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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, DC 20549




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FORM 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the Fiscal Year Ended December 28,
    2003                                             
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to          .                                  

Commission file Number: 0-26126

SEROLOGICALS CORPORATION

(Exact name of Registrant as specified in its
charter)


|                                                                                   |  |                                            
|---------------------------------------------------------------------------------- |  | -------------------------------------------
|Delaware                                                                           |  | 58-2142225                                 
|(State or other jurisdiction of
    incorporation or organization)                 |  | (I.R.S. Employer
    Identification Number)
|                                                                                  
|5655 Spalding Drive, Norcross, Georgia(Address of principal executive
    offices) |  | 30092(Zip Code)                            

(Registrant telephone number including area code)
(678) 728-2000

Securities registered pursuant to
Section 12(b) of the Act:

None

Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $0.01 par value per
share

Rights to Purchase Preferred Stock


Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.     Yes þ          No o


Indicate
by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o

Indicate
by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act
Rule 12b-2).     Yes þ          No o

The
aggregate market value of the shares of common stock held by
non-affiliates (based upon the closing sale price on The Nasdaq
Stock Market) on June 29, 2003 was approximately
$337,681,434. As of March 4, 2004, there were
24,839,399 shares of Common Stock, $0.01 par value per
share, outstanding.

Documents Incorporated by Reference.

Portions
of the definitive proxy statement for the Registrants 2004
Annual Meeting of Stockholders (which will be filed pursuant to
Regulation 14A within 120 days of the close of the
Registrants fiscal year ended December 28, 2003) are
incorporated by reference into Part III.



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TABLE OF CONTENTS

|                                                 |  |                                                                                                        |  |   
|------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------ |  | --
|PART I.                                          |  |                                                                                                        |  |   
|Item 1.                                          |  | Business                                                                                               |  | 3 
|Item 2.                                          |  | Properties                                                                                             |  | 19
|Item 3.                                          |  | Legal Proceedings                                                                                      |  | 20
|Item 4.                                          |  | Submission of Matters to a
    Vote of Security Holders                                                |  | 20
|PART II.                                         |  |                                                                                                       
|Item 5.                                          |  | Market for the
    Registrants Common Equity and Related Stockholder
    Matters                      |  | 20
|Item 6.                                          |  | Selected Financial Data                                                                                |  | 21
|Item 7.                                          |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |  | 22
|Item 7A                                          |  | Quantitative and Qualitative
    Disclosures about Market Risk                                         |  | 37
|Item 8.                                          |  | Financial Statements and
    Supplementary Data                                                        |  | 37
|Item 9.                                          |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |  | 37
|Item 9A                                          |  | Controls and Procedures                                                                                |  | 37
|PART III.                                        |  |                                                                                                       
|Item 10.                                         |  | Directors and Executive
    Officers of the Registrant                                                 |  | 38
|Item 11.                                         |  | Executive Compensation                                                                                 |  | 40
|Item 12.                                         |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |  | 40
|Item 13.                                         |  | Certain Relationships and
    Related Transactions                                                     |  | 40
|Item 14.                                         |  | Principal Accountant Fees
    and Services                                                             |  | 41
|PART IV.                                         |  |                                                                                                       
|Item 15.                                         |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                    |  | 41
|SIGNATURES                                       |  | 46                                                                                                    
|EX-10.10.2 CHANGE IN CONTROL EXECUTIVE SEVERANCE
|EX-10.19 EMPLOYMENT AGREEMENT                   
|EX-10.20 FORMS OF CHANGE IN CONTROL             
|EX-10.21 AGREEMENT FOR DESIGN/BUILD SERVICES    
|EX-10.22.1 STANDARD INDUSTRIAL/COMMERCIAL LEASE 
|EX-10.22.2 FIRST AMENDMENT TO REAL ESTATE LEASE 
|EX-14.1 CODE OF ETHICS                          
|EX-21 SUBSIDIARIES OF THE COMPANY               
|EX-23.1 CONSENT OF DELOITTE & TOUCHE, LLP       
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO    
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO    
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO    
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO    







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PART I.

SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS

This Annual Report on Form 10-K contains
certain forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
about Serologicals Corporation and its subsidiaries
(collectively, Serologicals or the
Company or we or our or
us) that are subject to risks and uncertainties.
Statements that are not historical facts, including statements
about our beliefs and expectations, are forward-looking
statements. Forward-looking statements may be identified by the
use of words such as may, will,
expect, anticipate, intend,
estimate, plan, believe, or
continue and other words of similar meaning or
future or conditional verbs such as will,
should, would, and could.
Forward-looking statements include discussions of our expected
business outlook, future operations, financial performance,
pending acquisitions, financial strategies, future working
capital needs and projected industry trends, as well as our
strategies for growth, product development, regulatory approvals
and compliance, market position and expenditures.

Forward-looking statements are only
predictions and are not guarantees of performance.
Forward-looking statements are based on current expectations of
future events and are based on our current views and assumptions
regarding future events and operating performance. These
assumptions could prove inaccurate, or unknown risks or
uncertainties could materialize, which could cause our actual
results to differ materially from our expectations or
predictions. Many of these factors are beyond our ability to
control or predict.

All forward-looking statements contained in
this Annual Report on Form 10-K are qualified in their
entirety by reference to the factors discussed throughout this
Annual Report. The following cautionary statements identify
important factors that could cause our actual results to differ
materially from those discussed in the forward-looking
statements made in this Annual Report. Among the factors that
could cause our actual results to differ materially
are:



| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the risks and other factors described under
    the caption Cautionary Statements in this Annual
    Report;                                                                                                                                  
|
| |  | our ability to implement our growth
    strategy;                                                                                                                                                                                               
|
| |  | our ability to manage our growth and
    expansion;                                                                                                                                                                                             
|
| |  | our ability to raise capital;                                                                                                                                                                                                                   
|
| |  | our ability to find acceptable acquisitions in
    the future and to integrate and manage them;                                                                                                                                                 
|
| |  | our ability to compete effectively within our
    industry;                                                                                                                                                                                     
|
| |  | our dependence on the success of the customers
    of our EX-CYTE® product in developing and marketing
    existing and new drugs using the product;                                                                                            
|
| |  | our ability to complete construction and
    validation of the new EX-CYTE® manufacturing facility
    during 2004;                                                                                                                             
|
| |  | our ability to attract and retain qualified
    scientific and production personnel;                                                                                                                                                            
|
| |  | our ability to comply with regulatory,
    customer and industry regulations and guidelines;                                                                                                                                                    
|
| |  | our ability to identify new commercial product
    opportunities;                                                                                                                                                                               
|
| |  | our ability to protect our intellectual
    property;                                                                                                                                                                                           
|
| |  | our customers dependence on research
    budgets and government funding, which may be reduced;                                                                                                                                                 
|
| |  | the effect on our results of operations of the
    loss of any significant customers or reduced orders from
    significant customers, including reductions or delays in
    research and development budgets and in government funding;
    and
|
| |  | adoption of or changes in, domestic and
    foreign laws and regulations that could affect our ability to
    maintain existing licenses and approvals.                                                                                         

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You should not place undue reliance on any
forward-looking statements, which are based on current
expectations. Further, forward-looking statements speak only as
of the date they are made, and we undertake no obligation to
update any of them in light of new information or future events.
The factors listed above (in addition to other possible factors
not listed) could affect our actual results and cause these
results to differ materially from those expressed in
forward-looking statements made by us or on our
behalf.






|         |         
|-------- | --------
|Item  1. | Business

General Developments of Our
Business

The Company was founded in 1971 in Florida and
was incorporated under the laws of the State of Delaware in
1994. The Companys principal executive offices are located
at 5655 Spalding Drive, Norcross, Georgia, and its telephone
number at this address is (678) 728-2000.

We have made a number of acquisitions and
dispositions that have transformed the Company from a
therapeutic plasma collection company to a global provider of
biological products and enabling technologies to the life
science industry:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 1989, Serologicals expanded its blood typing
    supply capabilities through the acquisition of Bioscot, Ltd. of
    Edinburgh, Scotland. Now named Serologicals Ltd., this
    subsidiary operates an FDA-licensed monoclonal antibody
    production facility.                                                                                                                                                                                                                                                                                                                                                   
|
| |  | In December 1998, the Company acquired the Pentex
    Blood Proteins business (renamed Serologicals Proteins) from
    Bayer Corporation. This subsidiary manufactures cell culture
    supplements, including our patented EX-CYTE® product.                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | In August 2000, the Company completed the sale of
    47 plasma collection centers. These centers collected
    non-specialty plasma.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | In December 2001, the Company acquired Intergen
    Company, L.P. (Intergen). This acquisition expanded
    the Companys presence in the market for purified blood
    protein products and established a presence in the research
    reagent market.                                                                                                                                                                                                                                                                                                                                                             
|
| |  | In April 2003, the Company acquired Chemicon
    International, Inc. (Chemicon), greatly
    expanding the Companys presence in the research products
    business. Chemicon is operated today as a stand-alone subsidiary
    of Serologicals Corporation. Chemicon has a proven track-record
    of rapidly identifying, developing, manufacturing, and
    commercializing new products. Chemicon has historically
    introduced on average more than 500 new products per year
    through a combination of its active research and development
    program and product and technology acquisition activities.
|
| |  | Effective December 28, 2003, Serologicals
    exited the therapeutic plasma business, with the sale of the
    Companys remaining ten plasma collection centers and a
    central testing laboratory.                                                                                                                                                                                                                                                                                                                                                                                                                

Overview of Operations

The Company, with facilities in North America,
Europe, and Australia, is a global provider of biological
products and enabling technologies to life science companies.
Our products are essential for the research, development and
manufacturing of biologically based life science products. Our
products and technologies are used in a wide variety of
applications within the areas of oncology, hematology,
immunology, cardiology and infectious diseases, as well as in
the study of molecular biology. Our customers include many of
the leading life science companies throughout the world.

Our business is organized into three operating
segments: Research Products, Cell Culture Products and
Diagnostic Products. These segments are based primarily on the
differing production, manufacturing and other value-added
processes that we perform with respect to the products and to a
lesser extent, the differing nature of the ultimate end use of
our products. Prior to our decision to exit the therapeutics
plasma business, the Company reported a fourth operating
segment, Therapeutic Products, for the first two quarters of
fiscal 2003. The therapeutic products business is now classified
as discontinued operations under applicable
accounting

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rules, and the results of operations of the
former segment are no longer reported as a separate segment but
now reported as discontinued operations. See Discontinued
Operations below. During 2002, the Company reported three
operating segments, Biotechnology and Molecular Biology
Products, Therapeutic Products and Diagnostic Products. All
amounts in this Annual Report reflect the restatement of the
prior year segments so that they are consistent with the current
year presentation.


We conduct the operations of our Research
Products segment through Chemicon, which was acquired in April
2003. Chemicon provides a broad range of specialty reagents,
kits, antibodies and molecular biology tools to biotechnology,
pharmaceutical and academic research customers working in the
areas of neuroscience, infectious disease, drug discovery,
cancer research, stem cell research and proteomics. Chemicon is
also a leading supplier of monoclonal antibodies, conjugates,
antibody blends and molecular biology-based detection kits for
use in diagnostic laboratories. Chemicon, headquartered in
Temecula, California, has manufacturing and distribution
operations in California, Australia and the United Kingdom
(U.K.).

We manufacture our Cell Culture and Diagnostic
Products in facilities located in North America and the U.K.. We
operate protein fractionation facilities located in
Kankakee, Illinois and Toronto, Ontario and have a third
facility under construction in Lawrence, Kansas. These
facilities provide a variety of highly purified proteins used in
diagnostic reagents and cell culture media components for use in
the development and manufacturing of biotechnology products.
Additionally, these facilities produce a line of highly purified
animal proteins known as cell culture media components that are
used primarily by biopharmaceutical and biotechnology companies
as nutrient additives in cell culture media. The Companys
most significant product within the Cell Culture segment is
EX-CYTE®. EX-CYTE® is a concentrated solution of
cholesterol, lipoproteins and fatty acids that is used, in
combination with other cell culture supplements, to reduce or
replace animal serum in cell culture processes. The Company
holds one patent on the manufacturing process for EX-CYTE®.
Another patent has been granted but not yet issued. Other key
products within the Cell Culture segment include proprietary
bovine serum albumin (BSA), recombinant insulin and
other products used principally in mammalian cell culture.

We manufacture monoclonal antibodies in our
Scotland facility. The monoclonal antibodies are used in
diagnostic products such as blood typing reagents and in
controls for diagnostic tests for certain infectious diseases.
We operate a facility in Milford, Massachusetts that includes a
central distribution facility as well as operations related to
production of substrates used in diagnostic assays. The key
products within the Diagnostic segment are monoclonal antibodies
used in blood typing reagents and diagnostic antibodies.

See Note 15  SEGMENT AND
GEOGRAPHICAL INFORMATION in Item 8 Financial
Statements and Supplementary Data for disclosure of revenue and
gross profit by segment and long-lived assets by geographical
area for the three most recently completed fiscal years. The
Company does not currently segregate assets by segments as a
significant portion of the Companys total assets are
shared or non-segmental assets which the Company does not assign
to its three operating segments.

Discontinued Operations

On July 10, 2003, the Company announced its
intention to exit the therapeutic plasma business, which
consisted of a network of 10 donor centers that specialize
in the collection of hyper-immune human blood antibodies and a
central testing laboratory. As a result, during the third
quarter of fiscal 2003, the therapeutic plasma business was
classified as a discontinued operation. On December 19,
2003, the Company signed a definitive agreement to sell the
business. On January 15, 2004, effective December 28,
2003, the Company completed the sale of this business. Financial
statements for all years presented have been reclassified to
report results of discontinued operations separately from
results of continuing operations. Disclosures included herein
pertain to the Companys continuing operations unless
otherwise noted.

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As part of the therapeutic plasma disposition,
the Company sold certain products and related inventory
comprised of human-sourced disease state polyclonal antibodies.
Sales and gross margin for these products are included in the
Diagnostic segment in the accompanying Consolidated Statement of
Income. The following table sets forth net sales and gross
profit of such products that are included in the accompanying
Consolidated Statements of Income prior to the sale (in
thousands):

|             |  |      |       |      |  |      |       |  |  |   |       | 
|------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|             |  | 2003 |       | 2002 |  | 2001
|             |  |      |       |      |  |     
|Net sales    |  | $    | 2,812 |      |  | $    | 3,888 |  |  | $ | 5,535 | 
|Gross profit |  |      | 153   |      |  |      | 2,039 |  |  |   | 3,742 | 

See Note 4  DISCONTINUED
OPERATIONS in Item 8 Financial Statements and
Supplementary Data for further discussion of discontinued
operations.

Industry Overview

The Company operates in the life science
industry. It serves three principal types of life-science
customers  (i) life science researchers,
(ii) companies that use cell culture to produce
biopharmaceuticals and other recombinant proteins, and
(iii) companies that produce diagnostic products. The
following is a description of the industry segments in which
Serologicals operates:

Life
Science Research

Life science researchers require special
biochemical research tools capable of performing precise
functions in a given experimental procedure. Two of the
principal disciplines within the life science research market
are cellular biology research and molecular biology research.
Cellular biology research involves the study of the genetic
functioning and biochemical composition of cells, as well as
their proliferation, differentiation, growth and death. The
understanding gained from this study has broad application in
the field of developmental biology and is important in the study
of carcinogenesis, virology, immunology, vaccine design and
production and agriculture. To grow the cells required for
research, researchers use cell or tissue culture media that
simulate under laboratory conditions (in vitro)
the environment in which cells live naturally
(in vivo) and that provide nutrients required
for their growth.

Molecular biology research involves the study of
the genetic information systems of living organisms. The genetic
material of living organisms consists of long, double-stranded
molecules of deoxyribonucleic acid (DNA). DNA
contains the information required for the production of proteins
by means of ribonucleic acid (RNA), a
single-stranded molecule similar in composition to DNA. Proteins
have many different functional properties and include
antibodies, certain hormones and enzymes. Many researchers study
the various steps of gene expression from DNA to RNA to protein
products and the impact of these proteins on cellular function.
Other researchers are interested in manipulating the DNA-RNA
system in order to modify its functioning. Through techniques
that are commonly termed genetic engineering or
gene-splicing, a researcher can modify an
organisms naturally occurring DNA to produce a desired
protein not usually produced by the organism, or to produce a
naturally produced protein at an increased rate.

Cell
Culture

There are essentially two broad categories of
molecules that can be used as therapeutic agents. These are
small molecule drugs and large molecule drugs. Small molecule
therapeutics are chemical compounds that are made through an
organic or inorganic process. Chemical or pharmaceutical
companies manufacture these therapeutics and their active
ingredients in bulk. Large molecule therapeutics are mostly
protein-based with amino acids as their building blocks. Large
molecules must be grown in living cells, such as bacteria, yeast
or mammalian cells (or other living organisms) since they cannot
be synthesized chemically. Protein-based therapeutics are
usually injected because they cannot be absorbed orally due to
their size, composition and sensitivity to the gastrointestinal
environment. Another major category of protein therapeutics is
monoclonal antibodies. Monoclonal antibodies are antibodies that
are highly specific towards a biological target, known to

5



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be implicated in the development of disease.
There is an increasing trend of monoclonal antibody development
for therapeutic use.


The process for manufacturing large molecule
therapeutics requires a number of components, including:



| |   |                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cell Culture:Mammalian or other cell types which have been genetically
    transformed to produce large amounts of a therapeutic protein.
    As the cells grow and metabolize, they secrete the therapeutic
    protein into the medium that is then harvested, purified and
    further processed.
|
| |  | Bioreactors or Fermentation
    Tanks:Large tanks of varying capacity
    within which the cell culture and the nutrients are placed and
    are grown through the maintenance of optimal temperature,
    pressure and other environmental conditions.                                             
|
| |  | Media and Nutrients:Supplements that the cells depend upon for rapid growth enabling
    the production of the therapeutic protein.                                                                                                                                                                 

Cell culture is an important technology that is
also used in many other essential biomedical applications such
as the production of proteins that serve as key components of
clinical diagnostic assays, vaccine production, the development
of cell and tissue therapies, screening for toxicity during drug
discovery, and numerous research applications involving the
study of genes and cell biology.

Diagnostic
Products

Antibodies are used in the manufacture of
products that are used to screen patients for exposure to
disease-causing agents, to detect proteins of clinical
importance, determine blood type, and many other applications
where there is a need to detect a biological target with high
specificity. These products are called diagnostic products.
Diagnostic products may involve the use of either monoclonal or
polyclonal antibodies. Monoclonal antibodies are produced using
the cell culture process described above. Polyclonal antibodies
are produced by a living organism that is exposed to a specific
antigen. Typically, polyclonal antibodies are obtained from
human donors who have been exposed to a specific disease and
have developed resistance to it. The specificity of antibodies
makes them powerful diagnostic tools. Antibodies can be used to
locate substances that occur in minute amounts and to measure
the substances with great accuracy. Monoclonal antibodies may be
used to locate environmental pollutants, detect harmful
microorganisms in food, distinguish cancer cells from normal
cells and to diagnose infections in human, animals and plants.
Monoclonal antibodies are also used to determine blood type.
Antibodies are also used to classify the antigens on red cells
and to detect regular antibodies and irregular antibodies in
blood specimens.

Products and Operations



| |         
| | --------
| | Overview

In 2003, the Company derived approximately 29% of
its sales from Research Products, approximately 51% of its sales
from Cell Culture Products, and approximately 20% of its sales
from Diagnostic Products. The following table presents
individual products making up greater than 10% of consolidated
net sales of the Company during fiscal 2003, 2002 and 2001:

|                                      |  |      |    |      |  |      |    |   |  |  |    |  
|------------------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                                      |  | 2003 |    | 2002 |  | 2001
|                                      |  |      |    |      |  |     
|EX-CYTE®                              |  |      | 20 | %    |  |      | 31 | % |  |  | 36 | %
|BSA                                   |  |      | 11 | %    |  |      | 16 | % |  |  | 15 | %
|Anti-Sera/ Lewis blood typing product |  |      | *  |      |  |      | *  |   |  |  | 17 | %



---



|  |                                      
|- | -------------------------------------
|* | Less than 10% consolidated net sales.

EX-CYTE® and BSA are products of our Cell
Culture segment. Anti-Sera/ Lewis blood typing product is a
product of our Diagnostic segment.

