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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT

February 7, 2026

TAX STRUCTURING MEMORANDUM

MEMORANDUM

From: Garrett Simmons, Lead Associate, Tax; Leila Nazari, Working Associate, Tax — Calderwood & Harkness LLP

To: Kevin Ostrowski, Partner, Privacy & Data Security; Morgan Tsai, VP of Legal Affairs, Cobalt Ventures LP

Date: February 7, 2026

Re: QSBS Eligibility Analysis under IRC § 1202 — Series Seed Preferred Stock of Meridian Diagnostics, Inc.

Matter No.: 1004-00001

This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the addressees and authorized personnel of Cobalt Ventures LP and its affiliates. This memorandum should not be disclosed to third parties, including Meridian Diagnostics, Inc., co-investors, or their respective counsel, without the prior written consent of Calderwood & Harkness LLP. Unauthorized disclosure may result in a waiver of applicable privileges.

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I. Executive Summary

This memorandum analyzes whether the Series Seed Preferred Stock of Meridian Diagnostics, Inc. ("Meridian" or the "Company") to be acquired by Cobalt Ventures Fund III, LP ("Fund III") in the $12,000,000 Series Seed financing (the "Financing") qualifies as "Qualified Small Business Stock" ("QSBS") under Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"). The significance of QSBS qualification cannot be overstated: eligible non-corporate shareholders may exclude from federal income tax gain of up to the greater of $10,000,000 or ten times the adjusted basis of the stock, provided the stock is held for more than five years. For Fund III's $7,200,000 investment, the potential exclusion could shelter up to $72,000,000 in gain at the individual partner level (assuming a 10× basis exclusion applies), representing a substantial tax benefit to Fund III's limited partners.

Based on our review of the transaction documents, the Company's organizational records, the due diligence materials assembled by Cobalt's deal team, representations made by the Company through its counsel Whitfield & Ames LLP, and the financial information provided by the Company's auditors at Graystone & Pallister CPAs, LLP, we conclude that the Series Seed Preferred Stock should qualify as QSBS at the time of issuance on February 9, 2026, subject to ongoing compliance by Meridian with the active business requirement and the aggregate gross assets requirement under § 1202(d) and (e). Each of the five statutory requirements for QSBS qualification is analyzed in detail below, and each is either currently satisfied or reasonably expected to be satisfied on an ongoing basis.

We note a key structural caveat with respect to Fund III. Because Cobalt Ventures Fund III, LP is organized as a Delaware limited partnership—a pass-through entity for federal income tax purposes—the QSBS exclusion does not apply at the partnership level. Rather, pursuant to IRC § 1202(g), the exclusion benefit flows through to individual (non-corporate) limited partners of Fund III who held their partnership interests at the time Fund III acquired the Meridian stock and who continue to hold such interests through the date of any subsequent disposition of the Meridian shares (whether by sale of the shares at the Fund III level, or through an in-kind distribution of the shares to partners followed by a partner-level sale). Corporate limited partners of Fund III would not be eligible for the QSBS exclusion. The practical implications of this pass-through treatment are discussed in Section V of this memorandum.

This memorandum also briefly addresses the QSBS eligibility of shares to be issued upon conversion of the Company's outstanding convertible notes, as well as the QSBS implications for the other investors participating in the Financing. However, our primary focus is on the new-money shares acquired by Fund III.

This memorandum is not a guarantee of QSBS qualification and should not be relied upon as tax advice by any party other than the addressees. We strongly recommend that Meridian be encouraged to obtain its own independent QSBS analysis from its tax advisors and to establish and maintain records necessary for ongoing compliance with the requirements of § 1202. Additionally, because QSBS qualification involves ongoing requirements that must be monitored throughout the holding period, the conclusions herein are necessarily prospective in part and subject to the continued satisfaction of the statutory conditions described below.

II. Background and Transaction Summary

A. The Company — Meridian Diagnostics, Inc.

Meridian Diagnostics, Inc. is a corporation organized under the General Corporation Law of the State of Delaware. The Company was incorporated on June 15, 2023, and is headquartered at 225 Binney Street, Suite 400, Cambridge, Massachusetts 02142. Its Employer Identification Number is 93-4127856, and its Delaware corporate file number is 7294531. Meridian has been a C-corporation for federal income tax purposes since its date of incorporation and has not at any time made an election under Subchapter S of the Code.

Meridian is a pre-revenue, early-stage medical diagnostics company engaged in the development and commercialization of the "MeridianPulse" platform. MeridianPulse is a microfluidic point-of-care diagnostic device designed to run a comprehensive 14-marker blood panel in under eight minutes. The technology is intended for deployment in urgent care clinics, emergency departments, and primary care settings where rapid diagnostic results can materially improve patient outcomes and reduce the need for costly laboratory send-outs. The Company is currently in the pre-clinical validation phase and anticipates initiating its FDA 510(k) premarket notification submission in the second half of 2026.

As of the date of this memorandum, Meridian employs eighteen full-time employees, including the Company's co-founders, Dr. Anika Patel (Chief Executive Officer and co-inventor of the MeridianPulse technology) and Dr. James Whitford (Chief Technology Officer). The Company's workforce includes eleven engineers and scientists, three regulatory and quality assurance professionals, two business operations personnel, and two executive officers.

Meridian holds a meaningful intellectual property portfolio consisting of five issued United States utility patents and three pending Patent Cooperation Treaty (PCT) applications, all of which relate to the Company's core microfluidic diagnostic technology, reagent cartridge design, and signal processing algorithms. The Company also maintains trade secrets and proprietary know-how relating to its manufacturing processes and assay development methodologies.

As of the anticipated closing date of the Financing, Meridian's remaining cash on hand is approximately $1,400,000. The Company's current monthly burn rate is approximately $185,000, which implies a remaining operational runway of approximately seven to eight months absent the infusion of new capital from the Financing. This burn rate has been relatively stable over the preceding three months, based on the monthly financial reports reviewed in diligence.

The Company's independent auditors are Graystone & Pallister CPAs, LLP, with the engagement led by Robert Milligan, CPA, Engagement Partner. Graystone & Pallister is located at 75 Ashbury Asset Advisors, Suite 2200, Boston, Massachusetts 02109. Graystone & Pallister has provided unaudited compiled financial statements for the fiscal year ended December 31, 2025, and has represented to Company counsel that Meridian's aggregate gross assets (as defined for purposes of § 1202) do not exceed $50,000,000.

B. The Financing

The Series Seed Financing has been negotiated on the following principal economic terms:

The pre-money valuation of the Company is $30,000,000, and the post-money valuation is $42,000,000. The total round size is $12,000,000, representing the aggregate new cash to be invested by the participating investors. In exchange for this investment, the Company will issue a total of 4,479,981 shares of Series Seed Preferred Stock at a price per share of $2.6786.

The price per share was derived by dividing the $30,000,000 pre-money valuation by the 11,200,000 pre-money fully-diluted shares of the Company. The pre-money fully-diluted share count consists of 10,000,000 shares of Common Stock currently issued and outstanding, plus 1,200,000 new shares authorized under the 2024 Equity Incentive Plan expansion (the "Option Pool Top-Up"), for a total of 11,200,000 fully-diluted shares. The Option Pool Top-Up was approved by the Board of Directors on January 18, 2026, and will be reflected in the Amended and Restated Certificate of Incorporation to be filed in connection with the closing.

The Financing is structured as a simultaneous sign-and-close transaction, with the execution of the Series Seed Preferred Stock Purchase Agreement (the "SPA") and the funding of all investor commitments expected to occur on February 9, 2026. The offering is exempt from registration under the Securities Act of 1933, as amended, pursuant to Regulation D, Rule 506(b). All participating investors have been verified as accredited investors under Rule 501(a) of Regulation D.

The principal ancillary transaction documents include: (i) the Amended and Restated Certificate of Incorporation; (ii) the Investors' Rights Agreement; (iii) the Right of First Refusal and Co-Sale Agreement; (iv) the Voting Agreement; and (v) the Cobalt Side Letter (the "Side Letter"), which provides Fund III with certain enhanced information rights, board observation rights, and related protective provisions.

C. The Investors

The following investors are participating in the Series Seed Financing:

Cobalt Ventures Fund III, LP. Fund III is committing $7,200,000 to the Financing, representing 60.0% of the total round. In exchange, Fund III will receive approximately 2,687,989 shares of Series Seed Preferred Stock. Fund III is a Delaware limited partnership with Employer Identification Number 85-2093147. Its general partner is Cobalt Ventures GP III, LLC, a Delaware limited liability company. The principals of Cobalt Ventures are Elaine Cho, Managing Partner, and David Hargrove, Partner. Fund III has total committed capital of $175,000,000, with approximately $62,000,000 deployed to date across its portfolio. The Meridian investment represents approximately 4.1% of total commitments and approximately 11.6% of currently deployed capital.

Pinewood Health Ventures, LLC. Pinewood is committing $2,400,000, representing 20.0% of the total round, in exchange for approximately 895,996 shares of Series Seed Preferred Stock. Pinewood is a Delaware limited liability company with Employer Identification Number 88-3451209. Its Managing Member is Sandra Kessler.

Thornfield Capital Partners, LP. Thornfield is committing $1,800,000, representing 15.0% of the total round, in exchange for approximately 671,997 shares of Series Seed Preferred Stock. Thornfield is a Delaware limited partnership with Employer Identification Number 87-6294013.

Atlas Point Angel Syndicate, LLC. Atlas Point is committing $600,000, representing 5.0% of the total round, in exchange for approximately 223,999 shares of Series Seed Preferred Stock. Atlas Point is a Delaware limited liability company with Employer Identification Number 92-1578430. Its syndicate manager is Victor Dominguez.

D. Convertible Note Conversion (Additional Context)

In addition to the new-money shares described above, Meridian will issue additional shares of Series Seed Preferred Stock upon conversion of outstanding convertible promissory notes at the closing. Specifically, the Company issued an aggregate of $2,100,000 in principal amount of convertible promissory notes on September 12, 2023, to two noteholders: Dr. Margaret Liu (principal amount of $1,200,000) and Clearwater Bridge Associates, LLC (principal amount of $900,000; Employer Identification Number 86-4319752). Interest has accrued on the notes at a rate of 5.0% per annum (simple interest) over the approximately twenty-nine months since issuance, resulting in aggregate accrued interest of approximately $253,750. The total conversion amount is therefore approximately $2,353,750.

Pursuant to the terms of the convertible notes, the notes will convert into shares of Series Seed Preferred Stock at the closing of a qualified financing, which the current Financing satisfies. The effective conversion price is determined by applying a 20% discount to the per-share price paid by the new-money investors, yielding a conversion price of $2.1429 per share (i.e., $2.6786 × 0.80 = $2.1429). This discounted price is lower than the price derived from the $25,000,000 valuation cap set forth in the notes (which would yield a cap price of approximately $2.2321 per share), and accordingly the discount price governs. At the $2.1429 conversion price, the aggregate conversion amount of $2,353,750 will result in the issuance of approximately 1,098,362 additional shares of Series Seed Preferred Stock.

The QSBS eligibility of the shares issued upon note conversion merits a separate, albeit related, analysis, which is addressed briefly in Section VII below. The primary focus of this memorandum, however, is the new-money shares acquired by Fund III and the other investors in exchange for cash.

III. Statutory Framework — IRC § 1202 Overview

A. General Rule

Section 1202 of the Internal Revenue Code provides a powerful incentive for investment in domestic small businesses by permitting eligible taxpayers to exclude from gross income a portion or all of the gain realized on the sale or exchange of qualified small business stock. The provision was originally enacted as part of the Revenue Reconciliation Act of 1993 and has been amended several times, most significantly by the Creating Small Business Jobs Act of 2010, which increased the exclusion percentage to 100% for qualifying stock acquired after September 27, 2010. The Protecting Americans from Tax Hikes (PATH) Act of 2015 made the 100% exclusion permanent.

