Financial discipline continues to be one of our fundamental principles in running the day-to-day business. The following table illustrates key income and expense elements as a percentage of sales. We look for continued improvement in each of these measures each year, in spite of macro-economic market conditions.

                                             2008     2007     2006

                       Gross profit           62 %     61 %     60 %
                       Operating expenses     30 %     32 %     35 %
                       Operating income       32 %     28 %     25 %

Preservation of the capital of our investment portfolio is also a fundamental principle in our cash management philosophy. During October 2008, we moved substantially all of our investments in municipal variable rate demand notes to institutional money market mutual funds invested in either US Treasuries, or repurchase agreements collateralized by US Treasuries. Existing investments in institutional tax-exempt money market mutual funds are covered under the US Treasury's Temporary Guarantee Program for Money Market Funds. This program provides a guarantee to money market mutual fund shareholders of $1 per share net asset value for funds invested as of September 19, 2008, if the fund were to liquidate its assets as a result of its net asset value falling below $0.995. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective. Operating Segments:
Our reportable operating segments are US Diagnostics, European Diagnostics, and Life Science. The US Diagnostics operating segment consists of manufacturing operations in Cincinnati, Ohio, and the sale and distribution of diagnostic test kits in the US and countries outside of Europe, Africa and the Middle East. The European Diagnostics operating segment consists of the sale and distribution of diagnostic test kits in Europe, Africa and the Middle East. The Life Science operating segment consists of manufacturing operations in Memphis, Tennessee, Saco, Maine, and Boca Raton, Florida, and the sale and distribution of bulk antigens, antibodies, and bioresearch reagents domestically and abroad. The Life Science operating segment also includes the contract development and manufacture of proteins and other biologicals for use by biopharmaceutical and biotechnology companies engaged in research for new drugs and vaccines.
Revenues for the Diagnostics operating segments, in the normal course of business, may be affected by buying patterns of major distributors, seasonality and strength of certain diseases and foreign currency exchange rates. Revenues for the Life Science operating segment, in the normal course of business, may be affected by the timing and nature of arrangements for contract services work, which may have longer production cycles than bioresearch reagents and bulk antigens and antibodies, as well as buying patterns of major customers. We believe that the overall breadth of our product lines serves to reduce the variability in consolidated revenues.

Results of Operations:
Fourth Quarter
Net earnings for the fourth quarter of fiscal 2008 increased 19% to $7,684,000, or $0.19 per diluted share (increased 19%) from net earnings for the fourth quarter of fiscal 2007 of $6,444,000, or $0.16 per diluted share. This increase is primarily attributable to increased sales and continuing efforts to improve operating efficiency across all businesses. Net sales for the fourth quarter of fiscal 2008 were $36,475,000, an increase of $4,089,000 or 13% compared to the fourth quarter of fiscal 2007.
Net sales for the US Diagnostics operating segment for the fourth quarter of fiscal 2008 increased 24% compared to the fourth quarter of fiscal 2007, and benefited from volume increases in influenza and respiratory syncitial virus products in advance of the 2008-2009 upper respiratory season in the amount of approximately $1,500,000. The early start to the season was driven by the timing of promotions offered by a third-party manufacturer of certain products, which are passed along to our customers. We expect that the US Diagnostics operating segment's sales of these products during the first quarter of fiscal 2009 will be flat compared to the first quarter of fiscal 2008 as a result of the timing of this third-party manufacturer promotion. We ultimately measure our growth and level of success for upper respiratory products based on the full selling season, which typically runs from August through March, also taking into consideration the relative strength of the season. Net sales for our European Diagnostics and Life Science operating segments increased 9% and decreased 13%, respectively, during the fourth quarter of fiscal 2008 compared to the fourth quarter of fiscal 2007.
Fiscal Year
Net earnings for fiscal 2008 increased 13% to $30,202,000, or $0.74 per diluted share (increased 12%) from net earnings for fiscal 2007 of $26,721,000, or $0.66 per diluted share including the tax benefit of $2,425,000, described below. Results of operations for fiscal 2008 compared to fiscal 2007 are discussed below.
Net earnings and earnings per share for fiscal 2007 include the effects of a tax benefit in the amount of $2,425,000, or $0.06 per basic and diluted share, related to a discrete adjustment to tax reserves that was recorded in the third quarter upon the expiration of the statute of limitations on certain income tax returns (see Note 5 to the consolidated financial statements herein). The tables below provide information on net earnings, basic earnings per share, and diluted earnings per share, excluding this tax benefit, as well as reconciliations to amounts reported under US Generally Accepted Accounting Principles. We believe that this information is useful to those who read our financial statements and evaluate our operating results because:
1. These measures help to appropriately evaluate and compare the results of operations from period to period by removing the favorable impact of a discrete material item that is not expected to recur in the future; and

2. These measures are used by our management for various purposes, including evaluating performance against incentive bonus achievement targets, comparing performance from period to period in presentations to our Board of Directors, and as a basis for strategic planning and forecasting.