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The following sets forth a description of the
Companys products in each of its segments, the processes
by which such products are manufactured or obtained and the
markets for such products:



| |         
| | --------
| | Research

The activities of the Research segment primarily
consist of the manufacture and sale of a broad range of
specialty reagents, kits, antibodies and molecular biology tools
to biotechnology, pharmaceutical and academic research customers
working in the areas of neuroscience, infectious disease, drug
discovery, cancer research, stem cell research and proteomics.
Our products within the Research segment are primarily used as
research tools by scientists performing experiments in an effort
to uncover the sequence and function of genes and to understand
their corresponding proteins and roles in biological pathways.
These scientists are involved in academic research at
universities and research institutes as well as drug discovery
research at pharmaceutical and biotechnology companies.
Therefore, market growth is driven by the amount of academic and
industrial research conducted throughout the world. Funding for
this research in the academic setting is derived primarily from
grants awarded by the National Institutes of Health
(NIH) and, to a lesser extent, other government
agencies and private endowments. This segment also produces
in vitro diagnostic products, either 510(k) diagnostic kits
or as analyte specific reagents for use by certified diagnostic
laboratories. These products are primarily antibodies,
antibody-based detection kits and molecular biology products. We
conduct the operations of our research segment through Chemicon.
Chemicons products are a blend of in-house developed and
manufactured products, licensed products manufactured in-house
and products manufactured by third parties. Our antibody
products are generally developed and manufactured through
in vitro cell culture and animal immunization processes.
Molecular biology products are generally developed and
manufactured using DNA cloning and recombinant protein
expression techniques. Development and manufacturing of products
in the Research segment is performed at our facilities in
Temecula, California, Southampton, UK and Melbourne Australia.
The Company also operates USDA certified, large and small animal
facilities in Ramona, California along with a similar operation
in Australia for the production of polyclonal antibodies. Of the
total number of products, approximately 65% of Chemicons
revenue is generated by in-house manufactured products. Less
than 5% of Chemicons revenues are attributable to upfront
fees and ongoing royalty revenue.



| |             
| | ------------
| | Cell Culture

The activities of the Cell Culture segment
primarily consist of the manufacture and sale of cell culture
media components, including EX-CYTE®, BSA and human
recombinant insulin, and other products used principally in
mammalian cell culture. Cell culture media and cell culture
components are essential to the manufacture of large-molecule
therapeutic products. Recent advances in the commercialization
of large-molecule therapeutic products have increased demand for
cell culture media and cell culture components. The
Companys largest product in 2003 was EX-CYTE®. Sales
of EX-CYTE® increased 54% over the past three years as a
result of growth of several marketed biopharmaceutical products
which use EX-CYTE® in the manufacturing process. Based on
current and expected future demand for this product, the Company
commenced construction of a second EX-CYTE® manufacturing
plant in February 2003. The plant is located in Lawrence, Kansas
and is expected to be operational during the second half of
2004. The total estimated cost for the plant is
$25.0 million to $27.0 million. Upon completion, the
Company expects to triple its EX-CYTE® production capacity,
which should enable it to meet anticipated customer demand for
at least the next five years. Demand for cell culture media and
cell culture components may be diminished in the future by a
shortage of manufacturing capacity to make the large-molecule
therapeutic products. Another factor that could impede the
demand for certain of these cell culture components is concern
about some of their components being from animals, specifically
bovine in origin. The concern arises from the risk that the
agent causing Bovine Spongiform Encephalopathy (BSE)
might be present in the raw materials used in the production
process. See Competition and Government and
Industry Regulation within Item 1 
Business for further discussion of BSE.

The Company produces its cell culture media
components at manufacturing facilities in
Kankakee, Illinois and Toronto, Ontario. As noted above,
the plant under construction in Lawrence, Kansas, will also

7



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manufacture cell culture media components. The
plants isolate specific proteins contained primarily in animal
sera or plasma through specialized manufacturing processes known
as protein fractionation. The Company utilizes core technologies
such as organic solvent precipitation, heat shock, molecular and
microporous filtration, ion-exchange chromatography and salt
precipitation to isolate and purify major plasma protein
classes, including albumin, gamma globulin, transferrin,
lipoproteins, aprotinin and clotting factors. The resulting
blood protein product line is sold worldwide, primarily to
biopharmaceutical companies and laboratories for use in cell
culture media in the production of genetically engineered
proteins and for use in experimentation related to the drug
discovery process.


The primary raw material used in the manufacture
of the Companys cell culture media components is bovine
serum and plasma. The Kankakee and Toronto facilities currently
purchase serum exclusively from a single abattoir located in
Illinois. The Company has a long-term agreement with the
supplier pursuant to which the Company is guaranteed certain
minimum levels of serum. Additionally, the contract provides the
Company with certain rights in the event of a change in control
of this supplier. The Company is a worldwide distributor of
Novo-Nordisk human recombinant insulin. The Company has a long
term agreement with Novo-Nordisk pursuant to which the Company
is guaranteed certain minimum levels of insulin.



| |           
| | ----------
| | Diagnostic

The activities of the Diagnostic segment
primarily consist of the manufacture and sale of certain
monoclonal and polyclonal antibodies. The antibodies provided by
the Diagnostic Products segment are used in diagnostic products,
such as blood typing reagents and diagnostic test kits. Blood
typing reagents are used by blood banks and hospital transfusion
services worldwide to assure compatibility between a recipient
and a donors blood type. There are many blood types and
highly accurate and specific antibodies are required to
determine blood type.

More than 15 billion human blood tests are
performed annually worldwide. These blood tests are performed
mostly in commercial laboratories, hospitals, urgent care
centers or physicians offices. Although over 1,000
different tests are performed on blood, fewer than 50 different
tests account for approximately 75% of all blood testing. These
tests are important because physicians routinely use them to
diagnose and monitor the treatment of disease and a significant
portion of the top 50 tests prescribed by physicians fall within
the clinical chemistry category. The entire global end user
market has been estimated at approximately $250.0 million,
with the antibody detection segment, which uses red cell derived
products, accounting for approximately 40% of the market.

Historically, blood typing reagents were made
primarily from human-sourced, or polyclonal, antibodies. Over
the past 15 years, monoclonal antibodies have been
developed to provide certain high quality antibodies on a
consistent basis. Many monoclonal antibodies are FDA approved
for diagnostic purposes. Monoclonal antibodies have largely, but
not completely, replaced polyclonal antibodies for use in blood
typing. The Company currently stores in excess of 80 cell lines
with which the Company provides over 60 different antibodies
used in the production of blood typing reagents, which the
Company believes provide it with a competitive advantage in this
market due to the desire of customers to buy an entire panel of
different antibodies for blood typing reagents from one
manufacturer.

The Company produces monoclonal antibodies from
more than 60 of these cell lines. The Companys
FDA-licensed monoclonal manufacturing facilities in Scotland
produce monoclonal antibodies from cells obtained from
independent laboratories. Currently, all monoclonal antibodies
manufactured by the Company are used in diagnostic products,
such as blood typing reagents and in controls for tests used for
diagnosing certain infectious diseases. The Company also
produces companion products to its monoclonal blood typing range
that are used in blood typing laboratories, including reagent
red cells, enzymes and diluents. The Company believes that
increased concerns relating to blood safety and increased demand
for more diverse diagnostic tests are influencing the diagnostic
blood and clinical testing industry.

8



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Research and Development

The Company believes that a commitment to
research and development is an important component of its future
growth opportunities and expects to continue to increase its
investment in research and development over the next several
years. The Company spent $6.2 million, $5.6 million
and $1.7 million on research and development activities in
2003, 2002 and 2001, respectively. The Companys research
and development activities are focused on developing new
products and applications for the markets it serves,
particularly in the Research Products and Cell Culture segments.
Within the Research Products segment, the Companys
research and development activities primarily relate to the
development of polyclonal and monoclonal antibodies and
molecular biology products, including kits using these products
and technologies and ancillary products to enhance the utility
of our products. During 2003, the Company developed 295 new
products within the Research segment as a result of these
activities. With respect to Cell Culture segment, the Company is
performing studies related to EX-CYTE® which should lead to
the development of new products and enable the Company to better
target growth opportunities. In addition, research efforts
include the study and development of new recombinant
supplements. Overall, the development strategy is based on
establishing core know-how within the Company as well as using
external contract organizations and co-development agreements
for carrying out the required activities. On December 28,
2003 we had 29 employees principally engaged in research
and development.

Sales and Marketing

The Company sells the majority of its products
through its own direct sales force, although distributors are
also used in the marketing and sales of its products. The
Company directly markets its products in over 48 countries
throughout the world and sells products through independent
distributors or agents in approximately 11 additional countries.
These independent distributors may also market products of other
companies, including some products that are competitive with our
products. As of December 28, 2003, the Company employed
over 85 people world-wide in its sales, customer service,
technical support and marketing organizations.

Our sales strategy is to employ scientists to
work as our technical sales representatives. Most of our
technical sales representatives have an extensive background in
biology, chemistry or molecular biology. A thorough knowledge of
biological techniques and an understanding of the research
process allows our sales representatives to become advisors,
acting in a consultative role with our customers. Our use of
skilled technical sales representatives also enables us to
identify market needs and new technologies that we can license
and develop into new products.

During 2003, the Companys customer base
increased to over 3,400 customers. Sales to the Companys
top ten customers accounted for approximately 45%, 54% and 58%
of total sales in 2003, 2002 and 2001, respectively. In 2003,
2002 and 2001, the Companys domestic sales represented
approximately 64%, 46% and 52%, respectively, of net sales. The
following table presents sales to individual customers that
represent more than 10% of consolidated net sales:

|                    |  |      |    |      |  |      |    |   |  |  |    |  
|------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                    |  | 2003 |    | 2002 |  | 2001
|                    |  |      |    |      |  |     
|Johnson & Johnson   |  |      | 17 | %    |  |      | 20 | % |  |  | 23 | %
|Eli Lilly & Company |  |      | *  |      |  |      | *  |   |  |  | 13 | %



---



|  |               
|- | --------------
|* | Less than 10%.

We principally manufacture products for inventory
and ship product shortly after the receipt of orders, and
anticipate that we will continue to do so in the future. We do
not currently have a significant backlog and do not anticipate
we will develop a material backlog in the future.

Quality Assurance

The Company maintains a global quality assurance
system and program designed to assure the efficacy and safety of
its products and compliance with the requirements of regulatory
authorities, voluntary quality

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standards, industry trade associations and its
customers. Through the Companys quality assurance program
and an internally maintained regulatory compliance program, the
Company conducts periodic audits of each facility to ascertain
the status and compliance of the quality system as implemented.
These audits are designed to ensure adherence to applicable
regulations and Company procedures, and to assess the
effectiveness of the quality system as a whole. These audits are
one component of the key performance indicators collected,
reviewed and monitored by the Company in order to maintain a
program of continuous improvement and compliance with its
established systems and programs.


The Companys operating facilities worldwide
are registered to ISO 9000:2000 Quality Standards. The ISO
9000:2000 series of standards is a voluntary quality standard
recognized throughout the world. Compliance with this standard
is required by many of our customers and in certain global
markets. Additionally, for our monoclonal manufacturing
facility, compliance with the In Vitro Diagnostic Directive
(IVDD) will be required for continued participation
in the European Union and other global markets. The Company has
already begun an extensive project to ensure that this facility
is compliant with the IVDD well in advance of the deadline for
adherence. While the Company fully expects to achieve
compliance, failure to achieve such compliance could have a
material adverse effect on the Company. The Companys
Scotland facility and Chemicon division are also registered to
ISO 13485, a voluntary quality standard for in-vitro diagnostic
products. Additionally, Chemicon is approved to use European
Certification, or CE, marking on some of its in-vitro diagnostic
products per European Community Directive 98/79/ EC
Annex IV, Article 3. This certification and approval
is for the design, manufacturing and distribution of
in-vitro-diagnostic devices, research and laboratory use
products.

Competition



| |                  
| | -----------------
| | Research Products

The market for our Research Products is very
competitive. There are numerous life science research product
suppliers that compete with us, some of which have significant
financial, operational, sales and marketing resources, and
experience in research and development. These and other
companies may have developed or could in the future develop new
technologies that compete with our products or even render our
products obsolete. We believe that a companys competitive
position in our market is determined by product function,
product quality, speed of delivery, technical support, price,
breadth of product line and timely product development. We
believe our customers are diverse and place varying degrees of
importance on the competitive attributes listed above. While it
is difficult to rank these attributes for all our customers in
aggregate, we believe that through Chemicon, we are well
positioned to compete in each category.



| |                      
| | ---------------------
| | Cell Culture Products

The Company does not believe that it currently
faces significant competition for its EX-CYTE® product. The
Company believes that it is the only supplier of
Cohn-fractionated BSA, which is produced at its Toronto
facility. Furthermore, the Company is the world-wide distributor
of Novo-Nordisks human recombinant insulin for use in cell
culture.



| |                    
| | -------------------
| | Diagnostic Products

The primary competition for monoclonal antibodies
used in blood typing reagents comes from customers that are
vertically integrated, and thus provide antibodies for their own
use, and smaller, independent manufacturers that offer a more
limited range of product than the Company. Some fully integrated
manufacturers also offer OEM and bulk services. As the Company
does not have a significant presence in the end market and is
thus seen as not being in direct competition with its customers,
the Company believes that it is generally favored over fully
integrated manufacturers that offer OEM and bulk antibodies.
Additionally, the Company believes that its broad range of
proprietary antibodies and state of the art facilities provide
it a competitive advantage with respect to these competitors.

10



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Government and Industry Regulation

Many of the Companys activities are subject
to regulation by governmental authorities in the United States
and internationally. These regulatory authorities govern the
collection, testing, manufacturing, safety, efficacy, labeling,
storage, record keeping, transportation, approval, advertising
and promotion of the Companys products, as well as the
training of its employees. The Company manufactures and
distributes a significant number of products that are not
subject to FDA regulation; however, some of these products are
subject to import and export regulations specific to the country
of import. The Company believes it is in substantial compliance
with all relevant laws and regulations.

The facilities used by the Company in the Cell
Culture and Diagnostic Products segments are subject to
extensive FDA regulation, primarily through the requirements of
the Public Health Service Act and the Food, Drug and Cosmetic
Act. New facilities, products and operating procedures at such
locations must undergo FDA approval processes. These facilities
are also subject to periodic inspection by the FDA to ensure
their compliance with applicable laws and regulations.
Significant changes to existing facilities, products or
operating procedures must also undergo FDA review prior to
implementation. The Companys monoclonal antibody
manufacturing facility in the U.K. and Chemicons facility
in Temecula, California are required to adhere to the FDAs
Quality System Regulations (QSR), which were
formerly known as Good Manufacturing Practices or cGMP. Such
facilities are periodically inspected by the FDA.
Chemicons animal husbandry operations are also licensed by
the United States Department of Agriculture (USDA)
and are periodically inspected by the USDA.

In the United Kingdom, the Company is subject to
the U.K. Health and Safety at Work Act, which regulates the
safety precautions required of manufacturers in the United
Kingdom, and to various other regulations covering the use of
genetically engineered organisms in laboratory and manufacturing
processes. In certain countries, the Companys customers
are subject to regulatory requirements that require additional
inspection and approval of the Companys facilities prior
to the shipment of products to such countries. Changes in
existing federal, state or foreign laws or regulations, or the
Companys inability to comply with such laws and
regulations, could have an adverse effect on the Companys
business and financial condition.

The Company produces certain bovine-derived
products at its protein fractionation facilities in
Kankakee, Illinois and Toronto, Ontario. The cattle
industry, which supplies the Company with raw materials for its
bovine-derived products, is regulated by the USDA to prevent the
spread of BSE. The regulations restrict the use of feed
containing ruminant meat and bone protein, require spot-testing
of cattle and require testing of cattle manifesting symptoms of
BSE affliction. Cows afflicted with BSE were recently discovered
in Canada and the northwestern United States. The discovery of
BSE afflicted cattle in North America resulted in disruptions in
our production and sale of some of our Cell Culture Products.
For example, we were forced to delay shipments of inventory to a
number of international customers due to foreign government
regulations. We were also unable to import raw material sourced
in the United States into Canada and vice versa for a period of
time following the discovery of BSE in each country. The Company
takes steps to assure the continued availability and highest
possible safety of its bovine-derived products. The regulatory
agencies may impose additional regulations on the cattle
industry or the Company in response to the discovery of BSE
afflicted cattle in North America. The Company works closely
with the USDA, the Canadian Food Inspection Agency and the FDA
to assure compliance with any new regulations that are imposed.

Certain of the products produced at the
Companys protein fractionation facilities in Kankakee and
Toronto are considered medical devices under the
Food, Drug and Cosmetic Act and, accordingly, are subject to its
general control provisions that include requirements for
registration, listing of devices, QSR, labeling and prohibitions
against misbranding and adulteration. These products, which
represent an insignificant amount of the Companys sales,
nonetheless subject the Company to FDA inspection and scrutiny.
Furthermore, the FDA has indicated in certain guidance documents
and in public meetings that it intends to more closely regulate
cell culture media products, such as the Companys
EX-CYTE® product, that are used in the manufacture of
injectable products. While there has been no indication as to
how these products will be classified and therefore with which
standards they will need to comply, the FDA has indicated that,
at a minimum, manufacturers of cell culture media should adhere
to QSR standards. The Company currently produces EX-CYTE®
in a dedicated facility that was constructed to QSR standards.
The imposition of

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additional regulatory requirements for our
protein fractionation facilities could adversely affect our
business and financial condition.


The Company is also subject to government
regulation under the Environmental Protection Act, the Clean Air
Act, the Clean Water Act, the National Environmental Policy Act,
the Toxic Substances Control Act, the Resource Conservation and
Recovery Act, the Medical Waste Tracking Act, and other federal,
state or local restrictions. The Company is also subject to
workplace safety regulations under the Occupational Safety and
Health Act (OSHA).

Technology Licensing, Patents, Proprietary
Rights and Trademarks

Part of the Companys success in its markets
is dependent on its development of proprietary products made
using proprietary technology. Therefore, the Company considers
the protection of its proprietary technologies, trademarks and
trade secrets, which are used to make, identify and maintain the
quality of its products, to be important to the success of the
Company. The Company relies on a combination of patents, trade
secrets, licenses and trademarks to protect and differentiate
its products from its competitors. The Company owns or has
rights through licenses to many technologies used to manufacture
and sell its products that have limited life spans due to patent
or license term expiration. When patents expire or licenses are
not renewed, the Company may lose its proprietary advantage over
its competitors. The Company derives over 50% of its revenue
from products that are licensed, patented or proprietary in
nature.

The Company attempts to protect its trade secrets
by entering into written confidentiality agreements with its
employees, potential collaborators and third parties. Such
written agreements may be breached by such contracting parties
and, if this occurs, a sufficient remedy of such breach may not
be available. If the Companys trade secrets become known
to third parties, the Company may lose its competitive advantage
in its marketplace.

The Company currently owns approximately 21
U.S. patents, including one patent on the Companys
EX-CYTE® product. The Companys EX-CYTE® patent
expires in 2005 in the United States, Europe and Japan. In early
January 2004, the U.S. Patent Office informed the Company
of its decision to grant another patent on our proprietary
purification process used in the manufacture of EX-CYTE®.
This process inactivates infectious prions in EX-CYTE®,
which are defective proteins that are believed to be the cause
of BSE. We believe that the patent will provide a competitive
advantage to EX-CYTE® that will mitigate to some extent the
risk associated with the expiration of the patent on the
manufacturing process.

The Company will seek patent protection for its
inventions when appropriate. The Company has no assurance that
patents will be granted pursuant to any of its pending patent
applications. Furthermore, the Company has no assurance that the
scope of its issued patents will be sufficiently broad to offer
meaningful protection from its competitors. Accordingly, in such
instance, its competitors or other third parties can make and
sell products thought to be covered by the Companys
patents or patents pending. Further, issued patents that are
owned by the Company or exclusively licensed may be challenged,
invalidated or rendered inapplicable so that such patent rights
would not bar our competitors from selling competing products.

A large percentage of the Companys Research
segments products are sold pursuant to licenses that have
varying terms and conditions. The Company may not be able to
renew certain licenses on favorable terms or if at all due to
expiration of the license term, failure in selling certain
minimum quantities of products, or changes in the
licensors licensing strategy. If the Company loses its
licensed rights, this may result in loss of necessary rights and
the necessity to cease sales of certain products. Any resultant
loss of licensed rights could allow the Companys
competitors to license such rights that would likely erode or
eliminate the Companys market share for such products and
could adversely affect the Companys results of operations
and financial condition.

In order to produce new products, the Company
frequently relies upon licenses from the worldwide scientific
community rather than depending on its own employees for new
products. Therefore, the Companys ability to obtain a
license to allow introduction of new products is very important
to allow it to offer new,

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innovative and technologically superior products.
A portion of the Research Products segments revenue is
derived from products sold pursuant to licenses from third
parties.


The Companys ability to gain access to new
products and new technologies required to perform services and
manufacture new products is partly dependent on its ability to
convince inventors, and the institutions that support them, that
the Company will be successful in the commercialization of their
inventions. The Company has no assurance that it will be able to
continue to negotiate access for such new products or
technologies on acceptable terms or if at all.

Third Party Reimbursement

In both domestic and foreign markets, sales by
the Companys customers may depend in part on the
availability of reimbursement from third-party payors such as
NIH, government health administration authorities, private
health insurers and other similar organizations. Third-party
payors are continually challenging the price and
cost-effectiveness of medical products and services. There can
be no assurance that pricing pressures which may be experienced
by the Companys customers will not adversely affect the
Company because of a determination that these products are not
cost effective or because of inadequate third-party
reimbursement levels to such customers.

Employees

As of February 20, 2004, the Company
employed 677 persons, 445 in the United States, 58 in Canada, 24
in Australia and 150 in Europe. Of the Companys employees,
33 who are employed at the Companys manufacturing site in
Illinois and 30 who are employed at the Companys
manufacturing site in Toronto are members of a collective
bargaining unit. The Company believes that its relationship with
its employees is generally satisfactory.

Product Liability and Insurance

The sourcing, processing, manufacturing and sale
of the Companys products involve a risk of product and
professional liability claims. The Company believes it has
obtained sufficient levels of product and professional liability
insurance to insure the risk of catastrophic claims. Currently
the Company carries a $1.0 million deductible for its
liability coverage. There can be no assurance that the coverage
limits of the Companys insurance policies and/or any
rights of indemnification and contribution that the Company may
have will offset potential claims. A successful claim against
the Company in excess of insurance coverage and not subject to
indemnification could have a material adverse effect on the
Company. The Company is not aware of any such pending claims.

