontinued operations		0.00		0.00		0.43			0.04		(0.05	)
Net income (loss)	$	0.43	$	0.23	$	0.93		$	0.31	$	(0.12	)
Diluted earnings (loss) per share
Continuing operations	$	0.43	$	0.23	$	0.48		$	0.26	$	(0.07	)
Discontinued operations		0.00		0.00		0.42			0.04		(0.05	)
Net income (loss)	$	0.43	$	0.23	$	0.90		$	0.30	$	(0.12	)
Weighted average shares outstanding
Basic		11,262		11,588		12,395			12,225		12,004
Diluted		11,441		11,827		12,721			12,528		12,004

ITEM 6 - Selected Financial Data

~~Summary Balance~~SUMMARY ~~Sheet~~STATEMENT ~~Data~~ OF OPERATIONS DATA (in thousands except per share data)

	At October 31,
For the year ended October 31,	2011		2010		2009		2008			2007
	2010		2009		2008		2007			2006
Net revenue	$	82,363	$	68,565	$	58,211	$	49,800		$	37,691
	(In thousands)
Gross margin		60,020		49,540		41,767		34,144			24,370
Working capital	$	66,271	$	63,885	$	62,097	$	66,616		$	50,253
Operating income		12,362		7,335		4,002		7,194			2,468
Total assets		97,482		93,720		97,401		94,677			80,540
Net income from continuing operations		8,461		4,876		2,706		6,165			3,292
Shareholders’ equity		89,467		86,011		89,861		86,953			77,049
Gain on sale of discontinued operations		-		-		-		5,340			-
Income (loss) from discontinued operations		-		-		-		(20	)		518
Net income	$	8,461	$	4,876	$	2,706	$	11,485		$	3,810
Basic earnings per share
Continuing operations	$	0.74	$	0.43	$	0.23	$	0.50		$	0.27
Discontinued operations		0.00		0.00		0.00		0.43			0.04
Net income	$	0.74	$	0.43	$	0.23	$	0.93		$	0.31
Diluted earnings per share
Continuing operations	$	0.73	$	0.43	$	0.23	$	0.48		$	0.26
Discontinued operations		0.00		0.00		0.00		0.42			0.04
Net income	$	0.73	$	0.43	$	0.23	$	0.90		$	0.30
Weighted average shares outstanding
Basic		11,381		11,262		11,588		12,395			12,225
Diluted		11,571		11,441		11,827		12,721			12,528

~~Item~~SUMMARY 7BALANCE —SHEET ~~Management’s~~DATA ~~Discussion~~(in ~~and Analysis of Financial Condition and Results of Operations~~thousands)

The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth in Part 1, Items 1A, “Risk Factors,” of this report.

At October 31,	2011		2010		2009		2008		2007

Working capital	$	72,881	$	66,271	$	63,885	$	62,097	$	66,616
Total assets		105,935		97,482		93,720		97,401		94,677
Shareholders’ equity		95,920		89,467		86,011		89,861		86,953

~~Overview~~ ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Synovis~~The ~~Life~~following ~~Technologies,~~discussion ~~Inc.,~~and aanalysis ~~diversified~~of ~~medical~~our ~~device company,~~financial ~~develops,~~condition ~~manufactures~~and results of operations should be read together with the selected consolidated financial data and ~~markets~~our ~~biological~~financial statements and ~~mechanical~~ ~~products~~the ~~used~~related bynotes ~~several~~appearing ~~surgical~~elsewhere ~~specialties~~in ~~to facilitate~~this ~~the~~report. This ~~repair~~discussion and ~~reconstruction~~analysis ofcontains ~~soft~~forward-looking ~~tissue~~statements ~~damaged or~~that ~~destroyed~~involve byrisks, ~~disease~~uncertainties, orand ~~injury~~assumptions. Our ~~products~~actual ~~include implantable~~results ~~biomaterials~~may ~~for~~differ ~~soft~~materially ~~tissue~~from ~~repair,~~those ~~devices~~anticipated ~~for microsurgery~~in ~~and~~these ~~surgical~~forward-looking ~~tools —~~statements ~~all~~as ~~designed~~a result of many factors, including but not limited to ~~reduce~~ ~~risks and/or facilitate~~those ~~critical~~set ~~surgeries~~forth in Part 1, ~~improve~~Items ~~patient~~1A, ~~outcomes~~“Risk ~~and reduce~~Factors,” ~~healthcare~~of ~~costs~~this report.

19 OVERVIEW

~~Table~~Synovis Life Technologies, Inc., a diversified medical device company, develops, manufactures and markets biological and mechanical products used by several surgical specialties to facilitate the repair and reconstruction of ~~Contents~~soft tissue damaged or destroyed by disease or injury. Our products include implantable biomaterials for soft tissue repair, devices for microsurgery, and surgical tools – all designed to reduce risks and/or facilitate critical surgeries, improve patient outcomes and reduce healthcare costs.

~~Operating Results —~~SIGNIFICANT ~~Fiscal~~RECENT ~~2010 ($ in thousands except per share data)~~ DEVELOPMENT

~~Net~~On ~~revenue~~December ~~increased~~12, ~~18%~~2011, ~~during~~Synovis, ~~fiscal~~Baxter ~~2010~~International ~~to $68~~Inc.,~~565~~ ~~from $58~~a Delaware corporation (“Baxter”),~~211~~ inand ~~fiscal~~Twins ~~2009~~Merger Sub, Inc., ~~Our~~a ~~operating~~Minnesota ~~income~~corporation ~~was~~and $7wholly owned subsidiary of Baxter (“Merger Sub”),~~335~~ ~~in fiscal~~entered ~~2010~~into an Agreement and Plan of Merger (the “Merger Agreement”), ~~compared~~pursuant to ~~$4,002~~which inBaxter will acquire all of the ~~prior~~outstanding ~~year.~~shares ~~Net~~of ~~income~~ Synovis for ~~fiscal~~$28.00 ~~2010~~per ~~was~~share $4in cash,~~876~~ without interest, orand 43pursuant ~~cents~~to ~~per~~which ~~diluted~~Merger ~~share, compared~~Sub will be merged with and into the Company with the Company continuing as the surviving corporation and a wholly owned subsidiary of Baxter (the “Merger”). The Merger is expected to $2be completed in the first calendar quarter of 2012,~~706,~~ subject to the affirmative vote of the holders of the majority of shares of Synovis Common Stock as well as satisfaction or 23waiver ~~cents~~of ~~per~~all ~~diluted~~other ~~share~~conditions ~~during~~to ~~fiscal 2009~~closing specified in the Merger Agreement.

In July 2009, we acquired substantially all of the assets of Pegasus Biologics, Inc., a company located in Irvine, California focused on developing advanced biological solutions for soft tissue repair, primarily within the orthopedic and woundcare markets. See Note 2 to the consolidated financial statements included in this report on Form 10-K for additional information. 21

~~The~~OPERATING ~~following~~RESULTS ~~table~~– ~~summarizes~~FISCAL ~~our~~2011 ~~net~~($ ~~revenue~~in bythousands ~~product~~except ~~group and~~per ~~geography~~share ~~for fiscal 2010 and fiscal 2009:~~ data)

	2010				2009
Veritas	$	14,368	21	%	$	8,757	15	%
Peri-Strips		19,414	28	%		19,384	33	%
Tissue-Guard		16,550	24	%		15,806	27	%
Microsurgery		11,020	16	%		8,668	15	%
Surgical Tools and other		5,335	8	%		5,531	10	%
Orthopedic and Wound		1,878	3	%		65	0	%
Total Net Revenue	$	68,565	100	%	$	58,211	100	%
Domestic	$	57,700	84	%	$	49,290	85	%
International		10,865	16	%		8,921	15	%
Worldwide	$	68,565	100	%	$	58,211	100	%

Net revenue increased 20% during fiscal 2011 to $82,363 from $68,565 in fiscal 2010. Our operating income was $12,362 in fiscal 2011, compared to $7,335 in the prior year. Net income for fiscal 2011 was $8,461, or 73 cents per diluted share, compared to $4,876, or 43 cents per diluted share during fiscal 2010.

The ~~increase~~following intable summarizes our net revenue inby ~~fiscal~~product ~~2010~~group ~~compared~~and togeography ~~the prior-year~~for ~~was~~fiscal ~~primarily~~2011 ~~due~~and tofiscal ~~the following~~2010:

• Incremental worldwide units sold increased revenue approximately $6,291; • Ortho & Wound products increased revenue $1,813; and • Higher average net selling prices primarily due to various worldwide hospital list price increases for certain of our products increased revenue by approximately $2,250.

Net Revenue:	2011				2010
($ in thousands)
	$		%		$		%
Peri-Strips	$	23,675	29	%	$	19,414	28	%
Tissue-Guard		18,407	22	%		16,550	24	%
Veritas		15,829	19	%		14,368	21	%
Microsurgery		15,190	19	%		11,020	16	%
Surgical Tools and other		5,748	7	%		5,335	8	%
Orthopedic and Wound		3,514	4	%		1,878	3	%
Total Net Revenue	$	82,363	100	%	$	68,565	100	%

Domestic	$	70,130	85	%	$	57,700	84	%
International		12,233	15	%		10,865	16	%
Worldwide	$	82,363	100	%	$	68,565	100	%

The increase in ~~worldwide~~net ~~units~~revenue ~~sold~~in ~~was~~fiscal ~~primarily~~2011 ~~attributable~~ compared to ~~the~~that ~~expansion~~ of ~~our direct sales force in the second half of~~ fiscal ~~2009,~~2010 ~~increased~~was ~~market~~primarily ~~acceptance~~due ofto ~~Veritas into~~ the ~~worldwide~~ ~~hernia and general surgery markets and increased market penetration of our microsurgery products.~~ following:

We● ~~believe~~Incremental ~~the~~worldwide ~~expansion~~units ~~of our domestic direct sales force is a key element of our long-term strategy to increase revenues. In fiscal 2009~~sold, weinclusive ~~expanded our direct sales force by 22 sales representatives for a total~~ of 65new ~~sales~~product ~~representatives at the end of fiscal 2009. In the first quarter of fiscal 2010~~introductions, ~~we added~~increased ~~eight~~revenue ~~direct~~approximately ~~sales representatives for our Ortho & Wound products. As of October 31~~$8,500; ~~2010, we have a total of 73 direct sales representatives in the U.S: 56 direct sales representatives sell our Veritas, Peri-Strips, Tissue-Guard~~ and ~~Surgical tools and other products, nine direct sales representatives sell our Microsurgery products and eight direct sales representatives sell our Ortho & Wound products.~~

In● ~~addition,~~Higher ~~for~~average ~~our~~net ~~Ortho &~~selling ~~Wound~~prices ~~products,~~primarily wedue ~~have contracted~~to ~~with~~various 16worldwide ~~independent~~hospital ~~representative~~list ~~groups~~price ~~(each~~increases ~~with multiple sales representatives) as of October 31, 2010. This hybrid sales model of direct and independent sales representatives presently provides sales coverage~~ for ~~approximately~~ ~~three-fourths~~certain of ~~the U.S. population. We expect to appoint additional independent distributors in the future to complete~~ our ~~coverage~~products inincreased ~~the U.S. Internationally,~~revenue weby ~~have~~approximately ~~three independent distributors serving Italy~~$5, ~~Spain and Germany, and are presently seeking to expand our European coverage through the appointment of additional independent distributors~~300.

WeIn ~~cannot~~the ~~fully~~United ~~assess~~States, ~~the~~each ~~impact~~of ~~the~~our ~~current~~business ~~economic~~units ~~downturn may~~has its own distinct sales channel. As of October 31, 2011, we have ~~had~~60 ondirect sales representatives selling our ~~results~~surgical business products, having just completed an expansion of ~~operations~~four ~~during~~territories in the fourth quarter of fiscal ~~2010.~~2011, and we presently expect to add four additional direct sales representatives in fiscal 2012. We ~~believe~~ have 12 direct sales representatives selling our microsurgery products, ~~however~~and presently expect to add several direct sales representatives in fiscal 2012. For our Ortho & Wound products, ~~that~~we ~~the~~have ~~volume~~an independent sales force consisting of ~~certain~~32 ~~surgical~~independent ~~procedures in~~representative ~~which~~ groups (each with multiple sales representatives) as of October 31, 2011 and we intend to appoint additional independent sales groups during fiscal 2012. Internationally, all of our products are sold through independent third-party stocking distributors.

20 The increase in worldwide units sold in fiscal 2011 was primarily attributable to higher Peri-Strips revenue believed to be primarily due to increased procedure volumes of sleeve gastrectomies, increased volumes of Tissue-Guard units sold worldwide, increased market penetration of our microsurgery products and increased Ortho & Wound volumes due primarily to the establishment and development of our independent sales force.

