Note 4. Acquisitions

On May 3, 2014, the Company acquired a private, original equipment manufacturing company incorporated in the United States for net cash consideration of $1.4 million.

The Company has allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition resulting in the recognition of $0.8 million of intellectual property and $0.4 million of goodwill, including the impact of deferred income taxes. The results of operations for the acquired company have been included in the Consolidated Statements of Operations and Comprehensive (Loss) Income from the date of acquisition.

On December 10, 2014, the Company entered into the Share Purchase Agreement (the "Agreement") with shareholders (the "Sellers") of Sterimedix Limited ("Sterimedix"), pursuant to which the Company purchased all of the outstanding share capital of Sterimedix for net cash consideration of $13.2 million (the "Sterimedix Acquisition"). Sterimedix is a private manufacturer of cannulas, needles and other disposable products for ophthalmic and aesthetic procedures incorporated in England and Wales.

Pursuant to the Agreement, the Sellers will be entitled to receive earn-out payments based on the gross profit attributable to the Sterimedix operations, calculated in accordance with the terms set forth in the Agreement, for each annual period from January 1, 2015 until December 31, 2017 as follows: (i) 136.7% of the amount by which Gross Profit exceeds £3,190,000 for 2015; (ii) 136.7% of the amount by which gross profit exceeds £3,767,500 for 2016; and (iii) 136.7% of the amount by which gross profit exceeds £4,400,000 for 2017. The Company has agreed not to transfer the Sterimedix shares for a period of one year and has also agreed after the one-year period, (i) to negotiate in good faith the assumption of the earn-out payments with the proposed transferee; (ii) at the discretion of the Company, to make modified earn-out payments to the Sellers as set forth in the Agreement and transfer certain Sterimedix assets to the Sellers upon arms' length negotiations; or (iii) if option (i) does not occur and option (ii) is not exercised, to remain obligated to pay the earn-out payments.

Pending the final valuations, the preliminarily recognized amounts of identifiable assets acquired and liabilities assumed as of December 10, 2014 are set forth below:

Accounts receivable	$	706
Inventory		1,617
Other current assets		128
Long-lived assets		1,946
Intangible Assets		8,467
Goodwill		5,000
Total assets		17,864

Deferred tax liabilities		1,226
Current liabilities assumed		810
Contingent acquisition liability		2,651
Total liabilities		4,687
Net assets acquired	$	13,177

The preliminary fair value of the contingent liability was determined utilizing a discounted cash flow model and this model primarily utilized Level 3 inputs as defined in Note 7. Goodwill mainly reflects strategic growth opportunities. It is not deductible for tax purposes.

During the period from December 10, 2014 through January 31, 2015, Sterimedix had $1.1 million of net sales which generated net income of approximately $42,000. In the second quarter and the first six months of fiscal year 2015, the Company incurred $204,000 and $290,000, respectively, in acquisition-related costs, which are included in general and administrative expenses in the consolidated statements of operations and comprehensive (loss) income.

The accompanying consolidated statements of income for the three and six months ended January 31, 2015 and 2014 do not include any revenues or expenses related to the acquisition prior to the respective closing date. The following unaudited pro forma consolidated financial information is presented as if the acquisition had occurred at the beginning of the periods presented. In addition, this unaudited pro forma financial information is provided for illustrative purposes only and should not be relied upon as necessarily being indicative of the historical results that would have been obtained if this acquisition had actually occurred during these periods, or the results that may have been obtained in the future as a result of this acquisition (in thousands).

	Three Months Ended January 31,					Six Months Ended January 31,
Pro Forma (unaudited)	2015		2014			2015		2014
Net Sales	$	18,875	$	16,787		$	37,427	$	33,924
Net Income (Loss)	$	1,110	$	(166	)		2,028	$	791
Average shares outstanding – basic		25,364,574		25,309,641			25,352,279		25,301,830
Average shares outstanding – diluted		25,424,835		25,309,641			25,407,508		25,386,679
Basic earnings per share	$	0.04	$	(0.01	)	$	0.08	$	0.03
Diluted earnings per share	$	0.04	$	(0.01	)	$	0.08	$	0.03

The combined pro forma financial information has been adjusted to exclude non-recurring transaction-related expenses and includes purchase accounting adjustments for fair values impacting inventory, depreciation of fixed assets and amortization of intangible assets.