Available Information

The Company makes available free of charge
through its website, www.serologicals.com, its annual
report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports
filed pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, as soon as reasonably possible
after the Company files such material with, or furnishes it to,
the Securities and Exchange Commission.

Cautionary Statements

You should consider the following factors,
together with other matters described in this Form 10-K or
incorporated herein by reference, in evaluating the Company and
its prospects. Any of the following risks, as well as other
risks and uncertainties, could seriously harm our business and
financial results. In such case, the trading price of our
securities could decline. The risks described below are not the
only ones we face. Additional risks not presently known to us or
that we currently deem immaterial may also impair our business
operations.

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We may be unable to implement our growth
strategy.

Our strategy is to increase our sales and
profitability by increasing our rate of growth. We have
historically achieved, and intend to continue to achieve, our
growth primarily through the acquisition or internal development
of new product lines, the expansion of our customer base and the
addition of new businesses. Our ability to implement our growth
strategy will depend upon a variety of factors, including:



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | our ability to develop new products internally;                                                                
|
| |  | our ability to make profitable acquisitions;                                                                   
|
| |  | integration of acquired companies and facilities
    into existing operations;                                 
|
| |  | hiring, training and retention of qualified
    personnel;                                                     
|
| |  | establishment of new relationships or expansion
    of existing relationships with customers and suppliers; and
|
| |  | availability of capital.                                                                                       

Failure to manage our growth and expansion
could impair our business.

The implementation of our growth strategy may
place additional demands on our administrative, operational and
financial resources and increase the demands on our financial
systems and controls. Our ability to manage our growth
successfully may require us to continue to improve and expand
these resources, systems and controls. If our management is
unable to manage growth effectively, our operating results could
be adversely affected. Moreover, there can be no assurance that
we will continue to expand successfully or that growth or
expansion will result in continued profitability.

Our ability to raise the capital necessary
to expand our business is uncertain.

In the future, in order to expand our business
through internal development or acquisitions, we may need to
raise substantial additional funds. However, this additional
funding may not be available or, if available, it may not be
available on economically favorable terms. In addition, any
additional funding may require the issuance of equity securities
which could result in dilution to existing stockholders. If
adequate capital is not available, we may not be able to grow as
quickly as we have planned. Furthermore, we expect that future
acquisitions will increase our working capital requirements. We
intend to fund these increased working capital requirements from
our cash flow from operations and borrowings under our revolving
credit facility.

We cannot guarantee that our future
acquisitions will be successful.

Our growth strategy includes growth by
acquisitions. We compete for acquisition opportunities with
companies that have significantly greater financial resources
than we have. There can be no assurance that suitable
acquisition opportunities will be identified, that any of these
transactions can be consummated, or that, if acquired, these new
businesses can be integrated successfully and profitably into
our operations.

Competition in the life science research
industry and/or a reduction in demand for our products could
reduce sales.

The markets for many of our products,
particularly our research products, are very competitive and
price sensitive. Other life science research product suppliers
have significant financial, operational, sales and marketing
resources, and significant experience in research and
development. These and other companies may have developed or
could in the future develop new technologies that compete with
our products or even render our products obsolete. If a
competitor develops superior technology or cost-effective
alternatives to our products, our business, operating results
and financial condition could be negatively impacted. In
addition, demand for our products may weaken due to reduction in
research and development budgets, loss of distributors and other
factors identified in this annual report, which could have an
adverse effect on our financial condition.

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We believe that customers in our markets display
a significant amount of loyalty to their initial supplier of a
particular product. Therefore, it may be difficult to generate
sales to potential customers who have purchased products from
competitors. To the extent we are unable to be the first to
develop and supply new products, our competitive position may
suffer.

Failure to obtain products and components
from third-party manufacturers could affect our ability to
manufacture and deliver our products.

Our business relies on the continued availability
of raw materials, including biological materials, from
third-party manufacturers. The availability and price of these
materials may be affected by scares or outbreaks of disease or
similar health concerns or perceptions about the materials
safety, governmental regulation and trade restrictions. If we
are unable to obtain these materials, or are unable to obtain
the materials at an affordable price, our business, results of
operations and financial condition could be adversely affected.
Cows afflicted with BSE were recently discovered in Canada and
the northwestern United States. These animals were the first
known cases of BSE in North America. The discovery of BSE in
North America caused disruptions in our production and sales of
some of our Cell Culture Products. As a result of both
discoveries, we were forced to delay shipments of inventory to a
number of international customers due to foreign government
regulations. We were also unable to import raw material sourced
in the United States into Canada and vice versa for a period of
time following the discovery of BSE in each country. Similar
scares or actual outbreaks of disease could have a material
adverse effect on our business, results of operations and
financial condition.

In addition, we currently have a single source of
supply of certain raw materials and components for certain
products. Manufacturing problems, including risks related to the
operation of manufacturing facilities such as natural disasters,
may occur with these and other outside sources. If such problems
occur, we cannot assure you that we will be able to manufacture
our products profitably or on time.

Our
EX-CYTE®product sales
are driven by market demand for therapeutic drugs.

The majority of our sales of this product are to
companies with approved, marketed drugs, or with drugs in
advanced phases of clinical trials. Reduced demand or
acceptance, or delays or denial of approval of the underlying
pharmaceutical product could adversely impact the demand for
EX-CYTE® and adversely affect our results of operations.

Failure to attract and retain qualified
scientific or production personnel, or loss of key management or
key personnel, could hurt our business.

Recruiting and retaining qualified scientific and
production personnel to perform research and development work
and product manufacturing are critical to our success. Because
the industry in which we compete is highly technical and very
competitive, we face challenges attracting and retaining this
qualified personnel base. Although we believe we have been and
will be able to attract and retain these personnel, there can be
no assurance that we will be able to continue to attract
qualified personnel.

Our success also will continue to depend to a
significant extent on the members of our management team. We may
not be able to retain the services of our executive and key
personnel or to attract additional qualified members to
management in the future. The loss of any of our key management
or employees could have a material adverse effect upon our
business.

Violation of government regulations or
voluntary quality programs could result in loss of sales and
customers and additional expense to attain
compliance.

The facilities we use in our Cell Culture and
Diagnostic Products segments are subject to extensive regulation
by the FDA, primarily through the requirements of the Public
Health Service Act and the Food, Drug and Cosmetic Act. New
facilities, products and operating procedures at such locations
must undergo FDA approval processes. These facilities are also
subject to periodic inspection by the FDA to ensure their
compliance with applicable laws and regulations. Failure to
comply with these laws and regulations can lead to

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sanctions by the FDA, such as written
observations of deficiencies made following inspections, warning
letters, product recalls, fines, product seizures and consent
decrees, which would be made available to the public. Such
actions and publicity could affect our ability to sell our
products.


We are also indirectly held accountable for
complying with some of the regulations to which our customers
are subject, even though we are not the regulated entity. For
example, some of our customers use our products in the
manufacturing process for their drug and medical device
products. Such products are regulated by the FDA under the
FDAs Quality System Regulations, or QSR. Although the
customer is ultimately responsible for QSR compliance for their
products, the customers expect that the materials we sell to
them will meet QSR requirements. We could lose sales and
customers, and incur products liability claims, if our products
do not meet QSR requirements, to the extent applicable. We are
also subject to USDA regulations and various foreign regulations
for the sourcing, manufacturing and distribution of animal based
proteins. Our failure to comply with these requirements could
negatively impact our business and potentially cause the loss of
customers and sales revenue.

ISO 9000:2000 quality standards are an
internationally recognized set of voluntary quality standards
that require compliance with a variety of quality requirements
somewhat similar to the QSR requirements. The operations of our
Cell Culture segment manufacturing facilities, as well as our
manufacturing facility in Scotland and our research products
facilities in California, Australia and the United Kingdom, are
registered under the ISO standards. Failure to comply with this
voluntary standard can lead to observations of non-compliance or
even suspension of ISO certification by the certifying unit.
Loss of ISO certification could cause some customers to purchase
products from other suppliers.

If we violate government regulations, including
government mandated or voluntary quality programs, we may incur
additional expense to comply with the regulations and standards.
That expense may be material. Our financial results could suffer
materially as a result of these increased expenses.

Our research and development efforts for
new products may be unsuccessful.

We incur research and development expenses to
develop new products and technologies. There can be no assurance
that any of these products or technologies will be successfully
developed or that, if developed, will be commercially
successful. If we are unable to develop commercialized products
from our research and development efforts or we are unable or
unwilling to allocate amounts beyond our currently anticipated
research and development investment, we could lose our entire
investment in these new products and technologies.

If we cannot enter into new licensing
arrangements, our ability to develop a diverse product portfolio
could be limited.

A component of our business strategy is to
license products developed by other biotechnology companies or
academic research laboratories. These products may be protected
by patents held by others. We attempt to market such products to
our customers. Often, we attempt to develop new products or to
improve the licensed products using our technologies. If we are
not able to identify licensing opportunities or to enter into
licensing arrangements on acceptable terms, we may be unable to
develop a diverse portfolio of products.

Because a patent is only a right to exclude and
does not give the holder, or its licensee, the right to practice
the patented technology, even in cases in which we license
patented technology from a licensor, we may be prevented from
practicing that technology if it infringes a patent of a third
party. Moreover, if found by a court to infringe the patent of
the third party, we may be liable for compensatory damages,
treble damages and attorneys fees and subject to a royalty
obligation or enjoined from practicing the technology
altogether, notwithstanding the license from the licensor.
Although we attempt to obtain indemnification from our
licensors, we do not always receive indemnification against
third party claims of patent infringement.

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If we fail to introduce new products, or
our new products are not accepted by potential customers, we may
lose market share.

Our Research Products business is highly
dependent on frequent new product introductions. Our future
success will depend in part on continuous, timely development
and introduction of new products that address evolving market
requirements. To the extent we fail to introduce new and
innovative products, we may lose market share to our
competitors, which could be difficult to regain. Any inability
to develop and introduce new products successfully could reduce
our growth rate or damage our business.

Inability to protect our technologies could
affect our ability to compete.

The majority of our current products are not
protected by patents that we own. We rely on know-how or trade
secrets to protect these products. Our products that are not
patented may be susceptible to reverse engineering or parallel
development efforts and sales by our competitors. We attempt to
protect our trade secrets by entering into confidentiality
agreements with third parties, our employees and consultants.
However, these agreements can be breached and, if they are,
there may not be an adequate remedy available to us. If our
trade secrets become known we may lose our competitive position.
To prevent competitors from using technologies and trademarks in
which we hold intellectual property rights, it may be necessary
for us to litigate against those competitors. Any litigation
could result in substantial expense, may distract our
management, and may not adequately protect the proprietary
technologies and trademarks. Furthermore, litigation may result
in a finding of invalidity and unenforceability of our
intellectual property rights. In any case in which we are unable
to protect our proprietary technologies and trademarks, we may
be subject to increased competition, resulting in lost sales and
reduced profits, and even discontinuance of or non-entry into a
product line. Our patents have a limited term. The patent on the
manufacturing process for EX-CYTE® will expire in 2005 in
the United States, Europe and Japan.

Reduction or delays in research and
development budgets and in government funding may negatively
impact sales in our Research Products segments.

Our customers include researchers at
pharmaceutical and biotechnology companies, academic
institutions and government and private laboratories. A
significant portion of the sales of our Research Products
business is to researchers, universities, government
laboratories and private foundations whose funding is dependent
upon grants from government agencies such as the NIH and similar
domestic and international agencies. Fluctuations in the
research and development budgets of these researchers and their
organizations could affect the demand for our Research Products.
Research and development budgets fluctuate due to numerous
factors that are outside our control and are difficult to
predict, including changes in available resources, spending
priorities and institutional budgetary policies.

We rely on international sales, which are
subject to additional risks.

International sales accounted for approximately
36% of our revenues in fiscal 2003, 54% of our revenues in
fiscal 2002, and 48% of our revenues in fiscal 2001.
International sales can be subject to many inherent risks that
are difficult or impossible for us to predict or control,
including:



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | unexpected changes in regulatory requirements and
    tariffs;                                                                       
|
| |  | difficulties and costs associated with staffing
    and managing foreign operations, including foreign distributor
    relationships;
|
| |  | longer accounts receivable collection cycles in
    certain foreign countries;                                                       
|
| |  | adverse economic or political changes;                                                                                               
|
| |  | unexpected changes in regulatory requirements;                                                                                       
|
| |  | more limited protection for intellectual property
    in some countries;                                                             
|
| |  | changes in our international distribution network
    and direct sales force;                                                        

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| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | changes in currency exchange rates;                                                                  
|
| |  | potential trade restrictions, exchange controls
    and import and export licensing requirements; and
|
| |  | potentially adverse tax consequences of
    overlapping tax structure.                               

Each of these risks might impact our cash flow or
impair our ability to borrow funds, which ultimately could
affect our business, financial condition or operating results.

We intend to continue to generate revenues from
sales outside North America in the future. Future distribution
of our products outside North America also may be subject to
greater governmental regulation. These regulations, which
include requirements for approvals or clearance to market,
additional time required for regulatory review and sanctions
imposed for violations, as well as the other risks described
above, vary by country. We may not be able to obtain regulatory
approvals in the countries in which we currently sell our
products or in countries in which we may sell our products in
the future. In addition, we may be required to incur costs in
obtaining necessary regulatory approvals. Failure to obtain
necessary regulatory approvals or any other failure to comply
with regulatory requirements could impact our results of
operation.

Litigation may harm our business or
otherwise distract our management.

Substantial, complex or extended litigation could
cause us to incur large expenditures and distract our
management. For example, lawsuits by employees, stockholders,
collaborators, distributors, competitors, customers, or
end-users of our products or services, including liability
claims and patent infringement based on our products and
services, could be very costly and substantially disrupt our
business. Disputes from time to time with such companies or
individuals are not uncommon, and we cannot assure you that we
will always be able to resolve such disputes out of court or on
terms favorable to us.

If we are sued for patent infringement, and a
court agrees that we are infringing a third party patent, we may
be forced to remove a product from the market or enter into a
license agreement, which may not be available on reasonable
terms, if at all. Further, in such a circumstance, we could be
exposed to significant attorneys fees and costs.

Our operating results may fluctuate in
future periods.

The results of operations for any quarter are not
necessarily indicative of results to be expected in future
periods. Our operating results have in the past been, and will
continue to be, subject to quarterly fluctuations as a result of
a number of factors. These factors include:



| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the integration of people, operations and
    products from acquired businesses and technologies;                                                                      
|
| |  | our ability to introduce new products
    successfully;                                                                                                                
|
| |  | market acceptance of existing or new products and
    prices;                                                                                                          
|
| |  | competitive product introductions;                                                                                                                                     
|
| |  | changes in customer research budgets which are
    influenced by the timing of their research and commercialization
    efforts and their receipt of government grants;
|
| |  | our ability to manufacture our products
    efficiently;                                                                                                               
|
| |  | our ability to control or adjust research and
    development, marketing, sales and general and administrative
    expenses in response to changes in revenues; and    
|
| |  | the timing of orders from distributors and mix of
    sales among distributors and our direct sales force.                                                             

We are subject to environmental laws and
regulations and could incur costs for environmental remediation
at one of our facilities.

We are subject to environmental laws and
regulations governing the use of materials and chemicals used in
our business. Although we believe that our safety procedures for
handling and disposing of such materials

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comply with standards prescribed by state and
federal agencies, we cannot assure you that we will be able to
continue to comply with all applicable standards or that
violations will not occur. In addition, we cannot assure you
that more restrictive laws, rules and regulations or enforcement
policies will not be adopted in the future which could make
compliance more expensive or otherwise adversely affect our
business or prospects. We are currently evaluating the need to
remediate the Kankakee, Illinois manufacturing facility
that we purchased in 1998. Until we complete this evaluation, we
cannot predict the costs, if any, that would be associated with
any necessary remediation. Although we believe we will be
indemnified, to some extent, for the costs associated with this
remediation according to the purchase agreement we entered into
with the former owner, we cannot assure you that this will be
the case.


The market price of our stock could be
volatile.

The market price of our common stock has been
subject to volatility and, in the future, the market price of
our common stock and debentures may fluctuate substantially due
to a variety of factors, including:



| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | quarterly fluctuations in our operating income
    and earnings per share results;                  
|
| |  | new product introductions by us or our
    competitors;                                             
|
| |  | economic conditions;                                                                                
|
| |  | disputes concerning patents or proprietary rights;                                                  
|
| |  | changes in earnings estimates and market growth
    rate projections by market research analysts;   
|
| |  | sales of common stock by us or by existing
    holders, or the perception that such sales may occur;
|
| |  | loss of key personnel; and                                                                          
|
| |  | securities class actions or other litigation.                                                       

The market price for our common stock may also be
affected by our ability to meet analysts expectations. Any
failure to meet such expectations, even slightly, could have an
adverse effect on the market price of our common stock. In
addition, the stock market is subject to extreme price and
volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many
companies for reasons unrelated to the operating performance of
these companies. In the past, following periods of volatility in
the market price of a companys securities, securities
class action litigation has often been instituted against that
company. If similar litigation were instituted against us, it
could result in substantial costs and a diversion of our
managements attention and resources, which could have an
adverse effect on our business, results of operations and
financial condition.

Absence of dividends could reduce our
attractiveness to investors.

Some investors favor companies that pay
dividends, particularly in market downturns. We have never
declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings for funding
growth and, therefore, we do not currently anticipate paying
cash dividends on our common stock. Furthermore, we are
prohibited by the terms of our existing credit facility from
paying dividends on our common stock.






|        |           
|------- | ----------
|Item 2. | Properties

The Companys principal executive office is
located in approximately 50,000 square feet of office space
in Norcross, Georgia. The Company leases this space under an
agreement that expires in 2011. The Companys
40,000 square foot monoclonal antibody manufacturing
facility is located in Livington, Scotland. This facility is
leased with a term expiring in 2021, with the exception of one
20,000 square foot manufacturing building that is owned by
the Company. The Company operates its protein fractionation
business in a 61,000 square foot facility in
Kankakee, Illinois, a 40,000 square foot facility in
Toronto, Ontario and is currently constructing a
36,000 square foot facility in Lawrence, Kansas. The
facilities used in the protein fractionation business are owned
by the Company. The Company leases two buildings in Milford,
Massachusetts, totaling

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approximately 36,000 square feet, which are
used for a distribution and manufacturing facility. The Company
leases this space under an agreement that expires in 2008. The
Company operates its Research segment through an
85,000 square foot facility in Temecula, California;
120,000 square foot facilities in Ramona, California; a
26,000 square foot facility in Australia; and an
18,000 square foot facility in the United Kingdom. All
facilities used in the Research segment are leased with terms
expiring between 2004 and 2018, except for those in Ramona,
California, which are owned by the Company.







|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

The Company is involved in certain litigation
arising in the ordinary course of business. In managements
opinion, the ultimate resolution of these matters will not have
a material adverse effect on the Companys financial
position or results of operations.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

No matter was submitted to a vote of security
holders in the fourth quarter of the fiscal year ended
December 28, 2003.




PART II.






|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common Equity
    and Related Stockholder Matters

The Companys common stock trades on the
Nasdaq Stock Market under the symbol SERO.

On March 4, 2004, the closing price of the
common stock was $18.88 per share. As of March 4,
2004, there were 85 holders of record. The Company believes
there are substantially more beneficial holders of the
Companys common stock.

The Company has not paid any cash dividends on
its common stock to date. The payment of cash dividends, if any,
in the future is within the discretion of the Board of Directors
and will depend on the Companys earnings, its capital
requirements and financial condition. In addition, the
Companys revolving credit agreement contains limitations
on the Companys ability to pay cash dividends.

