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Item 1. Business

2020-08-21 compared with 2019-08-27 · 420 added, 798 removed, 203 unchanged (86% of the section changed)

OSI Systems, Inc., together with our subsidiaries, is a vertically integrated designer and manufacturer of specialized electronic systems

and components for critical applications.

OSI Systems, Inc., together with our subsidiaries, is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications.

We sell our products and provide related services in diversified markets, including homeland security, healthcare, defense and aerospace.

Our company was

originally incorporated in 1987 in California.

Our company was originally incorporated in 1987 in California.

In March 2010, we reincorporated our company in the State of Delaware.

Our principal office is located at 12525 Chadron Avenue, Hawthorne, California 90250.

have three operating divisions:

We have three operating divisions:

(a) Security, providing security and inspection systems, turnkey security screening solutions and related services;

(b) Healthcare,

providing patient monitoring and diagnostic cardiology systems;

and (c) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for

the Security and Healthcare divisions, as well as to external original equipment manufacturer ("OEM") customers and end users for applications in the defense, aerospace, medical and industrial

markets, among others.

our Security division, we provide security screening products and services globally under the "Rapiscan®

Systems" and "AS&E®" trade names.

products fall into the following categories:

(b) Healthcare, providing patient monitoring, diagnostic cardiology, and connected care systems and associated accessories;

and (c) Optoelectronics and Manufacturing, providing specialized electronic components and electronic manufacturing services for the Security and Healthcare divisions, as well as to external original equipment manufacturer (“OEM”) customers and end users for applications in the defense, aerospace, medical and industrial markets, among others.

Through our Security division, we provide security screening products and services globally under the “Rapiscan ® Systems” and “AS&E ® ” trade names.

Our Security products fall into the following categories:

baggage and parcel inspection;

3 unchanged sentences

radiation detection;

and explosive and

narcotics trace detection.

and explosive and narcotics trace detection.

In addition to these products, we provide site design, installation, training and technical support services to our customers.

We also provide under the "S2®"

trade name turnkey security screening solutions, which can include the construction, staffing and long-term operation of security screening checkpoints, including ports and borders, for our customers.

our Healthcare division, we design, manufacture, market and service patient monitoring and diagnostic cardiology systems globally to end users and provide related supplies and

accessories under the

"Spacelabs®" trade name.

These products are used by care providers in critical care, emergency and perioperative areas within hospitals as well as physicians' offices, medical clinics and

ambulatory surgery centers.

our Optoelectronics and Manufacturing division, we design, manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally

for use in a broad range of applications, including defense and aerospace, X-ray security inspection systems and medical imaging, chemistry analysis and diagnostics instruments, telecommunications,

scanners and industrial automations, automotive diagnostic systems, IoT and wearable consumer products.

We sell our optoelectronic devices primarily under "OSI Optoelectronics," "OSI LaserDiode," "OSI

Laserscan," and "Advanced Photonix" trade names and perform our electronics manufacturing and design services primarily under the "OSI Electronics," "APlus Products," "Altaflex," and "PFC" trade

We also provide turnkey security screening solutions under the “S2 ® ” trade name, which can include the construction, staffing and long-term operation of security screening checkpoints, including ports and borders, for our customers.

Through our Healthcare division, we design, manufacture, market and service patient monitoring, diagnostic cardiology, and connected care systems globally to healthcare providers and provide related supplies and accessories under the “Spacelabs ® ” and “Statcorp ® ” trade names.

These products are used by care providers in critical care, emergency and perioperative areas within hospitals as well as physicians’ offices, medical clinics and ambulatory surgery centers.

Through our Optoelectronics and Manufacturing division, we design, manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications, including defense and aerospace, X-ray security inspection systems and medical imaging, chemistry analysis and diagnostics instruments, telecommunications, scanners and industrial automation, IoT and wearable consumer products.

We sell our optoelectronic devices primarily under “OSI Optoelectronics,” “OSI LaserDiode,” “OSI Laserscan,” “Semicoa,” and “Advanced Photonix” trade names and perform our electronics manufacturing and design services primarily under the “OSI Electronics,” “APlus Products,” “Altaflex,” and “PFC” trade names.

We provide our optoelectronic devices and electronics manufacturing services to OEM customers and end users, as well as to our own Security and Healthcare divisions.

In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and President Trump declared a national emergency concerning the pandemic.

The COVID-19 pandemic has dramatically impacted the global health and economic environment, with millions of confirmed cases, business slowdowns and shutdowns and market volatility.

COVID-19 has caused, and is likely to continue to cause, significant economic disruption and is having widespread, rapidly evolving and unpredictable impacts on global society, financial markets and business practices.

Various governments around the world have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, supply chain logistical changes, and closure of non-essential businesses.

The COVID-19 pandemic has impacted, and is expected to continue to impact, our business operations and the operations of our suppliers and customers as a result of quarantines, facility closures and travel and logistics restrictions.There is substantial uncertainty regarding the duration and degree of COVID-19’s continued effects over time.

The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic or recurrence thereof, timing of development and deployment of an effective vaccine, governmental, business and individuals' actions in response to the pandemic and the impact on economic activity including the possibility of recession or financial market instability.

Refer to Risk Factors (Part I, Item 1A of this Form 10-K) and Management’s Discussion and Analysis of Financial Condition and Results of Operations (Part II, Item 7 of this Form 10-K) for further discussion regarding potential risks to our business from the COVID-19 pandemic.

Industry Overview

We sell our security and inspection systems and healthcare products primarily to end-users, while we design and manufacture our optoelectronic

devices and value-added subsystems, and provide electronics manufacturing services primarily for OEM customers.

A variety of technologies are currently used globally in security and inspection applications, including transmission

and backscatter

X-ray, 3-D and computed tomography, nuclear radiation detection, metal detection, radar and trace detection.

We believe that the market for security and inspection products will continue to be

affected by the threat of terrorist incidents, drug trafficking, gun violence, and by new government mandates and appropriations for security and inspection products in the United States and

internationally.

a result of terrorist attacks worldwide, security and inspection products have increasingly been used at a wide range of facilities other than airports, such as border crossings,

railways, seaports, cruise line terminals, freight forwarding operations, sporting venues, government and military installations, and nuclear facilities.

Department of Homeland Security has

undertaken numerous initiatives to prevent terrorists from entering the country, hijacking airliners, and obtaining and trafficking in weapons of mass destruction and their components, to secure

sensitive U.S.

We sell our security and inspection systems and healthcare products primarily to end-users, while we design and manufacture our optoelectronic devices and value-added subsystems, and provide electronics manufacturing services primarily for OEM customers.

A variety of technologies are currently used globally in security and inspection applications, including transmission and backscatter X-ray, 3-D and computed tomography, nuclear radiation detection, metal detection, radar and trace detection.

We believe that the market for security and inspection products will continue to be affected by the threat of terrorist incidents, drug trafficking, gun violence, and by new government mandates and appropriations for security and inspection products in the United States and internationally.

As a result of terrorist attacks worldwide, security and inspection products have increasingly been used at a wide range of facilities other than airports, such as border crossings, railways, seaports, cruise line terminals, freight forwarding operations, sporting venues, government and military installations, and nuclear facilities.

Department of Homeland Security has undertaken numerous initiatives to prevent terrorists from entering the country, hijacking airliners, and obtaining and trafficking in weapons of mass destruction and their components, to secure sensitive U.S.

technologies and to identify and screen high-risk cargo before it is loaded onto airlines and ships.

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Transportation Security Administration’s Air Cargo Screening Mandate and the U.S.

Customs and Border Protection Container Security Initiative, have resulted in an increased demand for security and

inspection products.

of these government sponsored initiatives in the United States have also stimulated security programs in other areas of the world in part because the U.S.

initiatives call on

other nations to bolster their port security strategies, including acquiring or improving their security and inspection equipment and screening operations.

The international market for non-intrusive

inspection equipment and related services, therefore, continues to expand as countries that ship goods directly to the United States participate in such programs and as they choose to procure and

operate equipment in order to secure their own borders, transportation networks, facilities and other venues.

has passed legislation and continues to support provisions that call for the inspection of international maritime cargo destined for the United States, domestic civil aviation

cargo, and radiological and nuclear threats in cargo entering the United States.

Certain of our cargo and vehicle inspection systems are currently being used internationally and by the U.S.

to comply with these standards.

Additionally,

Customs and Border Protection Container Security Initiative, have resulted in an increased demand for security and inspection products.

Most recently, these efforts have received increased funding from Congress to further combat the flow of increased threats from narcotics entering the United States.

Certain of these government sponsored initiatives in the United States have also stimulated security programs in other areas of the world in part because the U.S.

initiatives call on other nations to bolster their port security strategies, including acquiring or improving their security and inspection equipment and screening operations.

The international market for non-intrusive inspection equipment and related services, therefore, continues to expand as countries that ship goods directly to the United States participate in such programs and as they choose to procure and operate equipment in order to secure their own borders, transportation networks, facilities and other venues.

Congress has passed legislation and continues to fund and support provisions that call for the increased inspection of international cargo destined for the United States.These include domestic civil aviation cargo, rail conveyances, and radiological and nuclear threats in cargo entering the United States.

Certain of our cargo and vehicle inspection systems are currently being used both domestically and internationally and by multiple agencies within the U.S.

Government to comply with these standards.

Additionally, the U.S.

Department of Homeland Security requires the screening of all cargo carried on passenger airlines in the United States.

Several of our hold (checked) baggage and

cargo screening systems have been approved by the U.S.

Department of Homeland Security's Transportation Security Administration for this purpose and are being procured and used by freight forwarders,

airlines, transportation companies and other businesses to fulfill their compliance requirements.

Department of Homeland Security's Science and Technology Directorate, Transportation Security Administration and Domestic Nuclear Detection Office have supported

the development of new security inspection technologies and products.

Our Security division participates in a number of such research and development efforts, including projects to develop new

technologies for radiation detection, nuclear materials detection, border security, and aviation screening.

Our Security division is an industrial partner in the DHS Center of Excellence ALERT

(Awareness and Localization of Explosives-Related Threats) and works with academia, national laboratories, and other vendors on research and development through this and other agreements.

and Technology Directorate has also initiated programs for the development of technologies capable of protecting highways, railways and waterways from terrorist attack.

addition, the U.S.

Several of our hold (checked) baggage and cargo screening systems have been approved by the U.S.

Department of Homeland Security’s Transportation Security Administration for this purpose and are being procured and used by freight forwarders, airlines, transportation companies and other businesses to fulfill their compliance requirements.

Furthermore, the U.S.

Department of Homeland Security’s Science and Technology Directorate, Transportation Security Administration and Domestic Nuclear Detection Office have supported the development of new security inspection technologies and products.

Our Security division participates in a number of such research and development efforts, including projects to develop new technologies for radiation detection, nuclear materials detection, border security, and aviation screening.

Our Security division is an industrial partner in the DHS Center of Excellence ALERT (Awareness and Localization of Explosives-Related Threats) and works with academia, national laboratories, and other vendors on research and development through this and other agreements.

The Science and Technology Directorate has also initiated programs for the development of technologies capable of protecting highways, railways and waterways from terrorist attack.

In addition, the U.S.

Department of Defense has invested heavily in technologies and services that screen would-be attackers before they are able to harm U.S.

and allied forces.

technologies include products that can screen personnel, vehicles and other containers for the presence of explosives, improvised explosive devices (IEDs), weapons and other contraband.

These technologies include products that can screen personnel, vehicles and other containers for the presence of explosives, improvised explosive devices (IEDs), weapons and other contraband.

Department of Energy (DOE) and other U.S.

federal agencies continue to support the Nuclear Smuggling and Detection Deterrence (NSDD) Program and Megaports programs to help

prevent the proliferation and trafficking of radioactive and nuclear materials.

initiatives and new regulations promulgated by international organizations have resulted in a growing global demand for airline, cargo, port and border security and inspection

technologies.

For example, the European Commission has issued uniform performance standards for systems that screen baggage and people at aviation checkpoints and air cargo, as well as new directives

related to maritime security.

federal agencies continue to support the Nuclear Smuggling and Detection Deterrence (NSDD) Program and Megaports programs to help prevent the proliferation and trafficking of radioactive and nuclear materials.

Similar initiatives and new regulations promulgated by international organizations have resulted in a growing global demand for airline, cargo, port and border security and inspection technologies.

For example, the European Commission has issued uniform performance standards for systems that screen baggage and people at aviation checkpoints and air cargo, as well as new directives related to maritime security.

Healthcare has been, and we believe will continue to be, a growing economic sector throughout much of the world.

Developing countries in

Latin America and the Asia-Pacific region are expected to continue to build healthcare infrastructure to serve expanding middle class populations.

In developed areas, especially the United States and

Europe, aging populations and extended life expectancy are projected to fuel growth in healthcare for the foreseeable future.

we believe that the healthcare industry will continue to grow throughout much of the world, many factors are forcing healthcare providers to do more with less, including stricter

government requirements affecting staffing and accountability, shrinking reimbursements from health insurance organizations, and uncertainty around

Developing countries in Latin America and the Asia-Pacific region are expected to continue to build healthcare infrastructure to serve expanding middle class populations.

In developed areas, especially the United States and Europe, aging populations and extended life expectancy are projected to fuel growth in healthcare for the foreseeable future.

While we believe that the healthcare industry will continue to grow throughout much of the world, many factors are forcing healthcare providers to do more with less, including stricter government requirements affecting staffing and accountability and uncertainty around potential U.S.

healthcare legislation.

The COVID-19 pandemic has significantly strained healthcare provider resources, placing increased focus on the advantages of remote monitoring and products which can be deployed flexibly, enabling hospitals to quickly reconfigure and adapt to unexpected change.

Our customers expect clinical value, economic value, and clinical decision support.

Positioning our current healthcare products to demonstrate the competitive

value in total cost of ownership will be increasingly important in this environment.

At the same time, the widespread introduction of mobile devices into the healthcare environment is creating an

emerging demand for patient data acquisition and distribution.

Our Healthcare division designs, manufactures and markets devices and software that respond to these factors, helping hospitals reduce

costs, make better-informed clinical decisions, and more fully utilize resources.

are a global manufacturer and distributor of patient monitoring, diagnostic cardiology and clinical networking solutions for use in hospitals, medical clinics and physician offices.