~~Table~~We cannot fully assess the impact economic conditions may have had on our results of ~~Contents~~operations during fiscal 2011. We believe, however, that the volume of certain surgical procedures in which our products are used, particularly those which may be considered elective, has been impacted by economic conditions. In addition, we believe that the financial condition of various hospital customers has been impacted by the economic conditions. These notable items, as well as other factors, may have had an impact on our results of operations.

our products are used, particularly those which may be considered elective, has been impacted by the current economic downturn. In addition, we believe the financial condition of certain of our hospital customers have been negatively impacted by the economic downturn. These notable items, as well as other factors, may have had an impact on our results of operations. 22

~~Revenue~~Worldwide ~~from~~net ~~Veritas~~revenue ~~patch~~from ~~products~~Peri-Strips was $1423,~~368~~675 in fiscal ~~2010~~2011, an increase of $54,~~611~~261 or 6422% ~~from~~as ~~$8,757~~compared into ~~fiscal 2009. Veritas~~ revenue ~~growth~~of $19,414 in fiscal 2010. Increased ~~was~~volume ~~primarily~~of ~~driven~~units ~~by incremental~~sold ~~worldwide~~during ~~sales~~fiscal ~~into~~2011 drove the ~~plastic~~revenue ~~and~~increase, ~~reconstructive and~~which ~~general~~we ~~surgery~~believe ~~markets.~~was ~~Additionally,~~primarily ~~late~~driven inby ~~the~~an ~~fourth quarter~~increased number of ~~fiscal~~sleeve ~~2009~~gastrectomy procedures, wewhich ~~received~~are CEmore ~~Mark~~likely ~~approval~~to ~~for the~~ use of ~~Veritas~~a inbuttress ~~hernia~~compared ~~and~~to ~~breast~~other ~~reconstruction~~bariatric surgeries and ~~commenced selling~~typically ~~Veritas~~use tomore ~~our~~buttresses ~~European~~per ~~distributors~~procedure. Higher average net selling prices ~~also~~in ~~contributed~~fiscal to2011 ~~the~~as ~~revenue~~compared ~~increase~~to in fiscal 2010. ~~Veritas~~also iscontributed anto ~~extremely~~the ~~strong~~increase. Peri-Strips ~~and~~are ~~conformable biomaterial~~used ~~which~~to ~~acts~~reduce asrisks aand ~~“scaffold”~~improve ~~that~~patient ~~enables rapid~~outcomes ~~repopulation~~in bariatric and ~~revascularization~~thoracic byprocedures ~~the~~using ~~surrounding~~surgical ~~host tissue~~staples.

~~Worldwide~~Revenue ~~net revenue~~ from Peri-Strips ~~was~~used ~~$19,414~~with inEthicon ~~fiscal 2010,~~surgical ~~essentially~~staplers ~~flat~~increased as37% ~~compared to revenue of $19,384~~ in ~~fiscal~~ ~~2009. Increased average net selling prices were offset by slightly lower units sold in~~ fiscal ~~2010~~2011 as compared to fiscal ~~2009.~~ ~~Fiscal~~ 2010, ~~Peri-Strips~~while revenue ~~was~~from ~~also~~Peri-Strips ~~affected~~used bywith ~~the impact~~Covidien ofstaplers ~~increased~~decreased ~~competition within the buttressing market~~5%. Covidien, ~~one of the two primary companies which offer surgical staplers on which our Peri-Strips products are used,~~ launched a competitive buttress product in mid-fiscal 2009 supplied integral with their stapler cartridges., ~~During~~which ~~fiscal~~has ~~2010,~~adversely ~~worldwide~~impacted ~~revenue from~~ Peri-Strips ~~products which are used with Covidien staplers decreased 30% from fiscal 2009~~revenue. In ~~This was offset by~~ fiscal ~~2010 revenue~~2011, ~~for~~approximately ~~Peri-Strips products used with Ethicon staplers increasing 20~~80% ~~from fiscal 2009. We are addressing the Covidien competitive threat by highlighting the clinical history and product performance~~ of ~~Peri-Strips through~~ our ~~expanded~~worldwide ~~direct sales force, seeking to convert additional non-buttressing surgeons and continuing research activities to demonstrate the benefits of~~ Peri-Strips ~~compared~~revenue towas ~~other~~derived ~~buttress~~from ~~products. Peri-Strips~~buttresses ~~are~~ used towith ~~reduce~~Ethicon ~~risks and improve patient outcomes in several procedures~~staplers, ~~with~~as ~~the~~compared ~~predominant~~to ~~procedure being~~73% ~~gastric~~in ~~bypass~~fiscal ~~surgery~~2010.

Revenue from Tissue-Guard patch products was $1618,~~550~~407 in fiscal ~~2010~~ 2011, an increase of $~~744~~1,857 or 511% from $1516,~~806~~550 in fiscal ~~2009~~2010. The fiscal ~~2010~~2011 increase was driven by a 36% increase in units sold worldwide, in addition to ~~slightly~~ higher average selling prices in the current year. Our Tissue-Guard family of products is used to repair and replace damaged tissue in an array of surgical procedures, including cardiac, vascular, thoracic, and neurologic procedures.

Revenue from ~~Microsurgery~~Veritas patch products was $1115,~~020~~829 in fiscal ~~2010~~2011, an increase of $21,~~352~~461 or 2710% from $814,~~668~~368 in fiscal ~~2009~~2010. The ~~revenue~~ ~~growth~~increase ~~was~~in ~~primarily~~Veritas revenue was driven by ~~the~~higher ~~fiscal~~average ~~2009~~net ~~expansion of~~selling ~~our~~prices ~~sales force, increased market acceptance of the Coupler, as well as the domestic market launch of the Flow Coupler®~~ in ~~the third quarter of~~ fiscal ~~2010,~~2011 ~~resulting~~as incompared ato ~~24% increase in Coupler unit sales in~~ fiscal 2010. Veritas ~~The Coupler~~ is aan ~~device used to connect~~ extremely ~~small~~strong ~~arteries~~and orconformable ~~veins,~~biomaterial ~~without sutures,~~which ~~quickly,~~acts ~~easily~~as ~~and~~a ~~with~~“scaffold” ~~consistently~~that ~~excellent results.~~enables ~~The~~rapid ~~Flow~~repopulation ~~Coupler~~and ~~enhances~~revascularization ~~our Microsurgery product offerings~~ by ~~combining~~the ~~our~~surrounding ~~existing~~host ~~Coupler with Doppler technology, enabling physicians to verify and monitor blood flow~~tissue.

Revenue from ~~Ortho &~~Microsurgery ~~Wound products~~ was $115,~~878~~190 in fiscal ~~2010~~2011, asan ~~compared~~increase toof $654,170 ~~from~~or ~~July~~38% tofrom ~~October~~$11,020 ~~2009. Since acquiring Ortho & Wound~~ in ~~July~~fiscal ~~2009,~~2010. The revenue ~~from~~growth ~~our Ortho & Wound products has grown~~ in ~~each~~fiscal ~~successive quarter,~~2011 was primarily ~~due~~driven toby increased ~~sales coverage in the U.S.~~ market. ~~Our~~acceptance ~~U.S. coverage~~of ~~has increased from approximately 10% at~~ the ~~beginning~~Coupler ofand ~~fiscal 2010 to approximately 75% at~~ the ~~end~~Flow ~~of fiscal 2010~~Coupler, and ~~our Ortho &~~higher ~~Wound~~average ~~hybrid~~net ~~sales~~selling ~~force~~prices ~~continue~~for toour ~~develop their~~Coupler ~~sales~~products, ~~territories~~which ~~and~~cumulatively ~~customer~~resulted ~~base~~in bya ~~establishing relationships~~44% ~~with~~growth ~~pre-acquisition~~in ~~customers~~Coupler ~~as well as prospecting for new customers. Our Ortho & Wound~~ products ~~include~~during ~~the~~fiscal ~~OrthADAPT Bioimplact and the Unite Biomatrix~~2011. The ~~OrthADAPT~~Coupler ~~Bioimplant~~ is ~~used~~a indevice ~~numerous orthopedic~~used ~~applications,~~to ~~including~~connect ~~rotator~~extremely ~~cuff~~small ~~and~~arteries ~~Achilles tendon~~or ~~repair~~veins, ~~where~~without ~~there~~sutures, isquickly, aeasily ~~clinical~~and ~~need~~with toconsistently ~~reinforce~~excellent ~~the repair~~results. The ~~Unite~~Flow ~~Biomatrix~~Coupler ~~provides~~enhances aour ~~durable,~~Microsurgery ~~collagen~~product ~~structure that~~offerings ~~need~~by becombining ~~applied~~our ~~only~~existing ~~once~~Coupler towith aDoppler ~~wound~~technology, ~~and~~enabling ~~maintains~~physicians ~~its integrity~~to ~~while~~verify ~~promoting~~and ~~wound~~monitor ~~healing~~blood flow.

~~Our~~Revenue ~~gross~~from ~~margin~~Ortho ~~increased~~& byWound ~~one-half~~products was $3,514 in fiscal 2011, an increase of a$1,636 ~~percentage~~or ~~point~~87% as compared to ~~72.3%~~ $1,878 in fiscal 2010 ~~from 71~~.8% During ~~during~~ fiscal ~~2009~~2011, ~~due primarily~~we transitioned from a hybrid sales force to ~~increased~~a fully independent sales ~~from~~force. As ~~Veritas~~they ~~and~~have ~~higher~~gained ~~average list~~experience ~~selling~~with ~~prices~~our ~~for~~Ortho ~~certain~~& Wound products, our independent representatives have become increasingly effective at communicating the clinical benefits of our products to physicians. The OrthADAPT Bioimplant is used in ~~fiscal~~numerous ~~2010~~orthopedic applications, ~~partially~~ ~~offset~~including ~~increased~~rotator ~~revenue~~cuff ~~from~~and ~~our~~Achilles ~~Ortho & Wound~~tendon ~~products~~repair, ~~which~~where ~~have~~there is a ~~lower~~clinical ~~gross~~need ~~margin~~to ~~than~~reinforce ~~our~~the ~~other products~~repair. Unite asBiomatrix ~~well~~provides asa ~~lower~~durable, ~~manufacturing~~collagen ~~utilization~~structure inthat ~~the current~~need ~~year~~be applied only once to a wound and maintains its integrity while promoting wound healing.

21 Our gross margin increased by six-tenths of a percentage point to 72.9% in fiscal 2011 from 72.3% during fiscal 2010. On a consolidated basis, higher average net selling prices in fiscal 2011 positively impacted gross margin partially offset by product mix. Our Ortho & Wound gross margin increased 13 percentage points to 54% in fiscal 2011 primarily due to a higher percentage of sales in the current year representing lower cost manufactured inventory as compared to higher cost acquired units in the prior year. Our surgical business gross margin increased one percentage point to 77% in fiscal 2011, primarily due to higher average net selling prices for our products. Our microsurgical business gross margin increased one percentage point to 60% in fiscal 2011 due to higher average net selling prices for certain of our products.

~~Table~~Factors which may affect the gross margin include product and geographic mix of ~~Contents~~products sold, volume, product acquisitions and disposals, and other production activities. Accordingly, our gross margin may fluctuate from period to period based on variations in these factors.

~~Factors~~Selling, ~~which~~general, ~~may~~and ~~affect~~administrative ~~the~~(“SG&A”) ~~gross~~expense ~~margin~~during ~~include~~fiscal ~~product~~2011 ~~and geographic~~was ~~mix~~$42,949, ofan ~~products~~increase ~~sold~~of $5,137 ~~volume~~or 14% from SG&A expense of $37,812 ~~product~~in ~~acquisitions and~~fiscal ~~disposals~~2010. As a percentage of net revenue, ~~and~~SG&A ~~other~~expense ~~production~~was ~~activities~~52% in fiscal 2011 as compared to 55% in the prior year. The ~~Accordingly~~fiscal 2011 SG&A increase was primarily due to approximately $4,072 in higher sales and marketing costs across each of our ~~gross~~ ~~margin~~businesses ~~may~~driven ~~fluctuate~~by ~~from~~increased ~~period~~personnel, increased compensation associated with higher revenue levels, and increased marketing activities to ~~period~~drive ~~based~~current ~~on variations~~and inlong-term ~~these~~revenue ~~factors~~growth.

Selling, general and administrative (“SG&A”) expense during fiscal 2010 was $37,812, an increase of $7,945 or 27% from SG&A expense of $29,867 in fiscal 2009. As a percentage of net revenue, SG&A expense was 55% in fiscal 2010 as compared to 51% in the prior year. The SG&A expense increase was due to $3,766 of incremental costs related to our Ortho & Wound business, which was acquired in July 2009, as well as approximately $3,500 of incremental expense related to the expansion of our direct sales force in the second half of fiscal 2009. Additionally, stock-based compensation expense was $1,455 (9 cents per diluted share) in fiscal 2010, up from $937 (7 cents per diluted share) in fiscal 2009. 23

In fiscal ~~2011~~2012, we expect to incur higher SG&A expense as compared to fiscal ~~2010~~2011 due to incremental investments we believe are necessary to drive near and long-term revenue growth. Such investments include increased sales ~~and~~staff ~~marketing costs,~~at ~~higher~~both ~~clinical~~our ~~study~~surgical ~~activities~~ and microsurgical businesses, increased ~~investment in~~sales ~~support~~and ofmarketing costs to promote our ~~Ortho~~products &and ~~Wound~~increased ~~business~~clinical study activities.

Research and development (“R&D”) expense totaled $4,~~393~~709 during fiscal ~~2010~~2011, an increase of $~~595~~316 or 167% from $34,~~798~~393 in fiscal ~~2009.~~2010, driven by increased project activity and related increased personnel costs in support of higher project activities near and long-term. Fiscal ~~2010~~2011 R&D activity focused on several activities, including research to ~~potentially~~ expand the size offerings and indications for use of our Veritas product into new and existing markets, providing research and clinical data to support the use of Veritas in various surgical procedures, exploring additional process improvements and product enhancements for our proprietary ~~tissue~~biomaterial products, ~~comparative~~ ~~studies~~advancing ~~involving~~the ~~Peri-Strips~~size offerings and ~~its competition, advancing the~~ technology of the Flow Coupler and ~~further~~providing ~~development~~ research and clinical data to support the launch of anthe ~~orthopedic~~ProCuff product, ~~and~~an ~~related~~arthroscopically ~~instrumentation~~delivered augmentation device for tendon repair, including rotator cuff repair.

In fiscal ~~2011~~2012, we expect R&D expense to increase compared to fiscal ~~2010~~2011 due to several activities, including research to expand the size offerings and indications for use of our Veritas product into new and existing markets, providing research and clinical data to support the use of Veritas in various surgical procedures, exploring additional process improvements and product enhancements for our proprietary biomaterial products, advancing the size offerings and technology of the Flow Coupler and providing research and clinical data to support the launch of the ProCuff product, an arthroscopically delivered augmentation device for tendon repair, including rotator cuff repair.