The following table sets forth the high and low
sale prices for the Companys common stock for the periods
indicated as reported by Nasdaq.

|                    |              |      |   |       |  |  |   |       | 
|------------------- | ------------ | ---- | - | ----- |  |  | - | ----- | 
|                    |              | High |   | Low  
|                    |              |      |   |      
|2003 Quarter Ended: |              |      |   |       |  |  |   |      
|                    | March 30     |      | $ | 11.01 |  |  | $ | 7.68  | 
|                    | June 29      |      |   | 13.85 |  |  |   | 7.69  | 
|                    | September 28 |      |   | 16.70 |  |  |   | 11.61 | 
|                    | December 28  |      |   | 18.50 |  |  |   | 12.72 | 
|2002 Quarter Ended: |              |      |   |       |  |  |   |      
|                    | March 31     |      | $ | 22.00 |  |  | $ | 13.71 | 
|                    | June 30      |      |   | 21.80 |  |  |   | 15.08 | 
|                    | September 29 |      |   | 20.20 |  |  |   | 11.00 | 
|                    | December 29  |      |   | 13.90 |  |  |   | 7.32  | 

20



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected financial data as of and
for the years ended December 28, 2003, December 29,
2002, December 30, 2001, December 31, 2000 and
December 26, 1999 have been derived from the audited
Consolidated Financial Statements of the Company. This data
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements of
the Company and notes thereto included elsewhere in this Annual
Report on Form 10-K. All amounts in the following table are
in thousands, except per share data.

|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |         |  
|------------------------------------- | -------------------------------------------- | ---- | ------ | ------- | - | ---- | ------ | ------- | - | ---- | ------ | ------- | - | - | ------ | ------- | - | - | ------- | ------- | -
|                                      |                                              | 2003 |        | 2002    |   | 2001 |        | 2000    |   | 1999
|                                      |                                              |      |        |         |   |      |        |         |   |     
|STATEMENT OF OPERATIONS DATA:         |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|                                      | Net sales                                    |      | $      | 146,915 |   |      | $      | 99,289  |   |      | $      | 53,564  |   |   | $      | 45,345  |   |   | $       | 38,643  |  
|                                      | Cost of sales                                |      |        | 65,675  |   |      |        | 47,076  |   |      |        | 22,878  |   |   |        | 19,900  |   |   |         | 19,056  |  
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|GROSS PROFIT                          |                                              |      | 81,240 |         |   |      | 52,213 |         |   |      | 30,686 |         |   |   | 25,445 |         |   |   | 19,587  |        
|                                      | Selling, general and administrative expenses |      |        | 43,668  |   |      |        | 33,811  |   |      |        | 18,601  |   |   |        | 15,833  |   |   |         | 12,075  |  
|                                      | Research and development                     |      |        | 6,214   |   |      |        | 5,628   |   |      |        | 1,665   |   |   |        | 710     |   |   |         | 701     |  
|                                      | Amortization of intangibles                  |      |        | 2,175   |   |      |        | 895     |   |      |        | 1,013   |   |   |        | 935     |   |   |         | 1,223   |  
|                                      | Special charges                              |      |        | 2,778   |   |      |        | 1,909   |   |      |        | 872     |   |   |        | 259     |   |   |         | 2,276   |  
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|OPERATING INCOME                      |                                              |      | 26,405 |         |   |      | 9,970  |         |   |      | 8,535  |         |   |   | 7,708  |         |   |   | 3,312   |        
|                                      | Other expense (income), net                  |      |        | 180     |   |      |        | 31      |   |      |        | 72      |   |   |        | 28      |   |   |         | (150    | )
|                                      | Write-off of deferred financing costs        |      |        | 4,492   |   |      |        |        |   |      |        |        |   |   |        |        |   |   |         |        |  
|                                      | Interest expense                             |      |        | 4,384   |   |      |        | 239     |   |      |        | 512     |   |   |        | 1,651   |   |   |         | 653     |  
|                                      | Interest income                              |      |        | (255    | ) |      |        | (637    | ) |      |        | (1,651  | ) |   |        | (418    | ) |   |         | (110    | )
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|INCOME FROM CONTINUING OPERATIONS     |                                              |      | 17,604 |         |   |      | 10,337 |         |   |      | 9,602  |         |   |   | 6,447  |         |   |   | 2,919   |        
|                                      | Provision for income taxes                   |      |        | 5,537   |   |      |        | 3,617   |   |      |        | 3,380   |   |   |        | 2,255   |   |   |         | 1,022   |  
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|NET INCOME FROM CONTINUING OPERATIONS |                                              |      | 12,067 |         |   |      | 6,720  |         |   |      | 6,222  |         |   |   | 4,192  |         |   |   | 1,897   |        
|                                      | Income (loss) from discontinued operations   |      |        | (10,561 | ) |      |        | 7,229   |   |      |        | 10,870  |   |   |        | 8,725   |   |   |         | (17,359 | )
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|NET INCOME (LOSS)                     |                                              | $    | 1,506  |         |   | $    | 13,949 |         |   | $    | 17,092 |         |   | $ | 12,917 |         |   | $ | (15,462 | )      
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|BASIC EARNINGS (LOSS) PER SHARE:      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|                                      | Continuing operations                        |      | $      | 0.49    |   |      | $      | 0.28    |   |      | $      | 0.26    |   |   | $      | 0.19    |   |   | $       | 0.08    |  
|                                      | Discontinued operations                      |      |        | (0.43   | ) |      |        | 0.29    |   |      |        | 0.46    |   |   |        | 0.38    |   |   |         | (0.73   | )
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|                                      | Net income (loss)                            |      | $      | 0.06    |   |      | $      | 0.57    |   |      | $      | 0.72    |   |   | $      | 0.57    |   |   | $       | (0.65   | )
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|DILUTED EARNINGS (LOSS) PER SHARE:    |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|                                      | Continuing operations                        |      | $      | 0.48    |   |      | $      | 0.27    |   |      | $      | 0.26    |   |   | $      | 0.18    |   |   | $       | 0.07    |  
|                                      | Discontinued operations                      |      |        | (0.42   | ) |      |        | 0.29    |   |      |        | 0.44    |   |   |        | 0.38    |   |   |         | (0.70   | )
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|                                      | Net income (loss)                            |      | $      | 0.06    |   |      | $      | 0.56    |   |      | $      | 0.70    |   |   | $      | 0.56    |   |   | $       | (0.63   | )
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|WEIGHTED AVERAGE SHARES OUTSTANDING:  |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|                                      | Basic                                        |      |        | 24,549  |   |      |        | 24,357  |   |      |        | 23,749  |   |   |        | 22,815  |   |   |         | 23,617  |  
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|                                      | Diluted                                      |      |        | 24,960  |   |      |        | 24,837  |   |      |        | 24,439  |   |   |        | 23,283  |   |   |         | 24,638  |  
|                                      |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|BALANCE SHEET DATA:                   |                                              |      |        |         |   |      |        |         |   |      |        |         |   |   |        |         |   |   |         |        
|                                      | Working capital                              |      | $      | 104,760 |   |      | $      | 65,468  |   |      | $      | 55,156  |   |   | $      | 56,790  |   |   | $       | 50,172  |  
|                                      | Total assets                                 |      |        | 358,178 |   |      |        | 191,165 |   |      |        | 175,338 |   |   |        | 131,495 |   |   |         | 156,898 |  
|                                      | Long-term debt, less current maturities      |      |        | 130,916 |   |      |        | 39      |   |      |        | 1,451   |   |   |        |        |   |   |         | 30,000  |  
|                                      | Stockholders equity                         |      |        | 178,972 |   |      |        | 170,370 |   |      |        | 152,475 |   |   |        | 118,707 |   |   |         | 103,224 |  

21



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations

Overview

Serologicals, with facilities in North America,
Europe, and Australia, is a global provider of biological
products and enabling technologies to life science companies.
Our products are essential for the research, development and
manufacturing of biologically based life science products. Our
products and technologies are used in a wide variety of
applications within the areas of oncology, hematology,
immunology, cardiology and infectious diseases, as well as in
the study of molecular biology. Our customers include many of
the leading life science companies throughout the world.

Our business is organized into three operating
segments: Research Products, Cell Culture Products and
Diagnostic Products. These segments are based primarily on the
differing production, manufacturing and other value-added
processes that we perform with respect to the products and to a
lesser extent, the differing nature of the ultimate end use of
our products. Prior to our decision to exit the therapeutic
plasma business, the Company reported a fourth operating
segment, Therapeutics Products, for the first two quarters of
fiscal 2003. The therapeutics products business is now
classified as discontinued operations under the
applicable accounting rules, and the results of operations of
this former segment are no longer reported as a separate segment
but are reported as discontinued operations. See
Discontinued Operations below. During 2002, the
Company reported three operating segments, Biotechnology and
Molecular Biology Products, Therapeutic Products and Diagnostic
Products. All amounts in this Annual Report reflect the
restatement of the prior year segments so that they are
consistent with the current year presentation.

We conduct the operations of our Research
Products segment through Chemicon, which we acquired in April
2003. Chemicon provides a broad range of specialty reagents,
kits, antibodies and molecular biology tools to biotechnology,
pharmaceutical and academic research customers working in the
areas of neuroscience, infectious disease, drug discovery,
cancer research, stem cell research and proteomics. Chemicon is
also a leading supplier of monoclonal antibodies, conjugates,
antibody blends and molecular biology-based detection kits for
use in diagnostic laboratories. Chemicon, headquartered in
Temecula, California, has manufacturing and distribution
operations in California, Australia and the U.K.

We manufacture our Cell Culture and Diagnostic
Products in facilities located in North America and the U.K. We
operate protein fractionation facilities located in
Kankakee, Illinois and Toronto, Ontario and have a third
facility under construction in Lawrence, Kansas. These
facilities provide a variety of highly purified proteins used in
diagnostic reagents and cell culture media components for use in
the development and manufacturing of biotechnology products.
Additionally, these facilities produce a line of highly purified
animal proteins known as cell culture media components that are
used primarily by biopharmaceutical and biotechnology companies
as nutrient additives in cell culture media. The Companys
most significant product within the Cell Culture segment is
EX-CYTE®. The Company holds one patent on the manufacturing
process for EX-CYTE®. Another patent has been granted but
not yet issued. Other key products within the Cell Culture
segment include proprietary BSA, recombinant insulin and other
products used principally in mammalian cell culture.

We manufacture monoclonal antibodies in our
Scotland facility. The monoclonal antibodies are used in
diagnostic products such as blood typing reagents and in
controls for diagnostic tests for certain infectious diseases.
We operate a facility in Milford, Massachusetts that includes a
central distribution facility as well as operations related to
production of substrates used in diagnostic assays. The key
products within the Diagnostic segment are monoclonal antibodies
used in blood typing reagents and diagnostic antibodies.

See Note 15  SEGMENT AND
GEOGRAPHICAL INFORMATION in Item 8 Financial
Statements and Supplementary Data for disclosure of revenue and
gross profit by segment for the three most recently completed
fiscal years.

Discontinued Operations

On July 10, 2003, the Company announced its
intention to exit the therapeutic plasma business, which
consisted of a network of 10 donor centers that specialize in
the collection of hyper-immune human blood

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antibodies and a central testing laboratory. As a
result, during the third quarter of fiscal 2003, the therapeutic
plasma business was classified as a discontinued operation. On
December 19, 2003, the Company signed a definitive
agreement to sell the business. On January 15, 2004,
effective December 28, 2003, the Company completed the sale
of this business. Financial statements for all years presented
have been reclassified to report results of discontinued
operations separately from results of continuing operations.
Disclosures included herein pertain to the Companys
continuing operations unless otherwise noted.


As part of the therapeutic plasma disposition,
the Company sold certain products and related inventory
comprised of human-sourced disease state polyclonal antibodies.
Sales and gross margin for these products are included in the
Diagnostic segment in the accompanying Consolidated Statement of
Income. The following table sets forth net sales and gross
profit of such products that are included in the accompanying
Consolidated Statements of Income prior to the sale (in
thousands):

|             |  |      |       |      |  |      |       |  |  |   |       | 
|------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|             |  | 2003 |       | 2002 |  | 2001
|             |  |      |       |      |  |     
|Net sales    |  | $    | 2,812 |      |  | $    | 3,888 |  |  | $ | 5,535 | 
|Gross profit |  |      | 153   |      |  |      | 2,039 |  |  |   | 3,742 | 

See Note 4  DISCONTINUED
OPERATIONS in Item 8 Financial Statements and
Supplementary Data for further discussion of discontinued
operations.

Critical Accounting Policies

The consolidated financial statements are
presented on the basis of accounting principles that are
generally accepted in the United States of America, which
require management to make estimates that affect the amount of
revenues, expenses, assets and liabilities reported. The
following are five critical accounting policies that are both
very important to the portrayal of the Companys financial
condition and results of operations and required
managements most difficult, subjective, or complex
judgments. The accounting for these matters was based on current
facts and circumstances which, in managements judgment,
hold potential for change which could affect managements
future estimates. Therefore, future financial results could
differ materially from current financial results based on
managements current estimates. The Company uses a
combination of historical results, anticipated future events and
detailed assessment of relevant facts and circumstances to
estimate and make assumptions relating to its critical
accounting policies. Actual results could differ from these
estimates.

Accounts
receivable

The Company performs ongoing credit evaluations
of its customers and adjusts credit limits based upon payment
history and the customers current creditworthiness, as
determined by review of current credit information. The Company
monitors collections and payments from its customers and
maintains a provision for estimated credit losses based upon
historical experience and any specific customer collection
issues that have been identified. The allowance for bad debts
was $1.2 million and $1.0 million at December 28,
2003 and December 29, 2002, respectively. Write-off of bad
debts was $0.7 million and $0.4 million in 2003 and
2002, respectively. There were no write-offs in 2001. The
allowance for bad debts may prove to be inaccurate, in which
case the Company may have over or under stated its accounts
receivable, net and selling, general and administrative expense,
accordingly.

Inventory

Inventories are carried at the lower of cost or
market. Cost includes materials, labor and overhead. Market,
with respect to all inventories, is replacement cost or net
realizable value. Management frequently reviews inventory to
determine the necessity of adjustments for excess, obsolete or
unsaleable inventory. These reviews require management to assess
customer and market demand. Management uses several different
approaches to evaluate the net realizable value of inventory,
including the age of inventory, excess supply based on
anticipated demand, specific identification and lower of cost or
market. Due to the varying analysis performed using different
assumptions and criteria to determine the carrying value of
inventory, it is not

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practicable to provide a sensitivity analysis.
These estimates may prove to be inaccurate, in which case the
Company may have over or under stated the adjustment required
for excess, obsolete or unsaleable inventory and its cost of
goods sold, accordingly.


Valuation of
goodwill and other intangible assets

The Company periodically evaluates its goodwill
and intangibles for potential impairment whenever events or
changes occur that indicate the carrying value may no longer be
recoverable. Evaluations are based on estimated discounted
future cash flows from the use and eventual disposition of the
underlying assets. The Company completed its annual impairment
review of the Cell Culture and Diagnostic segments as of
June 29, 2003. Based on the evaluation, the Company
determined that no impairment existed. An impairment review was
not performed for the Research segment as the majority of the
assets were acquired on April 1, 2003. The estimates used
to evaluate the fair value of goodwill and other intangible
assets may prove to be inaccurate, in which case the Company may
have over stated goodwill and other intangible assets. The most
significant assumptions in the impairment analysis are revenue
growth and the discount rate. The following table presents the
ratio of fair values of Cell Culture and Diagnostic segments as
computed in our annual impairment analysis to their carrying
values as of June 29, 2003. Amounts less than 1.0 would
indicate that an impairment may exist. Additionally, the table
includes this ratio as if the discount rate were 100 basis
points higher and the growth rate were 10% lower than those used
in our analysis:

|             |  |            |      |               |  |              |      |   |  |  |      |  
|------------ |  | ---------- | ---- | ------------- |  | ------------ | ---- | - |  |  | ---- | -
|             |  |            |      | 100 Basis     |  |             
|             |  | Originally |      | Points Higher |  | 10% Lower   
|             |  | Computed   |      | Discount Rate |  | Sales Growth
|             |  |            |      |               |  |             
|Cell Culture |  |            | 2.62 | x             |  |              | 2.47 | x |  |  | 2.15 | x
|Diagnostic   |  |            | 1.59 | x             |  |              | 1.44 | x |  |  | 1.15 | x

Deferred income
taxes

The Company recognizes deferred tax assets and
liabilities based on differences between the carrying amount in
the financial statements and the tax bases of assets and
liabilities. The Company regularly reviews its deferred tax
assets for recoverability. If the Company determines that the
recoverability of its deferred tax assets is more likely than
not, a valuation allowance is not recorded against these assets.
At December 28, 2003 and December 29, 2002, the
Company had deferred tax assets of $11.5 million and
$3.9 million, respectively, with a valuation allowance of
$3.5 million and $1.8 million, respectively. The
valuation allowance is for state income tax net operating loss
benefits expiring in varying amounts over the next
15 years. The estimates used to evaluate the recoverability
of deferred tax assets may differ from actual results, in which
case the Company may have over or under stated income tax
valuation allowances and its provision for income taxes,
accordingly.

Warranty
reserve

The Company records an allowance for the
estimated amount of future warranty costs when the related
revenue is recognized, primarily based on historical experience.
Although historical warranty costs have been within
expectations, there can be no assurance that future warranty
costs will not exceed historical amounts. The warranty reserve
was $0.5 million, $0.2 million and $0.1 million
at December 28, 2003, December 29, 2002 and
December 30, 2001, respectively. Warranty claims were
$2.2 million, $1.2 million and $0.6 million in
2003, 2002 and 2001, respectively. If actual future warranty
costs exceed historical amounts, additional allowances may be
required, which could have a material adverse impact on the
Companys operating results in future periods.

Results of Operations

The following discussion and analysis of the
Companys financial condition and results of operations
should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in this

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Annual Report on Form 10-K. The following
table sets forth certain consolidated operating data of the
Company as a percentage of net sales for the fiscal years
indicated below.


|                                             |  |      |       |      |  |      |       |   |  |  |       |  
|-------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                             |  | 2003 |       | 2002 |  | 2001
|                                             |  |      |       |      |  |     
|Net sales                                    |  |      | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|Gross profit                                 |  |      | 55.3  | %    |  |      | 52.6  | % |  |  | 57.3  | %
|Selling, general and administrative expenses |  |      | 29.7  | %    |  |      | 34.1  | % |  |  | 34.7  | %
|Research and development                     |  |      | 4.2   | %    |  |      | 5.7   | % |  |  | 3.1   | %
|Amortization of intangibles                  |  |      | 1.5   | %    |  |      | 0.9   | % |  |  | 1.9   | %
|Special charges                              |  |      | 1.9   | %    |  |      | 1.9   | % |  |  | 1.6   | %
|Operating income                             |  |      | 18.0  | %    |  |      | 10.0  | % |  |  | 15.9  | %

The comparability of results of operations
between years is impacted by the acquisition of Chemicon, which
was acquired effective April 1, 2003, and Intergen, which
was acquired on December 13, 2001. Chemicons results
of operations are included in the Research segment and
Intergens results of operations are included in the Cell
Culture, Diagnostic and Research segments.

The following table sets forth a breakdown of
revenue and gross profit contributed by segment for the years
ended December 28, 2003, December 29, 2002 and
December 30, 2001 (in thousands):

|           |                       |        |         |         |  |        |     |         |   |        |        |         |  |  |     |    |   |   |        |        |  |  |     |    |  
|---------- | --------------------- | ------ | ------- | ------- |  | ------ | --- | ------- | - | ------ | ------ | ------- |  |  | --- | -- | - | - | ------ | ------ |  |  | --- | -- | -
|           |                       |        |         |         |  |       
|           |                       | 2003   |         | 2002    |  | 2001  
|           |                       |        |         |         |  |       
|           |                       | Actual |         | % Total |  | Actual |     | % Total |   | Actual |        | % Total
|           |                       |        |         |         |  |        |     |         |   |        |        |        
|Net sales: |                       |        |         |         |  |        |     |         |   |        |        |         |  |  |     |    |   |   |        |        |  |  |     |   
|           | Research Products     |        | $       | 43,043  |  |        |     | 29      | % |        | $      | 4,137   |  |  |     | 4  | % |   | $      |       |  |  |     |   |  
|           | Cell Culture Products |        |         | 73,986  |  |        |     | 51      | % |        |        | 68,140  |  |  |     | 69 | % |   |        | 30,601 |  |  |     | 57 | %
|           | Diagnostic Products   |        |         | 29,886  |  |        |     | 20      | % |        |        | 27,012  |  |  |     | 27 | % |   |        | 22,963 |  |  |     | 43 | %
|           |                       |        |         |         |  |        |     |         |   |        |        |         |  |  |     |    |   |   |        |        |  |  |     |   
|           |                       | $      | 146,915 |         |  |        | 100 | %       |   | $      | 99,289 |         |  |  | 100 | %  |   | $ | 53,564 |        |  |  | 100 | % 
|           |                       |        |         |         |  |        |     |         |   |        |        |         |  |  |     |    |   |   |        |        |  |  |     |   

|              |                       |        |        |        |  |        |    |      |   |        |        |        |  |  |    |    |   |   |        |        |  |  |    |    |  
|------------- | --------------------- | ------ | ------ | ------ |  | ------ | -- | ---- | - | ------ | ------ | ------ |  |  | -- | -- | - | - | ------ | ------ |  |  | -- | -- | -
|              |                       | Actual |        | GM %   |  | Actual |    | GM % |   | Actual |        | GM %  
|              |                       |        |        |        |  |        |    |      |   |        |        |       
|Gross profit: |                       |        |        |        |  |        |    |      |   |        |        |        |  |  |    |    |   |   |        |        |  |  |    |   
|              | Research Products     |        | $      | 26,677 |  |        |    | 62   | % |        | $      | 1,577  |  |  |    | 38 | % |   | $      |       |  |  |    |   |  
|              | Cell Culture Products |        |        | 38,621 |  |        |    | 52   | % |        |        | 37,083 |  |  |    | 54 | % |   |        | 17,358 |  |  |    | 57 | %
|              | Diagnostic Products   |        |        | 15,942 |  |        |    | 53   | % |        |        | 13,553 |  |  |    | 50 | % |   |        | 13,328 |  |  |    | 58 | %
|              |                       |        |        |        |  |        |    |      |   |        |        |        |  |  |    |    |   |   |        |        |  |  |    |   
|              |                       | $      | 81,240 |        |  |        | 55 | %    |   | $      | 52,213 |        |  |  | 53 | %  |   | $ | 30,686 |        |  |  | 57 | % 
|              |                       |        |        |        |  |        |    |      |   |        |        |        |  |  |    |    |   |   |        |        |  |  |    |   

Comparison of Fiscal Years ended
December 28, 2003 and December 29, 2002

NET SALES

Consolidated

Consolidated net sales increased 48%, or
approximately $47.6 million, from $99.3 million in
2002 to $146.9 million in 2003. Consolidated net sales
increased primarily due to contributions from Chemicon and
growth in sales of monoclonal antibodies. Consolidated net sales
during 2003 include $38.0 million contributed by Chemicon.
Sales of monoclonal antibodies increased from $16.1 million
in 2002 to $22.6 million in 2003.