We design, manufacture and market patient monitoring solutions for critical, sub-acute and perioperative care areas of the hospital, wired and wireless networks and ambulatory blood pressure monitors,

all aimed at providing caregivers with timely patient information.

Our diagnostic cardiology systems include Holter recorders and analyzers, ambulatory blood pressure monitors, resting and stress

electrocardiography (ECG) devices, and ECG management software systems and related software and services.

Positioning our current healthcare products to demonstrate the competitive value in total cost of ownership is increasingly important in this environment.

At the same time, the widespread introduction of mobile devices into the healthcare environment is creating an emerging demand for patient data acquisition and distribution.

Our Healthcare division designs, manufactures and markets devices and software that respond to these factors, helping hospitals reduce costs, make better-informed clinical decisions, and more fully utilize resources.

We are a global manufacturer and distributor of patient monitoring, diagnostic cardiology, and connected care solutions for use in hospitals, medical clinics and physician offices.

Our diagnostic cardiology systems include Holter recorders and analyzers, ambulatory blood pressure monitors, resting and stress electrocardiography (ECG) devices, and ECG management software systems and related software and services.

Optoelectronics and Manufacturing.

We believe that continued advances in technology and reductions in the cost of key components

of optoelectronic

systems, including computer processing power and memory, have broadened the market by enabling the use of optoelectronic devices in a greater number of applications.

In addition, we see a trend among

OEMs to increasingly outsource the design and manufacture of optoelectronic devices as well as value-added subsystems to fully-integrated, independent manufacturers, like us, that may have

greater specialization, broader expertise and more flexibility to respond to short cycle times and quicker market expectations.

optoelectronic devices are used in a wide variety of applications for diversified markets including the aerospace and defense, avionics, medical imaging and diagnostics, biochemistry

analysis, pharmaceutical, nanotechnology, telecommunications, construction and homeland security markets.

Medical applications for our devices include diagnostic and imaging products, patient

monitoring equipment, and glucose monitors.

Aerospace and defense applications for our devices include satellite navigation sensors, laser guided munitions systems, range finders, weapons simulation

systems, and other applications that require the conversion of optical signals into electrical signals.

We believe that continued advances in technology and reductions in the cost of key components of optoelectronic systems, including computer processing power and memory, have broadened the market by enabling the use of optoelectronic devices in a greater number of applications.

In addition, we see a trend among OEMs to increasingly outsource the design and manufacture of optoelectronic devices as well as value-added subsystems to fully-integrated, independent manufacturers, like us, that may have greater specialization, broader expertise and more flexibility to respond to short cycle times and quicker market expectations.

Our optoelectronic devices are used in a wide variety of applications for diversified markets including aerospace and defense, avionics, medical imaging and diagnostics, biochemistry analysis, pharmaceutical, nanotechnology, telecommunications, construction and homeland security.

Medical applications for our devices include diagnostic and imaging products, patient monitoring equipment, and glucose monitors.

Aerospace and defense applications for our devices include satellite navigation sensors, laser guided munitions systems, range finders, weapons simulation systems, and other applications that require the conversion of optical signals into electrical signals.

Homeland security applications for our devices include X-ray based and other detection systems.

Our optoelectronic devices and value-added subsystems are also used in a wide variety of measurement control, monitoring and industrial applications and are key components in telecommunications

technologies.

We also offer electronics manufacturing services to our optoelectronics customers, as well as to our Security and Healthcare divisions.

We offer full turnkey solutions as well as printed

circuit board assembly, cable and harness assembly, liquid crystal displays and box-build manufacturing services, in which we provide product design and development, supply chain management, and

production manufacturing services.

In addition, our flexible circuit products and services offer design expertise, manufacturing capabilities, and assembly of flexible and rigid circuit boards for

applications in the industrial, medical, military, and consumer markets.

Our optoelectronic devices and value-added subsystems are also used in a wide variety of measurement control, monitoring and industrial applications and are key components in telecommunications technologies.

We also offer electronics manufacturing services to broader markets, as well as to our optoelectronics customers and to our Security and Healthcare divisions.

We offer full turnkey solutions as well as printed circuit board assembly, cable and harness assembly, liquid crystal displays and box-build manufacturing services, in which we provide product design and development, supply chain management, and production manufacturing services.

Additionally, our flexible circuit businesses offer design expertise, manufacturing capabilities, and assembly of flexible and rigid circuit boards for applications in the industrial medical, military, and consumer markets.

Growth Strategy

We believe that one of our primary competitive strengths is our expertise in the cost-effective design and manufacture of specialized electronic

systems and components for critical applications.

As a result, we have leveraged, and intend to continue to leverage, such expertise and capacity to gain price, performance and agility advantages over

our competitors in the security, healthcare and optoelectronics fields, and to translate such advantages into profitable growth in those fields.

At the same time, we continually seek to identify new

markets in which our core expertise and capacity will provide us with competitive advantages.

We believe that one of our primary competitive strengths is our expertise in the cost-effective design and manufacture of specialized electronic systems and components for critical applications.

As a result, we have leveraged, and intend to continue to leverage, such expertise and capacity to gain price, performance and agility advantages over our competitors in the security, healthcare and optoelectronics fields, and to translate such advantages into profitable growth in those fields.

At the same time, we continually seek to identify new markets in which our core expertise and capacity will provide us with competitive advantages.

Key elements of this strategy include:

Capitalizing on Global Reach.

We operate from locations throughout the world.

We view our international operations as providing

strategic advantage over competitors.

First, our international manufacturing

allow us to take advantage of competitive labor rates and favorable tax regulations in order to be a low cost producer.

Second, our international offices strengthen our sales and marketing

efforts and our ability to service and repair our systems by providing direct access to growing markets and to our existing international customer base.

Third, our international manufacturing

locations allow us to reduce delivery times to our global customer base.

In the future, we intend to continue to enhance our international manufacturing and sales capabilities.

We operate from multiple locations throughout the world.

We view our international operations as providing an important strategic advantage over competitors.

First, our international manufacturing facilities allow us to take advantage of competitive labor rates in order to be a low cost producer.

Second, our international offices strengthen our sales and marketing efforts and our ability to service and repair our systems by providing direct access to growing markets and to our existing international customer base.

Third, our international manufacturing locations allow us to reduce delivery times to our global customer base.

We intend to continue to enhance our international manufacturing and sales capabilities.

Capitalizing on Vertical Integration.

Our vertical integration provides several advantages in each of our divisions.

advantages include reduced

manufacturing and delivery times, lower costs due to our access to competitive international labor markets and direct sourcing of raw materials.

We also believe that we offer significant added value

to our customers by providing a full range of vertically-integrated services, including component design and customization, subsystem concept design and application engineering, product prototyping

and development, efficient pre-production and short-run and high volume manufacturing.

We believe that our vertical integration differentiates us from many of our competitors and provides value to our

customers who can rely on us to be an integrated supplier.

We intend to continue to leverage our vertical integration to create greater value for our customers in the design and manufacture of our

These advantages include reduced manufacturing and delivery times, lower costs due to our access to competitive international labor markets and direct sourcing of raw materials.

We also believe that we offer significant added value to our customers by providing a full range of vertically-integrated services, including component design and customization, subsystem concept design and application engineering, product development and prototyping, efficient pre-production and short-run manufacturing and competitive mass production capabilities.

We believe that our vertical integration differentiates us from many of our competitors and provides value to our customers who can rely on us to be an integrated supplier.

We intend to continue to leverage our vertical integration to create greater value for our customers in the design and manufacture of our products.

Capitalizing on the Market for Security and Inspection Systems.

Attentiveness to terrorist and other security threats may

continue to drive the

market for security and inspection systems in transportation security and also at ports and border crossings, government installations, military facilities and public event venues.

The trend toward

increased screening of goods entering and departing from ports and borders has resulted, and may continue to result in, the growth in the market for cargo inspection systems and turnkey security

screening services that are capable of screening shipping containers for contraband and assisting customs officials in the verification of shipping manifests.

Package and cargo screening by freight

forwarders, airlines and air cargo companies represents a growing sector, as regulations in the United States and Europe have continued to support increased screening of air cargo shipments.

to capitalize on opportunities to replace, service and upgrade existing security installations, and to offer turnkey security screening solutions in which we may construct, staff and/or operate on a

long-term basis security screening checkpoints for our customers.

Finally, we also intend to continue to develop new security and inspection products and technologies, such as our proprietary real

time tomography systems, and to enhance our current product and service offerings through internal research and development and selective acquisitions.

Attentiveness to terrorist and other security threats may continue to drive the market for security and inspection systems in transportation security and also at ports and border crossings, government installations, military facilities and public event venues.

The trend toward increased screening of goods entering and departing from ports and borders has resulted, and may continue to result in, the growth in the market for cargo inspection systems and turnkey security screening services that are capable of screening shipping containers for contraband and assisting customs officials in the verification of shipping manifests.

Package and cargo screening by freight forwarders, airlines and air cargo companies represents a growing sector, as regulations in the United States and Europe have continued to support increased screening of air cargo shipments.

We intend to capitalize on opportunities to replace, service and upgrade existing security installations, and to offer turnkey security screening solutions in which we may construct, staff and/or operate on a long-term basis security screening checkpoints for our customers.

Finally, we also intend to continue to develop new security and inspection products and technologies, and to enhance our current product and service offerings through internal research and development and selective acquisitions.

Improving and Complementing Existing Medical Technologies.

We develop and market patient monitoring systems and diagnostic

cardiology products, and

associated supplies and accessories.

We are able to market

and sell many of our product offerings through shared sales channels and distribution networks.

Our efforts to develop new products and improve our existing medical technologies are focused on the

needs of healthcare organizations, caregivers, and their patients.

Our efforts to improve existing diagnostic cardiology technologies will also continue to concentrate on providing products that are

flexible and intuitive to use so that clinicians can deliver accurate, precise, reliable and cost-effective care.

We focus on enabling hospitals to leverage their IT infrastructure to improve data

capture and access, workflows and security at a significant financial savings, providing actionable alarms at the bedside monitor and the central station.

We develop and market patient monitoring systems, diagnostic cardiology products, and connected care systems and associated supplies and accessories.

We are able to market and sell many of our product offerings through shared sales channels and distribution networks.

Our efforts to develop new products and improve our existing medical technologies are focused on the needs of healthcare organizations, caregivers, and their patients.

Our efforts to improve existing medical technologies concentrate on providing products that are flexible and intuitive to use so that clinicians can deliver accurate, precise, reliable and cost-effective care.

We focus on enabling hospitals to leverage their IT infrastructure to improve data capture and access, workflows and security at a financial savings, providing actionable alarms at the bedside monitor and the central station.

Selectively Entering New Markets.

We intend to continue to selectively enter new markets that complement our existing

capabilities in the design,

development and manufacture of specialized electronic systems and components for critical applications such as security inspection, patient monitoring and diagnostic cardiology.

We believe that by

manufacturing products that rely on our existing technological capabilities, we will leverage our integrated design and manufacturing infrastructure to build a larger presence in new markets that

present attractive competitive dynamics.

We intend to continue to selectively enter new markets that complement our existing capabilities in the design, development and manufacture of specialized electronic systems and components for critical applications such as security inspection, patient monitoring and diagnostic cardiology.

We believe that by manufacturing products that rely on our existing technological capabilities, we will leverage our integrated design and manufacturing infrastructure to build a larger presence in new markets that present attractive competitive dynamics.

We intend to achieve this strategy through internal growth and through selective acquisitions.

Acquiring New Technologies and Companies.

Our success depends in part on our ability to continually enhance and broaden our

product offerings in

response to changing technologies, customer demands and

Our success depends in part on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures.

We have developed expertise in our various lines of business and other areas through internal research and development efforts, as well as through selective acquisitions.

expect to continue to seek acquisition opportunities to broaden our technological expertise and capabilities, lower our manufacturing costs and facilitate our entry into new markets.

We expect to continue to seek acquisition opportunities to broaden our technological expertise and capabilities, lower our manufacturing costs and facilitate our entry into new markets.

Products and Technology

We design, develop, manufacture and sell products ranging from security and inspection systems to patient monitoring and diagnostic cardiology

systems to discrete optoelectronic devices and value-added subsystems.

We design, develop, manufacture and sell products ranging from security and inspection systems to patient monitoring and diagnostic cardiology systems to discrete optoelectronic devices and value-added subsystems.

Security and Inspection Systems.

We design, manufacture and market security and inspection systems globally to end users under

the "Rapiscan Systems"

and "AS&E" trade names.

Our Security products are used to inspect baggage, parcels, cargo, people, vehicles and other objects for weapons, explosives, drugs, radioactive and nuclear materials and

other contraband.

These systems are also used for the safe, accurate and efficient verification of cargo manifests for the purpose of assessing duties and monitoring the export and import of

controlled materials.

We design, manufacture and market security and inspection systems globally to end users under the “Rapiscan Systems” and “AS&E” trade names.

Our Security products are used to inspect baggage, parcels, cargo, people, vehicles and other objects for weapons, explosives, drugs, radioactive and nuclear materials and other contraband.

These systems are also used for the safe, accurate and efficient verification of cargo manifests for the purpose of assessing duties and monitoring the export and import of controlled materials.

Our Security products fall into the following categories:

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and explosive and narcotics trace detection.

We also offer under the "S2" trade name turnkey security screening services, including the staffing and operation of security

screening checkpoints.

a result of terrorist attacks worldwide, security and inspection products have increasingly been used at a wide range of facilities other than airports, such as border crossings,

railways, seaports, cruise line terminals, freight forwarding operations, government and military installations and nuclear facilities.

As a result of the use of security and inspection products at

additional facilities, we have diversified our sales channels for security and inspection products.

of our security and inspection systems include dual-energy X-ray technology with computer software enhanced imaging methods to facilitate the detection of materials such as

explosives, weapons, narcotics, bulk currency or other contraband.

While all X-ray systems produce a two-dimensional image of the contents of the inspected object, the dual-energy X-ray systems also

measure the X-ray absorption of the inspected object's contents at two different X-ray energies to estimate the atomic number of the object's contents.

The various organic and inorganic substances in

the inspected object appear to operators of the inspection systems in various colors, and this visual information can be used to identify and differentiate the inspected materials.