Under IRC § 1202(a)(1), a non-corporate taxpayer may exclude from gross income the gain realized on the sale or exchange of QSBS held for more than five years. For stock acquired after September 27, 2010—which is applicable to the present transaction, as the anticipated issuance date is February 9, 2026—the exclusion is 100% of the eligible gain. This means that, for qualifying stock, the entire gain on a disposition may be excluded from federal income tax, subject to the per-issuer limitation.

The per-issuer gain limitation is set forth in § 1202(b)(1). For any single issuer, the aggregate amount of gain that a taxpayer may exclude is limited to the greater of: (i) $10,000,000 (reduced by the aggregate amount of eligible gain previously excluded with respect to stock of the same issuer), or (ii) ten times the taxpayer's adjusted basis in the qualified small business stock of the issuer that was disposed of during the taxable year. This 10× basis multiplier can be particularly valuable for early-stage investments where significant appreciation occurs, as it effectively scales the exclusion to the size of the investment.

Additionally, it is worth noting that for stock acquired after September 27, 2010, the gain excluded under § 1202 is not treated as an alternative minimum tax (AMT) preference item. This was a significant change from prior law, which had subjected a portion of the excluded QSBS gain to the AMT. Accordingly, for the shares at issue in this transaction, the full 100% exclusion should apply without any AMT adjustment.

B. Definition of QSBS — Five Requirements

For stock to qualify as QSBS, five cumulative requirements must be satisfied under IRC § 1202(c) and (d). All five requirements must be met; failure to satisfy any single requirement disqualifies the stock from QSBS treatment. The five requirements are as follows:

1. Qualified Small Business / Domestic C-Corporation Requirement. The stock must be issued by a "qualified small business," which is defined in § 1202(d)(1) as a domestic C-corporation. The issuing corporation must be a C-corporation at the time of issuance and must remain a C-corporation during substantially all of the taxpayer's holding period.

2. Original Issuance Requirement. The stock must be acquired by the taxpayer at its original issuance (directly or through an underwriter) in exchange for money, other property (not including stock), or as compensation for services provided to the issuing corporation. This requirement ensures that QSBS treatment is available only to the initial acquirer of the stock from the corporation, not to subsequent purchasers in the secondary market (with limited exceptions for gifts, inheritances, and certain partnership distributions).

3. Aggregate Gross Assets Test. At the time of issuance, the corporation's aggregate gross assets must not exceed $50,000,000. This test is applied both immediately before and immediately after the issuance, taking into account the cash or other property received by the corporation in exchange for the stock. If the issuance of stock causes the corporation's aggregate gross assets to exceed $50,000,000, the stock does not qualify as QSBS.

4. Active Business Requirement. During substantially all of the taxpayer's holding period, the corporation must use at least 80% of its assets (by value) in the active conduct of one or more "qualified trades or businesses." Certain specified trades or businesses—including personal service businesses in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, banking, insurance, financing, leasing, investing, farming, mining, and hotel/motel/restaurant operation—are excluded from the definition of a "qualified trade or business."

5. C-Corporation Requirement Throughout Holding Period. The issuing corporation must be a C-corporation at all times during the period during which the stock is held by the taxpayer. A conversion to S-corporation status or a reorganization into a pass-through entity during the holding period would disqualify the stock from QSBS treatment.

C. Holding Period Requirement

The gain exclusion under § 1202(a)(1) applies only to QSBS that has been held for more than five years from the date of issuance. For shares issued on February 9, 2026, the earliest date on which a qualifying disposition could occur is February 10, 2031. A disposition prior to the expiration of the five-year holding period would not qualify for the § 1202 exclusion.

However, Congress recognized that early-stage investments may be subject to liquidity events before the five-year holding period has elapsed. To address this, IRC § 1045 provides a rollover mechanism for QSBS held for more than six months but less than five years. Under § 1045, a taxpayer who sells QSBS before the end of the five-year period may elect to defer gain by reinvesting the proceeds in replacement QSBS within sixty days. The § 1045 rollover is discussed further in Section IX of this memorandum.

It is also important to note that the partial exclusion provisions under § 1202(a)(2) and (a)(3)—which provided reduced exclusion percentages of 50% and 75% for stock acquired in earlier periods—are not applicable here, as the shares at issue will be acquired after September 27, 2010, and thus qualify for the 100% exclusion.

IV. Analysis of Each QSBS Requirement

We turn now to a detailed analysis of whether the Series Seed Preferred Stock of Meridian Diagnostics, Inc. satisfies each of the five QSBS requirements set forth in § 1202.

A. Qualified Small Business / Domestic C-Corporation Requirement (§ 1202(d)(1))

Section 1202(d)(1) defines a "qualified small business" as a domestic corporation that is a C-corporation. This requirement has two components: (i) the issuing entity must be a "domestic corporation" within the meaning of § 7701(a)(4) of the Code, and (ii) the entity must be taxed as a C-corporation (i.e., not an S-corporation or other pass-through entity).

Meridian Diagnostics, Inc. is a corporation organized under the General Corporation Law of the State of Delaware, as evidenced by its Certificate of Incorporation filed with the Delaware Secretary of State on June 15, 2023. As a corporation organized under the laws of a state of the United States, Meridian is a "domestic corporation" within the meaning of IRC § 7701(a)(4), which defines a "domestic" entity as one "created or organized in the United States or under the law of the United States or of any State."

Meridian has been taxed as a C-corporation for federal income tax purposes since its date of incorporation. The Company has not filed an election under IRC § 1362(a) to be treated as an S-corporation, and no such election is currently contemplated. Meridian's Employer Identification Number is 93-4127856, and its federal tax returns have been filed consistently on the basis of C-corporation status. This has been confirmed through representations made by Whitfield & Ames LLP, Company counsel, in the diligence process.

Conclusion: This requirement is satisfied. Meridian Diagnostics, Inc. is a domestic C-corporation within the meaning of § 1202(d)(1).

B. Original Issuance Requirement (§ 1202(c)(1))

Section 1202(c)(1)(B) requires that the stock be "acquired by the taxpayer at its original issuance (directly or through an underwriter) in exchange for money, other property (not including stock), or as compensation for services provided to such corporation (in the case of an employee or independent contractor)." The purpose of this requirement is to ensure that the QSBS exclusion benefits the investors who provide capital or services directly to the qualified small business, rather than secondary market purchasers.

In the present transaction, the Series Seed Preferred Stock is being issued directly by Meridian to each investor at the closing of the Financing on February 9, 2026, pursuant to the terms of the SPA. No underwriter is involved. Each investor is providing cash consideration in exchange for newly issued shares. Specifically, Cobalt Ventures Fund III, LP is acquiring 2,687,989 shares of Series Seed Preferred Stock for $7,200,000 in cash, wired directly to Meridian at closing. Each of the co-investors—Pinewood Health Ventures, LLC, Thornfield Capital Partners, LP, and Atlas Point Angel Syndicate, LLC—is similarly acquiring shares at original issuance for cash. No secondary transfers or purchases from existing stockholders are involved. All shares to be issued in the Financing are newly authorized and issued shares.

An important consideration in the context of preferred stock relates to § 1202(c)(3), which provides that stock will not be treated as QSBS if, at the time of issuance, the stock possesses certain disqualifying features. Specifically, § 1202(c)(3)(A) provides that stock will not be treated as QSBS if the stock is described in § 1504(a)(4)—i.e., stock that is "limited and preferred as to dividends" and does not participate in corporate growth beyond a fixed return. This provision is designed to exclude "plain preferred" or debt-like instruments from QSBS treatment.

The Series Seed Preferred Stock of Meridian carries the following features, as set forth in the Amended and Restated Certificate of Incorporation:

(a) A 1× non-participating liquidation preference, payable upon a liquidation, dissolution, or deemed liquidation event (including a merger, acquisition, or sale of substantially all assets);

(b) Broad-based weighted average anti-dilution protection, triggered upon the issuance of additional shares of Common Stock or Common Stock equivalents at a price below the applicable conversion price;

(c) A conversion right, pursuant to which each share of Series Seed Preferred Stock is convertible at any time at the option of the holder into one share of Common Stock (subject to adjustment for stock splits, combinations, and anti-dilution adjustments); and

(d) Mandatory conversion upon the occurrence of a qualified IPO (as defined in the Certificate of Incorporation).

These features are typical of venture-backed preferred stock and should not disqualify the Series Seed Preferred Stock under § 1202(c)(3). The critical factor is that the conversion feature provides the holders with meaningful upside participation in the growth of the Company. Unlike "plain preferred" stock, which is limited to a fixed dividend and liquidation preference, the Series Seed Preferred Stock carries the right to convert into Common Stock and thereby participate fully in the appreciation of the Company's equity value. This conversion right ensures that the stock is not "limited and preferred as to dividends" within the meaning of § 1504(a)(4), and accordingly should not be treated as non-QSBS stock under § 1202(c)(3).

We note that there is limited direct guidance on the application of § 1202(c)(3) to venture-backed preferred stock with non-participating liquidation preferences and conversion rights. However, the weight of practitioner commentary and the legislative intent underlying § 1202 support the position that convertible preferred stock with meaningful equity upside—such as the Series Seed Preferred Stock at issue—qualifies as QSBS, provided the other statutory requirements are satisfied. The non-participating nature of the liquidation preference (i.e., holders must elect between their 1× preference and their conversion value, but do not receive both) further supports this conclusion, as it demonstrates that the stock is fundamentally equity in character, with the liquidation preference serving only as downside protection rather than a fixed return.

Conclusion: This requirement is satisfied. The shares of Series Seed Preferred Stock are being acquired by Fund III and the other investors at original issuance, directly from the Company, in exchange for cash consideration. The preferred stock features do not trigger the disqualification provisions of § 1202(c)(3).

C. Aggregate Gross Assets Test (§ 1202(d)(2))

Section 1202(d)(2) provides that a corporation is a "qualified small business" only if, at all times after August 10, 1993, and before the issuance of the stock in question, and immediately after the issuance, the corporation's "aggregate gross assets" do not exceed $50,000,000. This test is applied at two measurement points: (i) at all times prior to the issuance, and (ii) immediately after the issuance (taking into account the cash or other property received by the corporation in the issuance).

For purposes of this test, "aggregate gross assets" means the amount of cash and the aggregate adjusted bases of other property held by the corporation. For property contributed to the corporation (or property for which the adjusted basis is determined by reference to the basis of another person), the adjusted basis is the fair market value of the property at the time of contribution. This rule, set forth in § 1202(d)(2)(B), is designed to prevent taxpayers from artificially deflating the gross assets figure by contributing low-basis, high-value property to a corporation.

1. Pre-Issuance Gross Assets. Prior to the closing of the Financing, Meridian's gross assets consist primarily of the following:

• Cash and cash equivalents: Approximately $1,400,000, representing the Company's remaining cash from prior capital contributions and convertible note proceeds, net of operating expenditures since incorporation.

• Tangible property: Laboratory and office equipment, office furniture, leasehold improvements at the Company's Cambridge, Massachusetts headquarters. The aggregate adjusted tax basis of these assets is modest, consistent with the Company's early-stage status and limited capital expenditure history.

• intellectual property: The Company's IP portfolio, consisting of five issued U.S. utility patents and three pending PCT applications, as well as trade secrets and proprietary know-how. For purposes of the gross assets test, the adjusted basis of internally developed intellectual property is generally the amount capitalized under § 263A or § 174, which for an early-stage company is typically far below the fair market value of the IP as reflected in enterprise valuation. The Company has not received any contributed IP from its founders or other parties; rather, the IP was developed internally using Company resources, and accordingly the fair market value contribution rule of § 1202(d)(2)(B) does not apply to inflate the basis of these assets.

• Other assets: Minor amounts of prepaid expenses, security deposits, and accounts receivable (if any). These amounts are immaterial for purposes of this analysis.

It is important to note that the outstanding convertible promissory notes ($2,100,000 in aggregate principal) are liabilities of the Company, not assets, and therefore do not factor into the gross assets calculation. The proceeds from the notes that remain unspent are included in the Company's cash balance and are already reflected in the $1,400,000 figure above.