Research Products

Net sales of Research Products increased from
$4.1 million in 2002 to $43.0 million in 2003,
primarily due to the acquisition of Chemicon effective
April 1, 2003. Chemicon contributed $38.0 million to
Research Products net sales in 2003. During 2003, the
operations of the Companys previous research products
operations in Gaithersburg, Maryland were combined and
integrated into Chemicon. Chemicons sales for the full
year 2003 increased 22% over the comparable period in 2002.

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Cell Culture Products

Net sales of Cell Culture Products increased
$5.9 million, or 9%, from $68.1 million in 2002 to
$74.0 million in 2003. This increase is due to increased
sales of Insulin and BSA, offset partially by lower sales of
EX-CYTE®. Insulin sales were up $5.3 million, from
$9.7 million in 2002 to $15.0 million in 2003. Insulin
sales increased primarily because of additional availability of
this product from our supplier during 2003 and the exiting of
one of the Companys competitors from this market space.
The Company expects insulin sales to continue to grow in 2004
but at a more modest rate than was experienced in 2003. Sales of
BSA increased $1.4 million from $15.4 million in 2002
to $16.8 million in 2003 due to completion of the Cohn BSA
expansion at our Toronto facility. BSA sales were negatively
impacted during 2003 due to a partial shutdown of our Toronto
plant during June 2003 following the discovery of a single cow
infected with BSE in Canada. The closure of this plant reduced
the amount of saleable product during the year due to
manufacturing cycle time required for certain products. Sales of
EX-CYTE® declined slightly from $30.8 million in 2002
to $29.3 million in 2003 due to timing of shipments and
lower demand for one of our customers products that
utilizes EX-CYTE® in its manufacturing process.

Diagnostic Products

Net sales of Diagnostic Products increased
approximately $2.9 million, or 11%, from $27.0 million
in 2002 to $29.9 million in 2003. This increase is
primarily due to higher sales of monoclonal antibodies, which
increased from $16.1 million in 2002 to $22.6 million
in 2003. Sales of monoclonal antibodies increased
$2.2 million due to increased prices and $0.4 million
due to increases in foreign currency, with the remainder related
to higher volumes. This increase in monoclonal antibodies was
partially offset by decreased sales of human-sourced disease
state polyclonal antibodies, detection products and other
diagnostic products. Human-sourced disease state polyclonal
antibody sales have been negatively impacted by the Health
Insurance Portability and Accountability Act
(HIPPA), which has adversely affected access to
qualified donors. The Company sold the majority of the products
in the human-sourced disease state polyclonal antibody group
with the sale of the therapeutic plasma business and does not
expect future sales from the remaining products to be material.

GROSS PROFIT

Consolidated

Consolidated gross profit increased approximately
$29.0 million, from $52.2 million in 2002 to
$81.2 million in 2003. Gross margin increased from 53% in
2002 to 55% in 2003. This increase primarily related to the
acquisition of Chemicon and stronger margins on monoclonal
antibodies as a result of manufacturing efficiencies gained from
increased production at our facility in Scotland and the
increase in sales prices of monoclonal antibodies. Consolidated
gross profit included $24.6 million contributed by Chemicon.

Research Products

Gross profit from Research Products was
$1.6 million and $26.7 million in 2002 and 2003,
respectively. Gross margins on Research Products increased from
38% to 62% in 2002 and 2003, respectively. This increase was
primarily due to the acquisition of Chemicon effective
April 1, 2003. Research gross profit included
$24.6 million contributed by Chemicon. Gross profit for
2003 was negatively impacted by a $0.4 million charge to
cost of sales as a result of inventory adjustments to
Chemicons opening inventory required under purchase
accounting rules.

Cell Culture Products

Gross profit from Cell Culture Products increased
$1.5 million, from $37.1 million in 2002 to
$38.6 million in 2003. Gross margin decreased from 54% in
2002 to 52% in 2003. Gross margins for Cell Culture Products
were positively impacted in 2003 due to a sale of EX-CYTE®
at 100% gross margin under the terms of a take or pay contract
with one of the Companys customers. Neither party has any
continuing obligations under the take or pay provision in 2004.
Gross margins for Cell Culture would have been 51% if

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this sale had been recorded at a normal margin.
Gross margins were lower in 2003 primarily due to product mix,
as EX-CYTE®, which is a higher margin product, represented
a significantly lower percentage of total Cell Culture product
sales than in 2002. Additionally, the margins were approximately
1% lower in 2003 due to manufacturing cost variances arising
from excess capacity at certain of our manufacturing facilities.


Diagnostic Products

Gross profit from Diagnostic Products increased
$2.3 million, or 17%, from $13.6 million in 2002 to
$15.9 million in 2003. Gross margin increased from 50% in
2002 to 53% in 2003. Gross margins increased primarily due to
efficiencies gained from increased production at our Scotland
facility, increased sales prices of monoclonal antibodies and
the increase in the monoclonal antibody volumes, which are
relatively higher margin products. Gross margins from Diagnostic
Products were negatively impacted by our human-sourced disease
state polyclonal antibody products, the majority of which were
sold with the therapeutic plasma business as mentioned above.
Gross margins on the human-sourced disease state polyclonal
antibody products categories sold were 52% and 5% in 2002 and
2003, respectively. Gross margins were negatively impacted on
these products due to lower production volumes which resulted in
absorption of fixed costs by fewer units. Collection of the
products within human-sourced disease state polyclonal antibody
product group was negatively impacted by HIPPA, which has
adversely affected access to qualified donors.

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES

Consolidated selling, general and administrative
expenses (SG&A) increased approximately
$9.9 million, or 29% from $33.8 million in 2002 to
$43.7 million in 2003. As a percentage of revenues,
SG&A was 30% in 2003 compared with 34% in 2002. Chemicon
accounted for $18.4 million of 2003 SG&A. The increase
attributable to Chemicon was partially offset as the Company
continued to emphasize cost controls over SG&A at all
locations including its corporate office. Excluding Chemicon,
the Company has lowered its headcount by more than 25 people
between December 29, 2002 and December 28, 2003.
Management expects SG&A to be under 30% of consolidated
revenue in 2004.

RESEARCH AND DEVELOPMENT

Research and development expenses
(R&D) increased slightly from $5.6 million
in 2002 to $6.2 million in 2003. This increase is primarily
due to the expansion of the Companys research and
development activities, including those acquired as a result of
the Chemicon acquisition. R&D included $1.9 million
incurred by Chemicon. The increase attributable to Chemicon was
partially offset as the Company restructured its existing
research and development group, which included eliminating the
R&D group in Scotland in late 2002 and reorganized of
certain of the Companys U.S.-based R&D functions upon
the transfer of the Gaithersburg, Maryland operations to
Chemicon in 2003. During 2003, Chemicon internally developed 295
new products. The Company also continued to advance various
projects in the Cell Culture area related to the
characterization and performance of EX-CYTE® and other cell
culture supplements, as well as progress in developing novel
cell culture supplements. The Company was recently awarded a
United States patent for the prion clearance step in the
EX-CYTE® manufacturing process.

See Outlook within Item 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations for additional
discussion of R&D efforts.

AMORTIZATION OF INTANGIBLES

Amortization of intangibles increased from
$0.9 million in 2002 to $2.2 million in 2003 due to
the acquisition of Chemicon effective April 1, 2003. The
Chemicon acquisition added $1.1 million in amortization
during 2003.

SPECIAL CHARGES

During 2003 and 2002, the Company incurred
$2.8 million and $1.9 million, respectively, in
special charges. See Note 4  SPECIAL
CHARGES in Item 8 Financial Statements and
Supplementary Data

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for additional discussion of special charges. The
following chart summarizes the special charges incurred during
these periods (in thousands):


|                     |                       |      |       |       |  |   |       |       | 
|-------------------- | --------------------- | ---- | ----- | ----- |  | - | ----- | ----- | 
|                     |                       | 2003 |       | 2002 
|                     |                       |      |       |      
|Gaithersburg closure |                       | $    | 1,044 |       |  | $ |      |      
|Toronto BSE shutdown |                       |      | 966   |       |  |   |      |      
|Restructuring costs  |                       |      | 514   |       |  |   | 1,909 |      
|Other                |                       |      | 254   |       |  |   |      |      
|                     |                       |      |       |       |  |   |       |      
|                     | Total special charges |      | $     | 2,778 |  |   | $     | 1,909 | 
|                     |                       |      |       |       |  |   |       |      

OTHER EXPENSE, NET

Other expense, net was $0.2 million in 2003
and immaterial in 2002. Other expenses are presented net of
gains and losses from realized foreign currency translation,
which were immaterial in both years.

WRITE-OFF OF DEFERRED FINANCING
COSTS

At closing of the issuance of the
$130.0 million principal amount of 4.75% Convertible
Senior Subordinated Debentures due August 15, 2033
(Debentures) and new $30.0 million revolving
credit facility (Revolver), the Company repaid the
balances in full and terminated its previous $82.5 million
term loan and $35.0 million revolving credit facility. The
Company recorded a non-cash charge of approximately
$4.1 million related to the write-off of deferred financing
costs associated with the terminated facilities. During 2003,
the Company also recorded a charge of approximately
$0.4 million related to the write-off of deferred financing
costs related to the Companys revolving credit facility
that was in place prior to the $82.5 million term loan.

INTEREST EXPENSE

Interest expense increased from $0.2 million
in 2002 to $4.4 million in 2003. The increase in interest
expense was due to borrowings used to finance the Chemicon
acquisition and subsequent refinancing arising from the issuance
of the Debentures.

INTEREST INCOME

The Company recorded interest income of
$0.6 million in 2002 and $0.3 million in 2003.
Interest income decreased primarily due to 2002 interest income
including $0.4 million of interest income associated with
outstanding tax refunds from prior years as well as lower
interest rates in 2003.

PROVISION FOR INCOME TAXES

The provision for income taxes as a percentage of
income before taxes decreased from 35% in 2002 to 31% in 2003.
The Companys effective tax rate declined in 2003 as a
result of higher than expected foreign tax credits and
generating more of our income in lower tax jurisdictions. The
Company expects its effective tax rate to be 33% in 2004.

INCOME (LOSS) FROM DISCONTINUED
OPERATIONS

Income (loss) from discontinued operations, net
of income taxes, decreased from earnings of $7.2 million in
2002, to a loss of $(10.6) million in 2003. The loss from
discontinued operations in 2003 included an impairment charge of
$12.6 million. The impairment was based on
managements estimate of net realizable value of the
consideration received from the sale of the therapeutic plasma
business. The remaining decline is primarily due to the
continued weakness in sales and gross margins of the therapeutic
plasma business. Sales of therapeutic plasma were
$46.2 million and $29.7 million in 2002 and 2003,
respectively. Additionally gross margins declined from 36% in
2002 to 10% in 2003. Gross margins were negatively impacted on
these products due to lower production volumes which resulted in
absorbing fixed costs over fewer units.

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Comparison of Fiscal Years ended
December 29, 2002 and December 30, 2001

NET SALES

Consolidated

Consolidated net sales increased approximately
$45.7 million, from $53.6 million in 2001 to
$99.3 million in 2002. The increase was driven primarily by
the sales contribution from the products acquired with the
Intergen acquisition and a significant increase in EX-CYTE®
sales.

Research Products

Net sales of Research Products were
$4.1 million in 2002. The Company did not have any Research
Products prior to the acquisition of Intergen in December 2001.

Cell Culture Products

Net sales of Cell Culture Products increased
$37.5 million, or 123%, from $30.6 million in 2001 to
$68.1 million in 2002. This increase was due to increased
sales of EX-CYTE® and sales contribution from Intergen.
Sales of EX-CYTE® increased $11.7 million, or 61%,
from $19.1 million in 2001 to $30.8 million in 2002.
The growth in sales of the EX-CYTE® product was due to
continued advancement in the commercialization of the
Companys customers end-products. Intergen sales
related primarily to human recombinant insulin, BSA and other
media supplements.

Diagnostic Products

Net sales of Diagnostic Products increased
approximately $4.0 million, or 17%, from $23.0 million
in 2001 to $27.0 million in 2002. This increase was
primarily due to increased sales of human-sourced disease state
polyclonal antibodies, which increased from $5.5 million in
2001 to $8.9 million in 2002. Human-sourced disease state
polyclonal antibodies primarily increased due to the Intergen
acquisition. Sales of monoclonal antibodies and related products
were $16.1 million in 2002 compared to $16.0 million
in 2001.

GROSS PROFIT

Consolidated

Consolidated gross profit increased approximately
$21.5 million, from $30.7 million in 2001 to
$52.2 million in 2002. This increase was primarily due to
increased sales. Gross margin decreased slightly from 57% in
2001 to 53% in 2002. Gross margins were lower in 2002 primarily
due to product mix, as EX-CYTE®, which is a higher margin
product, represented a significantly lower percentage of total
sales.

Research Products

Gross profit and gross margin from Research
Products were $1.6 million and 38% in 2002, respectively.
The Company did not have any Research Products prior to the
acquisition of Intergen in December 2001.

Cell Culture Products

Gross profit from Cell Culture Products increased
approximately $19.7 million, or 113%, from
$17.4 million in 2001 to $37.1 million in 2002. This
increase was primarily due to the increased sales of
EX-CYTE® and the addition of the former Intergen products
to the Cell Culture sales mix. Gross margins on Cell Culture
Products decreased from 57% in 2001 to 54% in 2002. This
decrease was due to the mix of sales. During 2001, 62% of sales
in this segment were sales of the higher margin EX-CYTE®
product, whereas in 2002, EX-CYTE® represented
approximately 45% of Cell Culture sales. The Intergen products
included in this segment are generally lower margin products
than EX-CYTE®.

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Diagnostic Products

Gross profit from Diagnostic Products increased
approximately $0.3 million, or 2%, from $13.3 million
in 2001 to $13.6 million in 2002. During 2002, gross
margins on Diagnostic Products were 50%, compared with 58% in
2001. Gross margins decreased due to human-sourced disease state
polyclonal antibodies representing a larger portion of
diagnostic sales. Human-sourced disease state products were 24%
of Diagnostic Product sales in 2001 versus 33% in 2002.
Human-sourced disease state products are a lower margin product
than monoclonal antibodies and related products.

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES

SG&A expenses increased approximately
$15.2 million, or 82%, from $18.6 million in 2001 to
$33.8 million in 2002. As a percentage of revenues,
SG&A expenses were 34% in 2002 compared with 35% in 2001.
Approximately $2.0 million of this increase was due to
external costs related to the integration of Intergen. Other
significant items contributing to the increase compared with the
prior year included approximately $1.0 million related to
operating the former Intergen corporate office during the first
quarter of 2002, approximately $4.6 million related to the
expansion of the Companys sales and marketing
organization, approximately $1.0 million of increased costs
due to the timing of hiring certain executives during the second
half of 2001 and an increase of approximately $2.5 million
related to higher commercial insurance costs.

RESEARCH AND DEVELOPMENT

Research and development expenses increased
approximately $3.9 million, or 229%, from $1.7 million
in 2001 to $5.6 million in 2002. As a percentage of sales,
spending in this area increased from 3% in 2001 to 6% in 2002.
This increase is primarily due to the expansion of the
Companys research and development activities, including
those acquired as a result of the Intergen acquisition. The
current year also includes payments totaling approximately
$1.0 million made to a third party research facility to
fund start-up costs associated with projects this facility is
undertaking related to detailed characterization and
optimization of EX-CYTE®.

AMORTIZATION OF INTANGIBLES

Amortization of intangibles remained relatively
constant at $1.0 million in 2001 and $0.9 million in
2002.

SPECIAL CHARGES

During 2002, the Company recorded a charge of
$1.9 million related primarily to the reorganization of the
Companys research and development organization, as well as
personnel restructurings within the sales organization and at
the Companys manufacturing locations in Canada and
Scotland. The components of the charge included approximately
$1.3 million for severance and termination benefits,
approximately $0.1 million related to relocation costs,
approximately $0.1 million related to lease obligations and
approximately $0.3 million related to the impairment of
certain long-lived assets. The severance payments covered
approximately thirty employees. Severance payments and lease
obligations were paid by the end of 2003.

During 2001, the Company recorded a charge of
approximately $0.2 million representing severance paid out
over a one-year period beginning in October 2001. Also, during
2001, the Company wrote off approximately $0.9 million of
incremental external due diligence costs related to the
evaluation of the potential acquisition of Intergen. At the time
of the write-off, the Company did not consider the acquisition
probable of being completed. All eligible costs incurred with
respect to the eventual acquisition subsequent to the resumption
of negotiations with Intergen later in 2001 were capitalized as
part of the cost of the acquisition. The Company also recorded
an adjustment of approximately $0.3 million in 2001 to
reverse a pre-acquisition contingency accrual that was initially
recorded when the Company acquired its Kankakee facility in 1998.

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OTHER EXPENSE, NET

Other expense, net was immaterial in 2002 and
2001. Other expense, net primarily relates to gains and losses
from realized foreign currency translation.

INTEREST EXPENSE

Interest expense decreased $0.3 million from
$0.5 million in 2001 to $0.2 million in 2002. Interest
expense decreased primarily due to an incremental increase in
the amount of interest capitalized in connection with capital
projects. The amount of interest capitalized increased due to a
higher construction in process balance throughout 2002 than in
2001 associated with the expansion of the Toronto facility and
SAP Enterprise Resource Planning (ERP) system.

INTEREST INCOME

The Company recorded interest income of
$0.6 million in 2002 and $1.7 million in 2001. During
2002, the Company recorded interest income of approximately
$0.4 million related to interest due on outstanding tax
refunds from prior years. The Company recorded the interest
income upon receiving formal notification from the federal and
state taxing authorities that those previously open years were
now closed and the refunds would be released. The Company
received these tax refunds in July 2002. Excluding the impact of
this item, net interest income decreased in 2002 as a result of
using cash on hand to complete the acquisition of Intergen,
including the completion of the Toronto plant.

PROVISION FOR INCOME TAXES

The provision for income taxes as a percentage of
income before taxes remained relatively constant at 35% in 2001
and 2002.

INCOME (LOSS) FROM DISCONTINUED
OPERATIONS

Income from discontinued operations, net of
income taxes decreased from $10.9 million in 2001 to
$7.2 million in 2002. Income from discontinued operations
decreased primarily due to lower revenue in 2002, decreasing
from $56.2 million in 2001 to $46.2 million in 2002.
Gross margins remained relatively constant at 38% in 2001 to 36%
in 2002. Sales of therapeutic plasma products declined due to
overall weakness in demand for the Companys therapeutic
plasma products and shortage of qualified donors in 2002.

Liquidity and Capital Resources

The following table sets forth certain indicators
of consolidated financial condition and liquidity of the Company
as of the following fiscal year ends (in thousands):

|                                         |  |      |         |      |  |      |         |  |  |   |         |  
|---------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | -
|                                         |  | 2003 |         | 2002 |  | 2001
|                                         |  |      |         |      |  |     
|Cash and cash equivalents                |  | $    | 48,564  |      |  | $    | 15,242  |  |  | $ | 12,119  |  
|Working capital                          |  |      | 104,760 |      |  |      | 65,468  |  |  |   | 55,156  |  
|Total debt and capital lease obligations |  |      | 130,923 |      |  |      | 424     |  |  |   | 4,576   |  
|Stockholders equity                     |  |      | 178,972 |      |  |      | 170,370 |  |  |   | 152,475 |  
|Total debt to equity                     |  |      | 73      | %    |  |      |        |  |  |   | 3       | %

Serologicals has three principal sources of
near-term liquidity: (1) existing cash and cash equivalents;
(2) cash generated by operations; and (3) available
borrowing capacity under the Revolver, which provides for a
maximum borrowing capacity of $30.0 million. As of
March 1, 2004, the Company had $30.0 million available
under the Revolver. Management believes the Companys
liquidity and capital resources are sufficient to meet its
working capital, capital expenditure and other anticipated cash
requirements over the next twelve months.

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Net cash provided by operating activities was
$18.1 million, $7.2 million and $14.0 million in
2003, 2002 and 2001, respectively. Changes in operating assets
and liabilities used were $9.3 million, $9.1 million
and $1.1 million during 2003, 2002 and 2001, respectively.
The increase in working capital in 2003 and 2002 versus 2001 is
attributed to the continued growth in the business. During 2003
and 2002 trade accounts receivable increased $6.5 million
and $11.1 million, respectively, over the previous year.
Days sales outstanding (DSO) at the end of 2003,
2002 and 2001 were 69, 62, and 62 days, respectively.
Management believes that DSO including the acquisitions of
Intergen and Chemicon (Adjusted DSO) in all periods
is more meaningful as accounts receivable for each acquisitions
is included in the Companys year-end balance in the year
of the acquisition whereas revenue does not include a complete
years transactions. Adjusted DSO at the end of 2003, 2002
and 2001 were 77, 69, and 51 days, respectively. Adjusted
DSO was higher in 2003 than in 2002 due to billing a significant
EX-CYTE® customer for their contractual obligation under a
take or pay contract on December 28, 2003. Excluding
accounts receivable related to this take or pay contract,
Adjusted DSO was 70 days at December 28, 2003. The
amount billed would have been shipped and billed throughout the
year, if the customer had taken delivery of the product. The
Company collected all amounts under this take or pay contract in
February 2004. Adjusted DSO was 18 days higher in 2002 than
in 2001 due to a shift in the timing of shipments of
EX-CYTE® to the latter part of each quarter for several of
our large EX-CYTE®customers and EX-CYTE® representing
a higher percentage of consolidated sales in 2002 than in 2001.
Inventories increased $6.6 million in 2003 compared to a
reduction in inventory in 2001 of $1.0 million and
relatively no change in 2002. Inventory turns at the end of
2003, 2002 and 2001 were 2.5, 2.2 and 1.4, respectively.
Management believes that inventory turns including the
acquisitions of Intergen and Chemicon in all periods is more
meaningful as inventory for each acquisition is included in the
Companys year-end inventory balance in the year of the
acquisition whereas cost of sales does not include a complete
years transactions. Inventory turns including the
acquisitions of Intergen and Chemicon in all periods were 2.1,
2.3 and 1.8 times at the end of 2003, 2002 and 2001,
respectively. Inventory increased in 2003 due to the continued
growth in the business as well as restoring inventory levels at
our Scotland facility after the backlog of orders that occurred
during the third quarter of 2002 and a large purchase of insulin
at the end of the third quarter of 2003, which was partially on
hand at year-end. Accounts payable and accrued liabilities
increased $3.7 million in 2003 compared to a reduction in
2002 and 2001 of $0.2 and $2.9 million, respectively.
Accounts payable and accrued liabilities increased in 2003
primarily due to accrued interest associated with the Debentures
and taxes payable associated with higher taxable income from
continuing operations in the fourth quarter of 2003 than in
fourth quarter of 2002.