                                                               2008                  2007             Change
Net Earnings -
US GAAP basis                                             $ 30,202,000          $ 26,721,000             13 %
Tax benefit not expected to recur in the future                      -            (2,425,000 )          100 %

Excluding tax benefit                                     $ 30,202,000          $ 24,296,000             24 %


                                                               2008                  2007             Change
Net Earnings per Basic Common Share -
US GAAP basis                                             $       0.75          $       0.67             12 %
Tax benefit not expected to recur in the future                      -                 (0.06 )          100 %

Excluding tax benefit                                     $       0.75          $       0.61             23 %


                                                               2008                  2007             Change
Net Earnings per Diluted Common Share -
US GAAP basis                                             $       0.74          $       0.66             12 %
Tax benefit not expected to recur in the future                      -                 (0.06 )          100 %

Excluding tax benefit                                     $       0.74          $       0.60             23 %

Prior to July 1, 2007, the cost of certain inventories within the Life Science operating segment was determined by the last-in, first-out ("LIFO") method. Effective July 1, 2007, we changed our method of accounting for this inventory from the LIFO method to the FIFO method, and now substantially all of our inventories are reflected at the lower of cost or market with cost determined by the FIFO method. We changed to the FIFO method for these inventories because it conforms substantially all of our worldwide inventories to a consistent basis of accounting; and it provides better comparability to our industry peers, many of whom use the FIFO method of accounting for inventories. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 154, Accounting Changes and Error Corrections, the change in accounting has been retrospectively applied to all prior periods presented herein.

Fiscal Year Ended September 30, 2008 Compared to Fiscal Year Ended September 30, 2007 and Fiscal Year Ended September 30, 2007 Compared to Fiscal Year Ended September 30, 2006.

Net sales

                                                                                                            2008 vs.         2007 vs.
                                                                                                              2007             2006
                                            2008                   2007                   2006              Inc (Dec)        Inc (Dec)

US Diagnostics                         $  88,419,000          $  74,845,000          $  65,721,000               18 %             14 %
European Diagnostics                      27,980,000             23,563,000             19,828,000               19 %             19 %
Life Science                              23,240,000             24,555,000             22,864,000               (5 )%             7 %

Consolidated                           $ 139,639,000          $ 122,963,000          $ 108,413,000               14 %             13 %


International -
Exported from US                       $  16,450,000          $  15,128,000          $  14,729,000                9 %              3 %
European Diagnostics                      27,980,000             23,563,000             19,828,000               19 %             19 %

Total                                  $  44,430,000          $  38,691,000          $  34,557,000               15 %             12 %

% of total sales                                  32 %                   31 %                   32 %

Sales growth for US Diagnostics was primarily driven by volume increases across our four major infectious disease categories, C. difficile, H. pylori, upper respiratory and foodborne in both fiscal 2008 and 2007. Each of these product families experienced double-digit growth rates in fiscal 2008 and 2007. New product sales contributions in fiscal 2008 came from our upper respiratory TRU products for influenza and respiratory syncytial virus launched in the first quarter of fiscal 2008, and our ImmunoCard STAT!® EHEC product launched in fiscal 2007. The EHEC product was developed in collaboration with Merck for detection of toxin-producing E. coliin patients that may have ingested contaminated produce or meat products. We also saw market share expansions in fiscal 2008 and 2007 in infectious diseases where we have established leadership positions, C. difficile and H. pylori. The identification of more virulent strains of C. difficilehas led to increased testing in hospitals. New AGA guidelines have created increased focus on direct antigen testing for H. pylori, as this infection is a known cause of ulcers. Our managed care efforts are also contributing to volume growth in H. pylori products. Two national distributors accounted for 54%, 50% and 46% of total third-party sales for the US Diagnostics operating segment for fiscal 2008, 2007, and 2006, respectively. The 2007-2008 upper respiratory season was relatively strong, which also contributed to the volume growth in influenza and respiratory syncytial virus products during the first half of fiscal 2008. Although we cannot predict the strength of the 2008-2009 upper respiratory season and its impact on sales volumes, to date, we have experienced healthy orders for our upper respiratory products.
Sales growth for the European Diagnostics operating segment includes currency translation gains in the amounts of $2,743,000 and $1,510,000, for fiscal 2008 and 2007, respectively. Organic sales growth, which excludes the effects of currency translation, was 7% and 11% during fiscal 2008 and 2007, respectively. The organic growth in fiscal 2008 and 2007 was driven by volume increases in C. difficile products, principally

