Additional state and federal health care reform measures may be adopted in the future, any of which could have a material adverse effect on our ability to successfully commercialize our products and on our industry in general. For example, the United States government has in the past considered, is currently considering, and may in the future consider, health care policies and proposals intended to curb rising health care costs, including those that could significantly affect both private and public reimbursement for health care services. Further, state and local governments, as well as a number of foreign governments, are also considering or have adopted similar types of policies. Future significant changes in the health care system in the United States or elsewhere, and current uncertainty about whether and how changes may be implemented, could have a negative impact on the demand for our products. We are unable to predict whether health care policies, including policies stemming from legislation or regulations affecting our business, may be proposed or enacted in the future, what effect such policies would have on our business, or the effect that ongoing uncertainty about these matters will have on the purchasing decisions of our customers.

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Efforts to reduce the U.S. federal deficit could adversely affect our results of operations.

As part of the Budget Control Act passed in August 2011 to extend the federal debt limit and reduce government spending, $1.2 trillion in automatic spending cuts (known as sequestration) were implemented in 2013. The sequestration requires a 2% cut in Medicare payments for all services, including our diagnostic tests, which, due to subsequent legislative amendments to the statute, will remain in effect through 2024 unless Congressional action is otherwise taken. Government research funding has also been reduced as a result of the sequestration. On January 2, 2013, the American Taxpayer Relief Act of 2012 also was signed into law, which, among other things, further reduces Medicare payments to providers such as hospitals, imaging centers and cancer treatment centers, and increases the statute of limitations period for the government to recover overpayments to providers from three to five years.

Such reductions in government health care spending or research funding could result in reduced demand for our products or additional pricing pressure. Further, there is ongoing uncertainty regarding the federal budget and federal spending levels, including the possible impacts of a failure to increase the “debt ceiling.” Any U.S. government default on its debt could have broad macroeconomic effects that could, among other things, raise our borrowing costs. Any future shutdown of the federal government or failure to enact annual appropriations could also have a material adverse impact on our business.

Revenues for our Life Science segment may be impacted by customer concentrations and buying patterns.

Our Life Science segment’s revenues from ~~two~~three diagnostic manufacturing customers were ~~24%~~27% and ~~18%~~26% of the Life Science segment’s total revenues for fiscal ~~2019~~2020 and fiscal ~~2018, respectively;~~2019, respectively, with such percentage for fiscal 2019 being concentrated in two of the customers. Sales to these three diagnostic manufacturing customers comprised 14% and 8% ~~and 5%~~ of ~~our~~total consolidated revenues for fiscal ~~2019~~2020 and fiscal ~~2018,~~2019, respectively. ~~Our Life Science segment has five other significant customers, which together comprised 11%~~In addition, in excess of 10% of the segment’s total revenues ~~for each~~has historically been concentrated among a number of ~~fiscal 2019 and fiscal 2018.~~other significant customers. Any significant alteration of buying patterns from these customers could adversely affect our period over period revenues and results of operations.

~~Intense competition could adversely affect our profitability.~~

The markets for our products and services are characterized by substantial competition and rapid change. Hundreds of companies around the world supply diagnostic tests and immunoassay and molecular reagents. These companies range from multinational health care entities, for which diagnostics is one line of business, to small

~~start-up~~

companies. Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot provide assurance that our products and services will be able to compete successfully with the products and services of our competitors.

We expect to face increased competition resulting from expiration of our H. pylori patents.

The patents for our stool antigen

H. pylori

products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our stool antigen

H. pylori

products, high margin products which represent approximately ~~16%~~10% of our total revenues, to continue to increase, as we currently are one of only four companies that market

FDA-cleared

tests to detect

H. pylori

antigen in stool samples in the U.S. market, one of which is DiaSorin Inc., with whom we have entered a strategic collaboration agreement to sell

H. pylori

tests. At present, we are also aware of at least one other company that has commenced clinical trials of

H. pylori

products in the U.S. Such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. We have executed on a number of measures to address competitive pressures in coming off ~~patent. We~~patent including: (i) in October 2018, we entered into a strategic collaboration with DiaSorin to sell

H. pylori

tests; (ii) we have executed multi-year supply agreements with our two largest reference laboratory customers for

H. pylori

tests to secure volume, albeit at lower selling ~~prices. In the first half of fiscal~~prices; and (iii) upon FDA clearance in March 2020, we ~~expect to launch~~launched Curian HpSA, our first assay on the new Curian platform, ~~for~~ which ~~the 510(k) was submitted to the FDA in September 2019. We~~we expect ~~that this product~~ will help us protect our existing ~~rapid assay accounts~~customer base using lateral flow tests. We also expect the ~~advantages~~acquisition of the ~~Curian analyzer. However,~~Exalenz BreathID platform to combat competitive pressures, as we believe that we are now the only company with

FDA-cleared,

non-invasive

assays for both stool antigen and urea breath samples, allowing physicians a choice in test format from one supplier. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit.

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We depend on international revenues, and our financial results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets.

We sell products and services into approximately 70 countries. For fiscal ~~2019,~~2020, approximately ~~20%~~one third of our consolidated revenues were transacted in currencies other than the U.S. dollar. We are subject to the risks associated with fluctuations in the exchange rates for the Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and ~~Euro.~~New Israeli shekel. We are also subject to other risks associated with international operations, including longer customer payment cycles, trade wars, increased tariffs, requirements for export licenses, instability of foreign governments, and governmental requirements with respect to the importation and distribution of medical devices and immunodiagnostic and molecular biology reagents, all of which may vary by country.

New tariffs and other trade measures could adversely affect our financial results.

The current U.S. administration has expressed strong concerns about imports from countries that it perceives as engaging in unfair trade practices, and it is possible the administration could impose import duties or other restrictions on products, components or raw materials sourced from those countries, which may include countries from which we import components or raw materials. We are currently not aware of any new import duties imposed on our products. Any such new import duties or restrictions could have a material adverse effect on our business, results of operations or financial condition. Moreover, these new tariffs, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods.

Other foreign governments are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental actions related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, manufacturers, suppliers and/or the economic environments in which we operate and, thus may adversely impact our businesses. In addition, there may be changes to existing trade agreements, like the North American Free Trade Agreement (“NAFTA”) and its anticipated successor agreement, the U.S.-Mexico-Canada Agreement (“USMCA”), which is still subject to approval by the United States, Mexico and Canada, greater restrictions on free trade generally, and significant increases in tariffs on goods imported into the United States, particularly tariffs on products manufactured in Mexico, among other possible changes. It remains unclear what the U.S. administration or foreign governments will or will not do with respect to tariffs, NAFTA, USMCA or other international trade agreements and policies. Any changes to NAFTA (or subsequent trade agreements) could impact our operations in countries where we manufacture or sell products, or source components or materials, which could adversely affect our operating results and our business.

Risks Affecting our Manufacturing Operations

We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations.

Medical device diagnostics is a highly regulated industry. We cannot provide assurance that we will be able to obtain necessary governmental clearances or approvals, or timely clearances or approvals, to market future products in the United States and other countries. Costs and difficulties in complying with laws and regulations administered by the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the U.S. Department of Commerce, the U.S. Drug Enforcement Agency, the Centers for Disease Control, or other regulators can result in unanticipated expenses and delays, and interruptions to the sale of new and existing products.

Regulatory approval can be a lengthy, expensive and uncertain process, making the timing and costs of approvals difficult to predict. Failure to comply with these regulations can result in delays in obtaining authorization to sell products, seizure or recall of products, suspension or revocation of authority to manufacture or sell products, and other civil or criminal sanctions.

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If we or our third-party vendors fail to comply with FDA regulations relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted.

Our diagnostics manufacturing facilities, and the manufacturing facilities of any of our third-party diagnostic component manufacturers or critical suppliers, are required to comply with the FDA’s Quality System Regulation (“QSR”), which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of the products we sell, and related regulations, including Medical Device Reporting (“MDR”) regulations regarding reporting of certain malfunctions and adverse events potentially associated with our products. The FDA may evaluate our compliance with the QSR, MDR and other regulations, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in conducting an inspection of our manufacturing facilities, or the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA 483 that is issued at the conclusion of the inspection. A manufacturer that receives an FDA 483 may respond in writing and explain any corrective actions taken in response to the inspectional observations. The FDA will typically review the facility’s written response and may

re-inspect

to determine the facility’s compliance with the QSR and other applicable regulatory requirements. Failure to take adequate and timely corrective actions to remedy objectionable conditions listed on an FDA 483 could result in the FDA taking administrative or enforcement actions. Among these may be the FDA’s issuance of a Warning Letter to a manufacturer, which informs it that the FDA considers the observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action.

FDA enforcement actions, which include seizure, injunction, criminal prosecution, and civil penalties, could result in total or partial suspension of a facility’s production and/or distribution, product recalls, fines, suspension of the FDA’s review of product applications, and/or the FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations or a recall of our products. Adverse inspections could also delay FDA approval of our products and could have an adverse effect on our production, sales and profitability.

We and any of our third-party vendors may also encounter other problems during manufacturing including failure to follow specific protocols and procedures, equipment malfunction, and environmental factors, any of which could delay or impede our ability to meet demand. The manufacture of our product also subjects us to risks that could harm our business, including problems relating to our facilities and errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Any interruption or delay in the manufacture of the product, or any of its components could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products, which could, therefore, have a material adverse effect on our business, financial condition and results of operations.

On June 29, 2017, the FDA, in connection with its Safety Notification related to Magellan (whom we acquired in March 2016) and its lead testing systems for venous blood samples, issued its Form 483, Inspectional Observations, to Magellan. This was followed by the FDA issuing a Warning Letter related to the matter on October 23, 2017. During October 2019, the FDA conducted a

follow-up

inspection of Magellan’s manufacturing facility. In connection with this

follow-up

inspection, the FDA issued five Form 483 observations. ~~In November 2019,~~Over the last year, we have submitted a number of written responses to the FDA ~~our written responses to~~regarding the five Form 483 observations issued in the October 2019 inspection, and have ~~implemented~~worked diligently to execute a remediation ~~plan that we are actively working.~~plan. During October 2020, the FDA issued Establishment Inspection Reports which closed out the inspections from June 2017 and October 2019 under 21 C.F.R.20.64 (d) (3). The Warning Letter issued in October 2017 remains outstanding, pending a future FDA inspection. While we remain committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA.

Additionally, as set forth in Item 3. “Legal Proceedings”, on April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we are cooperating with the DOJ in this matter. We maintain rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements, and are working with the DOJ to promptly respond to the subpoena, including responding to additional information requests. We have executed tolling agreements to extend the statute of limitations. We cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on Meridian.

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Table of Contents

See a more detailed discussion of these matters within MD&A on page ~~25.~~28.

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~~Table of Contents~~

Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our business and operating results.

Products and services manufactured at facilities we own or lease comprised a majority of our revenues. Our global supply of these products and services is dependent on the uninterrupted and efficient operation of these facilities. In addition, we currently rely on a small number of third-party manufacturers to produce certain of our diagnostic products and product components. The operations of our facilities or these third-party manufacturing facilities could be adversely affected by power failures, or natural or other disasters such as earthquakes, floods, tornadoes or terrorist threats. Although we carry insurance to protect against certain business interruptions at our facilities, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. Any significant interruption in the Company’s or a third-party supplier’s manufacturing capabilities could materially and adversely affect our operating results.

We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business.

Raw Materials and Components

Our diagnostic products are made from a wide variety of raw materials that are biological or chemical in nature, and that generally are available from multiple sources of supply. We sole-source certain raw materials and components, which makes it time consuming and costly to switch raw materials and components in

FDA-cleared

products. If certain suppliers fail to supply required raw materials or components, we will need to secure other sources which may require us to conduct additional development and testing and obtain regulatory approval. These activities require significant time and resources, and there is no assurance that new sources will be secured or regulatory approvals, if necessary, will be obtained.

We utilize third-party manufacturers for certain of our instrumentation. One third party manufactures our proprietary Alethia Incubator/Reader (instrument), a component of our Alethia molecular system, and ~~upon its commercialization during the first half of fiscal 2020,~~ an additional third party ~~will manufacture~~manufactures our Curian instrument. These instruments are manufactured exclusively for Meridian according to our specifications. While other manufacturers for these types of instruments are available, we source each instrument solely from one manufacturer to limit the costs involved in clearing the system for marketing in the United States. If these third-party manufacturers fail to supply us with instruments, we will need to secure another manufacturer, and it may take as long as 12 months to transfer instrument manufacturing. An interruption in the manufacturing of these instruments could have a material adverse effect on our operating results.

Additionally, one third party manufactures a certain reagent for use with our Alethia assays. While alternative suppliers exist, we elect to utilize this third party exclusively in order to maintain consistency in our materials, which is critical in complying with FDA regulatory requirements. An interruption in the manufacturing of these reagents could have a material adverse effect on our operating results.

Finished Products

We outsource the manufacturing for certain finished diagnostic products to third parties. A disruption in the supply of these finished products could have a material adverse effect on our business until we find another supplier or bring manufacturing

in-house.

Four products manufactured exclusively for us by two separate and independent companies accounted for 7%, 11% and 11% of consolidated revenues in ~~each of~~ fiscal 2020, 2019 and 2018, ~~and 2017.~~respectively. Meridian owns all rights and title to the FDA 510(k) clearances for these products.

Activities undertaken by Meridian to reduce the risk of these sole-supplier arrangements include maintaining adequate inventory levels, supplier qualification procedures, supplier audits, site visits, and frequent communication. Additionally, we have identified potential alternate suppliers.

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Our ability to meet future customer demand for selected products is dependent upon our ability to successfully manage our manufacturing capacity.

To manage our anticipated future growth effectively, it may become necessary for us to enhance our manufacturing and supply chain capabilities, infrastructure and operations, information technology infrastructure, and financial and accounting systems and controls. Organizational growth and

scale-up

of operations could strain our existing managerial, operational, financial, and other resources. If our management is unable to effectively prepare for our expected future growth, our expenses may increase more than anticipated, our revenue could grow more slowly than expected, and we may not be able to achieve our commercialization, profitability, or product development goals. Our failure to effectively implement the necessary processes and procedures and otherwise prepare for our anticipated growth could have a material adverse effect on our future financial results and condition.

Risks Related to Intellectual Property and Product Liability

We may be unable to protect or obtain proprietary rights that we utilize or intend to utilize.

In developing and manufacturing our products, we employ a variety of proprietary and patented technologies. In addition, we have licensed, and expect to continue to license, various complementary technologies and methods from academic institutions and public and private companies. We cannot provide assurance that the technologies that we own or license provide protection from competitive threats or from challenges to our intellectual property. In addition, we cannot provide assurances that we will be successful in obtaining and retaining licenses, or proprietary or patented technologies, in the future.

~~See Item 3. “Legal Proceedings” for a discussion of the status of certain litigation related to our intellectual property.~~

Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products.

Litigation over intellectual property rights is prevalent in the diagnostic industry. As the market for diagnostics continues to grow and the number of participants in the market increases, we may increasingly be subject to patent infringement claims. It is possible that a third party may claim infringement against us. If found to infringe, we may attempt to obtain a license to such intellectual property; however, we may be unable to do so on favorable terms, or at all. Additionally, if our products are found to infringe on third-party intellectual property, we may be required to pay damages for past infringement and lose the ability to sell certain products, causing our revenues to decrease. Any substantial loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business.

If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to limit or cease sales of our products.

The testing, manufacturing and marketing of medical diagnostic products involves an inherent risk of product liability claims. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease sales of our products. We currently carry product liability insurance at a level we believe is commercially reasonable, although there is no assurance that it will be adequate to cover claims that may arise. In certain customer contracts, we indemnify third parties for certain product liability claims related to our products. These indemnification obligations may cause us to pay significant sums of money for claims that are covered by these indemnifications. In addition, a defect in the design or manufacture of our products could have a material adverse effect on our reputation in the industry and subject us to claims of liability for injury and otherwise. Any substantial underinsured loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business.

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~~Other Risks Affecting Our Business~~

We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, and failure to comply with these laws could harm our business and the price of our common stock.

As a public company listed in the United States, we incur significant legal, accounting and other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC, the Public Company Accounting Oversight Board (PCAOB) and the NASDAQ Global Select Market, may increase our legal and financial compliance costs and/or make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If we fail to comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

~~Our business could be negatively affected if we are unable to attract, hire and retain key personnel.~~

Our future success depends on our continued ability to attract, hire and retain highly qualified personnel, including our executive officers and scientific, technical, sales and marketing employees, and their ability to manage growth successfully. If such key employees were to leave and we were unable to obtain adequate replacements, our operating results could be adversely affected.

~~Our bank credit agreement imposes restrictions with respect to our operations.~~

Our bank credit agreement contains a number of financial covenants that require us to meet certain financial ratios and tests. If we fail to comply with the obligations in the credit agreement, we would be in default under the credit agreement. If an event of default is not cured or waived, it could result in acceleration of any indebtedness under our credit agreement, which could have a material adverse effect on our business. At September 30, 2019, we had $75,824 outstanding on a $125,000 bank revolving credit facility.

~~We face risks related to global economic conditions.~~

We currently generate significant operating cash flows, which combined with access to the credit markets, provides us with discretionary funding capacity for research and development and other strategic activities. However, as an enterprise with global operations and markets, our operations and financial performance are in part dependent upon global economic conditions, and we could be negatively impacted by a global, regional or national economic crisis, including sovereign risk in the event of deterioration in the credit worthiness of or a default by local governments. We are particularly susceptible to the economic conditions in countries where government-sponsored health care systems are the primary payers for health care, including those countries within the European Union that are reducing their public expenditures in an effort to achieve cost savings. The uncertainty in global economic conditions poses a risk to the overall economy that could impact demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. As such, if global economic conditions deteriorate significantly, our business could be negatively impacted, including such areas as reduced demand for our products from a slow-down in the general economy, supplier or customer disruptions resulting from tighter credit markets, and/or temporary interruptions in our ability to conduct

~~day-to-day~~

~~transactions through our financial intermediaries involving the payment to or collection of funds from our customers, vendors and suppliers. While~~

~~to-date~~

~~such factors have not had a significant negative impact on our results or operations, we continue to monitor and plan for the potential impact of these global economic factors.~~

In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. The U.K. is currently negotiating the terms of its exit from the European Union (“Brexit”). In November 2018, the U.K. and the European Union agreed upon a draft Withdrawal Agreement that sets out the terms of the U.K.’s departure, including commitments on citizen rights after Brexit, a financial settlement from the U.K., and a transition period to allow time for a future trade deal to be agreed. The U.K. Parliament has not approved the Withdrawal Agreement. As such, the date and the terms of the U.K.’s withdrawal from the European Union remain highly uncertain.

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Any impact of Brexit depends on the terms of the U.K.’s withdrawal from the European Union, if it ultimately occurs. The ongoing uncertainty on the status of the final Withdrawal Agreement could lead to economic stagnation until an ultimate resolution with respect to Brexit occurs. If the U.K. leaves the European Union with no agreement, it will likely have an adverse impact on labor and trade in addition to creating further short-term uncertainty and currency volatility. In the absence of a future trade deal, the U.K.’s trade with the European Union and the rest of the world would be subject to tariffs and duties set by the World Trade Organization. Additionally, the movement of goods and personnel between the U.K. and the remaining member states of the European Union will be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. Even if an agreement setting forth the terms of the U.K.’s withdrawal from the European Union is approved, the withdrawal could result in significant changes to the trading relationship between the U.K. and the European Union. These changes to the trading relationship between the U.K and the European Union would likely result in increased cost of goods imported into and exported from the U.K., and may decrease the profitability of our operations. Additional currency volatility could drive a weaker British pound, which could increase the cost of goods imported into the U.K. and may decrease the profitability of our operations. A weaker British pound versus the U.S. dollar may also cause local currency results of our operations to be translated into fewer U.S. dollars during a reporting period. With a range of outcomes still possible, the impact from Brexit remains uncertain and will depend, in part, on the final outcome of tariff, trade, regulatory and other negotiations.

~~One or more cybersecurity incidents may adversely impact our financial condition, results of operations and reputation.~~

Our operations involve the use of multiple systems that process, store and transmit sensitive information about our customers, suppliers, employees, financial position, operating results and strategies. We face global cybersecurity risks and threats on a continual and ongoing basis, which include, but are not limited to, attempts to access systems and information, computer viruses, or

~~denial-of-service~~

attacks. These risks and threats range from uncoordinated individual attempts to sophisticated and targeted measures. While we are not aware of any material cyber-attacks or breaches of our systems to date, we have and continue to implement measures to safeguard our systems and information and mitigate potential risks, including employee training around phishing, malware and other cyber risks, but there is no assurance that such actions will be sufficient to prevent cyber-attacks or security breaches that manipulate or improperly use our systems, compromise sensitive information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of such events, including breaches of our security measures or those of our third-party service providers, could negatively impact our reputation and our competitive position and could result in litigation with third parties, regulatory action, loss of business due to disruption of operations and/or reputational damage, potential liability and increased remediation and protection costs, any of which could have a material adverse effect on our financial condition and results of operations. Additionally, as cybersecurity risks become more sophisticated, we may need to increase our investments in security measures which could have a material adverse effect on our financial condition and results of operations.

~~Natural disasters, war and other events could adversely affect our future revenues and operating income.~~

Natural disasters (including pandemics), war, terrorism, labor disruptions and international conflicts, and actions taken by the United States and other governments or by our customers or suppliers in response to such events, could cause significant economic disruption and political and social instability in the United States and in areas outside of the United States in which we operate. These events could result in decreased demand for our products, adversely affect our manufacturing and distribution capabilities, or increase the costs for, or cause interruptions in, the supply of materials from our suppliers.

Risks Related to Our Common Stock

Material weaknesses in our internal control over financial reporting could be identified, which if not properly corrected, could materially adversely affect our operations and result in material misstatements in our financial statements.

During fiscal 2017, the Company identified a material weakness in internal control over financial reporting, which has been remediated. However, the Company can make no assurances that a material weakness will not be identified in the future or that, if identified, it will be properly corrected. In the event we are unable to remediate a material weakness identified in the future, we may be unable to provide holders of our securities with required financial information in a timely and reliable manner, and we may incorrectly report financial information. Either of these events could have a material adverse effect on our operations, investor, supplier and customer confidence in our reported financial information, and/or the trading price of our common stock.

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The authority of our board to issue preferred stock and the effects of certain provisions of Ohio corporation law may discourage takeover bids.

Our board of directors has the authority to issue up to 1,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions, including voting rights, of such shares without any future vote or action by the shareholders. The issuance of preferred stock under certain circumstances could have the effect of delaying or preventing a change in control of our company. Ohio corporation law contains provisions that may discourage takeover bids for our company that have not been negotiated with the board of directors. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, sales of substantial amounts of shares in the public market could adversely affect the market price of our common stock and our ability to raise additional capital at a price favorable to us.

The market price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for stockholders and subject us to litigation.

The market price of our common stock may be subject to significant fluctuations due to numerous factors, including but not limited to the risks described in this “Risk Factors” section. In addition, the stock market in general, the NASDAQ Global Market and the market for diagnostics companies in particular may experience a loss of investor confidence. A loss of investor confidence may result in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, financial condition or results of operations. These broad market and industry factors may materially harm the market price of our common stock and expose us to securities class-action litigation. Class-action litigation, even if unsuccessful, could be costly to defend and divert management’s attention and resources, which could further materially harm our financial condition and results of operations.

Our business could be negatively impacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest.

In recent years, proxy contests and other forms of stockholder activism have been directed against numerous public companies. If a proxy contest or an unsolicited takeover proposal is made with respect to us, we could incur significant costs in defending our company, which would have an adverse effect on our financial results. Shareholder activists may also seek to involve themselves in the governance, strategic direction and operations of our company. Such proposals may disrupt our business and divert the attention of our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

There can be no assurance that we will resume the payment of dividends.

The declaration, amount and timing of the Company’s dividends are subject to capital availability and determinations by our board of directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws, including the applicable provisions of Ohio law, and our agreements applicable to the declaration and payment of cash dividends. We suspended the payment of quarterly cash dividends effective during the fiscal 2019 second quarter. Any action to resume the payment of dividends will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, including acquisitions, debt service requirements, results of operations, financial condition and other factors beyond our control that our board of directors may deem relevant. Ongoing suspension of our dividend payments could have a negative effect on our stock price.

General Risk Factors

Intense competition could adversely affect our profitability.

start-up

- 19 -

ITEM 6.

SELECTED FINANCIAL DATA

Income Statement Information (Amounts in thousands, except per share data)

For the Year Ended September 30,

2019

2018

2017

2016

2015

Net revenues
$
201,014
$
213,571
$
200,771
$
196,082
$
194,830

Gross profit

118,325

130,697

124,292

127,212

121,882

Operating income

32,699

31,584

37,382

51,378

56,060

Net earnings

24,382

23,849

21,557

32,229

35,540

Basic earnings per share
$
0.57
$
0.56
$
0.51
$
0.77
$
0.85

Diluted earnings per share
$
0.57
$
0.56
$
0.51
$
0.76
$
0.85

Cash dividends declared per share
$
0.250
$
0.500
$
0.575
$
0.800
$
0.800

Book value per share
$
4.47
$
4.14
$
4.02
$
3.95
$
3.96

Balance Sheet Information

As of September 30,

2019

2018

2017

2016

2015

Current assets
$
144,761
$
139,053
$
133,875
$
126,791
$
119,422

Current liabilities

20,914

24,173

22,887

22,571

15,251

Total assets

325,478

251,377

249,777

252,028

183,282

Long-term debt obligations

75,824

50,180

54,647

58,360

—

Shareholders’ equity

190,967

175,418

169,585

166,472

165,873


Income Statement Information (Amounts in thousands, except per share data)

For the Year Ended September 30,	2020		2019		2018		2017		2016
Net revenues	$	253,667	$	201,014	$	213,571	$	200,771	$	196,082
Gross profit		156,248		118,728		131,033		124,833		127,787
Operating income		61,324		32,699		31,584		37,382		51,378
Net earnings		46,186		24,382		23,849		21,557		32,229
Basic earnings per share	$	1.08	$	0.57	$	0.56	$	0.51	$	0.77
Diluted earnings per share	$	1.07	$	0.57	$	0.56	$	0.51	$	0.76
Cash dividends declared per share	$	—	$	0.250	$	0.500	$	0.575	$	0.800
Book value per share	$	5.75	$	4.47	$	4.14	$	4.02	$	3.95

Balance Sheet Information

As of September 30,	2020		2019		2018		2017		2016
Current assets	$	162,190	$	144,761	$	139,053	$	133,875	$	126,791
Current liabilities		52,524		20,914		24,173		22,887		22,571
Total assets		405,261		325,478		251,377		249,777		252,028
Long-term debt obligations		68,824		75,824		50,180		54,647		58,360
Shareholders’ equity		247,629		190,967		175,418		169,585		166,472

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Table of Contents

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Refer to “Note About Forward-Looking Statements” following the Index in front of this Form

10-K

and Item 1A “Risk Factors” on pages 11 through 2021 of this Annual Report.

In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data

The purpose of Management’s Discussion and Analysis is to provide an understanding of Meridian’s financial condition, changes in financial condition and results of operations. This discussion should be read in conjunction with the financial statements and notes.

Impact of

COVID-19

Pandemic

In December 2019, the

SARS-CoV-2

virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated

COVID-19

(the disease caused by

SARS-CoV-2)

a global pandemic. Governments around the world implemented lockdown and

shelter-in-place

orders, requiring many

non-essential

businesses to shut down operations throughout a substantial portion of the last five months of our fiscal year, some of which remain in effect as of the date of this filing. Our business, however, was deemed “essential” and we have continued to operate, manufacture and distribute products to customers globally. We have developed a comprehensive plan that enables us to maintain operational continuity with an emphasis on manufacturing, product distribution and new product development during this crisis. We continually assess

COVID-19

related developments and adjust risk mitigation planning and business continuity activities in real-time as needed.