The incremental increase in cash used by changes
in operating assets and liabilities in 2003 and 2002 was offset
by incremental increases in adjustments such as depreciation and
amortization and non-cash special charges and write-off of
deferred financing costs. Depreciation and amortization
increased in 2003 compared to 2002 due to the acquisition of
Chemicon effective April 1, 2003 and ERP implementation and
increased in 2002 compared to 2001 due to the acquisition of
Intergen on December 13, 2001. In 2003, non-cash special
charges and write-off of deferred financing costs related
primarily to the write-off of $4.5 million in deferred
financing costs during the year, $0.8 million related to
asset impairment associated with the relocation of research
products produced at our Gaithersburg, Maryland facility to
Chemicon and $1.0 million related to asset impairments
associated with the Toronto BSE shutdown. See
Note 5  SPECIAL CHARGES and
Note 8  CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES in Item 8 Financial Statements and
Supplementary Data for additional discussion of special charges
and write-off of deferred financing costs.

Net cash used in investing activities was
$117.2 million, $11.8 million and $44.5 million
in 2003, 2002 and 2001, respectively. Investing activities
during 2003 included the acquisition of Chemicon for
$97.1 million, net of cash received and capital
expenditures of $19.6 million. Investing activities during
2002 included capital expenditures of $11.5 million.
Investing activities during 2001 included the acquisition of
Intergen for $41.4 million. Capital expenditures during
2003 consisted primarily of construction of the Companys
new protein fractionation facility in Lawrence, Kansas and
completion of the ERP implementation. Capital expenditures
during 2002 consisted primarily of implementation of the ERP
system, expansion of monoclonal manufacturing operations in
Scotland, and completion of the expansion of the Companys
manufacturing facility in Toronto.

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Net cash provided by financing activities in 2003
was $123.0 million, compared with $2.3 million of net
cash used during the same period in 2002. Financing activities
in 2003 primarily consisted of $130.0 million from the
issuance of the Debentures and payment of debt issuance costs of
$8.9 million; $4.4 million related to the term loan
and $4.5 million related to the Debentures. During 2003,
the Company also received proceeds of $82.5 million from a
term loan entered into during the second quarter of 2003 and
subsequently repaid the outstanding balance of the term loan
upon issuing the Debentures during the third quarter of 2003.
Financing activities in 2002 primarily consisted of payment of
long-term debt and capital leases of $4.0 million and
proceeds from stock options of $2.7 million.

During 2004, the Company anticipates capital
expenditures of approximately $11 million to
$13 million. The most significant expenditure will be the
completion of the new protein fractionation facility in
Lawrence, Kansas and implementation of an ERP system at Chemicon.

In October 2002, the Companys Board of
Directors authorized a program to repurchase up to
2,000,000 shares of its outstanding common stock between
October 2002 and December 31, 2004. The repurchases may be
made from time to time in the open market, in block trades or in
private transactions, subject to price, market and general
business conditions. Through March 1, 2004, the Company has
not purchased any shares under this program.

As of December 28, 2003, the Company had
outstanding debt of approximately $130.9 million consisting
primarily of the Debentures. The Company has no borrowings
outstanding under its Revolver. The following table sets forth
the Companys contractual obligations as of
December 28, 2003 (in thousands):

|                                        |  |                       |         |        |  |           |        |           |  |          |       |  |  |   |       |  |  |   |         | 
|--------------------------------------- |  | --------------------- | ------- | ------ |  | --------- | ------ | --------- |  | -------- | ----- |  |  | - | ----- |  |  | - | ------- | 
|                                        |  |                      
|                                        |  | Payment due by period
|                                        |  |                      
|                                        |  | Total                 |         | 1 year |  | 2-3 years |        | 4-5 years |  | 5+ years
|                                        |  |                       |         |        |  |           |        |           |  |         
|4.75% Convertible debentures(1)         |  | $                     | 130,916 |        |  | $         |       |           |  | $        |      |  |  | $ |      |  |  | $ | 130,916 | 
|Operating lease obligations             |  |                       | 23,177  |        |  |           | 2,929  |           |  |          | 5,317 |  |  |   | 4,964 |  |  |   | 9,967   | 
|Royalty obligation(2)                   |  |                       | 1,205   |        |  |           | 955    |           |  |          | 250   |  |  |   |      |  |  |   |        | 
|Purchase obligations                    |  |                       | 10,137  |        |  |           | 10,137 |           |  |          |      |  |  |   |      |  |  |   |        | 
|Major capital expenditure obligation(3) |  |                       | 8,475   |        |  |           | 8,475  |           |  |          |      |  |  |   |      |  |  |   |        | 
|                                        |  |                       |         |        |  |           |        |           |  |          |       |  |  |   |       |  |  |   |         | 
|                                        |  | $                     | 173,910 |        |  | $         | 22,496 |           |  | $        | 5,567 |  |  | $ | 4,964 |  |  | $ | 140,883 | 
|                                        |  |                       |         |        |  |           |        |           |  |          |       |  |  |   |       |  |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes approximately $0.9 million related
    to the fair market value of an interest rate swap entered into
    on October 17, 2003. Additionally as discussed in
    Note 8  CONVERTIBLE SUBORDINATED
    DEBENTURES in Item 8 Financial Statements and
    Supplementary Data, the Debentures include call and put features
    which could cause their maturity prior to 5 years or more from
    the Consolidated Balance Sheet date.
|   
|(2) | Represents the royalties that the Company is
    contractually obligated to pay.                                                                                                                                                                                                                                                                                                                                                               
|   
|(3) | Represents the contractual obligation to complete
    the Lawrence, Kansas facility.                                                                                                                                                                                                                                                                                                                                                           

On August 20, 2003, the Company issued
$130.0 million principal amount of Debentures to certain
institutional investors. After expenses, the Company received
net proceeds of $126.1 million. Interest on the Debentures
accrues at 4.75% per annum and is payable semi-annually on
February 15th and August 15th. The Debentures are
convertible into shares of Serologicals common stock at an
initial rate of 67.6133 shares of common stock per $1,000
principal amount of the Debentures (or approximately
8.8 million shares of common stock at a conversion price of
$14.79 per share of common stock), subject to the
satisfaction of certain conditions, such as obtaining a trading
price of $17.75 over 20 trading days over a period of 30
consecutive trading days ending on the last trading day of the
preceding fiscal quarter, if the Company calls the Debentures
for redemption, or upon the occurrence of certain corporate
transactions. The terms of the Debentures do not impose any
restrictive covenants on the Company. The holders of the
Debentures may require the Company to repurchase some or all of
their Debentures on August 15, 2008, August 15, 2010,
August 15, 2013, August 15, 2018, August 15, 2023
or August 15, 2028 at a repurchase price equal to 100% of
the principal amount of the Debentures being repurchased, plus
any accrued and unpaid interest to but

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excluding the applicable repurchase date. The
holders of the Debentures may also require the Company to
repurchase some or all of their Debentures at any time if the
Company undergoes a fundamental change, such as the consummation
of any share exchange, consolidation or merger of the Company or
any sale of all or substantially all of its assets. See
Note 8  CONVERTIBLE SUBORDINATED
DEBENTURES in Item 8 Financial Statements and
Supplementary Data for a discussion of the Debentures.


On October 17, 2003, the Company entered
into an interest rate swap on $70.0 million principal
amount of its Debentures. The objective of the swap is to
convert the 4.75% fixed interest rate on this portion of the
Debentures to a variable interest rate based on the 6-month
LIBOR at the end of each interest period plus a spread of
66 basis points. The gain or loss from changes in the fair
value of the swap is expected to offset the gain or loss from
the changes in the fair value of the cash flows from the
Debentures throughout the expected term of the Debentures. At
December 28, 2003 the fair market value of the interest
rate swap was a receivable of $0.9 million.

On August 29, 2003, the Company entered into
a new $30.0 million three-year Revolver. The new Revolver
bears interest at a floating rate of interest determined by
reference to a base rate or to Eurodollar interest rates, plus a
margin. The margin on the Eurodollar interest rate ranges from
2.00% to 2.75% and the margin on the base rate ranges from 1.00%
to 1.75% based on the Companys leverage ratio. The Company
is required to pay a commitment fee of .5% per annum on
undrawn balances. The Revolver is secured by substantially all
of the assets of the Company. The Revolver contains certain
financial covenants that require the maintenance of a minimum
fixed charge coverage ratio and earnings before interest, taxes,
depreciation and amortization and also provides for a maximum
leverage ratio and limitations on capital expenditures.
Furthermore, under the terms of the Revolver, there are
restrictions on the Companys ability to make acquisitions,
repurchase common stock and to pay dividends. As of
December 28, 2003, there were no amounts outstanding under
the Revolver. See Note 9  LONG-TERM DEBT
AND CAPITAL LEASE OBLIGATIONS in Item 8 Financial
Statements and Supplementary Data for discussion of the Revolver.

At December 28, 2003 the Company had a
commitment with a vendor, which requires the Company to use the
vendor in connection with the processing of BSA at the Toronto
facility for a minimum of $120,000 per quarter. The
contract can be terminated by the Company or the supplier at any
time with 180 days notice. The contract expires in
2005, but can be renewed on a rolling one-year basis.

The Company is currently undertaking an
investigation of groundwater contamination at its
Kankakee, Illinois facility pursuant to the Illinois
Environmental Protection Agencys regulations. The Company
believes that it is reasonably possible that remediation maybe
required. Until the investigation is complete it is uncertain as
to the course and cost of remediation, if any, which may be
required. The Company has given notice to the former owner of
the property of the Companys claim for indemnification for
costs of the investigation and any costs of remediation, should
remediation be required, under the terms of the purchase
agreement. Although the Company believes that it will be
indemnified for these costs, to some extent, the Company is
unable to predict whether it will recover any amounts from the
former owner with respect to these matters.

The Company has guaranteed real estate lease
obligations totaling approximately $4.2 million related to
the therapeutic plasma business. If Gradipore defaults on the
lease payments, the Company would be required to assume these
leases. The Company has also indemnified Gradipore, up to a cap
of $2.0 million, for certain representations specified in
the Stock Purchase Agreement, including material breaches of
representations and warranties. The Company has accrued a stand
ready obligation of $0.2 million in accordance with
Financial Accounting Standards Board (FASB)
Interpretation No. 45, Guarantor Accounting and
Disclosure Requirement for Guarantees for these guarantees.

The Company has signed a letter of intent and
anticipates that it will lease $3.5 million of production
equipment at its new fractionation facility in Lawrence, Kansas
effective April 2004. The Company expects to account for this
transaction as a capital lease in accordance with
SFAS No. 13, Accounting for Leases. The
expected terms under this agreement are 24 monthly payments
of $0.2 million with a bargain buyout at the end of the
lease.

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The Company has no off-balance sheet financing
arrangements and has not created any special purpose entities.
Additionally, the Company does not undertake any trading
activities within its business with respect to non-exchange
traded contracts accounted for at fair value.

Market Risk

The Company is exposed to market risk from
changes in foreign currency exchange rates and, to a lesser
extent, interest rates, which could affect its future results of
operations and financial condition. The Company manages its
exposure to these risks through its operating and financing
activities.



| |                                
| | -------------------------------
| | Foreign Currency Exchange Rates

The Companys foreign-based operations are
conducted through manufacturing operations located in the U.K.,
Australia, and Canada. In 2003, 2002 and 2001, foreign-based
operations accounted for approximately 30%, 23% and 30% of net
sales and approximately 27%, 19% and 28% of gross profit,
respectively. The net investments in foreign subsidiaries
translated into dollars using year-end exchange rates at
December 28, 2003, was $28.2 million. The potential
loss in fair value impacting other comprehensive income
resulting from a hypothetical 10% change in quoted foreign
currency exchange rates amounts to $2.8 million. The
Company does not currently use derivative financial instruments
to hedge its exposure to changes in foreign currency exchange
rates.

The functional currency of the Companys
U.K. operations is the British pound sterling, the functional
currency for the Companys Australian operations is the
Australian dollar and the functional currency for the
Companys Canadian operations is the Canadian dollar.
Fluctuations in foreign exchange rates can impact operating
results, including net revenues and expenses, when translations
of the subsidiary financial statements are made in accordance
with SFAS No. 52, Foreign Currency
Translation. Furthermore, the Company transacts business
in various foreign currencies, subjecting it to exposure from
movements in the exchange rates of those countries. However, a
large portion of the Companys sales to foreign countries
are denominated in U.S. currency, thus mitigating a
significant portion of this risk. It has not been the
Companys practice to hedge its assets and liabilities in
these countries or its intercompany transactions, and
accordingly, the Company has not used derivatives or other
off-balance sheet items to manage any significant foreign
currency exchange risk. Realized foreign currency losses were
$0.2 million in 2003. Realized foreign currency gains
(losses) were immaterial in 2002 and 2001.



| |               
| | --------------
| | Interest Rates

The Company primarily issues long-term debt
obligations to support acquisitions and general corporate
purposes including capital expenditures and working capital
needs. All of the Companys long-term debt obligations bear
a fixed rate of interest. On October 17, 2003 the Company
entered into a $70.0 million fixed to variable interest
rate swap. A one-percentage point change in interest rates
affecting the Companys floating rate long-term debt would
change pre-tax income by $0.7 million over the next twelve
months. A one-percentage point change in interest rates would
have approximately a $2.8 million effect on the fair value
of the Companys fixed rate long-term debt.

Recent Accounting Pronouncements

In January 2003, as revised in December 2003, the
FASB issued Interpretation No. 46
(FIN 46), Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin
No. 51. FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional financial support from other
parties. FIN 46 is effective for the periods ending after
December 15, 2003 for certain types of entities and after
March 15, 2004 for other types of entities. The Company
does not expect the adoption of FIN 46 will have a material
effect on its consolidated financial statements.

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Outlook

The Companys primary focus in 2004 will be
to leverage and expand upon the business and operational
structure that was put in place over the past twelve months.
This will include leveraging our expanded sales and marketing
structure, optimizing all facility and personnel requirements,
continuing to control all general and administrative costs,
increasing gross margins throughout our product portfolio
through improved manufacturing processes, expanding investment
into research and development and continuing to evaluate
acquisitions of businesses and technologies that will further
accelerate our growth in both revenue and profitability.

During 2003, the Company significantly expanded
and strengthened its sales and marketing organization for
Research Products, Cell Culture and Diagnostic Products.
Experienced sales and marketing professionals have been added to
the organization to expand and improve our customer
relationships. Our goal is to reduce the use of distributors to
sell our products and to broaden and deepen our customer
relationships. We are implementing several initiatives to cross
sell our products and have staffed a new bio-pharm sales group,
located at Chemicon, to offer all our products to key
pharmaceutical and biotechnology companies.

We presently have a number of manufacturing and
distribution facilities throughout North America as well as
European and Australian sites. We are continually looking at
ways to optimize the number of sites and level of personnel at
all locations. We expect to continue this process in 2004 as we
look for opportunities to gain efficiencies as well as improve
customer service in all of our business segments.

In 2003, the Company made several personnel
decisions with regard to our new business segment definition and
the sale of the therapeutic plasma business. Significant
personnel reductions occurred and the Company implemented very
tight administrative controls over its general and
administrative expenses. We continue with these controls in
place and expect to further leverage our infrastructure to
improve our operating results and increase the investment in
research and development.

We made significant steps in 2003 in the overall
improvement of our gross margins. This continues to be a major
focus of our manufacturing group in 2004. Using the expanded
capabilities of our manufacturing systems we are focusing on
lowering inventories, reducing the cost of raw materials and
improving the efficiency of our manufacturing locations. In
addition, in the Research Products segment where hundreds of
products are added each year, we are continuing to refine our
selection process to raise the contribution margins for new
products, especially in the year of introduction.

We expect to continue to increase our investment
in research and development resulting in an expanded product
portfolio and a better understanding of the performance
characteristics of our current products. Our goal over the next
several years is to increase our investment in research and
development up to 10% of the Companys annual sales. We
must do this to meet the needs of our customers and to be the
innovative leader in all our business segments. In the Research
Products segment, our investment into research and development
is aimed at identifying and bringing new products to the
marketplace. In Cell Culture and Diagnostics, our focus is
better understanding the benefits of our Cell Culture Products,
especially EX-CYTE®, to enable us to facilitate our
customers drug development activities.

It is expected that growth will occur as a result
of organic market growth, the introduction of new products, both
internally developed and licensed, and external acquisitions. We
have been successful with both our Intergen and Chemicon
acquisitions and are continually looking for new opportunities
that fit into our strategic plan and provide significant
financial returns. This is expected to continue in 2004 as we
accelerate the pace of acquisition evaluation focusing on
primarily the Research and Cell Culture segments.

During 2004, we have several specific initiatives
that we believe will leverage our current strategic focus and
our emphasis on increasing shareholder value. First, we expect
to complete our new EX-CYTE® facility in Lawrence, Kansas
in late 2004. We expect capital expenditures of approximately $8
to 10 million in 2004 to complete this project, which we
believe will enable us to at least triple our production
capacity for EX-CYTE®. Second, we have implemented a
comprehensive sampling program for EX-CYTE® to put the
product into the hands of both researchers and drug developers
throughout the biopharmaceutical pipeline. A new sample size was
introduced in late 2003 that should help to stimulate
significant long term growth for the

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product. Third, we are implementing our SAP
financial, sales, distribution and manufacturing systems at all
Chemicon locations during 2004. This should both improve
operating controls and improve the management information that
is available to identify potential reduction of costs and
improve productivity. Finally, we continue to increase our
emphasis on branding our key products in all business segments.
More than 50% of the Companys revenues today come from
products that are licensed, patented or proprietary in nature.
Our goal during 2004 is to increase this percentage and to
continue to improve the visibility of our products in the
marketplace.


Financially, we expect that gross margins will
continue to improve in 2004, as we benefit from a full year of
the Chemicon business and we see improvement in the Diagnostic
segment as the result of no longer having sales of certain lower
margin antibody based products, which were sold with the
therapeutic plasma business. The Companys SG&A
expenses should continue to improve as a percentage of sales
with our continued focus on cost control. Research and
development spending is expected to increase as a percentage of
sales as we continue the development of novel cell culture
supplements, further work related to EX-CYTE® and the
emphasis on product development at Chemicon.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about
    Market Risk

Quantitative and qualitative disclosures about
market risk are discussed under the caption Market
Risk in Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The information required in this item is
contained in the Companys consolidated financial
statements beginning on Page F-1 of this Annual Report on
Form 10-K, which are incorporated herein by reference.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants
    on Accounting and Financial Disclosure

There were no changes in or disagreements with
accountants on accounting and financial disclosure.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

a. Evaluation of disclosure controls and
procedures.

As of the end of the period covered by this
report, we carried out an evaluation, under the supervision and
with the participation of our principal executive officer and
principal financial officer, of the effectiveness of the design
and operation of our disclosure controls and procedures. Based
on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure
controls and procedures are effective in timely alerting them to
material information required to be included in our periodic
reports filed with the Securities and Exchange Commission. In
addition, we reviewed our internal controls, and there have been
no significant changes in our internal controls or in other
factors during the period covered by this report that materially
affected, or are reasonable likely to materially affect, our
internal controls over financial reporting.

b. Changes in internal controls.

There were no significant changes in our internal
controls over financial reporting that occurred during our last
fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.

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PART III.






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant



| |                         
| | ------------------------
| | Directors of the Company

For information on Directors of the Company, the
section under the heading Proposal to Elect
Directors and under the heading Section 16(a)
Beneficial Ownership Reporting Compliance within the
Companys Proxy Statement for the Annual Meeting of
Stockholders to be held May 12, 2004 (the
Companys 2004 Proxy Statement), which the
Company intends to file within 120 days after the end of
the Companys fiscal year ended December 28, 2003, and
which is incorporated herein by reference.