InWe ~~fiscal 2009, we~~ recorded ~~other~~ operating ~~expenses~~income of $412,~~100. We~~362 ~~expensed~~in ~~acquired~~fiscal ~~in-process~~2011, ~~R&D~~an ~~costs~~increase of $35,~~500~~027 ~~related to~~as ~~our~~compared ~~acquisition~~to ofoperating ~~the~~income ~~assets~~ of ~~Pegasus~~$7,335 asin itfiscal ~~was determined~~2010. ~~the~~The ~~related~~increase ~~projects~~in ~~had~~operating noincome ~~alternative~~in ~~future~~fiscal ~~use. We~~2011 ~~also~~as ~~recorded~~compared anto ~~impairment~~the ~~charge~~prior ofyear ~~$600~~was ~~related~~primarily ~~to identifiable~~due ~~intangible assets related~~ to ~~our~~higher ~~fiscal~~revenue ~~2007 acquisition~~levels ofin the ~~4Closuretm Surgical~~ ~~Fascia~~current ~~Closure System (“4Closure”) following an impairment analysis~~year. Interest ~~This~~income ~~analysis~~ was ~~performed~~$311 ~~as a result of a delay~~ in ~~the~~ fiscal ~~2009~~2011 ~~re-launch~~compared ~~and re-brand of the product, combined~~ with ~~actual~~$284 ~~revenues since acquisition not meeting projected expectations. No other operating expenses were recorded~~ in fiscal 2010.

We recorded ~~operating~~a provision for income oftaxes ~~$7,335,~~in anfiscal ~~increase~~2011 of $34,~~333~~212, ~~as compared~~at toan ~~operating~~effective ~~income~~tax rate of ~~$4,002 in fiscal 2009~~33.2%. This ~~The increase~~was inless ~~operating~~than ~~income~~our in fiscal 2010 aseffective ~~compared~~tax torate ~~the prior~~of ~~year~~36.0%, ~~was~~ primarily ~~driven~~due byto arecording ~~reduction of other operating costs of~~ $~~4,100~~350 ~~(zero~~ of ~~these~~discrete ~~costs~~income ~~incurred~~tax ~~in fiscal~~benefit ~~2010 while $4,100 incurred~~ in fiscal ~~2009). In addition~~2011, ~~the~~ ~~operating loss~~ related to ~~our~~reinstatement ~~Ortho &~~of ~~Wound business~~the ~~was~~Federal ~~approximately~~R&D ~~$4,100~~credit ~~higher~~from in fiscal 2010, ~~compared to~~as ~~fiscal~~well ~~2009~~as ~~given~~from aexercises ~~full~~of ~~year~~employee ofincentive ~~operations~~stock inoptions. In fiscal 2010, ~~with~~ ~~this~~we ~~higher~~recorded ~~operating loss largely offset by higher operating profitability in our other operations. Interest~~ income ~~was~~ ~~$284~~tax inexpense ~~fiscal~~of ~~2010 compared with~~ $~~920 in fiscal 2009~~2, ~~primarily~~743 ~~due~~at toan ~~significantly~~effective ~~lower~~rate ~~investment~~of ~~yields and lower investment balances in the current year~~36.0%. As ~~Additionally~~of inOctober ~~fiscal 2009~~31, 2011, we ~~sold~~recorded ~~our~~$447 ~~auction~~in ~~rate~~net ~~securities~~current ~~(“ARS”), which~~deferred ~~had~~income atax ~~par~~assets ~~value~~and of $92,~~000,~~166 ~~for~~in ~~$7,650,~~net ~~realizing~~long-term adeferred ~~loss~~income ~~on sale~~tax ~~of $1,350~~assets.

WeOPERATING ~~recorded~~RESULTS a– ~~provision~~FISCAL ~~for income taxes in fiscal~~ 2010 of ($~~2,743~~ ~~at an effective tax rate of 36%. We recorded income tax expense of $866~~ in ~~fiscal~~thousands ~~2009~~except atper anshare effective rate of 24.2% of pretax income. Our fiscal 2009 effective tax rate was comprised of a tax rate of 27.3% on operations and interest income and a 35.3% tax benefit on the capital loss of $1,350 incurred upon the sale of our ARS. Our fiscal 2009 effective tax rate on operations and interest income was lower than fiscal 2010 due to lower pretax income in fiscal 2009 as data)

22 Net revenue increased 18% during fiscal 2010 to $68,565 from $58,211 in fiscal 2009. Our operating income was $7,335 in fiscal 2010, compared to $4,002 in the prior fiscal year. Net income from continuing operations for fiscal 2010 was $4,876, or 43 cents per diluted share, compared to $2,706, or 23 cents per diluted share during fiscal 2009.

~~Table~~The offollowing ~~Contents~~table summarizes our net revenue by product group and geography for fiscal 2010 and fiscal 2009:

compared to fiscal 2010, higher permanent differences that reduce taxes, and a lower overall rate for state taxes. As of October 31, 2010, we recorded $367 in net current deferred income tax assets and $2,139 in net long-term deferred income tax assets.

Net Revenue:	2010				2009
($ in thousands)
	$		%		$		%
Peri-Strips	$	19,414	28	%	$	19,384	33	%
Tissue-Guard		16,550	24	%		15,806	27	%
Veritas		14,368	21	%		8,757	15	%
Microsurgery		11,020	16	%		8,668	15	%
Surgical Tools and other		5,335	8	%		5,531	10	%
Orthopedic and Wound		1,878	3	%		65	0	%
Total Net Revenue	$	68,565	100	%	$	58,211	100	%

Domestic	$	57,700	84	%	$	49,290	85	%
International		10,865	16	%		8,921	15	%
Worldwide	$	68,565	100	%	$	58,211	100	%

~~Operating Results — Fiscal 2009 ($ in thousands except per share data)~~ 24

~~Net~~The ~~revenue~~increase ~~increased~~in ~~17%~~net ~~during~~revenue ~~fiscal 2009 to $58,211 from $49,800~~ in fiscal ~~2008.~~2010 ~~Our operating income was $4,002 in fiscal 2009,~~ compared to ~~$7,194 in the prior year. Net income from continuing operations for~~ fiscal 2009 was ~~$2,706,~~primarily ordue ~~23 cents per diluted share, compared~~ to ~~$6,165,~~the ~~or 48 cents per diluted share during fiscal 2008.~~ following:

~~The~~● ~~following~~Incremental ~~table~~worldwide ~~summarizes~~units ~~our~~sold ~~net~~increased revenue byapproximately ~~product group and geography for fiscal 2009 and fiscal 2008:~~ $6,300;

	2009					2008
	$		%			$		%
Veritas	$	8,757		15	%	$	4,468		9	%
Peri-Strips		19,384		33	%		17,653		35	%
Tissue-Guard		15,806		27	%		14,477		29	%
Microsurgery		8,668		15	%		7,749		16	%
Surgical Tools and other		5,531		10	%		5,453		11	%
Orthopedic and Wound		65		0	%		—		0	%
Total Net Revenue	$	58,211		100	%	$	49,800		100	%
Domestic	$	49,290		85	%	$	42,190		85	%
International		8,921		15	%		7,610		15	%
Worldwide	$	58,211		100	%	$	49,800		100	%

●	Ortho & Wound products increased revenue approximately $1,800; and

~~The~~● ~~increase~~Higher inaverage net ~~revenue~~selling inprices ~~fiscal~~primarily ~~2009~~due ~~compared~~ to ~~the~~various ~~prior year~~worldwide ~~was~~hospital ~~primarily~~list ~~due~~price toincreases ~~the~~for ~~following:~~ certain of our products increased revenue by approximately $2,250.

	•	Incremental worldwide units sold (inclusive of new product introductions) and product mix changes increased revenue approximately $6,700; and
	•	Higher average net selling prices primarily due to various worldwide hospital list price increases for certain of our products increased revenues by approximately $1,700.

The increase in worldwide units sold was primarily attributable to the expansion of our direct sales force in the second half of fiscal 2009, increased market acceptance of Veritas into the worldwide hernia and general surgery markets and increased market penetration of our microsurgery products.

~~The~~We ~~increase~~believe inthe ~~worldwide~~expansion ~~units~~of ~~sold~~our ~~was~~domestic ~~primarily~~direct ~~attributable to~~sales force is a key element of our ~~direct~~long-term strategy to increase revenues. In fiscal 2009, we expanded our sales force, by 22 sales representatives for a total of 65 sales representatives at the ~~expansion~~end of ~~our~~fiscal ~~direct~~2009. As ~~sales force~~of ~~and~~October ~~increased~~31, ~~market~~2010, ~~acceptance~~we had a total of ~~Veritas~~73 ~~into~~sales representatives in the ~~domestic~~ ~~hernia~~U.S: 56 sales representatives sell our Veritas, Peri-Strips, Tissue-Guard and ~~general~~Surgical ~~surgery~~tools ~~markets~~and other products, nine sales representatives sell our Microsurgery products and eight sales representatives sell our Ortho & Wound products.

~~Worldwide~~We ~~net~~cannot ~~revenue~~fully ~~from~~assess ~~Peri-Strips~~the ~~was~~impact ~~$19,384~~the ineconomic ~~fiscal 2009,~~downturn anmay ~~increase~~have ofhad ~~10%~~on ~~from~~our ~~$17,653~~results inof operations during fiscal ~~2008~~2010. ~~Peri-Strips~~ We ~~growth~~believe, ~~rate~~however, ~~exceeded~~that the ~~estimated~~volume ~~growth~~ of certain surgical procedures in which ~~the~~our ~~product~~products isare used, ~~which~~particularly wethose ~~believe~~which ~~was attributable~~may tobe ~~product~~considered ~~performance~~elective, ~~our~~has ~~direct~~been ~~sales~~impacted ~~force communicating~~by the ~~benefits~~current ofeconomic ~~Peri-Strips,~~downturn. In ~~and the increased international market penetration of PSD Veritas~~addition, ~~partially offset~~we bybelieve ~~increased~~that ~~competition.~~the ~~Peri-Strips~~financial ~~are~~condition ~~used~~of tovarious ~~reduce risks~~hospital ~~and~~customers ~~improve~~has ~~patient~~been ~~outcomes~~negatively inimpacted ~~several~~by ~~procedures, with~~ the ~~predominant~~economic ~~procedure being gastric bypass surgery~~downturn. These ~~Included in~~notable ~~the Peri-Strips product line was revenue from our two linear products: PSD Veritas~~items, ~~our~~as ~~remodelable~~well ~~buttress,~~as ~~and~~other ~~PSD Apex~~factors, ~~our~~ ~~permanent~~may ~~buttress,~~have ashad ~~well~~an asimpact ~~revenue~~on ~~from~~ our ~~PSD~~results ~~Veritas Circular~~of ~~buttress~~operations.

WeWorldwide ~~believe~~net ~~increased~~revenue ~~market~~from ~~acceptance~~Peri-Strips was $19,414 in fiscal 2010, essentially flat as compared to revenue of $19,384 in fiscal 2009. Increased average net selling prices were offset by slightly lower units sold in fiscal 2010 as compared to fiscal 2009. Fiscal 2010 Peri-Strips ~~has~~revenue ~~been offset~~was also affected by the impact of ~~increasing~~increased competition within the buttressing market. Covidien, one of the two primary companies which offer surgical staplers on which our Peri-Strips products are used, launched a buttress product ~~which~~in ismid-fiscal 2009 supplied integral with their stapler cartridges ~~in mid-fiscal 2009~~. During ~~the second half of~~ fiscal ~~2009~~2010, worldwide revenue from Peri-Strips products which are used with Covidien staplers decreased 2430% from ~~the first half of~~ fiscal 2009. This was ~~partially~~ offset by fiscal 2010 revenue for Peri-Strips products used with ~~another~~Ethicon ~~stapler manufacturer’s~~staplers ~~products~~ increasing 1120% from fiscal 2009.

23 Revenue from Tissue-Guard patch products was $16,550 in fiscal 2010, an increase of $744 or 5% from $15,806 in fiscal 2009. The fiscal 2010 increase was driven by a 3% increase in units sold worldwide, in addition to slightly higher average selling prices in the current year.

~~Table~~Revenue from Veritas patch products was $14,368 in fiscal 2010, an increase of ~~Contents~~$5,611 or 64% from $8,757 in fiscal 2009. Veritas revenue growth in fiscal 2010 was primarily driven by incremental worldwide sales into the plastic and reconstructive and general surgery markets. Additionally, late in the fourth quarter of fiscal 2009, we received CE Mark approval for the use of Veritas in soft tissue repair and commenced selling Veritas to our European distributors. Higher average net selling prices also contributed to the revenue increase in fiscal 2010.

Revenue from ~~Veritas~~Microsurgery ~~patch products~~ was $811,~~757~~020 in fiscal ~~2009~~2010, an increase of $42,~~289~~352 or 9627% from $48,~~468~~668 in fiscal ~~2008~~2009. The ~~Veritas~~ revenue growth ~~in fiscal 2009~~ was primarily driven by ~~incremental~~ ~~sales~~the ~~into~~fiscal ~~the~~2009 ~~domestic~~expansion ~~plastic~~of our sales force, ~~reconstructive~~increased ~~and general~~market ~~surgery~~acceptance ~~markets.~~of ~~Additionally~~the Coupler, ~~late~~as well as the domestic market launch of the Flow Coupler in the ~~fourth~~ third quarter of fiscal ~~2009~~2010, weresulting ~~received~~in CEa ~~Mark~~24% ~~approval~~increase ~~for~~in ~~the~~Coupler ~~use of~~unit ~~Veritas~~sales in ~~hernia~~fiscal ~~and breast reconstruction~~2010.

Revenue from ~~Tissue-Guard~~Ortho ~~patch~~& Wound products was $151,~~806~~878 in fiscal ~~2009,~~ an2010 ~~increase~~as ofcompared to $~~1,329~~65 orfrom 9%July to October 2009. Our U.S. sales coverage has increased from ~~$14,477~~approximately in10% at the beginning of fiscal ~~2008. The~~2010 to approximately 75% at the end of fiscal ~~2009~~2010, ~~increase~~and ~~was~~our ~~driven~~Ortho & Wound sales force continues to develop their sales territories and customer base by anestablishing 8%relationships ~~increase~~with inpre-acquisition ~~units sold~~customers ~~worldwide~~as well as prospecting for new customers.

