GOODWILL

As of September 27, 2014 and September 28, 2013, we had goodwill of $4,291,843 and $4,487,546, respectively. These amounts include goodwill from three reporting units, all of which are part of our medical segment.

On December 9, 2011, we acquired, through a new wholly-owned subsidiary, substantially all of the assets of Old M.C. Healthcare. The following table is a reconciliation of the carrying amount of goodwill from the acquisition date of December 9, 2011 to September 27, 2014

Under Canadian tax law, a portion of goodwill acquired in connection with an asset acquisition may be amortized for tax purposes. We expect 75%, or approximately $2,000,000, of the goodwill associated with the M.C. Healthcare acquisition to be amortizable and deductible for tax purposes. See Note 2.

Beginning balance at October 1, 2011	$	1,924,131
Asset acquisition on December 9, 2011		6,529,885
Adjustment for deferred taxes		53,149
Adjustment to increase inventories to fair market value		(160,281	)
Adjustment to allocate total consideration to other intangibles based on valuation		(3,971,748	)
Adjustment to record contingent consideration		68,166
Adjusted Goodwill at December 9, 2011		4,443,302
Increase in foreign currency exchange rate		167,313
Goodwill at September 29, 2012		4,610,615
Decrease in foreign currency exchange rate		(123,069	)
Goodwill at September 28, 2013		4,487,546
Decrease in foreign currency exchange rate		(195,703	)
Goodwill at September 27, 2014	$	4,291,843

For the fiscal year ended September 27, 2014, we tested each of our three reporting units for goodwill impairment in accordance with ASC 350-20-35 Intangibles – Goodwill and Other. We determined that one reporting unit, M.C. Healthcare, was at risk of failing step one in the goodwill impairment test required under ASC 350. As of the test date, the fair value of the net assets of the M.C. Healthcare reporting unit exceeded its carrying value by 5%. Consequently, we did not recognize an impairment of the goodwill associated with this reporting unit in fiscal 2014. The amount of goodwill associated with the M.C. Healthcare reporting unit was $2,367,712 as of September 27, 2014.

We calculate the estimated fair value of our reporting units by using an income approach, which includes internally developed discounted cash flow models. To determine fair value, we make assumptions about a number of internal and external factors. Significant assumptions used in the impairment analysis include financial projections of sales, expenses, profit margins, working capital requirements, capital expenditures, tax rates and discount rates. These assumptions are based on our historical operating results for the M.C. Healthcare business, our detailed operating plan for fiscal year 2015 and our forecast of future business conditions. There is significant uncertainty about the various assumptions made in the analysis. Our estimates of cash flows may differ from actual cash flows due to, among other things, changes in our estimated sales and expense growth rates, other changes in our financial forecasting models, economic conditions in the U.S. and Canadian medical markets, Medicare reimbursement changes, government budget changes in the Canadian healthcare market and other risks referenced from time to time in our Securities and Exchange Commission filings. See Part 1, Item 1A – Risk Factors earlier in this report for more information on factors that could affect our assumptions used in the impairment analysis. These factors increase the risk of differences between projected and actual performance that could impact future estimates of the fair values of all reporting units. Significant differences between these estimates and actual cash flows could result in impairment charges in future periods.