The

COVID-19

pandemic has had both positive and negative effects on our businesses. Our Life Science segment’s products were well positioned to respond to IVD manufacturers’ needs for reagents for molecular, rapid antigen and serology tests. Consequently, our Life Science segment grew its revenues over 100% in fiscal 2020 and delivered record operating income and margin, demonstrating what this business could achieve at a much larger scale. Our Diagnostics segment, on the other hand, reported decreased revenues in our third and fourth fiscal quarters as health systems focused on

SARS-CoV-2

testing over traditional infectious disease and blood-chemistry testing. However, we did see a significant recovery in our Diagnostics business in our fourth fiscal quarter compared to the third fiscal quarter (up 38%).

Employee Safety

We have implemented a work-from-home process for employees whose

on-site

presence is designated as

non-essential

to the ongoing functions of our manufacturing sites, distribution centers, and new product development facilities. We continue to utilize this work-from-home process as needed on a

site-by-site

basis. We also implemented enhanced cleaning and sanitizing procedures and provided additional personal hygiene supplies at all of our sites. We implemented policies for employees to adhere to the Centers for Disease Control and Prevention (“CDC”) guidelines on social distancing, and similar guidelines by authorities outside the United States, and any employees experiencing any symptoms of

COVID-19

are required to stay home and seek medical attention. Any employee who tests positive for

COVID-19

is required to quarantine and is not allowed to return to our facilities without a physician’s release, including a negative active infection test result. Access to our facilities by outside persons not critical to continuing our operations continues to be limited. To date, we have been able to manufacture and distribute products globally, and all of our sites continue to operate without interruption. As the pandemic continues to spread, along with continuing governmental restrictions which vary by locale and jurisdiction, there is an increased risk of employee absenteeism, which could materially impact our operations at one or more sites. To date, the steps we have taken, including our work from home processes have not materially impacted the Company’s financial reporting systems, internal controls over financial reporting or disclosure controls.

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Table of Contents

Supply Chains

Supply chains supporting our products remain intact, providing access to sufficient inventory of the key materials needed for manufacturing. To date, delays and allocations for certain raw materials of higher demand have been limited and have not had a material impact on our results of operations. We regularly communicate with suppliers, third-party partners, customers, health care providers and government officials in order to respond rapidly to issues as they arise. The longer the current situation continues, it is more likely that we may experience some sort of interruption to our supply chains, and such an interruption could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations.

Clinical Trial Delays

As a result of the pandemic, certain of our clinical trials which were underway or scheduled to begin were temporarily placed on hold. While we are seeing

“re-starts”

for such clinical trials, they are at a slower pace than normal. Such delays continue to impact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, the ongoing

COVID-19

pandemic has and could continue to slow down our efforts to expand our product portfolio through acquisitions and distribution opportunities, impacting the speed with which we are able to bring additional products to market.

Product Demand

Our Life Science segment manufactures, markets and sells a number of molecular and immunological reagents to IVD customers, including those who are making both molecular and immunoassay

COVID-19

tests. During the last month of our second fiscal quarter and throughout our third fiscal quarter of fiscal 2020, we experienced unprecedented demand for certain of our molecular reagents (e.g., ribonucleic acid (“RNA”) master mixes and nucleotides), and such demand continued throughout our fourth fiscal quarter, albeit at a lower level than the third quarter. Although we are unable to predict when this demand may subside, we expect revenue levels for these products to be materially higher than historical levels during at least the next twelve months. Our products are used in over 100 approved

COVID-19

related assays around the world. COVID-related reagent revenues totaled approximately $71,500 during fiscal 2020.

Our Diagnostics segment manufactures, markets and sells a number of molecular, immunoassay, blood chemistry and urea breath tests

for various infectious diseases and blood-lead levels. We expect near-term sales volumes for a number of these assays to continue to be adversely affected by the

COVID-19

pandemic as such assays are often used in

non-critical

care settings. The

COVID-19

pandemic also has continued to affect our instrument placements. The launch of our Curian platform has been slower than expected as diagnostic testing sites have turned their attention to critical care testing. However, during our fourth fiscal quarter, we experienced an acceleration in Revogene placements due to the anticipated

SARS-CoV-2

assay under the FDA’s emergency use authorization. We notified the FDA on November 13, 2020 of our intent to submit for emergency use authorization and expect to do so in late November or early December. During our fourth fiscal quarter, Diagnostics sales volumes recovered, up 38% over our third fiscal quarter. However, no assurances can be made that this positive trend will continue.

Asset Impairment Review

Considering the economic impacts of

COVID-19,

we performed an analysis of our businesses to determine if there were triggering events that would require us to further test our long-lived assets for impairment. Based on our review, we do not believe that a triggering event exists at this time and, therefore, we believe that we will be able to realize the full value of our long-lived assets. As such, no impairments or other write-downs related to

COVID-19

have been recorded during fiscal 2020. In addition, we performed our annual test for goodwill impairment as of June 30, 2020 by performing a qualitative assessment pursuant to ASU

2011-08

for each reporting unit. Our qualitative assessment indicated that it is not more likely than not that the fair values of our reporting units are less than their carrying values. Accordingly, a quantitative impairment test for goodwill was not required.

Access to Capital

The impacts of

COVID-19

have adversely affected the ability of many companies to access capital and liquidity on favorable terms or at all. As of September 30, 2020, the outstanding debt balance on the Company’s revolving credit facility was $68,824, leaving $91,176 of available borrowing capacity. In addition, positive cash flows from operating activities are expected to be generated over the next twelve months, which will add to cash on hand. We also maintain a shelf registration statement on file with the Securities and Exchange Commission. The Company believes these resources will provide sufficient liquidity and cash flows to meet its operating and debt service requirements for at least the next twelve months and expects to be in compliance with its financial covenants during this same period. However, given the unusual nature of the

COVID-19

pandemic and the rapidly changing environment, we can provide no assurances in this regard and future impacts may materialize that are not currently known.

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Table of Contents

Results of Operations

Fourth Quarter

Net earnings for the fourth quarter of fiscal ~~2019 decreased 24%~~2020 increased 58% to ~~$4,103,~~$6,493, or ~~$0.10~~$0.15 per diluted share, from net earnings for the fourth quarter of fiscal ~~2018~~2019 of ~~$5,434,~~$4,103, or ~~$0.13~~$0.10 per diluted share. The level of net earnings in the fiscal ~~2019~~2020 fourth quarter results include $1,714 of costs associated with acquisition activities, restructuring activities and selected legal proceedings (combined impact on net earnings of $1,296, or $0.03 per diluted share). The fiscal 2018 fourth quarter results include $4,576 of costs associated with restructuring activities and selected legal proceedings, along with certain

~~one-time~~

~~tax~~were affected by several factors, including most notably the combined effects of the ~~U.S. tax reform act enacted in December 2017 (combined impact~~following (amounts presented on ~~net earnings of $3,145, or $0.07 per diluted share).~~ a

pre-tax

basis):

(i)

significantly higher revenue in the Life Science operating segment, due to supplying key molecular components and monoclonal antibodies to diagnostic test manufacturers for use in

COVID-19

related PCR and antigen tests (up $16,905);

(ii)

higher research and development spending in the Diagnostics segment under new product development programs (up $1,886);

(iii)

increased cash-based incentive compensation tied to higher revenue and profit levels (up $1,428);

(iv)

an increase in the fair value of the earnout obligation for the acquisition of the GenePOC business (up $1,135);

(v)

decreased restructuring expenses related to the business realignment and streamlining initiatives commenced in fiscal 2018 and largely completed in the first half of fiscal 2020 (down $1,071); and

(vi)

lower gains related to foreign currency (down $1,030).

Consolidated revenues for the fourth quarter of fiscal ~~2019~~2020 totaled ~~$50,846, a decrease~~$64,153, an increase of 4%26% compared to the fourth quarter of fiscal ~~2018, also decreasing 3%~~2019, increasing 25% on a constant-currency basis.

Revenues for the Diagnostics segment for the fourth quarter of fiscal ~~2019~~2020 decreased 9%11% compared to the fourth quarter of fiscal ~~2018~~2019 (also 9%11% on a constant-currency basis), comprised of a ~~22%~~23% decrease in molecular assay products and ~~a 6%~~an 8% decrease in ~~immunoassay and blood chemistry~~

non-molecular

assay products. During the fourth quarter, we experienced a rebound from the previously noted impact of the

COVID-19

pandemic on our placement of molecular assay products. This positive activity resulted in 62 net placements of our Revogene system during the fourth quarter of fiscal 2020 and a total Revogene system install base of 231 systems as of September 30, 2020. With a ~~13% decrease~~294% increase in ~~its~~revenues from molecular reagents products and ~~a 21% increase in its~~flat revenues from immunological reagents products, revenues for our Life Science segment increased ~~7% in~~97% during the fourth quarter of fiscal ~~2019~~2020 compared to the fourth quarter of fiscal ~~2018.~~2019. On a constant-currency basis, revenues for ~~our~~the Life Science ~~Segment~~segment increased 9%95%.

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~~Table of Contents~~

~~The fourth quarter Diagnostics revenues reflect continued competitive pressures in a number of our products, particularly~~

~~C. difficile~~

~~and foodborne, volume and pricing declines in certain gastrointestinal products, and the effects of initially lighter shipments of respiratory products in advance of the upcoming season.~~ Life Science revenues ~~for the fourth quarter~~ reflect ~~double-digit growth from IVD customers purchasing immunological reagents~~a significant increase in the ~~EMEA region,~~sales of key molecular components such as ~~well as China, offset by declines~~RNA master mixes and deoxyribonucleotide triphosphates (“dNTPs”) to diagnostic test manufacturers for use in ~~transitioning our academic business~~

COVID-19

related PCR tests. Also contributing to ~~independent distributors~~the record revenue levels during the quarter were sales of recombinant antigens used in ~~the Americas region.~~

COVID-19

antibody tests and monoclonal antibody pairs used in antigen tests.

Fiscal Year

Net earnings for fiscal ~~2019~~2020 increased 2%89% to ~~$24,382,~~$46,186, or ~~$0.57~~$1.07 per diluted share, from net earnings for fiscal ~~2018~~2019 of ~~$23,849,~~$24,382, or ~~$0.56~~$0.57 per diluted share. ~~Fiscal 2019 results include $6,230~~The level of ~~costs associated with acquisition activities, restructuring activities and selected legal proceedings (combined impact on~~ net earnings ~~of $4,760, or $0.11 per diluted share). Fiscal 2018 results include $13,051 of costs associated with restructuring activities and selected legal proceedings, along with certain~~

~~one-time~~

~~tax~~in the fiscal 2020 fourth quarter were affected by several factors, including most notably the combined effects of the ~~U.S. tax reform act enacted in December 2017 (combined impact~~following (amounts presented on ~~net earnings~~a

pre-tax

basis):

(i)

significantly higher revenue in the Life Science operating segment, due to supplying key molecular components, monoclonal antibodies and recombinant antigens to diagnostic test manufacturers for use in

COVID-19

related PCR, antigen and antibody tests (up $68,203);

(ii)

higher research and development spending in the Diagnostics segment under new product development programs (up $6,909);

(iii)

increased cash-based incentive compensation tied to higher revenue and profit levels (up $6,325);

- 27 -

Table of ~~$7,856, or $0.18 per diluted share).~~ Contents

(iv)

increased intangible asset amortization, primarily resulting from purchase accounting amortization related to the acquisitions of Exalenz and the GenePOC business in April 2020 and June 2019, respectively (up $3,413);

(v)

increased acquisition-related costs in connection with the fiscal 2020 Exalenz transaction, as compared to those related to the GenePOC transaction in fiscal 2019 (up $2,082);

(vi)

a net decrease in the fair value of the earnout obligation for the acquisition of the GenePOC business (down $6,293); and

(vii)

decreased restructuring expenses related to the business realignment and streamlining initiatives commenced in fiscal 2018 (down $2,152).

Consolidated revenues ~~decreased 6% to $201,014~~ for fiscal ~~2019~~2020 totaled $253,667, an increase of 26% compared to fiscal ~~2018, decreasing 5%~~2019, increasing 27% on a constant-currency basis.

~~In fiscal 2019, revenues~~Revenues for the Diagnostics segment decreased 9%11% in fiscal 2020 compared to fiscal ~~2018 (8%~~2019 (also 11% on a constant-currency basis)~~. This decrease is~~, comprised of a ~~22%~~17% decrease in ~~our~~ molecular assay products and a 5%10% decrease in ~~immunoassay and blood chemistry~~

non-molecular

assay products. Considering the impact of the

COVID-19

pandemic on the placement of our molecular assay products throughout the year and the recent rebound in such activity, we placed approximately 170 Revogene systems during fiscal 2020, resulting in a total Revogene system install base of 231 systems as of September 30, 2020. With a ~~5% decrease~~237% increase in ~~its~~revenues from molecular reagents ~~business~~products and a 6%32% increase in ~~its~~revenues from immunological reagents ~~business,~~products, revenues offor our Life Science segment increased 2%106% during fiscal ~~2019~~2020 compared to fiscal ~~2018, increasing 3% on~~2019. On a constant-currency ~~basis.~~basis, revenues for the Life Science segment increased 107%. Life Science revenues reflect a significant increase in the sales of key molecular components such as RNA master mixes and deoxyribonucleotide triphosphates (“dNTPs”) to diagnostic test manufacturers for use in

COVID-19

related PCR tests. Also contributing to the record revenue levels during the year were sales of recombinant antigens used in

COVID-19

antibody tests and monoclonal antibody pairs used in antigen tests.

Update on Lead Testing

~~On June 29, 2017, the FDA, in connection with its Safety Notification related to Magellan’s LeadCare~~

~~testing systems for venous blood samples, issued to Magellan its Form 483, Inspectional Observations. The FDA issued a related Warning Letter on October 23, 2017.~~ As a result of these activities, during our 2017 third fiscal quarter, it was determined that a potential impairment of goodwill recorded in connection with the acquisition of Magellan had occurred (i.e., a “triggering event”). An impairment charge of $6,628, on both a

~~pre-tax~~

~~and~~

~~after-tax~~

~~basis, was recorded during the fiscal 2017 third quarter as set forth in Note 1(h),~~

~~“Summary of Significant Accounting Policies – Intangible Assets”~~

~~of the accompanying Consolidated Financial Statements. As also previously disclosed and set forth~~described in Item 3. “Legal Proceedings”, on April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we continue to cooperate with the DOJ in this matter, including responding to additional information requests. We have executed tolling agreements to extend the statute of limitations.

Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare

II, LeadCare

Plus

™

and LeadCare Ultra

testing systems. In the second fiscal quarter of 2019 the FDA informed Magellan that each of these 510(k) applications had been put on Additional Information hold. On July 15, 2019, we provided responses to the FDA’s requests for Additional Information. These 510(k) applications have since expired and are no longer under FDA review. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of Magellan’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by the FDA or the Centers for Disease Control and Prevention is necessary to protect the public health. Meridian intends to fully cooperate with the FDA as the third-party study is completed.

During October 2019, the FDA performed a

follow-up

inspection of Magellan’s manufacturing facility. The FDA issued five Form FDA 483 observations. ~~In November 2019,~~On March 18, 2020, we participated in a regulatory meeting with the FDA at the FDA’s request to further discuss the Form FDA 483 observations and our remediation efforts. Over the last year, we have submitted a number of written responses to the FDA ~~our written responses to~~regarding the five Form 483 observations issued in the October 2019 inspection, and have ~~implemented~~worked diligently to execute a remediation ~~plan that we are actively working.~~plan. During October 2020, the FDA issued Establishment Inspection Reports which closed out the inspections from June 2017 and October 2019 under 21 C.F.R.20.64 (d) (3). The Warning Letter issued in October 2017 remains outstanding, pending a future FDA inspection. While we remain committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA.

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Table of Contents

During fiscal 2019, 2018 and 2017, we incurred approximately $1,800 in aggregate remediation costs, primarily related to regulatory consultants and studies required to reinstate our venous blood sample claim.

In the course of remediation, we may encounter additional matters that warrant notifications to the FDA and/or customers regarding the use of our products. At this time, we do not believe that any such notifications would impact the ability to use the LeadCare systems with capillary blood samples.

While we remain confident in the performance of the Magellan LeadCare testing systems using capillary samples, we do not expect that the FDA will reinstate our venous blood claims. We can provide no assurance that the ongoing investigation and study of the DOJ and FDA, respectively, or future exercise of their respective enforcement, regulatory, discretionary or other powers will not result in findings or alleged violations of federal laws that could lead to enforcement actions, proceedings or litigation, ~~and~~and/or the imposition of damages, fines, penalties, restitution, other monetary liabilities, sanctions, injunctions, settlements or changes to our business practices, product offerings or operations that could have a material adverse effect on our business, financial condition or results of operations; or eliminate altogether our ability to operate our lead testing business or on terms substantially similar to those on which we currently operate.

REVENUE OVERVIEW

Below are analyses of the Company’s revenue, by reportable segment, provided for each of the following:

- By Geographic Region

- By Product Platform/Type

Revenue ~~Overview-~~Overview - By Reportable Segment & Geographic Region

Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease ~~diagnostic~~ products in Cincinnati, ~~Ohio and~~Ohio; Quebec City, ~~Canada,~~Canada; and Modi’in, Israel; and manufacturing operations for blood chemistry products ~~detecting elevated lead levels in blood~~ in Billerica, Massachusetts (near Boston). These diagnostic test products are sold and distributed in the countries comprising North and Latin America (the “Americas”); Europe, Middle East and Africa (“EMEA”); and other countries outside of the Americas and EMEA (rest of the world, or “ROW”). The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia.

Revenues for the Diagnostics segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, seasonality and ~~the~~ severity of seasonal diseases and outbreaks (including the

COVID-19

pandemic), and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major IVD manufacturing customers, severity of disease outbreaks and foreign currency exchange rates. The severity of the

COVID-19

pandemic contributed $71,500 of new revenue for our Life Science segment during fiscal 2020.

See the “Revenue Disaggregation” section of Note 1,

“Significant Accounting Policies”

of the accompanying Consolidated Financial Statements for detailed revenue disaggregation information.

Following is a discussion of the revenues generated by these product platforms/types and/or disease states:

Diagnostics Products

The ~~acquisition~~acquisitions of the Revogene molecular diagnostics platform and the BreathID breath test system, the development of the Curian immunoassay platform, and the expansion of the related assay-menu for each of these platforms are important steps in addressing competitive pressures in our gastrointestinal and respiratory illness assay families. We are actively converting our existing Alethia install base to the Revogene platform for

C. difficile

, Group A

Streptococcus

(“Group A Strep”) and Group B

Streptococcus

(“Group B Strep”) assays. ~~During~~As previously noted, the

COVID-19

pandemic dramatically slowed the placement of our ~~first 120 days since acquiring~~molecular instruments and related assay products throughout the year, resulting in approximately 170 net placements of our Revogene ~~platform,~~system during fiscal 2020 and a total Revogene system install base of 231 systems as of September 30, 2020. In March 2020, we ~~have approximately 60 instrument installations. For~~received clearance from the FDA for the Curian immunoassay diagnostics ~~platform, we submitted a 510(k) for the~~ instrument and its first assay, a test for

H. pylori

antigen in ~~stool, in September 2019.~~stool. We believe the advantages of the Curian analyzer will help protect our existing rapid test accounts.

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Table of Contents

Gastrointestinal Assays

During fiscal ~~2019,~~2020, revenues from our gastrointestinal products, which include tests for

C. difficile

H. pylori

and certain foodborne pathogens, among others, totaled ~~$68,977.~~$55,040. This represents a ~~13%~~20% decrease from fiscal ~~2018~~2019 and follows a ~~less than 1% increase~~12% decrease during fiscal ~~2018.~~2019. We continue to face pricing and volume pressures within this product category that will carry into fiscal ~~2020~~2021 and beyond for our current products. ~~We have executed multi-year supply agreements with~~Our acquisition of Exalenz and the BreathID system has strengthened our ~~two largest reference laboratory customers~~overall position in

non-invasive,

active infection testing for

H. pylori

~~tests to secure volume, albeit at lower selling prices.~~. We continue to believe there are ongoing benefits to be realized from our partnerships with managed care companies in promoting: (i) the health and economic benefits of a test and treat strategy; (ii) changes in policies that discourage the use of traditional serology methods and promote the utilization of active infection testing methods; and (iii) physician behavior movement away from serology-based testing and toward direct antigen testing.

Contributing to the competitive pressures being faced in this product category, the patents for our stool antigen

H. pylori

products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our stool antigen

H. pylori

products to continue to increase, and such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. InWe have executed on a number of measures to address competitive pressures in coming off patent including: (i) in October 2018, we entered into a strategic collaboration with DiaSorin to sell

H. pylori

~~tests, one of only three other companies that market~~

~~FDA-cleared~~

~~tests to detect~~tests; (ii) we have executed multi-year supply agreements with our two largest reference laboratory customers for

H. pylori

tests to secure volume, albeit at lower selling prices; and (iii) upon FDA clearance in March 2020, we launched Curian HpSA, our first assay on the new Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We also expect the acquisition of the Exalenz BreathID platform to combat competitive pressures, as we believe that we are now the only company with

FDA-cleared,

non-invasive

assays for both stool antigen and urea breath samples, allowing physicians a choice in ~~stool samples in the U.S. market.~~test format from a single supplier. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit.

Respiratory Illness Assays

~~Including~~Revenues from sale of our respiratory illness products, which include tests for ~~influenza, RSV,~~ Group A Strep, ~~Pertussis, and~~ Mycoplasma pneumonia, Influenza, and Pertussis, among others, ~~our respiratory illness product revenues decreased 8% in~~remained relatively flat during fiscal ~~2019, following a 21% increase in fiscal 2018.~~2020, totaling $26,694 and primarily reflecting the

COVID-19

pandemic’s negative effect on demand. These revenue levels ~~reflect a lighter 2018 – 2019~~follow an 8% decrease in respiratory ~~season, as compared to the particularly strong 2017 – 2018 respiratory season, as measured by the rate of laboratory-confirmed influenza hospitalizations (published by the CDC).~~product revenues in fiscal 2019.

Blood Chemistry Assays

Revenues from our sale of products to test for elevated levels of lead in blood ~~remained relatively flat~~decreased 6% during fiscal ~~2019 at $19,082. This follows~~2020 to $17,534. Beginning in the latter part of March 2020, we generally experienced lower demand for our blood-lead test as a result of the

COVID-19

pandemic. However, since the latter part of June and throughout the fourth fiscal ~~2018~~quarter, we have seen shipments to our largest independent distributor return to

pre-pandemic

levels. During fiscal 2019, revenues from such products ~~increasing 5% over fiscal 2017. Nominal favorable pricing offset nominal volume declines in fiscal 2019.~~

decreased 2%.

Life Science Products

During fiscal ~~2019,~~2020, revenues from our Life Science segment increased 106%, with revenues from molecular reagent sales increasing 237% compared to fiscal 2019 and revenues from immunological reagent sales increasing 32%. Life Science segment revenues increased 2%, in fiscal 2019, with revenues from molecular reagent sales decreasing 5% compared to fiscal 2018 and revenues from immunological reagent sales increasing 6%. Life Science segment revenues increased 10% in fiscal 2018, with revenues from molecular reagent sales increasing 12% compared to fiscal 2017 and revenues from immunological reagent sales increasing 9%. Our Life Science segment’s growth was nominally impacted by the movement in currency exchange rates since fiscal ~~2018,~~2019, with revenues increasing 3%107% on a constant-currency basis over fiscal ~~2018. During fiscal 2019, our Life Science segment continued~~2019. The increase in revenues was primarily attributable to ~~benefit~~the increased demand for key molecular components such as RNA master mixes and dNTPs from diagnostic test manufacturers for use in

COVID-19

related PCR tests, as well as recombinant antigens used in antibody tests and monoclonal antibodies used in antigen tests. Largely as a result of this

COVID-19

related demand, revenue from sales into China ~~with such sales totaling~~totaled approximately ~~$8,400~~$19,000 during fiscal ~~2019~~2020 – representing an ~~approximate 1%~~ increase of approximately 127% over fiscal ~~2018.~~2019. COVID-related reagent revenues totaled approximately $71,500 during fiscal 2020.

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Foreign Currency

Fluctuations in foreign currency exchange rates since fiscal ~~2018~~2019 had an approximate ~~$2,200~~$1,250 unfavorable impact on fiscal ~~2019~~2020 revenues; ~~$1,150~~$150 within the Diagnostics segment and ~~$1,050~~$1,100 within the Life Science segment. This compares to

year-to-year

currency exchange rates having an approximate $2,200 favorable impact on revenues in fiscal ~~2018; $1,400~~2019; $1,150 within the Diagnostics segment and ~~$800~~$1,050 within the Life Science segment. Due to natural hedge relationships with expenses, both cost of sales and operating expenses, the overall impact of exchange rate fluctuations on net earnings was not significant during fiscal 2019, 2018 or 2017.

Significant Customers

Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 910 of the accompanying Consolidated Financial Statements.

~~- 27 -~~

~~Table of Contents~~

Gross Profit:

2019

2018

2017

2019 vs.
2018
Inc (Dec)

2018 vs.
2017
Inc (Dec)

Gross Profit
$
118,325
$
130,697
$
124,292

(9
%)
5
%
Gross Profit Margin

59
%
61
%
62
%
-2 points

-1 point


	2020			2019			2018			2020 vs. 2019 Inc (Dec)			2019 vs. 2018 Inc (Dec)
Gross Profit	$	156,248		$	118,728		$	131,033			32	%		(9	%)
Gross Profit Margin		62	%		59	%		61	%		3 points			-2 points

The ~~overall~~ gross profit margin increase experienced in fiscal 2020 results primarily from the positive impacts of a significantly higher percentage of the Life Science segment’s revenue relating to sales of molecular products and the segment’s manufacturing of larger-than-normal batch sizes for the RNA master mixes, both in response to the

COVID-19

pandemic demand, partially offset by the combined effects of: (i) previously-noted pricing changes within our

H. pylori

product line; (ii) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; and (iii) production capacity

ramp-up

costs for our Quebec facility where Revogene instruments and test devices are made. The overall decrease ~~during~~in the gross profit margin from fiscal 2018 to fiscal 2019 ~~primarily results from~~reflects the combined effects of: (i) previously-noted pricing changes within our

H. pylori

product line; (ii) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; (iii) production capacity

ramp-up

costs for our ~~newly acquired~~ Quebec ~~facility where Revogene instruments and test devices are made;~~facility; and (iv) operating segment mix. The overall decrease in the gross profit margin from fiscal 2017 to fiscal 2018 reflects the combined effects of: (i) pricing pressure in our Diagnostics segment; (ii) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; and (iii) operating segment mix.