~~Revenue~~Our ~~from~~gross ~~Microsurgery~~margin ~~was~~increased ~~$8,668~~by one-half of a percentage point to 72.3% in fiscal 2010 from 71.8% during fiscal 2009. On a consolidated basis, anhigher ~~increase~~ average list selling prices for certain of ~~$919~~our orproducts 12in fiscal 2010 were partially offset by product mix and lower manufacturing utilization in the current year. Our surgical business gross margin increased two percentage points to 76% ~~from~~in $7fiscal 2010,~~749~~ primarily due to higher average net selling prices for our products and higher sales of Veritas, which has a higher gross margin relative to other surgical business products. These were offset by lower manufacturing efficiencies in fiscal ~~2008~~2010 as compared to fiscal 2009. Our ~~This~~microsurgical ~~revenue~~business ~~growth was~~gross ~~driven~~margin bydecreased ~~Coupler~~one ~~unit~~percentage ~~sales~~point ~~growth~~to 59% in fiscal ~~2009~~2010 asdue ~~well~~ to product mix and higher inventory costs. Our Ortho & Wound gross margin was 41% in fiscal 2010, as ~~list~~substantially ~~price~~all ~~increases~~of toour ~~the~~sales ~~Coupler~~were of inventory acquired in ~~late~~our ~~fiscal~~July ~~2008~~2009 acquisition, which had higher ‘stepped up’ cost basis due to purchase accounting rules.

~~Our gross margin increased three percentage points to 72% in fiscal 2009 from 69% during fiscal 2008, due primarily to the following factors:~~ 25

•SG&A ~~Favorable~~expense ~~sales~~during ~~mix~~fiscal ~~(both~~2010 ~~product~~was ~~and~~$37,812, ~~geographic)~~an ~~benefited~~increase ~~the~~of ~~fiscal~~$7,945 ~~2009~~or ~~gross~~27% ~~margin~~from bySG&A ~~nearly~~expense ~~two~~of ~~percentage~~$29,867 ~~points.~~in •fiscal ~~Improved~~2009. As ~~utilization~~a percentage of ~~production~~net ~~resources~~revenue, SG&A expense was 55% in fiscal ~~2009~~2010 ~~benefited~~as compared to 51% in the ~~fiscal~~prior ~~2009~~year. The ~~gross~~SG&A ~~margin~~expense byincrease ~~nearly~~was ~~one~~due ~~percentage~~to ~~point.~~$3,766 •of ~~Higher~~incremental ~~average~~costs related ~~list~~to ~~selling~~our ~~prices~~Ortho ~~for~~& ~~certain~~Wound business, which we acquired in July 2009, as well as approximately $3,500 of incremental expense related to the expansion of our ~~products~~direct ~~benefited~~sales force in the second half of fiscal 2009. Additionally, ~~gross~~stock-based ~~margin~~compensation byexpense ~~approximately~~was ~~one-half~~$1,455 of(9 ~~one~~cents ~~percentage~~per ~~point~~diluted share) in fiscal 2010, up from $937 (7 cents per diluted share) in fiscal 2009.

SGR&AD expense totaled $4,393 during fiscal ~~2009 was $29~~2010,~~867,~~ an increase of $~~6,165~~595 or 2616% from ~~SG&A expense of~~ $233,~~702~~798 in fiscal ~~2008~~2009. As Fiscal a2010 ~~percentage~~activity offocused ~~net~~on ~~revenue~~several activities, ~~SG&A~~including ~~expense~~research ~~was~~to ~~51%~~potentially ~~in fiscal~~expand ~~2009~~the asindications ~~compared~~of toour ~~48%~~Veritas inproduct ~~the~~into ~~prior~~new ~~year.~~markets, ~~The~~providing ~~SG&A expense~~research ~~increase~~and ~~was~~clinical ~~due~~data to support the ~~aforementioned~~use ~~expansion~~ of ~~our direct~~Veritas ~~sales force~~ in ~~fiscal~~various ~~2009,~~surgical $1procedures,~~840~~ ofexploring ~~operating~~process ~~expenses related~~improvements toand ~~the start-up~~product ~~of our~~enhancements ~~newly~~for ~~acquired~~our ~~Ortho &~~proprietary ~~Wound~~tissue ~~business~~products, ~~increased legal~~comparative ~~expense~~studies asinvolving ~~well~~Peri-Strips ~~as general~~ and ~~administrative~~its ~~investments in new business development~~competition, ~~clinical~~advancing ~~personnel~~the ~~and information~~ technology. ~~Additionally,~~of ~~stock-based~~the ~~compensation~~Coupler ~~expense~~and ~~was $937~~further (7development ~~cents~~of ~~per~~an ~~diluted~~orthopedic ~~share)~~product inand ~~fiscal~~related ~~2009, up from $509 (3 cents per diluted share) in fiscal 2008~~instrumentation.

In fiscal 2009, we recorded other operating expenses of $4,100. We expensed acquired in-process R&D ~~expense~~costs ~~totaled~~of $3,~~798~~500 ~~during~~related ~~fiscal~~to ~~2009,~~our anacquisition ~~increase~~ of ~~$550~~the orassets ~~17%~~of ~~from~~Pegasus, ~~the~~as ~~prior~~it ~~year,~~was ~~driven~~determined bythe ~~increased~~related ~~project activity~~projects ~~during~~had ~~the~~no ~~current~~alternative ~~year~~future use. We ~~Fiscal~~also ~~2009~~recorded ~~activity~~an ~~focused on~~impairment ~~several~~charge ~~areas,~~of ~~including~~$600 ~~research~~related to ~~support~~identifiable ~~current indications~~intangible ~~for~~assets ~~use~~related to our fiscal 2007 acquisition of ~~Veritas,~~the ~~exploring~~4Closure™ ~~potential opportunities~~Surgical ~~for~~Fascia ~~further~~Closure ~~expanding~~System ~~the~~(“4Closure”) ~~indications~~following ~~for~~an ~~use~~impairment ~~of Veritas,~~analysis. ~~improving~~This ~~the~~analysis ~~delivery~~was ~~system~~performed ~~for~~as ~~our~~a ~~Peri-Strips products~~result ~~and~~of ~~advancing~~a delay in the ~~technology~~fiscal 2009 re-launch and re-brand of the ~~Coupler~~product, ~~among others~~combined with actual revenues since acquisition not meeting projected expectations. No other operating expenses were recorded in fiscal 2010.

InWe recorded operating income of $7,335 in fiscal ~~2009~~2010, wean ~~recorded~~increase ~~other~~of $3,333 as compared to operating ~~expenses~~income of $4,~~100~~002 in fiscal 2009. We ~~expensed~~The ~~acquired~~increase in~~-process~~ ~~R&D~~operating income in fiscal 2010 as compared to the prior year was primarily driven by a reduction of other operating costs of $34,~~500~~100 ~~related to~~(zero ~~our~~of ~~acquisition~~these ofcosts ~~the~~were ~~assets~~incurred ofin ~~Pegasus~~fiscal 2010 while $4,100 aswere itincurred ~~was determined~~in fiscal 2009). In addition, the operating loss related ~~projects~~to ~~had~~our noOrtho ~~alternative~~& ~~future~~Wound ~~use. We~~business ~~also~~was ~~recorded~~approximately an$4,100 ~~impairment~~higher ~~charge~~in offiscal ~~$600~~2010 ~~related~~compared to ~~identifiable~~ ~~intangible~~fiscal ~~assets~~2009 ~~related~~given toa ~~our~~full year of operations in fiscal ~~2007 acquisition~~2010, ofwith ~~4Closure~~this ~~following~~higher anoperating ~~impairment~~loss ~~analysis~~largely offset by higher operating profitability in our other operations. Interest ~~This analysis~~income was ~~performed~~$284 asin afiscal ~~result~~2010 ofcompared awith ~~delay~~$920 in ~~the~~ fiscal 2009 ~~re-launch~~, primarily due to significantly lower investment yields and ~~re-brand~~lower ofinvestment balances in the ~~product~~current year. Additionally in fiscal 2009, ~~combined~~we ~~with~~sold ~~actual revenues~~our ~~since~~auction ~~acquisition~~rate ~~not~~securities ~~meeting~~(“ARS”), ~~projected~~which ~~expectations. No~~had ~~such~~a ~~other~~par ~~operating~~value ~~expenses~~of ~~were~~$9,000, ~~recorded~~for in$7,650, ~~fiscal~~realizing ~~2008~~a loss on sale of $1,350.

We recorded ~~operating~~a provision for income ~~from~~taxes ~~continuing~~in ~~operations~~fiscal 2010 of $42,~~002~~743 inat ~~fiscal~~an ~~2009,~~effective atax ~~decrease~~rate of ~~$3,192 compared~~36.0%. We ~~to operating~~recorded income tax expense of $~~7,194~~866 in fiscal ~~2008~~2009 at an effective rate of 24.2% ~~Interest~~of pretax income. Our fiscal 2009 effective tax rate was ~~$920~~ incomprised ~~fiscal~~of ~~2009~~a ~~compared~~tax ~~with~~rate ~~$2,077~~of in27.3% ~~fiscal~~on ~~2008~~operations and interest income and a 35.3% tax benefit on the capital loss of $1,350 ~~with~~ incurred upon the sale of our ARS. Our fiscal 2009 ~~decrease~~effective ~~primarily~~tax rate on operations and interest income was lower than fiscal 2010 due to lower ~~investment yields.~~pretax ~~Additionally~~income in fiscal 2009, weas ~~sold~~compared ~~our~~to ~~auction~~fiscal ~~rate securities (“ARS”)~~2010, ~~which~~higher ~~had~~permanent differences that reduce taxes and a ~~par~~lower ~~value~~overall rate for state taxes. As of $9October 31,~~000~~ 2010, ~~for~~ we recorded $~~7,650,~~367 ~~realizing~~in anet ~~loss~~current ondeferred ~~sale~~income oftax assets and $12,~~350~~139 in net long-term deferred income tax assets.

WeLIQUIDITY ~~recorded~~AND ~~income~~CAPITAL ~~tax~~RESOURCES ~~expense of~~ ($~~866~~ in fiscal 2009 at an effective rate of 24.2% of pretax income. Our fiscal 2009 effective tax rate was comprised of a tax rate of 27.3% on operations and interest income and a 35.3% tax benefit on the capital loss of $1,350 incurred upon the sale of our ARS. In fiscal 2008, we recorded income tax expense of $3,106 at an effective rate of 33.5% on continuing operations. Our fiscal 2009 effective tax rate on operations and interest income was lower than the prior-year due to a decrease in pretax income in fiscal 2009 as compared to fiscal 2008, higher permanent differences that reduce taxes, and a lower overall rate for state taxes. The lower state tax rate was primarily due to a change in state apportionment thousands)

24 Cash, cash equivalents, and investments totaled $66,551 as of October 31, 2011, an increase of $4,627 as compared to cash, cash equivalents, and investments of $61,924 as of October 31, 2010. Included in the balance above, we have $7,335 of investments classified as non-current as of October 31, 2011. Working capital at October 31, 2011 and 2010 was $72,881 and $66,271, respectively. We have no long-term debt. We currently expect our cash on hand and cash from operations to be sufficient to cover both our short- and long-term operating requirements, subject however, to numerous variables, including acquisition opportunities, research and development priorities, and the growth and profitability of the business.

~~Table of Contents~~26

~~factors~~The ~~caused~~increase byin ~~the~~cash, ~~current~~cash ~~expected~~equivalents, ~~mix~~and ofinvestments ~~our~~in ~~product~~fiscal ~~sales by~~2011 ~~state.~~was Asprimarily ofdue ~~October 31,~~to ~~2009,~~cash weprovided ~~recorded~~by operating activities of $~~367~~11,377 in ~~net current~~fiscal ~~deferred~~2011. This ~~income~~was ~~tax~~partially ~~assets~~offset ~~and~~by the use of $27,~~022~~580 into ~~net~~repurchase ~~long-term deferred~~450,122 ~~income~~shares ~~tax~~of ~~assets~~our common stock in fiscal 2011.

~~During~~Operating ~~fiscal~~activities ~~2008,~~provided wecash ~~recorded~~of a$11,377 ~~net~~in ~~gain~~fiscal on2011, ~~sale~~as ofcompared ~~our interventional~~to ~~business~~providing cash of $56,~~340~~903 ~~which~~during ~~reflected~~fiscal a2010. The ~~pre-tax~~fiscal ~~gain of~~2011 ~~$11,423~~cash ~~and~~provided aby ~~tax~~operating ~~provision~~activities was driven by net income of $68,~~083.~~461 ~~Approximately~~and $4,~~100 of~~028 ~~book~~in ~~basis~~non-cash ~~goodwill~~expenses. Working ~~had~~capital achanges ~~tax~~used ~~basis~~cash of $01,112 ~~thereby resulting~~ in afiscal ~~higher~~2011, ~~gain~~driven by $2,811 of cash used for ~~tax~~increased ~~purposes.~~accounts ~~Additionally~~receivable inand ~~fiscal~~$565 ~~2008, we~~of ~~recorded~~cash aused ~~net~~for ~~loss~~increased ~~related~~inventories to ~~our~~support ~~discontinued~~higher ~~operations~~revenue of levels, which were offset by $202,522 of cash provided by increases in accrued expenses and accounts payable. The ~~Included~~fiscal ~~within~~2010 ~~the~~cash ~~net~~provided ~~loss~~by ~~from~~operating ~~discontinued~~activities ~~operations~~ was andriven ~~operating~~by ~~loss~~net income of $304,876 and a$5,074 ~~benefit~~in ~~from~~non-cash ~~income~~expenses. Working ~~taxes~~capital changes used cash of $103,047 in fiscal 2010, driven by $1,980 of cash used for increased accounts receivable and $1,709 of cash used for increased inventories to support higher revenue levels.