In addition, we

offer dual-view X-ray screening systems, now available on many of our systems that allow operators to examine objects from two directions simultaneously, thereby reducing the need for re-scanning of

objects and improving the operator's ability to detect threats quickly and effectively.

Our baggage and parcel inspection, cargo and vehicle inspection and hold (checked) baggage screening inspection

systems range in size from compact mobile systems to large systems comprising entire buildings in which trucks, shipping containers or pallets are inspected.

Many of our inspection systems are also

designed to be upgradeable to respond to new customer requirements as they emerge or change.

cargo and vehicle inspection applications, in which vehicles, cars, trucks, shipping containers, pallets and other large objects can be inspected, are designed in various

configurations, including gantry, portal and mobile systems.

These products are primarily used to verify the contents of cars, trucks or cargo containers and to detect the presence of contraband,

including narcotics, weapons, explosives, radioactive and nuclear materials and other smuggled items.

They offer significant improvements over past methods of cargo screening, such as manual searches,

as our cargo systems are faster, more thorough and do not subject the cargo to pilferage.

We also offer turnkey security screening services, including the staffing and operation of security screening checkpoints under the “S2” trade name.

As a result of terrorist attacks worldwide, security and inspection products have increasingly been used at a wide range of facilities other than airports, such as border crossings, railways, seaports, cruise line terminals, freight forwarding operations, government and military installations and nuclear facilities.

As a result of the use of security and inspection products at additional facilities, we have diversified our sales channels for security and inspection products.

Many of our security and inspection systems include dual-energy X-ray technology with computer software enhanced imaging methods to facilitate the detection of materials such as explosives, weapons, narcotics, bulk currency or other contraband.

While all X-ray systems produce a two-dimensional image of the contents of the inspected object, the dual-energy X-ray systems also measure the X-ray absorption of the inspected object’s contents at two different X-ray energies to estimate the atomic number of the object’s contents.

The various organic and inorganic substances in the inspected object appear to operators of the inspection systems in various colors, and this visual information can be used to identify and differentiate the inspected materials.

In addition, we offer dual-view X-ray screening systems, now available on many of our systems that allow operators to examine objects from two directions simultaneously, thereby reducing the need for re-scanning of objects and improving the operator’s ability to detect threats quickly and effectively.

Our baggage and parcel inspection, cargo and vehicle inspection and hold (checked) baggage screening inspection systems range in size from compact mobile systems to large systems comprising entire buildings in which trucks, shipping containers or pallets are inspected.

Many of our inspection systems are also designed to be upgradeable to respond to new customer requirements as they emerge or change.

Our cargo and vehicle inspection applications, in which vehicles, cars, trucks, shipping containers, pallets and other large objects can be inspected, are designed in various configurations, including gantry, portal and mobile systems.

These products are primarily used to verify the contents of cars, trucks or cargo containers and to detect the presence of contraband, including narcotics, weapons, explosives, radioactive and nuclear materials and other smuggled items.

They offer significant improvements over alternative methods of cargo screening, such as manual searches, as our cargo scanning systems are faster, more thorough and do not subject the cargo to pilferage.

Entire shipping containers or trucks containing densely packed goods can be screened rapidly.

of our cargo and vehicle inspection systems employ X-ray imaging to non-intrusively inspect objects and present images to an inspector, showing shapes, sizes, locations and relative

densities of the contents.

utilize transmission imaging technology, backscatter imaging technology, or both technologies.

We also manufacture passive radiation detection devices for detecting nuclear threat material

utilizing their gamma and neutron signatures.

Most of our cargo and vehicle inspection systems employ X-ray imaging to non-intrusively inspect objects and present images to an inspector, showing shapes, sizes, locations and relative densities of the contents.

These systems utilize transmission imaging technology, backscatter imaging technology, or both technologies.

We also manufacture passive radiation detection devices for detecting nuclear threat material utilizing their gamma and neutron signatures.

Additionally, we have developed isotope-specific identification algorithms.

Many of these systems have been built to meet specific customer inspection

requirements.

believe that we offer one of the broadest technology platforms in the baggage and parcel and cargo and vehicle inspection systems industry.

Our broad platform permits us to offer

customers solutions, which optimize flexibility, performance and cost to meet the customer's unique application requirements.

Security division also offers hold (checked) baggage screening systems that are utilized by airports, freight forwarders and other parties responsible for screening baggage and cargo

before it is placed in the cargo hold of airplanes.

Certain of our currently available systems utilize multiple X-ray beams to provide high-quality images able to discriminate materials and to enable

algorithms that assist operators in the detection of explosives and narcotics.

Other systems utilize a very large number of distributed X-ray emitters that rapidly capture approximately 1,000 views of

a bag and then utilize sophisticated software to reconstruct high resolution images.

These systems are designed to meet the high-speed screening and analysis demands of regulators in the United States

and European Union ("EU").

They can be operated in stand-alone mode, where a single operator views the images produced by a single system, or can be networked, allowing operators stationed at a remote

computer terminal to monitor multiple systems.

Security division also offers people screening products, such as a line of "Metor®" brand walk-through metal detector (WTMD) products for use at security checkpoints at

airports, amusement parks, banks, courthouses, government buildings, sports arenas and other venues.

We also offer trace detection systems that are designed to detect trace amounts of explosives as

well as narcotics.

Many of these systems have been built to meet specific customer inspection requirements.

We believe that we offer one of the broadest technology platforms in the baggage and parcel and cargo and vehicle inspection systems industry.

Our broad platform permits us to offer customers solutions, which optimize flexibility, performance and cost to meet the customer’s unique application requirements.

Our Security division also offers hold (checked) baggage screening systems that are utilized by airports, freight forwarders and other parties responsible for screening baggage and cargo before it is placed in the cargo hold of airplanes.

Certain of our currently available systems utilize multiple X-ray beams to provide high-quality images able to discriminate materials and to enable algorithms that assist operators in the detection of explosives and narcotics.

Other systems utilize a very large number of distributed X-ray emitters that rapidly capture hundreds of views of a bag and then utilize sophisticated software to reconstruct high resolution images.

These systems are designed to meet the high-speed screening and analysis demands of regulators in the United States and European Union (“EU”).

They can be operated in stand-alone mode, where a single operator views the images produced by a single system, or can be networked, allowing operators stationed at a remote computer terminal to monitor multiple systems.

Our Security division also offers trace detection systems that are designed to detect trace amounts of explosives as well as narcotics.

We also offer people screening products, such as a line of “Metor®” brand walk-through metal detector (WTMD) products for use at security checkpoints at airports, amusement parks, banks, courthouses, government buildings, sports arenas and other venues.

These systems are designed to be used in screening people, cargo, baggage and other items for illicit materials and weapons.

The following table sets forth certain information related to the standard security and inspection products that we currently offer.

We do, however, also

customize our standard products to suit specific applications and customer requirements.

We do, however, also customize our standard products to suit specific applications and customer requirements.

PRODUCT NAME /

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Baggage and Parcel Inspection

Rapiscan®

Rapiscan ® 600 series

X-ray systems

Rapiscan®

Rapiscan ® 900 series

Orion TM X-ray systems

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Single and multi-view configuration

Checkpoint and customs inspection at airports, prisons, border crossings, government buildings, and postal facilities, critical infrastructure protection at power and chemical plants, water resource sites as well as air

cargo screening

AS&E ® Gemini ®

Combined dual energy transmission and backscatter

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Cargo and Vehicle Inspection

Rapiscan®

OmniView®

Rapiscan ® Eagle ®

AS&E ® OmniView ®

AS&E ® Sentry ®

High energy transmission X-ray

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Inspection of passenger vehicles, cargo, trucks, and rail cars at airports, border crossings, sea ports and high threat facilities

Z Portal®

AS&E ® Z Portal ®

AS&E ® CarView

AS&E ® MINI Z ®

Flying spot backscatter X-ray and transmission X-ray

Hold (Checked) Baggage Screening

Rapiscan®

Rapiscan ® RTT ®

High-speed, stationary gantry computed tomography explosive detection system (EDS)

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People Screening

series metal detectors

Metor ® series metal detectors

Electromagnetic induction

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Radiation Detection

Rapiscan®

Radiation Monitors

Rapiscan ® Radiation Monitors

Gamma and neutron detection of radioactive and nuclear material

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Trace Detection

Itemiser®

MobileTrace®

Hardened MobileTrace®

EntryScan®

Itemiser ® DX

Itemiser ® 4DX

Itemiser ® 3e

MobileTrace ®

Hardened MobileTrace ®

EntryScan ® 4

Syntech ONE TM

IMS based technology desktop, hand-held and walk-though portal explosives and narcotics detection

Artificial intelligence software platform

Checkpoint, hold baggage and cargo inspection at airports, nuclear plants, border crossings, military checkpoints, stadiums, prisons and government facilities

Patient Monitoring and Diagnostic Cardiology.

Our Healthcare division designs, manufactures and markets products globally to end

users primarily

under the "Spacelabs" trade name.

products include patient monitors for use in perioperative, critical care and emergency care environments with neonatal, pediatric and adult patients.

Our patient monitoring

systems comprise monitors and central nursing stations connected by wireless or hardwired networks, as well as standalone monitors that enable patient data to be transported physically from one

monitor to another as the patient is moved.

Our Healthcare division designs, manufactures and markets products globally to end users primarily under the “Spacelabs” trade name.

Spacelabs products include patient monitors for use in perioperative, critical care and emergency care environments with neonatal, pediatric and adult patients.

Our patient monitoring systems comprise monitors and central nursing stations connected by wireless or hardwired networks, as well as standalone monitors that enable patient data to be transported physically from one monitor to another as the patient is moved.

These systems enable hospital staff to access patient data where and when it is required.

In addition, these products are designed to interact with hospital

information systems.

electrocardiograph monitoring or multiparameter monitoring of ambulatory patients, we offer a digital telemetry system.

The system operates in government-protected bands, which are

not used for private land mobile radio, business radio services or broadcast analog or digital television.

Spacelabs Intesys®

Clinical Suite (ICS) provides a software suite allowing

hospitals to leverage their infrastructure to capture all data from the bedside, compact and telemetry monitors.

Retrospective data formerly only found at a central station monitor is made available

at any PC in the hospital.

has introduced a number of new products, including the Xprezzon®

patient monitor, Qube®

compact monitor, Qube®

Mini monitor with transport

capabilities, and Xhibit XC4 which brings additional flexibility to caregivers, enabling central monitoring of patient data in the patient vicinity.

We also introduced a new telemetry transmitter, the

AriaTele®, with subsequent product additions to enable the AriaTele to broadcast on a number of specialized frequency bands that are prescribed for global healthcare use.

PathfinderSL®

analysis tool provides multiple analysis modes and simple, actionable Holter reports to any PC, inside or outside the hospital.

Holter recorders provide low cost of ownership through, for example, the elimination of disposable batteries, memory cards with no moving parts to maintain and other advances.

Lifecard®

CF Holter recorders are worn by patients for up to seven days in order to capture heart arrhythmias that may occur in a patient only a few times per week.

This product is helpful

in identifying the presence of atrial fibrillation.

are also a supplier of ambulatory blood pressure (ABP) monitors which are routinely used by physicians around the world and by clinical research organizations.

Many physicians are

using ambulatory blood pressure monitoring to detect "white coat" hypertension, a condition in which people experience elevated blood pressure in the doctor's office but not in their daily lives.

In addition, these products are designed to interact with hospital information systems.

For electrocardiograph monitoring or multiparameter monitoring of ambulatory patients, we offer a digital telemetry system.

The system operates in government-protected bands, which are not used for private land mobile radio, business radio services or broadcast analog or digital television.

Spacelabs Intesys ® Clinical Suite (ICS) provides a software suite allowing hospitals to leverage their infrastructure to capture data from the bedside, compact and telemetry monitors.

Our PathfinderSL ® analysis tool provides multiple analysis modes and simple, actionable Holter reports to any PC, inside or outside the hospital.

Our Evo TM Holter recorders provide low cost of ownership through, for example, the elimination of disposable batteries and other advances.

Our Lifecard ® CF Holter recorders are worn by patients for up to seven days in order to capture heart arrhythmias that may occur in a patient only a few times per week.

This product is helpful in identifying the presence of atrial fibrillation.

We are also a supplier of ambulatory blood pressure (ABP) monitors which are routinely used by physicians around the world and by contract research organizations.

Many physicians are using ambulatory blood pressure monitoring to detect “white coat” hypertension, a condition in which people experience elevated blood pressure in the doctor’s office but not in their daily lives.

Ambulatory blood pressure monitoring helps improve diagnostic accuracy and minimize the associated costs of treatment.

Spacelabs OnTrak ambulatory blood pressure system has been validated

for both pediatric and adult patient types and includes the capability to measure activity correlation with non-invasive blood pressure readings.

Sentinel®

11 Cardiology Information Management System is designed to provide an electronic, enterprise-wide scalable system for diagnostic cardiology.

Sentinel integrates

data from Spacelabs-branded products and third-party devices into a central enterprise-wide database system that can be accessed by care providers and medical facility administrators, thereby

providing enhanced workflow and efficiencies.

Spacelabs OnTrak™ ambulatory blood pressure system has been validated for both pediatric and adult patient types and includes the capability to measure activity correlation with non-invasive blood pressure readings.

Our Sentinel ® 11 Cardiology Information Management System is designed to provide an electronic, enterprise-wide scalable system for diagnostic cardiology.

Sentinel integrates data from Spacelabs-branded products and third-party devices into a central enterprise-wide database system that can be accessed by care providers and medical facility administrators, thereby providing enhanced workflow and efficiencies.

The system’s web-based solution enables the secure transfer of data from multiple remote sites.

Sentinel supports mobile and remote working, taking ECG

management to the point of care for flexible use of devices and capture of data.

addition, the capital-intensive products that our Healthcare division sells have supplies and accessories associated with them that can represent annuity revenue opportunities.

Sentinel supports mobile and remote working, taking ECG management to the point of care for flexible use of devices and capture of data.

In addition, the capital-intensive products that our Healthcare division sells have supplies and accessories associated with them that can represent annuity revenue opportunities.

