Note 3.

Acquisitions

On December 10, 2014, the Company entered into the Share Purchase Agreement (the "Sterimedix Acquisition 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 Sterimedix Acquisition 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 Sterimedix Acquisition 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 fair value of the obligation is based on the Company’s estimates of future cash flows, which are contingent upon a number of assumptions, particularly product demand and pricing. Any future change required to the fair value of the contingent acquisition liability will be reflected in the consolidated statement of income and comprehensive income.

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 (dollars in thousands):

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 goodwill attributed to the acquisition reflects market-related synergies and growth opportunities, as well as unrecognized intangible assets, including workforce-in-place and future new product development potential.

During the period from December 10, 2014 through July 31, 2015, Sterimedix recognized net sales of $5.7 million and generated net income of approximately $851,000. For the fiscal year ended July 31, 2015, the Company incurred $341,000 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 fiscal year ended July 31, 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 Sterimedix 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):

	Fiscal Year Ended July 31,
Pro Forma (unaudited)	2015		2014
Net Sales	$	77,629	$	70,208
Net Income	$	4,888	$	2,579
Basic earnings per share	$	0.19	$	0.10
Diluted earnings per share	$	0.19	$	0.10

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, 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 statement of income from the date of acquisition.

On July 8, 2013, the Company acquired M.I.S.S. Ophthalmics Limited (“M.I.S.S.”), a private company incorporated in England and Wales that had been the Company’s distributor of ophthalmic products in the United Kingdom, for net cash consideration of $2.8 million. M.I.S.S.’s wholesale distribution activities contributed approximately $1.1 million in revenue to the Company in fiscal 2013.

The Company 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 $0.9 million of intellectual property and $1.5 million of goodwill. The results of operations for M.I.S.S. have been included in the consolidated statement of income from the date of acquisition.

The Company recognized $64,000 and $70,000 of transaction related costs that were expensed in the years ended July 31, 2014 and 2013, respectively. Acquired goodwill is not deductible for tax purposes.