~~Liquidity~~ Investing activities used cash of $3,136 during fiscal 2011. We used cash of $888 towards the net purchase of short- and ~~Capital~~long-term ~~Resources~~investments (during the year. We also used $1,932 for purchases of property, plant and equipment in ~~thousands)~~ fiscal 2011. Investing activities used cash of $7,006 during fiscal 2010, as we used $5,779 towards the net purchase of short- and long-term investments, and $1,102 for the purchase of property, plant and equipment.

~~Cash,~~Financing ~~cash~~activities ~~equivalents~~used ~~and~~cash ~~investments~~of ~~totaled~~ $613,~~924~~179 asduring ~~of October 31,~~fiscal ~~2010~~2011, ~~an increase of $1,175~~ as compared to ~~cash,~~ ~~cash equivalents, investments and restricted cash of~~ $602,~~749~~809 asin offiscal ~~October 31, 2009~~2010. In ~~Included~~fiscal ~~in the above~~2011, ~~we have~~ $7,~~854~~580 of ~~investments~~cash ~~classified~~was asused ~~non-current~~to asrepurchase ~~of October 31~~450,122 ~~2010.~~shares ~~Working~~of ~~capital~~common ~~at October 31~~stock, ~~2010 and~~partially ~~2009~~offset ~~was~~by $663,~~271~~879 ~~and~~of ~~$63,885,~~proceeds ~~respectively.~~from ~~We have no long~~equity-~~term~~based ~~debt~~compensation plans. During Wefiscal ~~currently~~2010, ~~expect~~$5,101 ~~our~~of cash onwas ~~hand~~used ~~and cash from operations~~ to berepurchase ~~sufficient~~385,836 toshares ~~cover~~of ~~both~~common ~~our short- and long-term operating requirements~~stock, ~~subject~~partially ~~however,~~offset toby ~~numerous variables~~$1,996 ~~including~~of ~~acquisition~~proceeds ~~opportunities,~~from ~~research~~equity-based ~~and development~~compensation ~~priorities and the growth and profitability of the business~~plans.

The ~~increase~~following intable ~~cash,~~summarizes ~~cash~~our ~~equivalents~~contractual obligations and ~~investments~~operating inleases. For ~~fiscal 2010~~more ~~was~~information, ~~primarily~~see ~~due~~Note 9 to ~~cash~~our ~~provided~~Consolidated byFinancial ~~operating~~Statements. Our ~~activities of~~commitments ~~$7,115~~under inthese ~~fiscal~~obligations ~~2010.~~are ~~This~~as ~~was~~follows ~~partially~~as ~~offset by the use~~ of ~~$5,101~~October ~~to repurchase 385~~31,~~836 shares~~ ~~of our common stock in fiscal 2010.~~ 2011:

Operating activities provided cash of $7,115 in fiscal 2010, as compared to providing cash of $9,794 during fiscal 2009. The fiscal 2010 cash provided by operating activities was driven by net income of $4,876 and $5,565 in non-cash expenses. Working capital changes used cash of $3,326 in fiscal 2010, driven by $1,963 cash used for increased accounts receivable and $1,709 cash used for increased inventories to support higher revenue levels. The fiscal 2009 cash provided by operating activities was driven by net income of $2,706, which included $6,986 in non-cash expenses, with the most significant of these non-cash items being $3,500 in acquired in-process R&D expense and the $1,350 loss on ARS sale. Working capital changes provided cash of $102 in fiscal 2009, driven by increased accrued income taxes of $2,085, partially offset by $953 in cash used for increased accounts receivable to support higher revenue levels.

		< 1 year				1-3 years				3-5 years				5 < years				Total
Operating leases		$	1,027			$	1,007			$	23			$	-			$	2,057

Investing activities used cash of $7,006 during fiscal 2010, due primarily to using cash of $5,779 towards the net purchase of short- and long-term investments during the year. We also used $1,102 for purchases of property, plant and equipment in fiscal 2010. Investing activities used cash of $30,786 during fiscal 2009, as we used $19,821 towards the net purchase of short- and long-term investments, $12,319 for the acquisition of substantially all of the assets of Pegasus Biologics, Inc., and $1,156 for the purchase of property, plant and equipment. INFLATION

~~Financing~~We ~~activities~~believe ~~used~~inflation ~~cash~~has ofnot ~~$3,021~~had ~~during~~a ~~fiscal~~material ~~2010,~~effect ~~as compared~~on toour ~~using~~operations ~~cash~~or offinancial ~~$10,040 in fiscal 2009~~condition. In fiscal 2010, $5,101 of cash was used to repurchase 385,836 shares of common stock, partially offset by $2,080 of proceeds from equity-based compensation plans. During fiscal 2009, $11,018 of cash was used to repurchase 716,237 shares of common stock, partially offset by $978 of proceeds from equity-based compensation plans.

InFOREIGN ~~October~~CURRENCY 2009, we sold our ARS, which had a par value of $9,000, for $7,650, recording a loss on sale of $1,350. Should a regulatory or other settlement occur during the 24 months subsequent to the date of ARS sale in which the Company would have otherwise been eligible to tender any of its ARS, the Company will be entitled to an additional payment of the amount the Company would have received in such settlement that is in excess of the amount of sales proceeds received by the Company up to the securities par value. TRANSACTIONS

~~The~~Substantially ~~following~~all ~~table~~of ~~summarizes~~ our ~~contractual~~foreign ~~obligations~~transactions are negotiated, invoiced, and ~~operating~~ ~~leases~~paid in U.S. ~~For~~dollars. Fluctuations ~~more~~in ~~information,~~currency ~~see~~exchange ~~Note 9~~rates toin other countries may therefore influence the demand for our ~~Consolidated~~ ~~Financial~~products ~~Statements.~~by ~~Our~~changing ~~commitments~~the ~~under~~price ~~these obligations~~of ~~are~~our products as ~~follows~~denominated ~~for~~in the ~~fiscal~~currency ~~year~~of ~~ending~~the ~~October~~countries ~~31:~~ in which the products are sold.

		< 1 Year				1-3 Years				3-5 Years				5 < Years				Total
Operating leases		$	1,020			$	1,720			$	121			$	—			$	2,861

CRITICAL ACCOUNTING POLICIES

25 Investments: Our investments consist of taxable and tax-exempt commercial paper, corporate notes/bonds, and municipal bond investments. Our investment policy seeks to manage these assets to achieve our goal of preserving principal, maintaining adequate liquidity at all times, and maximizing returns subject to our investment guidelines. We account for all of our investments as “available-for-sale” and report these investments at fair value, with unrealized gains and losses excluded from earnings and reported in “Accumulated Other Comprehensive Income,” a component of shareholders’ equity.

~~Table~~We review our investments for impairment to determine the classification of ~~Contents~~the impairment as “temporary” or “other-than-temporary.” A temporary impairment charge results in an unrealized loss being recorded in the other comprehensive income component of shareholders’ equity. Such unrealized loss does not reduce net income for the applicable accounting period because the loss is not viewed as other-than-temporary.

~~Inflation~~ Accounts Receivable: Credit is extended based on evaluation of a customer’s financial condition, historical sales, and payment history. Generally, collateral is not required. Accounts receivable are generally due within 30-90 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer’s current ability to pay its obligation to us, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

~~We believe inflation has not had a material effect on our operations or financial condition.~~ 27

~~Foreign Currency~~Indefinite-lived ~~Transactions~~ Intangible Assets: Our indefinite-lived intangible assets consist of goodwill, which is carried at cost. Indefinite-lived intangible assets are not amortized, but are required to be reviewed annually for impairment, and between annual test dates in certain circumstances. We perform an annual impairment test for goodwill in the fourth quarter of each fiscal year, or more often as circumstances require. In assessing the recoverability of goodwill, estimates of market capitalization and other factors are made to determine the fair value of the respective assets. If these estimates change in the future, we may be required to record impairment charges for these assets. Recoverability is assessed by comparison of the fair value of the Company to its carrying amount to determine if there is potential impairment. If the fair value of the Company is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the Company is less than its carrying value. If the carrying amount of the goodwill exceeds the fair value, an impairment loss is recognized.

~~Substantially~~Definite-lived ~~all~~Intangible Assets: Definite-lived intangible assets consist of ~~our~~patents, ~~foreign~~trademarks, ~~transactions~~developed ~~are~~technology, ~~negotiated~~non-competes, ~~invoiced~~ and ~~paid~~licenses, inwhich Uare carried at amortized cost.~~S. dollars.~~ We ~~Fluctuations~~review inour ~~currency exchange~~definite-lived ~~rates~~intangible inassets ~~other~~whenever ~~countries~~events ~~may~~or ~~therefore~~circumstances ~~influence~~indicate that the ~~demand~~ ~~for~~carrying ~~our~~amount ~~products~~of an asset may not be recoverable. We assess recoverability by ~~changing~~reference ~~the~~to ~~price~~future ofcash ~~our~~flows from the products ~~as denominated~~underlying these intangible assets. If these estimates change in the ~~currency~~future, ofwe ~~the~~may ~~countries~~be inrequired ~~which~~to ~~the products~~record ~~are~~impairment ~~sold~~charges for these assets.

~~Critical Accounting~~Revenue ~~Policies~~ Recognition: We recognize revenue when the product has been shipped to the customer if there is evidence that the customer has agreed to purchase the products, delivery, and performance have occurred, the price and terms of sale are fixed and collection of the receivable is expected. Less than five percent of our revenue is derived from consigned inventory, for which we recognize revenue upon customer use and receipt of proper purchase order and/or purchase requisition documentation.All amounts billed to customers in a sales transaction related to shipping and handling are classified as revenue. Our sales policy does not allow sales returns.

~~Investments~~Inventories: ~~Our~~Inventories, ~~investments~~which ~~consist~~are comprised of ~~taxable~~ ~~and~~raw ~~tax-exempt~~materials, ~~commercial~~work ~~paper~~in process, ~~treasury~~ and ~~agency securities~~finished goods, ~~corporate~~are ~~bond~~valued ~~and~~at ~~municipal~~the ~~bond~~lower ~~investments~~of cost, first-in, first-out (“FIFO”) or market. Overhead ~~Our investment~~costs ~~policy~~are ~~seeks~~applied to ~~manage~~work ~~these~~in ~~assets~~process toand ~~achieve~~finished ~~our goal~~goods based on annual estimates of ~~preserving~~production ~~principal,~~volumes ~~maintaining~~and ~~adequate~~overhead ~~liquidity~~spending. These ~~at all~~estimates ~~times,~~are reviewed and ~~maximizing~~assessed ~~returns~~for ~~subject~~reasonableness toon ~~our~~a ~~investment guidelines.~~quarterly Webasis ~~account~~and ~~for~~adjusted ~~all~~as ofneeded. The ~~our~~estimated ~~investments~~value ~~as “available~~of excess, slow-~~for-sale”~~ moving, and ~~report~~obsolete ~~these~~inventory, ~~investments~~as atwell ~~fair~~as inventory with a carrying value in excess of its net realizable value, ~~with~~is ~~unrealized gains~~established ~~and~~on ~~losses~~a ~~excluded~~quarterly ~~from~~basis ~~earnings~~through review of inventory on hand and ~~reported~~assessment ~~in “Accumulated~~of ~~Other~~future ~~Comprehensive~~product ~~Income~~demand,” aanticipated ~~component~~ release of ~~shareholders’~~new ~~equity~~products into the market, historical experience, and product expiration.

Stock-Based Compensation: We ~~review~~recognize ~~our~~stock-based ~~investments~~compensation ~~for~~based ~~impairment~~on certain assumptions within the Black-Scholes Model. These assumptions are used to determine ~~the classification~~an estimated fair value of stock based payment awards on the ~~impairment~~date asof ~~“temporary”~~grant ~~or “other-than-temporary~~and require subjective judgment.~~” A~~ Because ~~temporary~~employee ~~impairment~~stock ~~charge~~options ~~results~~have incharacteristics ansignificantly ~~unrealized~~different ~~loss being~~from ~~recorded~~those of traded options, and because changes in the ~~other~~assumptions ~~comprehensive~~can ~~income~~materially ~~component~~affect ~~of shareholders’~~the ~~equity.~~fair ~~Such~~value ~~unrealized~~estimate, ~~loss~~the ~~does~~existing models may not ~~reduce net~~provide ~~income~~a ~~for~~reliable single measure of the ~~applicable~~fair ~~accounting~~value ~~period~~of ~~because~~the employee stock options. We assess the ~~loss is~~assumptions ~~not~~and ~~viewed~~methodologies ~~as other~~used to calculate the estimated fair value of stock-~~than-temporary~~based compensation on a regular basis. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies and thereby materially impact our fair value determination.