Additionally, our Healthcare division manufactures multivendor-compatible accessories for use with third-party devices.

following table sets forth a description of the more significant healthcare products that we currently offer:

The following table sets forth a description of the more significant healthcare products that we currently offer:

PRODUCT NAME /

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MARKET SEGMENT

Patient Monitoring and Connectivity

Xprezzon®

Ultraview®

DM3 Dual Monitor

Clinical Suite (ICS)

Flexport®

AriaTele®

Spacelabs®

Patient Monitoring and

DM4 Dual-mode Monitor

Command Module

Intesys ® Clinical Suite (ICS)

Xhibit ® Telemetry Receiver (XTR)

Spacelabs ® SafeNSound TM

Hospital care areas, outpatient surgery centers and physician offices

Diagnostic Cardiology

Sentinel®

Cardiology Data Management OnTrak and 91217

Sentinel ® Cardiology Data Management OnTrak

Ambulatory Blood Pressure Monitors

Pathfinder®

SL Holter Analyzer

Lifecard®

Holter Recorder

Pathfinder ® SL Holter Analyzer

Lifecard ® Holter Recorder

EVO TM Holter Recorder

CardioExpress®

CardioExpress ® ECG machines

Sentinel-Integrated

Hospital cardiology care areas and physician offices

Medical Devices and Accessories

UltraCheck®, SoftCheck®

Supplies and Accessories

UltraCheck ® , SoftCheck ® and Curve

Blood Pressure Cuffs

Patient Cables and Accessories

Fluid Delivery Unifusor®

Infusion Bags

Fluid Delivery Unifusor ® Infusion Bags

All hospital care areas, outpatient surgery centers and physician offices

Optoelectronic Devices and Manufacturing Services.

Optoelectronic devices generally consist of both active and passive

Active components

sense light of varying wavelengths and convert the light detected into electrical signals, whereas passive components amplify, separate or reflect light.

The active components we manufacture consist

of silicon, gallium arsenide and indium gallium arsenide photodetectors and light sources.

These products are manufactured in standard and customized configurations for specific applications and are

offered either as components or as subsystems.

Our optoelectronic products and services are provided primarily under the "OSI Optoelectronics," "OSI LaserDiode," "OSI Laserscan," and "Advanced

Photonix" trade names.

addition to the manufacture of standard and OEM products, we also specialize in designing and manufacturing customized value-added subsystems for use in a wide range of products and

Optoelectronic devices generally consist of both active and passive components.

Active components sense light of varying wavelengths and convert the light detected into electrical signals, whereas passive components amplify, separate or reflect light.

The active components we manufacture consist of silicon, gallium arsenide and indium gallium arsenide photodetectors and light sources.

These products are manufactured in standard and customized configurations for specific applications and are offered either as components or as subsystems.

Our optoelectronic products and services are provided primarily under the “OSI Optoelectronics,” “OSI LaserDiode,” “OSI Laserscan,” “Semicoa,” and “Advanced Photonix” trade names.

In addition to the manufacture of standard and OEM products, we also specialize in designing and manufacturing customized value-added subsystems for use in a wide range of products and equipment.

An optoelectronic subsystem typically consists of one or more optoelectronic devices that are combined with other electronic components and packaging for use in an end product.

composition of a subsystem can range from a simple assembly of various optoelectronic devices that are incorporated into other subsystems (for example, a printed circuit board containing our

optoelectronic devices) to complete end-products (for example, pulse oximetry equipment).

also provide electronics design and manufacturing services both in North America, the United Kingdom and in the Asia Pacific region with enhanced, RoHS-compliant, printed circuit

board and cable and harness assemblies and box-build manufacturing services utilizing state-of-the-art automated surface mount technology

We offer electronics manufacturing services to OEM customers and end users for medical, automotive, defense, aerospace, industrial and consumer applications that do not utilize optoelectronic

We also manufacture LCD displays for medical, industrial and consumer electronics applications, and flex circuits and touch panels for OEM customers at the prototype stage.

Our electronics

manufacturing services are provided primarily under the "OSI Electronics," "APlus Products," "Altaflex," and "PFC" trade names.

develop, manufacture and sell laser-based remote sensing devices that are used to detect and classify vehicles in toll and traffic management systems under the "OSI Laserscan" and

"Autosense" trade names.

The composition of a subsystem can range from a simple assembly of various optoelectronic devices that are incorporated into other subsystems (for example, a printed circuit board containing our optoelectronic devices) to complete end-products (for example, pulse oximetry equipment).

We also provide electronics design and manufacturing services both in North America, the United Kingdom and in the Asia Pacific region with enhanced, RoHS-compliant, printed circuit board and cable and harness assemblies and box-build manufacturing services utilizing state-of-the-art automated surface mount technology lines.

We offer electronics manufacturing services to OEM customers and end users for medical, automotive, defense, aerospace, industrial and consumer applications that do not utilize optoelectronic devices.

We also manufacture LCD displays for medical, industrial and consumer electronics applications, and flex circuits for OEM customers fromthe prototype stage to mass production.

Our electronics manufacturing services are provided primarily under the “OSI Electronics,” “APlus Products,” “Altaflex,” and “PFC” trade names.

We develop, manufacture and sell laser-based remote sensing devices that are used to detect and classify vehicles in toll and traffic management systems under the “OSI Laserscan” and “Autosense” trade names.

We offer solid-state laser products for aerospace, defense, telecommunication and medical applications under the “OSI LaserDiode” trade name.

following table sets forth a description of the more significant standard optoelectronics products that we currently offer.

We also customize our standard products to suit specific

applications and customer requirements.

The following table sets forth a description of the more significant standard optoelectronics products that we currently offer.

We also customize our standard products to suit specific applications and customer requirements.

PRODUCT NAME /

8 unchanged sentences

Solid State Laser Diodes

telecommunication products, laser guided munitions, weapon simulation systems, aircraft gyro navigation sensors, and satellite sun acquisition sensors

Medical diagnostics instrumentation and analytical chemistry, oximetry and blood chemistry, security scanners and inspection systems, lidar and laser range finder, OTDR and test and measurement instruments, telecommunication products, laser guided munitions, weapon simulation systems, aircraft gyro navigation sensors, and satellite sun acquisition sensors

Medical Devices and Accessories

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Security and Inspection Products.

Many security and inspection products were developed in response to civilian airline

Consequently,

certain of our security and inspection products have been and continue to be sold for use at airports.

Our security and inspection products are also used for security and customs purposes at locations

in addition to airports, such as border crossings, shipping ports, military and other government installations, freight forwarding facilities, high-profile locations such as U.K.

House of Parliament,

Buckingham Palace, and the Vatican and for high-profile events such as the Olympic Games, and other sporting events.

Furthermore, as terrorist attacks continue to occur, overall transportation and

travel industry demands have increased, resulting in heightened attention for our security and inspection products.

We also provide turnkey security screening solutions, which can include the

construction, staffing and long-term operation of security screening locations for our customers.

customers include, among many others, the U.S.

Many security and inspection products were developed in response to civilian airline hijackings.

Consequently, certain of our security and inspection products have been and continue to be sold for use at airports.

Our security and inspection products are also used for security and customs purposes at locations in addition to airports, such as border crossings, shipping ports, military and other government installations, freight forwarding facilities, high-profile locations such as U.K.

House of Parliament, Buckingham Palace, and the Vatican and for high-profile events such as the Olympic Games, and other sporting events.

Furthermore, as terrorist attacks continue to occur, overall transportation and travel industry demands have increased, resulting in heightened attention for our security and inspection products.

We also provide turnkey security screening solutions, which can include the construction, staffing and long-term operation of security screening locations for our customers.

Our customers include, among many others, the U.S.

Customs and Border Protection, U.S.

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Department of State, U.S.

Transportation Security Administration and

Federal Bureau of Prisons in

United States, as well as Her Majesty's Revenue and Customs and Manchester Airport Group in the United Kingdom, Aeroporto De Paris, Aeroporto De Roma, the Servicio de Administración

Tributaria in México, Chek Lap Kok Airport in Hong Kong, DHL, and United Parcel Service.

contracts with the U.S.

Department of Agriculture, U.S.

Department of Commerce, U.S.

Transportation Security Administration and Federal Bureau of Prisons in the United States, as well as Her Majesty’s Revenue and Customs and Manchester Airport Group in the United Kingdom, Aeroporto De Paris, Aeroporto De Roma, Chek Lap Kok Airport in Hong Kong, DHL, and United Parcel Service.

Our contracts with the U.S.

Government are generally subject to renegotiation of profits and termination for convenience at the election of the Government.

For the fiscal year ended

June 30, 2019, our direct sales to the U.S.

For the fiscal year ended June 30, 2020, our Security division direct sales to the U.S.

Government were approximately $176 million.

Additionally, certain of our contracts with foreign governments contain provisions allowing the

government to terminate a contract for convenience.

Additionally, certain of our contracts with foreign governments contain provisions allowing the government to terminate a contract for convenience.

For further discussion, please refer to “Item 1A.

Risk Factors.”

Patient Monitoring and Diagnostic Cardiology Systems.

Our patient monitoring and diagnostic cardiology systems are manufactured

and distributed

globally for use in critical care, emergency and perioperative areas within hospitals as well as physicians' offices, medical clinics and ambulatory surgery centers.

We also provide wired and wireless

networks, clinical information access solutions and ambulatory blood pressure monitors.

sell products mainly through integrated delivery networks and group purchasing networks in the U.S., the NHS Supplies Organisation in the United Kingdom, UGAP in France, and to

various government funded hospitals in the Middle East and several parts of Asia.

Patient Monitoring, Diagnostic Cardiology, and Connected Care Systems.

Our patient monitoring, diagnostic cardiology, and connected care systems are manufactured and distributed globally for use in critical care, emergency and perioperative areas within hospitals as well as physicians’ offices, medical clinics and ambulatory surgery centers.

We also provide wired and wireless networks, clinical information access solutions and ambulatory blood pressure monitors.

We sell products mainly through integrated delivery networks and group purchasing networks in the U.S., the NHS Supplies Organisation in the United Kingdom, UGAP in France, and to various government funded hospitals in the Middle East and several parts of Asia.

Optoelectronic Devices and Electronics Manufacturing Services.

Our optoelectronic devices and the electronics we manufacture are

used in a broad

range of products by a variety of customers.

For example, they are utilized by customers in the following market segments:

Our optoelectronic devices and the electronics we manufacture are used in a broad range of products by a variety of customers in the following market segments:

defense, aerospace and avionics;

4 unchanged sentences

and automotive diagnostic systems.

Major customers in these segments include Raytheon, Honeywell, UTC Aerospace Systems, Northrop

Grumman, Medtronic, Beckman Coulter, United Technologies, Assa Abloy, Trakka, and Amphenol, among others.

Major customers in these segments include Raytheon, Honeywell, Northrop Grumman, Medtronic, Beckman Coulter, United Technologies, Assa Abloy, Trakka, Amphenol, and Apple, among others.

Marketing, Sales and Service

We market and sell our security and inspection products and turnkey security screening solutions globally through a direct sales and marketing

staff located North America, Latin America, Europe, Middle East, Australia, and Asia, in addition to an expansive global network of independent distributors.

This sales staff is supported by a service

organization located in the same regions, as well as a global network of independent, authorized service providers.

market and sell our healthcare products globally through a direct sales and marketing staff located in North America, Latin America, Europe and Asia, in addition to a global network

of independent distributors.

We also support these sales and customer service efforts by providing operator in-service training, comprehensive interactive eLearning for all monitoring products,

software updates and upgrades and service training for customer biomedical staff and distributors.

We also provide IT specialists and clinical specialists to provide support both before and after

product sale.

market and sell our optoelectronic devices and value-added manufacturing services, through both a direct sales and marketing staff located in North America, Europe and Asia, and

indirectly through a global network of independent sales representatives and distributors.

Our sales staff is supported by an applications engineering group whose members are available to provide

technical support, which includes designing applications, providing custom tooling and process integration and developing products that meet customer defined specifications.

consider our maintenance service operations to be an important element of our business.

After the expiration of our standard product warranty periods, we are often engaged by

customers, either directly or through our network of authorized service providers, to provide maintenance services for our security and inspection

In addition, we believe that our expertise in installing, maintaining and operating our security inspection products is an important factor for customers that are considering engaging us to

provide turnkey security screening solutions.

We provide a variety of service and support options for our healthcare customers, including complete hospital on-site repair and maintenance service and

telephone support, parts exchange programs for customers with the internal expertise to perform a portion of their own service needs and a depot repair center at our division headquarters.

that our international maintenance service capabilities allow us to be competitive in selling our security and inspection systems as well as our patient monitoring and diagnostic cardiology systems.

Furthermore, we believe that as the installed base of both our security and inspection systems and healthcare products increases, revenues generated from such annual maintenance service contracts and

from the sale of replacement parts will increase.

We market and sell our security and inspection products and turnkey security screening solutions globally through a direct sales and marketing staff located in North America, South America, Europe, Middle East, Australia, and Asia, in addition to an expansive global network of independent distributors.

This sales staff is supported by a service organization located in the same regions, as well as a global network of independent, authorized service providers.

We market and sell our healthcare products globally through a direct sales and marketing staff located in North America, Latin America, Europe and Asia, in addition to a global network of independent distributors.

We also support these sales and customer service efforts by providing operator in-service training, comprehensive interactive eLearning for all monitoring products, software updates and upgrades and service training for customer biomedical staff and distributors.

We also provide IT specialists and clinical specialists to provide support both before and after product sale.

We market and sell our optoelectronic devices and value-added manufacturing services, through both our direct sales and marketing staff located in North America, Europe and Asia, and indirectly through a global network of independent sales representatives and distributors.

Our sales staff is supported by an applications engineering group whose members are available to provide technical support, which includes designing applications, providing custom tooling and process integration and developing products that meet customer defined specifications.

We consider our maintenance service operations to be an important element of our business.

After the expiration of our standard product warranty periods, we are often engaged by customers, either directly or through our network of authorized service providers, to provide maintenance services for our security and inspection products.

In addition, we believe that our expertise in installing, maintaining and operating our security inspection products is an important factor for customers that are considering engaging us to provide turnkey security screening solutions.

We provide a variety of service and support options for our healthcare customers, including hospital on-site repair and maintenance service and telephone support, parts exchange programs for customers with the internal expertise to perform a portion of their own service needs and a depot repair center at our division headquarters.