ImmunoCardŇ Toxins A & B, as well as the third quarter fiscal 2008 launch of TRU
EBV-M® and TRU EBV-G®.
Fiscal 2008 sales for the Life Science operating segment reflect changes in demand and buying patterns of certain of our major diagnostic manufacturing customers and non-renewal of a supply contract with the US Department of Defense. Changes in the US Department of Defense's Critical Reagents program led to non-renewal of this contract after fiscal 2007. Fiscal 2007 sales for the Life Science operating segment reflect volume growth in make-to-order bulk antigens and antibodies, offset by lower sales activity from contract research and development and contract manufacturing services.
We sell three main products to a major diagnostic manufacturing customer, who accounted for 21%, 27%, and 18% of total sales for the Life Science operating segment for fiscal 2008, 2007 and 2006, respectively. During the first quarter of fiscal 2008, this customer reduced its forecasted requirements for two antigen products due to its internal inventory management initiatives and its market factors. The impact of this reduction was partially offset by the customer's increased purchases of a bulk reagent product. For fiscal 2008, these demand changes and buying patterns resulted in a net revenue reduction of approximately $1,800,000.

Gross Profit

                                                                           2008 vs.      2007 vs.
                                                                             2007          2006
                            2008             2007             2006         Inc (Dec)     Inc (Dec)

 Gross Profit          $ 86,480,000     $ 74,940,000     $ 64,684,000           15 %          16 %

 Gross Profit Margin             62 %             61 %             60 %          1 %           1 %

The increases in gross profit margins from 2006 to 2008 reflect a stronger mix of sales from our diagnostic operating segments, including higher margins on rapid tests, and production efficiencies from automation initiatives in our diagnostics manufacturing facility.
Our overall operations consist of the sale of diagnostic test kits for various disease states and in alternative test formats, as well as bioresearch reagents, bulk antigens and antibodies, proficiency panels, and contract research and development and contract manufacturing services. Product sales mix shifts, in the normal course of business, can cause the consolidated gross profit margin to fluctuate by several points.

Operating Expenses

                                        Research &       Selling &          General &
                                        Development      Marketing       Administrative
  2006 Expenses                        $ 4,799,000     $ 16,698,000      $   16,293,000

  % of Sales                                     4 %             15 %                15 %

  Fiscal 2007 Increases (Decreases):
  US Diagnostics                         1,229,000           (9,000 )         1,606,000
  European Diagnostics                           -          469,000            (392,000 )
  Life Science                              57,000          (34,000 )          (806,000 )


  2007 Expenses                        $ 6,085,000     $ 17,124,000      $   16,701,000

  % of Sales                                     5 %             14 %                14 %
  % Increase (Decrease)                         27 %              3 %                 3 %

  Fiscal 2008 Increases (Decreases):
  US Diagnostics                           307,000        1,523,000            (293,000 )
  European Diagnostics                           -          423,000             389,000
  Life Science                            (209,000 )       (300,000 )           380,000


  2008 Expenses                        $ 6,183,000     $ 18,770,000      $   17,177,000

  % of Sales                                     4 %             13 %                12 %
  % Increase (Decrease)                          2 %             10 %                 3 %

Operating expenses increased 6% for both fiscal 2008 and fiscal 2007. The overall increase in operating expenses for both periods is discussed below. The increase in research and development expenses for the US Diagnostics operating segment during fiscal 2008 reflects additional salaries and benefits related to a new vice president hired in May 2007, planned staff headcount additions, and development costs for our ILLUMIgeneTMmolecular technology and other products in development. These increases were partially offset by decreased professional fees and clinical trial costs related to new products which were launched during the first fiscal quarter of 2008. The increase in research and development expenses for the US Diagnostics operating segment during fiscal 2007 were primarily attributable to clinical trial and other costs associated with new product development, including planned headcount additions, as well as increased stock-based compensation expense. The decrease in research and development expenses for the Life Science operating segment during fiscal 2008 primarily related to retirements of staff personnel that occurred during fiscal 2007 and lower incentive compensation.
Selling and marketing expenses for the US Diagnostics operating segment for fiscal 2008 increased primarily due to costs for new product launches, increased salaries and benefits related to planned headcount additions, and higher incentive compensation from sales growth. The decrease for the US Diagnostics operating segment for fiscal 2007 was primarily attributable to lower costs for sales promotions, advertising, and distributor incentives, offset by increased salaries and benefits related to headcount additions and stock-based