~~Accounts~~Income ~~Receivable~~Taxes: ~~Credit~~We isaccount ~~extended~~for ~~based on~~income ~~evaluation~~taxes ofusing athe ~~customer’s~~asset ~~financial condition, historical sales~~ and ~~payment~~liability ~~history~~method. The ~~Generally,~~asset ~~collateral~~and ~~is not~~liability ~~required.~~method ~~Accounts~~provides ~~receivable~~that ~~are~~deferred ~~generally~~tax ~~due~~assets ~~within 30-90 days~~ and liabilities are ~~stated~~recorded atbased ~~amounts~~on ~~due~~the ~~from~~differences ~~customers~~between ~~net~~the oftax anbasis ~~allowance for~~of ~~doubtful~~assets ~~accounts.~~and ~~Accounts~~liabilities ~~receivable~~and ~~outstanding~~their ~~longer than~~carrying ~~the~~amounts ~~contractual~~for ~~payment~~financial ~~terms~~reporting ~~are~~purposes ~~considered~~(“temporary ~~past due~~differences”). Deferred ~~We determine~~tax ~~our~~assets ~~allowance~~are ~~for~~reduced ~~doubtful accounts~~ by ~~considering~~ a ~~number~~ ofvaluation ~~factors~~allowance, ~~including~~when, in the ~~length~~opinion of ~~time trade accounts receivable are past due~~management, ~~our~~it ~~previous~~is ~~loss~~more ~~history,~~likely ~~the customer’s~~than ~~current~~not ~~ability~~that tosome ~~pay~~portion ~~its~~or ~~obligation~~all ~~to us, and the condition~~ of the ~~general~~deferred ~~economy~~tax ~~and~~assets ~~the~~will ~~industry~~not asbe ~~a whole~~realized. ~~We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.~~

Indefinite-lived Intangible Assets: Our indefinite-lived intangible assets consist of goodwill, which is carried at cost. Indefinite-lived intangible assets are not amortized, but are required to be reviewed annually for impairment, and between annual test dates in certain circumstances. We ~~perform~~recognize ~~our annual impairment test for goodwill in~~ the ~~fourth~~financial ~~quarter~~statement ofbenefit ~~each fiscal year, or more often as circumstances require. In assessing the recoverability~~ of ~~goodwill,~~a ~~estimates~~tax ofposition ~~market~~only ~~capitalization~~after ~~and~~determining ~~other factors~~that ~~are made to determine~~ the ~~fair~~relevant ~~value~~tax ofauthority ~~the~~would ~~respective assets.~~more Iflikely ~~these~~than ~~estimates~~not ~~change~~sustain in the ~~future,~~position wefollowing ~~may~~an ~~be required to record impairment charges for these assets~~audit. ~~Recoverability~~ For istax ~~assessed~~positions bymeeting ~~comparison of~~ the ~~fair~~more-likely-than-not ~~value~~threshold, of the ~~Company to its carrying~~ amount torecognized ~~determine~~in ~~if there is potential impairment. If~~ the ~~fair~~financial ~~value~~statements ofis the ~~Company~~largest isbenefit ~~less than its carrying value, an impairment loss is recorded to the extent~~ that ~~the~~has ~~fair~~a ~~value~~greater ~~of the goodwill within the Company is less~~ than ~~its~~50 ~~carrying~~percent ~~value.~~likelihood ~~If the carrying amount~~ of ~~the goodwill~~being ~~exceeds~~realized ~~their~~upon ~~fair~~ultimate ~~value,~~settlement anwith ~~impairment~~the ~~loss~~relevant ~~is recognized~~tax authority.

Definite-lived Intangible Assets: Definite-lived intangible assets consist of patents, trademarks, developed technology, non-competes and licenses, which are carried at amortized cost. We review our definite-lived intangible assets whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. We assess recoverability by reference to future cash flows from the products underlying these intangible assets. If these estimates change in the future, we may be required to record impairment charges for these assets. 28

~~Revenue~~ITEM ~~Recognition: We~~7A ~~recognize~~– ~~revenue~~Quantitative ~~when the product has been shipped to the customer if there is evidence that the customer has agreed to purchase the products, delivery~~ and ~~performance~~Qualitative ~~have~~Disclosures ~~occurred,~~about ~~the~~Market price and terms of sale are fixed and collection of the receivable is expected. Less than five percent of our revenue is derived from consigned inventory, for which we recognize revenue upon customer use and receipt of proper purchase order and/or purchase requisition documentation. All amounts billed to customers in a sales Risk

26 We maintain financial instruments in cash and cash equivalents, investments, and accounts receivable. We believe that the interest rate, credit, and market risk related to these accounts is not significant. We manage the risk associated with these accounts through periodic reviews of the carrying value for non-collectability of assets and establishment of appropriate allowances in connection with our internal controls and policies. We may enter into derivative instruments or perform hedging activities. However, our policy is to only enter into contracts that can be designated as normal purchases or sales.

~~Table of Contents~~29

~~transaction~~ITEM ~~related~~8 to– ~~shipping~~Financial Statements and ~~handling~~Supplementary ~~are classified as revenue. Our sales policy does not allow sales returns.~~ Data

~~Inventories: Inventories,~~ MANAGEMENT ~~which~~REPORT ~~are~~ON ~~comprised of~~INTERNAL ~~raw~~CONTROLS ~~materials,~~OVER ~~work~~FINANCIAL in process and finished goods, are valued at the lower of cost, first-in, first-out (“FIFO”) or market. Overhead costs are applied to work in process and finished goods based on annual estimates of production volumes and overhead spending. These estimates are reviewed and assessed for reasonableness on a quarterly basis and adjusted as needed. The estimated value of excess, slow-moving and obsolete inventory, as well as inventory with a carrying value in excess of its net realizable value, is established on a quarterly basis through review of inventory on hand and assessment of future product demand, anticipated release of new products into the market, historical experience and product expiration. REPORTING

~~Stock-Based~~The ~~Compensation: We~~management ~~recognize stock-based~~of ~~compensation~~Synovis ~~based~~Life onTechnologies, ~~certain assumptions within the Black-Scholes Model~~Inc. ~~These assumptions are used to determine an estimated fair value of stock based payment awards on the date of grant~~ and ~~require~~its ~~subjective~~subsidiaries ~~judgment.~~is ~~Because~~responsible ~~employee~~for ~~stock options~~establishing ~~have characteristics significantly different from those of traded options,~~ and ~~because~~maintaining ~~changes~~adequate ininternal ~~the~~control ~~assumptions~~over ~~can materially~~financial ~~affect~~reporting. Synovis’s ~~the~~internal ~~fair~~control ~~value~~system ~~estimate,~~was ~~the~~designed ~~existing~~to ~~models may not~~ provide areasonable ~~reliable~~assurance ~~single~~to ~~measure~~the ofcompany’s ~~the~~management ~~fair~~and ~~value~~board of ~~the~~ ~~employee~~directors ~~stock~~regarding ~~options. We assess~~ the ~~assumptions~~preparation and ~~methodologies~~ ~~used to calculate the estimated~~ fair ~~value~~presentation of ~~stock-based~~ ~~compensation~~published onfinancial ~~a regular basis~~statements. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies and thereby materially impact our fair value determination.

~~Income~~All ~~Taxes: We~~internal ~~account~~control ~~for~~systems, ~~income~~no ~~taxes using~~matter ~~the~~how ~~asset~~well ~~and~~designed, ~~liability~~have ~~method.~~inherent The asset and liability method provides that deferred tax assets and liabilities are recorded based on the differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes (“temporary differences”)limitations. ~~Deferred tax assets are reduced by a valuation allowance~~ Therefore, ~~when,~~even inthose ~~the opinion~~systems ofdetermined ~~management,~~to itbe iseffective ~~more~~can ~~likely~~provide ~~than~~only ~~not~~reasonable ~~that~~assurance ~~some portion~~with orrespect ~~all~~to offinancial ~~the~~statement ~~deferred~~preparation ~~tax~~and ~~assets will not be realized~~presentation.

WeSynovis ~~recognize~~management assessed the ~~financial~~effectiveness ~~statement benefit~~ of athe ~~tax~~company’s ~~position only~~internal ~~after~~control ~~determining~~over ~~that~~financial ~~the~~reporting ~~relevant~~as ~~tax~~of ~~authority~~October 31, ~~would more~~2011. In ~~likely~~making ~~than~~this ~~not~~assessment, ~~sustain~~it used the ~~position~~criteria ~~following~~set anforth ~~audit. For~~by ~~tax~~the ~~positions~~Committee ~~meeting~~of ~~the~~Sponsoring ~~more-likely-than-not~~Organizations ~~threshold,~~ of the ~~amount~~Treadway ~~recognized~~Commission (COSO) in ~~the~~Internal ~~financial~~Control — ~~statements~~Integrated isFramework. Based ~~the~~on ~~largest benefit~~our ~~that~~assessment, ~~has~~we abelieve ~~greater~~that, ~~than~~as 50of October ~~percent~~31, ~~likelihood~~2011, ~~of being~~the ~~realized~~company’s ~~upon~~internal ~~ultimate~~control ~~settlement~~over ~~with~~financial ~~the~~reporting ~~relevant~~is ~~tax authority~~effective based on those criteria.

~~Item~~Our 7Aconsolidated —financial ~~Quantitative~~statements as of and ~~Qualitative~~for ~~Disclosures~~the ~~about~~year ~~Market~~ended ~~Risk~~October 31, 2011, have been audited by Grant Thornton LLP, our independent registered public accounting firm, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Grant Thornton LLP has also audited our internal control over financial reporting as of October 31, 2011, as stated in its report included in this Annual Report on Form 10-K.

We maintain financial instruments in cash and cash equivalents, investments and accounts receivable. We believe that the interest rate, credit and market risk related to these accounts is not significant. We manage the risk associated with these accounts through periodic reviews of the carrying value for non-collectability of assets and establishment of appropriate allowances in connection with our internal controls and policies. We may enter into derivative instruments or perform hedging activities. However, our policy is to only enter into contracts that can be designated as normal purchases or sales.

/s/ Richard W. Kramp	/s/ Brett A. Reynolds

Richard W. Kramp	Brett A. Reynolds

President, Chief Executive	Vice President of Finance, Chief Financial
Officer and Director	Officer and Corporate Secretary
January 6, 2012	January 6, 2012

27 30

~~Table~~REPORTS ofOF ~~Contents~~INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~Item~~Board 8of —Directors ~~Financial Statements~~ and ~~Supplementary Data~~Shareholders

~~REPORTS OF~~Synovis ~~INDEPENDENT~~Life ~~REGISTERED~~Technologies, ~~PUBLIC ACCOUNTING FIRM~~ Inc.

~~Board~~We have audited the accompanying consolidated balance sheets of ~~Directors~~Synovis Life Technologies, Inc. and ~~Shareholders~~ Subsidiaries (the “Company”) as of October 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended October 31, 2011. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

~~Synovis~~We ~~Life~~conducted ~~Technologies~~our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, ~~Inc~~on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

WeIn ~~have~~our ~~audited~~opinion, the ~~accompanying~~ consolidated ~~balance~~financial ~~sheets~~statements referred to above present fairly, in all material respects, the financial position of Synovis Life Technologies, Inc. and Subsidiaries ~~(the “Company”)~~ as of October 31, ~~2010~~2011 and ~~2009~~2010, and the ~~related~~results ~~consolidated statements~~ of ~~income, shareholders’~~their ~~equity,~~operations and their cash flows for each of the three years in the period ended October 31, ~~2010.~~2011 ~~Our~~in ~~audits~~conformity ~~of the~~with ~~basic~~accounting ~~consolidated~~principles ~~financial~~generally ~~statements~~accepted ~~included~~in the ~~financial~~ ~~statement~~United ~~schedule~~States ~~listed~~of inAmerica. ~~the~~Also ~~index~~in ~~appearing~~our ~~under Item 15.~~opinion, ~~These~~the ~~financial~~related ~~statements and~~ financial statement schedule, ~~are~~when ~~the~~considered ~~responsibility~~in ofrelation to the ~~Company’s management.~~basic ~~Our~~consolidated ~~responsibility~~financial isstatements totaken ~~express~~as ana ~~opinion~~whole, onpresents ~~these financial~~fairly, ~~statements~~in ~~and~~all ~~financial~~material ~~statement~~respects, ~~schedule~~the ~~based~~information ~~on our~~set ~~audits~~forth therein.

We ~~conducted~~also ~~our~~have ~~audits~~audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)., ~~Those standards~~Synovis ~~require~~Life ~~that~~Technologies weInc. ~~plan~~ and ~~perform~~Subsidiaries’ ~~the~~internal ~~audit~~control toover ~~obtain reasonable assurance about whether the~~ financial ~~statements~~reporting ~~are free~~as of ~~material~~October 31, ~~misstatement. An audit includes examining~~2011, based on ~~a test~~criteria ~~basis,~~established ~~evidence~~in ~~supporting~~Internal ~~the~~Control—Integrated ~~amounts~~Framework ~~and~~issued ~~disclosures~~by in the ~~financial~~Committee ~~statements.~~of AnSponsoring ~~audit~~Organizations ~~also~~of ~~includes assessing~~ the ~~accounting~~ ~~principles~~Treadway ~~used~~Commission (COSO) and ~~significant~~our ~~estimates~~report ~~made~~dated ~~by management~~January 6, as2012 ~~well~~expressed asan ~~evaluating~~unqualified ~~the~~opinion ~~overall~~on ~~financial statement~~the ~~presentation.~~effectiveness Weof ~~believe~~the ~~that~~Company’s ~~our~~internal ~~audits~~control ~~provide~~over ~~a reasonable~~financial ~~basis for our opinion~~reporting.

In/s/ ~~our~~Grant opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Synovis Life Technologies, Inc. and Subsidiaries as of October 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Thornton

~~We also have audited~~Minneapolis, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Synovis Life Technologies, Inc. and Subsidiaries’ internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated January 5, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Minnesota

~~/s/ Grant Thornton~~January 6, 2012

~~Minneapolis, Minnesota~~ 31

~~January 5,~~Board ~~2011~~ of Directors and Shareholders

28 Synovis Life Technologies, Inc.

~~Table~~We have audited Synovis Life Technologies, Inc. and Subsidiaries’ (the “Company”) internal control over financial reporting as of ~~Contents~~October 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of ~~Directors~~internal control over financial reporting, assessing the risk that a material weakness exists, testing and ~~Shareholders~~ evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

~~Synovis~~A ~~Life~~company’s ~~Technologies~~internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, ~~Inc~~in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

WeBecause ~~have~~of ~~audited~~its ~~Synovis~~inherent ~~Life Technologies~~limitations, ~~Inc. and Subsidiaries’ (the “Company”)~~ internal control over financial reporting asmay ofnot ~~October 31,~~prevent ~~2010,~~or ~~based~~detect ~~on criteria~~misstatements. ~~established~~Also, inprojections ~~Internal~~of ~~Control — Integrated~~any ~~Framework~~evaluation ~~issued by the Committee~~ of ~~Sponsoring Organizations~~effectiveness ofto ~~the~~future ~~Treadway~~periods ~~Commission~~are ~~(COSO).~~subject ~~The Company’s~~to ~~management~~the isrisk ~~responsible~~that ~~for~~controls ~~maintaining effective~~may ~~internal~~become ~~control~~inadequate ~~over~~because ~~financial reporting and for its assessment~~ of ~~the~~changes ~~effectiveness~~in ~~of internal control over financial reporting~~conditions, ~~included~~or inthat the ~~accompanying Management’s~~degree ~~Report~~of oncompliance ~~Internal~~with ~~Control Over Financial Reporting. Our responsibility is to express an opinion on~~ the ~~Company’s~~ ~~internal~~policies ~~control~~or ~~over~~procedures ~~financial~~may ~~reporting based on our audit~~deteriorate.