We believe that our international maintenance service capabilities allow us to be competitive in selling our security and inspection systems as well as our patient monitoring, diagnostic cardiology, and connected care systems.

Furthermore, we believe that as the installed base of both our security and inspection systems and healthcare products increases, revenues generated from such annual maintenance service contracts and from the sale of replacement parts will increase.

Research and Development

Our security and inspection systems are primarily designed at our facilities in the United States and in the United Kingdom, Australia,

Singapore, India, and Malaysia.

Our security and inspection systems are primarily designed at our facilities in the United States and in the United Kingdom, Australia, Singapore, India, and Malaysia.

These products include mechanical, electrical, analog and digital electronics, software subsystems and algorithms, which are designed by us.

In addition to product

design, we provide system integration services to integrate our products into turnkey systems at the customer site.

We support cooperative research projects with government agencies and provide

contract research for government agencies.

healthcare products are primarily designed at our facilities in the United States and in the United Kingdom.

These products include software, networking, connectivity, mechanical,

electronic and software subsystems, most of which are designed by us.

We are also currently involved, both in the United States and

internationally, in research projects aimed at improving our medical systems and at expanding our current product lines.

design and manufacture optoelectronic devices and we provide electronics manufacturing services primarily in our facilities in the United States and internationally in the United

Kingdom, Canada, Mexico, India, Indonesia, Malaysia and Singapore.

In addition to product design, we provide system integration services to integrate our products into turnkey systems at the customer site.

We support cooperative research projects with government agencies and provide contract research for government agencies.

Our healthcare products are primarily designed at our facilities in the United States and in the United Kingdom with sustaining engineering efforts in India.

These products include enterprise and embedded software, networking, connectivity, mechanical, electronic and software subsystems, most of which are designed by us.

We are also currently involved, both in the United States and internationally, in research projects aimed at improving our medical systems and at expanding our current product lines.

We design and manufacture optoelectronic devices and we provide electronics manufacturing services primarily in our facilities in the United States and internationally in the United Kingdom, Canada, Mexico, India, Indonesia, Malaysia and Singapore.

We engineer and manufacture subsystems to solve the specific application needs of our OEM customers.

In addition, we offer entire

subsystem design and manufacturing solutions.

In addition, we offer entire subsystem design and manufacturing solutions.

We consider our engineering personnel to be an important extension of our core sales and marketing efforts.

addition to close collaboration with our customers in the design and development of our current products, we maintain an active program for the development and introduction of new

products, enhancements and improvements to our existing products, including the implementation of new applications of our technology.

We seek to further enhance our research and development program

and consider such program to be an important element of our business and operations.

In addition to close collaboration with our customers in the design and development of our current products, we maintain an active program for the development and introduction of new products, enhancements and improvements to our existing products, including the implementation of new applications of our technology.

We seek to further enhance our research and development program and consider such program to be an important element of our business and operations.

As of June 30, 2020, we engaged approximately 488 full-time engineers, technicians and support staff.

intend to continue to invest in our research and development efforts in the future.

We intend to continue to invest in our research and development efforts in the future.

Manufacturing and Materials

We currently manufacture our security and inspection systems domestically in California, Colorado, and Massachusetts, and internationally in

Malaysia and the United Kingdom.

We currently manufacture our security and inspection systems domestically in California, Colorado, Kentucky, Massachusetts, and Tennessee, and internationally in Malaysia and the United Kingdom.

We currently manufacture our patient monitoring and diagnostic cardiology systems in Washington state.

We outsource manufacturing of certain of our supplies and

We currently manufacture our optoelectronic devices and provide electronics manufacturing services domestically in California and New Jersey, and internationally in Canada, Mexico, India,

Indonesia, Malaysia, the United Kingdom and Singapore.

Most of our high volume, labor intensive manufacturing and assembly activities are performed at our facilities in India, Mexico, Indonesia and

Since many of our customers are located in the United States, Europe and Asia, our ability to manufacture products in these markets and provide follow-on service from offices located in

these regions is an important component of our global strategy.

Our global manufacturing organization has expertise in optoelectronic, microelectronic and integrated electronics for industrial and automation, medical,

aerospace and defense industry applications.

Our manufacturing includes silicon wafer processing and fabrication, optoelectronic device assembly and screening, thin and thick film microelectronic

hybrid assemblies, surface mounted and thru-hole printed circuit board electronic assemblies and electronics services, including complete turnkey and box-build manufacturing, and flex circuitry.

outsource certain manufacturing operations, including certain sheet metal fabrication and plastic components.

principal raw materials and subcomponents used in producing our security and inspection systems consist of X-ray generators, linear accelerators, radioactive isotopes, detectors,

data acquisition and computer systems, conveyance systems and miscellaneous mechanical and electrical components.

A large portion of the optoelectronic devices, subsystems and circuit card assemblies

used in our inspection and detection systems are manufactured in-house.

The majority of our X-ray generators, linear accelerators, radioactive isotopes and

conveyance systems used in our cargo and vehicle inspection systems are purchased from unaffiliated third party providers.

principal raw materials and subcomponents used in producing our healthcare products consist of printed circuit boards, housings, mechanical assemblies, pneumatic devices, touch

screens, medical grade displays, cables, filters, textiles, fabric, gauges, fittings, tubing and packaging materials.

We purchase certain devices, including computers, peripheral accessories and

remote displays, from unaffiliated third party providers.

principal raw materials and subcomponents used in producing our optoelectronic devices and electronic subsystems consist of silicon wafers, electronic components, light emitting

diodes, scintillation crystals, passive optical components, printed circuit boards and packaging materials.

The silicon-based optoelectronic devices manufactured by us are critical components in most

of our products and subsystems.

Our connected care system is developed in Oklahoma, Washington state, and Edinburgh, United Kingdom.

We outsource manufacturing of certain of our supplies and accessories.

We currently manufacture our optoelectronic devices and provide electronics manufacturing services domestically in California and New Jersey, and internationally in Canada, Mexico, India, Indonesia, Malaysia, the United Kingdom and Singapore.

Most of our high volume, labor intensive manufacturing and assembly activities are performed at our facilities in India, Mexico, Indonesia and Malaysia.

Our ability to manufacture products and provide follow-on service from offices located in these regions allows us to remain in close proximity to our customers, which is an important component of our global strategy.

Our global manufacturing organization has expertise in optoelectronic, microelectronic and integrated electronics for industrial and automation, medical, aerospace and defense industry applications.

Our manufacturing includes silicon wafer processing and fabrication, optoelectronic device assembly and screening, thin and thick film microelectronic hybrid assemblies, surface mounted and thru-hole printed circuit board electronic assemblies, cable and harness assemblies, box-build manufacturing, and flex circuitry on a complete turnkey basis.

To support our manufacturing operations, we outsource certain requirements, including sheet metal fabrication and plastic molding of components.

The principal raw materials and subcomponents used in producing our security and inspection systems consist of X-ray generators, linear accelerators, radioactive isotopes, detectors, data acquisition and computer systems, conveyance systems and miscellaneous mechanical and electrical components.

A large portion of the optoelectronic devices, subsystems and circuit card assemblies used in our inspection and detection systems are manufactured in-house.

The majority of our X-ray generators, linear accelerators, radioactive isotopes and conveyance systems used in our cargo and vehicle inspection systems are purchased from unaffiliated third party providers.

The principal raw materials and subcomponents used in producing our healthcare products consist of printed circuit boards, housings, mechanical assemblies, pneumatic devices, touch screens, medical grade displays, cables, filters, textiles, fabric, gauges, fittings, tubing and packaging materials.

We purchase finished medical devices, computers, peripheral accessories, and remote displays from unaffiliated third party providers.

The principal raw materials and subcomponents used in producing our optoelectronic devices and electronic subsystems consist of silicon wafers, electronic components, light emitting diodes, scintillation crystals, passive optical components, printed circuit boards and packaging materials.

The silicon-based optoelectronic devices manufactured by us are critical components in most of our products and subsystems.

We purchase silicon wafers and other electronic components from unaffiliated third party providers.

cost, quality control, technological, and efficiency reasons, we purchase certain materials, parts, and components only from single vendors with whom we have ongoing relationships.

We do, however, qualify second sources for many of our materials, parts, and components.

We purchase most materials, parts, and components pursuant to purchase orders placed from time to time in the

ordinary course of business.

Although to date none of our divisions has experienced any significant shortages or material delays in obtaining any of its materials, parts, or components, it is possible

that we may face longer lead times, shortages, or price increases in one or more items in the future.

For cost, quality control, technological, and efficiency reasons, we purchase certain materials, parts, and components only from single vendors with whom we have ongoing relationships.

We do, however, qualify alternative sources for many of our materials, parts, and components.

We purchase most materials, parts, and components pursuant to purchase orders placed from time to time in the ordinary course of business.

Although to date none of our divisions has experienced any significant shortages or material delays in obtaining any of its materials, parts, or components, it is possible that we may face longer lead times, shortages, or price increases in one or more items in the future.

Trademarks and Tradenames and Patents

Trademarks and Tradenames.

We have used, registered and applied to register certain trademarks and service marks to distinguish

our products,

technologies and services from those of our competitors in the United States and in foreign countries.

We have used, registered and applied to register certain trademarks and service marks to distinguish our products, technologies and services from those of our competitors in the United States and in foreign countries.

We enforce our trademark, service mark and trade name rights in the United States and abroad.

We possess rights to a number of U.S.

and foreign patents relating to various aspects of our security and inspection

products, healthcare

products and optoelectronic devices and subsystems.

and foreign patents relating to various aspects of our security and inspection products, healthcare products and optoelectronic devices and subsystems.

Our current patents will expire at various times between 2020 and 2038.

However, it remains possible that pending patent

applications or other applications that may be filed may not result in issued patents.

In addition, issued patents may not survive challenges to their validity or enforceability, or may be found to

not be infringed by any third parties.

Although we believe that our patents have value, our patents, or any additional patents that may be issued in the future, may not be able to provide meaningful

protection from competition.

believe that our trademarks and tradenames and patents are important to our business.

The loss of some of our trademarks or patents might have a negative impact on our financial

results and operations.

Nevertheless, with

exception of the loss of either the Spacelabs®, Rapiscan®, or AS&E®

trademarks, the impact of the loss of any single trademark or patent would not likely have a

material adverse effect on our business.

As of June 30, 2019, the Spacelabs brand and its family of brands is protected by both pending and registered trademarks in 32 countries;

brand and its family of brands is protected by both pending and registered trademarks in 33 countries, and the AS&E brand and its family of brands is protected by both pending and registered

trademarks in 17 countries.

However, it remains possible that pending patent applications or other applications that may be filed may not result in issued patents.

In addition, issued patents may not survive challenges to their validity or enforceability, or may be found to not be infringed by any third parties.

Although we believe that our patents have value, our patents, or any additional patents that may be issued in the future, may not be able to provide meaningful protection from competition.

We believe that our trademarks and tradenames and patents are important to our business.

The loss of some of our trademarks or patents might have a negative impact on our financial results and operations.

Nevertheless, with the exception of the loss of either the Spacelabs ® , Rapiscan ® , or AS&E ® trademarks, the impact of the loss of any single trademark or patent would not likely have a material adverse effect on our business.

Regulation of Medical Devices

The patient monitoring and diagnostic cardiology systems we manufacture and market are subject to regulation by numerous government agencies,

principally the U.S.

The patient monitoring, diagnostic cardiology, and connected care systems we manufacture and market are subject to regulation by numerous government agencies, principally the U.S.

Food and Drug Administration (FDA), and by other federal, state, local and foreign authorities.

These systems are also subject to various U.S.

and foreign electrical safety

Our medical device product candidates must undergo an extensive government regulatory clearance or approval process prior to sale in the United States and other countries, and the lengthy

process of clinical development and submissions for approvals, as well as the continuing need for compliance with applicable laws and regulations, require the expenditure of substantial resources.

and foreign electrical safety standards.

Our medical device product candidates must undergo an extensive government regulatory clearance or approval process prior to sale in the United States and other countries, and the lengthy process of clinical development and submissions for approvals, as well as the continuing need for compliance with applicable laws and regulations, require the expenditure of substantial resources.

United States FDA.

In the United States, the FDA has broad regulatory powers with respect to pre-clinical and clinical testing

of new medical devices

and the designing, manufacturing, labeling, storage, record keeping, marketing, advertising, promotion, distribution, post-approval monitoring and reporting and import and export of medical devices.

Unless an exemption applies, federal law and FDA regulations require that all new or significantly modified medical devices introduced into the market be preceded either by a pre-market notification

clearance order under section 510(k) of the Federal Food, Drug and Cosmetic Act (FDCA), or an

approved pre-market approval (PMA) application.

Under the FDCA, medical devices are classified into one of three classesClass I, Class II or

Class IIIdepending on the degree of risk associated with each medical device and the extent of control needed to provide reasonable assurances with respect to safety and

effectiveness.

Class I devices are those for which safety and effectiveness can be reasonably assured by adherence to a set of regulations, referred to as General Controls, which require

compliance with the applicable portions of the FDA's Quality System Regulation (QSR) facility registration and product listing, reporting of adverse events and malfunctions, and appropriate, truthful

and non-misleading labeling and promotional materials.

Some Class I devices, also called Class I reserved devices, also require premarket clearance by the FDA through the 510(k)

premarket notification process described below.

In the United States, the FDA has broad regulatory powers with respect to pre-clinical and clinical testing of new medical devices and the designing, manufacturing, labeling, storage, record keeping, marketing, advertising, promotion, distribution, post-approval monitoring and reporting and import and export of medical devices.

Unless an exemption applies, federal law and FDA regulations require that all new or significantly modified medical devices introduced into the market be preceded either by a pre-market notification clearance order under section 510(k) of the Federal Food, Drug and Cosmetic Act (FDCA), or an approved pre-market approval (PMA) application.

Under the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of control needed to provide reasonable assurances with respect to safety and effectiveness.

Class I devices are those for which safety and effectiveness can be reasonably assured by adherence to a set of regulations, referred to as General Controls, which require compliance with the applicable portions of the FDA’s Quality System Regulation (QSR) facility registration and product listing, reporting of adverse events and malfunctions and appropriate, truthful and non-misleading labeling, advertising and promotional materials.