Based on the foregoing, Meridian's aggregate gross assets prior to the closing of the Financing are estimated to be well below $50,000,000. Even under conservative assumptions, the Company's pre-closing gross assets are unlikely to exceed $5,000,000 in the aggregate.

2. Post-Issuance Gross Assets (Including Proceeds). Immediately after the issuance of the Series Seed Preferred Stock, Meridian will receive $12,000,000 in new cash from the investors participating in the Financing. The Company's post-closing cash balance will therefore be approximately $1,400,000 (existing) plus $12,000,000 (new proceeds) = $13,400,000. Adding to this the aggregate adjusted bases of the Company's other assets (tangible property, intellectual property, and other assets), which are estimated at well below $36,600,000, the Company's total post-issuance aggregate gross assets will be significantly below the $50,000,000 threshold.

We emphasize that the pre-money valuation of $30,000,000, which reflects the negotiated market value of the Company, is not the relevant measure for purposes of the gross assets test. The test uses adjusted tax basis (or, for contributed property, fair market value at the time of contribution), not enterprise value. The actual adjusted tax basis of Meridian's assets is substantially lower than its enterprise value, as is typical for early-stage technology companies whose principal value derives from internally developed intellectual property with a low tax basis and future growth potential that is not reflected on the balance sheet.

We have reviewed the compiled financial statements of Meridian for the fiscal year ended December 31, 2025, prepared by Graystone & Pallister CPAs, LLP, and have conferred with Robert Milligan, CPA, regarding the Company's asset position. Based on these materials, we are satisfied that the Company's aggregate gross assets are well below the $50,000,000 threshold both before and immediately after the issuance of the Series Seed Preferred Stock.

Conclusion: This requirement is satisfied. Meridian's aggregate gross assets are estimated to be well below the $50,000,000 threshold both before and immediately after the issuance of the Series Seed Preferred Stock on February 9, 2026.

Risk Flag / Monitoring: The gross assets test is applied at each issuance. If Meridian raises additional financing rounds in the future, the Company should track its aggregate gross assets at the time of each future issuance to ensure compliance with § 1202(d)(2) for investors in those future rounds. As the Company grows and accumulates additional capital and assets, the risk of exceeding the $50,000,000 threshold will increase. For example, if Meridian were to raise a Series A round of $30,000,000 or more in 2027, the post-issuance gross assets could approach or exceed the threshold depending on the Company's asset position at that time. However, it is important to note that even if Meridian exceeds $50,000,000 in gross assets at the time of a future issuance, this would not retroactively disqualify the Series Seed Preferred Stock—it would only disqualify the shares issued in the future round.

D. Active Business Requirement (§ 1202(e))

1. Qualified Trade or Business. Section 1202(e)(3) defines a "qualified trade or business" by exclusion—it provides that certain specified trades or businesses do not constitute qualified trades or businesses for purposes of § 1202. The excluded categories are enumerated in § 1202(e)(3)(A) through (E) and include:

(A) Any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services;

(B) Any banking, insurance, financing, leasing, investing, or similar business;

(D) Any business involving the production or extraction of products of a character with respect to which a deduction is allowable under § 613 or § 613A (i.e., mining and natural resource extraction); and

(E) Any business of operating a hotel, motel, restaurant, or similar business.

Additionally, § 1202(e)(3) excludes any trade or business where the principal asset of such business is the reputation or skill of one or more of its employees.

Meridian Diagnostics, Inc. is engaged in the development and commercialization of the MeridianPulse platform—a microfluidic point-of-care diagnostic device. This is fundamentally a technology and product development business. The Company's activities include research and development, prototype engineering, assay development, manufacturing process design, regulatory strategy, and preparation for commercial launch. These activities are characteristic of a medical device or biotechnology company and are clearly distinguishable from the personal service businesses enumerated in § 1202(e)(3)(A).

We recognize that Meridian's product operates in the "health" space, and accordingly it is important to address whether the Company's business falls within the § 1202(e)(3)(A) exclusion for trades or businesses "involving the performance of services in the field of health." The legislative history and interpretive guidance make clear that the "health" exclusion in § 1202(e)(3)(A) is derived from the similar exclusion in § 448(d)(2)(A) for personal service corporations, which targets businesses that provide professional health care services—such as medical practices, dental offices, chiropractic clinics, and similar service providers. The exclusion does not encompass companies that develop, manufacture, or sell health-related products, devices, or technologies. Meridian does not provide health care services to patients. Rather, it develops a hardware and software platform—a physical diagnostic device—that will be sold or leased to health care providers. The Company's business is analogous to that of a medical device manufacturer, a pharmaceutical company, or a biotechnology firm, all of which are universally understood to fall outside the "health" services exclusion.

This distinction is supported by the legislative history of § 1202, which indicates that Congress intended the exclusion for "health" services to apply to businesses where the services rendered are the primary revenue-generating activity, not to businesses that develop tangible products or technology for use in the health care industry. Practitioner commentary and informal IRS guidance are consistent with this interpretation.

Moreover, Meridian's principal asset is its intellectual property portfolio—comprising issued and pending patents, trade secrets, and proprietary technology—not the "reputation or skill" of its employees. While the Company employs talented scientists and engineers, the value of the enterprise resides in the patented technology and the physical product being developed, not in the personal services of any individual employee. This distinguishes Meridian from the types of businesses targeted by the "reputation or skill" exclusion.

Conclusion: Meridian's diagnostics platform development business constitutes a "qualified trade or business" under § 1202(e)(3). The Company's activities do not fall within any of the excluded categories.

2. 80% Active Business Use Test. Section 1202(e)(1) requires that, during substantially all of the taxpayer's holding period for the QSBS, at least 80% (by value) of the assets of the issuing corporation be used in the "active conduct" of one or more qualified trades or businesses. This is an ongoing requirement that must be monitored throughout the holding period, not merely at the time of issuance.

Meridian's assets, both before and after the closing of the Financing, consist primarily of the following categories:

(i) Cash and short-term investments: Representing the Company's operating funds, including the $12,000,000 in new financing proceeds. As discussed below, cash held for reasonable working capital needs receives favorable treatment under the working capital safe harbor of § 1202(e)(6).

(ii) Laboratory and office equipment: Directly used in the research, development, and testing of the MeridianPulse platform. These assets are clearly "used in the active conduct" of Meridian's qualified trade or business.

(iii) intellectual property (patents and trade secrets): The core assets of the Company, directly related to the MeridianPulse technology. These assets are unambiguously used in the active conduct of the Company's business.

(iv) Working capital and prepaid expenses: Held in connection with the Company's ongoing operations and used to fund day-to-day business expenditures.

The working capital safe harbor under § 1202(e)(6) is particularly important for early-stage companies like Meridian that receive large infusions of cash in financing rounds. Under § 1202(e)(6), assets held as part of the "reasonably required working capital needs" of the corporation are treated as assets used in the active conduct of a qualified trade or business, provided two conditions are met: (a) the corporation has a plan specifying how the working capital will be used in the business, and (b) the working capital is actually used within two years of receipt. Given Meridian's monthly burn rate of approximately $185,000, the $12,000,000 in proceeds from the Financing should be consumed over approximately five to six years if used solely for operations. The two-year safe harbor would cover the deployment of the first approximately $4,440,000 of proceeds. For the remaining proceeds, the Company should ensure that it can demonstrate a specific plan for the use of such funds in the business. As a practical matter, the Company's business plan and budget (reviewed in diligence) contemplate that all financing proceeds will be used for product development, regulatory activities, manufacturing scale-up, and working capital—all of which are qualifying uses.

Substantially all of Meridian's non-cash assets (Intellectual property, equipment, leasehold improvements) are used directly in the development and commercialization of the MeridianPulse platform. The Company does not hold significant passive investment assets, real estate (other than its office lease), or other assets unrelated to its core business. Accordingly, we expect that the 80% active business use test is satisfied as of the issuance date and should continue to be satisfied throughout the holding period, provided Meridian does not materially change its business model or asset composition.

Conclusion: This requirement is expected to be satisfied. However, because this is an ongoing requirement measured during "substantially all" of the taxpayer's holding period, Meridian should be counseled to avoid holding significant passive investment assets or deploying financing proceeds in non-qualifying activities. The Company should maintain documentation of its working capital plan and the deployment of financing proceeds to support compliance with the working capital safe harbor under § 1202(e)(6).

E. C-Corporation Status Throughout Holding Period (§ 1202(c)(2)(A))

Section 1202(c)(2)(A) requires that the issuing corporation be a C-corporation during substantially all of the taxpayer's holding period for the stock. If the corporation converts to S-corporation status, reorganizes into a limited liability company or other pass-through entity, or otherwise ceases to be a C-corporation during the holding period, the stock would no longer qualify as QSBS.

Meridian has been a C-corporation since its incorporation on June 15, 2023, and has not at any time made an election to be treated as an S-corporation. No such election is contemplated. Given Meridian's status as a venture-backed company with institutional investors (including multiple limited partnerships and limited liability companies that include both corporate and non-corporate members), an S-election would not be feasible in any event, as S-corporations are subject to restrictions on the types and number of shareholders (e.g., no more than 100 shareholders, no nonresident alien shareholders, no corporate shareholders, and no multi-class stock structures). Meridian's current and anticipated capital structure—with multiple classes of stock (Common Stock and Series Seed Preferred Stock) and institutional entity shareholders—is incompatible with S-corporation requirements.

Furthermore, as a venture-backed company anticipating future institutional financing rounds and a potential initial public offering, there is no strategic incentive for Meridian to convert to S-corporation status or to reorganize as a pass-through entity. The risk of a change in entity status is therefore assessed as low.

Conclusion: This requirement is satisfied as of the issuance date and is expected to remain satisfied throughout the holding period. The risk of a change in entity status is low given Meridian's venture-backed capital structure and institutional investor base.

V. Pass-Through Entity Considerations — Cobalt Ventures Fund III, LP

A. General Rule for Partnerships

The QSBS exclusion under § 1202 is structured as a taxpayer-level benefit available to non-corporate shareholders. When QSBS is held by a pass-through entity, the rules of § 1202(g) govern the allocation of the exclusion benefit to the entity's owners.

Under § 1202(g)(1), if QSBS is held by a pass-through entity—defined to include a partnership, an S-corporation, a regulated investment company (RIC), or a common trust fund—the determination of whether the taxpayer meets the requirements of § 1202 (including the holding period requirement) is made at the partner, shareholder, or participant level, rather than at the entity level. In other words, the pass-through entity itself does not claim the QSBS exclusion; rather, the exclusion is applied when gain from the disposition of the QSBS flows through to the individual (non-corporate) owners of the entity.

Cobalt Ventures Fund III, LP is a Delaware limited partnership with Employer Identification Number 85-2093147. Fund III is managed by its general partner, Cobalt Ventures GP III, LLC, a Delaware limited liability company. For federal income tax purposes, Fund III is treated as a partnership under Subchapter K of the Code and is not subject to entity-level federal income tax. Items of income, gain, loss, deduction, and credit flow through to Fund III's partners in accordance with the partnership agreement and the allocation provisions thereof.

Accordingly, when Fund III ultimately disposes of its Meridian shares (whether by sale, exchange, or in-kind distribution to partners), any gain recognized on the disposition will flow through to Fund III's partners. Eligible non-corporate partners—primarily individual limited partners—will be entitled to claim the § 1202 exclusion on their allocable share of the gain, subject to the conditions described below.

B. Eligibility of Fund III's Partners

The § 1202 exclusion is available only to non-corporate taxpayers. Section 1202(a) expressly provides that "a non-corporate taxpayer" may exclude gain from gross income. For purposes of this provision, "non-corporate taxpayer" includes individuals, estates, and trusts. Corporate entities—including C-corporations and S-corporations that are shareholders of Fund III—are not eligible for the exclusion.

Each eligible limited partner's exclusion is subject to the per-issuer gain limitation of § 1202(b)(1), computed at the individual partner level. For each partner, the maximum excludable gain with respect to Meridian stock is the greater of: (i) $10,000,000, or (ii) ten times the partner's allocable share of Fund III's adjusted basis in the Meridian shares. The adjusted basis allocated to each partner is generally determined under the partnership's allocation provisions and reflects the partner's proportionate share of Fund III's $7,200,000 cost basis in the Meridian shares.