WeIn ~~conducted~~ our ~~audit~~opinion, inSynovis ~~accordance~~Life ~~with~~Technologies, ~~the standards of the Public Company Accounting Oversight Board (United States)~~Inc. ~~Those standards require that we plan~~ and ~~perform~~Subsidiaries ~~the audit to obtain reasonable assurance about whether effective internal control over financial reporting was~~ maintained, in all material respects., ~~Our~~effective ~~audit included obtaining an understanding of~~ internal control over financial reporting, ~~assessing~~as ~~the~~of ~~risk that~~October 31, ~~a material weakness exists~~2011, ~~testing and evaluating the design and operating effectiveness of internal control~~ based on ~~the~~ ~~assessed~~criteria ~~risk,~~established ~~and performing such other procedures as we considered necessary~~ in ~~the~~Internal ~~circumstances.~~Control—Integrated WeFramework ~~believe~~issued ~~that~~by ~~our audit provides a reasonable basis for our opinion~~COSO.

AWe ~~company’s~~also ~~internal~~have ~~control~~audited, ~~over~~in ~~financial~~accordance ~~reporting~~with isthe ~~a process~~standards ~~designed~~of tothe ~~provide~~Public ~~reasonable~~Company ~~assurance~~Accounting ~~regarding~~Oversight ~~the reliability~~Board of(United ~~financial~~States), ~~reporting~~the ~~and~~consolidated ~~the~~balance ~~preparation~~sheets of ~~financial~~ ~~statements~~Synovis ~~for~~Life ~~external~~Technologies, ~~purposes in accordance with generally accepted accounting principles~~Inc. ~~A company’s internal control over financial reporting includes those policies~~ and ~~procedures~~Subsidiaries ~~that~~as ~~(1) pertain to the maintenance~~ of ~~records that~~October 31, in2011 ~~reasonable~~and ~~detail~~2010, ~~accurately~~ and ~~fairly reflect~~ the ~~transactions~~related ~~and~~consolidated ~~dispositions~~statements of ~~the~~operations, ~~assets~~shareholders’ ofequity, ~~the company;~~and ~~(2) provide~~cash ~~reasonable~~flows ~~assurance~~and ~~that transactions are recorded as necessary to permit preparation of~~ financial ~~statements~~ instatement ~~accordance~~schedule ~~with~~for ~~generally~~each ~~accepted accounting principles, and that receipts and expenditures~~ of the ~~company are~~three ~~being~~years ~~made only~~ in ~~accordance with authorizations of management and directors of~~ the ~~company;~~period ~~and~~ended ~~(3)~~October ~~provide reasonable~~31, ~~assurance~~2011, ~~regarding~~and ~~prevention~~our orreport ~~timely~~dated ~~detection of unauthorized acquisition~~January 6, ~~use,~~2012 orexpressed ~~disposition~~an ofunqualified ~~the company’s~~opinion ~~assets~~on ~~that~~those ~~could~~consolidated ~~have~~financial astatements ~~material~~and ~~effect on the~~ financial ~~statements~~statement schedule.

~~Because~~/s/ ofGrant its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Thornton

~~In our opinion~~Minneapolis, Synovis Life Technologies, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by COSO. Minnesota

WeJanuary ~~also have audited~~6, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Synovis Life Technologies, Inc. and Subsidiaries as of October 31, 2010 and 2009, and the related consolidated statements of income, shareholders’ equity, and cash flows and financial statement schedule for each of the three years in the period ended October 31, 2010, and our report dated January 5, 2011 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule. 2012

~~/s/ Grant Thornton~~32

SYNOVIS LIFE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

~~Minneapolis~~(in thousands, ~~Minnesota~~ except per share data)

January 5, 2011

For the fiscal years ended October 31,	2011		2010		2009

Net revenue	$	82,363	$	68,565	$	58,211
Cost of revenue		22,343		19,025		16,444
Gross margin		60,020		49,540		41,767

Operating expenses:
Selling, general and administrative		42,949		37,812		29,867
Research and development		4,709		4,393		3,798
Other		-		-		4,100
Operating expenses		47,658		42,205		37,765

Operating income		12,362		7,335		4,002

Interest income		311		284		920
Loss on sale of investments		-		-		(1,350	)

Income before provision for income taxes		12,673		7,619		3,572
Provision for income taxes		4,212		2,743		866

Net income	$	8,461	$	4,876	$	2,706

Basic earnings per share	$	0.74	$	0.43	$	0.23

Diluted earnings per share	$	0.73	$	0.43	$	0.23

Weighted average common shares outstanding:
- Basic		11,381		11,262		11,588
- Diluted		11,571		11,441		11,827

29 The accompanying notes are an integral part of these consolidated financial statements

~~Table of Contents~~33

SYNOVIS LIFE TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

~~SYNOVIS LIFE~~(in ~~TECHNOLOGIES~~thousands, ~~INC.~~ except share and per share data)

CONSOLIDATED STATEMENTS OF INCOME

As of October 31,	2011			2010

ASSETS
Current assets:
Cash and cash equivalents	$	18,013		$	12,951
Short-term investments		41,203			41,119
Accounts receivable, net		11,262			8,701
Inventories		9,998			9,433
Deferred income tax asset, net		447			367
Other current assets		1,973			1,715
Total current assets		82,896			74,286

Investments, net		7,335			7,854
Property, plant and equipment, net		4,154			3,401
Goodwill		3,620			3,620
Other intangible assets, net		5,764			6,182
Deferred income tax asset, net		2,166			2,139
Total assets	$	105,935		$	97,482

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,235		$	1,644
Accrued expenses		7,780			6,371
Total current liabilities		10,015			8,015

Total liabilities		10,015			8,015

Commitments and contingencies (Note 9)

Shareholders' equity:
Preferred stock: authorized 5,000,000 shares of $0.01 par value; none issued or outstanding as of October 31, 2011 and 2010		-			-
Common stock: authorized 20,000,000 shares of $0.01 par value; issued and outstanding, 11,167,690 and 11,228,654 as of October 31, 2011 and 2010, respectively		112			112
Additional paid-in capital		59,832			61,780
Accumulated other comprehensive (loss) income		(34	)		26
Retained earnings		36,010			27,549
Total shareholders' equity		95,920			89,467
Total liabilities and shareholders' equity	$	105,935		$	97,482

	For the Fiscal Years Ended October 31,
	2010		2009			2008
	(In thousands, except
	per share data)
Net revenue	$	68,565	$	58,211		$	49,800
Cost of revenue		19,025		16,444			15,656
Gross margin		49,540		41,767			34,144
Operating expenses:
Selling, general and administrative		37,812		29,867			23,702
Research and development		4,393		3,798			3,248
Other		—		4,100			—
Operating expenses		42,205		37,765			26,950
Operating income		7,335		4,002			7,194
Interest income		284		920			2,077
Loss on sale of investments		—		(1,350	)		—
Income from continuing operations before provision for income taxes		7,619		3,572			9,271
Provision for income taxes		2,743		866			3,106
Net income from continuing operations		4,876		2,706			6,165
Discontinued operations:
Loss from operations of discontinued business, net of tax benefit of $10		—		—			(20	)
Gain on sale of discontinued operations, net of taxes of $6,083		—		—			5,340
Net income	$	4,876	$	2,706		$	11,485
Basic earnings per share:
— Continuing operations	$	0.43	$	0.23		$	0.50
— Discontinued operations		—		—			0.43
Basic earnings per share	$	0.43	$	0.23		$	0.93
Diluted earnings per share:
— Continuing operations	$	0.43	$	0.23		$	0.48
— Discontinued operations		—		—			0.42
Diluted earnings per share	$	0.43	$	0.23		$	0.90
Weighted average common shares outstanding:
— Basic		11,262		11,588			12,395
— Diluted		11,441		11,827			12,721

The accompanying notes are an integral part of these consolidated financial statements

~~The accompanying notes are an integral part of these consolidated financial statements~~ 34

30 SYNOVIS LIFE TECHNOLOGIES, INC.

~~Table~~CONSOLIDATED ofSTATEMENTS ~~Contents~~OF SHAREHOLDERS' EQUITY

~~SYNOVIS LIFE~~(in ~~TECHNOLOGIES~~thousands, ~~INC.~~ except share data)

CONSOLIDATED BALANCE SHEETS

	Common Stock						Additional Paid-In			Accumulated Other Comprehensive			Retained
		Shares			Par Value			Capital			Income (Loss)			Earnings		Total
Balance as of October 31, 2008		12,018,670		$	120		$	72,181		$	(2,407	)	$	19,967	$	89,861
Stock option exercises, including tax benefit		89,376			1			927			-			-		928
Employee Stock Purchase Plan activity		7,065			-			98			-			-		98
Repurchase of the Company's common stock		(716,237	)		(7	)		(11,011	)		-			-		(11,018	)
Stock-based compensation expense		-			-			937			-			-		937
Comprehensive income:
Net unrealized gain on investments		-			-			-			2,499			-		2,499
Net income		-			-			-			-			2,706		2,706
Comprehensive income		-			-			-			-			-		5,205
Balance as of October 31, 2009		11,398,874			114			63,132			92			22,673		86,011
Stock option exercises, including tax benefit		204,807			2			2,140			-			-		2,142
Employee Stock Purchase Plan activity		10,809			-			150			-			-		150
Repurchase of the Company's common stock		(385,836	)		(4	)		(5,097	)		-			-		(5,101	)
Stock-based compensation expense		-			-			1,455			-			-		1,455
Comprehensive income:
Net unrealized loss on investments		-			-			-			(66	)		-		(66	)
Net income		-			-			-			-			4,876		4,876
Comprehensive income		-			-			-			-			-		4,810
Balance as of October 31, 2010		11,228,654			112			61,780			26			27,549		89,467
Stock option exercises, including tax benefit		378,468			4			4,223			-			-		4,227
Employee Stock Purchase Plan activity		10,690			-			174			-			-		174
Repurchase of the Company's common stock		(450,122	)		(4	)		(7,576	)		-			-		(7,580	)
Stock-based compensation expense		-			-			1,231			-			-		1,231
Comprehensive income:
Net unrealized loss on investments		-			-			-			(60	)		-		(60	)
Net income		-			-			-			-			8,461		8,461
Comprehensive income		-			-			-			-			-		8,401
Balance as of October 31, 2011		11,167,690		$	112		$	59,832		$	(34	)	$	36,010	$	95,920

	As of October 31,
	2010		2009
	(In thousands, except share and per
	share data)
ASSETS
Current assets:
Cash and cash equivalents	$	12,951	$	15,863
Short-term investments		41,119		38,960
Accounts receivable, net		8,701		6,925
Inventories		9,433		7,724
Deferred income tax asset, net		367		367
Other current assets		1,715		1,755
Total current assets		74,286		71,594
Investments, net		7,854		5,926
Property, plant and equipment, net		3,401		3,719
Goodwill		3,620		3,618
Other intangible assets, net		6,182		6,841
Deferred income tax asset, net		2,139		2,022
Total assets	$	97,482	$	93,720
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,644	$	1,962
Accrued expenses		6,371		5,747
Total current liabilities		8,015		7,709
Total liabilities		8,015		7,709
Commitments and contingencies (Note 9)
Shareholders’ equity:
Preferred stock: authorized 5,000,000 shares of $0.01 par value; none issued or outstanding as of October 31, 2010 and 2009		—		—
Common stock: authorized 20,000,000 shares of $0.01 par value; issued and outstanding, 11,228,654 and 11,398,874 as of October 31, 2010 and 2009, respectively		112		114
Additional paid-in capital		61,780		63,132
Accumulated other comprehensive income		26		92
Retained earnings		27,549		22,673
Total shareholders’ equity		89,467		86,011
Total liabilities and shareholders’ equity	$	97,482	$	93,720

The accompanying notes are an integral part of these consolidated financial statements

~~The accompanying notes are an integral part of these consolidated financial statements~~ 35

31 SYNOVIS LIFE TECHNOLOGIES, INC.

~~Table~~CONSOLIDATED ofSTATEMENTS ~~Contents~~OF CASH FLOWS

~~SYNOVIS LIFE~~(in ~~TECHNOLOGIES, INC.~~ thousands)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the fiscal years ended October 31,	2011			2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,461		$	4,876		$	2,706

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment		1,154			1,228			1,017
Amortization of intangible assets		734			782			539
Amortization of investment premium, net		1,263			1,626			1,027
Provision for uncollectible accounts		250			204			149
Stock-based compensation		1,231			1,455			937
Tax benefit from stock option exercises		(522	)		(296	)		(203	)
Acquired in-process research and development expense		-			-			3,500
Loss on sale of investments		-			-			1,350
Impairment of intangible assets		-			-			600
Loss on sale or disposal of property, plant and equipment		25			192			25
Change in deferred income taxes		(107	)		(117	)		(2,206	)

Changes in operating assets and liabilities:
Accounts receivable		(2,811	)		(1,980	)		(953	)
Inventories		(565	)		(1,709	)		62
Other current assets		(258	)		40			677
Accounts payable		591			(318	)		637
Accrued expenses		1,931			920			(118	)
Net cash provided by operating activities		11,377			6,903			9,746