Some Class I devices, also called Class I reserved devices, also require premarket clearance by the FDA through the 510(k) premarket notification process described below.

Most Class I products are exempt from the premarket notification requirements.

devices are those that are subject to the General Controls, as well as Special Controls, which can include performance standards, guidelines and post-market surveillance.

Class II devices are those that are subject to the General Controls, as well as Special Controls as deemed necessary by the FDA, which can include performance standards, guidelines and post-market surveillance.

Most Class II devices are subject to premarket review and clearance by the FDA.

Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k)

premarket notification process.

Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the product for which clearance has been sought is

substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA had not yet called for the submission of

pre-market approval applications.

To be substantially equivalent, the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as

the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device.

Clinical data is sometimes required to

support substantial equivalence.

a 510(k) notice is submitted, the FDA determines whether to accept it for substantive review.

If it lacks necessary information for substantive review, the FDA will refuse to

accept the 510(k) notification.

Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) premarket notification process.

Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the product for which clearance has been sought is substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA had not yet called for the submission of pre-market approval applications.

To be substantially equivalent, the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device.

Clinical data is sometimes required to support substantial equivalence.

After a 510(k) notice is submitted, the FDA determines whether to accept it for substantive review.

If it lacks necessary information for substantive review, the FDA will refuse to accept the 510(k) notification.

If it is accepted for filing, the FDA begins a substantive review.

By statute, the FDA is required to complete its review of a 510(k) notification within 90 days

of receiving the 510(k) notification.

By statute, the FDA is required to complete its review of, and clear or deny, a 510(k) notification within 90 days of receiving the 510(k) notification.

As a practical matter, clearance often takes longer, and clearance is never assured.

Although many 510(k) premarket notifications are cleared without clinical

data, the FDA may require further information, including clinical data, to make a determination regarding substantial

which may significantly prolong the review process.

Although many 510(k) premarket notifications are cleared without clinical data, the FDA may require further information, including clinical data, to make a determination regarding substantial equivalence, which may significantly prolong the review process.

If the FDA agrees that the device is substantially equivalent, it will grant clearance to commercially market the device.

a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended

use, will require a new 510(k) clearance or, depending on the modification, could require a PMA application.

The FDA requires each manufacturer to make this determination initially, but the FDA can

review any such decision and can disagree with a manufacturer's determination.

If the FDA disagrees with a manufacturer's determination regarding whether a new premarket submission is required for the

modification of an existing device, the FDA can

require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or approval of a PMA application is obtained.

If the FDA requires us to seek 510(k) clearance or

approval of a PMA application for any modifications to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain this clearance or approval.

addition, in these circumstances, we may be subject to significant regulatory fines or penalties for failure to submit the requisite PMA application(s).

In addition, the FDA is currently evaluating

the 510(k) process and may make substantial changes to industry requirements.

devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining devices, or implantable devices, in addition to those

deemed not substantially equivalent following the 510(k) process.

The safety and effectiveness of Class III devices cannot be reasonably assured solely by the General Controls and Special

Controls described above.

After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, could require a PMA application.

The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination.

If the FDA disagrees with a manufacturer’s determination regarding whether a new premarket submission is required for the modification of an existing device, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or approval of a PMA application is obtained.

If the FDA requires us to seek 510(k) clearance or approval of a PMA application for any modifications to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain this clearance or approval.

In addition, in these circumstances, we may be subject to significant regulatory fines or penalties for failure to submit the requisite PMA application(s).

In addition, the FDA is currently evaluating the 510(k) process and may make substantial changes to industry requirements.

Class III devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining devices, or implantable devices, in addition to those deemed not substantially equivalent following the 510(k) process.

The safety and effectiveness of Class III devices cannot be reasonably assured solely by the General Controls and Special Controls described above.

Therefore, these devices are subject to the PMA application process, which is generally more costly and time consuming than the 510(k) process.

To date, all of the patient

monitoring and diagnostic cardiology systems we manufacture and sell in the United States have required only 510(k) pre-market notification clearance.

clearance or approval, when granted, may entail limitations on the indicated uses for which a product may be marketed, and such product approvals, once granted, may be withdrawn if

problems occur after initial marketing.

Manufacturers of FDA-regulated products are subject to pervasive and continuing governmental regulation, including, but not limited to, the registration and

listing regulation, which requires manufacturers to register all manufacturing facilities and list all medical devices placed into commercial distribution;

the QSR, which requires manufacturers,

including third party manufacturers, to follow elaborate design, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures

during the manufacturing process;

To date, all of the patient monitoring and diagnostic cardiology systems we manufacture and sell in the United States have required only 510(k) pre-market notification clearance.

FDA clearance or approval, when granted, may entail limitations on the indicated uses for which a product may be marketed, and such product approvals, once granted, may be withdrawn if problems occur after initial marketing.

Manufacturers of FDA-regulated products are subject to pervasive and continuing post-approval governmental regulation, including, but not limited to, the registration and listing regulation, which requires manufacturers to register all manufacturing facilities and list all medical devices placed into commercial distribution;

the QSR, which requires manufacturers, including third party manufacturers, to follow stringent design, validation, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during the manufacturing process;

labeling regulations and unique device identification requirements;

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restrictions on sale, distribution or use of a device;

annual reporting requirements;

PMA annual reporting requirements;

the FDA’s general prohibition against promoting products for unapproved or “off-label” uses;

the Medical Device Reporting (MDR) regulation, which requires that

manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury

if it were to reoccur;

medical device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken

to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

recall requirements, including a mandatory recall if there is a reasonable

probability that the device would cause serious adverse health consequences or death;

the Medical Device Reporting (MDR) regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to reoccur;

medical device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

recall requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health consequences or death;

an order of repair, replacement or refund;

device tracking requirements;

and post-approval study and post-market

surveillance requirements.

The FDA has also established a Unique Device Identification ("UDI") system that will be phased in over several years.

The UDI system requires manufacturers to mark certain

medical devices distributed in the United States with unique device identifiers.

FDA recently finalized its guidance for managing post-market cybersecurity for connected medical devices.

This guidance places additional expectations on our Healthcare division to

build in cybersecurity controls when it designs and develops its devices to assure safe performance in the face of cyber threats.

It is also incumbent on us to monitor third party software for new

vulnerabilities, and verify and validate any software updates or patches meant to address vulnerabilities.

facilities, records and manufacturing processes are subject to periodic unscheduled inspections by the FDA.

Failure to comply with the applicable United States medical device

regulatory requirements could result in, among other things, warning letters, untitled letters, fines, injunctions, consent decrees, civil penalties, unanticipated expenditures, repairs, replacements,

refunds, recalls or seizures of products, operating restrictions, total or partial suspension of production, the FDA's refusal to issue certificates to foreign governments needed to export products

for sale in other countries, the FDA's refusal to grant future premarket clearances or approvals, withdrawals or suspensions of current product clearances or approvals and criminal prosecution.

and post-approval study and post-market surveillance requirements.

The FDA has also established a Unique Device Identification (“UDI”) system that was phased in over a period of years.

The UDI system requires manufacturers to mark certain medical devices distributed in the United States with unique device identifiers.

The FDA recently finalized its guidance for managing post-market cybersecurity for connected medical devices.

This guidance places additional expectations on our Healthcare division to build in cybersecurity controls when it designs and develops its devices to assure safe performance in the face of cyber threats.

It is also incumbent on us to monitor third party software for new vulnerabilities and verify and validate any software updates or patches meant to address vulnerabilities.

Our facilities, records and manufacturing processes are subject to periodic unscheduled inspections by the FDA.

Failure to comply with the applicable United States medical device regulatory requirements could result in, among other things, warning letters, untitled letters, fines, injunctions, consent decrees, civil penalties, unanticipated expenditures, repairs, replacements, refunds, recalls or seizures of products, operating restrictions, total or partial suspension of production, the FDA’s refusal to issue certificates to foreign governments needed to export products for sale in other countries, the FDA’s refusal to grant future premarket clearances or approvals, withdrawals or suspensions of current product clearances or approvals and criminal prosecution.

Coverage and Reimbursement.

Government and private sector initiatives to limit the growth of healthcare costs, including price

regulation and

competitive pricing, coverage and payment policies, comparative effectiveness therapies, technology assessments and managed care arrangements, are continuing in many countries where we do business,

including the United States, Europe and Asia.

Government and private sector initiatives to limit the growth of healthcare costs, including price regulation and competitive pricing, coverage and payment policies, comparative effectiveness therapies, technology assessments and managed care arrangements, are continuing in many countries where we do business, including the United States, Europe and Asia.

As a result of these changes, the marketplace has placed increased emphasis on the delivery of more cost-effective medical therapies.

In addition, because

there is generally no separate reimbursement from third-party payers to our customers for many of our products, the additional costs associated with the use of our products can impact the profit

margin of our customers.

In addition, because there is generally no separate reimbursement from third-party payers to our customers for many of our products, the additional costs associated with the use of our products can impact the profit margin of our customers.

Accordingly, these various initiatives have created increased price sensitivity over healthcare products generally and may impact demand for our products and technologies.

cost containment efforts have also prompted domestic hospitals and other customers of medical devices to consolidate into larger purchasing groups to enhance purchasing power,

and this trend is expected to continue.

Healthcare cost containment efforts have also prompted domestic hospitals and other customers of medical devices to consolidate into larger purchasing groups to enhance purchasing power, and this trend is expected to continue.

The medical device industry has also experienced some consolidation, partly in order to offer a broader range of products to large purchasers.

transactions with customers are larger, more complex and tend to involve more long-term contracts than in the past.

These larger customers, due to their enhanced purchasing power, may attempt to

increase the pressure on product pricing.

healthcare reforms have had an impact on medical device manufacturer and hospital revenues.

For example, the Affordable Care Act requires the medical device industry to

subsidize healthcare reform in the form of a 2.3% excise tax on United States sales of most medical devices, which went into effect in 2013.

The Consolidated Appropriations Act, 2016, signed into law

in December 2015, included a two-year moratorium (January 1, 2016December 31, 2017) on the excise tax.

The moratorium has been extended through December 31, 2019.

Other legislative actions have resulted in reductions in Medicare payments to hospital providers.

Patient Protection and Affordable Care Act as amended by the Health Care and Education and Reconciliation Act of 2010, collectively referred to as the Affordable Care Act, is a

sweeping measure

designed to expand access to affordable health insurance, control healthcare spending and improve healthcare quality.

Many states have also adopted or are considering changes in healthcare policies,

in part due to state budgetary pressures.

Ongoing uncertainty regarding implementation of certain aspects of the Affordable Care Act makes it difficult to predict the impact the Affordable Care Act or

state law proposals may have on our business.

As a result, transactions with customers are larger, more complex and tend to involve more long-term contracts than in the past.

These larger customers, due to their enhanced purchasing power, may attempt to increase the pressure on product pricing.

Significant healthcare reforms have had an impact on medical device manufacturer and hospital revenues.

The Patient Protection and Affordable Care Act as amended by the Health Care and Education and Reconciliation Act of 2010, collectively referred to as the Affordable Care Act, is a sweeping measure designed to expand access to affordable health insurance, control healthcare spending and improve healthcare quality.

Many states have also adopted or are considering changes in healthcare policies, in part due to state budgetary pressures.

Ongoing uncertainty regarding implementation of certain aspects of the Affordable Care Act makes it difficult to predict the impact the Affordable Care Act or state law proposals may have on our business.

The Trump administration and Congress have taken steps to modify many of the Affordable Care Act’s provisions.

Effective for the 2019 calendar year, the

Tax Cuts and Jobs Act of 2017 (the "Tax Act") repealed an Affordable Care Act tax imposed on individuals who do not maintain insurance coverage throughout the year.

The Trump administration has also

taken steps to approve state requests to modify Medicaid eligibility standards, including by imposition of work and community engagement requirements.

In addition, the Trump administration has revised

federal regulations to create more opportunities for individuals to purchase insurance outside of the individual and small group insurance markets through short-term, limited duration health insurance

policies and association health plans.

This has created uncertainty in the market, which could result in reduced demand for our products, additional pricing pressure, and increased demand for new and

more flexible payment structures.

Effective for the 2019 calendar year, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) repealed an Affordable Care Act tax imposed on individuals who do not maintain insurance coverage throughout the year.

The Trump administration has also taken steps to approve state requests to modify Medicaid eligibility standards, including by imposition of work and community engagement requirements.

In addition, the Trump administration has revised federal regulations to create more opportunities for individuals to purchase insurance outside of the individual and small group insurance markets through short-term, limited duration health insurance policies and association health plans.

This has created uncertainty in the market, which could result in reduced demand for our products, additional pricing pressure, and increased demand for new and more flexible payment structures.

Other Healthcare Laws.

In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state

laws restrict our

business practices.

These laws include, without limitation, data privacy and

laws, anti-kickback and false claims laws, and transparency laws regarding payments or other items of value provided to healthcare providers.

a participant in the healthcare industry, we are subject to extensive regulations protecting the privacy and security of patient health information that we receive, including the

Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), which was enacted as part of

the American Recovery and Reinvestment Act of 2009.

Among other things, these regulations impose extensive requirements for maintaining the privacy and security of individually identifiable health

information, known as "protected health information." The HIPAA privacy regulations do not preempt state laws and regulations relating to personal information that may also apply to us.

Our failure to

comply with these regulations could expose us to civil and criminal sanctions.

HIPAA provisions also created federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any

healthcare benefit program, including private third-party payers, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a

healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery

of or payment for healthcare benefits, items or services.

A person or entity does

not need to have actual knowledge of the statutes or specific intent to violate them in order to have committed a violation.

Also, many states have similar fraud and abuse statutes or regulations that

may be broader in scope and may apply regardless of payer, in addition to items and services reimbursed under Medicaid and other state programs.

federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or

rebate), directly or indirectly, overtly or covertly, to induce or in return for the purchasing, leasing, ordering, or arranging for or recommending the purchase, lease or order of items or services

for which payment may be made, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.

In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict our business practices.

These laws include, without limitation, data privacy and security laws, anti-kickback and false claims laws, and transparency laws regarding payments or other items of value provided to healthcare providers.