To illustrate, if a limited partner holds a 5% interest in Fund III and Fund III's $7,200,000 investment is allocated ratably, the partner's allocable basis in the Meridian shares would be approximately $360,000. Ten times this basis would be $3,600,000. Because $10,000,000 is greater than $3,600,000, the partner's maximum exclusion would be $10,000,000 (assuming no prior exclusions with respect to Meridian stock). For partners with larger allocable interests, the 10× basis multiplier may yield a higher maximum exclusion.

C. Holding Period and Transfer Restrictions

The holding period rules under § 1202(g)(2) are critical for pass-through entity investors. Under § 1202(g)(2)(A), a partner's holding period for QSBS held by a partnership includes the period during which the partner held its partnership interest, provided the partner held the interest at the time the partnership acquired the QSBS. In other words, the partner's QSBS holding period begins on the date Fund III acquires the Meridian stock—February 9, 2026—and includes any subsequent period during which the partner continues to hold its Fund III interest.

Importantly, partners who acquire their Fund III interests after the acquisition date—for example, through a secondary transfer of limited partnership interests or a new capital commitment funded after February 9, 2026—do not receive QSBS treatment on the pre-existing Meridian shares. This is because the original issuance requirement of § 1202(c)(1)(B) requires that the taxpayer (here, the partner, by attribution through the partnership) have acquired the stock at original issuance. A partner who was not a partner at the time of original issuance cannot satisfy this requirement. Cobalt should be mindful of this restriction in connection with any future transfers of Fund III limited partnership interests or admissions of new limited partners.

If Fund III distributes Meridian shares in kind to its partners (for example, upon a liquidity event or at the termination of the fund), the distribution generally does not trigger gain recognition under § 731(a), and the QSBS character and holding period carry over to the distributee partner under § 1202(h)(1), subject to certain conditions. Specifically, § 1202(h)(1) provides that a partner who receives QSBS in a distribution from a partnership is treated as having acquired the stock at the time the partnership acquired it and as having held the stock for the period during which the partnership held it (plus the partner's own pre-distribution holding period of the partnership interest). This is a favorable result, as it allows the in-kind distribution of Meridian shares without forfeiting the QSBS holding period or character.

D. Fund-Level Considerations

Fund III has $175,000,000 in total committed capital, with approximately $62,000,000 deployed to date across its portfolio of investments. The $7,200,000 Meridian investment represents approximately 4.1% of Fund III's total commitments and approximately 11.6% of currently deployed capital. This concentration is well within the diversification parameters established in Fund III's limited partnership agreement and the fund's investment thesis, which targets early-stage and seed-stage investments in health care technology and life sciences.

From a tax reporting perspective, Fund III will need to track the QSBS status of the Meridian investment at the fund level and report the relevant information to its partners. This includes maintaining records of the date and amount of the investment, the number of shares acquired, the adjusted basis of the shares, and the QSBS qualification status. Upon any disposition of the Meridian shares, Fund III will need to report the gain (and the QSBS character of the gain) on the partners' Schedule K-1s.

E. Recommendations for Cobalt

Based on the foregoing analysis, we recommend the following actions for Cobalt Ventures Fund III, LP:

1. Partnership Agreement Provisions. Fund III's limited partnership agreement should include provisions for QSBS tracking and reporting. If the current partnership agreement does not contain such provisions, Cobalt should consider adopting an amendment or side letter to address QSBS reporting obligations.

2. Schedule K-1 Reporting. Fund III should include QSBS disclosure on the Schedule K-1s issued to partners for each taxable year during which Fund III holds Meridian shares. The K-1 reporting should identify the Meridian shares as potential QSBS, disclose the date of acquisition, the adjusted basis allocable to each partner, and any other information necessary for partners to claim the § 1202 exclusion on their individual returns.

3. Partner Records. Fund III should maintain detailed records of each partner's capital account, the dates on which each partner's commitment was funded, and the dates on which any transfers of partnership interests occurred. These records are essential to substantiate QSBS eligibility at the partner level, particularly in light of the requirement that the partner must have held its partnership interest at the time Fund III acquired the Meridian stock.

4. Communication to Principals. Elaine Cho and David Hargrove should be briefed on the importance of ongoing QSBS compliance at the Meridian level and should use their board representation and information rights to monitor the Company's continued satisfaction of the active business requirement, the gross assets test, and the C-corporation requirement.

VI. Analysis for Other Investors

While Calderwood & Harkness LLP represents Cobalt Ventures LP and its affiliates, and does not represent the co-investors in the Financing, we provide the following brief observations regarding the QSBS eligibility of the other participating investors. Each co-investor should be encouraged to seek independent tax advice from its own counsel.

A. Pinewood Health Ventures, LLC

Pinewood Health Ventures, LLC is a Delaware limited liability company with Employer Identification Number 88-3451209. Its Managing Member is Sandra Kessler.

The QSBS treatment of Pinewood depends on its federal tax classification. If Pinewood is a multi-member LLC treated as a partnership for federal income tax purposes (the default classification for a multi-member LLC that has not elected to be treated as a corporation), the pass-through analysis described in Section V applies. The QSBS exclusion would be available at the individual member level, subject to the same holding period, non-corporate status, and per-issuer gain limitation requirements discussed above.

If Pinewood is a single-member LLC that is disregarded as an entity separate from its owner for federal tax purposes, the QSBS benefit flows directly to the sole member. In that case, the sole member is treated as the direct owner of the Meridian shares for § 1202 purposes, and the analysis is the same as for an individual investor.

Sandra Kessler, as Managing Member, should consult Pinewood's own tax advisors regarding the tax classification of Pinewood and the QSBS eligibility of its members. Calderwood & Harkness LLP does not represent Pinewood and has not independently verified its tax classification or member composition.

B. Thornfield Capital Partners, LP

Thornfield Capital Partners, LP is a Delaware limited partnership with Employer Identification Number 87-6294013. As a limited partnership, Thornfield is treated as a partnership for federal income tax purposes (assuming it has not elected to be treated as a corporation under the "check-the-box" regulations of Treas. Reg. § 301.7701-3).

The same pass-through analysis applicable to Fund III applies to Thornfield. The QSBS exclusion is available at the individual partner level, subject to the holding period, non-corporate status, and per-issuer gain limitation requirements. Thornfield's partners should be advised of the potential QSBS benefits and the importance of maintaining their partnership interests throughout the five-year holding period. Thornfield should also implement QSBS tracking and K-1 reporting procedures analogous to those recommended for Fund III.

C. Atlas Point Angel Syndicate, LLC

Atlas Point Angel Syndicate, LLC is a Delaware limited liability company with Employer Identification Number 92-1578430. Its syndicate manager is Victor Dominguez. As an angel syndicate, Atlas Point is likely structured as a multi-member LLC treated as a partnership for federal income tax purposes, with its members being individual angel investors.

If so, the QSBS benefit passes through to the individual members of Atlas Point, subject to the same requirements discussed above. Given the syndicate structure, it is particularly important that Atlas Point maintain accurate records of its members and their respective membership interests, as the QSBS eligibility determination is made at the individual member level. Syndicate members should be advised of the QSBS eligibility criteria, including the requirement that they must have held their Atlas Point membership interests at the time Atlas Point acquired the Meridian shares and must hold such interests (or receive in-kind distributions of the shares) for more than five years.

Calderwood & Harkness LLP does not represent Pinewood, Thornfield, or Atlas Point, and each of these investors should seek independent tax advice regarding QSBS eligibility and compliance.

VII. Shares Issued on Convertible Note Conversion

As described in Section II.D above, approximately 1,098,362 shares of Series Seed Preferred Stock will be issued at the closing on February 9, 2026, upon the conversion of outstanding convertible promissory notes held by Dr. Margaret Liu ($1,200,000 in principal) and Clearwater Bridge Associates, LLC ($900,000 in principal; Employer Identification Number 86-4319752). The total conversion amount, including $253,750 in accrued interest, is approximately $2,353,750.

Original Issuance Analysis. The critical question for QSBS eligibility of the conversion shares is whether the shares are "acquired at original issuance" within the meaning of § 1202(c)(1)(B). The convertible notes were issued directly by Meridian to Dr. Liu and Clearwater Bridge on September 12, 2023, in exchange for cash. The conversion of the notes into Series Seed Preferred Stock on February 9, 2026, is occurring pursuant to the automatic conversion provisions of the notes, triggered by the occurrence of a "qualified financing." The weight of authority suggests that shares issued upon conversion of a convertible note should be treated as acquired at "original issuance" for purposes of § 1202, provided the note itself was acquired at original issuance from the corporation and the conversion is pursuant to the original terms of the note. In substance, the convertible note is an interim instrument that converts into the equity security that the investor intended to acquire from the outset. The conversion should be treated as a continuation of the original issuance, not as a secondary transfer.

We note, however, that the Code and regulations do not explicitly address the treatment of convertible note conversions in the § 1202 context, and there is limited formal guidance from the IRS on this point. The position that conversion shares qualify as QSBS is widely accepted among practitioners and is supported by the policy rationale of § 1202 (which is to incentivize capital formation for small businesses), but taxpayers should be aware of the residual uncertainty.

Holding Period. The QSBS holding period for shares issued upon conversion of a convertible note is a subject of some debate. The more conservative (and likely safer) position is that the QSBS holding period begins on the date of conversion—February 9, 2026—rather than on the date the notes were originally purchased (September 12, 2023). Under this approach, the earliest qualifying disposition date for the conversion shares would be February 10, 2031.

There is some authority suggesting that the holding period of the convertible note may "tack" to the holding period of the conversion shares, which would result in a QSBS holding period beginning on September 12, 2023. If tacking were available, the five-year holding period would expire on September 13, 2028—approximately two and a half years earlier than under the conversion-date approach. However, because the convertible note is a debt instrument (not equity), and the Code generally treats debt-to-equity conversions as new issuances for holding period purposes, the safer position is to use the conversion date as the beginning of the QSBS holding period. Dr. Liu and Clearwater Bridge should consult their own tax advisors regarding this issue.

Gross Assets Test. The gross assets test must be satisfied as of the date the conversion shares are issued—February 9, 2026. As analyzed in Section IV.C above, Meridian's aggregate gross assets on that date are well below the $50,000,000 threshold. This requirement is therefore satisfied for the conversion shares.

Dr. Margaret Liu. As an individual taxpayer, Dr. Liu is eligible for the QSBS exclusion directly, without the need for pass-through analysis. Assuming all other QSBS requirements are satisfied, Dr. Liu may exclude gain on the disposition of her conversion shares after the expiration of the five-year holding period, subject to the per-issuer gain limitation.

Clearwater Bridge Associates, LLC. As a limited liability company, Clearwater Bridge's QSBS eligibility depends on its federal tax classification. The pass-through analysis described in Sections V and VI applies. If Clearwater Bridge is treated as a partnership, the QSBS exclusion flows through to its non-corporate members. If it is a disregarded entity, the benefit flows to its sole member. Clearwater Bridge should seek its own independent tax advice regarding QSBS eligibility.

VIII. Potential Risks and Ongoing Compliance

While we conclude that the Series Seed Preferred Stock should qualify as QSBS at the time of issuance, QSBS qualification involves ongoing requirements that must be monitored throughout the five-year holding period (and beyond, if the stock continues to be held). Set forth below are the principal risks and compliance considerations that Cobalt and Meridian should be aware of.

A. Redemption Restrictions (§ 1202(c)(3))

Section 1202(c)(3) contains two anti-abuse provisions designed to prevent taxpayers from using stock buybacks or redemptions to manipulate QSBS eligibility. These provisions must be carefully monitored.