Operating Expenses -

Segment Detail

Research &
Development

Selling &
Marketing

General &
Administrative

Other

Total Operating
Expenses

Fiscal 2017:

Diagnostics
$
13,433
$
22,942
$
13,268
$
6,628
$
56,271

Life Science

2,603

9,446

7,493

—

19,542

Corporate

—

—

10,335

762

11,097

Total 2017 Expenses
$
16,036
$
32,388
$
31,096
$
7,390
$
86,910

Fiscal 2018:

Diagnostics
$
13,742
$
25,002
$
19,397
$
4,032
$
62,173

Life Science

3,047

9,466

8,111

1,240

21,864

Corporate

—

—

7,297

7,779

15,076

Total 2018 Expenses
$
16,789
$
34,468
$
34,805
$
13,051
$
99,113

Fiscal 2019:

Diagnostics
$
14,711
$
23,058
$
19,191
$
3,446
$
60,406

Life Science

3,237

5,388

6,034

188

14,847

Corporate

—

—

7,777

2,596

10,373

Total 2019 Expenses
$
17,948
$
28,446
$
33,002
$
6,230
$
85,626


	Research & Development		Selling & Marketing		General & Administrative		Other			Total Operating Expenses
Fiscal 2018:
Diagnostics	$	13,579	$	24,659	$	18,120	$	4,032		$	60,390
Life Science		3,034		9,367		10,342		1,240			23,983
Corporate		—		—		7,297		7,779			15,076

Total 2018 Expenses	$	16,613	$	34,026	$	35,759	$	13,051		$	99,449

Fiscal 2019:
Diagnostics	$	14,545	$	22,695	$	17,081	$	3,446		$	57,767
Life Science		3,215		5,300		9,186		188			17,889
Corporate		—		—		7,777		2,596			10,373

Total 2019 Expenses	$	17,760	$	27,995	$	34,044	$	6,230		$	86,029

Fiscal 2020:
Diagnostics	$	21,454	$	21,172	$	23,233	$	(1,916	)	$	63,943
Life Science		2,275		5,314		11,755		200			19,544
Corporate		—		—		9,357		2,080			11,437

Total 2020 Expenses	$	23,729	$	26,486	$	44,345	$	364		$	94,924

- 2831 -

Table of Contents

Operating Expenses -

Comparisons to Prior Year

Periods

Research &
Development

Selling &
Marketing

General &
Administrative

Other

Total Operating
Expenses

2017 Expenses
$
16,036
$
32,388
$
31,096
$
7,390
$
86,910

% of Revenues

8
%
16
%
15
%
4
%
43
%
Fiscal 2018 Increases (Decreases):

Diagnostics

309

2,060

6,129

(2,596
)
5,902

Life Science

444

20

618

1,240

2,322

Corporate

—

—

(3,038
)
7,017

3,979

2018 Expenses
$
16,789
$
34,468
$
34,805
$
13,051
$
99,113

% of Revenues

8
%
16
%
16
%
6
%
46
%
% Increase

5
%
6
%
12
%
77
%
14
%
Fiscal 2019 Increases (Decreases):

Diagnostics

969

(1,944
)
(206
)
(586
)
(1,767
)
Life Science

190

(4,078
)
(2,077
)
(1,052
)
(7,017
)
Corporate

—

—

480

(5,183
)
(4,703
)

2019 Expenses
$
17,948
$
28,446
$
33,002
$
6,230
$
85,626

% of Revenues

9
%
14
%
16
%
3
%
43
%
% Increase (Decrease)

7
%
(17
%)
(5
%)
(52
%)
(14
%)


	Research & Development			Selling & Marketing			General & Administrative			Other			Total Operating Expenses
2018 Expenses	$	16,613		$	34,026		$	35,759		$	13,051		$	99,449

% of Revenues		8	%		16	%		17	%		6	%		47	%
Fiscal 2019 Increases (Decreases):
Diagnostics		966			(1,964	)		(1,039	)		(586	)		(2,623	)
Life Science		181			(4,067	)		(1,156	)		(1,052	)		(6,094	)
Corporate		—			—			480			(5,183	)		(4,703	)

2019 Expenses	$	17,760		$	27,995		$	34,044		$	6,230		$	86,029

% of Revenues		9	%		14	%		17	%		3	%		43	%
% Increase (Decrease)		7	%		(18	%)		(5	%)		(52	%)		(13	%)
Fiscal 2020 Increases (Decreases):
Diagnostics		6,909			(1,523	)		6,152			(5,362	)		6,176
Life Science		(940	)		14			2,569			12			1,655
Corporate		—			—			1,580			(516	)		1,064

2020 Expenses	$	23,729		$	26,486		$	44,345		$	364		$	94,924

% of Revenues		9	%		10	%		17	%		—	%		37	%
% Increase (Decrease)		34	%		(5	%)		30	%		(94	%)		10	%

Total operating expenses fluctuated during fiscal ~~2019~~2020 and fiscal ~~2018~~2019 primarily as a result of the combined effects of the following:

Fiscal 2020 increase

Increased Research & Development costs, primarily reflecting the development of the molecular

SARS-CoV-2

assay and molecular GI and RI panel assays for the Diagnostics operating segment, and to a lesser degree, the addition of Exalenz research and development expenses since the April 30, 2020 date of acquisition;

Decreased Selling & Marketing costs, primarily reflecting the effects of reduced travel from restrictions imposed during the

COVID-19

pandemic and the effect such restrictions have had on general sales and marketing activities;

Increased General & Administrative costs, primarily reflecting additional investment in incentive compensation, along with the purchase accounting amortization from the acquisitions of Exalenz and the GenePOC business; and

Increased acquisition costs and decreased restructuring costs, along with a net decrease in fair value of the contingent consideration obligation for the GenePOC business, all of which are reflected within “Other” in the above tables.

Fiscal 2019 decrease

Increased Research & Development costs, reflecting the addition of the GenePOC business expenses for the development of the GI and RI panel assays since the June 3, 2019 date of acquisition, ~~being more than~~partially offset by the decreased expenditures resulting from the timing of product development projects and the clinical trials for our cCMV test in fiscal 2018;

- 32 -

Table of Contents

Decreased Selling & Marketing costs due to: (i) the effects of the fiscal 2018 organization streamlining initiatives; and (ii) lower sales commissions resulting from the decrease in sales levels;

Decreased General & Administrative costs, reflecting the effects of the fiscal 2018 organization streamlining initiatives and lower Quality System remediation costs related to our blood-lead manufacturing facility, partially offset by the addition of the GenePOC business expenses, including purchase accounting amortization; and

Decreased restructuring & selected legal costs, along with the effects of the fiscal 2019 acquisition-related costs (reflected within “Other” in the above tables).

~~Fiscal 2018 increase~~

Increased Selling & Marketing costs, reflecting increased commission and bonus payments made in connection with the increased revenue levels, along with costs associated with the new branding strategy;

Increased General & Administrative costs due in large part to the cash incentive compensation resulting from the revenue and net earnings results achieved, along with increased Quality System remediation costs related to Magellan;

~~- 29 -~~

~~Table of Contents~~

Increased restructuring costs, reflecting: (i) compensation and benefits for our previous Executive Chairman and CEO throughout fiscal 2018, the period during which we also have the compensation and benefits of a new CEO; and (ii) the costs of terminations and related expenses incurred in connection with realigning our business structure; and

~~Increased legal costs related to the matters discussed in Item 3. “Legal Proceedings”.~~

Operating Income

Operating income increased 4%88% in fiscal ~~2019,~~2020, following a ~~15% decrease~~4% increase in fiscal ~~2018,~~2019, as a result of the factors discussed ~~above, including the acquisition-related, restructuring and selected legal costs in each of the fiscal years and the Magellan goodwill impairment charge in fiscal 2017.~~above.

Other Income and Expense

Other income and expense in fiscal 2020, 2019 ~~2018~~ and ~~2017~~2018 includes interest costs on the Company’s long-term ~~borrowings, which are comprised~~borrowings. The varying levels of the Company’s interest costs reflects the following ~~during these fiscal years:~~

~~Draws on~~approximate levels of average debt outstanding and the ~~revolving credit facility used to fund acquisition~~interest costs thereon, as detailed in Note 6 of the ~~business of GenePOC and pay off the term loan used to fund the March 2016 acquisition of Magellan (May~~accompanying Consolidated Financial Statements: (i) fiscal 2020 – $74,560; (ii) fiscal 2019 – ~~September 2019), bearing interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR.~~

~~Term loan used to fund the acquisition of Magellan (March 2016~~$57,938; and (iii) fiscal 2018 – ~~May 2017), bearing interest at an effective rate of 2.76%.~~$52,500.

Income Taxes

The effective rate for income taxes was ~~23%~~22%, ~~21%~~23% and ~~41%~~21% for fiscal 2020, 2019 and 2018, respectively. While relatively comparable to the fiscal 2019 and ~~2017, respectively. These~~fiscal 2018 rates, ~~reflect~~the fiscal 2020 tax rate reflects the combined ~~effect of various components~~effects of the following: (i) a significantly higher percentage of pretax income being generated in foreign jurisdictions with tax ~~reform act (see Note 6,~~rates lower than the U.S., particularly the United Kingdom; and (ii) the

~~“Income Taxes”~~non-deductibility

of a significant portion of the ~~accompanying Consolidated Financial Statements) including: (i) the lowering of the applicable tax rate; (ii) the accompanying~~

~~re-measurement~~

~~of deferred tax balances at the lower rate; and (iii) the various foreign-income related items, such as the repatriation transition tax, the tax deduction~~acquisition-related costs related to ~~Foreign Derived Intangible Income, and the tax related to Global Intangible~~

~~Low-Taxed~~

~~Income and foreign tax credits.~~Exalenz.

Impact of Inflation

To the extent feasible, we have consistently followed the practice of ~~adjusting~~reviewing our prices to ~~reflect~~consider the ~~impact~~impacts of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services. Inflation and changing prices did not have a material adverse impact on our gross margin, revenues or operating income in fiscal 2020, 2019 ~~2018 or 2017.~~and 2018.

Liquidity and Capital Resources

Liquidity

Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets and debt ~~service, and consideration of common share dividends.~~service. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities.

We have an investment policy that guides the holdings of our investment portfolio, which presently consists of bank savings accounts and institutional money market mutual funds. Our objectives in managing the investment portfolio are to: (i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund strategic objectives such as acquisitions; and (iii) capture a market rate of return commensurate with market conditions and our policy’s investment eligibility criteria. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective.

~~- 30 -~~

~~Table of Contents~~

~~Considering the various worldwide~~

~~geo-political~~

~~and~~

~~geo-economic~~

conditions (including Brexit, as more fully discussed within the “Risk Factors” section of Part 1A), we do not expect macroeconomic conditions to have a significant impact on our liquidity needs, financial condition or results of operations, although no assurances can be made in this regard. We intend to continue to fund our working capital requirements from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through the amount remaining available on our ~~$125,000~~$160,000 bank revolving credit facility, which totaled approximately ~~$49,200~~$91,200 as of September 30, ~~2019.~~2020. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period of time, and such conditions impact the collectability of our customer accounts receivable, impact credit terms with our vendors, or disrupt the supply of raw materials and services.

- 33 -

Table of Contents

During fiscal 2020, we generated a record level of cash flow from operations totaling $47,976. This level of cash resulted from the achievement of record fiscal year revenues, along with well-managed accounts receivable balances, including the requirement of advance payments in certain instances, as illustrated by an approximate 26% increase in consolidated revenues and only an approximate 5% increase in

year-end

accounts receivable balances.

Our levels of inventory increased approximately $21,600 to $61,264 between September 30, 2019 and September 30, 2020. This increase was attributable to inventory builds in both our Diagnostics and Life Science segments to protect against future supply interruptions and to meet

COVID-19

related demand. For our Diagnostics segment, we also have maintained inventory levels in anticipation of a return to

pre-pandemic

diagnostic testing activity and have BreathID inventory on hand for the first time in fiscal 2020 as a result of the Exalenz acquisition. We are actively managing our inventory levels and are expecting reductions during the first half of fiscal 2021.

As of September 30, ~~2019,~~2020, our cash and equivalents balance ~~is $62,397~~was $53,514 or ~~$2,634 higher~~approximately $8,900 lower than at the end of fiscal ~~2018. This increase results in large part from~~2019. As a result of the cash ~~flows~~generated from ~~operating~~operations during fiscal 2020 and the financing activities ~~being more than sufficient~~related to ~~cover capital expenditures, shareholder dividends for two quarters~~the Exalenz acquisition, since the beginning of fiscal 2020, our balance of net debt (defined as bank debt, government grant obligations and ~~debt service.~~total contingent obligations related to the acquisition of the GenePOC business, net of cash and equivalents

on-hand)

has increased approximately $6,700 to approximately $52,300 at September 30, 2020. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and debt service during the next 12twelve months.

The impacts of

COVID-19

have adversely affected the capital markets and the ability of many companies to access capital and liquidity on favorable terms or at all. The Company believes it has sufficient liquidity and cash flows to meet its operating and debt service requirements for at least the next twelve months and expects to be in compliance with its financial covenants during this same period. However, given the unusual nature of the

COVID-19

pandemic and the rapidly changing environment, we can provide no assurances in this regard and future impacts may materialize that are not currently known.

~~Following the declaration of a $0.125 first quarter cash dividend consistent with the previously established $0.50 per share annual indicated dividend rate, effective for the second quarter of fiscal~~In April 2019, we suspended the payment of our quarterly cash dividend. The dividend was suspended as part of our regular evaluation of capital allocation, with the action taken in order to deploy cash into new product development activities for the Revogene molecular diagnostic platform, as well as the Curian and ~~PediaStat~~Pediastat platforms, among other investments, and to preserve capital resources and liquidity for general corporate purposes.

Capital Resources

As described in Note 5,6,

“Bank Credit Arrangements”

of the accompanying Consolidated Financial Statements ~~on May 24, 2019, in connection with the acquisition of the GenePOC business,~~and above, the Company ~~executed~~maintains a ~~new five-year $125,000 revolving~~$160,000 credit facility, ~~to replace our previously-existing $30,000 credit facility. The new credit facility~~which is secured by substantially all of our U.S. assets and includes certain restrictive financial covenants. ~~To date, we have drawn down $75,824~~The Company also maintains a shelf registration statement on ~~this new facility, using~~file with the ~~proceeds to repay our previously-existing term loan~~Securities and ~~along with cash~~

~~on-hand,~~Exchange Commission.

~~fund the acquisition of the GenePOC business.~~

Our capital expenditures totaled ~~$3,797~~$3,299 for fiscal ~~2019~~2020 and were largely related to laboratory and manufacturing equipment. During fiscal ~~2020~~2021 our capital expenditures are estimated to range between approximately $4,000 ~~to $5,000, with~~and $17,000. Our Diagnostics segment capital expenditures could be as high as $14,000, depending upon the ~~actual amount dependent upon actual operating results~~level of manufacturing

scale-up

we execute in anticipation of Revogene

COVID-19

assay production, and ~~the phasing of certain projects.~~our Life Science segment capital expenditures could be as high as $3,000, reflecting manufacturing capacity expansion at various locations. Such expenditures may be funded with cash and equivalents on hand, operating cash flows and/or availability under the ~~$125,000~~$160,000 revolving credit facility discussed above. In addition, a portion of the Diagnostics expansion may possibly be funded by certain grants for which we are applying, none of which we are assured of receiving as of the date of this filing.

- 34 -

Table of Contents

Known Contractual Obligations

In addition to the obligations related to the above-noted revolving credit facility ~~noted above~~ and the contingent government grant obligations detailed in Note 5,6,

“Bank Credit Arrangements”

and Note 9,

“Contingent Obligations and

Non-Current

Liabilities”

of the accompanying Consolidated Financial Statements, respectively, the Company’s known contractual obligations and their related due dates were as follows as of September 30, ~~2019:~~

Total

Less than 1
Year

1-3
Years

4-5
Years

More than
5 Years

Operating leases
(1)
$
6,567
$
1,528
$
3,711
$
1,145
$
183

Purchase obligations
(2)

14,995

14,203

737

55

—

Acquisition price holdback and contingent consideration
(3)

75,000

—

75,000

—

—

Uncertain income tax positions liability and interest
(4)

511

511

—

—

—

Total
$
97,073
$
16,242
$
79,448
$
1,200
$
183

2020:


	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
Operating leases (1)	$	6,968	$	2,002	$	3,015	$	1,669	$	282
Purchase obligations (2)		27,691		26,315		1,376		—		—
Acquisition price holdback and contingent consideration (3)		69,000		5,000		64,000		—		—

Uncertain income tax positions liability and interest (4)		706		706		—		—		—

Total	$	104,365	$	34,023	$	68,391	$	1,669	$	282

~~- 31 -~~

~~Table of Contents~~

(1)	Meridian and its subsidiaries are parties to a number of operating lease agreements around the world, the majority of which relate to office and warehouse building leases expiring at various dates.

(2)	Purchase obligations relate primarily to outstanding purchase orders for inventory, including instruments, service items, and research and development activities. These contractual commitments are not in excess of expected production requirements over the next twelve months.

(3)

Pursuant to the purchase agreement related to the June 3, 2019 acquisition of the business of GenePOC, as amended during fiscal 2020, Meridian’s maximum remaining consideration to be paid totals ~~$75,000.~~$69,000. As noted below and detailed in Note 2,

“~~Acquisition of~~ Business ~~of GenePOC”~~Combinations”

of the accompanying Consolidated Financial Statements, this amount is comprised of: (i) a $5,000 purchase price holdback; and (ii) up to ~~$70,000~~$64,000 of payments contingent upon the achievement of certain product development milestones and financial performance targets, the ~~preliminary~~ valuation of which totals approximately ~~$27,200~~$20,909 as of September 30, ~~2019.~~2020.

(4)	Due to inherent uncertainties in the timing of settlement of tax positions, we are unable to estimate the timing of the effective settlement of these obligations.

Other Commitments and

Off-Balance

Sheet Arrangements

License Agreements

Meridian has entered into various license agreements that require payment of royalties based on a specified percentage of sales of related products. Approximately ~~84%~~81% of our royalty expenses relate to our Diagnostics operating segment, where the royalty rates range from 3% to 8%. Meridian expects that payments under these agreements will amount to approximately ~~$2,100~~$1,700 in fiscal ~~2020.~~2021.

Contingent Consideration for Acquisition of Business of GenePOC

Details of the purchase price holdback and contingent consideration due to be paid pursuant to the purchase agreement related to the June 3, 2019 acquisition of the business of GenePOC are set forth in Note 2,

“~~Acquisition of~~ Business ~~of GenePOC”~~Combinations”

of the accompanying Consolidated Financial Statements.

Off-Balance

Sheet Arrangements

We do not utilize special-purpose financing vehicles or have undisclosed

off-balance

sheet arrangements.

- 35 -

Table of Contents

Market Risk Exposure

Foreign Currency Risk

We have market risk exposure related to foreign currency transactions from our operations outside the United States, as well as certain suppliers to our domestic businesses located outside the United States. The foreign currencies where we have market risk exposure are the Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and ~~Euro.~~New Israeli shekel. Assessing foreign currency exposures is a component of our overall ongoing risk management process, with such currency risks managed as we deem appropriate.

Concentration of Customers/Products Risk

Our Diagnostics segment’s revenues from sales through two U.S. distributors were ~~26%~~23% of the segment’s total revenues or ~~18%~~12% of consolidated revenues for fiscal ~~2019.~~2020. Additionally, our three major product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for ~~84%~~82% of our Diagnostics segment’s third-party revenues during fiscal ~~2019,~~2020, and ~~57%~~39% of our fiscal ~~2019~~2020 consolidated revenues.

Our Life Science segment’s revenues from sales of purified antigens and reagents to ~~two~~three diagnostics manufacturing customers were ~~24%~~27% of the segment’s total revenues for fiscal ~~2019,~~2020, and 8%14% of our fiscal ~~2019~~2020 consolidated revenues.

~~- 32 -~~

~~Table~~ Additionally, sales of ~~Contents~~products related to

COVID-19

accounted for 54% of our Life Science segment’s third-party revenues during fiscal 2020, and 28% of our 2020 consolidated revenues.

Critical Accounting Policies

The consolidated financial statements included in this Annual Report on Form

10-K

have been prepared in accordance with accounting principles generally accepted in the United States. Such accounting principles require management to make judgments about estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Listed below are the accounting policies management believes to be critical to understanding the accompanying Consolidated Financial Statements, along with reference to location of the policy discussion within the accompanying financial statements. The listed policies are considered critical due to the fact that application of such polices requires the use of significant estimates and assumptions, and the carrying values of related assets and liabilities are material.


Accounting Policy	Location Within Consolidated Financial Statements	Examples of Key Estimate Assumptions
Inventories	Note 1(f)	Slow-moving, excess & obsolete inventories

Intangible Assets	Note 1(h)
~~Intangible Assets~~	~~Note 1(h)~~	Triggering events and impairment conditions

Revenue Recognition	Note 1(i)
~~Revenue Recognition~~	~~Note 1(i)~~	Distributor price adjustments and fee accruals

Fair Value Measurements	Note 1(j)	Valuation of interest rate swap agreements and contingent consideration
~~Fair Value Measurements~~
Income Taxes	~~Note 1(j)~~	~~Valuation of contingent consideration~~

~~Income Taxes~~	Note 1(l) and Note 6 7	Uncertain tax positions and state apportionment factors

Recent Accounting Pronouncements

A description of accounting pronouncements recently adopted by the Company, as well as accounting pronouncements issued but not yet adopted by the Company, are set forth in Note 1(q) of the accompanying Consolidated Financial Statements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Market Risk Exposure and Capital Resources under Item 7 above beginning on page ~~24.~~25.

- 3336 -

Table of Contents

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements


Management’s Report on Internal Control over Financial Reporting			35 38

Reports of Independent Registered Public Accounting Firm			36 39

Consolidated Statements of Operations for the years ended September 30, 2020, 2019 ~~2018~~ and ~~2017~~2018			41 43

Consolidated Statements of Comprehensive Income for the years ended September 30, 2020, 2019 ~~2018~~ and ~~2017~~2018			42 44

Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019 ~~2018~~ and ~~2017~~2018			43 45

Consolidated Balance Sheets as of September 30, ~~2019~~2020 and ~~2018~~2019			44 46

Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2020, 2019 ~~2018~~ and ~~2017~~2018			46 48

Notes to Consolidated Financial Statements			47 49

Schedule No. II – Valuation and Qualifying Accounts for the years ended September 30, 2020, 2019 ~~2018~~ and ~~2017~~2018			74 79

All other supplemental schedules are omitted due to the absence of conditions under which they are required or because the information is shown in the Consolidated Financial Statements or Notes thereto.

- 3437 -

Table of Contents

~~Management’s Report on Internal Control over Financial Reporting~~

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule

13a-15(f).

The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) 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 (iii) 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.

Because of its inherent limitations, internal control over financial reporting can only provide reasonable assurance and 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.

Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, ~~2019,~~2020, based on the framework and criteria in the 2013

Internal Control – Integrated Framework,

issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on management’s evaluation and those criteria, the Company concluded that its system of internal control over financial reporting was effective as of September 30, ~~2019.~~2020. The Company’s assessment of and conclusion on the effectiveness of its internal control over financial reporting did not include the internal controls of wholly-owned subsidiaries Meridian Bioscience ~~Canada,~~Israel Holding Ltd. and Exalenz Bioscience, Inc. ~~(“GenePOC”~~(collectively “Exalenz”), which ~~was~~were acquired during fiscal ~~2019~~2020 and the results of which since the date of acquisition were included in the ~~2019~~2020 consolidated financial statements. ~~GenePOC~~Exalenz constituted ~~$9,250~~$75,551 or ~~2.84%~~18.64% of the Company’s total assets as of September 30, ~~2019,~~2020, and ~~$75~~$4,206 or ~~0.04%~~1.66% of total net revenues, for the year ended September 30, ~~2019.~~2020.

The Company’s independent registered public accounting firm has issued an attestation report on the registrant’s internal control over financial reporting.


/s/ Jack Kenny				/s/ Bryan T. Baldasare
Jack Kenny				Bryan T. Baldasare
Chief Executive Officer				Executive Vice President and
November ~~26, 2019~~ 23, 2020				Chief Financial Officer
				November ~~26, 2019~~ 23, 2020

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Meridian Bioscience, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Meridian Bioscience, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of September 30, ~~2019~~2020 and ~~2018,~~2019, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, ~~2019,~~2020, and the related notes and financial statement schedule listed in the index appearing under Schedule No. II (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, ~~2019~~2020 and ~~2018,~~2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, ~~2019,~~2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, ~~2019,~~2020, based on criteria established in the 2013

Internal Control—Integrated Framework

issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated November ~~26, 2019~~23, 2020 expressed an unqualified opinion.

Adoption of new accounting standard

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method for accounting for leases in fiscal 2020 due to the adoption of Accounting Standards Codification 842,

Leases

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit ~~matters~~matter

The critical audit ~~matters~~matter communicated below ~~are matters~~is a matter arising from the current period audit of the financial statements that ~~were~~was communicated or required to be communicated to the audit committee and that: (1) ~~relate~~relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit ~~matters~~matter below, providing a separate ~~opinions~~opinion on the critical audit ~~matters~~matter or on the accounts or disclosures to which ~~they relate.~~

~~Distributor price adjustment accrual (rebate reserve)~~

As described further in Note 1(i) to the consolidated financial statements, revenue is reduced at the date of sale for product price adjustments for certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided by distributors, historical statistics, current trends and other factors. The balance of the accrual was $3.4 million at September 30, 2019. We identified the distributor price adjustment accrual (referred to as the rebate reserve) as a critical audit matter.

it relates.

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The principal consideration for our determination that the rebate reserve is a critical audit matter is the high degree of auditor subjectivity necessary in evaluating certain inputs and assumptions made by management in estimating the amount of the rebate reserve. The nature of audit evidence includes unobservable inputs and assumptions used by management in the estimate, and reliance on a customized sales report by product line. The reserve has a high degree of estimation uncertainty given management’s judgments used to determine the reserve, specifically the use of key assumptions such as average selling price, purchasing trends of distributors and historical product sales and product volume data used to predict future sales and volume levels.

~~Our audit procedures related to the rebate reserve included the following, among others.~~

We tested the design and operating effectiveness of controls relating to management’s calculation and review of the reserve which included verifying the completeness of the input data, mathematical accuracy of the calculation and evaluating the reasonableness of key assumptions used in the calculation.

We tested the reserve calculation prepared by management by performing specific procedures on the key inputs and assumptions such as the monthly sales volume, validity of distributor agreements and applied reserve percentage. The procedures performed are as follows:

We tested the completeness and accuracy of the historical sales (including average selling price) and volume report used in the calculation of the reserve by agreeing total sales to accounting records and tracing a sample of individual sales to supporting audit evidence, such as purchase orders, shipping documents and invoices.

We evaluated the existence and validity of distributor agreements by obtaining a sample of issued credit memos and executed distributor agreements to test compliance with the stated terms in the corresponding agreements.

~~We analyzed year over year trends in the reserve in comparison with revenue trends to further evaluate reasonableness of the estimate and consistency with expectations.~~

Valuation of ~~intangible assets and contingent consideration~~Intangible Assets associated with the Exalenz Acquisition

As described further in Note 2 to the consolidated financial statements, the Company completed anits acquisition of Exalenz Bioscience Ltd. (“Exalenz”) for net cash consideration of $51.3 million, which resulted in ~~goodwill~~the identification and recognition of ~~$35.1~~$55.2 million of intangible assets. Intangible assets consisted primarily of ~~$40.4 million,~~customer relationships, technology and ~~contingent consideration of $27.2 million. The determination of the fair value of the~~trade name (collectively “the identifiable intangible ~~assets acquired and contingent consideration required management,~~assets”), with the ~~help of~~remainder allocated to goodwill. The Company used a ~~third-party valuation specialist,~~discounted cash flow model to ~~make significant estimates~~measure the customer relationship intangible asset and ~~assumptions including~~a relief from royalty model to measure the ~~assumed sales growth rate, margin percentages, economic life~~technology and ~~discount rate.~~trade name intangible assets. We identified the valuation of identifiable intangible assets ~~and contingent consideration~~associated with the Exalenz acquisition as a critical audit matter.