As a participant in the healthcare industry, we are subject to extensive regulations protecting the privacy and security of patient health information that we receive, including the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), which was enacted as part of the American Recovery and Reinvestment Act of 2009.

Among other things, these regulations impose extensive requirements for maintaining the privacy and security of individually identifiable health information, known as “protected health information.” The HIPAA privacy regulations do not preempt state laws and regulations relating to personal information that may also apply to us.

Our failure to comply with these regulations could expose us to civil and criminal sanctions.

The HIPAA provisions also created federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

A person or entity does not need to have actual knowledge of the statutes or specific intent to violate them in order to have committed a violation.

Also, many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payer, in addition to items and services reimbursed under Medicaid and other state programs.

The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, to induce or in return for the purchasing, leasing, ordering, or arranging for or recommending the purchase, lease or order of items or services for which payment may be made, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.

The term “remuneration” has been broadly interpreted to include anything of value.

Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly.

Further, a claim

including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.

federal False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or

approval to the federal government, or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government.

includes "any request or demand" for money or property presented to the U.S.

Medical device manufacturers have been held liable under these laws if they are deemed to cause the submission

of false or fraudulent claims by, for example, providing customers with inaccurate billing or coding information.

laws impact the kinds of financial arrangements we may have with hospitals or other potential purchasers of our products.

They particularly impact how we structure our sales

offerings, including discount practices, customer support, education and training programs, physician consulting, research grants and other service arrangements.

If our operations are found to be in

violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal and civil and

administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages, reputational harm, and the curtailment or

restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Additionally,

there has been a trend towards increased federal and state regulation of payments and other transfers of value provided to healthcare professionals or entities.

Physician Payment Sunshine Act

that certain device manufacturers track and report to the government information regarding payments and other transfers of value to physicians and teaching hospitals, as well as ownership and

investment interests held by physicians and their family members.

A manufacturer's failure to submit timely, accurately and completely the required information for all payments, transfers of value or

ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year, and up to an aggregate of $1 million per year for "knowing failures."

Certain states also mandate implementation of compliance programs, impose restrictions on device manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and

other remuneration to healthcare professionals and entities.

are subject to similar laws in foreign countries where we conduct business.

For example, within the EU, the control of unlawful marketing activities is a matter of national law in

each of the member states.

Further, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.

The federal False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal government, or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government.

A claim includes “any request or demand” for money or property presented to the U.S.

Medical device manufacturers have been held liable under these laws if they are deemed to cause the submission of false or fraudulent claims by, for example, providing customers with inaccurate billing or coding information.

These laws impact the kinds of financial arrangements we may have with hospitals or other potential purchasers of our products.

They particularly impact how we structure our sales offerings, including discount practices, customer support, education and training programs, physician consulting, research grants and other service arrangements.

If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal and civil and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages, reputational harm, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Additionally, there has been a trend towards increased federal and state regulation of payments and other transfers of value provided to healthcare professionals or entities.

The federal Physician Payment Sunshine Act requires that certain device manufacturers track and report to the government information regarding payments and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their family members.

A manufacturer’s failure to submit timely, accurately and completely the required information for all payments, transfers of value or ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year, and up to an aggregate of $1 million per year for “knowing failures.” Certain states also mandate implementation of compliance programs, impose restrictions on device manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to healthcare professionals and entities.

We are subject to similar laws in foreign countries where we conduct business.

For example, within the EU, the control of unlawful marketing activities is a matter of national law in each of the member states.

The member states of the EU closely monitor perceived unlawful marketing activity by companies.

We could face civil, criminal and administrative sanctions if any member

state determines that we have breached our obligations under its national laws.

We could face civil, criminal, and administrative sanctions if any member state determines that we have breached our obligations under its national laws.

Industry associations also closely monitor the activities of member companies.

If these organizations or authorities

name us as having breached our obligations under their regulations, rules or standards, our reputation would suffer and our business and financial condition could be adversely affected.

If these organizations or authorities name us as having breached our obligations under their regulations, rules or standards, our reputation would suffer and our business and financial condition could be adversely affected.

Other Foreign Healthcare Regulations

We are also subject to regulation in the foreign countries in which we manufacture and market our products.

For example, the commercialization

of certain products, including medical devices, in the EU is regulated under a system that presently requires all such products sold in the EU to bear the CE markan international symbol

of adherence to quality assurance standards.

For example, the commercialization of certain products, including medical devices, in the EU is regulated under a system that presently requires all such products sold in the EU to bear the CE mark—an international symbol of adherence to quality assurance standards.

Our manufacturing facilities in Hawthorne, California;

2 unchanged sentences

Batam, Indonesia;

and Hyderabad, India are all

certified to the International Organization for Standardization's ISO 13485 standard for quality management.

Our Hawthorne, California and Snoqualmie, Washington facilities are also certified

to the requirements of Annex II, section 3 of the Directive 93/42/EEC on Medical Devices, which allows them to self-certify that manufactured products can bear the CE mark.

implementation of the Restriction of Hazardous Substance Directive ("ROHS") requires that certain products, including medical devices, shipped into the EU eliminate targeted ROHS substances.

International Medical Device Regulators Forum has implemented a global approach to auditing manufacturers of medical devices.

This audit system, called the Medical Device Single

Audit Program ("MDSAP"), provides for an annual audit of a medical device manufacturer by a certified body on behalf of various regulatory authorities.

Current authorities participating in MDSAP

include the Therapeutic Goods Administration of Australia, Brazil's Agencia Nacional de Vigilancia Sanitaria, Health Canada, Japan's

Ministry of Health, Labour and Welfare, and the Japanese Pharmaceuticals and Medical Devices Agency and the FDA.

It is expected that more regulatory authorities will participate in MDSAP in the

and other medical device manufacturers will soon be confronted with major changes in the EU's decades-old regulatory framework which governs market access to the EU.

Devices Regulation ("MDR") will replace the EU's current Medical Device Directive (93/42/EEC) and the EU's Directive on active implantable medical devices (90/385/EEC).

Manufacturers

of currently approved medical devices will have a transition time until May 26, 2020 to meet the requirements of the MDR.

The MDR differs in several important ways

from the EU's current directives for medical devices and active implantable medical devices.

and Hyderabad, India are all certified to the International Organization for Standardization’s ISO 13485 standard for quality management.

Our Hawthorne, California and Snoqualmie, Washington facilities are also certified to the requirements of Annex II, section 3 of the Directive 93/42/EEC on Medical Devices, which allows them to self-certify that manufactured products can bear the CE mark.

Further, the implementation of the Restriction of Hazardous Substance Directive (“ROHS”) requires that certain products, including medical devices, shipped into the EU eliminate targeted ROHS substances.

The International Medical Device Regulators Forum has implemented a global approach to auditing manufacturers of medical devices.

This audit system, called the Medical Device Single Audit Program (“MDSAP”), provides for an annual audit of a medical device manufacturer by a certified body on behalf of various regulatory authorities.

Current authorities participating in MDSAP include the Therapeutic Goods Administration of Australia, Brazil’s Agencia Nacional de Vigilancia Sanitaria, Health Canada, Japan’s Ministry of Health, Labour and Welfare, and the Japanese Pharmaceuticals and Medical Devices Agency and the FDA.

It is expected that more regulatory authorities will participate in MDSAP in the future.

We and other medical device manufacturers will soon be confronted with major changes in the EU’s decades-old regulatory framework which governs market access to the EU.

The Medical Devices Regulation (“MDR”) will replace the EU’s current Medical Device Directive (93/42/EEC) and the EU’s Directive on active implantable medical devices (90/385/EEC).

Manufacturers of currently approved medical devices will have a transition time to meet the requirements of the MDR.

The MDR differs in several important ways from the EU’s current directives for medical devices and active implantable medical devices.

The most significant changes in the regulation include:

The definition of medical devices covered under the MDR will be significantly expanded to include devices that may not have a medical intended

purpose, such as colored contact lenses.

● The definition of medical devices covered under the MDR will be significantly expanded to include devices that may not have a medical intended purpose, such as colored contact lenses.

Also included in the scope of the regulation are devices designed for the purpose of “prediction and prognosis” of a disease or other health condition.

Device manufacturers will be required to identify at least one person within their organization who is ultimately responsible for all aspects

of compliance with the requirements of the new MDR.

● Device manufacturers will be required to identify at least one person within their organization who is ultimately responsible for all aspects of compliance with the requirements of the new MDR.

The organization must document the specific qualifications of this individual relative to the required tasks.

● The MDR requires rigorous post-market oversight of medical devices.

The MDR will allow the EU Commission or expert panels to publish "Common Specifications", such as requirements for technical documentation,

risk management, or clinical evaluation, which devices shall be required to meet.

● The MDR will allow the EU Commission or expert panels to publish “Common Specifications”, such as requirements for technical documentation, risk management, or clinical evaluation, which devices shall be required to meet.

● Devices will be reclassified according to risk, contact, duration, and invasiveness.

More rigorous clinical evidence will be required for Class III and implantable medical devices.

● Systematic clinical evaluation will be required for Class IIa and Class IIb medical devices.

● All currently approved devices must be recertified in accordance with the new MDR requirements.

have a dedicated team updating and revising key systems and processes to meet the new MDR requirements and timeline.

We have a dedicated team updating and revising key systems and processes to meet the new MDR requirements and timeline.

General Data Protection Regulation

The implementation on May 25, 2018 of the General Data Protection Regulation ("GDPR"), a regulation in the EU on data protection and

privacy for all individuals in the EU and the European Economic Area ("EEA"), applies to all enterprises, regardless of location, that are doing business in the EU or that collect and analyze data

tied to EU and EEA residents.

GDPR creates a range of new compliance obligations, including stringent technical and security controls surrounding the storage, use, and disclosure of personal

information, and significantly increases financial penalties for noncompliance

(including possible fines of up to 4% of global annual turnover for the preceding financial year or €20 million (whichever is higher) for the most serious infringements).

addition, the European Commission in July 2016 and the Swiss Government in January 2017 approved the EU-U.S.

and the Swiss-U.S.

Privacy Shield frameworks, respectively, which are

designed to allow U.S.

companies that self-certify to the U.S.

Department of Commerce and publicly commit to comply with the Privacy Shield requirements to freely import personal data from the EU and

However, these frameworks face a number of legal challenges and their validity remains subject to legal, regulatory and political developments in both Europe and the U.S.

resulted in some uncertainty, and compliance obligations could cause us to incur costs or require us to change our business practices in a manner adverse to our business.

The implementation on May 25, 2018 of the General Data Protection Regulation (“GDPR”), a regulation in the EU on data protection and privacy for all individuals in the EU and the European Economic Area (“EEA”), applies to all enterprises, regardless of location, that are doing business in the EU or that collect and analyze data tied to EU and EEA residents.

GDPR creates a range of new compliance obligations, including stringent technical and security controls surrounding the storage, use, and disclosure of personal information, and significantly increases financial penalties for noncompliance (including possible fines of up to 4% of global annual turnover for the preceding financial year or €20 million (whichever is higher) for the most serious infringements).

In July 2020, the European Commission invalidated the EU.-U.S.

Privacy Shield framework, of which we were registrants.

This has resulted in some uncertainty related to continuing obligations and future data transfer compliance obligations.

California Consumer Privacy Act

The California Consumer Privacy Act (“CCPA”) became effective on January 1, 2020 along with a number of complex privacy regulations affecting the processing of personal information of California residents.

If we fail to comply with the CCPA, we may be subject to significant financial penalties or adverse regulatory actions.

In addition to the CCPA, the California legislature is exploring additional regulations to expand the scope and depth of the state’s data protection controls.

Environmental Regulations

We are subject to various environmental laws, directives, and regulations pertaining to the use, storage, handling and disposal of hazardous

substances used, and hazardous wastes generated, in the manufacture of our products.

Such laws mandate the use of controls and practices designed to mitigate the impact of our operations on the

environment, and under such laws we may be held liable for the costs associated with the remediation and removal of any unintended or previously unknown releases of hazardous substances on, beneath or

from our property and associated operations, including the remediation of hazardous waste disposed off-site.

Such laws may impose liability without regard to whether we knew of, or caused, the release

of such hazardous substances.

Any failure by us to comply with present or future regulations could subject us to the imposition of substantial fines, suspension of production, alteration of

manufacturing processes or cessation of operations, any of which could have a material adverse effect on our business, financial condition and results of operations.

believe that, except to an extent that would not have a material adverse effect on our business, financial condition or results of operations, we are currently in compliance with all

environmental regulations in connection

our manufacturing operations, and that we have obtained all environmental permits necessary to conduct our business.

The amount of hazardous substances used, and hazardous wastes generated, by us

may increase in the future depending on changes in our operations.

To ensure compliance and practice proper due diligence, we conduct appropriate environmental audits and investigations at our

manufacturing facilities in North America, Asia Pacific, and Europe, and, to the extent practicable, on all new properties.

manufacturing facilities conduct regular internal audits to ensure proper environmental permits and controls are in place to meet changes in operations.

Third-party investigations address matters

related to current and former occupants and operations, historical land use, and regulatory oversight and status of associated properties and/or operations (including surrounding properties).

purpose of these studies is to identify, as of the date of such report, potential areas of environmental concern related to past and present activities or from nearby operations.

The scope and extent

of each investigation is dependent upon the size and complexity of the property and/or operation and on recommendations by independent environmental consultants.

continue to investigate contamination of the soil and groundwater beneath our Hawthorne, California facility that we believe resulted from unspecified on- and off-site releases

occurring prior to our occupancy.

We are subject to various environmental laws, directives, and regulations pertaining to the use, storage, handling and disposal of hazardous substances used, and hazardous wastes generated, in the manufacture of our products.

Such laws mandate the use of controls and practices designed to mitigate the impact of our operations on the environment, and under such laws we may be held liable for the costs associated with the remediation and removal of any unintended or previously unknown releases of hazardous substances on, beneath or from our property and associated operations, including the remediation of hazardous waste disposed off-site.

Such laws may impose liability without regard to whether we knew of, or caused, the release of such hazardous substances.

Any failure by us to comply with present or future regulations could subject us to the imposition of substantial fines, suspension of production, alteration of manufacturing processes or cessation of operations, any of which could have a material adverse effect on our business, financial condition and results of operations.