Officers and
Key Management of Serologicals

The following table sets forth the names, ages
and all positions and offices with the Company held by the
Companys present executive officers:

|                        |  |     |    |                                      |  |                                                                                                 
|----------------------- |  | --- | -- | ------------------------------------ |  | ------------------------------------------------------------------------------------------------
|Name                    |  | Age |    | Positions and Offices Presently Held
|                        |  |     |    |                                     
|David A. Dodd           |  |     | 54 |                                      |  | President, Chief Executive Officer and Director                                                 
|David L. Bellitt        |  |     | 55 |                                      |  | Vice President, Global Commercial Operations                                                    
|Robert P. Collins       |  |     | 50 |                                      |  | Vice President, Human Resources                                                                 
|Harold W. Ingalls       |  |     | 56 |                                      |  | Vice President, Finance and Chief Financial
    Officer                                         
|Sue Sutton-Jones        |  |     | 51 |                                      |  | Vice President, Global Regulatory Affairs,
    Quality Assurance, Compliance and Medical Affairs
|James J. Kramer, Ph. D. |  |     | 48 |                                      |  | Vice President, Global Manufacturing Operations                                                 
|Jeffrey D. Linton       |  |     | 41 |                                      |  | President, Chemicon International, Inc., a
    division of Serologicals Corporation             
|Philip A. Theodore      |  |     | 50 |                                      |  | Vice President, General Counsel and Corporate
    Secretary                                     
|M. Dwain Wilcox         |  |     | 36 |                                      |  | Vice President, Global Information Systems                                                      

David A. Doddhas
served as President, Chief Executive Officer and a Director of
the Company since June 2000. From August 1995 to June 2000,
Mr. Dodd served as President and Chief Executive Officer of
Solvay Pharmaceuticals, Inc., a U.S. component of an
international chemical and pharmaceutical group, and as a member
of the Management Board for the Pharmaceutical Sector of Solvay
S.A. (Solvay). In addition, Mr. Dodd served as
Chairman of the Board of Unimed Pharmaceuticals, Inc., a
subsidiary of Solvay, from July 1999 to June 2000. Prior to
joining Solvay, Mr. Dodd served in a number of management
and executive positions for major life science corporations,
including American Home Products, Bristol-Myers Squibb Company,
and Abbott Laboratories. Mr. Dodd currently also serves on
the board of directors the American Foundation for Suicide
Prevention, the Metro Atlanta Chamber of Commerce and the
Georgia Biomedical Partnership.

David L. Bellitthas
served as Vice President, Global Commercial Operations since
January 2003. During his career, Mr. Bellitt has served in
numerous management positions within the healthcare industry.
From October 2000 to October 2002, Mr. Bellitt served as
Senior Vice President with Aksys, Ltd., a start-up medical
device company, in charge of global marketing, sales and
service. From June 1997 to November 1999, Mr. Bellitt
served as Senior Vice President with Akzo Nobel, a medical
diagnostic instrumentation and reagents company, in charge of
marketing, sales and service.

Robert P. Collinshas served as Vice President, Human
Resources since August 2001. From April 2000 to August 2001,
Mr. Collins was a partner with Ray & Berndtson,
one of the nations largest retained executive search
firms. From February 1999 to April 2000, Mr. Collins served
as President and Chief Operating Officer for Vision
Twenty-One, Inc., a leading eye-care company. From
September 1998 to February 1999,

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Mr. Collins worked as a self-employed
consultant. From February 1986 to September 1998,
Mr. Collins held a variety of leadership positions in human
resources, business development, mergers and acquisitions and
strategic initiatives with Magellan Health Services, Inc.,
a managed behavioral health and wellness organization, including
serving as President of Beacon Behavioral Health Group and
President and Chief Executive Officer of Group Practice
Affiliates, Inc. Mr. Collins currently serves as a
member of the Georgia State Human Resource Roundtable, Human
Resource Planning Society, Society for Human Resource Management
and Biotechnology Industry Organization.


Harold W. Ingallshas served as Vice-President, Finance
and Chief Financial Officer since October 2001. From August 1998
to August 2001, Mr. Ingalls served as President and Chief
Executive Officer and as a member of the Board of Directors for
LaRoche Industries, Inc., a diversified commodity and
specialty chemical manufacturer with operations in the United
States, France and Germany. LaRoche Industries, Inc. filed
a petition for reorganization under Chapter 11 of the
Federal Bankruptcy Code on May 3, 2000. In September 2001,
LaRoche emerged from Chapter 11 under a court approved plan
of reorganization. From April 1996 to August 1998,
Mr. Ingalls served as Chief Financial Officer and Treasurer
of LaRoche. In addition, from April 2001 until August 2001,
Mr. Ingalls served as President and Chief Executive Officer
and a member of the Board of Directors of Nutec Sciences
Corporation, a start up informatics company serving both the
petroleum and life sciences industries. Mr. Ingalls has
also held various financial and operating management positions,
including Chief Financial Officer, for public and private
corporations.

Sue Sutton-Joneshas
served as Vice President, Global Regulatory Affairs, Quality
Assurance, Compliance and Medical Affairs of the Company since
January 2001. From July 1998 until December 2000, Ms. Jones
served as Vice President, Worldwide Regulatory Compliance for
Ortho-Clinical Diagnostics, a division of Johnson &
Johnson, a healthcare manufacturing company. From September 1997
until July 1998, Ms. Sutton-Jones served as Executive
Director, Quality and Compliance Services for Johnson &
Johnson. From August 1996 until August 1997,
Ms. Sutton-Jones served as Vice President, West Coast
Operations for BRI Quality Regulatory Alliance, Inc., a
provider of regulatory and clinical affairs and quality system
consulting products and services to the healthcare industry.
From 1994 to 1996, Ms. Sutton-Jones served as Vice
President, Regulatory Affairs, Quality Assurance and Regulatory
Compliance for Telectronics Pacing Systems.

James
Kramer, Ph.D.has served as Vice
President, Global Manufacturing Operations since March 2003.
From August 2002 to March 2003 Dr. Kramer served as Vice
President, Plasma Operations. From 1995 to August 2002,
Dr. Kramer served in various capacities with Ortho-Clinical
Diagnostics, Inc., a division of Johnson &
Johnson, a healthcare manufacturing company, most recently as
Program Director, Lifeblood. Previously, he held additional
leadership positions at Ortho-Clinical Diagnostics, including
Director, Manufacturing and Director, RhoGAM Operations.

Jeffrey D. Lintonhas served as President of Chemicon
since April 2003. From October 2000 to April 2003,
Mr. Linton served as Vice President, Corporate Business
Development, Legal and Public Affairs of the Company. From June
1993 until October 2000, Mr. Linton served in various
capacities with Solvay America, Inc. companies, most
recently as Vice President of Law, Government, and Public
Affairs for Solvay Pharmaceuticals, Inc., a
U.S. component of an international chemical and
pharmaceutical group, from April 1999 until October 2000. From
December 1996 until April 1999, Mr. Linton served as Vice
President, Human Resources of Solvay Automotive, Inc., a
partner and supplier to automotive companies throughout the
world, and from June 1993 until December 1996, Mr. Linton
served as Staff Attorney of Solvay America, Inc., the
parent of North American operating subsidiaries of Solvay.

Philip A. Theodorehas served as Vice President, General
Counsel and Corporate Secretary since January 2004. Prior to
joining the Company he was a partner of King &
Spalding, LLP, a law firm based in Atlanta, Georgia.
Mr. Theodore joined King & Spalding, LLP in 1981
and became a partner in 1986. While at King & Spalding,
LLP, Mr. Theodore represented clients in a wide variety of
corporate, securities and mergers and acquisitions transactions.

M. Dwain Wilcoxhas served as Vice President, Global
Information Systems since joining the Company in October 1998.
Prior to joining the Company, Mr. Wilcox held several
positions at Lanier Worldwide, a

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subsidiary of Harris Corporation, most recently
as Director, Systems Integration from June 1996 until October
1998 and Program Manager, System Integration from November 1993
until June 1996.


In addition, the following individuals serve as
key employees of the Company:

Joseph T. Kozma,53,
has served as Vice President, Corporate Sales of the Company
since March 2002. From 1987 until joining the Company,
Mr. Kozma served in various capacities with Intergen, a
privately-owned supplier of biological products and technologies
to the life sciences industry acquired by Serologicals in 2001,
most recently as Executive Vice President of Worldwide Sales and
Marketing. Mr. Kozma was a co-founder of Intergen.

Samuel R. Schwartz, CPA,54, has served as Chief Accounting
Officer and Corporate Controller since September 2001. From
March 1998 to September 2001, Mr. Schwartz served in
various senior financial management roles for the Company. From
October 1990 to December 1997, Mr. Schwartz served as
President and Chief Executive Officer of a privately-held
manufacturing company. From 1973 to 1990, Mr. Schwartz was
employed by Coopers & Lybrand, LLC in various
positions, most recently serving as a partner in the Atlanta
audit practice of the firm.

Code of
Ethics

The Company adopted a code of ethics applicable
to its chief executive officer, chief financial officer, chief
accounting officer and controller, and other senior financial
managers, which is a code of ethics as defined by
applicable rules of the Securities and Exchange Commission. Our
code of ethics is publicly available as Exhibit 14 to this
Annual Report on Form 10-K. If the Company makes amendments
to this code other than technical, administrative, or other
non-substantive amendments, or grants any waivers, including
implicit waivers, from a provision of this code to the
Companys chief executive officer, chief financial officer
or chief accounting officer and controller, the Company will
disclose the nature of the amendment or waiver, its effective
date and to whom it applies on it website or in a report on
Form 8-K filed with the Securities and Exchange Commission.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

For descriptions of equity compensation plans,
refer to the heading Note 6  STOCK
COMPENSATION PLANS in Item 8 Financial Statements and
Supplementary Data.

The sections under the heading Executive
Compensation within the Companys 2004 Proxy
Statement are incorporated herein by reference.

The sections under the heading Corporate
Governance and Board Matters  Meetings of the Board;
Committees  Audit Committee within the
Companys 2004 Proxy Statement is incorporated herein by
reference.

The sections Equity Compensation Plan
Information within the Companys 2004 Proxy Statement
is incorporated herein by reference.






|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters

The section under the heading Security
Ownership of Certain Stockholders and Management within
the Companys 2004 Proxy Statement is incorporated herein
by reference.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The section under the heading Certain
Relationships and Related Transactions within the
Companys 2004 Proxy Statement is incorporated by reference.

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|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The section under the heading Independent
Auditors  Fees Paid to Independent Auditors
within the Companys 2004 Proxy Statement is incorporated
by reference.




PART IV.






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) (1) Financial Statements

The financial statements listed in the
accompanying Index to Financial Statements are filed as part of
this Annual Report on Form 10-K.

(a) (2) Financial Statement Schedules

Schedule II  Valuation and
Qualifying Accounts

All other schedules have been omitted because the
information is not required or is not so material as to require
submission of the schedule, or because the information is
included in the financial statements or the notes thereto.

(b) Reports on Form 8-K

Reports on Form 8-K filed during the quarter
ended December 28, 2003:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Form 8-K announcing the execution
    of a definitive agreement to sell the therapeutic plasma
    business filed on December 19, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (2) Form 8-K furnishing a reclassified
    Consolidated Statement of Income (Loss) for the fiscal quarters
    ended September 28, 2003; June 29, 2003;
    March 30, 2003; December 29, 2002; September 29,
    2002; June 30, 2002 and March 31, 2002 and for the
    fiscal years ended December 29, 2002; December 30,
    2001; December 31, 2000 and December 26, 1999 to
    separately report the results of discontinued operations from
    results of continuing operations filed on November 6, 2003.                                                                                                             
|
| | (3) Form 8-K furnishing a schedule of
    segment revenues and segment gross profit for the fiscal
    quarters ended September 28, 2003; June 29, 2003;
    March 30, 2003; December 29, 2002; September 29,
    2002; June 30, 2002; March 31, 2002; December 30,
    2001; September 30, 2001; July 1, 2001; April 1,
    2001; December 31, 2000; September 24, 2000;
    June 25, 2000 and March 26, 2000 and for the fiscal
    years ended December 29, 2002; December 30, 2001;
    December 31, 2000; December 26, 1999 and
    December 27, 1998 based on its new segment composition
    filed on November 5, 2003.
|
| | 4) Form 8-K furnishing the
    Companys third quarter 2003 earnings release filed on
    October 22, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

(c) Exhibits

| |       |  |  |                                                                                                                                                                                                                                                                                                                    
| | ----- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1   |  |  | Plan and Agreement of Merger dated
    November 5, 2001, by and among Serologicals
    Corporation, Intergen Company, L.P., Serocor Incorporated,
    and Intergen Investors, L.P. (Exhibit 2.1 to the
    Companys Current Report on Form 8-K, dated
    December 19, 2001, is hereby incorporated by reference).
| | 2.1.1 |  |  | Amendment to Plan and Agreement of Merger dated
    December 13, 2001 (Exhibit 2.2 to the Companys
    Current Report on Form 8-K, dated December 19, 2001, is
    hereby incorporated by reference).                                                                                                             

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| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.2   |  |  | Earnout Agreement dated December 13, 2001 by
    and among Serologicals Corporation, Intergen Investors,
    L.P., STJ Bio Corp., Spencer Paige Corp., Ronald Dilling, Donald
    Gutenkunst, President and Fellows of Harvard College, and
    University of Illinois Foundation (Exhibit 2.3 to the
    Companys Current Report on Form 8-K, dated
    December 19, 2001, is hereby incorporated by reference).
| | 2.3.1 |  |  | Agreement of Purchase and Sale, dated
    November 30, 1998, between Serologicals Corporation and
    Bayer Corporation (Exhibit 2.1 to the Companys
    Current Report on Form 8-K, dated January 12, 1999, is
    hereby incorporated by reference).                                                                                                                                                           
| | 2.3.2 |  |  | First Amendment to the Agreement of Purchase and
    Sale, dated December 29, 1998, between Serologicals
    Corporation and Bayer Corporation (Exhibit 2.2 to the
    Companys Current Report on Form 8-K, dated March 15,
    1999, is hereby incorporated by reference).                                                                                                                                      
| | 2.4.1 |  |  | Amended and Restated Securities Purchase
    Agreement, dated as of February 11, 2003, between
    Serologicals Research Products, Inc. and Falcon
    International Investment Holdings LLC (Exhibit 2.1 to the
    Companys Current Report on Form 8-K, dated April 11,
    2003, is hereby incorporated by reference).                                                                                        
| | 2.4.2 |  |  | Deed of Variation, dated April 4, 2003,
    between Serologicals Research Products, Inc. and Falcon
    International Investment Holdings LLC (Exhibit 2.2 to the
    Companys Current Report on Form 8-K, dated April 11,
    2003, is hereby incorporated by reference).                                                                                                                                       
| | 2.4.3 |  |  | European Purchase Agreement, dated
    February 11, 2003, between Serologicals Research
    Products, Inc. and Falcon International Investment Holdings
    LLC (Exhibit 2.6 to the Companys Annual Report on
    Form 10-K for the year ended December 29, 2002 is hereby
    incorporated by reference).                                                                                                       
| | 2.4.4 |  |  | Guaranty Agreement dated February 11, 2003
    by and among Serologicals Research Products, Inc., The
    Beckman Family Trust, David Alan Beckman, Keiko Koga Beckman and
    Falcon International Investment Holdings LLC (Exhibit 10.24
    to the Companys Annual Report on Form 10-K for the period
    ending December 29, 2002 is hereby incorporated by
    reference).                                  
| | 2.5.1 |  |  | Stock Purchase Agreement, dated as of
    December 19, 2003, by and among Gradipore Limited,
    Gradipore Inc., Serologicals Finance Company, and Serologicals
    Corporation (Exhibit 2.1 to the Companys Current
    Report on Form 8-K, dated January 27, 2004, is hereby
    incorporated by reference).                                                                                                   
| | 2.5.2 |  |  | First Amendment to the Stock Purchase Agreement,
    dated as of January 15, 2004 (Exhibit 2.2 to the
    Companys Current Report on Form 8-K, dated
    January 27, 2004, is hereby incorporated by reference).                                                                                                                                                                                                 
| | 3.1   |  |  | Amended and Restated Certificate of Incorporation
    (Exhibit 3.1 to the Companys Annual Report on Form
    10-K for the year ended December 29, 2002 is hereby
    incorporated by reference).                                                                                                                                                                                                                 
| | 3.2   |  |  | Amended and Restated By-laws (Exhibit 3.4 to
    the Companys Registration Statement on Form S-1 (File
    No. 33-91176), effective June 14, 1995, is hereby
    incorporated by reference).                                                                                                                                                                                                                     
| | 4.1   |  |  | Specimen Common Stock Certificate
    (Exhibit 4.1 to the Companys Registration Statement
    on Form S-1 (File No. 33-91176), effective
    June 14, 1995, is hereby incorporated by reference).                                                                                                                                                                                                                
| | 4.2.1 |  |  | Specimen Form of Rights Certificate (incorporated
    herein by reference to Exhibit 2.1 of the Registration
    Statement on Form 8-A filed August 10, 1999).                                                                                                                                                                                                                                                    
| | 4.2.2 |  |  | Form of Rights Agreement, dated as of
    August 2, 1999, between the Company and State Street
    Bank & Trust Company, N.A. (incorporated herein by
    reference to Exhibit 2.2 of the Registration Statement on
    Form 8-A filed August 10, 1999).                                                                                                                                                          

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| |        |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ------ |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.2.3  |  |  | Form of Certificate of Designation, Preferences
    and Rights of Series B Preferred Stock (incorporated herein
    by reference to Exhibit 2.3 of the Registration Statement
    on Form 8-A filed August 10, 1999).                                                                                                                                                                                                                                      
| | 4.2.4  |  |  | Summary of Rights Plan (incorporated herein by
    reference to Exhibit 2.4 of the Registration Statement on
    Form 8-A filed August 10, 1999).                                                                                                                                                                                                                                                                                                          
| | 4.3.1  |  |  | Indenture, dated as of August 20, 2003,
    between Serologicals Corporation and The Bank of New York,
    as Trustee, for the 4.75% Convertible Senior Subordinated
    Debentures due 2033, including the form of
    4.75% Convertible Senior Subordinated Debenture due 2033
    (Exhibit 4.1 to the Companys Current Report on Form
    8-K, dated August 21, 2003 is hereby incorporated by
    reference).                                         
| | 4.3.2  |  |  | Registration Rights Agreement, made and entered
    into as of August 20, 2003, by and among Serologicals
    Corporation, Banc of America Securities LLC, J.P. Morgan
    Securities Inc. and UBS Securities LLC (Exhibit 4.2 to the
    Companys Current Report on Form 8-K, dated August 21,
    2003 is hereby incorporated by reference).                                                                                                            
| | 10.1   |  |  | Credit Agreement, dated as of August 29,
    2003, among Serologicals Corporation as the Borrower, the
    subsidiaries of the borrower identified therein as the
    Guarantors, Bank of America, N.A., as Administrative Agent and
    L/C Issuer, and JP Morgan Chase Bank, as Syndication Agent
    (Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the period ended September 29, 2003, is
    hereby incorporated by reference).
| | 10.2   |  |  | Employment Agreement between the Company and
    Robert P. Collins (Exhibit 10.1 to the Companys
    Quarterly Report on Form 10Q for the period ended
    September 30, 2001, is incorporated herein by
    reference).                                                                                                                                                                                                                                 
| | 10.3   |  |  | 1994 Second Amended and Restated Omnibus
    Incentive Plan, as Amended (Exhibit 10.7.2 to the
    Companys Quarterly Report on Form 10-Q for the period
    ended June 25, 2000, is hereby incorporated by
    reference).                                                                                                                                                                                                                              
| | 10.3   |  |  | Form of Stock Option Agreement
    (Exhibit 10.15 to the Companys Registration Statement
    on Form S-1 (File No. 33-91176), effective
    June 14, 1995, is hereby incorporated by reference).                                                                                                                                                                                                                                                         
| | 10.4.1 |  |  | Form of Second Revised Stock Option Agreement
    (Exhibit 10.4.1 to the Companys Annual Report on Form
    10-K for the year ended December 29, 2002 is hereby
    incorporated by reference).                                                                                                                                                                                                                                                          
| | 10.4.2 |  |  | Form of Third Revised Stock Option Agreement
    (Exhibit 10.4.2 to the Companys Annual Report on Form
    10-K for the year ended December 29, 2002 is hereby
    incorporated by reference).                                                                                                                                                                                                                                                           
| | 10.5   |  |  | Amended and Restated 1995 Non-Employee
    Directors Stock Option Plan, as Amended (Exhibit 10.6
    to the Companys Annual Report on Form 10-K for the period
    ended December 31, 2000 is hereby incorporated by
    reference).                                                                                                                                                                                                                    
| | 10.6   |  |  | 1996 Employee Stock Purchase Plan
    (Exhibit 10.7 to the Companys Annual Report on
    Form 10-K for the year ended December 29, 2002 is
    hereby incorporated by reference).                                                                                                                                                                                                                                                                        
| | 10.7.1 |  |  | Serologicals Corporation 1996 UK Sharesave Scheme
    (Exhibit 3.1 to the Companys Annual Report on Form
    10-K for the year ended December 29, 2002 is hereby
    incorporated by reference).                                                                                                                                                                                                                                                         
| | 10.7.2 |  |  | Serologicals Corporation UK Share Incentive Plan
    (Exhibit 4.1 to the Companys Registration Statement
    on Form S-8 (File No. 333-104703), effective
    April 23, 2003, is hereby incorporated by reference).                                                                                                                                                                                                                                      
| | 10.8   |  |  | Employment Agreement between the Company and
    Harold W. Ingalls (Exhibit 10.2 of the Companys
    Quarterly Report on Form 10-Q for the period ending
    September 30, 2001 is hereby incorporated by
    reference).                                                                                                                                                                                                                                