First, under § 1202(c)(3)(A), stock acquired by a taxpayer is not treated as QSBS if, at any time during the four-year period beginning on the date two years before the issuance of such stock

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
February 7, 2026
TAX STRUCTURING MEMORANDUM
MEMORANDUM
From: Garrett Simmons, Lead Associate, Tax; Leila Nazari, Working Associate, Tax — Calderwood & Harkness LLP
To: Kevin Ostrowski, Partner, Privacy & Data Security; Morgan Tsai, VP of Legal Affairs, Cobalt Ventures LP
Date: February 7, 2026
Re: QSBS Eligibility Analysis under IRC § 1202 — Series Seed Preferred Stock of Meridian Diagnostics, Inc.
Matter No.: 1004-00001
This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the addressees and authorized personnel of Cobalt Ventures LP and its affiliates. This memorandum should not be disclosed to third parties, including Meridian Diagnostics, Inc., co-investors, or their respective counsel, without the prior written consent of Calderwood & Harkness LLP. Unauthorized disclosure may result in a waiver of applicable privileges.
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I. Executive Summary
This memorandum analyzes whether the Series Seed Preferred Stock of Meridian Diagnostics, Inc. ("Meridian" or the "Company") to be acquired by Cobalt Ventures Fund III, LP ("Fund III") in the $12,000,000 Series Seed financing (the "Financing") qualifies as "Qualified Small Business Stock" ("QSBS") under Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"). The significance of QSBS qualification cannot be overstated: eligible non-corporate shareholders may exclude from federal income tax gain of up to the greater of $10,000,000 or ten times the adjusted basis of the stock, provided the stock is held for more than five years. For Fund III's $7,200,000 investment, the potential exclusion could shelter up to $72,000,000 in gain at the individual partner level (assuming a 10× basis exclusion applies), representing a substantial tax benefit to Fund III's limited partners.
Based on our review of the transaction documents, the Company's organizational records, the due diligence materials assembled by Cobalt's deal team, representations made by the Company through its counsel Whitfield & Ames LLP, and the financial information provided by the Company's auditors at Graystone & Pallister CPAs, LLP, we conclude that the Series Seed Preferred Stock should qualify as QSBS at the time of issuance on February 9, 2026, subject to ongoing compliance by Meridian with the active business requirement and the aggregate gross assets requirement under § 1202(d) and (e). Each of the five statutory requirements for QSBS qualification is analyzed in detail below, and each is either currently satisfied or reasonably expected to be satisfied on an ongoing basis.
We note a key structural caveat with respect to Fund III. Because Cobalt Ventures Fund III, LP is organized as a Delaware limited partnership—a pass-through entity for federal income tax purposes—the QSBS exclusion does not apply at the partnership level. Rather, pursuant to IRC § 1202(g), the exclusion benefit flows through to individual (non-corporate) limited partners of Fund III who held their partnership interests at the time Fund III acquired the Meridian stock and who continue to hold such interests through the date of any subsequent disposition of the Meridian shares (whether by sale of the shares at the Fund III level, or through an in-kind distribution of the shares to partners followed by a partner-level sale). Corporate limited partners of Fund III would not be eligible for the QSBS exclusion. The practical implications of this pass-through treatment are discussed in Section V of this memorandum.
This memorandum also briefly addresses the QSBS eligibility of shares to be issued upon conversion of the Company's outstanding convertible notes, as well as the QSBS implications for the other investors participating in the Financing. However, our primary focus is on the new-money shares acquired by Fund III.
This memorandum is not a guarantee of QSBS qualification and should not be relied upon as tax advice by any party other than the addressees. We strongly recommend that Meridian be encouraged to obtain its own independent QSBS analysis from its tax advisors and to establish and maintain records necessary for ongoing compliance with the requirements of § 1202. Additionally, because QSBS qualification involves ongoing requirements that must be monitored throughout the holding period, the conclusions herein are necessarily prospective in part and subject to the continued satisfaction of the statutory conditions described below.
II. Background and Transaction Summary
A. The Company — Meridian Diagnostics, Inc.
Meridian Diagnostics, Inc. is a corporation organized under the General Corporation Law of the State of Delaware. The Company was incorporated on June 15, 2023, and is headquartered at 225 Binney Street, Suite 400, Cambridge, Massachusetts 02142. Its Employer Identification Number is 93-4127856, and its Delaware corporate file number is 7294531. Meridian has been a C-corporation for federal income tax purposes since its date of incorporation and has not at any time made an election under Subchapter S of the Code.
Meridian is a pre-revenue, early-stage medical diagnostics company engaged in the development and commercialization of the "MeridianPulse" platform. MeridianPulse is a microfluidic point-of-care diagnostic device designed to run a comprehensive 14-marker blood panel in under eight minutes. The technology is intended for deployment in urgent care clinics, emergency departments, and primary care settings where rapid diagnostic results can materially improve patient outcomes and reduce the need for costly laboratory send-outs. The Company is currently in the pre-clinical validation phase and anticipates initiating its FDA 510(k) premarket notification submission in the second half of 2026.
As of the date of this memorandum, Meridian employs eighteen full-time employees, including the Company's co-founders, Dr. Anika Patel (Chief Executive Officer and co-inventor of the MeridianPulse technology) and Dr. James Whitford (Chief Technology Officer). The Company's workforce includes eleven engineers and scientists, three regulatory and quality assurance professionals, two business operations personnel, and two executive officers.
Meridian holds a meaningful intellectual property portfolio consisting of five issued United States utility patents and three pending Patent Cooperation Treaty (PCT) applications, all of which relate to the Company's core microfluidic diagnostic technology, reagent cartridge design, and signal processing algorithms. The Company also maintains trade secrets and proprietary know-how relating to its manufacturing processes and assay development methodologies.
As of the anticipated closing date of the Financing, Meridian's remaining cash on hand is approximately $1,400,000. The Company's current monthly burn rate is approximately $185,000, which implies a remaining operational runway of approximately seven to eight months absent the infusion of new capital from the Financing. This burn rate has been relatively stable over the preceding three months, based on the monthly financial reports reviewed in diligence.
The Company's independent auditors are Graystone & Pallister CPAs, LLP, with the engagement led by Robert Milligan, CPA, Engagement Partner. Graystone & Pallister is located at 75 Ashbury Asset Advisors, Suite 2200, Boston, Massachusetts 02109. Graystone & Pallister has provided unaudited compiled financial statements for the fiscal year ended December 31, 2025, and has represented to Company counsel that Meridian's aggregate gross assets (as defined for purposes of § 1202) do not exceed $50,000,000.
B. The Financing
The Series Seed Financing has been negotiated on the following principal economic terms:
The pre-money valuation of the Company is $30,000,000, and the post-money valuation is $42,000,000. The total round size is $12,000,000, representing the aggregate new cash to be invested by the participating investors. In exchange for this investment, the Company will issue a total of 4,479,981 shares of Series Seed Preferred Stock at a price per share of $2.6786.
The price per share was derived by dividing the $30,000,000 pre-money valuation by the 11,200,000 pre-money fully-diluted shares of the Company. The pre-money fully-diluted share count consists of 10,000,000 shares of Common Stock currently issued and outstanding, plus 1,200,000 new shares authorized under the 2024 Equity Incentive Plan expansion (the "Option Pool Top-Up"), for a total of 11,200,000 fully-diluted shares. The Option Pool Top-Up was approved by the Board of Directors on January 18, 2026, and will be reflected in the Amended and Restated Certificate of Incorporation to be filed in connection with the closing.
The Financing is structured as a simultaneous sign-and-close transaction, with the execution of the Series Seed Preferred Stock Purchase Agreement (the "SPA") and the funding of all investor commitments expected to occur on February 9, 2026. The offering is exempt from registration under the Securities Act of 1933, as amended, pursuant to Regulation D, Rule 506(b). All participating investors have been verified as accredited investors under Rule 501(a) of Regulation D.
The principal ancillary transaction documents include: (i) the Amended and Restated Certificate of Incorporation; (ii) the Investors' Rights Agreement; (iii) the Right of First Refusal and Co-Sale Agreement; (iv) the Voting Agreement; and (v) the Cobalt Side Letter (the "Side Letter"), which provides Fund III with certain enhanced information rights, board observation rights, and related protective provisions.
C. The Investors
The following investors are participating in the Series Seed Financing:
Cobalt Ventures Fund III, LP. Fund III is committing $7,200,000 to the Financing, representing 60.0% of the total round. In exchange, Fund III will receive approximately 2,687,989 shares of Series Seed Preferred Stock. Fund III is a Delaware limited partnership with Employer Identification Number 85-2093147. Its general partner is Cobalt Ventures GP III, LLC, a Delaware limited liability company. The principals of Cobalt Ventures are Elaine Cho, Managing Partner, and David Hargrove, Partner. Fund III has total committed capital of $175,000,000, with approximately $62,000,000 deployed to date across its portfolio. The Meridian investment represents approximately 4.1% of total commitments and approximately 11.6% of currently deployed capital.
Pinewood Health Ventures, LLC. Pinewood is committing $2,400,000, representing 20.0% of the total round, in exchange for approximately 895,996 shares of Series Seed Preferred Stock. Pinewood is a Delaware limited liability company with Employer Identification Number 88-3451209. Its Managing Member is Sandra Kessler.
Thornfield Capital Partners, LP. Thornfield is committing $1,800,000, representing 15.0% of the total round, in exchange for approximately 671,997 shares of Series Seed Preferred Stock. Thornfield is a Delaware limited partnership with Employer Identification Number 87-6294013.
Atlas Point Angel Syndicate, LLC. Atlas Point is committing $600,000, representing 5.0% of the total round, in exchange for approximately 223,999 shares of Series Seed Preferred Stock. Atlas Point is a Delaware limited liability company with Employer Identification Number 92-1578430. Its syndicate manager is Victor Dominguez.
D. Convertible Note Conversion (Additional Context)
In addition to the new-money shares described above, Meridian will issue additional shares of Series Seed Preferred Stock upon conversion of outstanding convertible promissory notes at the closing. Specifically, the Company issued an aggregate of $2,100,000 in principal amount of convertible promissory notes on September 12, 2023, to two noteholders: Dr. Margaret Liu (principal amount of $1,200,000) and Clearwater Bridge Associates, LLC (principal amount of $900,000; Employer Identification Number 86-4319752). Interest has accrued on the notes at a rate of 5.0% per annum (simple interest) over the approximately twenty-nine months since issuance, resulting in aggregate accrued interest of approximately $253,750. The total conversion amount is therefore approximately $2,353,750.
Pursuant to the terms of the convertible notes, the notes will convert into shares of Series Seed Preferred Stock at the closing of a qualified financing, which the current Financing satisfies. The effective conversion price is determined by applying a 20% discount to the per-share price paid by the new-money investors, yielding a conversion price of $2.1429 per share (i.e., $2.6786 × 0.80 = $2.1429). This discounted price is lower than the price derived from the $25,000,000 valuation cap set forth in the notes (which would yield a cap price of approximately $2.2321 per share), and accordingly the discount price governs. At the $2.1429 conversion price, the aggregate conversion amount of $2,353,750 will result in the issuance of approximately 1,098,362 additional shares of Series Seed Preferred Stock.
The QSBS eligibility of the shares issued upon note conversion merits a separate, albeit related, analysis, which is addressed briefly in Section VII below. The primary focus of this memorandum, however, is the new-money shares acquired by Fund III and the other investors in exchange for cash.
III. Statutory Framework — IRC § 1202 Overview
A. General Rule
Section 1202 of the Internal Revenue Code provides a powerful incentive for investment in domestic small businesses by permitting eligible taxpayers to exclude from gross income a portion or all of the gain realized on the sale or exchange of qualified small business stock. The provision was originally enacted as part of the Revenue Reconciliation Act of 1993 and has been amended several times, most significantly by the Creating Small Business Jobs Act of 2010, which increased the exclusion percentage to 100% for qualifying stock acquired after September 27, 2010. The Protecting Americans from Tax Hikes (PATH) Act of 2015 made the 100% exclusion permanent.
Under IRC § 1202(a)(1), a non-corporate taxpayer may exclude from gross income the gain realized on the sale or exchange of QSBS held for more than five years. For stock acquired after September 27, 2010—which is applicable to the present transaction, as the anticipated issuance date is February 9, 2026—the exclusion is 100% of the eligible gain. This means that, for qualifying stock, the entire gain on a disposition may be excluded from federal income tax, subject to the per-issuer limitation.