We believe that, except to an extent that would not have a material adverse effect on our business, financial condition or results of operations, we are currently in compliance with all environmental regulations in connection with our manufacturing operations, and that we have obtained all environmental permits necessary to conduct our business.

The amount of hazardous substances used, and hazardous wastes generated, by us may increase in the future depending on changes in our operations.

To ensure compliance and practice proper due diligence, we conduct appropriate environmental audits and investigations at our manufacturing facilities in North America, Asia Pacific, and Europe, and, to the extent practicable, on all new properties.

Our manufacturing facilities conduct regular internal audits to ensure proper environmental permits and controls are in place to meet changes in operations.

Third-party investigations address matters related to current and former occupants and operations, historical land use, and regulatory oversight and status of associated properties and/or operations (including surrounding properties).

The purpose of these studies is to identify, as of the date of such report, potential areas of environmental concern related to past and present activities or from nearby operations.

The scope and extent of each investigation is dependent upon the size and complexity of the property and/or operation and on recommendations by independent environmental consultants.

We have been investigating contamination of the soil and groundwater beneath our Hawthorne, California facility that we believe resulted from unspecified on- and off-site releases occurring prior to our occupancy.

The groundwater contamination is a known regional issue, not limited to our premises or our immediate surroundings.

We continue to take voluntary actions, in

cooperation with the local governing agency, to fully investigate the site in order to develop appropriate remedial actions.

We continue to take voluntary actions, in cooperation with the local governing agency, to fully investigate the site in order to develop appropriate remedial actions.

The markets in which we operate are highly competitive and characterized by evolving customer needs and rapid technological change.

with a number of other manufacturers, some of which have significantly greater financial, technical and marketing resources than we have.

In addition, these competitors may have the ability to respond

more quickly to new or emerging technologies, adapt more quickly to changes in customer requirements, have stronger customer relationships, have greater name recognition and devote greater resources

to the development, promotion and sale of their products than we do.

As a result, we may not be able to compete successfully against designers and manufacturers of specialized electronic systems and

components or within the markets for security and inspection systems, patient monitoring, diagnostic cardiology, or optoelectronic devices.

Future competitive pressures may materially and adversely

affect our business, financial condition and results of operations.

the security and inspection market, competition is based primarily on factors such as product performance, functionality and quality, government regulatory approvals and

qualifications, the overall cost effectiveness of the system, prior customer relationships, technological capabilities of the products, price, local market presence and breadth of sales and service

organization.

We believe that our principal competitors in the market for security and inspection products are Smiths Detection, L3Harris Technologies, Leidos, CEIA, Nuctech, Gilardoni, VOTI

Detection, IDSS, and Astrophysics.

We compete with a number of other manufacturers, some of which have significantly greater financial, technical and marketing resources than we have.

In addition, these competitors may have the ability to respond more quickly to new or emerging technologies, adapt more quickly to changes in customer requirements, have stronger customer relationships, have greater name recognition and devote greater resources to the development, promotion and sale of their products than we do.

As a result, we may not be able to compete successfully against designers and manufacturers of specialized electronic systems and components or within the markets for security and inspection systems, patient monitoring, diagnostic cardiology, or optoelectronic devices.

Future competitive pressures may materially and adversely affect our business, financial condition and results of operations.

In the security and inspection market, competition is based primarily on factors such as product performance, functionality and quality, government regulatory approvals and qualifications, the overall cost effectiveness of the system, prior customer relationships, technological capabilities of the products, price, local market presence, program execution capability, and breadth of sales and service organization.

We believe that our principal competitors in the market for security and inspection products are Smiths Detection, Leidos, CEIA, Nuctech, Gilardoni, VOTI Detection, Garrett Technologies, and Astrophysics.

Competition could result in price reductions, reduced margins and loss of market share.

Although our competitors offer products in competition with one or more of

our products, we can supply a variety of system types and offer among the widest array of solutions available from a single supplier.

This variety of technologies also permits us to offer unique

hybrid systems to our customers that utilize two or more of these technologies, thereby optimizing flexibility, performance and cost to meet the customer's unique application requirements.

the patient monitoring and diagnostic cardiology markets, competition is also based on a variety of factors including product performance, functionality, value and breadth of sales

and service organization.

We believe that our principal competitors in the market for patient monitoring and diagnostic cardiology systems and

related supplies are Philips Healthcare, GE Healthcare, Nihon Kohden, Mindray Medical, Hill-Rom, and Dräger Medical.

Competition could result in price reductions, reduced margins and

loss of our market share.

We believe that our patient monitoring products are easier to use than the products of many of our competitors because we offer a consistent user interface throughout many of

our product lines.

We also believe that the capability of our monitoring

to connect together, and to the hospital IT infrastructure, is a key competitive advantage.

Further, while some of our competitors are also beginning to introduce portal technology, which

allows remote access to data from the bedside monitor, central station or other point of care, we believe that our competing technologies bring valuable, instant access to labs, radiology and charting

at the point of care.

the markets in which we compete to provide optoelectronic devices and electronics manufacturing services, competition is based primarily on such factors as expertise in the design and

development of optoelectronic devices, product quality, timeliness of delivery, price, customer technical support and the ability to provide fully integrated services from application development and

design through production.

We believe that our major competitors in the optoelectronic device markets where we provide products and services are Hamamatsu Photonics, First Sensor and Excelitas

Technologies.

Because we specialize in custom subsystems requiring a high degree of engineering expertise, we believe that we generally do not compete to any significant degree with any other large

United States, European or Asian manufacturers of standard optoelectronic components.

Competition in the extensive electronic manufacturing services market ranges from multinational corporations with

sales in excess of several billions of dollars, to large regional competitors and to small local assembly companies.

In our experience, the OEM customers to whom we provide such services prefer to

engage companies that offer both local and lower-cost off-shore facilities.

We believe that our primary domestic competitors for these services are Flextronics, Benchmark Electronics, Plexus, Jabil,

Qual Pro, ESC and Express Manufacturing Inc.

In the United Kingdom, our primary competitors are STI Limited, AsteelFlash and other regional companies.

In addition, our high-volume, low-cost

contract manufacturing locations in Southeast Asia compete with other manufacturers in the same region.

We currently measure our backlog as quantifiable purchase orders or contracts that have been signed, for which revenues are expected to be

recognized within the next five years.

Although our competitors offer products in competition with one or more of our products, we can supply a variety of system types and offer among the widest array of solutions available from a single supplier.

This variety of technologies also permits us to offer unique hybrid systems to our customers that utilize two or more of these technologies, thereby optimizing flexibility, performance and cost to meet the customer’s unique application requirements.

In the patient monitoring, diagnostic cardiology, and connected care markets, competition is also based on a variety of factors including product performance, functionality, value and breadth of sales and service organization.

We believe that our principal competitors in the market for patient monitoring and diagnostic cardiology systems and related supplies are Philips Healthcare, GE Healthcare, Nihon Kohden, Mindray Medical, Hill-Rom, and Dräger Medical.

Competition could result in price reductions, reduced margins and loss of our market share.

We believe that our patient monitoring products are easier to use than the products of many of our competitors because we offer a consistent user interface throughout many of our product lines.

We also believe that the capability of our monitoring systems to connect together, and to the hospital IT infrastructure, is a key competitive advantage.

Further, while some of our competitors are also beginning to introduce portal technology, which allows remote access to data from the bedside monitor, central station or other point of care, we believe that our competing technologies bring valuable, instant access to labs, radiology and charting at the point of care.

In the markets in which we compete to provide optoelectronic devices and electronics manufacturing services, competition is based primarily on factors such as expertise in the design and development of optoelectronic devices, product quality, timeliness of delivery, price, technical support and the ability to provide fully integrated services from application development and design through production.

We believe that our major competitors in the optoelectronic device markets are Hamamatsu Photonics, First Sensor and Excelitas Technologies.

Because we specialize in custom subsystems requiring a high degree of engineering expertise, we believe that we generally do not compete to any significant degree with any other large United States, European or Asian manufacturers of standard optoelectronic components.

Competition in the extensive electronic manufacturing services market ranges from multinational corporations with sales in excess of several billions of dollars, to large regional competitors and to small local assembly companies.

In our experience, the OEM customers to whom we provide such services prefer to engage companies that offer both local and lower-cost off-shore facilities.

We believe that our primary domestic competitors for these services are Flextronics, Benchmark Electronics, Plexus, Jabil, Qual Pro, ESC and Express Manufacturing Inc.

In addition, our high-volume, low-cost contract manufacturing locations in Southeast Asia compete with other manufacturers in the same region.

We currently measure our backlog as quantifiable purchase orders or contracts that have been signed, for which revenues are expected to be recognized within the next five years.

In instances where we are not able to estimate the value of a purchase order or contract they are not included in backlog.

ship most of our baggage and parcel inspection, people screening, patient monitoring and diagnostic cardiology systems and optoelectronic devices and value-added subsystems within one

to several months after

receiving an order.

We ship most of our baggage and parcel inspection, people screening, patient monitoring and diagnostic cardiology systems and optoelectronic devices and value-added subsystems within one to several months after receiving an order.

However, such shipments may be delayed for a variety of reasons, including any special design or requirements of the customer.

In addition, large orders of security and inspection

products typically require greater lead-times.

In addition, large orders of security and inspection products typically require greater lead-times.

Fulfillment of orders of our Rapiscan RTT hold (checked) baggage screening equipment generally requires longer lead times.

Further, we provide turnkey

screening services to certain customers for which we may recognize revenue over multi-year periods.

of our cargo and vehicle inspection systems may require more than a year of lead-time.

We have experienced some significant shipping delays associated with our cargo and vehicle

inspection systems.

Further, we provide turnkey screening services to certain customers for which we may recognize revenue over multi-year periods.

Certain of our cargo and vehicle inspection systems may require more than a year of lead-time.

We have experienced some significant shipping delays associated with our cargo and vehicle inspection systems.

Such delays can occur for many reasons, including:

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(ii) a customer’s need to engage in time-consuming special site preparation to accommodate the system, over which we have no control or responsibility;

(iii) additional fine tuning of

such systems once they are installed;

(iii) additional fine tuning of such systems once they are installed;

(iv) design or specification changes by the customer;

(v) time needed to obtain export licenses and/or letters of credit;

and (vi) delays

originating from other contractors on the project.

of June 30, 2019, our consolidated backlog totaled approximately $911 million, compared to approximately $976 million as of June 30, 2018.

Approximately

$287 million of our backlog as of June 30, 2019 is not reasonably expected to be fulfilled in fiscal year 2020.

and (vi) delays originating from other contractors on the project.

As of June 30, 2020, our consolidated backlog totaled approximately $861 million, compared to approximately $911 million as of June 30, 2019.

Approximately $274 million of our backlog as of June 30, 2020 is not reasonably expected to be fulfilled in fiscal year 2021.

Sales orders underlying our backlog are firm orders;

although, from time

to time we may agree to permit a customer to cancel an order or an order may be cancelled for other reasons.

Variations in the size of orders, product mix, or delivery requirements, among other

factors, may result in substantial fluctuations in backlog from period to period.

Backlog as of any particular date should not be relied upon as indicative of our revenues for any future period and

should not be considered a meaningful indicator of our performance on an annual or quarterly basis.

As of June 30, 2019, we employed 6,667 people, of whom 3,193 were employed in manufacturing, 486 were employed in engineering or research

and development, 579 were employed in administration, 409 were employed in sales and marketing and 2,000 were employed in service capacities.

Of the total employees, 3,055 were employed in the

Americas, 2,763 were employed in Asia and 849 were employed in Europe.

although, from time to time we may agree to permit a customer to cancel an order or an order may be cancelled for other reasons.

Variations in the size of orders, product mix, or delivery requirements, among other factors, may result in substantial fluctuations in backlog from period to period.

Backlog as of any particular date should not be relied upon as indicative of our revenues for any future period and should not be considered a meaningful indicator of our performance on an annual or quarterly basis.

As of June 30, 2020, we employed 6,758 people, of whom 3,150 were employed in manufacturing, 488 were employed in engineering or research and development, 640 were employed in administration, 378 were employed in sales and marketing and 2,102 were employed in service capacities.

Of the total employees, 3,194 were employed in the Americas, 2,723 were employed in Asia and 841 were employed in Europe.

Some of our employees in Europe have statutory collective bargaining rights.

We have never experienced a general work stoppage or

strike, and management believes that our relations with our employees are good.

We have never experienced a general work stoppage or strike, and management believes that our relations with our employees are good.

Available Information

We are subject to the informational requirements of the Exchange Act.

Therefore, we file periodic reports, proxy statements and other

information with the SEC.

Therefore, we file periodic reports, proxy statements and other information with the SEC.

The SEC maintains an internet website (http://www.sec.gov) that contains reports, proxy statements and other information that issuers are required to file electronically.

internet address is:

Our internet address is:

http://www.osi-systems.com.

The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of

this annual report on Form 10-K or any other report or document we file with or furnish to the SEC.

We make available, free of charge through our internet website, our annual reports on

Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange

Act, and reports filed pursuant to Section 16 of the Exchange Act, as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC.

Also available

on our website free of charge are our Corporate Governance Guidelines, the Charters of our Nominating and Governance, Audit, Compensation and Benefits, Technology, and Risk Management Committees of

our Board of Directors and our Code of Ethics and Conduct (which applies to all Directors and employees, including our principal executive officer, principal financial officer and principal accounting

The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of this annual report on Form 10-K or any other report or document we file with or furnish to the SEC.

We make available, free of charge through our internet website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and reports filed pursuant to Section 16 of the Exchange Act, as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC.

Also available on our website free of charge are our Corporate Governance Guidelines, the Charters of our Nominating and Governance, Audit, Compensation and Benefits, Technology, and Risk Management Committees of our Board of Directors and our Code of Ethics and Conduct (which applies to all Directors and employees, including our principal executive officer, principal financial officer and principal accounting officer).

A copy of this annual report on Form 10-K is available without charge upon written request addressed to:

c/o Secretary, OSI Systems, Inc., 12525 Chadron Avenue, Hawthorne, CA

90250 or by calling telephone number (310) 978-0516.

c/o Secretary, OSI Systems, Inc., 12525 Chadron Avenue, Hawthorne, CA 90250 or by calling telephone number (310) 978-0516.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business