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 Income and Comprehensive 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"), 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 Company purchased all of the outstanding share capital of Sterimedix for net cash consideration of $13.2 million (the "Sterimedix Acquisition") plus future contingent consideration in the form of an earn-out (see discussion below).

Pursuant to the Agreement, the Sellers are entitled to receive earn-out payments, calculated as 136.7% of the amount by which Sterimedix’s defined Gross Profit exceeds the following amounts for each annual period:

(i)	£3,190,000 for the year ended December 31, 2015;

(ii)	£3,767,500 for the year ended December 31, 2016; and

(iii)

£4,400,000 for the year ended December 31, 2017.

The fair value of the future earn out payments recorded at the acquisition date was $2.8 million, determined using a discounted cash flow methodology on probability-weighted expected cash flows. These cash flows resulted in a range of estimated payouts of $0 to $5.9 million over the three year period.

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.

The amounts of identifiable assets acquired and liabilities assumed as of December 10, 2014 are set forth below at the exchange rate in effect at that date:

Accounts receivable	$	715
Inventory		1,617
Other current assets		138
Property, plant and equipment		2,187
In-process R&D		343
Tradenames		2,894
Customer relationships		4,999
Other amortizable intangibles		1,026
Goodwill		4,519
Total assets	$	18,438

Current liabilities	$	827
Deferred tax liabilities		1,597
Total liabilities	$	2,424

Net assets acquired	$	16,014

The fair value of goodwill mainly reflects the impact of strategic growth opportunities. The changes in these amounts from what was reflected in the condensed consolidated financial statements for the quarter ended January 31, 2015 primarily relate to the identification of separable intangible assets and the related deferred tax liabilities, which had a corresponding impact on the value of goodwill. The acquired goodwill is not deductible for tax purposes.

During third quarter of 2015 and for the period from December 10, 2014 through April 30, 2015, Sterimedix recognized net sales of $2.3 million and $3.3 million, respectively, and generated net income of approximately $333,000 and $375,000, respectively. In the third quarter and the first nine months of fiscal year 2015, the Company incurred $50,000 and $341,000, respectively, in acquisition-related costs, which are included in general and administrative expenses in the consolidated statements of income and comprehensive income.

The accompanying consolidated statements of income for the three and nine months ended April 30, 2015 reflect the revenues and expenses of Sterimedix since the acquisition date. The following unaudited pro forma consolidated financial information is presented as if the acquisition had occurred at the beginning of each year presented. These unaudited pro forma results are provided for illustrative purposes only and are not necessarily indicative of either the historical results that would have been attained if this acquisition had actually occurred during these periods, or of the results that will be attained in the future as a result of this acquisition (in thousands):

(Dollars in thousands)	Three Months Ended April 30,				Nine Months Ended April 30,
Pro Forma (unaudited)	2015		2014		2015		2014
Net Sales	$	19,375	$	18,276	$	56,802	$	52,200
Net Income (Loss)	$	1,264	$	917	$	3,169	$	1,550
Basic earnings per share	$	0.05	$	0.04	$	0.12	$	0.06
Diluted earnings per share	$	0.05	$	0.04	$	0.12	$	0.06

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