The principal consideration for our determination that the valuation of the identifiable intangible assets ~~and contingent consideration associated with the acquisition~~ is a critical audit matter is the ~~subjective auditor judgment required~~complexity associated with auditing the Company’s preliminary valuation of identifiable intangible assets due to the high degree of management subjectivity in ~~evaluating~~ the ~~inputs and~~related fair value estimates. The high degree of management subjectivity is primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business. The significant assumptions used ~~by management in determining fair value. The valuation of the intangible assets and contingent consideration are subject~~ to higher estimation uncertainty due to management judgments in determining key assumptions that include the assumed sales growth rate, margin percentages, economic life and discount rate. Changes in these significant assumptions could have a significant impact onestimate the fair value of the identifiable intangible assets included certain assumptions that form the basis of the future net cash flows (e.g., assumed growth rates, discount rate, economic lives, royalty rates and ~~contingent consideration.~~margin percentages). These significant assumptions are forward looking and consider anticipated market conditions.

Our audit procedures related to the preliminary valuation of intangible assets ~~and contingent consideration~~ included the following, among others.

We tested the design and operating effectiveness of controls relating to the valuation report and allocation of purchase price, which included management’s review of the preliminary valuation report for the completeness and mathematical accuracy of the data, and evaluating the reasonableness of assumptions used in the ~~calculation~~calculations, such as assumed growth rates, discount rate, economic ~~life~~lives, royalty rates and ~~discount rate.~~margin percentages, as compared to industry/market data.

We tested the significant assumptions used within the discounted cash flow model to estimate the fair value of the identifiable intangible assets which included certain assumptions such as assumed growth rates, economic lives, and margin percentages as compared to industry/market data.

We utilized a valuation specialist to assist in evaluating the appropriateness of the Company’s selection of valuation ~~models developed~~methodology for ~~acquired~~the identifiable intangible assets and evaluating the reasonableness of certain significant assumptions used, including ~~the assumed sales growth rate, margin percentages, economic life and~~ discount rate, ~~as compared to industry/market data.~~economic lives, and royalty rates.

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~~Table of Contents~~

We evaluated whether ~~the~~ assumptions used were reasonable by considering past performance of similar ~~technological~~ assets, industry data, current market forecasts, and whether such assumptions were consistent with evidence obtained in other areas of the audit.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2005.

Cincinnati, Ohio

November ~~26, 2019~~23, 2020

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Meridian Bioscience, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Meridian Bioscience, Inc. ~~(an~~an Ohio ~~corporation)~~corporation and subsidiaries (the “Company”) as of September 30, ~~2019,~~2020, based on criteria established in the 2013

Internal Control—Integrated Framework

issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, ~~2019,~~2020, based on criteria established in the 2013

Internal Control—Integrated Framework

issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended September 30, ~~2019,~~2020, and our report dated November ~~26, 2019~~23, 2020 expressed an unqualified opinion on those financial statements.

Basis for opinion

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 (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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 internal control over financial reporting, assessing the risk that a material weakness exists, testing and 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.

Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Meridian Bioscience ~~Canada,~~Israel Holding Ltd. and Exalenz Bioscience, Inc. ~~(“GenePOC”~~, wholly-owned subsidiaries (collectively “Exalenz”), ~~a wholly-owned subsidiary,~~ whose financial statements reflect total assets and revenues constituting ~~2.84~~18.64% and ~~0.04 percent,~~1.66%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, ~~2019.~~2020. As indicated in Management’s Report, ~~GenePOC~~Exalenz was acquired during fiscal ~~2019.~~2020. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of ~~GenePOC.~~Exalenz.

Definition and limitations of internal control over financial reporting

A company’s 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, 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.

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Because of 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.

/s/ GRANT THORNTON LLP

Cincinnati, Ohio

November ~~26, 2019~~23, 2020

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CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)

Meridian Bioscience, Inc. and Subsidiaries

For the Year Ended September 30,

2019

2018

2017

Net Revenues

$
201,014
$
213,571
$
200,771

Cost of Sales

82,689

82,874

76,479

Gross Profit

118,325

130,697

124,292

Operating Expenses:

Research and development

17,948

16,789

16,036

Selling and marketing

28,446

34,468

32,388

General and administrative

33,002

34,805

31,096

Acquisition-related costs

1,808

—

—

Restructuring costs

2,839

8,706

134

Selected legal
costs

1,583

4,345

628

Goodwill impairment charge

—

—

6,628

Total operating expenses

85,626

99,113

86,910

Operating Income

32,699

31,584

37,382

Other Income (Expense):

Interest income

681

418

171

Interest expense

(1,945
)
(1,520
)
(1,642
)
Other, net

122

(102
)
518

Total other expense

(1,142
)
(1,204
)
(953
)

Earnings Before Income Taxes

31,557

30,380

36,429

Income Tax Provision

7,175

6,531

14,872

Net Earnings

$
24,382
$
23,849
$
21,557

Earnings Per Share Data:

Basic earnings per common share

$
0.57
$
0.56
$
0.51

Diluted earnings per common share

$
0.57
$
0.56
$
0.51

Common shares used for basic earnings per common share

42,571

42,325

42,188

Effect of dilutive stock options and restricted share units

328

429

383

Common shares used for diluted earnings per common share

42,899

42,754

42,571

Dividends declared per common share

$
0.250
$
0.500
$
0.575

Anti-dilutive Securities:

Common share options and restricted share units

1,129

1,007

873


For the Year Ended September 30,	2020			2019			2018
Net Revenues	$	253,667		$	201,014		$	213,571
Cost of Sales		97,419			82,286			82,538

Gross Profit		156,248			118,728			131,033

Operating Expenses:
Research and development		23,729			17,760			16,613
Selling and marketing		26,486			27,995			34,026
General and administrative		44,345			34,044			35,759
Acquisition-related costs		3,890			1,808			—
Change in fair value of contingent consideration obligation		(6,293	)		—			—
Restructuring costs		687			2,839			8,706
Selected legal costs		2,080			1,583			4,345

Total operating expenses		94,924			86,029			99,449

Operating Income		61,324			32,699			31,584

Other Income (Expense):
Interest income		142			681			418
Interest expense		(2,632	)		(1,945	)		(1,520	)
Other, net		459			122			(102	)

Total other expense		(2,031	)		(1,142	)		(1,204	)

Earnings Before Income Taxes		59,293			31,557			30,380

Income Tax Provision		13,107			7,175			6,531

Net Earnings	$	46,186		$	24,382		$	23,849

Earnings Per Share Data:
Basic earnings per common share	$	1.08		$	0.57		$	0.56
Diluted earnings per common share	$	1.07		$	0.57		$	0.56

Common shares used for basic earnings per common share		42,855			42,571			42,325
Effect of dilutive stock options and restricted share units		319			328			429

Common shares used for diluted earnings per common share		43,174			42,899			42,754

Dividends declared per common share	$	—		$	0.250		$	0.500

Anti-dilutive Securities:
Common share options and restricted share units		893			1,129			1,007

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

43 -

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollar amounts in thousands)

Meridian Bioscience, Inc. and Subsidiaries

For the Year Ended September 30,

2019

2018

2017

Net Earnings

$
24,382
$
23,849
$
21,557

Other comprehensive income (loss):

Foreign currency translation adjustment

(802
)
(1,075
)
1,616

Unrealized gain (loss) on cash flow hedge

(1,159
)
907

1,544

Amortization of gain on cash flow hedge

(102
) — —
Income taxes related to items of other comprehensive income

465

(263
)
(590
)

Other comprehensive income (loss), net of tax

(1,598
)
(431
)
2,570

Comprehensive Income

$
22,784
$
23,418
$
24,127


For the Year Ended September 30,	2020			2019			2018
Net Earnings	$	46,186		$	24,382		$	23,849
Other comprehensive income (loss):
Foreign currency translation adjustment		3,884			(802	)		(1,075	)
Unrealized gain (loss) on cash flow hedge		(713	)		(1,159	)		907
Reclassification of amortization of gain on cash flow hedge		(308	)		(102	)		—
Income taxes related to items of other comprehensive income		252			465			(263	)

Other comprehensive income (loss), net of tax		3,115			(1,598	)		(431	)

Comprehensive Income	$	49,301		$	22,784		$	23,418

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

44 -

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CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar amounts in thousands)

Meridian Bioscience, Inc. and Subsidiaries

For the Year Ended September 30,

2019

2018

2017

Cash Flows From Operating Activities

Net earnings
$
24,382
$
23,849
$
21,557

Non-cash
items included in net earnings:

Depreciation of property, plant and equipment

5,433

4,491

4,342

Amortization of intangible assets

4,531

3,433

3,776

Amortization of deferred instrument costs

—

764

972

Stock-based compensation

3,251

3,402

3,381

Goodwill impairment charge

—

—

6,628

Deferred income taxes

(817
)
(300
)
1,474

Losses on
dispositions of
long-lived assets

632

—

—

Change in the following, net of acquisition:

Accounts receivable

(2,314
)
(4,447
)
(1,211
)
Inventories

3,841

(1,142
)
3,467

Prepaid expenses and other current assets

(2,044
)
323

1,225

Accounts payable and accrued expenses

(2,315
)
4,124

(3,151
)
Income taxes payable

1,793

(524
)
(384
)
Other, net

(542
)
810

(721
)

Net cash provided by operating activities

35,831

34,783

41,355

Cash Flows From Investing Activities

Purchase of property, plant and equipment

(3,797
)
(4,201
)
(4,467
)
Disposal
s
of property, plant and equipment

669

—

—

Acquisition of GenePOC business

(45,324
)
—

—

Net cash used for investing activities

(48,452
)
(4,201
)
(4,467
)

Cash Flows From Financing Activities

Dividends paid

(10,612
)
(21,170
)
(24,266
)
Proceeds from revolving credit facility

75,824

—

—

Payment of debt issuance costs

(489
)
—

—

Payments on term loan

(50,250
)
(4,500
)
(3,750
)
Proceeds and tax benefits from exercises of stock options

787

187

303

Payment of acquisition consideration

—

(2,110
)
—

Net cash provided by (used for) financing activities

15,260

(27,593
)
(27,713
)

Effect of Exchange Rate Changes on Cash and Equivalents and Restricted Cash

(1,005
)
(298
)
671

Net Increase in Cash and Equivalents and Restricted Cash

1,634

2,691

9,846

Cash and Equivalents and Restricted Cash at Beginning of Period

60,763

58,072

48,226

Cash and Equivalents and Restricted Cash at End of Period
$
62,397
$
60,763
$
58,072

Cash and Equivalents
$
62,397
$
59,763
$
57,072

Restricted Cash

—

1,000

1,000

Cash and Equivalents and Restricted Cash at End of Period
$
62,397
$
60,763
$
58,072


For the Year Ended September 30,	2020			2019			2018
Cash Flows From Operating Activities
Net earnings	$	46,186		$	24,382		$	23,849
Non-cash items included in net earnings:
Depreciation of property, plant and equipment		5,823			5,433			4,491
Amortization of intangible assets		7,744			4,531			3,433
Amortization of deferred instrument costs		—			—			764
Stock-based compensation		3,802			3,251			3,402
Deferred income taxes		760			(817	)		(300	)
Losses on dispositions of long-lived assets		64			632			—
Change in accrued conti ngent consideration		(6,293	)		—			—
Change in the following, net of acquisitions:
Accounts receivable		(971	)		(2,215	)		(4,370	)
Inventories		(18,977	)		3,841			(1,142	)
Prepaid expenses and other current assets		(153	)		(2,143	)		246
Accounts payable and accrued expenses		7,248			(2,315	)		4,124
Income taxes payable		1,435			1,793			(524	)
Other, net		1,308			(198	)		814

Net cash provided by operating activities		47,976			36,175			34,787

Cash Flows From Investing Activities
Purchase of property, plant and equipment		(3,299	)		(3,797	)		(4,201	)
Disposals of property, plant and equipment		—			669			—
Acquisitions, net of cash acquired		(51,299	)		(45,324	)		—

Net cash used for investing activities		(54,598	)		(48,452	)		(4,201	)

Cash Flows From Financing Activities
Dividends paid		—			(10,612	)		(21,170	)
Proceeds from revolving credit facility		50,000			75,824			—
Payment on revolving credit facility		(57,000	)		—			—
Payment of debt issuance costs		(116	)		(489	)		—
Payments on term loan		—			(50,250	)		(4,500	)
Proceeds from exercises of stock options		3,559			443			183
Payment of acquisition consideration		—			—			(2,110	)

Net cash provided by (used for) financing activities		(3,557	)		14,916			(27,597	)

Effect of Exchange Rate Changes on Cash and Equivalents and Restricted Cash		1,296			(1,005	)		(298	)

Net Increase (Decrease) in Cash and Equivalents and Restricted Cash		(8,883	)		1,634			2,691

Cash and Equivalents and Restricted Cash at Beginning of Period		62,397			60,763			58,072

Cash and Equivalents and Restricted Cash at End of of Period	$	53,514		$	62,397		$	60,763

Cash and Equivalents	$	53,514		$	62,397		$	59,763
Restricted Cash		—			—			1,000

Cash and Equivalents and Restricted Cash at End of Period	$	53,514		$	62,397		$	60,763

Supplemental Cash Flow Information:

See Notes 1(g), 2,

5, 6 and 6.

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

~~Table of Contents~~

~~CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands)~~

~~Meridian Bioscience, Inc. and Subsidiaries~~

As of September 30,

2019

2018

Assets

Current Assets:

Cash and equivalents

$
62,397
$
59,763

Accounts receivable, less allowances of $537 and $310, respectively

35,608

32,336

Inventories

39,617

41,993

Prepaid expenses and other current assets

7,139

4,961

Total current assets

144,761

139,053

Property, Plant and Equipment, at Cost:

Land

982

1,160

Buildings and improvements

31,904

32,444

Machinery, equipment and furniture

64,155

50,606

Construction in progress

522

1,631

Subtotal

97,563

85,841

Less: accumulated depreciation and amortization

66,996

55,846

Net property, plant and equipment

30,567

29,995

Other Assets:

Goodwill

89,241

54,637

Other intangible assets, net

60,243

23,113

Restricted cash

—

1,000

Deferred instrument costs, net

—

1,239

Fair value of interest rate swap

—

1,722

Deferred income taxes

156

130

Other assets

510

488

Total other assets

150,150

82,329

Total assets

$

325,478

$

251,377

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

- 4

45 -

Table of Contents

CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands)

Meridian Bioscience, Inc. and Subsidiaries

As of September 30,

2019

2018

Liabilities and Shareholders’ Equity

Current Liabilities:

Accounts payable

$
7,238
$
6,260

Accrued employee compensation costs

7,938

9,195

Other accrued expenses

3,758

3,133

Current portion of long-term debt

—

5,250

Income taxes payable

1,980

335

Total current liabilities

20,914

24,173

Non-Current Liabilities:

Acquisition consideration

32,202

—

Post-employment benefits

2,500

2,646

Long-term debt

75,824

44,930

Long-term income taxes payable

549

441

Deferred income taxes

2,522

3,769

Total
non-current
liabilities

113,597

51,786

Commitments and Contingencies

Shareholders’ Equity:

Preferred stock, no par value; 1,000,000 shares authorized; NaN issued

—

—

Common shares, no par value; 71,000,000 shares authorized, 42,712,296 and 42,399,962 issued, respectively

—

—

Additional
paid-in
capital

132,834

129,193

Retained earnings

63,108

49,602

Accumulated other comprehensive loss

(4,975
)
(3,377
)

Total shareholders’ equity

190,967

175,418

Total liabilities and shareholders’ equity

$

325,478

$

251,377


As of September 30,	2020		2019
Assets
Current Assets:
Cash and equivalents	$	53,514	$	62,397
Accounts receivable, less allowances of $513 and $537, respectively		38,512		36,698
Inventories		61,264		39,617
Prepaid expenses and other current assets		8,900		6,049

Total current assets		162,190		144,761

Property, Plant and Equipment, at Cost:
Land		991		982
Buildings and improvements		32,188		31,904
Machinery, equipment and furniture		69,854		64,155
Construction in progress		1,200		522

Subtotal		104,233		97,563
Less: accumulated depreciation and amortization		73,113		66,996

Net property, plant and equipment		31,120		30,567

Other Assets:
Goodwill		114,186		89,241
Other intangible assets, net		83,197		60,243
Right-of-use assets		6,336		—
Deferred income taxes		7,647		156
Other assets		585		510

Total other assets		211,951		150,150

Total assets	$	405,261	$	325,478

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

46 -

Table of Contents

CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands)

Meridian Bioscience, Inc. and Subsidiaries


As of September 30,	2020			2019
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	11,969		$	7,238
Accrued employee compensation costs		16,661			7,938
Current portion of acquisition consideration		12,619			—
Current operating lease obligations		1,789			—
Current government grant obligations		600			—
Other accrued expenses		5,362			3,758
Income taxes payable		3,524			1,980

Total current liabilities		52,524			20,914

Non-Current Liabilities:
Acquisition consideration		13,290			32,202
Post-employment benefits		2,493			2,500
Fair value of interest rate swaps		713			—
Long-term operating lease obligations		4,678			—
Long-term debt		68,824			75,824
Government grant obligations		10,524			—
Long-term income taxes payable		549			549
Deferred income taxes		3,804			2,522

Other non-current liabilities		233			0

Total non-current liabilities		105,108			113,597

Commitments and Contingencies

Shareholders’ Equity:
Preferred stock, 0 par value; 1,000,000 shares authorized; 0ne issued		—			—
Common shares, 0 par value; 71,000,000 shares authorized, 43,068,842 and 42,712,296 issued, respectively		—			—
Additional paid-in capital		140,195			132,834
Retained earnings		109,294			63,108
Accumulated other comprehensive loss		(1,860	)		(4,975	)

Total shareholders’ equity		247,629			190,967

Total liabilities and shareholders’ equity	$	405,261		$	325,478

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

- 47 -

Table of Contents

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollar and share amounts in thousands, except per share data)

Meridian Bioscience, Inc. and Subsidiaries

Common
Shares
Issued

Additional
Paid-in

Capital

Retained
Earnings

Accum

Other
Comp
Income
(Loss)

Total

B
alance at September 30, 2016

42,107
$
122,356
$
49,632
$
(5,516
) $
166,472

Cash dividends paid - $0.575 per share

—

—

(24,266
)
—

(24,266
)
Conversion of restricted share units
and exercise of stock options

100

(129
)
—

—

(129
)
Stock compensation expense

—

3,381

—

—

3,381

Net earnings

—

—

21,557

—

21,557

Foreign currency translation adjustment
— — —
1,616

1,616

Hedging activity, net of tax

—

—

—

954

954

Balance at September 30, 2017

42,207

125,608

46,923

(2,946
)
169,585

Cash dividends paid - $0.500 per share

—

—

(21,170
)
—

(21,170
)
Conversion of restricted share units
and ex
ercise of stock options

193

183

—

—

183

Stock compensation expense

—

3,402

—

—

3,402

Net earnings

—

—

23,849

—

23,849

Foreign currency translation adjustment
— — —
(1,075
)
(1,075
)
Hedging activity, net of tax

—

—

—

644

644

Balance at September 30, 2018

42,400

129,193

49,602

(3,377
)
175,418

Cash dividends paid - $0.250 per share

—

—

(10,612
)
—

(10,612
)
Conversion of restricted share units and exercise of stock options

312

390

—

—

390

Stock compensation expense

—

3,251

—

—

3,251

Net earnings

—

—

24,382

—

24,382

Foreign currency translation adjustment
— — —
(802
)
(802
)
Hedging activity, net of tax

—

—

—

(944
)
(944
)
Adoption of ASU
2014-09

—

—

(116
)
—

(116
)
Adoption of ASU
2018-02

—

—

(148
)
148

—

��
Balance at September 30, 2019

42,712
$

132,834
$
63,108
$
(4,975
) $

190,967


	Common Shares Issued		Additional Paid-in Capital		Retained Earnings			Accum Other Comp Income (Loss)			Total
Balance at September 30, 2017		42,207	$	125,608	$	46,923		$	(2,946	)	$	169,585

Cash dividends paid - $0.500 per share		—		—		(21,170	)		—			(21,170	)
Conversion of restricted share units and exercise of stock options		193		183		—			—			183
Stock compensation expense		—		3,402		—			—			3,402
Net earnings		—		—		23,849			—			23,849
Foreign currency translation adjustment		—		—		—			(1,075	)		(1,075	)
Hedging activity, net of tax		—		—		—			644			644

Balance at September 30, 2018		42,400		129,193		49,602			(3,377	)		175,418

Cash dividends paid - $0.250 per share		—		—		(10,612	)		—			(10,612	)
Conversion of restricted share units and exercise of stock options		312		390		—			—			390
Stock compensation expense		—		3,251		—			—			3,251
Net earnings		—		—		24,382			—			24,382
Foreign currency translation adjustment		—		—		—			(802	)		(802	)
Hedging activity, net of tax		—		—		—			(944	)		(944	)
Adoption of ASU 2014-09		—		—		(116	)		—			(116	)
Adoption of ASU 2018-02		—		—		(148	)		148			—

Balance at September 30, 2019		42,712		132,834		63,108			(4,975	)		190,967

Conversion of restricted share units exercise of stock options		357		3,559		—			—			3,559
Stock compensation expense		—		3,802		—			—			3,802
Net earnings		—		—		46,186			—			46,186
Foreign currency translation adjustment		—		—		—			3,884			3,884
Hedging activity, net of tax		—		—		—			(769	)		(769	)

Balance at September 30, 2020		43,069	$	140,195	$	109,294		$	(1,860	)	$	247,629

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

48 -

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Meridian Bioscience, Inc. and Subsidiaries

(dollar and share amounts in thousands, except per share data)

(1)	Summary of Significant Accounting Policies

(a)

Nature of Business

Meridian is a fully-integrated life science company whose principal businesses are: (i) the development, manufacture and distribution of clinical diagnostic test kits primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used by other diagnostic manufacturers and ~~researchers~~

researchers.

(b)

Principles of Consolidation -

The consolidated financial statements include the accounts of Meridian Bioscience, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, references to “Meridian,” “we,” “us,” “our” or “our company” refer to Meridian Bioscience, Inc. and its subsidiaries.

(c)

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(

)

(d)

Foreign Currency Translation

- Assets and liabilities of foreign operations are translated using

year-end

exchange rates with gains or losses resulting from translation included as a separate component of accumulated other comprehensive income or loss. Revenues and expenses are translated using exchange rates prevailing during the year. We also recognize foreign currency transaction gains and losses on certain assets and liabilities that are denominated in the Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and ~~Euro~~New Israeli shekel currencies. These gains and losses are included in other income and expense in the accompanying Consolidated Statements of Operations.

(e)

Cash, Cash Equivalents and Investments

The primary objectives of our investment activities are to preserve capital and provide sufficient liquidity to meet operating requirements and fund strategic initiatives such as acquisitions. We maintain a written investment policy that governs the management of our investments in fixed income securities. This policy, among other things, provides that we may purchase only high credit-quality securities that have short-term ratings of at least

A-2,

P-2

and

F-2,

and long-term ratings of at least A, Baa1 and A, by Standard & Poor’s, Moody’s and Fitch, respectively, at the time of purchase. We consider short-term investments with original maturities of 90 days or less to be cash equivalents, including institutional money market funds. At times our investments of cash and equivalents with various high credit quality financial institutions may be in excess of the Federal Deposit Insurance Corporation ~~(FDIC)~~(“FDIC”) insurance limit.


As of September 30,	2020		2019

Institutional money market funds	2020		2019		$	1,017	$	20,913
Cash on hand, unrestricted		52,497		41,484

Total	$	53,514	$	62,397

~~Our investment portfolio includes the following components:~~

September 30, 2019

September 30, 2018

Cash and
Equivalents

Other

Cash and
Equivalents

Other

Institutional money market funds
$
20,913
$
—
$
20,421
$
—

Cash on hand –

Restricted

—

—

—

1,000

Unrestricted

41,484

—

39,342

—

Total
$
62,397

$

—
$
59,763
$

1,000

49 -

Table of Contents

(f)

Inventories

- Inventories are stated at the lower of cost

or ~~market.~~net realizable value

. Cost is determined on a

first-in,

first-out

(FIFO) basis. Testing instruments are carried in inventory until they are sold outright or placed with a customer under the customer reagent rental program, at which time they are transferred to property, plant and equipment.

We establish reserves against cost for excess and obsolete materials, finished goods whose shelf life may expire before sale to customers, and other identified exposures. Such reserves were ~~$2,285~~$3,629 and ~~$1,971~~$2,441 at September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. We estimate these reserves based on assumptions about future demand and market conditions. If actual demand and market conditions were to be less favorable than such estimates, additional inventory write-downs would be required and recorded in the period known. Such adjustments would negatively affect gross profit margin and overall results of ~~operations~~

operations.

(g)

Property, Plant and Equipment

- Property, plant and equipment are stated at cost. Upon retirement or other disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Maintenance and repairs are expensed as incurred. Depreciation is computed on the straight-line method in amounts sufficient to

write-off

the cost over the estimated useful lives, generally as follows:

Buildings and improvements - 18 to 40 years

Leasehold improvements - life of the lease

Machinery, equipment and furniture - 3 to 10 years

Computer equipment and software - 3 to 5 years

Instruments under customer reagent rental arrangements - 5 years

Supplemental Cash Flow Information ~~(Non-Cash~~

(Non-Cash

Capital Expenditures)

Additions to property, plant and equipment for which cash remained unpaid at fiscal

year-end

totaled $

~~108~~

~~, $~~

~~294~~

$236, $108 and $

~~394~~

$294 in fiscal

2020, 2019

and 2018,

~~and~~ respectively.

~~2017~~

~~, respectively.~~

(h)

Intangible Assets -

Goodwill is subject to an annual impairment review (or more frequently if impairment indicators arise) at the reporting unit level, which we perform annually as of June 30, the end of our third fiscal quarter. A reporting unit is generally an operating segment or one level below an operating segment that constitutes a business for which discrete financial information is available and regularly reviewed by segment management. ~~Following the fiscal 2018 restructuring and consolidation of~~

~~separately-run~~

~~businesses into two integrated global business units (see Note 3), at~~At both September 30, ~~2019~~2020 and September 30, ~~2018,~~2019, we had two reporting units (Diagnostics and Life Science), both of which contained goodwill. We review our reporting unit structure annually, or more frequently if facts and circumstances warrant. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. We have 0 intangible assets with indefinite lives other than goodwill.

During fiscal 2020, the annual impairment review of the Company’s goodwill consisted of a qualitative assessment for each of our Diagnostics and Life Science reporting units. A qualitative assessment is first performed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value using qualitative indicators. In the event that the reporting unit does not pass the qualitative assessment, the reporting unit’s carrying value is compared to its fair value, with fair value of the reporting unit estimated using market value and discounted cash flow approaches. Both our Diagnostics and Life Science reporting units satisfied the qualitative assessment for fiscal 2020.

~~uring~~

During fiscal 2019 and ~~fiscal~~ 2018, we performed quantitative assessments as of June 30 for each of our Diagnostics and Life Science reporting units. As part of this assessment, fair value, as determined through a valuation performed by a third party, was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, the fair value of each reporting unit exceeded its carrying value; therefore, each of the Diagnostics and Life Science reporting units satisfied the quantitative assessment for each of fiscal 2019 and ~~fiscal~~ 2018.