compensation costs. Selling and marketing expenses for the European Diagnostics operating segment increased primarily as a result of fluctuations in the Euro currency for both fiscal 2008 and 2007, and one planned headcount addition in fiscal 2007. The decrease in selling and marketing expenses for the Life Science operating segment for fiscal 2008 primarily related to lower incentive compensation and staff reductions.
The decrease in general and administrative expenses for fiscal 2008 for the US Diagnostics operating segment was primarily attributable to reduced incentive compensation costs, both corporate incentive bonus and stock-based compensation. These decreases were partially offset by increased salaries and benefits related to planned headcount additions. The increase in general and administrative expenses for the US Diagnostics operating segment for fiscal 2007 was primarily attributable to higher costs for stock-based compensation, an insurance recovery in fiscal 2006, and increased salaries and benefits, including the effects of planned headcount additions. The increase for the Life Science operating segment for fiscal 2008 reflects severance costs for certain personnel changes and increased salaries and benefits. The decrease for the Life Science operating segment for fiscal 2007 was primarily attributable to the 2006 impairment of the supply contract with the United States Department of Defense. See Note 1(h) to the consolidated financial statements contained herein. The increase for the European Diagnostics operating segment for fiscal 2008 was primarily attributable to currency fluctuations, as well as increased salaries and benefits. The decrease for the European Diagnostics operating segment for fiscal 2007 was primarily attributable to expenses connected with an employee matter in fiscal 2006, which were covered by the aforementioned insurance recovery. We account for our stock option plans pursuant to SFAS No. 123(R), Share-Based Payment. The amount of stock-based compensation expense reported for fiscal 2008, fiscal 2007, and fiscal 2006 was $1,772,000, $2,632,000, and $1,082,000, respectively. During November 2007, we granted to certain employees stock options that were contingent upon Meridian achieving a specified net earnings level for fiscal 2008. Because Meridian's fiscal 2008 net earnings did not reach the minimum level, these stock options were not earned. No stock-based compensation has been recorded for these options. Similarly, during November 2006, we granted to certain employees stock options that were contingent upon Meridian achieving a specified net earnings level for fiscal 2007. Because Meridian's fiscal 2007 net earnings surpassed the minimum level, these stock options were earned and are now exercisable over a vesting period. Operating Income
Operating income increased 27% and 30% in fiscal 2008 and 2007, respectively, as a result of the factors discussed above.

Other Income and Expense
Interest income was $1,533,000, $1,642,000, and $1,123,000 for fiscal 2008, 2007, and 2006, respectively. The decrease during fiscal 2008 was driven by lower interest yields in the current interest rate environment, somewhat offset by higher average investment balances. The increase during fiscal 2007 was driven by higher interest yields and higher investment balances in fiscal 2007. See Note 1(e) to the consolidated financial statements herein for discussion of our investment portfolio.
Income Taxes
The effective rate for income taxes was 34%, 27%, and 35% for fiscal 2008, 2007, and 2006, respectively. Both the increase in the effective tax rate for fiscal 2008 and the decrease in the effective tax rate for fiscal 2007 were primarily attributable to a discrete adjustment to tax reserves in the third quarter of fiscal 2007 in the amount of $2,425,000. This discrete adjustment reduced the effective tax rate for fiscal 2007 by 7 points. See Note 5 to the consolidated financial statements included herein for a complete discussion of this matter. Effective October 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 prescribes 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 cumulative effect of adopting FIN 48, $305,000, was charged to opening retained earnings. See Note 5 to the consolidated financial statements herein.
Impact of Inflation
To the extent feasible, we have consistently followed the practice of adjusting our prices to reflect the impact 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 our gross margin, revenue or operating income in fiscal 2008, 2007 or 2006. Liquidity and Capital Resources:
Comparative Cash Flow Analysis
Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets, consideration of acquisition plans, and consideration of common share dividends. We have historically maintained a credit facility to augment working capital requirements and to respond quickly . . .