The per-issuer gain limitation is set forth in § 1202(b)(1). For any single issuer, the aggregate amount of gain that a taxpayer may exclude is limited to the greater of: (i) $10,000,000 (reduced by the aggregate amount of eligible gain previously excluded with respect to stock of the same issuer), or (ii) ten times the taxpayer's adjusted basis in the qualified small business stock of the issuer that was disposed of during the taxable year. This 10× basis multiplier can be particularly valuable for early-stage investments where significant appreciation occurs, as it effectively scales the exclusion to the size of the investment.
Additionally, it is worth noting that for stock acquired after September 27, 2010, the gain excluded under § 1202 is not treated as an alternative minimum tax (AMT) preference item. This was a significant change from prior law, which had subjected a portion of the excluded QSBS gain to the AMT. Accordingly, for the shares at issue in this transaction, the full 100% exclusion should apply without any AMT adjustment.
B. Definition of QSBS — Five Requirements
For stock to qualify as QSBS, five cumulative requirements must be satisfied under IRC § 1202(c) and (d). All five requirements must be met; failure to satisfy any single requirement disqualifies the stock from QSBS treatment. The five requirements are as follows:
1.  Qualified Small Business / Domestic C-Corporation Requirement. The stock must be issued by a "qualified small business," which is defined in § 1202(d)(1) as a domestic C-corporation. The issuing corporation must be a C-corporation at the time of issuance and must remain a C-corporation during substantially all of the taxpayer's holding period.
2.  Original Issuance Requirement. The stock must be acquired by the taxpayer at its original issuance (directly or through an underwriter) in exchange for money, other property (not including stock), or as compensation for services provided to the issuing corporation. This requirement ensures that QSBS treatment is available only to the initial acquirer of the stock from the corporation, not to subsequent purchasers in the secondary market (with limited exceptions for gifts, inheritances, and certain partnership distributions).
3.  Aggregate Gross Assets Test. At the time of issuance, the corporation's aggregate gross assets must not exceed $50,000,000. This test is applied both immediately before and immediately after the issuance, taking into account the cash or other property received by the corporation in exchange for the stock. If the issuance of stock causes the corporation's aggregate gross assets to exceed $50,000,000, the stock does not qualify as QSBS.
4.  Active Business Requirement. During substantially all of the taxpayer's holding period, the corporation must use at least 80% of its assets (by value) in the active conduct of one or more "qualified trades or businesses." Certain specified trades or businesses—including personal service businesses in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, banking, insurance, financing, leasing, investing, farming, mining, and hotel/motel/restaurant operation—are excluded from the definition of a "qualified trade or business."
5.  C-Corporation Requirement Throughout Holding Period. The issuing corporation must be a C-corporation at all times during the period during which the stock is held by the taxpayer. A conversion to S-corporation status or a reorganization into a pass-through entity during the holding period would disqualify the stock from QSBS treatment.
C. Holding Period Requirement
The gain exclusion under § 1202(a)(1) applies only to QSBS that has been held for more than five years from the date of issuance. For shares issued on February 9, 2026, the earliest date on which a qualifying disposition could occur is February 10, 2031. A disposition prior to the expiration of the five-year holding period would not qualify for the § 1202 exclusion.
However, Congress recognized that early-stage investments may be subject to liquidity events before the five-year holding period has elapsed. To address this, IRC § 1045 provides a rollover mechanism for QSBS held for more than six months but less than five years. Under § 1045, a taxpayer who sells QSBS before the end of the five-year period may elect to defer gain by reinvesting the proceeds in replacement QSBS within sixty days. The § 1045 rollover is discussed further in Section IX of this memorandum.
It is also important to note that the partial exclusion provisions under § 1202(a)(2) and (a)(3)—which provided reduced exclusion percentages of 50% and 75% for stock acquired in earlier periods—are not applicable here, as the shares at issue will be acquired after September 27, 2010, and thus qualify for the 100% exclusion.
IV. Analysis of Each QSBS Requirement
We turn now to a detailed analysis of whether the Series Seed Preferred Stock of Meridian Diagnostics, Inc. satisfies each of the five QSBS requirements set forth in § 1202.
A. Qualified Small Business / Domestic C-Corporation Requirement (§ 1202(d)(1))
Section 1202(d)(1) defines a "qualified small business" as a domestic corporation that is a C-corporation. This requirement has two components: (i) the issuing entity must be a "domestic corporation" within the meaning of § 7701(a)(4) of the Code, and (ii) the entity must be taxed as a C-corporation (i.e., not an S-corporation or other pass-through entity).
Meridian Diagnostics, Inc. is a corporation organized under the General Corporation Law of the State of Delaware, as evidenced by its Certificate of Incorporation filed with the Delaware Secretary of State on June 15, 2023. As a corporation organized under the laws of a state of the United States, Meridian is a "domestic corporation" within the meaning of IRC § 7701(a)(4), which defines a "domestic" entity as one "created or organized in the United States or under the law of the United States or of any State."
Meridian has been taxed as a C-corporation for federal income tax purposes since its date of incorporation. The Company has not filed an election under IRC § 1362(a) to be treated as an S-corporation, and no such election is currently contemplated. Meridian's Employer Identification Number is 93-4127856, and its federal tax returns have been filed consistently on the basis of C-corporation status. This has been confirmed through representations made by Whitfield & Ames LLP, Company counsel, in the diligence process.
Conclusion: This requirement is satisfied. Meridian Diagnostics, Inc. is a domestic C-corporation within the meaning of § 1202(d)(1).
B. Original Issuance Requirement (§ 1202(c)(1))
Section 1202(c)(1)(B) requires that the stock be "acquired by the taxpayer at its original issuance (directly or through an underwriter) in exchange for money, other property (not including stock), or as compensation for services provided to such corporation (in the case of an employee or independent contractor)." The purpose of this requirement is to ensure that the QSBS exclusion benefits the investors who provide capital or services directly to the qualified small business, rather than secondary market purchasers.
In the present transaction, the Series Seed Preferred Stock is being issued directly by Meridian to each investor at the closing of the Financing on February 9, 2026, pursuant to the terms of the SPA. No underwriter is involved. Each investor is providing cash consideration in exchange for newly issued shares. Specifically, Cobalt Ventures Fund III, LP is acquiring 2,687,989 shares of Series Seed Preferred Stock for $7,200,000 in cash, wired directly to Meridian at closing. Each of the co-investors—Pinewood Health Ventures, LLC, Thornfield Capital Partners, LP, and Atlas Point Angel Syndicate, LLC—is similarly acquiring shares at original issuance for cash. No secondary transfers or purchases from existing stockholders are involved. All shares to be issued in the Financing are newly authorized and issued shares.
An important consideration in the context of preferred stock relates to § 1202(c)(3), which provides that stock will not be treated as QSBS if, at the time of issuance, the stock possesses certain disqualifying features. Specifically, § 1202(c)(3)(A) provides that stock will not be treated as QSBS if the stock is described in § 1504(a)(4)—i.e., stock that is "limited and preferred as to dividends" and does not participate in corporate growth beyond a fixed return. This provision is designed to exclude "plain preferred" or debt-like instruments from QSBS treatment.
The Series Seed Preferred Stock of Meridian carries the following features, as set forth in the Amended and Restated Certificate of Incorporation:
(a) A 1× non-participating liquidation preference, payable upon a liquidation, dissolution, or deemed liquidation event (including a merger, acquisition, or sale of substantially all assets);
(b) Broad-based weighted average anti-dilution protection, triggered upon the issuance of additional shares of Common Stock or Common Stock equivalents at a price below the applicable conversion price;
(c) A conversion right, pursuant to which each share of Series Seed Preferred Stock is convertible at any time at the option of the holder into one share of Common Stock (subject to adjustment for stock splits, combinations, and anti-dilution adjustments); and
(d) Mandatory conversion upon the occurrence of a qualified IPO (as defined in the Certificate of Incorporation).
These features are typical of venture-backed preferred stock and should not disqualify the Series Seed Preferred Stock under § 1202(c)(3). The critical factor is that the conversion feature provides the holders with meaningful upside participation in the growth of the Company. Unlike "plain preferred" stock, which is limited to a fixed dividend and liquidation preference, the Series Seed Preferred Stock carries the right to convert into Common Stock and thereby participate fully in the appreciation of the Company's equity value. This conversion right ensures that the stock is not "limited and preferred as to dividends" within the meaning of § 1504(a)(4), and accordingly should not be treated as non-QSBS stock under § 1202(c)(3).
We note that there is limited direct guidance on the application of § 1202(c)(3) to venture-backed preferred stock with non-participating liquidation preferences and conversion rights. However, the weight of practitioner commentary and the legislative intent underlying § 1202 support the position that convertible preferred stock with meaningful equity upside—such as the Series Seed Preferred Stock at issue—qualifies as QSBS, provided the other statutory requirements are satisfied. The non-participating nature of the liquidation preference (i.e., holders must elect between their 1× preference and their conversion value, but do not receive both) further supports this conclusion, as it demonstrates that the stock is fundamentally equity in character, with the liquidation preference serving only as downside protection rather than a fixed return.
Conclusion: This requirement is satisfied. The shares of Series Seed Preferred Stock are being acquired by Fund III and the other investors at original issuance, directly from the Company, in exchange for cash consideration. The preferred stock features do not trigger the disqualification provisions of § 1202(c)(3).
C. Aggregate Gross Assets Test (§ 1202(d)(2))
Section 1202(d)(2) provides that a corporation is a "qualified small business" only if, at all times after August 10, 1993, and before the issuance of the stock in question, and immediately after the issuance, the corporation's "aggregate gross assets" do not exceed $50,000,000. This test is applied at two measurement points: (i) at all times prior to the issuance, and (ii) immediately after the issuance (taking into account the cash or other property received by the corporation in the issuance).
For purposes of this test, "aggregate gross assets" means the amount of cash and the aggregate adjusted bases of other property held by the corporation. For property contributed to the corporation (or property for which the adjusted basis is determined by reference to the basis of another person), the adjusted basis is the fair market value of the property at the time of contribution. This rule, set forth in § 1202(d)(2)(B), is designed to prevent taxpayers from artificially deflating the gross assets figure by contributing low-basis, high-value property to a corporation.
1. Pre-Issuance Gross Assets.  Prior to the closing of the Financing, Meridian's gross assets consist primarily of the following:
•  Cash and cash equivalents: Approximately $1,400,000, representing the Company's remaining cash from prior capital contributions and convertible note proceeds, net of operating expenditures since incorporation.
•  Tangible property: Laboratory and office equipment, office furniture, leasehold improvements at the Company's Cambridge, Massachusetts headquarters. The aggregate adjusted tax basis of these assets is modest, consistent with the Company's early-stage status and limited capital expenditure history.
•  intellectual property: The Company's IP portfolio, consisting of five issued U.S. utility patents and three pending PCT applications, as well as trade secrets and proprietary know-how. For purposes of the gross assets test, the adjusted basis of internally developed intellectual property is generally the amount capitalized under § 263A or § 174, which for an early-stage company is typically far below the fair market value of the IP as reflected in enterprise valuation. The Company has not received any contributed IP from its founders or other parties; rather, the IP was developed internally using Company resources, and accordingly the fair market value contribution rule of § 1202(d)(2)(B) does not apply to inflate the basis of these assets.
•  Other assets: Minor amounts of prepaid expenses, security deposits, and accounts receivable (if any). These amounts are immaterial for purposes of this analysis.
It is important to note that the outstanding convertible promissory notes ($2,100,000 in aggregate principal) are liabilities of the Company, not assets, and therefore do not factor into the gross assets calculation. The proceeds from the notes that remain unspent are included in the Company's cash balance and are already reflected in the $1,400,000 figure above.
Based on the foregoing, Meridian's aggregate gross assets prior to the closing of the Financing are estimated to be well below $50,000,000. Even under conservative assumptions, the Company's pre-closing gross assets are unlikely to exceed $5,000,000 in the aggregate.
2. Post-Issuance Gross Assets (Including Proceeds).  Immediately after the issuance of the Series Seed Preferred Stock, Meridian will receive $12,000,000 in new cash from the investors participating in the Financing. The Company's post-closing cash balance will therefore be approximately $1,400,000 (existing) plus $12,000,000 (new proceeds) = $13,400,000. Adding to this the aggregate adjusted bases of the Company's other assets (tangible property, intellectual property, and other assets), which are estimated at well below $36,600,000, the Company's total post-issuance aggregate gross assets will be significantly below the $50,000,000 threshold.