~~Similarly, during fiscal 2017, we performed quantitative assessments as of June 30, 2017 for each of our Americas Diagnostics, Bioline and Life~~

~~Science-U.S.~~

reporting units that existed at that time, noting the separate Magellan discussion below. As part of this assessment, fair value, as determined through a valuation performed by a third party, was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, the fair value of each reporting unit exceeded its carrying value; therefore, each of the Americas Diagnostics, Bioline and Life

~~Science-U.S.~~

~~reporting units satisfied the quantitative assessment for fiscal 2017.~~

~~During the quarter ended June 30, 2017, the events described below occurred, indicating that impairment of the goodwill recorded as part of the Magellan acquisition had occurred.~~

- 50 -

Table of Contents

~~On May 17, 2017,~~During fiscal 2020, goodwill increased $24,945, reflecting the ~~FDA issued a field safety notice advising customers to discontinue use~~addition of ~~Magellan’s lead testing systems with venous blood samples. This field safety notice was followed by product recall notices on May 25~~

~~and June 5~~

. Subsequent to the issuances of these field safety and product recall notices, the FDA completed an inspection of Magellan’s quality system, and issued its Form 483, Inspectional Observations, on June 29, 2017, which was expectedly followed by a Warning Letter issued on October 23, 2017. The Warning Letter requires periodic reporting on our remediation progress

~~In light of these factors and their impacts, during the third quarter of fiscal 2017, it was determined that a potential impairment of goodwill recorded~~$24,466 in connection with the acquisition of ~~Magellan had occurred (i.e.,~~Exalenz, a ~~“triggering event”). With~~

$6 decrease

from currency translation adjustments

on the assistance of an independent valuation firm, Magellan’s fair value was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, it was determined that the carrying value of the Magellan reporting unit did, in fact, exceed its fair value. As a result, an impairment charge of $6,628, on both a

~~pre-tax~~

~~and~~

~~after-tax~~

basis, was recorded during the third quarter and is reflected as a separate operating expense line item within the accompanying Consolidated Statement of Operations for the year ended September 30, 2017. This quantitative assessment as of May 31, 2017 was supplemented by a qualitative assessment of Magellan’s goodwill ~~as of June 30, 2017, with such assessment indicating that 0 additional impairment existed.~~

~~During fiscal~~

~~2019, goodwill increased $34,604, reflecting the addition of $34,582~~

~~in connection~~associated with the ~~acquisition of the~~ GenePOC business,

~~$599~~

~~increase~~

~~from~~

~~the~~

~~cur~~

~~ency~~

~~translation~~

~~adjustments~~

~~thereon~~

and a ~~$577~~

$485 increase

~~decrease~~ from currency translation adjustments on the goodwill of the Life Science reporting unit. The ~~decrease~~increase of ~~$289~~

$34,604 in fiscal 2019 resulted from the addition of $34,582

in ~~fiscal~~

~~2018~~

connection with the acquisition of the GenePOC business, a $

599

increase from the currency translation

~~resulted solely~~adjustments

thereon and a $

577

decrease from currency translation adjustments on the goodwill of the Life Science

reporting unit.

summary

of Meridian’s acquired intangible assets subject to amortization, as of September 30, ~~2019~~2020 and ~~2018~~2019 is as follows.

2019

2018

As of September 30,

Gross
Carrying
Value

Accum.
Amort.

Gross
Carrying
Value

Accum.
Amort.

Manufacturing technologies, core products and cell lines
$

56,193
$

15,096
$

22,297
$

13,974

Tradenames, licenses and patents

14,494

6,094

8,647

5,267

Customer lists, customer relationships and supply agreements

24,274

14,110

24,461

13,051

Government grants

814

232

—

—

$

95,775
$

35,532
$
55,405
$

32,292


	2020				2019
As of September 30,	Gross Carrying Value		Accum. Amort.		Gross Carrying Value		Accum. Amort.
Manufacturing technologies, core products and cell lin es	$	62,363	$	18,750	$	56,193	$	15,096
Tradenames, licenses and patents		18,425		7,801		14,494		6,094
Customer l ists, custo mer relationships and supply agre e ments		45,071		16,210		24,274		14,110
Government grants		810		810		814		232
Non-compete agreements		110		11		—		—

	$	126,779	$	43,582	$	95,775	$	35,532

The actual aggregate amortization expense for these intangible assets for fiscal 2020, 2019 and 2018 was $7,744, $4,531 and ~~2017 was $4,531,~~ $3,433, ~~and $3,776,~~ respectively. The estimated aggregate amortization expense for these intangible assets for each of the five succeeding fiscal years is as follows: fiscal ~~2020 - $6,684, fiscal~~ 2021 - ~~$5,490,~~$8,371, fiscal 2022 - ~~$5,113,~~$7,993, fiscal 2023 - ~~$5,100 and~~$7,980, fiscal 2024 - ~~$5,096.~~$7,976

and fiscal 2025 - $

7,967.

Long-lived assets, excluding goodwill, are reviewed for impairment when events or circumstances indicate that such

assets

may not be recoverable at their carrying value. Whether an event or circumstance triggers an impairment is determined by comparing an estimate of the asset’s future undiscounted cash flows to its carrying value. If impairment has occurred, it is measured by a fair-value based calculation.

Our ability to recover the carrying value of our intangible assets, both identifiable intangibles and goodwill, is dependent upon the future cash flows of the related acquired businesses and assets. We make judgments and assumptions regarding future cash flows, including sales levels, gross profit margins, operating expense levels, working capital levels, and capital expenditures. With respect to identifiable intangibles and fixed assets, we also make judgments and assumptions regarding useful lives.

~~Table of Content~~s

We consider the following factors in evaluating events and circumstances for possible impairment: (i) significant under-performance relative to historical or projected operating results; (ii) negative industry trends; (iii) sales levels of specific groups of products (related to specific identifiable intangibles); (iv) changes in overall business strategies; and (v) other factors.

If actual cash flows are less favorable than projections, this could trigger impairment of intangible assets and other long-lived assets. If impairment were to occur, this would negatively affect overall results of operations. ~~Aside from the Magellan matter noted above, no~~No triggering events have been identified by the Company for fiscal 2020, 2019 ~~2018~~or 2018.

~~2017.~~

- 51 -

Table of Contents

(i)	Revenue Recognition and Accounts Receivable -

~~Adoption of New Standard~~

~~On October 1, 2018, we adopted ASU No.~~

~~2014-09,~~

~~Revenue from Contracts with Customers~~

, using the modified retrospective transition method applied to those contracts that were not completed as of that date. Results for reporting periods beginning on or after October 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previously applicable guidance.

Upon adoption, we recorded a reduction of $116 to the opening balance of retained earnings as of October 1, 2018. This adjustment is related to writing off the book value of clinical diagnostic testing instruments located at customers for which there is no contractual arrangement for the instrument to be returned to the Company. Instruments placed with customers under an agreement to return the instrument to the Company were reclassified to machinery and equipment. Prior to adoption of the new guidance, all instruments placed with customers were capitalized and amortized over an estimated three-year utilization period, with the net balance reflected as deferred instrument costs.

~~The following table summarizes the impact of the new revenue standard on our opening balance sheet:~~

Balance at
September 30,
2018

New
Revenue
Standard
Adjustment

Balance at
October 1,
2018

PROPERTY, PLANT AND EQUIPMENT

Machinery, equipment and furniture
$
50,606
$
8,696
$
59,302

Accumulated depreciation and amortization

(55,846
)
(7,611
)
(63,457
)
OTHER ASSETS

Deferred instrument costs, net

1,239

(1,239
)
—

NON-CURRENT
LIABILITIES

Deferred income taxes

(3,769
)
38

(3,731
)
SHAREHOLDERS’ EQUITY

Retained earnings

(49,602
)
116

(49,486
)

The adoption of this new standard had an immaterial impact on our reported total revenues and operating income, as compared to what would have been reported under the prior standard. Our accounting policies under the new standard were applied prospectively and are noted below following the discussion of Revenue Disaggregation.

~~Table of Contents~~

Revenue Disaggregation

The following tables present our revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics only):

Revenue by Reportable Segment & Geographic Region

2019 vs.
2018

2018 vs.
2017

2019

2018

2017

Inc (Dec)

Inc (Dec)

Diagnostics-

Americas
$

110,135
$

123,916
$

117,161

(11
)%
6
%
EMEA

23,865

23,922

22,594

—
%
6
%
ROW

2,682

2,616

3,766

3
%
(31
)%

Total Diagnostics

136,682

150,454

143,521

(9
)%
5
%

Life Science-

Americas

19,443

21,080

20,265

(8
)%
4
%
EMEA

29,157

24,715

22,365

18
%
11
%
ROW

15,732

17,322

14,620

(9
)%
18
%

Total Life Science

64,332

63,117

57,250

2
%
10
%

Consolidated
$
201,014
$
213,571
$
200,771

(6
)%
6
%


							2020 vs. 2019			2019 vs. 2018
	2020		2019		2018		Inc (Dec)			Inc (Dec)
Diagnostics-
Americas	$	97,228	$	110,109	$	123,916		(12	)%		(11	)%
EMEA		21,826		23,888		23,922		(9	)%		—	%
ROW		2,078		2,685		2,616		(23	)%		3	%

Total Diagnostics		121,132		136,682		150,454		(11	)%		(9	)%

Life Science-
Americas		37,391		19,441		21,080		92	%		(8	)%
EMEA		58,125		28,850		24,715		101	%		17	%
ROW		37,019		16,041		17,322		131	%		(7	)%

Total Life Science		132,535		64,332		63,117		106	%		2	%

Consolidated	$	253,667	$	201,014	$	213,571		26	%		(6	)%

Revenue by Product Platform/Type

2019 vs.
2018

2018 vs.
2017

2019

2018

2017

Inc (Dec)

Inc (Dec)

Diagnostics-

Molecular assays
$
26,231
$
33,709
$
33,712

(22
)%
—
%
Immunoassays & blood chemistry assays

110,451

116,745

109,809

(5
)%
6
%

Total Diagnostics
$
136,682
$
150,454

$

143,521

(9
)%
5
%

Life Science-

Molecular reagents
$
23,261
$
24,533
$
21,966

(5
)%
12
%
Immunological reagents

41,071

38,584

35,284

6
%
9
%

Total Life Science
$
64,332
$
63,117
$
57,250

2
%
10
%


							2020 vs. 2019			2019 vs. 2018
	2020		2019		2018		Inc (Dec)			Inc (Dec)
Diagnostics-
Molecular assays	$	21,907	$	26,283	$	33,709		(17	)%		(22	)%
Non-molecular assays		99,225		110,399		116,745		(10	)%		(5	)%

Total Diagnostics	$	121,132	$	136,682	$	150,454		(11	)%		(9	)%
Life Science-
Molecular reagents	$	78,431	$	23,261	$	24,533		237	%		(5	)%
Immunological reagents		54,104		41,071		38,584		32	%		6	%

Total Life Science	$	132,535	$	64,332	$	63,117		106	%		2	%

Revenue by Disease State (Diagnostics only)

2019 vs.
2018

2018 vs.
2017

2019

2018

2017

Inc (Dec)

Inc (Dec)

Diagnostics-

Gastrointestinal assays
$
68,977
$
78,803
$
79,022

(12
)%
—

%
Respiratory illness assays

26,622

28,911

23,881

(8
)%
21
%
Blood chemistry assays

19,082

19,109

18,212

—
%
5
%
Other

22,001

23,631

22,406

(7
)%
5
%

Total Diagnostics
$
136,682
$
150,454
$
143,521

(9
)%
5
%


							2020 vs. 2019			2019 vs. 2018
	2020		2019		2018		Inc (Dec)			Inc (Dec)
Diagnostics-
Gastrointestinal assays	$	55,040	$	68,982	$	78,803		(20	)%		(12	)%
Respiratory illness assays		26,694		26,622		28,911		0	%		(8	)%
Blood chemistry assays		17,534		18,639		19,109		(6	) %		(2	) %
Other		21,864		22,439		23,631		(3	)%		(5	)%

Total Diagnostics	$	121,132	$	136,682	$	150,454		(11	)%		(9	)%

52 -

Table of Contents

Revenue Policies

Product Sales

Revenue from contracts with customers is recognized in an amount that reflects the consideration we expect to receive in exchange for products when obligations under such contracts are satisfied. Revenue is generally recognized at a

point-in-time

when products are shipped, and ~~title~~control has passed to the customer. Such contracts can include various combinations of products that are generally accounted for as distinct performance ~~obligations~~

.obligations.

Revenue is reduced in the period of sale for fees paid to distributors, which are inseparable from the distributor’s purchase of our product and for which we receive no goods or services in return. Revenue for the Diagnostics segment is reduced at the date of sale for product price adjustments payable to certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided by distributors, historical statistics, current trends, and other factors. Changes to the accruals are recorded in the period that they become known. Such accruals are netted against accounts receivable.

Shipping and handling costs incurred after control of the product is transferred to our customers are treated as fulfillment costs and not a separate performance obligation.

Our payment terms differ by jurisdiction and customer

but payment is generally required in a term ranging from 30 to 90 days from the date of shipment or satisfaction of the performance obligation. Trade accounts receivable are recorded in the accompanying Condensed Consolidated Balance Sheets at invoiced amounts less provisions for distributor price adjustments under local contracts and doubtful accounts. The allowance for doubtful accounts represents our estimate of probable credit losses and is based on historical

write-off

experience and known conditions that would likely lead to

non-payment.

Customer invoices are charged off against the allowance when we believe it is probable that the invoices will not be paid.

Practical Expedients and Exemptions

Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities.

Our diagnostic assay products are generally not subject to a customer right of return except for product recall events under the rules and regulations of the Food and Drug Administration or equivalent agencies outside the United States. In this circumstance, the costs to replace affected products would be accrued at the time a loss was probable and estimable.

We expense as incurred the costs to obtain contracts, as the amortization period would ~~have been~~be one year or less. These costs, recorded within selling and marketing expense, include our internal sales force compensation programs and certain partner sales incentive programs, as we have determined that annual compensation is commensurate with annual selling activities.

Reagent Rental Arrangements

~~Our Revogene, Alethia and LeadCare~~Certain of our Diagnostics segment’s product platforms require the use of instruments for the tests to be processed. In many cases, a customer is given use of the instrument provided they continue purchasing the associated tests, also referred to as “consumables” or “reagents”. If a customer stops purchasing the consumables, the instrument must be returned to ~~Meridian.~~us. Such arrangements are common practice in the diagnostics industry and are referred to as “Reagent Rentals”. Reagent Rentals may also include instrument related services such as a limited replacement warranty, training and installation. We concluded that the use of the instrument and related services (collectively known as “lease elements”) are not within the scope of ~~ASU No.~~Accounting Standards Codification (“ASC”) 606,

~~2014-09~~

Revenue from Contracts with Customers

but rather ~~ASU~~

~~2016-02,~~

ASC 842,

Leases

. Accordingly, we first allocate the transaction price between the lease elements and the

non-lease

elements based on estimates of relative standalone selling prices. Lease revenue is derived solely from the sale of consumables and is therefore recognized monthly as earned, which coincides with the transfer of control of the

non-lease

elements.

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Table of Contents

For the portion of the transaction price allocated to the

non-lease

elements, which are principally the test kits, the related revenue ~~will be~~is recognized at a

point-in-time

when control transfers.

~~Table of Contents~~

Revenue allocated to the lease elements of these Reagent Rental arrangements ~~represent~~totaled approximately

~~of total revenue~~ $4,600 and $4,150 in fiscal 2020 and 2019, respectively, and are included as part of net revenues in our Consolidated Statements of ~~Income.~~Operations.

(j)

Fair Value Measurements

–

~~Assets~~

Certain assets and liabilities are recorded at fair value in accordance with ~~Accounting Standards Codification (“ASC”)~~ASC

820-10,

Fair Value Measurements and Disclosures

. ASC

820-10

defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC

820-10

~~requires~~establishes a ~~three level~~three-level hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each asset and liability is based on the assessment of the transparency and reliability of the inputs used in the valuation of such items at the measurement date based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ~~(level~~(Level 1 measurements) and the lowest priority to unobservable inputs ~~(level~~(

evel 3 measurements).

Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories based on inputs:

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities

Level 2

Quoted prices in markets that are not active and financial instruments for which all significant inputs are observable, either directly

or indirectly

Level 3

Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable

As indicated in Note 2,

we acquired Exalenz and the business of GenePOC in fiscal ~~2019.~~2020 and fiscal 2019, respectively. The fair value of the acquired accounts receivable and other

current assets and the fair value of the assumed accounts payable and accrued expenses approximated their carrying value at the acquisition date. Inventories, property, plant and equipment, intangible assets and contingent consideration were valued using Level 3 inputs.

The following table provides information by level for financial assets and liabilities that are measured at fair value on a recurring basis, noting that there were no such items as of September 30, 2018:

Fair Value Measurements Using
Inputs Considered as

As of September 31, 2019

Carrying
Value

Level 1

Level 2

Level 3

Contingent consideration
$

27,200
$

—
$

—
$
27,200

In connection with the acquisition of the business of GenePOC and an agreement to amend certain terms of the agreement related to contingent consideration achievement levels and milestone dates, as ~~set forth~~described in Note 2, the Company is required to make contingent consideration payments of up to $64,000 (originally $70,000 at the acquisition date), comprised of ~~$20,000~~up to $14,000 for achievement of product development milestones (originally $20,000 at the acquisition date) and up to $50,000 for achievement of certain financial targets. The ~~preliminary~~ fair value for the contingent payments recognized upon the acquisition as part of the purchase accounting opening balance sheet totaled ~~$27,200.~~$27,202. The ~~preliminary~~ fair value of the product development milestone payments was estimated by discounting the probability-weighted contingent payments to present value. Assumptions used in the calculations ~~were~~include probability of success, duration of the

earn-out

and discount rate. The ~~preliminary~~ fair value of the financial performance target payments was determined using a Monte Carlo simulation-based model. Assumptions used in these calculations ~~were~~include expected revenue, probability of certain developments, expected expenses and discount rate. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. ~~The liability~~Giving effect to the previously noted amendment to the contingent consideration achievement levels and milestone dates, the contingent consideration obligation is ~~considered to be a Level 3 financial liability that is~~

~~re-measured~~valued at $20,909 and $27,202 as of September 30, 2020 and September 30, 2019, respectively.

~~each reporting period.~~

- 5

54 -

Table of Contents

The following table provides information by level for financial assets and liabilities that are measured at fair value on a

recurring

basis:


				Fair Value Measurements Using Inputs Considered as
	Carrying Value			Level 1		Level 2			Level 3
Interest rate swaps (see Note 6) -
As of September 30, 2020	$	(713	)	$	0	$	(713	)	$	0
As of September 30, 2019	$	0		$	0	$	0		$	0
Contingent consideration -
As of September 30, 2020	$	(20,909	)	$	0	$	0		$	(20,909	)
As of September 30, 2019	$	(27,202	)	$	0	$	0		$	(27,202	)

(k)

Research and Development Costs

- Research and development costs are charged to expense as incurred. Research and development costs include, among other things, salaries and wages for research scientists, materials and supplies used in the development of new products, costs for development of instrumentation equipment, costs for clinical trials, and costs for facilities and ~~equipment~~

.equipment.

(l)

Income Taxes

The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between income for financial reporting and income for tax purposes. We prepare estimates of permanent and temporary differences between income for financial reporting purposes and income for tax purposes. These differences are adjusted to actual upon filing of our tax returns, typically occurring in the third and fourth quarters of the current fiscal year for the preceding fiscal year’s estimates.

We account for uncertain tax positions using a benefit recognition model with a

two-step

approach: (i) a

more-likely-than-not

recognition criterion; and (ii) a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon ultimate settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit is recorded. We recognize accrued interest related to unrecognized tax benefits as a portion of our income tax provision in the Consolidated Statements of Operations. See Note 6.

(m)	Stock-Based Compensation - We recognize compensation expense for all share-based awards made to employees, based upon the fair value of the share-based award on the date of the grant. See Note ~~7(b)~~ 8 (b).

(n)

Comprehensive Income (Loss)

- Comprehensive income (loss) represents the net change in shareholders’ equity during a period from sources other than transactions with shareholders. As reflected in the accompanying Consolidated Statements of Comprehensive Income, our comprehensive income is comprised of net earnings, foreign currency translation, unrecognized gain on termination of our previous cash flow hedge, and the income taxes thereon.

(o)	Shipping and Handling Costs - Shipping and handling costs invoiced to customers are included in net revenues. Costs to distribute products to customers, including freight costs, warehousing costs, and other shipping and handling activities are included in cost of sales.

(p)

Non-Income

Government-Assessed Taxes

- We classify all

non-income,

government-assessed taxes (sales, use and value-added) collected from customers and remitted by us to appropriate revenue authorities, on a net basis (excluded from net revenues) in the accompanying

Consolidated

Statements of Operations.

- 55 -

Table of Contents

(q)	Recent Accounting Pronouncements – –

Pronouncements Adopted

~~As described in Note 1(i) above,~~

On October 1, 2019, the Company adopted ~~ASU No.~~

~~2014-09,~~

ASC 842,

~~Revenue from Contracts with Customers~~Leases

,. ASC 842 was issued to increase transparency and comparability among entities by recognizing

right-of-use

assets (“ROU assets”) and lease liabilities on the balance sheet and disclosing key information about lease arrangements. The Company elected to adopt ASC 842 effective October 1, ~~2018~~2019 using the modified retrospective transition ~~method.~~method, which was applied to

leases that

~~In August 2016,~~existed

or will be

entered

into on or after such date, with no adjustment made to prior comparative periods. The comparative

periods

presented herein reflect the ~~FASB issued ASU~~

~~2016-15,~~former lease accounting guidance and the required comparative disclosures are included in Note 5,

~~Classification~~“Leasing Arrangements”

. There was no cumulative-effect adjustment to beginning retained earnings as a result of ~~Certain Cash Receipts~~adopting ASC 842, and ~~Cash Payments~~

~~. The update addresses certain specific cash flows~~additional operating lease ROU assets and ~~their treatment, with~~obligations of approximately $

5,880

were recognized as of October 1, 2019. ROU assets represent the ~~objective being~~Company’s right to ~~reduce~~use an underlying asset for the ~~existing diversity~~lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in ~~how~~ the ~~items~~lease or the Company’s incremental borrowing rate. Lease liabilities are ~~presented~~increased by interest and ~~classified within~~reduced by payments each period, and the ~~statement of cash flows.~~ROU asset is amortized over the lease term. The Company ~~adopted this~~elected the package of practical expedients permitted under the new guidance ~~in the first quarter of fiscal 2019, with the Condensed Consolidated Statements of Cash Flows reflecting such adoption, including the information related~~ to ~~restricted cash.~~

~~In January 2017, the FASB issued ASU~~

~~2017-01,~~

~~Clarifying the Definition of a Business~~

~~. Included within the standard is guidance designed to improve consistency in accounting for acquisition and disposition transactions. Specifically, the guidance sets forth a~~

~~two-step~~

process of determining if a “business” or an “asset” has, in fact, been acquired or disposed of. Adoption and implementation of this guidance was effective for the Company at the beginning of fiscal 2019, with the guidance being adhered to in accounting for the acquisition of the GenePOC business in June 2019. See Note 2 below.

~~Table of Contents~~

~~In February 2018, the FASB issued ASU~~

~~2018-02,~~

~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~

, to address certain of the recent U.S. federal income tax legislation’s impact on Accumulated Other Comprehensive Income (“AOCI”). The guidance specifically provides the option of reclassifying “stranded tax effects”not reassess prior conclusions related to the ~~tax legislation from AOCI~~identification, classification and accounting for initial direct costs for leases that commenced prior to ~~retained earnings. The Company elected to adopt this guidance in~~October 1, 2019. Additionally, the ~~third quarter of fiscal 2019. An election was~~elections were made to ~~reclassify~~not use hindsight to determine lease terms and to not separate

non-lease

components within the income tax effects of the Tax Cuts and Jobs Act from AOCI to retained earnings, and an entry was made to increase AOCI and decrease retained earnings by $148. The Company’s accounting policy is to release the income tax effects in other comprehensive income as financial amounts are removed.lease portfolio. See Note 5 for further information.

Pronouncements Issued but Not Yet Adopted as of September 30, ~~2019~~2020

In ~~February~~March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No. 2020-04,

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

, to provide temporary optional guidance relating to reference rate reform, particularly as it relates to easing the potential burden resulting from the expected discontinuation of the LIBOR rate. The guidance provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, which may be applied through December 31, 2022. The Company plans to apply this guidance to such transactions and modifications of arrangements but does not expect application to have a material impact on financial condition, results of operations or cash flows.

In June 2016, the FASB issued ASU

~~2016-02,~~2016-13,

~~Leases~~Measurement of Credit Losses

on Financial Instruments

, which ~~amends~~changes the ~~accounting guidance related~~impairment model used to ~~leases. These changes, which are designed~~measure credit losses for most financial assets. We will be required to ~~increase transparency and comparability among organizations~~use a new forward-looking expected credit loss model that will replace the existing incurred credit loss model for both lessees and lessors, include, among other things, requiring recognition of lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Adoption and implementation of theour accounts receivable. The guidance is ~~not required by~~effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years (fiscal 2021 for the ~~Company until the beginning of fiscal 2020, although~~Company), with early adoption is permitted. The Company ~~adopted ASU~~

~~2016-02~~

~~effective October 1, 2019 using~~does not anticipate that the ~~modified retrospective method, which was applied to leases that existed or~~adoption of this guidance will ~~be entered into~~have a material impact on ~~or after such date. The Company anticipates that as a result of such adoption, it will record to~~ its ~~balance sheet approximately $6,000 of~~

~~right-of-use~~

~~assets and lease liabilities as of October 1, 2019~~

.consolidated financial statements.

(r)	Reclassifications - - Certain reclassifications have been made to the prior fiscal year financial statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity.

(2)	~~Acquisition of~~ Business ~~of GenePOC~~Combinations

Acquisition of Exalenz

On April 30, 2020 (“the acquisition date”), we acquired 100% of the outstanding common shares and voting interest of Exalenz Bioscience Ltd. (“Exalenz”), a Modi’in, Israel based provider of the BreathID Breath Test Systems (“BreathID”), a breath test platform for the detection of

Helicobacter pylori.

Cash consideration totaled 168.6 million New Israeli Shekels (“NIS”), which equated to $48,237 at the date of closing. Including debt assumed and repaid shortly after closing, the total consideration transferred was $56,305. To finance the acquisition, we utilized cash and equivalents on hand and proceeds drawn from our revolving credit facility (see Note 6).

In anticipation of the transaction, we executed forward currency contracts to acquire the NIS required for the acquisition. As a result, the net cash outlay for the transaction prior to the repayment of debt was $47,392. The settlement of the currency contracts resulted in an $845 gain, which is reflected within other income in the Consolidated Statement of Operations for the year ended September 30, 2020.

- 56 -

Table of Contents

As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $24,466 was recorded in connection with this acquisition, none of which will be deductible for U.S. tax

purposes. The goodwill results largely from our ability to market and sell the BreathID system through our established customer base and distribution channels. The Consolidated Statement of Operations for the year ended September 30, 2020 included $

3,890

of acquisition-related costs related to the Exalenz acquisition, which are reflected in operating expenses.

The Company’s fiscal 2020 consolidated results include $4,206 of net revenues and $1,911 of net loss from Exalenz since the date of acquisition. These results, which are reported as part of the Diagnostics segment, include $1,120 of amortization of specific identifiable assets recorded in the opening balance sheet, including a

non-compete

agreement, trade name, technology and customer relationships.