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(1,932	)		(1,102	)		(1,156	)
Investments in identifiable intangible assets		(316	)		(123	)		(105	)
Purchase of assets of Pegasus Biologics, Inc.		-			-			(12,319	)
Purchases of investments		(51,116	)		(79,397	)		(43,226	)
Redemptions of investments		50,228			73,618			23,405
Decrease in restricted cash		-			-			2,950
Other		-			(2	)		(335	)
Net cash used in investing activities		(3,136	)		(7,006	)		(30,786	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds related to stock-based compensation plans		3,879			1,996			823
Repurchase of the Company's common stock		(7,580	)		(5,101	)		(11,018	)
Excess tax benefit of stock option exercises		522			296			203
Net cash used in financing activities		(3,179	)		(2,809	)		(9,992	)

Net change in cash and cash equivalents		5,062			(2,912	)		(31,032	)
Cash and cash equivalents at beginning of year		12,951			15,863			46,895
Cash and cash equivalents at end of year	$	18,013		$	12,951		$	15,863

										Accumulated
							Additional			Other
	Common Stock						Paid-In			Comprehensive			Retained
	Shares			Par Value			Capital			Income (Loss)			Earnings		Total
	(In thousands, except share data)
Balance as of October 31, 2007		12,359,302		$	124		$	78,347		$	—		$	8,482	$	86,953
Stock option exercises, including tax benefit		158,635			1			1,789			—			—		1,790
Employee Stock Purchase Plan activity		4,900			—			80			—			—		80
Repurchase of the Company’s common stock		(504,167	)		(5	)		(8,544	)		—			—		(8,549	)
Stock-based compensation expense		—			—			509			—			—		509
Comprehensive Income:
Net unrealized loss on investments		—			—			—			(2,407	)		—		(2,407	)
Net income		—			—			—			—			11,485		11,485
Comprehensive income		—			—			—			—			—		9,078
Balance as of October 31, 2008		12,018,670			120			72,181			(2,407	)		19,967		89,861
Stock option exercises, including tax benefit		89,376			1			927			—			—		928
Employee Stock Purchase Plan activity		7,065			—			98			—			—		98
Repurchase of the Company’s common stock		(716,237	)		(7	)		(11,011	)		—			—		(11,018	)
Stock-based compensation expense		—			—			937			—			—		937
Comprehensive Income:
Net unrealized gain on investments		—			—			—			2,499			—		2,499
Net income		—			—			—			—			2,706		2,706
Comprehensive income		—			—			—			—			—		5,205
Balance as of October 31, 2009		11,398,874			114			63,132			92			22,673		86,011
Stock option exercises, including tax benefit		204,807			2			2,140			—			—		2,142
Employee Stock Purchase Plan activity		10,809			—			150			—			—		150
Repurchase of the Company’s common stock		(385,836	)		(4	)		(5,097	)		—			—		(5,101	)
Stock-based compensation expense		—			—			1,455			—			—		1,455
Comprehensive Income:
Net unrealized loss on investments		—			—			—			(66	)		—		(66	)
Net income		—			—			—			—			4,876		4,876
Comprehensive income		—			—			—			—			—		4,810
Balance as of October 31, 2010		11,228,654		$	112		$	61,780		$	26		$	27,549	$	89,467

The accompanying notes are an integral part of these consolidated financial statements

~~The accompanying notes are an integral part of these consolidated financial statements~~ 36

32 SYNOVIS LIFE TECHNOLOGIES, INC.

~~Table~~NOTES ofTO ~~Contents~~CONSOLIDATED FINANCIAL STATEMENTS

~~SYNOVIS LIFE~~1. ~~TECHNOLOGIES,~~Business ~~INC.~~ Description and Summary of Significant Accounting Policies (in thousands):

~~CONSOLIDATED STATEMENTS~~Synovis OFLife ~~CASH~~Technologies, ~~FLOWS~~ Inc. develops, manufactures, and markets biological and mechanical products used by several surgical specialties for the repair of soft tissue damaged or destroyed by disease or injury. Our products are designed to reduce risks and/or facilitate critical surgeries, improve patient outcomes, and reduce healthcare costs. Our products serve a wide array of medical markets, including general surgery, bariatric, vascular, cardiac, thoracic, neurological, microsurgery, orthopedic, and woundcare.

	For the Fiscal Years Ended
	October 31,
	2010			2009			2008
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,876		$	2,706		$	11,485
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment		1,228			1,017			1,897
Amortization of intangible assets		782			539			462
Amortization of investment premium, net		1,626			1,027			187
Loss on sale or disposal of property, plant and equipment		192			25			10
Provision for uncollectible accounts		204			149			134
Stock-based compensation		1,455			937			509
Tax benefit from stock option exercises		212			48			145
Gain on sale of interventional business		—			—			(5,340	)
Acquired in-process research and development expense		—			3,500			—
Loss on sale of investments		—			1,350			—
Impairment of intangible assets		—			600			—
Deferred income taxes		(117	)		(2,206	)		644
Changes in operating assets and liabilities:
Accounts receivable		(1,980	)		(953	)		(627	)
Inventories		(1,709	)		62			(634	)
Other current assets		40			677			(1,447	)
Accounts payable		(318	)		637			(381	)
Accrued expenses		624			(321	)		(5,623	)
Net cash provided by operating activities		7,115			9,794			1,421
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(1,102	)		(1,156	)		(990	)
Investments in identifiable intangible assets		(123	)		(105	)		(46	)
Purchase of assets of Pegasus Biologics, Inc.		—			(12,319	)		—
Purchases of investments		(79,397	)		(43,226	)		(60,019	)
Redemptions of investments		73,618			23,405			76,582
Proceeds from sale of interventional business		—			—			30,440
Decrease (increase) in restricted cash		—			2,950			(2,950	)
Other		(2	)		(335	)		(297	)
Net cash (used in) provided by investing activities		(7,006	)		(30,786	)		42,720
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds related to stock-based compensation plans		1,996			823			1,429
Repurchase of the Company’s common stock		(5,101	)		(11,018	)		(8,549	)
Excess tax benefit of stock option exercises		84			155			296
Net cash used in financing activities		(3,021	)		(10,040	)		(6,824	)
Net change in cash and cash equivalents		(2,912	)		(31,032	)		37,317
Cash and cash equivalents at beginning of year		15,863			46,895			9,578
Cash and cash equivalents at end of year	$	12,951		$	15,863		$	46,895

Basis of Consolidation: The consolidated financial statements include the accounts of Synovis Life Technologies, Inc. and its wholly owned subsidiaries, after elimination of intercompany accounts and transactions.

Use of Estimates: The ~~accompanying~~preparation ~~notes~~of ~~are~~consolidated anfinancial ~~integral~~statements ~~part~~in conformity with Generally Accepted Accounting Principles (“GAAP”) in the United States of ~~these consolidated~~America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

33 Cash and Cash Equivalents: Cash and cash equivalents consist of cash and highly liquid investments purchased with an original maturity of three months or less when purchased. These investments are carried at cost, which approximates fair value. Cash amounts typically are in excess of federally insured limits.

~~Table~~Investments: Our investments consist of ~~Contents~~taxable and tax-exempt commercial paper, corporate notes/ bonds, and municipal bond investments. Our investment policy seeks to manage these assets to achieve our goal of preserving principal, maintaining adequate liquidity at all times, and maximizing returns subject to our investment guidelines. We account for all of our investments as “available-for-sale” and report these investments at fair value, with unrealized gains and losses excluded from earnings and reported in “Accumulated Other Comprehensive Income,” a component of shareholders’ equity.

~~SYNOVIS LIFE~~We ~~TECHNOLOGIES,~~review ~~INC~~our investments for impairment to determine the classification of the impairment as “temporary” or “other-than-temporary. ” A temporary impairment charge results in an unrealized loss being recorded in the other comprehensive income component of shareholders’ equity. Such unrealized loss does not reduce net income for the applicable accounting period because the loss is not viewed as other-than-temporary.

~~NOTES TO CONSOLIDATED~~Accounts ~~FINANCIAL~~Receivable: Credit ~~STATEMENTS~~ is extended based on evaluation of a customer’s financial condition, historical sales and payment history. Generally, collateral is not required. Accounts receivable are generally due within 30 to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer’s current ability to pay its obligation to us, and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

1.Inventories: Inventories, ~~Business~~which ~~Description~~are comprised of raw materials, work in process, and ~~Summary~~finished goods, are valued at the lower of ~~Significant~~cost, ~~Accounting~~first-in, ~~Policies~~first-out (“FIFO”) or market. Overhead costs are applied to work in ~~thousands):~~process and finished goods based on annual estimates of production volume and overhead spending. These estimates are reviewed and assessed for reasonableness on a quarterly basis and adjusted if so needed. The estimated value of excess, slow-moving, and obsolete inventory as well as inventory with a carrying value in excess of its net realizable value is established on a quarterly basis through review of inventory on hand and assessment of future product demand, anticipated release of new products into the market, historical experience, and product expiration.

Synovis Life Technologies, Inc. develops, manufactures and markets biological and mechanical products used by several surgical specialties for the repair of soft tissue damaged or destroyed by disease or injury. Our products are designed to reduce risks and/or facilitate critical surgeries, improve patient outcomes and reduce healthcare costs. Our products serve a wide array of medical markets, including general surgery, bariatric, vascular, cardiac, thoracic, neurological, microsurgery, orthopedic and woundcare. 37

AsProperty, ~~discussed~~Plant, inand ~~Note 3~~Equipment: Property, toplant, ~~our~~and ~~consolidated~~equipment ~~financial statements~~are stated at cost, wenet ~~completed~~of accumulated depreciation and amortization. Depreciation and amortization are calculated using the ~~sale~~straight-line ofmethod ~~substantially~~over ~~all~~the estimated useful lives of the related assets. Furniture, fixtures, and computer equipment are depreciated over a 3 to 7 year life, and manufacturing equipment is depreciated over a 5 to 10 year life. Amortization of ~~our~~leasehold ~~interventional~~improvements ~~business~~is recorded on ~~January 31~~a straight-line basis over the life of the related facility leases or the estimated useful life of the assets, ~~2008~~whichever is shorter. ~~The~~ Major ~~pre-tax~~replacements ~~gain~~and onimprovements are capitalized and maintenance and repairs, which do not improve or extend the ~~sale~~useful ~~totaled~~lives ~~$11~~of the respective assets,~~423~~ are charged to operations. The ~~Income~~asset ~~taxes recorded~~and onrelated accumulated depreciation or amortization accounts are adjusted for asset retirements and disposals with the resulting gain ~~were~~or $6loss,~~083~~ if any, ~~resulting~~recorded in athe ~~net~~Consolidated ~~gain~~Statements of ~~$5,340~~ Income at the time of disposal. Our Welong-lived ~~also~~depreciable ~~recorded~~assets aare ~~net~~reviewed ~~loss~~for ~~related~~impairment towhenever events or changes in circumstances indicate that the ~~operation~~carrying amount of ~~discontinued~~ ~~operations~~the asset in ~~fiscal~~question ~~2008~~may not be recoverable. Impairment losses are recorded whenever the fair value of ~~$20~~the asset is determined to be lower than its carrying amount.

~~Basis~~Indefinite-lived ofIntangible ~~Consolidation~~Assets: ~~The~~Our ~~consolidated financial~~indefinite-lived ~~statements~~intangible ~~include~~assets consist of goodwill, which is carried at cost. Indefinite-lived intangible assets are not amortized, but are required to be reviewed annually for impairment, and between annual test dates in certain circumstances. We perform an annual impairment test for goodwill in the ~~accounts~~fourth quarter of ~~Synovis~~each ~~Life Technologies~~fiscal year, ~~Inc~~or more often as circumstances require. In assessing the recoverability of goodwill, estimates of market capitalization and other factors are made to determine the fair value of the respective assets. If these estimates change in the future, we may be required to record impairment charges for these assets.Recoverability is assessed by comparison of the fair value of the Company to its ~~wholly~~carrying ~~owned~~amount ~~subsidiaries~~to determine if there is potential impairment. If the fair value of the Company is less than its carrying value, ~~after elimination~~an impairment loss is recorded to the extent that the fair value of ~~intercompany~~the ~~accounts~~goodwill ~~and~~within ~~transactions~~the Company is less than its carrying value. If the carrying amount of the goodwill exceeds the fair value, an impairment loss is recognized.

~~Use~~Definite-lived ofIntangible ~~Estimates~~Assets: ~~The~~Definite-lived ~~preparation~~intangible assets consist of ~~consolidated~~ ~~financial~~patents, ~~statements~~trademarks, indeveloped ~~conformity~~technology, ~~with~~non-competes, ~~Generally Accepted~~and ~~Accounting~~licenses, ~~Principles~~which ~~(“GAAP”)~~are incarried ~~the~~at ~~United States~~amortized ofcost. We ~~America~~review ~~requires~~our ~~management~~definite-lived tointangible ~~make~~assets ~~estimates~~whenever ~~and assumptions~~events ~~that~~or ~~affect~~circumstances indicate that the ~~reported~~carrying ~~amounts~~amount of ~~assets~~an ~~and liabilities~~asset ~~and~~may ~~disclosure~~not ofbe ~~contingent~~recoverable. We ~~assets~~assess ~~and~~recoverability ~~liabilities at~~by ~~the~~reference ~~date~~to offuture ~~the~~cash ~~financial~~flows ~~statements~~from ~~and~~ the ~~reported~~products ~~amounts of~~underlying ~~revenues~~these ~~and~~intangible ~~expenses~~assets. If ~~during~~these estimates change in the ~~reporting~~future, ~~periods.~~we ~~Actual results~~may ~~could~~be ~~differ~~required ~~from~~to ~~those~~record ~~estimates~~impairment charges for these assets.

~~Cash~~Revenue ~~and Cash Equivalents~~Recognition: ~~Cash~~We ~~and~~recognize ~~cash e~~

Filing Compare · SYNOVIS LIFE TECHNOLOGIES INC