We emphasize that the pre-money valuation of $30,000,000, which reflects the negotiated market value of the Company, is not the relevant measure for purposes of the gross assets test. The test uses adjusted tax basis (or, for contributed property, fair market value at the time of contribution), not enterprise value. The actual adjusted tax basis of Meridian's assets is substantially lower than its enterprise value, as is typical for early-stage technology companies whose principal value derives from internally developed intellectual property with a low tax basis and future growth potential that is not reflected on the balance sheet.
We have reviewed the compiled financial statements of Meridian for the fiscal year ended December 31, 2025, prepared by Graystone & Pallister CPAs, LLP, and have conferred with Robert Milligan, CPA, regarding the Company's asset position. Based on these materials, we are satisfied that the Company's aggregate gross assets are well below the $50,000,000 threshold both before and immediately after the issuance of the Series Seed Preferred Stock.
Conclusion: This requirement is satisfied. Meridian's aggregate gross assets are estimated to be well below the $50,000,000 threshold both before and immediately after the issuance of the Series Seed Preferred Stock on February 9, 2026.
Risk Flag / Monitoring: The gross assets test is applied at each issuance. If Meridian raises additional financing rounds in the future, the Company should track its aggregate gross assets at the time of each future issuance to ensure compliance with § 1202(d)(2) for investors in those future rounds. As the Company grows and accumulates additional capital and assets, the risk of exceeding the $50,000,000 threshold will increase. For example, if Meridian were to raise a Series A round of $30,000,000 or more in 2027, the post-issuance gross assets could approach or exceed the threshold depending on the Company's asset position at that time. However, it is important to note that even if Meridian exceeds $50,000,000 in gross assets at the time of a future issuance, this would not retroactively disqualify the Series Seed Preferred Stock—it would only disqualify the shares issued in the future round.
D. Active Business Requirement (§ 1202(e))
1. Qualified Trade or Business.  Section 1202(e)(3) defines a "qualified trade or business" by exclusion—it provides that certain specified trades or businesses do not constitute qualified trades or businesses for purposes of § 1202. The excluded categories are enumerated in § 1202(e)(3)(A) through (E) and include:
(A) Any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services;
(B) Any banking, insurance, financing, leasing, investing, or similar business;
(C) Any farming business (including the business of raising or harvesting trees);
(D) Any business involving the production or extraction of products of a character with respect to which a deduction is allowable under § 613 or § 613A (i.e., mining and natural resource extraction); and
(E) Any business of operating a hotel, motel, restaurant, or similar business.
Additionally, § 1202(e)(3) excludes any trade or business where the principal asset of such business is the reputation or skill of one or more of its employees.
Meridian Diagnostics, Inc. is engaged in the development and commercialization of the MeridianPulse platform—a microfluidic point-of-care diagnostic device. This is fundamentally a technology and product development business. The Company's activities include research and development, prototype engineering, assay development, manufacturing process design, regulatory strategy, and preparation for commercial launch. These activities are characteristic of a medical device or biotechnology company and are clearly distinguishable from the personal service businesses enumerated in § 1202(e)(3)(A).
We recognize that Meridian's product operates in the "health" space, and accordingly it is important to address whether the Company's business falls within the § 1202(e)(3)(A) exclusion for trades or businesses "involving the performance of services in the field of health." The legislative history and interpretive guidance make clear that the "health" exclusion in § 1202(e)(3)(A) is derived from the similar exclusion in § 448(d)(2)(A) for personal service corporations, which targets businesses that provide professional health care services—such as medical practices, dental offices, chiropractic clinics, and similar service providers. The exclusion does not encompass companies that develop, manufacture, or sell health-related products, devices, or technologies. Meridian does not provide health care services to patients. Rather, it develops a hardware and software platform—a physical diagnostic device—that will be sold or leased to health care providers. The Company's business is analogous to that of a medical device manufacturer, a pharmaceutical company, or a biotechnology firm, all of which are universally understood to fall outside the "health" services exclusion.
This distinction is supported by the legislative history of § 1202, which indicates that Congress intended the exclusion for "health" services to apply to businesses where the services rendered are the primary revenue-generating activity, not to businesses that develop tangible products or technology for use in the health care industry. Practitioner commentary and informal IRS guidance are consistent with this interpretation.
Moreover, Meridian's principal asset is its intellectual property portfolio—comprising issued and pending patents, trade secrets, and proprietary technology—not the "reputation or skill" of its employees. While the Company employs talented scientists and engineers, the value of the enterprise resides in the patented technology and the physical product being developed, not in the personal services of any individual employee. This distinguishes Meridian from the types of businesses targeted by the "reputation or skill" exclusion.
Conclusion: Meridian's diagnostics platform development business constitutes a "qualified trade or business" under § 1202(e)(3). The Company's activities do not fall within any of the excluded categories.
2. 80% Active Business Use Test.  Section 1202(e)(1) requires that, during substantially all of the taxpayer's holding period for the QSBS, at least 80% (by value) of the assets of the issuing corporation be used in the "active conduct" of one or more qualified trades or businesses. This is an ongoing requirement that must be monitored throughout the holding period, not merely at the time of issuance.
Meridian's assets, both before and after the closing of the Financing, consist primarily of the following categories:
(i) Cash and short-term investments: Representing the Company's operating funds, including the $12,000,000 in new financing proceeds. As discussed below, cash held for reasonable working capital needs receives favorable treatment under the working capital safe harbor of § 1202(e)(6).
(ii) Laboratory and office equipment: Directly used in the research, development, and testing of the MeridianPulse platform. These assets are clearly "used in the active conduct" of Meridian's qualified trade or business.
(iii) intellectual property (patents and trade secrets): The core assets of the Company, directly related to the MeridianPulse technology. These assets are unambiguously used in the active conduct of the Company's business.
(iv) Working capital and prepaid expenses: Held in connection with the Company's ongoing operations and used to fund day-to-day business expenditures.
The working capital safe harbor under § 1202(e)(6) is particularly important for early-stage companies like Meridian that receive large infusions of cash in financing rounds. Under § 1202(e)(6), assets held as part of the "reasonably required working capital needs" of the corporation are treated as assets used in the active conduct of a qualified trade or business, provided two conditions are met: (a) the corporation has a plan specifying how the working capital will be used in the business, and (b) the working capital is actually used within two years of receipt. Given Meridian's monthly burn rate of approximately $185,000, the $12,000,000 in proceeds from the Financing should be consumed over approximately five to six years if used solely for operations. The two-year safe harbor would cover the deployment of the first approximately $4,440,000 of proceeds. For the remaining proceeds, the Company should ensure that it can demonstrate a specific plan for the use of such funds in the business. As a practical matter, the Company's business plan and budget (reviewed in diligence) contemplate that all financing proceeds will be used for product development, regulatory activities, manufacturing scale-up, and working capital—all of which are qualifying uses.
Substantially all of Meridian's non-cash assets (Intellectual property, equipment, leasehold improvements) are used directly in the development and commercialization of the MeridianPulse platform. The Company does not hold significant passive investment assets, real estate (other than its office lease), or other assets unrelated to its core business. Accordingly, we expect that the 80% active business use test is satisfied as of the issuance date and should continue to be satisfied throughout the holding period, provided Meridian does not materially change its business model or asset composition.
Conclusion: This requirement is expected to be satisfied. However, because this is an ongoing requirement measured during "substantially all" of the taxpayer's holding period, Meridian should be counseled to avoid holding significant passive investment assets or deploying financing proceeds in non-qualifying activities. The Company should maintain documentation of its working capital plan and the deployment of financing proceeds to support compliance with the working capital safe harbor under § 1202(e)(6).
E. C-Corporation Status Throughout Holding Period (§ 1202(c)(2)(A))
Section 1202(c)(2)(A) requires that the issuing corporation be a C-corporation during substantially all of the taxpayer's holding period for the stock. If the corporation converts to S-corporation status, reorganizes into a limited liability company or other pass-through entity, or otherwise ceases to be a C-corporation during the holding period, the stock would no longer qualify as QSBS.
Meridian has been a C-corporation since its incorporation on June 15, 2023, and has not at any time made an election to be treated as an S-corporation. No such election is contemplated. Given Meridian's status as a venture-backed company with institutional investors (including multiple limited partnerships and limited liability companies that include both corporate and non-corporate members), an S-election would not be feasible in any event, as S-corporations are subject to restrictions on the types and number of shareholders (e.g., no more than 100 shareholders, no nonresident alien shareholders, no corporate shareholders, and no multi-class stock structures). Meridian's current and anticipated capital structure—with multiple classes of stock (Common Stock and Series Seed Preferred Stock) and institutional entity shareholders—is incompatible with S-corporation requirements.
Furthermore, as a venture-backed company anticipating future institutional financing rounds and a potential initial public offering, there is no strategic incentive for Meridian to convert to S-corporation status or to reorganize as a pass-through entity. The risk of a change in entity status is therefore assessed as low.
Conclusion: This requirement is satisfied as of the issuance date and is expected to remain satisfied throughout the holding period. The risk of a change in entity status is low given Meridian's venture-backed capital structure and institutional investor base.
V. Pass-Through Entity Considerations — Cobalt Ventures Fund III, LP
A. General Rule for Partnerships
The QSBS exclusion under § 1202 is structured as a taxpayer-level benefit available to non-corporate shareholders. When QSBS is held by a pass-through entity, the rules of § 1202(g) govern the allocation of the exclusion benefit to the entity's owners.
Under § 1202(g)(1), if QSBS is held by a pass-through entity—defined to include a partnership, an S-corporation, a regulated investment company (RIC), or a common trust fund—the determination of whether the taxpayer meets the requirements of § 1202 (including the holding period requirement) is made at the partner, shareholder, or participant level, rather than at the entity level. In other words, the pass-through entity itself does not claim the QSBS exclusion; rather, the exclusion is applied when gain from the disposition of the QSBS flows through to the individual (non-corporate) owners of the entity.
Cobalt Ventures Fund III, LP is a Delaware limited partnership with Employer Identification Number 85-2093147. Fund III is managed by its general partner, Cobalt Ventures GP III, LLC, a Delaware limited liability company. For federal income tax purposes, Fund III is treated as a partnership under Subchapter K of the Code and is not subject to entity-level federal income tax. Items of income, gain, loss, deduction, and credit flow through to Fund III's partners in accordance with the partnership agreement and the allocation provisions thereof.
Accordingly, when Fund III ultimately disposes of its Meridian shares (whether by sale, exchange, or in-kind distribution to partners), any gain recognized on the disposition will flow through to Fund III's partners. Eligible non-corporate partners—primarily individual limited partners—will be entitled to claim the § 1202 exclusion on their allocable share of the gain, subject to the conditions described below.
B. Eligibility of Fund III's Partners
The § 1202 exclusion is available only to non-corporate taxpayers. Section 1202(a) expressly provides that "a non-corporate taxpayer" may exclude gain from gross income. For purposes of this provision, "non-corporate taxpayer" includes individuals, estates, and trusts. Corporate entities—including C-corporations and S-corporations that are shareholders of Fund III—are not eligible for the exclusion.
Each eligible limited partner's exclusion is subject to the per-issuer gain limitation of § 1202(b)(1), computed at the individual partner level. For each partner, the maximum excludable gain with respect to Meridian stock is the greater of: (i) $10,000,000, or (ii) ten times the partner's allocable share of Fund III's adjusted basis in the Meridian shares. The adjusted basis allocated to each partner is generally determined under the partnership's allocation provisions and reflects the partner's proportionate share of Fund III's $7,200,000 cost basis in the Meridian shares.