The recognized preliminary amounts of identifiable assets acquired and liabilities assumed in the acquisition of Exalenz are as follows:


	PRELIMINARY
	April 30, 2020 (as initially reported)		Measurement Period Adjustments			April 30, 2020 (as adjusted)
Fair value of assets acquired -
Cash	$	5,006	$	—		$	5,006
Accounts receivable		637		—			637
Inventories		4,329		—			4,329
Other current assets		851		1,825			2,676
Property, plant and equipment		544		76			620
Goodwill		29,288		(4,822	)		24,466
Other intangible assets (estimated useful life):
Non-compete agreement (5 years)		120		(10	)		110
Trade name (10 years)		3,540		320			3,860
Technology (15 years)		5,590		530			6,120
Customer relationships (10 years)		19,370		1,270			20,640
Right-of-use assets		1,358		(47	)		1,311
Deferred tax assets, net		5,566		1,151			6,717

		76,199		293			76,492

Fair value of liabilities assumed -
Accounts payable and accrued expenses (including c urrent portion of lease and government grant o bligations)		7,757		251			8,008
Long-term lease obligations		1,054		42			1,096
Long-term government grant obligations		10,792		—			10,792
Other non-current liabilities		291		—			291

		19,894		293			20,187

Total consideration paid (including $8,068 to pay off long-term debt)	$	56,305	$	—		$	56,305

As indicated, the allocation of the purchase price is preliminary, pending final completion of valuations. Currently, we are primarily assessing the results of the valuation of intangible assets and the tax implications thereon. Upon completion of these analyses, any required adjustments are expected to result in an amount being reclassified from goodwill to deferred taxes, as applicable.

- 57 -

Table of Contents

Acquisition of Business of GenePOC

On June 3, 2019, we acquired the business of GenePOC Inc. (“GenePOC”), a Quebec City, Quebec Province, Canada based provider of molecular diagnostic instruments and assays. The purchase agreement ~~contemplates~~originally contemplated a maximum total consideration of up to $

~~120,000~~

,$120,000, which ~~based upon the current preliminary valuation is~~was estimated at a total fair value of ~~approximately $~~

~~77,526~~

.$77,526 as of the acquisition date. During fiscal 2020, an agreement was reached to amend certain terms of the original contingent consideration achievement levels and milestone dates, such that the total consideration will be no greater than $114,000. Pursuant to the purchase agreement, as amended, the maximum consideration is comprised of the ~~following (noting that the current preliminary valuation values the contingent consideration identified in (ii) and (iii) below at an aggregate amount of approximately $~~following:

~~27,200~~

(i)

a $50,000 cash payment on June 3, 2019, subject to a working capital adjustment and a holdback of $5,000 to secure selling party’s performance of certain post-closing obligations;


	(ii)	one $4,000 installment and one $10,000 installment contingent upon the achievement of certain product development milestones if achieved by September 30, 2022 (originally two ~~$10,000~~ $10,000 installments contingent upon the achievement of certain product development milestones if achieved by September 30, 2020 and March 31, 2021, ~~respectively;~~ respectively); and

(iii)

up to $50,000 of contingent consideration payable if certain financial performance targets are achieved during the twelve-month period ending September 30, 2022.

As previously noted, the fair value of the contingent consideration identified in (ii) and (iii) above was $27,202 and $20,909 as of the acquisition date and September 30, 2020, respectively.

The total of the holdback identified in (i) above and the currently estimated value of the contingent consideration identified in (ii) and (iii) above are reflected ~~as acquisition consideration~~ within ~~the~~

~~non-current~~

~~liabilities section of~~ the accompanying Condensed Consolidated Balance ~~Sheets. The holdback amounts are due to be settled in December~~Sheets as of September 30, 2020 ~~following the~~as follows:

~~18-month~~

Current liabilities

~~anniversary~~- $12,619

Reflects anticipated settlement of the ~~transaction.~~holdback amount in the first quarter of fiscal 2021 and the first product milestone payment in the fourth quarter of fiscal 2021.

Non-current

liabilities

- $13,290

Reflects anticipated settlement of the second product milestone payment in the first quarter of fiscal 2022 and financial performance targets payments in the first quarter of fiscal 2023.

To finance the acquisition, we utilized

cash and equivalents on hand and proceeds drawn

from our ~~new $125,000~~ revolving credit ~~facility, which replaced our previous credit facility~~

~~, to finance the acquisition.~~

~~Proceeds from the new credit facility were also utilized to repay and settle the outstanding principal and interest due on our term loan (see Note~~

).facility. As a result of ~~currently~~ estimated total consideration exceeding the ~~preliminary~~ fair value of the net assets acquired, goodwill in the amount of ~~$34,582~~

34,582

was recorded in connection with this acquisition, most of which

will

be deductible for

U.S. tax purposes ratably over

years. The goodwill results largely from ~~Meridian’s~~our ability to market and sell GenePOC’s technology and instrument platform through ~~its~~our established customer base and distribution channels.

58 -

Table of Contents

~~Our Consolidated Statement of Operations for the year ended September 30, 2019 includes $1,808 of acquisition-related costs related to the acquisition of the GenePOC business, which are reflected as~~

~~operating expenses.~~

~~Most of these costs relate to professional fees for attorneys, tax advisors and regulatory advisors during due diligence, and the preparation and negotiation of acquisition agreements.~~

~~The Company’s fiscal 2019~~

~~consolidated results~~

include $341 of net revenues and $3,848 of net loss from the GenePOC business since the date of acquisition. These results, which are reported as part of the Diagnostics segment, include $1,204 of amortization of specific identifiable assets recorded in the opening balance sheet, including a license agreement, technology and a government grant.

~~Preliminary Purchase Price Allocation~~

The recognized ~~preliminary~~ final

amounts of identifiable assets acquired and liabilities assumed in the acquisition of the GenePOC business are as follows:

PRELIMINARY

June 3,
2019

(as initially
reported)

Measurement
Period
Adjustments

June 3,
2019
(as adjusted)

Fair value of assets acquired -

Accounts receivable

$
58

$
(1
)
$
57

Inventories

1,617

(106
)
1,511

Other current assets

77

7

84

Property, plant and equipment

1,520

(96
)
1,424

Goodwill

34,482

100

34,582

Other intangible assets (estimated useful life):

License agreement (10 years)

5,990

—

5,990

Technology (15 years)

34,040

96

34,136

Government grant (1.33 years)

800

—

800

78,584

—

78,584

Fair value of liabilities assumed -

Accounts payable and accrued expenses

1,082

(24
)
1,058

Total consideration paid (including contingent consideration currently estimated at $27,200)
$
77,502
$
24
$
77,526

The allocation of the purchase price and estimated useful lives of property, plant and equipment, and intangible assets shown above remain preliminary and subject to adjustment, pending refinement and final completion of valuations, including but not limited to valuations of accounts receivable, inventory, other current assets, property, plant and equipment, and intangibles. Any modifications to the valuation of assets acquired and liabilities assumed will result in an adjustment to goodwill.


Fair value of assets acquired -
Accounts receivable	$	57
Inventories		1,511
Other current assets		84
Property, plant and equipment		1,424
Goodwill		34,582
Other intangible assets (estimated useful life):
License agreement (10 years)		5,990
Technology (15 years)		34,136
Government grant (1.33 years)		800

		78,584
Fair value of liabilities assumed -
Accounts payable and accrued expenses		1,058

Total consideration paid (including contingent consideration originally estimated at $27,202)	$	77,526

Unaudited Pro Forma Information ~~(Unaudited)~~(Exalenz and GenePOC)

The following table provides the unaudited

consolidated

pro

forma

results for the periods presented as if both Exalenz and the business of GenePOC had been acquired as of the beginning of fiscal ~~2018.~~2019. Pro forma results do not include the effect of any synergies anticipated to be achieved from the acquisition, and accordingly, are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated or that may result in the future.

Year Ended September 30,

2019

2018

Net Revenues
$
201,222
$
213,753

Net Earnings
$
16,093
$
9,407


Year Ended September 30,	2020		2019
Net Revenues	$	261,131	$	214,821
Net Earnings	$	45,701	$	8,173

~~Table of Contents~~

These pro forma amounts have been calculated by including the results of Exalenz and GenePOC, and adjusting the combined results to give effect to the following, as if the ~~acquisition~~acquisitions had been consummated on October 1, ~~201~~

,2018, together with the consequential tax effects thereon:


Year Ended September 30,	2019			2018			2020			2019
Adjustments to Net Revenues
GenePOC pre-acquisition revenues	$	208		$	182
Exalenz and GenePOC pre-acquisition revenues							$	7,464		$	13,807

Adjustments to Net Earnings
GenePOC pre-acquisition net loss	$	(9,578	)	$	(12,775	)
Exalenz and GenePOC pre-acquisition net losses							$	(6,423	)	$	(13,598	)
Pro forma adjustments:
Meridian acquisition-related costs		1,808			—			3,890			—
GenePOC transaction-related costs		1,245			—
Expenses related to non-continuing personnel, locations or activities		1,576			2,552
Exalenz transaction-related costs								4,550			—
Gain on Exalenz purchase price currency contracts								(845	)		—
Remove net impact of non-continuing personnel, locations or activities								(305	)		3,022
Incremental depreciation and amortization		(2,344	)		(3,499	)		(1,680	)		(5,358	)
Incremental interest costs		(743	)		(977	)
Tax effects of pro forma adjustments		(253	)		257
Incremental interest costs , net								(183	)		(1,477	)
Tax effects of pro forma adjustments and recognizing benefit on resulting Exalenz losses								511			1,202

Total Adjustments to Net Earnings	$	(8,289	)	$	(14,442	)	$	(485	)	$	(16,209	)

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Supplemental Cash Flow Information ~~(Non-Cash~~

(Non-Cash

Acquisition Consideration)

As noted above,

~~non-cash~~

the remaining acquisition consideration obligation related to acquisition of the

GenePOC

business decreased $6,293 during fiscal 2020, due in large part to amendment of certain terms of the original contingent consideration achievement levels and milestone dates. As result, such

non-cash

consideration totaled ~~$32,200~~$25,909 as of September 30, ~~2019, which is comprised of: (i) $5,000~~2020, down from $32,202 as of ~~purchase price holdback; and (ii) $27,200 contingent upon achievement of established milestones.~~September 30, 2019. No such items existed in fiscal ~~2018 or 2017.~~ 2018.

(3)	Restructuring

During the second quarter of fiscal 2018, the Company began implementation of a plan to realign its business structure into two business units, Diagnostics and Life Science, supported by a global corporate team. AsSince that time and as part of this plan, certain functions and locations within both business units have been streamlined, including: (i) the elimination of certain executive management and commercial sales positions; (ii) the closing of Life Science locations in Taunton, Massachusetts and Singapore, the operations of which were transferred to

our existing

locations in Memphis, Tennessee and London, England, respectively; and (iii) the transfer of certain functions performed in the Billerica, Massachusetts Diagnostics facility to the corporate headquarters in Cincinnati, Ohio.

Further restructuring costs were incurred in fiscal 2019 and fiscal 2020, as refinements to each business unit’s cost structure continued to be made and the ~~Company’s~~Company incurred severance payment obligations relating to the transition of its previous ~~CFO terminated employment.~~chief financial officer.

As a result of these activities, restructuring costs totaling $

687

, $2,839 and $6,332 were recorded during fiscal 2020, 2019 and fiscal 2018, respectively, the details of which are as follows:

2019

2018

Severance, other termination benefits and related costs
$
2,046
$
5,012

Lease and other contract termination fees

54

353

Loss on fixed asset disposals and inventory scrap

528

225

Other

211

742

Total
$
2,839
$
6,332


Year Ended September 30,	2020		2019		2018
Severance, other termination benefits and related costs	$	601	$	2,046	$	5,012
Lease and other contract termination fees		86		54		353
Loss on fixed asset disposals and inventory scrap		—		528		225
Other		0		211		742

Total	$	687	$	2,839	$	6,332

The above table does not include $2,374 of CEO transition costs incurred in fiscal 2018, which primarily represents the compensation and benefits for our previous Executive Chairman and CEO, Mr. John A. Kraeutler, throughout fiscal 2018, the period during which we also ~~have~~

had

the compensation and benefits

our

current

CEO, Mr. Jack Kenny, who began employment at the beginning of fiscal 2018. These CEO transition costs and the restructuring costs set forth in the table above comprise the $8,706 of restructuring costs set forth in the accompanying Consolidated Statement of Operations for fiscal 2018.

A reconciliation of the changes in the liabilities associated with the restructuring charges from September 30, 2018 through September 30, 2020 is as follows:


	Employee Separation and Related Costs			Lease and Other Contract Termination Fees			Other			Total
Balance at September 30, 2018	$	987		$	33		$	6		$	1,026
Restructuring charges		2,810			54			211			3,075
Reversal of prior period accruals		(401	)		(32	)		(61	)		(494	)
Payments		(2,386	)		(43	)		(42	)		(2,471	)

Balance at September 30, 2019	$	1,010		$	12			114		$	1,136
Restructuring charges		642			86			—			728
Reversal of prior period accruals		(41	)		—			—			(41	)
Payments		(1,565	)		(98	)		(114	)		(1,777	)

Balance at September 30, 2020	$	46		$	—		$	—		$	46

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~~Accrued liabilities associated with the restructuring costs noted above are comprised of the following:~~

As of September 30,

2019

2018

Severance, other termination benefits and related costs
$
1,010
$
987

Lease and other contract termination fees

12

33

Other

114

6

Total
$
1,136
$
1,026

(4)	Inventories

Inventories are comprised of the following:

As of September 30,

2019

2018

Raw materials
$
7,455
$
6,689

Work-in-process

11,504

12,098

Finished goods - instruments

935

1,191

Finished goods - kits and reagents

19,723

22,015

Total
$
39,617
$
41,993


As of September 30,	2020		2019
Raw materials	$	11,966	$	7,455
Work-in-process		19,477		11,504
Finished goods - instruments		1,594		935
Finished goods - kits and reagents		28,227		19,723

Total	$	61,264	$	39,617

(5)	Leasing Arrangements

The Company is party to a number of operating leases, the majority of which are related to office, warehouse and manufacturing space. The related operating lease assets and obligations are reflected within

right-of-use

assets, current operating lease obligations and long-term operating lease obligations on the Consolidated Balance Sheet.

Lease expense

for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. Our Consolidated Statement of Operations for fiscal 2020 reflect

lease costs for these operating leases of $

597

and $

1,286

within cost of sales and operating expenses, respectively.

The amounts charged to expense under operating leases in fiscal 2019 and 2018 total $2,372 and $2,457, respectively.

Right-of-use assets obtained during fiscal 2020 in exchange for operating lease liabilities totaled $1,600.

In addition, the Company has periodically entered into other short-term operating leases, generally with an initial term of twelve months or less. These leases are not recorded on the balance sheet and the related lease expense is immaterial for fiscal 2020.

The Company often has options to renew lease terms, with the exercise of lease renewal options generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for our operating leases as of September 30, 2020 was 4.2 years.

The discount rate implicit within our leases is generally not determinable and, therefore, the Company determines the discount rate using its incremental borrowing rate. The weighted average discount rate used to measure our operating leases as of September 30, 2020 was 3.7%.

Maturities of lease liabilities by fiscal year for the Company’s operating lease liabilities were as follows as of

September

30, 2020:


	September 30, 2020
	September 30, 2020
2021	$	2,002
2022		1,744
2023		1,271
2024		978
2025		691
Thereafter		282

Total lease payments		6,968
Less amount of lease payment representing interest		(501	)

Total present value of lease payments	$	6,467

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Table of Contents

As of September 30, 2019, future minimum lease payments under noncancelable operating leases were as follows:


	September 30, 2019
	September 30, 2019
2020	$	1,528
2021		1,451
2022		1,293
2023		967
2024		712
Thereafter		616

Total	$	6,567

Supplemental Cash Flow Information (Cash Paid for Amounts Included in Measurement of Lease Liabilities)

Operating cash flows from operating lease payments totaled $1,693 in fiscal 2020.

~~(5)~~

(6)

Bank Credit Arrangements

In anticipation of the acquisition of the business of GenePOC (see Note 2)

), on May 24, 2019 the Company entered into a credit facility agreement with a commercial bank. The Company amended the credit facility ~~which~~agreement on February 19, 2020 in anticipation of the Company’s acquisition of Exalenz (see Note

). The credit facility expires in May 2024, and as amended makes available to the Company a revolving credit facility in an aggregate principal amount not to exceed ~~$125,000,~~$160,000 (originally $125,000), with outstanding principal amounts bearing interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR,

, resulting in an effective interest rate of ~~3.78%~~3.30% and 4.13% on the credit facility induring fiscal ~~2019.~~

~~As of September 30,~~2020 and 2019, ~~two~~respectively. Since entering into the credit facility,

ree

draws totaling $125,824

have been made on the credit facility,

with principal repayments in January 2020 and September 2020 of $27,000 and $30,000, respectively, resulting

in an outstanding principal balance of ~~$75,824.~~ $68,824

September 30, 2020.

The proceeds from these draws were used to: (i) repay and settle the outstanding principal and interest due on our ~~previously-existing~~previously existing $60,000 five-year term ~~loan, which had an outstanding balance of $50,180 as of September 30, 2018;~~ loan;

and (ii) along with cash

on-hand,

fund the Exalenz and GenePOC ~~acquisition closing payment.~~acquisitions. In light of the ~~recent execution date of the credit facility and~~ interest being determined on a variable rate basis, the fair value of the borrowings under the credit facility at both September 30, 2020 and September 30, 2019 approximates the current carrying value reflected in the accompanying Consolidated Balance ~~Sheet, as was also the case with the outstanding term loan balance as of September 30, 2018.~~

Sheets.

The revolving credit facility is collateralized by the business assets of the Company’s U.S. subsidiaries and requires compliance with financial covenants that limit the amount of debt obligations and require a minimum level of coverage of fixed charges, as defined in the credit facility agreement. As of September 30, ~~2019,~~2020, the Company is in compliance with all covenants.

In order to limit exposure to volatility in the LIBOR interest rate, during March 2020 and June 2020 the Company and the commercial bank entered into three interest rate swap agreements that effectively converted the variable interest rate on $50,000 of the outstanding principal to a fixed rate of 2.16% (at the current credit spread) beginning June 24, 2020, the effective date of the most recent swap agreement. With an initial notional balance of $50,000, the interest rate swap agreements were established with critical terms identical to borrowings under the credit facility, including:

(i) one-month

LIBOR settlement rates, as to be elected by the Company throughout the remaining term of the credit facility; (ii) rate reset dates; and (iii) term/maturity. Consequently, the interest rate swaps have been designated as effective cash flow hedges, with changes in fair values reflected as a separate component of other comprehensive income in the accompanying Consolidated Statements of Comprehensive Income. At September 30, 2020, the fair value of the interest rate swaps was reported as a liability of $713, which is reflected as a

non-current

liability in the accompanying Consolidated Balance Sheet. This fair value was determined by reference to a third-party valuation and is considered a Level 2 input within the fair value hierarchy of valuation techniques.

- 62 -

Table of Contents

In connection with the Company’s term loan repayment in May 2019, the Company also settled the interest rate swap that had been entered into to limit exposure to volatility in the term loan’s LIBOR interest ~~rate~~

~~and which effectively converted the variable interest rate on the term loan to a fixed rate of 2.76%.~~

rate. At the time of settlement, the Company received a cash payment in an amount equal to the $563 then-current fair value of the interest rate swap. Accordingly, there is no balance for ~~the~~this interest rate swap reflected within assets or liabilities within the accompanying Consolidated Balance ~~Sheet~~Sheets as of September 30, ~~2019. At~~2020 or September 30, ~~2018, there was an asset balance of $1,722 related to the interest rate swap.~~2019. The ~~corresponding~~ fair value ~~amount~~of the swap that had been reflected within a separate component of other comprehensive income in the

accompanying Consolidated Statements

of Comprehensive Income, as a result of the interest rate swap having been designated as an effective cash flow hedge, is being released ratably into income through March 31, 2021, the interest rate swap’s original term.

The balance reflected within accumulated other comprehensive income related to the interest rate swap ~~balance reflected within~~

~~accumulated~~

~~other comprehensive income~~agreements associated with both the current credit facility and the former term loan totaled $560 and $461 at September 30, ~~2019~~2020 and September 30, ~~2018 totaled $461 and $1,722, respectively~~

.2019, respectively.

~~- 58 -~~

~~Table of Contents~~

Supplemental Cash Flow Information (Interest Paid)

Cash paid for

interest

totaled $2,690, $1,405 ~~$1,487~~ and ~~$1,605~~$1,487 in fiscal 2020, 2019 and

2018, ~~and 2017,~~

respectively.

~~(6)~~

(7)

Income Taxes

(a)	Earnings before income taxes, and the related provision for income taxes for the years ended September 30, 2020, 2019 ~~2018~~ and ~~2017~~2018 were as follows:


Year Ended September 30,	2020			2019			2018
Domestic	$	9,068		$	23,954		$	27,787
Foreign		50,225			7,603			2,593

Total earnings before income taxes	$	59,293		$	31,557		$	30,380

Provision (credit) for income taxes -
Federal -
Current	$	1,173		$	5,001		$	6,030
Temporary differences
Fixed asset basis differences and depreciation		960			288			410
Intangible asset basis differences and amortization		753			(797	)		(4,052	)
Currently non-deductible expenses and reserves		(1,001	)		241			1,206
Stock-based compensation		(41	)		(109	)		1,379
Net operating loss carryforwards utilized		26			69			61
Tax credit carryforwards utilized		—			—			181
Other, net		47			(169	)		(148	)

Subtotal		1,917			4,524			5,067
State and local		1,170			834			1,066
Foreign		10,020			1,817			398

Total income tax provision	$	13,107		$	7,175		$	6,531

- 63 -

Table of Contents

Year Ended September 30,

2019

2018

2017

Domestic
$
23,954
$
27,787
$
31,885

Foreign

7,603

2,593

4,544

Total earnings before income taxes
$
31,557
$
30,380
$
36,429

Provision (credit) for income taxes -

Federal -

Current
$
5,001
$
6,030
$
11,262

Temporary differences

Fixed asset basis differences and depreciation

288

410

(181
)
Intangible asset basis differences and amortization

(797
)
(4,052
)
(1,158
)
Currently
non-deductible
expenses and reserves

241

1,206

884

Stock-based compensation

(109
)
1,379

(635
)
Net operating loss carryforwards utilized

69

61

1,831

Tax credit carryforwards utilized

—

181

67

Other, net

(169
)
(148
)
99

Subtotal

4,524

5,067

12,169

State and local

834

1,066

1,900

Foreign

1,817

398

803

Total income tax provision
$
7,175
$
6,531
$
14,872

(b)	The following is a reconciliation between the statutory U.S. income tax rate and the effective rate derived by dividing the provision for income taxes by earnings before income taxes:

Year Ended September 30,

2019

2018

2017

Computed income taxes at statutory rate

$

6,627

21.0
%

$
7,443

24.5
%    $
12,750

35.0
%
Increase (decrease) in taxes resulting from -

State and local income taxes

577

1.8

982

3.2

1,093

3.0

U.S. tax law change

—

—

(2,655
)
(8.7
)
—

—

One-time
repatriation tax

—

—

876

2.9

—

—

Foreign-Derived Intangible Income tax

(294
)

(0.9
)

—

—

—

—

Global Intangible Low Taxed Income tax

1,119

3.6

—

—

—

—

Foreign tax credit

(990
)

(3.1
)

(15
)
—

(57
)
(0.2
)
Foreign tax rate differences

46

0.1

(104
)
(0.3
)
(281
)
(0.8
)
Qualified domestic production incentives

—

—

(550
)
(1.8
)
(1,012
)
(2.8
)
Uncertain tax position activity

126

0.4

(62
)
(0.2
)
134

0.4

Goodwill impairment charge

—

—

—

—

2,320

6.4

Valuation allowance

106

0.3

(40 ) (0.1 ) — —
Stock-based compensation

(33
)
(0.1
)
447

1.4

—

—

Other, net

(109
)
(0.4
)
209

0.6

(75
)
(0.2
)

$

7,175

22.7
%
$

6,531

21.5
%
$

14,872

40.8
%


Year Ended September 30,	20 20					201 9					2018
Computed income taxes at statutory rate	$	12,452		21.0	%	$	6,627		21.0	%	$	7,443		24.5	%
Increase (decrease) in taxes resulting from -
State and local income taxes		773		1.3			577		1.8			982		3.2
U.S. tax law change		—		—			—		—			(2,655	)	(8.7	)
One-time repatriation tax		—		—			—		—			876		2.9
Foreign-Derived Intangible Income tax		(136	)	(0.2	)		(294	)	(0.9	)		—		—
Global Intangible Low Taxed Income tax		4,970		8.4			1,119		3.6			—		—
Foreign tax credit		(4,767	)	(8.0	)		(990	)	(3.1	)		(15	)	—
Foreign tax rate differences		(534	)	(0.9	)		46		0.1			(104	)	(0.3	)
Transaction costs		548		0.9			—		—			—		—
Qualified domestic production incentives		—		—			—		—			(550	)	(1.8	)
Uncertain tax position activity		62		0.1			126		0.4			(62	)	(0.2	)
Valuation allowance		(106	)	(0.2	)		106		0.3			(40	)	(0.1	)
Stock-based compensation		41		0.1			(33	)	(0.1	)		447		1.4
Other, net		(196	)	(0.4	)		(109	)	(0.4	)		209		0.6

	$	13,107		22.1	%	$	7,175		22.7	%	$	6,531		21.5	%

~~Table of Contents~~

On December 22, 2017, the United States

enacted

tax reform

legislation

commonly known as the Tax Cuts and Jobs Act (the “tax reform act”) ~~and the following effects of the tax reform act are reflected within the consolidated financial statements for the year ended September 30, 2018: (i) a tax benefit of $2,655, primarily from the~~

~~re-measurement~~

~~of deferred tax assets and liabilities; and (ii) $876 of tax expense for the mandatory U.S. repatriation transition tax. The~~

~~re-measurement~~

~~of deferred tax assets and liabilities reflect~~

~~the realization of temporary differences during fiscal 2018 at a transitional blended federal rate of 24.5%, with the remaining temporary differences being~~

~~re-measured~~

~~at the 21% federal rate.~~

~~The tax reform act includes~~including the Global Intangible Low Taxed Income tax (“GILTI”), which requires the Company to include in U.S. income certain foreign earnings that do not exceed a 10% return on foreign investment. For the year ended September 30, 2020, the Company’s U.S. GILTI inclusion was $23,666, resulting in a permanent tax expense of $4,970, which is offset by a foreign tax credit benefit of $4,767. During fiscal 2020, the Internal Revenue Service issued Final Treasury Regulations related to the GILTI tax. Such regulations served to reduce the Company’s fiscal 2019 GILTI inclusion, resulting in

an additional

$220

federal

tax benefit

related to fiscal 2019.

For the year ended September 30, 2019, the Company’s U.S. GILTI inclusion ~~was~~totaled $5,328, resulting in a permanent tax expense and a foreign tax credit benefit of $1,119 and $990, respectively. The Company has elected to take the GILTI into account in the year it occurs.