To illustrate, if a limited partner holds a 5% interest in Fund III and Fund III's $7,200,000 investment is allocated ratably, the partner's allocable basis in the Meridian shares would be approximately $360,000. Ten times this basis would be $3,600,000. Because $10,000,000 is greater than $3,600,000, the partner's maximum exclusion would be $10,000,000 (assuming no prior exclusions with respect to Meridian stock). For partners with larger allocable interests, the 10× basis multiplier may yield a higher maximum exclusion.
C. Holding Period and Transfer Restrictions
The holding period rules under § 1202(g)(2) are critical for pass-through entity investors. Under § 1202(g)(2)(A), a partner's holding period for QSBS held by a partnership includes the period during which the partner held its partnership interest, provided the partner held the interest at the time the partnership acquired the QSBS. In other words, the partner's QSBS holding period begins on the date Fund III acquires the Meridian stock—February 9, 2026—and includes any subsequent period during which the partner continues to hold its Fund III interest.
Importantly, partners who acquire their Fund III interests after the acquisition date—for example, through a secondary transfer of limited partnership interests or a new capital commitment funded after February 9, 2026—do not receive QSBS treatment on the pre-existing Meridian shares. This is because the original issuance requirement of § 1202(c)(1)(B) requires that the taxpayer (here, the partner, by attribution through the partnership) have acquired the stock at original issuance. A partner who was not a partner at the time of original issuance cannot satisfy this requirement. Cobalt should be mindful of this restriction in connection with any future transfers of Fund III limited partnership interests or admissions of new limited partners.
If Fund III distributes Meridian shares in kind to its partners (for example, upon a liquidity event or at the termination of the fund), the distribution generally does not trigger gain recognition under § 731(a), and the QSBS character and holding period carry over to the distributee partner under § 1202(h)(1), subject to certain conditions. Specifically, § 1202(h)(1) provides that a partner who receives QSBS in a distribution from a partnership is treated as having acquired the stock at the time the partnership acquired it and as having held the stock for the period during which the partnership held it (plus the partner's own pre-distribution holding period of the partnership interest). This is a favorable result, as it allows the in-kind distribution of Meridian shares without forfeiting the QSBS holding period or character.
D. Fund-Level Considerations
Fund III has $175,000,000 in total committed capital, with approximately $62,000,000 deployed to date across its portfolio of investments. The $7,200,000 Meridian investment represents approximately 4.1% of Fund III's total commitments and approximately 11.6% of currently deployed capital. This concentration is well within the diversification parameters established in Fund III's limited partnership agreement and the fund's investment thesis, which targets early-stage and seed-stage investments in health care technology and life sciences.
From a tax reporting perspective, Fund III will need to track the QSBS status of the Meridian investment at the fund level and report the relevant information to its partners. This includes maintaining records of the date and amount of the investment, the number of shares acquired, the adjusted basis of the shares, and the QSBS qualification status. Upon any disposition of the Meridian shares, Fund III will need to report the gain (and the QSBS character of the gain) on the partners' Schedule K-1s.
E. Recommendations for Cobalt
Based on the foregoing analysis, we recommend the following actions for Cobalt Ventures Fund III, LP:
1.  Partnership Agreement Provisions. Fund III's limited partnership agreement should include provisions for QSBS tracking and reporting. If the current partnership agreement does not contain such provisions, Cobalt should consider adopting an amendment or side letter to address QSBS reporting obligations.
2.  Schedule K-1 Reporting. Fund III should include QSBS disclosure on the Schedule K-1s issued to partners for each taxable year during which Fund III holds Meridian shares. The K-1 reporting should identify the Meridian shares as potential QSBS, disclose the date of acquisition, the adjusted basis allocable to each partner, and any other information necessary for partners to claim the § 1202 exclusion on their individual returns.
3.  Partner Records. Fund III should maintain detailed records of each partner's capital account, the dates on which each partner's commitment was funded, and the dates on which any transfers of partnership interests occurred. These records are essential to substantiate QSBS eligibility at the partner level, particularly in light of the requirement that the partner must have held its partnership interest at the time Fund III acquired the Meridian stock.
4.  Communication to Principals. Elaine Cho and David Hargrove should be briefed on the importance of ongoing QSBS compliance at the Meridian level and should use their board representation and information rights to monitor the Company's continued satisfaction of the active business requirement, the gross assets test, and the C-corporation requirement.
VI. Analysis for Other Investors
While Calderwood & Harkness LLP represents Cobalt Ventures LP and its affiliates, and does not represent the co-investors in the Financing, we provide the following brief observations regarding the QSBS eligibility of the other participating investors. Each co-investor should be encouraged to seek independent tax advice from its own counsel.
A. Pinewood Health Ventures, LLC
Pinewood Health Ventures, LLC is a Delaware limited liability company with Employer Identification Number 88-3451209. Its Managing Member is Sandra Kessler.
The QSBS treatment of Pinewood depends on its federal tax classification. If Pinewood is a multi-member LLC treated as a partnership for federal income tax purposes (the default classification for a multi-member LLC that has not elected to be treated as a corporation), the pass-through analysis described in Section V applies. The QSBS exclusion would be available at the individual member level, subject to the same holding period, non-corporate status, and per-issuer gain limitation requirements discussed above.
If Pinewood is a single-member LLC that is disregarded as an entity separate from its owner for federal tax purposes, the QSBS benefit flows directly to the sole member. In that case, the sole member is treated as the direct owner of the Meridian shares for § 1202 purposes, and the analysis is the same as for an individual investor.
Sandra Kessler, as Managing Member, should consult Pinewood's own tax advisors regarding the tax classification of Pinewood and the QSBS eligibility of its members. Calderwood & Harkness LLP does not represent Pinewood and has not independently verified its tax classification or member composition.
B. Thornfield Capital Partners, LP
Thornfield Capital Partners, LP is a Delaware limited partnership with Employer Identification Number 87-6294013. As a limited partnership, Thornfield is treated as a partnership for federal income tax purposes (assuming it has not elected to be treated as a corporation under the "check-the-box" regulations of Treas. Reg. § 301.7701-3).
The same pass-through analysis applicable to Fund III applies to Thornfield. The QSBS exclusion is available at the individual partner level, subject to the holding period, non-corporate status, and per-issuer gain limitation requirements. Thornfield's partners should be advised of the potential QSBS benefits and the importance of maintaining their partnership interests throughout the five-year holding period. Thornfield should also implement QSBS tracking and K-1 reporting procedures analogous to those recommended for Fund III.
C. Atlas Point Angel Syndicate, LLC
Atlas Point Angel Syndicate, LLC is a Delaware limited liability company with Employer Identification Number 92-1578430. Its syndicate manager is Victor Dominguez. As an angel syndicate, Atlas Point is likely structured as a multi-member LLC treated as a partnership for federal income tax purposes, with its members being individual angel investors.
If so, the QSBS benefit passes through to the individual members of Atlas Point, subject to the same requirements discussed above. Given the syndicate structure, it is particularly important that Atlas Point maintain accurate records of its members and their respective membership interests, as the QSBS eligibility determination is made at the individual member level. Syndicate members should be advised of the QSBS eligibility criteria, including the requirement that they must have held their Atlas Point membership interests at the time Atlas Point acquired the Meridian shares and must hold such interests (or receive in-kind distributions of the shares) for more than five years.
Calderwood & Harkness LLP does not represent Pinewood, Thornfield, or Atlas Point, and each of these investors should seek independent tax advice regarding QSBS eligibility and compliance.
VII. Shares Issued on Convertible Note Conversion
As described in Section II.D above, approximately 1,098,362 shares of Series Seed Preferred Stock will be issued at the closing on February 9, 2026, upon the conversion of outstanding convertible promissory notes held by Dr. Margaret Liu ($1,200,000 in principal) and Clearwater Bridge Associates, LLC ($900,000 in principal; Employer Identification Number 86-4319752). The total conversion amount, including $253,750 in accrued interest, is approximately $2,353,750.
Original Issuance Analysis. The critical question for QSBS eligibility of the conversion shares is whether the shares are "acquired at original issuance" within the meaning of § 1202(c)(1)(B). The convertible notes were issued directly by Meridian to Dr. Liu and Clearwater Bridge on September 12, 2023, in exchange for cash. The conversion of the notes into Series Seed Preferred Stock on February 9, 2026, is occurring pursuant to the automatic conversion provisions of the notes, triggered by the occurrence of a "qualified financing." The weight of authority suggests that shares issued upon conversion of a convertible note should be treated as acquired at "original issuance" for purposes of § 1202, provided the note itself was acquired at original issuance from the corporation and the conversion is pursuant to the original terms of the note. In substance, the convertible note is an interim instrument that converts into the equity security that the investor intended to acquire from the outset. The conversion should be treated as a continuation of the original issuance, not as a secondary transfer.
We note, however, that the Code and regulations do not explicitly address the treatment of convertible note conversions in the § 1202 context, and there is limited formal guidance from the IRS on this point. The position that conversion shares qualify as QSBS is widely accepted among practitioners and is supported by the policy rationale of § 1202 (which is to incentivize capital formation for small businesses), but taxpayers should be aware of the residual uncertainty.
Holding Period. The QSBS holding period for shares issued upon conversion of a convertible note is a subject of some debate. The more conservative (and likely safer) position is that the QSBS holding period begins on the date of conversion—February 9, 2026—rather than on the date the notes were originally purchased (September 12, 2023). Under this approach, the earliest qualifying disposition date for the conversion shares would be February 10, 2031.
There is some authority suggesting that the holding period of the convertible note may "tack" to the holding period of the conversion shares, which would result in a QSBS holding period beginning on September 12, 2023. If tacking were available, the five-year holding period would expire on September 13, 2028—approximately two and a half years earlier than under the conversion-date approach. However, because the convertible note is a debt instrument (not equity), and the Code generally treats debt-to-equity conversions as new issuances for holding period purposes, the safer position is to use the conversion date as the beginning of the QSBS holding period. Dr. Liu and Clearwater Bridge should consult their own tax advisors regarding this issue.
Gross Assets Test. The gross assets test must be satisfied as of the date the conversion shares are issued—February 9, 2026. As analyzed in Section IV.C above, Meridian's aggregate gross assets on that date are well below the $50,000,000 threshold. This requirement is therefore satisfied for the conversion shares.
Dr. Margaret Liu. As an individual taxpayer, Dr. Liu is eligible for the QSBS exclusion directly, without the need for pass-through analysis. Assuming all other QSBS requirements are satisfied, Dr. Liu may exclude gain on the disposition of her conversion shares after the expiration of the five-year holding period, subject to the per-issuer gain limitation.
Clearwater Bridge Associates, LLC. As a limited liability company, Clearwater Bridge's QSBS eligibility depends on its federal tax classification. The pass-through analysis described in Sections V and VI applies. If Clearwater Bridge is treated as a partnership, the QSBS exclusion flows through to its non-corporate members. If it is a disregarded entity, the benefit flows to its sole member. Clearwater Bridge should seek its own independent tax advice regarding QSBS eligibility.
VIII. Potential Risks and Ongoing Compliance
While we conclude that the Series Seed Preferred Stock should qualify as QSBS at the time of issuance, QSBS qualification involves ongoing requirements that must be monitored throughout the five-year holding period (and beyond, if the stock continues to be held). Set forth below are the principal risks and compliance considerations that Cobalt and Meridian should be aware of.
A. Redemption Restrictions (§ 1202(c)(3))
Section 1202(c)(3) contains two anti-abuse provisions designed to prevent taxpayers from using stock buybacks or redemptions to manipulate QSBS eligibility. These provisions must be carefully monitored.
First, under § 1202(c)(3)(A), stock acquired by a taxpayer is not treated as QSBS if, at any time during the four-year period beginning on the date two years before the issuance of such stock

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