(c)	The components of net deferred ~~tax liabilities~~taxes were as follows:


As of September 30,	2020			2019
Deferred tax assets -
Valuation reserves and non-deductible expenses	$	4,848		$	1,253
Stock compensation expense not deductible		1,804			2,158
Net operating loss and tax credit carryforwards		10,164			494
Basis difference in equity-method investee		302			302
Inventory basis differences		382			289
Other		207			125

Subtotal		17,707			4,621
Less valuation allowance		(302	)		(408	)

Deferred tax assets		17,405			4,213

Deferred tax liabilities -
Fixed asset basis differences and depreciation		(4,269	)		(2,205	)
Intangible asset basis differences and amortization		(9,293	)		(4,374	)

Deferred tax liabilities		(13,562	)		(6,579	)

Net deferred tax assets ( liabilities )	$	3,843		$	(2,366	)

As of September 30,

2019

2018

Deferred tax assets -

Valuation reserves and
non-deductible
expenses

$

1,253
$
1,473

Stock compensation expense not deductible

2,158

2,033

Net operating loss and tax credit carryforwards

494

433

Basis difference in equity-method investee

302

302

Inventory basis differences

289

383

Other

125

(530
)

Subtotal

4,621

4,094

Less valuation allowance

(408
)
(302
)

Deferred tax assets

4,213

3,792

Deferred tax liabilities -

Fixed asset basis differences and depreciation

(2,205
)
(1,913
)
Intangible asset basis differences and amortization

(4,374
)
(5,518
)

Deferred tax liabilities

(6,579
)
(7,431
)

Net deferred tax liabilities

$

(2,366
) $
(3,639
)

- 64 -

Table of Contents

For income tax purposes, we have recorded deferred tax assets related to operating loss and tax credit carryforwards in both U.S. and foreign jurisdictions totaling ~~$231~~$205 and ~~$263,~~$9,959, respectively, as of September 30, ~~2019.~~2020. At September 30, ~~2018,~~2019, such deferred tax assets totaled ~~$303~~$231 and ~~$130,~~$263, respectively. The operating loss carryforwards in

~~Canada expire in 2039, with such carryforwards in the other~~

foreign jurisdictions ~~hav~~

~~ing~~, the majority of wh

ich relate to Isra

have

no expiration date. The operating loss carryforwards in the U.S. expire

2023 at the federal level, and

2036 at the state level. The aggregate amount of federal, state and foreign operating loss carryforwards

separately

totaled ~~$366, $2,443~~$243, $2,432 and ~~$914,~~$78,332, respectively, at September 30, ~~2019.~~2020. The use of the federal and state losses is limited by the change of ownership provisions of the Internal Revenue ~~Code~~Code.

The Company has evaluated its assertion as to whether earnings of foreign subsidiaries are indefinitely reinvested. The Company has removed its indefinite reinvestment assertion on the foreign subsidiary earnings and recognized a deferred tax liability of $185 to reflect the corporate and withholding tax impact of a presumed repatriation of foreign earnings.

The realization of deferred tax assets is dependent upon the generation of future taxable income in the applicable jurisdictions. We have considered the levels of currently anticipated

pre-tax

income in U.S. and foreign jurisdictions in assessing the required level of the deferred tax asset valuation allowance including the characterization of the income as ordinary or capital. Taking into consideration historical and current operating results, and other factors, we believe that it is more likely than not that the net deferred tax asset of ~~$4,213~~$17,405 will be realized. The amount of the net deferred tax asset considered realizable, however, could be reduced in future years if estimates of future taxable income are ~~reduced~~

.reduced.

~~- 60 -~~

~~Table of Contents~~

We utilize a comprehensive model for the recognition, measurement, presentation and disclosure of uncertain tax positions, assuming full knowledge of all relevant facts by the applicable tax authorities. The total amount of unrecognized tax benefits at September 30,

~~, 2019~~

2020 and September 30,

~~, 2018~~

2019 related to such positions was ~~$383~~$568 and ~~$262,~~$509, respectively, of which ~~$309~~$494 would favorably impact the effective tax rate if recognized. We generally recognize interest and penalties related to uncertain tax positions as a component of our income tax provision. During fiscal ~~2019~~

2020 and ~~2018~~

,2019, such penalties and interest totaled approximately ~~$34~~$20 and ~~$84,~~$34, respectively. We had approximately ~~$128~~$138 accrued for the payment of interest and penalties at September 30,

~~, 2019~~

2020 compared to ~~$162~~$118 accrued at September 30,

~~, 2018~~

. 2019. The amount of our liability for uncertain tax positions expected to be paid or settled in the next 12

months is uncertain.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

2019

2018

Unrecognized income tax benefits
at
beginning of year

$
262
$
517

Additions for tax positions of prior years

83

—

Reductions for tax positions of prior years

(100
)
—

Additions for tax positions of current year

138

—

Tax examination and other settlements

—

(161
)
Expiration of statute of limitations

—

(94
)

Unrecognized income tax benefits at end of year

$
383
$
262


	2020			2019
Unrecognized income tax benefits at beginning of year	$	509		$	388
Additions for tax positions of prior years		—			83
Reductions for tax positions of prior years		0			(38	)
Additions for tax positions of current year		104			138

Tax examination and other settlements		(45	)		(62	)
Unrecognized income tax benefits at end of year	$	568		$	509

We are subject to examination by the tax authorities in the U.S. (both federal and state) and the countries of Australia,

Belgium, Canada, China, England, France, Germany, Holland, Israel and Italy. In the U.S., ~~open~~ tax years ~~are~~subsequent to fiscal

2016 ~~fiscal 2017 and fiscal 2018.~~remain open. In countries outside the U.S., open tax years generally range from fiscal ~~2014~~2015 and forward. However, in

Australia and Belgium, the utilization

of local net operating loss carryforwards extends the statute of limitations for examination well into the foreseeable future. To the extent that adjustments result from the completion of these examinations or the lapsing of statutes of limitation, they will affect tax liabilities in the period known. We believe that the results of any tax authority examinations would not have a significant adverse impact on our financial condition or results of operations.

Supplemental Cash Flow Information (Income Taxes Paid)

Cash paid for income taxes totaled $9,816, $7,840 ~~$6,555~~ and ~~$12,613~~$6,555 in fiscal 2020, 2019 and 2018, ~~and 2017, respectively~~respectively.

- 65 -

Table of Contents

~~(7)~~

(

)

Employee Benefits

(a)

Savings and Investment Plan

- We have a profit sharing and retirement savings plan covering substantially all full-time U.S. employees. Profit sharing contributions to the plan, which are discretionary, are approved by the board of directors. The plan permits participants to contribute to the plan through salary reduction. Under terms of the plan, we match 100% of an employee’s contributions, up to a maximum match of 4% of eligible ~~compensation (3% through December 31, 2016).~~compensation. Our discretionary and matching contributions to the plan amounted to approximately $2,434, $1,979 ~~$2,118~~ and ~~$1,912,~~$2,118, during fiscal 2020, 2019 and 2018, ~~and 2017,~~ respectively.

(b)

Stock-Based Compensation Plans

- During fiscal ~~2019,~~2020, we had 2 active stock-based compensation plans, the 2004 Equity Compensation Plan, which became effective December 7, 2004, as amended (the “2004 Plan”) and the 2012 Stock Incentive Plan, which became effective January 25, 2012 (the “2012 Plan”).

Each of the 2004 Plan and 2012 Plan authorized the granting of new shares for options, restricted shares or restricted share units for up to 3,000 shares, with the

non-granted

portion of the 2004 Plan permitted to be carried forward and added to the 2012 Plan authorized limit. As of September 30, ~~2019,~~2020, we have granted ~~1,292~~1,255 and ~~2,051~~2,702 shares under the 2004 Plan and 2012 Plan, respectively, thereby resulting in a remaining authorized limit of ~~2,657~~2,043 shares. Options may be granted at exercise prices not less than 100% of the closing market value of the underlying common shares on the date of grant and have maximum terms up to ten years. Vesting schedules for options, restricted shares and restricted share units are established at the time of grant and may be set based on future service periods, achievement of performance targets or a combination thereof. All options contain provisions restricting their transferability and limiting their exercise in the event of termination of employment or the disability or death of the optionee. We recognize compensation expense for all share-based payments made to employees, based upon the fair value of the share-based payment on the date of the grant.

~~Table of Contents~~

During fiscal years ~~2017~~2018 through ~~2019,~~2020, we granted, in the aggregate for the three-year period, approximately ~~1,100~~1,040 restricted share units (with weighted-average grant date fair values of ~~$16.93 per share in fiscal 2017,~~ $14.65 per share in fiscal 2018, ~~and~~ $18.66

per share in fiscal ~~2019)~~2019 and $10.13 per share in fiscal 2020) to certain ~~employees. The~~employees, including current CEO, Mr. Jack Kenny, as separately detailed below. Aside from those granted to Mr. Kenny, the units granted

in fiscal 2020 and 2019 were generally time-vested restricted share units vesting in total on the third anniversary of the grant date. During fiscal 2018, ~~and 2017,~~ generally half of each employee’s grant was time-vested restricted share units vesting in total on the fourth anniversary of the grant date, with the remaining half being subject to attainment of a specified earnings target for each fiscal period. While dividend equivalents were paid on these units throughout ~~each~~ fiscal ~~period,~~2018, the targets for ~~each~~ fiscal ~~period~~2018 were not met and the performance-based portion of these restricted share units granted have been cancelled.

During fiscal ~~2017~~ 2020

in connection with ~~his~~Mr. Kenny’s Amended and Restated Employment Agreement ~~we also granted to our former Chairman and CEO~~

at that time, Mr. John A. Kraeutler, 25 restricted share units (with a grant date fair value of $19.09 per share), with each respective grant to be earned only if specified revenue and earnings per share targets were achieved for fiscal 2017. As a result of the performance targets not being achieved, these restricted share units have been cancelled

~~Additionally, during fiscal 2018 in connection with the~~effective October ~~9, 2017 employment of the Company’s current CEO~~

~~, Mr. Jack Kenny,~~1, 2019, we granted to Mr. Kenny: (i) options to purchase ~~100~~approximately 198 shares of common stock of the Company (with a grant date fair value of ~~$3.19~~$3.38 per share) vesting on a pro rata basis over ~~four years;~~the three years ending October 1, 2022; and (ii) 13approximately 100 restricted share units (with a grant date fair value of ~~$14.50~~$10.10 per share) vesting 100% on the October 1, 2022, which are included within the restricted share units noted above.

During fiscal 2018 in connection with

Mr.

Kenny’

October 9, 2017 employment, we granted to Mr. Kenny: (i) options to purchase

100

shares of common stock of the Company (with a grant date fair value of $

3.19

per share) vesting on a pro rata basis over

four years

; and (ii)

restricted share units (with a grant date fair value of $

14.50

per share) vesting

100

% on the second anniversary of the grant. Also during fiscal 2018 in connection with his Amended and Restated Employment Agreement, we granted to our

former Chairman and CEO

at that time, Mr. John A.

Kraeutler

restricted share units (with a grant date fair value of ~~$15.30~~ $

15.30

per share) to be earned only

if specified revenue and earnings per share targets were achieved for fiscal 2018. As a result of the fiscal 2018 performance targets related to this grant being achieved, these restricted share units were fully vested and the related shares were paid to Mr. Kraeutler in November 2018.

- 66 -

Table of Contents

Giving effect to these grants, cancellations and certain other activities for restricted shares and restricted share units throughout the years, including conversions to common shares, forfeitures, and new hire and employee promotion grants, approximately ~~432~~603 restricted share units remain outstanding as of September 30, ~~2019,~~2020, with a weighted-average grant date fair value of ~~$17.17~~$13.27 per share, a weighted-average remaining vesting period of 1.53 years and an aggregate intrinsic value of ~~$4,096.~~$10,237. The weighted-average grant date fair value of the

approximate ~~285~~ 157

restricted share units that vested during fiscal ~~2019~~2020 was ~~$17.34~~$16.73 per share.

The amount of stock-based compensation expense reported was $3,802, $3,251 ~~$3,402~~ and ~~$3,381~~$3,402 in fiscal 2020, 2019 ~~2018~~ and ~~2017,~~2018, respectively. The fiscal 2020 expense is comprised of $1,006 related to stock options and $2,796 related to restricted share units; the fiscal 2019 expense is comprised of $542 related to stock options and $2,709 related to restricted share units; and the fiscal 2018 expense is comprised of $793 related to stock options and $2,609 ~~related to restricted share units; and the fiscal 2017 expense is comprised of $662 related to stock options and $2,719~~ related to restricted share units. The total income tax benefit recognized in the income statement for these stock-based compensation arrangements was $898, $572 ~~$303~~ and ~~$861,~~$303, for fiscal 2020, 2019 ~~2018~~ and ~~2017,~~2018, respectively. As of September 30, ~~2019,~~2020, we expect future stock compensation expense for unvested options and unvested restricted share units to total ~~$240~~$515 and ~~$2,756,~~$3,122, respectively, which will be recognized during fiscal years ~~2020~~2021 through 2023.

We recognize compensation expense only for the portion of shares that we expect to vest. As such, we apply estimated forfeiture rates to our compensation expense calculations. These rates have been derived using historical forfeiture data, stratified by several employee groups. During fiscal 2020, 2019 ~~2018~~ and ~~2017,~~2018, we recorded $148, $127 ~~$106~~ and $106, respectively,

in stock compensation expense to adjust estimated forfeiture rates to actual, noting that total ~~fiscal 2019~~ stock compensation expense for each of fiscal 2020, 2019 and 2018 reflects the effect of terminations made in connection with the restructuring activities discussed in Note 3.

We have elected to use the Black-Scholes option pricing model to determine grant-date fair value for stock options, with the following assumptions: (i) expected share price volatility based on the average of Meridian’s historical volatility over the options’ expected lives and implied volatility based on the value of tradable call options; (ii) expected life of options based on contractual lives, employees’ historical exercise behavior and employees’ historical post-vesting employment termination behavior; (iii) risk-free interest rates based on treasury rates that correspond to the expected lives of the options; and (iv) dividend yield based on the expected yield on underlying Meridian common stock.

~~- 6~~

~~Table of Contents~~

Year ended September 30,

2019

2018

2017

Risk-free interest rates

2.99
%
2.10
%
1.34
%
Dividend yield

3.3
%
3.3
%
4.1
%
Life of option

6.51 yrs.

6.47 yrs.

6.44 yrs.

Share price volatility

29
%
30
%
27
%
Forfeitures (by employee group)

0%-16
%

0%-16
%
0%-19
%


Year ended September 30,	2020			2019			2018
Risk-free interest rates		1.60	%		2.99	%		2.10	%
Dividend yield		0	%		3.3	%		3.3	%
Life of option		6.51 yrs.			6.51 yrs.			6.47 yrs.
Share price volatility		34	%		29	%		30	%
Forfeitures (by employee group)		0%-16%			0%-16%			0%-16%

A summary of the status of our stock option plans as of September 30, ~~201~~

,2020 and changes during the year ended September 30, ~~2019,~~2020, is presented in the table and narrative below:

Options

Wtd Avg
Exercise
Price

Wtd Avg
Remaining
Life (Yrs)

Aggregate
Intrinsic
Value

Outstanding beginning of period

1,095
$
17.56

Grants

77

16.07

Exercises

(30
)
15.13

Forfeitures

(52
)
15.03

Cancellations

(100
)
20.48

Outstanding end of period

990
$
17.36

6.37
$
1

Exercisable end of period

782
$
17.99

5.86
$
—


	Options			Wtd Avg Exercise Price		Wtd Avg Remaining Life (Yrs)		Aggregate Intrinsic Value
Outstanding beginning of period		990		$	17.36
Grants		367			10.07
Exercises		(203	)		17.83
Forfeitures		(2	)		14.74
Cancellations		(49	)		21.62
Outstanding end of period		1,103		$	14.67		6.89	$	3,483

Exercisable end of period		674		$	16.86		5.80	$	984

- 67 -

Table of Contents

A summary of the status of our nonvested options as of September 30, ~~2019,~~2020, and changes during the year ended September 30, ~~201~~

,2020, is presented below:

Options

Weighted-
Average
Grant Date
Fair Value

Nonvested beginning of period

389
$
3.24

Granted

77

3.61

Vested

(205
)
3.39

Forfeitures

(52
)
3.25

Nonvested end of period

209
$
3.24


	Options			Weighted- Average Grant Date Fair Value
Nonvested beginning of period		209		$	3.24
Granted		367			3.54
Vested		(145	)		3.64
Forfeitures		(2	)		3.11

Nonvested end of period		429		$	3.36

The weighted average grant-date fair value of options granted was $3.54, $3.61 ~~$3.27~~ and ~~$2.65~~$3.27 for fiscal 2020, 2019 ~~2018~~ and ~~2017,~~2018, respectively. The total intrinsic value of options exercised was $1,585, $62 $2 and $9$2 for fiscal 2020, 2019 ~~2018~~ and ~~2017,~~2018, respectively. The total grant-date fair value of options that vested during fiscal 2020, 2019 and 2018 was $528, $735 and ~~2017 was $735,~~ $580, ~~and $494,~~ respectively.

Cash received from options exercised was $3,559, $443 ~~$183~~ and ~~$302~~$183 for fiscal 2020, 2019 and 2018, ~~and 2017,~~ respectively. ~~Tax expense recorded to additional~~

~~paid-in~~

~~capital from option exercises totaled $0, $0~~

~~and $~~

~~431~~

~~for fiscal~~

~~2019~~

~~2018~~

~~and~~

~~2017~~

~~, respectively.~~

(9)

Contingent Obligations and

Non-Current

Liabilities

In connection with ~~Mr. Kenny’s October 1, 2019 Amended~~the acquisition of Exalenz and ~~Restated Employment Agreement,~~as disclosed in ~~November 2019 we granted Mr. Kenny: (i) options to purchase 198 shares~~Note 2, the Company assumed a number of ~~common stock~~Israeli government grant obligations. The repayment of the ~~Company vesting~~grants, along with interest incurred at varying stated fixed rates based on ~~a pro rata basis over~~LIBOR at the ~~three years ending October 1, 2022;~~time each grant was received (ranging from 0.58% to 6.60%), is not dictated by an established repayment schedule. Rather, the grants and ~~(ii) 99 restricted share units vesting 100%~~related interest are required to be repaid using 3% of the revenues generated from the sales of BreathID products, with the timing of repayment contingent upon the level and timing of such revenues. In addition, the grants have no collateral or financial covenant provisions generally associated with traditional borrowing instruments. As such, these grant obligations and related accrued interest are considered contingent obligations under ASC

805-20

and, therefore, are measured, recognized and presented in both the September 30, 2020 and preliminary purchase accounting opening balance sheets at their estimated amounts to be paid. These obligation amounts total $11,124 as of September 30, 2020, which is reflected on ~~October 1, 2022.~~the Consolidated Balance Sheet within current liabilities ($600) and

non-current

liabilities ($10,524).

~~Table of Contents~~

~~(8)~~

~~Non-Current Liabilities~~

~~The~~Additionally, the Company has provided certain post-employment benefits to its former CEO, and these obligations total ~~$1,917~~$1,840 and ~~$1,864~~$1,917 at September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. In addition, we are required by the governments of certain foreign countries in which we operate to maintain a level of ~~reserves~~accruals for potential future severance indemnity. These reserves total ~~$702~~$814 and ~~$713~~$702 at September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

~~(9)~~

(10)

Reportable Segments and Major Concentration Data

Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists ofof: (i) manufacturing operations for infectious disease products in Cincinnati, ~~Ohio and~~Ohio; Quebec City, ~~Canada,~~Canada; and Modi’in, Israel; (ii) manufacturing operations for blood chemistry products ~~detecting elevated lead levels in blood~~ in Billerica, Massachusetts (near Boston),; and (iii) the sale and distribution of diagnostics products domestically and abroad.

The Life Science segment consists ofof: (i) manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, ~~Germany,~~Germany; and (ii) the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides,

and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to ~~further~~ pursue ~~growing~~ revenue opportunities in ~~Asia~~

.Asia.

~~Revenues from~~

- 68 -

Table of Contents

NaN Diagnostics customers accounted for 10% and 11%, respectively, of consolidated net revenues in fiscal 2018, with no individual customers ~~constituting~~

%from either reportable segment accounting for 10% or more of consolidated net revenues ~~are~~in either fiscal 2020 or fiscal 2019. However, during fiscal 2020, reportable segment revenues were concentrated as follows:

Year Ended September 30,

2019

2018

2017

Customer A
$
18,096

(9
)% $
21,162

(10
)%

$
22,397

(11
)%
Customer B
$
17,350

(9
)% $
22,490

(11
)% $
17,825

(9
)%

Diagnostics Segment

Two diagnostics distributors: 23% of segment revenues; 12% of consolidated revenues

Life Science Segment

Three diagnostic manufacturers:

27% of segment revenues; 14% of consolidated revenues

Accounts receivable from ~~these 2~~

1 of the

Diagnostics customers accounted for ~~13% and 12%~~11% of consolidated accounts receivable at September 30,

2019, while one of the Life Science customers accounted for

15% of consolidated accounts receivable at September 30, 2020.

Revenue generated by the Company outside of the U.S. and its territories totaled approximately $121,596, $74,193 and $71,494 in fiscal 2020, 2019 and ~~September 30,~~ 2018, ~~respectively. The Company’s international revenues totaled approximately $76,430, $72,548 and $66,682 in fiscal 2019, 2018 and 2017,~~ respectively, and our three major product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for ~~57%~~39%, ~~59%~~57% and ~~60%~~59% of consolidated net revenues in fiscal 2020, 2019 and 2018, ~~and 2017,~~ respectively. In addition, products related to

COVID-19

accounted for approximately 28% of consolidated fiscal 2020 revenues.

We currently purchase on a sole-source basis from a U.S. manufacturer the instruments on which our Alethia molecular testing platform operates, and from an Australian manufacturer the instruments on which our Curian testing platform operates. ~~Additionally, two~~

- 69 -

Table of ~~our foodborne products sourced from another vendor accounted for 9%, 9% and 10% of third-party revenues for our Diagnostics segment in fiscal 2019, 2018 and 2017, respectively.~~Contents

Significant revenue information by country for the

Diagnostics

and Life Science segments is as follows. Revenues are attributed to the geographic area based on the location to which the product is delivered.

Year Ended September 30,

2019

2018

2017

United States

$

105,648
$
120,555
$
114,494

Italy

10,898

10,398

9,004

France

2,442

2,353

1,845

United Kingdom

2,397

2,340

1,778

Puerto Rico

2,276

1,054

730

Japan

1,571

1,307

2,421

Belgium

1,465

1,711

1,507

Holland

1,411

1,454

1,290

Other countries

8,574

9,282

10,452

Total Diagnostics

$

136,682
$
150,454
$
143,521


Year Ended September 30,	2020		2019		2018
United States and territories	$	95,382	$	107,890	$	121,609
Italy		9,797		10,911		10,398
United Kingdom		2,312		2,396		2,340
France		2,238		2,446		2,353
Belgium		1,440		1,468		1,711
Holland		1,183		1,413		1,454
Japan		848		1,572		1,307
Other countries		7,932		8,586		9,282

Total Diagnostics	$	121,132	$	136,682	$	150,454


Year Ended September 30,	2020		2019		2018
United States and territories	$	36,689	$	18,931	$	20,468
China		19,047		8,464		8,347
United Kingdom		14,765		4,709		5,201
Germany		14,190		12,663		8,108
Spain		7,242		4,414		4,187
Australia		5,957		3,458		3,631
France		5,579		2,200		2,040
Italy		4,067		1,357		971
Japan		3,707		1,624		1,932
Holland		3,212		710		715
Indonesia		3,027		169		162
Turkey		2,819		290		188
Finland		2,518		500		467
India		2,099		143		251
South Korea		1,908		1,134		2,044
Other countries		5,709		3,566		4,405

Total Life Science	$	132,535	$	64,332	$	63,117

~~Table of Contents~~

Year Ended September 30,

2019

2018

2017

United States

$

18,936

$

20,468

$

19,595

Germany

12,664

8,108

7,406

China

8,460

8,347

5,898

United Kingdom

4,714

5,201

5,579

Spain

4,415

4,187

3,209

Australia

3,461

3,631

4,002

France

2,200

2,040

1,792

Japan

1,624

1,932

1,375

Italy

1,357

971

700

South Korea

1,134

2,044

2,308

Other countries

5,367

6,188

5,386

Total Life Science

$
64,332
$
63,117

$

57,250

In locations outside the U.S., the Company’s identifiable assets were concentrated as follows at the end of

the

most recent fiscal ~~years:~~years, with no additional country’s total of assets exceeding $5,000:

As of September 30,	2020		2019
Israel	$	70,097	$	—
United Kingdom		27,373		22,963
Germany		12,877		7,141
Canada		9,865		6,807
Italy		7,858		7,557

~~As of September 30, 2019~~

~~: U.K – $22,963~~

~~; Germany – $~~

~~7,141~~

~~; Italy – $~~

~~7,557~~

~~; and Australia – $~~

~~1,392~~

- 70 -

Table of ~~September 30, 2018~~Contents

~~: U.K – $14,816; Germany – $7,706; Italy – $7,334; and Australia – $3,543~~

Segment information for the interim periods is as ~~follows:~~

follows

Diagnostics

Life Science

Corporate
(1)

Eliminations
(2)

Total

Fiscal 2019

Net revenues -

Third-party
$
136,682
$
64,332
$
—
$

—
$
201,014

Inter-segment

462

361

—

(823
)
—

Operating income

22,399

20,572

(10,373
)
101

32,699

Depreciation and amortization

7,676

2,288

—

—

9,964

Capital expenditures

2,049

1,748

—

—

3,797

Goodwill

70,395

18,846

—

—

89,241

Other intangible assets, net

59,807

436

—

—

60,243

Total assets

255,169

70,392

—

(83
)
325,478

Fiscal 2018

Net revenues -

Third-party
$
150,454
$
63,117
$
—
$
—
$
213,571

Inter-segment

392

397

—

(789
)
—

Operating income

32,569

13,799

(15,076
)
292

31,584

Depreciation and amortization

6,557

2,131

—

—

8,688

Capital expenditures

2,477

1,724

—

—

4,201

Goodwill

35,213

19,424

—

—

54,637

Other intangible assets, net

22,068

1,045

—

—

23,113

Total assets

180,978

70,341

—

58

251,377


	Diagnostics		Life Science		Corporate(1)			Eliminations(2)			Total
Fiscal 2020
Net revenues -
Third-party	$	121,132	$	132,535	$	—		$	—		$	253,667
Inter-segment		326		261		—			(587	)		—
Operating income		3,885		68,826		(11,437	)		50			61,324
Depreciation and amortization		11,451		2,116		—			—			13,567
Capital expenditures		1,850		1,449		—			—			3,299
Goodwill		94,855		19,331		—			—			114,186
Other intangible assets, net		83,179		18		—			—			83,197
Total assets		306,812		98,483		—			(34	)		405,261

Fiscal 2019
Net revenues -
Third-party	$	136,682	$	64,332	$	—		$	—		$	201,014
Inter-segment		462		361		—			(823	)		—
Operating income		25,390		17,581		(10,373	)		101			32,699
Depreciation and amortization		7,676		2,288		—			—			9,964
Capital expenditures		2,049		1,748		—			—			3,797
Goodwill		70,395		18,846		—			—			89,241
Other intangible assets, net		59,807		436		—			—			60,243
Total assets		255,169		70,392		—			(83	)		325,478


Fiscal 2018
Net revenues -
Third-party	$	150,454	$	63,117	$	—		$	—		$	213,571
Inter-segment		392		397		—			(789	)		—
Operating income		34,603		11,765		(15,076	)		292			31,584
Depreciation and amortization		6,557		2,131		—			—			8,688
Capital expenditures		2,477		1,724		—			—			4,201
Goodwill		35,213		19,424		—			—			54,637
Other intangible assets, net		22,068		1,045		—			—			23,113
Total assets		180,978		70,341		—			58			251,377

~~Table of Contents~~

Fiscal 2017

Net revenues -

Third-party
$
143,521
$
57,250
$
—
$
—
$
200,771

Inter-segment

389

537

—

(926
)
—

Operating income

34,124

14,086

(11,097
)

269

37,382

Depreciation and amortization

7,037

2,053

—

—

9,090

Capital expenditures

2,554

1,913

—

—

4,467

Goodwill

35,213

19,713

—

—

54,926

Other intangible assets, net

24,973

1,731

—

—

26,704

Total assets

180,226

69,938

—

(387
)
249,777

(1)	Includes Restructuring and Selected Legal Costs of $2,080, $2,596 ~~$7,779~~ and ~~$762~~$7,779 in fiscal years 2020, 2019 and 2018, ~~and 2017,~~ respectively.

(2)	Eliminations consist of inter-segment transactions.

A reconciliation of segment operating

income

to consolidated earnings before income taxes for the years

ended September 30, 2020, 2019 ~~2018~~ and ~~2017~~2018 is as follows:

Year Ended September 30,

2019

2018

2017

Segment operating income
$
43,072
$
46,660
$
48,479

Corporate expenses

(10,373
)

(15,076
)
(11,097
)
Interest income

681

418

171

Interest expense

(1,945
)
(1,520
)
(1,642
)
Other, net

122

(102
)
518

Consolidated earnings before income taxes
$
31,557
$
30,380
$
36,429


Year Ended September 30,	2020			2019			2018
Segment operating income	$	72,761		$	43,072		$	46,660
Corporate expenses		(11,437	)		(10,373	)		(15,076	)
Interest income		142			681			418
Interest expense		(2,632	)		(1,945	)		(1,520	)
Other, net		459			122			(102	)

Consolidated earnings before income taxes	$	59,293		$	31,557		$	30,380

Transactions between segments are accounted for at established intercompany prices for internal and management purposes with all intercompany amounts eliminated in consolidation.

- 71 -

Table of Contents

~~(10)~~

(11)

Commitments and ~~Contingencies~~Contingent

Obligations

(a)

Royalty Commitments -

We have entered into various license agreements that require payment of royalties based on a specified percentage of the sales of licensed products. Approximately ~~84%~~81% of our royalty expenses relate to our Diagnostics operating segment, where the royalty rates range from 3% to 8%. These royalty expenses are recognized on an

as-earned

basis and recorded in the year earned as a component of cost of sales. Annual royalty expenses associated with these agreements were approximately $1,860, $2,107 ~~$2,579~~ and ~~$2,600~~$2,579 for the fiscal years ended September 30, 2020, 2019 and 2018, ~~and 2017,~~ respectively.

(b)

Purchase Commitments

Excluding the operating lease commitments reflected in Note ~~10(c) below,~~5, we have purchase commitments primarily for inventory and service items as part of the normal course of business. Commitments made under these obligations are ~~$14,203 for fiscal 2020 and $792~~$26,315 for fiscal 2021 and $1,376 for fiscal 2022 through fiscal ~~202~~

.2023. NaN purchase commitments have been made beyond fiscal ~~202~~

32023.

(c)

~~Operating Lease Commitments~~

Meridian and its subsidiaries are parties to a number of operating lease agreements around the world, the majority of which relate to office and warehouse building leases expiring at various dates. Amounts charged to expense under operating leases were $2,372, $2,457 and $2,140 for fiscal 2019, 2018 and 2017, respectively. Operating lease commitments for each of the five succeeding fiscal years are as follows: fiscal 2020 - $1,528; fiscal 2021 - $1,451; fiscal 2022 - $1,293; fiscal 2023 - $967; and fiscal 2024 - $712.

~~Table of Contents~~

~~(d)~~

~~Acquisition Price Holdback and Contingent Consideration -~~

Pursuant to the purchase agreement related to the June 3, 2019 acquisition of the business of GenePOC, Meridian’s maximum remaining consideration to be paid totals $75,000. As detailed in Note 2, this amount is comprised of: (i) a $5,000 purchase price holdback; and (ii) up to $70,000 of payments contingent upon the achievement of certain product development milestones and financial performance targets, the preliminary valuation of which totals approximately $27,200 as of September 30, 2019.

~~(e)~~

Litigation -

We are a party to various litigation matters from time to time that we believe are in the normal course of business. The ultimate resolution of these routine matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows. Additionally, the Company has also become a party to certain legal matters that are somewhat outside the normal course of business. ~~See Item 3. “Legal Proceedings” for a discussion of the status of these selected legal matters.~~

On April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests. The Company has executed tolling agreements to extend the statute of limitations. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $2,035, $1,585 and $775 of expense for attorneys’ fees related to this matter is included within the Consolidated Statements of Operations for fiscal 2020, 2019 and 2018, respectively.

(

~~(f)~~d

)

Indemnifications -

In conjunction with certain contracts and agreements, we provide routine indemnifications related to our performance obligations. The terms of these indemnifications range in duration and in some circumstances are not explicitly defined. The maximum obligation under some such indemnifications is not explicitly stated and, as a result of our having no history of paying such indemnifications, cannot be reasonably estimated. We have 0t made any payments for these indemnifications and 0 liability is recorded at September 30, ~~2019~~2020 or September 30, ~~2018.~~2019.

~~(11)~~

(12)

Quarterly Financial Data (Unaudited)

The sum of the earnings per common share may not equal the corresponding annual amounts due to interim quarter rounding.

For the Quarter Ended in Fiscal 2019

December 31

March 31

June 30

September 30

Net revenues
$
51,480
$
50,248
$
48,440
$
50,846

Gross profit

31,572

29,338

28,259

29,156

Net earnings

8,106

7,094

5,079

4,103

Basic earnings per common share

0.19

0.17

0.12

0.10

Diluted earnings per common share

0.19

0.17

0.12

0.10

Cash dividends per common share

0.125

0.125

—

—

For the Quarter Ended in Fiscal 2018

December 31

March 31

June 30

September 30

Net revenues
$
52,283
$
56,451
$
51,737
$
53,100

Gross profit

32,010

34,569

31,962

32,156

Net earnings

6,302

5,288

6,825

5,434

Basic earnings per common share

0.15

0.12

0.16

0.13

Diluted earnings per common share

0.15

0.12

0.16

0.13

Cash dividends per common share

0.125

0.125

0.125

0.125


For the Quarter Ended in Fiscal 2020	December 31		March 31		June 30		September 30
Net revenues	$	47,421	$	57,296	$	84,797	$	64,153
Gross profit		27,557		34,455		55,905		38,331
Net earnings		2,827		9,359		27,507		6,493
Basic earnings per common share		0.07		0.22		0.64		0.15
Diluted earnings per common share		0.07		0.22		0.64		0.15
Cash dividends per common share		0		0		—		—

72 -

Table of Contents


For the Quarter Ended in Fiscal 2019	December 31		March 31		June 30		September 30
Net revenues	$	51,480	$	50,248	$	48,440	$	50,846
Gross profit		31,836		29,406		28,304		29,182
Net earnings		8,106		7,094		5,079		4,103
Basic earnings per common share		0.19		0.17		0.12		0.10
Diluted earnings per common share		0.19		0.17		0.12		0.10
Cash dividends per common share		0.125		0.125		—		—

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.

CONTROLS AND PROCEDURES

As of September 30, ~~2019,~~2020, an evaluation, excluding the internal controls of ~~certain net assets of the business of GenePOC~~wholly-owned subsidiaries Meridian Bioscience Israel Holding Ltd. and Exalenz Bioscience, Inc. (collectively “Exalenz”), which were acquired ~~in June 2009,~~during fiscal 2020, was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule

13a-15(b)

and

15d-15(b)

promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, ~~2019.~~2020. There have been no changes in our internal control over financial reporting identified in connection with the evaluation of internal control that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting, or in other factors that could significantly affect internal control subsequent to September 30, ~~2019.~~2020.

Our internal control report is included in this Annual Report on Form

10-K

after Item 8, under the caption “Management’s Report on Internal Control over Financial Reporting.”

ITEM 9B.

OTHER INFORMATION

~~The following information is provided pursuant to Item 5.03 of Form~~

~~8-K.~~

~~Effective November 26, 2019 the Company’s Board of Directors adopted an amendment to its Amended and Restated Code of Regulations for the purpose of facilitating virtual meetings of shareholders.~~

Not applicable.

The following sentence was added to Article II, Section 3 (Place of Meetings): “The Board of Directors may, in its sole discretion, determine that any meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Ohio law.”

~~The Amended and Restated Code of Regulations including this amendment is included as Exhibit 3.1 to this Annual Report on Form~~

~~10-K,~~

~~and is incorporated herein by reference. The foregoing summary of the amendment is qualified in its entirety by reference to the specific provisions of the Amended and Restated Code of Regulations.~~

~~- 68 -~~

- 73 -

Table of Contents

PART III.

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information about our directors and officers may be found under the captions “Election of Directors” and “Directors and Executive Officers” in our Proxy Statement for the Annual Meeting of Shareholders to be held January ~~29, 2020~~27, 2021 (the “Proxy Statement”). Information about our Audit Committee may be found under the caption “Committees of the Board of Directors” in the Proxy Statement. That information is incorporated herein by reference.

We have adopted a code of ethics that applies to all of our employees, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and other finance organization employees. The code of ethics is publicly available on our website at ~~meridiabioscience.com.~~

www.meridianbioscience.com

. If we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer, we will disclose the nature of the amendment or waiver on that website or in a report on

Form

8-K.

ITEM 11.

EXECUTIVE COMPENSATION

The information in the Proxy Statement set forth under the captions “Director Compensation,” “Compensation Discussion and ~~Analysis”~~Analysis,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is incorporated herein by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information in the Proxy Statement set forth under the captions “Security Ownership of Certain Beneficial ~~Owners,”~~Owners” and “Equity Compensation Plan Information” is incorporated herein by reference.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information set forth in the Proxy Statement under the captions “Corporate Governance” and “Transactions with Related Persons” is incorporated herein by reference.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Information concerning principal accountant fees and services appears in the Proxy Statement under the headings “Principal Accounting Firm Fees” and “Committees of the Board of Directors” and is incorporated herein by reference.

~~- 69 -~~

- 74 -

Table of Contents

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	(1) and (2) FINANCIAL STATEMENTS AND SCHEDULES.

All financial statements and schedules required to be filed by Item 8 of this Form and included in this report have been so identified under Item 8. No additional financial statements or schedules are being filed since the requirements of paragraph (c) under Item 15 are not applicable to Meridian.

(b)	(3) EXHIBITS.


Exhibit Number		Description of Exhibit

~~Exhibit~~ 3.1 ~~Number~~			~~Description of Exhibit~~

	~~3.1~~			Amended Articles of Incorporation ~~(Filed herewith)~~(Incorporated by reference to Meridian’s Form 10-K filed with the Securities and Exchange Commission on November 26, 2019)

	3.2			Amended and Restated Code of Regulations ~~(Filed herewith)~~(Incorporated by reference to Meridian’s Form 10-K filed with the Securities and Exchange Commission on November 26, 2019)

	4.1			Description of Securities ~~(Filed herewith)~~(Incorporated by reference to Meridian’s Form 10-K filed with the Securities and Exchange Commission on November 26, 2019)

	10.1*			Amendment No. 1 to Supplemental Benefit Agreement Dated September 23, 2014 between Meridian and John A. Kraeutler (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on September 25, 2014)

	10.2*			Third Amended and Restated Employment Agreement Dated October 3, 2016 between Meridian and John A. Kraeutler (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on October 5, 2016)

	10.3*			Amended and Restated Employment Agreement dated effective October 1, 2019 between Meridian and John P. Kenny (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on November 7, 2019)

	10.4*			Dividend Reinvestment Plan (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 1999)

	10.5*			2004 Equity Compensation Plan, amended and restated effective January 25, 2012 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 2011)

	10.6*			2012 Stock Incentive Plan, effective January 25, 2012 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 2011)

10.6*		Israeli Appendix to the Meridian Bioscience, Inc. 2012 Stock Incentive Plan dated effective July 10, 2020 (Filed herewith)

	10.7*			Form of Time-Based Restricted Share Unit Award Agreement ~~(Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2018)~~(Filed herewith)

10.8*		Form of Nonqualified Stock Option Agreement (Filed herewith)

10.9*	10.8*	Cash-Based Incentive Compensation Plan for Fiscal 2020 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 2019)

10.10*		Form of Meridian Bioscience, Inc. Change in Control Agreement dated August 4, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 2016)

- 75 -

Table of Contents


	10.910.11*			Share Purchase Agreement dated as of April 29, 2019 by and among GenePOC Inc., Meridian Bioscience Canada Inc., the shareholders of GenePOC Inc., Apres-Demain Holding SA, as Shareholders’ Representative, and Meridian Bioscience, Inc. (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2019)

~~- 70 -~~

~~Table of Contents~~


	10.1010.12*		Credit Agreement, dated May 24, 2019 between Meridian Bioscience, Inc., as borrower, the Guarantors from time to time party thereto, the Lenders from time to time party thereto, and PNC Bank, National Association, as administrative agent (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on May 31, 2019)

10.13		First Amendment and Consent, dated as of February 19, 2020, by and among Meridian Bioscience, Inc., the Guarantors from time to time party thereto, the Lenders from time to time party thereto, and PNC Bank, National Association (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on February 20, 2020)

	10.1110.14*		Promissory Note dated June 3, 2019 between Meridian Bioscience Canada Inc. and GenePOC Inc. (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on June 3, 2019)

10.15	10.12*		~~Consulting~~ Agreement ~~between~~and Plan of Merger, dated as of February 19, 2020, by and among Meridian Bioscience, Inc., APM Trust Shelf 14 Ltd. and ~~Melissa Lueke dated December 10, 2018~~Exalenz Bioscience Ltd. (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on ~~December 12, 2018)~~February 20, 2020)

10.16	10.13*		~~Cash-Based Incentive Compensation Plan for Fiscal Year 2019 (Incorporated by reference~~Amendment No. 2 to ~~Meridian’s Form 8-K filed with the Securities~~Share Purchase Agreement dated as of September 29, 2020, between Apres-Demain Inc. (formerly known as GenePOC Inc.), Meridian Bioscience Canada, Inc., Apres-Demain SA in its capacity of Shareholders’ Representative, and ~~Exchange Commission on December 12, 2018)~~Meridian (Filed herewith)

	10.14*		Separation Agreement and General Release Agreement between Meridian Bioscience, Inc. and Lawrence Baldini dated April 26, 2019 (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on April 30, 2019)

	10.15*		Separation Agreement and General Release between Meridian Bioscience, Inc. and Eric Rasmussen dated June 21, 2019 (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on June 25, 2019)

	14		~~Code of Ethics (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2003)~~

	21		List of Subsidiaries of the Registrant (Filed herewith)

	23		Consent of Independent Registered Public Accounting Firm (Filed herewith)

	31.1		Certification of Principal Executive Officer required by Rule 13a-14(a) (Filed herewith)

	31.2		Certification of Principal Financial Officer required by Rule 13a-14(a) (Filed herewith)

	32***		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (Furnished herewith)

	101.INS		Inline XBRL Instance Document

	101.SCH		Inline XBRL Taxonomy Extension Schema

	101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

	101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

	101.LAB		Inline XBRL Taxonomy Extension Label Linkbase

	101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

	104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	~~Management Compensatory Contracts~~

- 7176 -

Table of Contents

*	Management Compensatory Contracts

Schedules to and certain portions of these exhibits have been omitted pursuant to Item 601(b)(2) of Regulation

S-K.

The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted schedule or other portion to the SEC upon request.

***	Furnished, not filed.

Meridian will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to Meridian’s reasonable expenses in furnishing such exhibit.

ITEM 16.

FORM

10-K

SUMMARY

None.

- 7277 -

Table of Contents

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


MERIDIAN BIOSCIENCE, INC.

By:		/s/ Jack Kenny
Date: November ~~26, 2019~~ 23, 2020
Jack Kenny
Chief Executive Officer

We, the undersigned directors and officers of the Registrant, hereby severally constitute Jack Kenny and Bryan T. Baldasare, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to the Annual Report on Form

10-K

filed with the Securities and Exchange Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signature	Capacity		Date

/s/ Jack Kenny		Chief Executive Officer and Director		November 23, 2020
Jack Kenny		~~November 26, 2019~~
~~Jack Kenny~~

/s/ Bryan T. Baldasare		Executive Vice President, Chief			November ~~26, 2019~~ 23, 2020
Bryan T. Baldasare		Financial Officer and Secretary (Principal Financial and Accounting Officer)

/s/ David C. Phillips		Chairman of the Board			November ~~26, 2019~~ 23, 2020
David C. Phillips

/s/ James M. Anderson		Director		November 23, 2020
James M. Anderson		~~November 26, 2019~~
~~James M. Anderson~~

/s/ ~~Dwight E. Ellingwood~~Anthony P. Bihl III	Director		November 23, 2020
Anthony P. Bihl III		~~Director~~		~~November 26, 2019~~
~~Dwight E. Ellingwood~~

/s/ ~~John C. McIlwraith~~Dwight E. Ellingwood	Director		November 23, 2020
Dwight E. Ellingwood		~~Director~~		~~November 26, 2019~~
~~John C. McIlwraith~~

/s/ John C. McIlwraith	Director		November 23, 2020
John C. McIlwraith

/s/ John M. Rice, Jr.		Director			November ~~26, 2019~~ 23, 2020
John M. Rice, Jr.

/s/ Catherine A. Sazdanoff		Director		November 23, 2020
Catherine A. Sazdanoff		~~November 26, 2019~~
~~Catherine A. Sazdanoff~~

/s/ Felicia Williams		Director		November 23, 2020
Felicia Williams		~~November 26, 2019~~
~~Felicia Williams~~

- 7378 -

Table of Contents

SCHEDULE II

Meridian Bioscience, Inc.

and Subsidiaries

Valuation and Qualifying Accounts

(Dollars in thousands)

Years Ended September 30, 2020, 2019 ~~2018~~ and ~~2017~~2018

Description

Balance at
Beginning
of Period

Charged to
Costs and
Expenses

Deductions

Other (a)

Balance at
End of
Period

Year Ended September 30, 2019:

Allowance for doubtful accounts
$
310
$
347
$
  (100
) $
(20
) $
537

Inventory realizability reserves

1,971

774

(448
)
(12
)
2,285

Valuation allowances – deferred taxes

302

106

—

—

408

Year Ended September 30, 2018:

Allowance for doubtful accounts
$
307
$
39
$
(32
) $
(4
) $
310

Inventory realizability reserves

2,059

321

(405
)
(4
)
1,971

Valuation allowances – deferred taxes

342

—

(40
)
—

302

Year Ended September 30, 2017:

Allowance for doubtful accounts
$
334
$
90
$
(134
) $
17
$
307

Inventory realizability reserves

2,680

35

(661
)
5

2,059

Valuation allowances – deferred taxes

342

—

—

—

342


Description	Balance at Beginning of Period		Charged to Costs and Expenses		Deductions			Other (a)			Balance at End of Period
Year Ended September 30, 2020:
Allowance for doubtful accounts	$	537	$	34	$	(75	)	$	17		$	513
Inventory realizability reserves		2,441		1,775		(564	)		(23	)		3,629
Valuation allowances – deferred taxes		408		—		(106	)		—			302

Year Ended September 30, 2019:
Allowance for doubtful accounts	$	310	$	347	$	(100	)	$	(20	)	$	537
Inventory realizability reserves		1,971		930		(448	)		(12	)		2,441
Valuation allowances – deferred taxes		302		106		—			0			408

Year Ended September 30, 2018:
Allowance for doubtful accounts	$	307	$	39	$	(32	)	$	(4	)	$	310
Inventory realizability reserves		2,059		321		(405	)		(4	)		1,971
Valuation allowances – deferred taxes		342		—		(40	)		—			302

(a)	Balances reflect the effects of currency translation.

- 7

79 -


Large accelerated filer	☐	Accelerated filer		☒

~~Large accelerated~~ Non-accelerated filer	☒☐	~~Accelerated filer~~Smaller reporting company		☐

~~Non-accelerated filer~~Emerging Growth Company	☐		☐		~~Smaller reporting company~~	☐

~~Emerging~~ G ~~rowth~~ C ~~ompany~~	☐



		Page
Part I

Item 1	Business
			4
Item 1 1A	~~Business~~Risk Factors		4 11
Item 1A 1B	~~Risk Factors~~		11
~~Item 1B~~	Unresolved Staff Comments		20 22
Item 2	Properties		21 22
Item 3	Legal Proceedings		21 22
Item 4	Mine Safety Disclosures		22 23

Part II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		22 23
Item 6	Selected Financial Data		24
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24 25
Item 7A	Quantitative and Qualitative Disclosures about Market Risk		33 36
Item 8	Financial Statements and Supplementary Data		34 37
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		68 73
Item 9A	Controls and Procedures		68 73
Item 9B	Other Information		68 73

Part III

Item 10	Directors, Executive Officers and Corporate Governance		69 74
Item 11	Executive Compensation		69 74
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		69 74
Item 13	Certain Relationships and Related Transactions, and Director Independence		69 74
Item 14	Principal Accountant Fees and Services		69 74
Item 15	Exhibits and Financial Statement Schedules		75
Item 16	Form 10-K Summary		70
~~Item 16~~	~~Form 10-K Summary~~		72 77


Type of Segment Information		Location within Annual Report on Form 10-K
Physical locations and activities		Item 2. “Properties”

Revenue by geographic region		Item 7. “Management’s Discussion and Analysis of Financial Condition & Results of Operations” (hereafter “MD&A”)

Financial information
~~Financial information~~		Note 910 of Consolidated Financial Statements


Meridian Employees	2020
Salaried workforce		537
Managers and above		157
Part-time employees		27
Average age		43
Average length of service in years		7
Employee turnover rate (voluntary)		13	%
Fiscal 2020 revenues per employee (in thousands)	$	340


Equal Employment Opportunity Table (by number of employees) U.S. Employee Diversity as of September 30, 2020
Job category	Gender	White		Black/African American		Hispanic/Latino		Asian		American Indian/Alaskan Native		Two or more races		Total
Executive/senior level officials and managers	Male		11		—		—		—		—		—		11
Executive/senior level officials and managers	Female		2		—		1		—		—		—		3
First/mid-level officials and managers	Male		38		3		2		3		—		—		46
First/mid-level officials and managers	Female		38		4		—		2		—		1		45
Professionals	Male		56		2		2		4		1		2		67
Professionals	Female		67		6		4		8		—		2		87
All other	Male		48		9		5		4		—		1		67
All other	Female		84		13		7		10		—		4		118
Total	Male		153		14		9		11		1		3		191
Total	Female		191		23		12		20		—		7		253


	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
Operating leases (1)	$	6,567	$	1,528	$	3,711	$	1,145	$	183
Purchase obligations (2)		14,995		14,203		737		55		—
Acquisition price holdback and contingent consideration (3)		75,000		—		75,000		—		—

Uncertain income tax positions liability and interest (4)		511		511		—		—		—

Total	$	97,073	$	16,242	$	79,448	$	1,200	$	183


	September 30, 2019				September 30, 2018
	Cash and Equivalents		Other		Cash and Equivalents		Other
Institutional money market funds	$	20,913	$	—	$	20,421	$	—
Cash on hand –
Restricted		—		—		—		1,000
Unrestricted		41,484		—		39,342		—

Total	$	62,397	$	—	$	59,763	$	1,000


	Balance at September 30, 2018			New Revenue Standard Adjustment			Balance at October 1, 2018
PROPERTY, PLANT AND EQUIPMENT
Machinery, equipment and furniture	$	50,606		$	8,696		$	59,302
Accumulated depreciation and amortization		(55,846	)		(7,611	)		(63,457	)
OTHER ASSETS
Deferred instrument costs, net		1,239			(1,239	)		—
NON-CURRENT LIABILITIES
Deferred income taxes		(3,769	)		38			(3,731	)
SHAREHOLDERS’ EQUITY
Retained earnings		(49,602	)		116			(49,486	)


							2019 vs. 2018			2018 vs. 2017
	2019		2018		2017		Inc (Dec)			Inc (Dec)
Diagnostics-
Americas	$	110,135	$	123,916	$	117,161		(11	)%		6	%
EMEA		23,865		23,922		22,594		—	%		6	%
ROW		2,682		2,616		3,766		3	%		(31	)%

Total Diagnostics		136,682		150,454		143,521		(9	)%		5	%

Life Science-
Americas		19,443		21,080		20,265		(8	)%		4	%
EMEA		29,157		24,715		22,365		18	%		11	%
ROW		15,732		17,322		14,620		(9	)%		18	%

Total Life Science		64,332		63,117		57,250		2	%		10	%

Consolidated	$	201,014	$	213,571	$	200,771		(6	)%		6	%


			Fair Value Measurements Using Inputs Considered as
As of September 31, 2019	Carrying Value		Level 1		Level 2		Level 3
Contingent consideration	$	27,200	$	—	$	—	$	27,200


	PRELIMINARY
	June 3, 2019 (as initially reported)		Measurement Period Adjustments			June 3, 2019 (as adjusted)
Fair value of assets acquired -
Accounts receivable	$	58	$	(1	)	$	57
Inventories		1,617		(106	)		1,511
Other current assets		77		7			84
Property, plant and equipment		1,520		(96	)		1,424
Goodwill		34,482		100			34,582
Other intangible assets (estimated useful life):
License agreement (10 years)		5,990		—			5,990
Technology (15 years)		34,040		96			34,136
Government grant (1.33 years)		800		—			800

		78,584		—			78,584
Fair value of liabilities assumed -
Accounts payable and accrued expenses		1,082		(24	)		1,058

Total consideration paid (including contingent consideration currently estimated at $27,200)	$	77,502	$	24		$	77,526


	2019			2018
Unrecognized income tax benefits at beginning of year	$	262		$	517
Additions for tax positions of prior years		83			—
Reductions for tax positions of prior years		(100	)		—
Additions for tax positions of current year		138			—
Tax examination and other settlements		—			(161	)
Expiration of statute of limitations		—			(94	)

Unrecognized income tax benefits at end of year	$	383		$	262


	Diagnostics		Life Science		Corporate (1)			Eliminations (2)			Total
Fiscal 2019
Net revenues -
Third-party	$	136,682	$	64,332	$	—		$	—		$	201,014
Inter-segment		462		361		—			(823	)		—
Operating income		22,399		20,572		(10,373	)		101			32,699
Depreciation and amortization		7,676		2,288		—			—			9,964
Capital expenditures		2,049		1,748		—			—			3,797
Goodwill		70,395		18,846		—			—			89,241
Other intangible assets, net		59,807		436		—			—			60,243
Total assets		255,169		70,392		—			(83	)		325,478

Fiscal 2018
Net revenues -
Third-party	$	150,454	$	63,117	$	—		$	—		$	213,571
Inter-segment		392		397		—			(789	)		—
Operating income		32,569		13,799		(15,076	)		292			31,584
Depreciation and amortization		6,557		2,131		—			—			8,688
Capital expenditures		2,477		1,724		—			—			4,201
Goodwill		35,213		19,424		—			—			54,637
Other intangible assets, net		22,068		1,045		—			—			23,113
Total assets		180,978		70,341		—			58			251,377

Fiscal 2017
Net revenues -
Third-party	$	143,521	$	57,250	$	—		$	—		$	200,771
Inter-segment		389		537		—			(926	)		—
Operating income		34,124		14,086		(11,097	)		269			37,382
Depreciation and amortization		7,037		2,053		—			—			9,090
Capital expenditures		2,554		1,913		—			—			4,467
Goodwill		35,213		19,713		—			—			54,926
Other intangible assets, net		24,973		1,731		—			—			26,704
Total assets		180,226		69,938		—			(387	)		249,777

Title of each class

Trading Symbol

Name of each exchange ofon which registered

Common Shares, No Par Value

The NASDAQ Stock Market LLC

(NASDAQ Global Select Market)