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| |         |  |  |                                                                                                                                                                                                                                                    
| | ------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.9    |  |  | Amended and Restated Compensation Plan for
    Non-Employee Directors (Exhibit 10.26 to the Companys
    Quarterly Report on Form 10-Q for the period ended June 25,
    2000 is hereby incorporated by reference).                              
| | 10.10.1 |  |  | Employment Agreement between the Company and
    David A. Dodd (Exhibit 10.27 to the Companys
    Quarterly Report on Form 10-Q for the period ended June 25,
    2000 is hereby incorporated by reference).                                     
| | 10.10.2 |  |  | Change in Control Executive Severance Package
    between the Company and David A. Dodd.*                                                                                                                                                         
| | 10.11.1 |  |  | Employment Agreement between the Company and
    Jeffrey D. Linton (Exhibit 10.28 to the Companys
    Quarterly Report on Form 10-Q for the period ended
    September 24, 2000 is hereby incorporated by
    reference).                        
| | 10.11.2 |  |  | Revised Employment Agreement between the Company
    and Jeffrey D. Linton (Exhibit 10.2 to the Companys
    Quarterly Report on Form 10-Q for the period ended
    March 30, 2003 is hereby incorporated by reference).                         
| | 10.12   |  |  | Lease Agreement dated October 6, 2000
    between the Company and Spalding Triangle, L.L.C.
    (Exhibit 10.29 to the Companys Quarterly Report on
    Form 10-Q for the period ended September 24, 2000 is hereby
    incorporated by reference).
| | 10.13   |  |  | Employment Agreement between the Company and Sue
    Sutton-Jones (Exhibit 10.26 to the Companys Annual
    Report on Form 10-K for the year ended December 31, 2000 is
    hereby incorporated by reference).                                   
| | 10.14.1 |  |  | Employment Agreement between the Company and
    Thomas H. Trobaugh (Exhibit 10.3 to the Companys
    Quarterly Report on Form 10-Q for the period ending
    September 30, 2001 is hereby incorporated by
    reference).                       
| | 10.14.2 |  |  | Severance Agreement between the Company and
    Thomas H. Trobaugh (Exhibit 10.19.1 to the Companys
    Annual Report on Form 10-K for the period ending
    December 29, 2002 is hereby incorporated by
    reference).                         
| | 10.15   |  |  | Employment Agreement between the Company and
    Joseph T. Kozma (Exhibit 10.20 to the Companys Annual
    Report on Form 10-K for the period ending December 30, 2001
    is hereby incorporated by reference).                                 
| | 10.16   |  |  | Employment Agreement between the Company and
    James J. Kramer, Ph. D. (Exhibit 10.1 to the Companys
    Quarterly Report on Form 10-Q for the period ending
    June 30, 2002 is hereby incorporated by reference).                           
| | 10.17   |  |  | Employment Agreement between the Company and
    David L. Bellitt (Exhibit 10.23 to the Companys
    Annual Report on Form 10-K for the period ending
    December 29, 2002 is hereby incorporated by
    reference).                            
| | 10.18.1 |  |  | Employment Agreement between the Company and
    Keith J. Thompson (Exhibit 10.25 to the Companys
    Annual Report on Form 10-K for the period ending
    December 29, 2002 is hereby incorporated by
    reference).                           
| | 10.18.2 |  |  | Severance Agreement between the Company and Keith
    J. Thompson (Exhibit 10.1 to the Companys Quarterly
    Report on Form 10-Q for the period ended March 30, 2003 is
    hereby incorporated by reference).                                  
| | 10.19   |  |  | Employment Agreement between the Company and
    Philip A. Theodore. *                                                                                                                                                                            
| | 10.20   |  |  | Forms of Change in Control Executive Severance
    Package between the Company and each Vice President.*                                                                                                                                          
| | 10.21   |  |  | Agreement for Design/Build Services on a
    Guaranteed Maximum Cost Basis, dated March 19, 2003 by and
    between Serologicals Corporation (Owner) and CRB Builders.*                                                                            
| | 10.22.1 |  |  | Standard Industrial/Commercial Single-Tenant
    Lease, dated November 22, 1999 by and David A. Beckman, as
    Trustee of the Beckman Family Trust and Chemicon
    International, Inc.*                                                          

44



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##### Table of Contents



| |         |  |  |                                                                                                                                                                                
| | ------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.22.2 |  |  | First Amendment to Real Estate Lease, dated
    March 31, 2003 by and amount David A. Beckman, as Trustee
    of the Beckman Family Trust and Chemicon
    International, Inc.*
| | 14.1    |  |  | Code of Ethics.*                                                                                                                                                               
| | 21      |  |  | Subsidiaries of the Company.*                                                                                                                                                  
| | 23.1    |  |  | Consent of Deloitte & Touche LLP.*                                                                                                                                             
| | 31.1    |  |  | Certification Pursuant to Rule 13a-14(a), as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.*                                                       
| | 31.2    |  |  | Certification Pursuant to Rule 13a-14(a), as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.*                                                       
| | 32.1    |  |  | Certification of the Chief Executive Officer
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of Sarbanes-Oxley Act of 2002.*                    
| | 32.2    |  |  | Certification of the Chief Financial Officer
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of Sarbanes-Oxley Act of 2002.*                    



---



|  |               
|- | --------------
|* | Filed herewith



|  |                                 
|- | --------------------------------
| | Compensatory Plan or Arrangement

45



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, Serologicals
Corporation has duly caused this annual report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized on March 12, 2004.



| |                         
| | ------------------------
| | SEROLOGICALS CORPORATION
| | (Registrant)            



| |     |                  
| | --- | -----------------
| | By: | /s/ DAVID A. DODD

| |                                      
| | -------------------------------------
| |                                      
| | David A. Dodd                        
| | President and Chief Executive Officer

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of Serologicals Corporation and in
the capacities indicated on March 12, 2004:

|                                                                 |  |                                                        
|---------------------------------------------------------------- |  | -------------------------------------------------------
|Signature                                                        |  | Title                                                  
|                                                                 |  |                                                        
|                                                                
|/s/ DAVID A. DODDDavid A. Dodd                                   |  | President, Chief Executive Officer and Director        
|                                                                
|/s/ HAROLD W. INGALLSHarold W. Ingalls                           |  | Vice President, Finance and Chief Financial
    Officer
|                                                                
|/s/ SAMUEL R. SCHWARTZSamuel R. Schwartz                         |  | Chief Accounting Officer and Corporate Controller      
|                                                                
|/s/ DESMOND H. OCONNELLDesmond H. OConnell                     |  | Chairman of the Board of Directors                     
|                                                                
|/s/ RALPH E. CHRISTOFFERSEN, PH.D.Ralph E. Christoffersen, Ph.D. |  | Director                                               
|                                                                
|/s/ ROBERT J. CLANINRobert J. Clanin                             |  | Director                                               
|                                                                
|/s/ WADE FETZER, IIIWade Fetzer, III                             |  | Director                                               
|                                                                
|/s/ RONALD G. GELBMANRonald G. Gelbman                           |  | Director                                               
|                                                                
|/s/ GERARD M. MOUFFLETGerard M. Moufflet                         |  | Director                                               
|                                                                
|/s/ GEORGE M. SHAW, M.D., PH.D.George M. Shaw, M.D., Ph.D.       |  | Director                                               
|                                                                
|/s/ LAWRENCE E. TILTONLawrence E. Tilton                         |  | Director                                               

46



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                             |                                         |      |     |     | 
|-------------------------------------------------------------------------------------------- | --------------------------------------- | ---- | --- | --- | 
|                                                                                             |                                         | Page
|                                                                                             |                                         |     
|Independent Auditors Report                                                                 |                                         |      | F-2 |    
|Consolidated Balance Sheets 
    December 28, 2003 and December 29, 2002                    |                                         |      | F-3 |    
|Consolidated Statements of Income  For
    the years ended December 28, 2003,               |                                         |      |     |    
|                                                                                             | December 29, 2002 and December 30, 2001 |      |     | F-4 | 
|Consolidated Statements of Stockholders
    Equity  For the years ended December 28, 2003, |                                         |      |     |    
|                                                                                             | December 29, 2002 and December 30, 2001 |      |     | F-5 | 
|Consolidated Statements of Cash Flows 
    For the years ended December 28, 2003,           |                                         |      |     |    
|                                                                                             | December 29, 2002 and December 30, 2001 |      |     | F-6 | 
|Notes to Consolidated Financial Statements                                                   |                                         |      | F-7 |    

F-1



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

Board of Directors and Stockholders of 
 Serologicals Corporation:

We have audited the consolidated balance sheets
of SEROLOGICALS CORPORATION AND SUBSIDIARIES(the
Company) as of December 28, 2003 and
December 29, 2002, and the related consolidated statements
of income, shareholders equity, and cash flows for each of
the three fiscal years in the period ended December 28,
2003. Our audits also included the financial statement schedule
listed in the Index at Item 15. These financial statements
and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of the Serologicals Corporation
and Subsidiaries as of December 28, 2003 and
December 29, 2002, and the results of their operations and
their cash flows for each of the three fiscal years in the
period ended December 28, 2003 in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.

As discussed in Note 2 to the consolidated
financial statements, the Company changed its method of
accounting for goodwill and other intangible assets to conform
to Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, which was
adopted by the Company as of December 31, 2001.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia

February 27, 2004


F-2



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 28, 2003 and December 29,
2002


(in thousands, except share amounts)


|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |         |         |         | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                         |                                                                                                                                                                                          | 2003                       |                                            | 2002   
|                                         |                                                                                                                                                                                          |                            |                                            |        
|ASSETS                                   |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|CURRENT ASSETS:                          |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|                                         | Cash and cash equivalents                                                                                                                                                                |                            | $                                          | 48,564  |         |         | $      | 15,242  |        
|                                         | Trade accounts receivable, less allowance for
    doubtful accounts of $1,214 and $954 at December 28, 2003
    and December 29, 2002, respectively                                      |                            |                                            | 34,126  |         |         |        | 22,090  |        
|                                         | Inventories                                                                                                                                                                              |                            |                                            | 33,826  |         |         |        | 19,535  |        
|                                         | Other current assets                                                                                                                                                                     |                            |                                            | 10,982  |         |         |        | 5,546   |        
|                                         | Discontinued operations (NOTE 4)                                                                                                                                                         |                            |                                            | 7,019   |         |         |        | 19,302  |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                          | Total current assets       |                                            |         | 134,517 |         |        |         | 81,715  |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|PROPERTY AND EQUIPMENT, net              |                                                                                                                                                                                          |                            | 73,204                                     |         |         |         | 48,725 |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|DISCONTINUED OPERATIONS(NOTE 4)          |                                                                                                                                                                                          |                            | 5,613                                      |         |         |         | 15,824 |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|OTHER ASSETS:                            |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|                                         | Goodwill                                                                                                                                                                                 |                            |                                            | 93,577  |         |         |        | 30,812  |        
|                                         | Intangible assets, net                                                                                                                                                                   |                            |                                            | 49,881  |         |         |        | 13,765  |        
|                                         | Other assets                                                                                                                                                                             |                            |                                            | 1,386   |         |         |        | 324     |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                          | Total other assets         |                                            |         | 144,844 |         |        |         | 44,901  |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                          |                            | Total assets                               |         | $       | 358,178 |        |         | $       | 191,165 | 
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|CURRENT LIABILITIES:                     |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|                                         | Accounts payable                                                                                                                                                                         |                            | $                                          | 4,547   |         |         | $      | 4,211   |        
|                                         | Accrued liabilities                                                                                                                                                                      |                            |                                            | 22,346  |         |         |        | 10,518  |        
|                                         | Discontinued operations (NOTE 4)                                                                                                                                                         |                            |                                            | 2,864   |         |         |        | 1,518   |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                          | Total current liabilities  |                                            |         | 29,757  |         |        |         | 16,247  |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|CONVERTIBLE DEBENTURES(NOTE 8)           |                                                                                                                                                                                          |                            | 130,916                                    |         |         |         |       |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|DEFERRED INCOME TAXES(NOTE 12)           |                                                                                                                                                                                          |                            | 18,181                                     |         |         |         | 4,062  |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|OTHER LIABILITIES                        |                                                                                                                                                                                          |                            | 180                                        |         |         |         | 134    |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|DISCONTINUED OPERATIONS(NOTE 4)          |                                                                                                                                                                                          |                            | 172                                        |         |         |         | 352    |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|COMMITMENTS AND CONTINGENCIES(NOTE 10)   |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|STOCKHOLDERS EQUITY:                    |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|                                         | Preferred stock, $.01 par value;
    1,000,000 shares authorized, no shares issued                                                                                                       |                            |                                            |        |         |         |        |        |        
|                                         | Common stock, $.01 par value;
    50,000,000 shares authorized, 28,061,790 and
    27,730,053 shares issued and outstanding at
    December 28, 2003 and December 29, 2002, respectively |                            |                                            | 281     |         |         |        | 277     |        
|                                         | Additional paid-in capital                                                                                                                                                               |                            |                                            | 121,130 |         |         |        | 118,116 |        
|                                         | Retained earnings                                                                                                                                                                        |                            |                                            | 73,717  |         |         |        | 72,211  |        
|                                         | Accumulated other comprehensive income                                                                                                                                                   |                            |                                            | 4,191   |         |         |        | 113     |        
|                                         | Less: common stock held in treasury;
    3,288,000 shares at December 28, 2003 and
    December 29, 2002                                                                                 |                            |                                            | (20,347 | )       |         |        | (20,347 | )      
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                          | Total stockholders equity |                                            |         | 178,972 |         |        |         | 170,370 |        
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        
|                                         |                                                                                                                                                                                          |                            | Total liabilities and stockholders equity |         | $       | 358,178 |        |         | $       | 191,165 | 
|                                         |                                                                                                                                                                                          |                            |                                            |         |         |         |        |        

The accompanying notes are an integral part of
these consolidated balance sheets.

F-3



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 28, 2003,
December 29, 2002 and December 30, 2001


(in thousands, except share and per share
amounts)


|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |            |  
|------------------------------------------------------- | -------------------------------------------- | ---- | ------- | ---------- | - | ---- | ------ | ---------- | - | - | ------ | ---------- | -
|                                                        |                                              | 2003 |         | 2002       |   | 2001
|                                                        |                                              |      |         |            |   |     
|NET SALES                                               |                                              | $    | 146,915 |            |   | $    | 99,289 |            |   | $ | 53,564 |           
|COSTS AND EXPENSES:                                     |                                              |      |         |            |   |      |        |            |   |   |        |           
|                                                        | Cost of sales                                |      |         | 65,675     |   |      |        | 47,076     |   |   |        | 22,878     |  
|                                                        | Selling, general and administrative expenses |      |         | 43,668     |   |      |        | 33,811     |   |   |        | 18,601     |  
|                                                        | Research and development                     |      |         | 6,214      |   |      |        | 5,628      |   |   |        | 1,665      |  
|                                                        | Amortization of intangibles                  |      |         | 2,175      |   |      |        | 895        |   |   |        | 1,013      |  
|                                                        | Special charges (NOTE 5)                     |      |         | 2,778      |   |      |        | 1,909      |   |   |        | 872        |  
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           
|OPERATING INCOME                                        |                                              |      | 26,405  |            |   |      | 9,970  |            |   |   | 8,535  |           
|                                                        | Other expense, net                           |      |         | 180        |   |      |        | 31         |   |   |        | 72         |  
|                                                        | Write-off of deferred financing costs        |      |         | 4,492      |   |      |        |           |   |   |        |           |  
|                                                        | Interest expense                             |      |         | 4,384      |   |      |        | 239        |   |   |        | 512        |  
|                                                        | Interest income                              |      |         | (255       | ) |      |        | (637       | ) |   |        | (1,651     | )
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           
|INCOME FROM CONTINUING OPERATIONS                       |                                              |      | 17,604  |            |   |      | 10,337 |            |   |   | 9,602  |           
|PROVISION FOR INCOME TAXES                              |                                              |      | 5,537   |            |   |      | 3,617  |            |   |   | 3,380  |           
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           
|NET INCOME FROM CONTINUING
    OPERATIONS               |                                              |      | 12,067  |            |   |      | 6,720  |            |   |   | 6,222  |           
|Income (loss) from discontinued operations
    (NOTE 4) |                                              |      | (10,561 | )          |   |      | 7,229  |            |   |   | 10,870 |           
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           
|NET INCOME                                              |                                              | $    | 1,506   |            |   | $    | 13,949 |            |   | $ | 17,092 |           
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           
|BASIC EARNINGS (LOSS) PER
    SHARE:                    |                                              |      |         |            |   |      |        |            |   |   |        |           
|                                                        | Continuing operations                        |      | $       | 0.49       |   |      | $      | 0.28       |   |   | $      | 0.26       |  
|                                                        | Discontinued operations                      |      |         | (0.43      | ) |      |        | 0.29       |   |   |        | 0.46       |  
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           
|                                                        | Net income                                   |      | $       | 0.06       |   |      | $      | 0.57       |   |   | $      | 0.72       |  
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           
|DILUTED EARNINGS (LOSS) PER
    SHARE:                  |                                              |      |         |            |   |      |        |            |   |   |        |           
|                                                        | Continuing operations                        |      | $       | 0.48       |   |      | $      | 0.27       |   |   | $      | 0.26       |  
|                                                        | Discontinued operations                      |      |         | (0.42      | ) |      |        | 0.29       |   |   |        | 0.44       |  
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           
|                                                        | Net income                                   |      | $       | 0.06       |   |      | $      | 0.56       |   |   | $      | 0.70       |  
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           
|WEIGHTED AVERAGE SHARES OUTSTANDING:                    |                                              |      |         |            |   |      |        |            |   |   |        |           
|                                                        | Basic                                        |      |         | 24,549,322 |   |      |        | 24,356,852 |   |   |        | 23,748,764 |  
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           
|                                                        | Diluted                                      |      |         | 24,960,208 |   |      |        | 24,837,205 |   |   |        | 24,438,505 |  
|                                                        |                                              |      |         |            |   |      |        |            |   |   |        |           

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

F-4



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

For the Years Ended December 28, 2003,
December 29, 2002 and December 30, 2001


(in thousands, except share amounts)


|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |        | 
|------------------------------------------------------------------ | -------------------- | ------------ | ---------- | ---------- |  | -------- | --- | ------------- |  | -------------- | ------- | ------ |  | ------ | ------ | ------ |  | - | ----- | ----- | - |  | ---------- | - |  | - | ------- | - |  | - | ------- | ------ | 
|                                                                   |                      |              |            |            |  |          |     |               |  | Accumulated    |         |        |  |        |        |       
|                                                                   |                      |              |            |            |  |          |     | Other         |  |                |         |       
|                                                                   |                      | Common Stock |            | Additional |  |          |     | Comprehensive |  | Treasury Stock |         |       
|                                                                   |                      |              |            | Paid-In    |  | Retained |     | Income        |  |                |         |       
|                                                                   |                      | Shares       |            | Amount     |  | Capital  |     | Earnings      |  | (Loss)         |         | Shares |  | Amount |        | Total 
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |       
|BALANCE, December 31, 2000                                         |                      |              | 26,088,795 |            |  | $        | 261 |               |  | $              | 97,420  |        |  | $      | 41,170 |        |  | $ | (144  | )     |   |  | (3,268,000 | ) |  | $ | (20,000 | ) |  | $ | 118,707 |       
|Comprehensive income:                                              |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|Net income                                                         |                      |              |           |            |  |          |    |               |  |                |        |        |  |        | 17,092 |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 17,092  |       
|Foreign currency translation adjustments, net of
    tax of $209   |                      |              |           |            |  |          |    |               |  |                |        |        |  |        |       |        |  |   | (407  | )     |   |  |           |   |  |   |        |   |  |   | (407    | )     
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|                                                                   | Comprehensive income |              |            |           |  |          |     |              |  |                |         |       |  |        |        | 17,092 |  |   |       | (407  | ) |  |            |  |  |   |         |  |  |   |         | 16,685 | 
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|Exercise of stock options                                          |                      |              | 1,241,185  |            |  |          | 12  |               |  |                | 13,122  |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 13,134  |       
|Conversion of common stock warrants                                |                      |              | 98,530     |            |  |          | 1   |               |  |                | (1      | )      |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   |        |       
|Shares issued through employee stock purchase
    plans            |                      |              | 27,280     |            |  |          | 1   |               |  |                | 178     |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 179     |       
|Deferred and other compensation                                    |                      |              |           |            |  |          |    |               |  |                | 91      |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 91      |       
|Tax effect of stock option exercise                                |                      |              |           |            |  |          |    |               |  |                | 3,679   |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 3,679   |       
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|BALANCE, December 30, 2001                                         |                      |              | 27,455,790 |            |  |          | 275 |               |  |                | 114,489 |        |  |        | 58,262 |        |  |   | (551  | )     |   |  | (3,268,000 | ) |  |   | (20,000 | ) |  |   | 152,475 |       
|Comprehensive income:                                              |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|Net income                                                         |                      |              |           |            |  |          |    |               |  |                |        |        |  |        | 13,949 |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 13,949  |       
|Foreign currency translation adjustments, net of
    tax of $357   |                      |              |           |            |  |          |    |               |  |                |        |        |  |        |       |        |  |   | 664   |       |   |  |           |   |  |   |        |   |  |   | 664     |       
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|                                                                   | Comprehensive income |              |            |           |  |          |     |              |  |                |         |       |  |        |        | 13,949 |  |   |       | 664   |   |  |            |  |  |   |         |  |  |   |         | 14,613 | 
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|Exercise of stock options                                          |                      |              | 249,405    |            |  |          | 2   |               |  |                | 2,323   |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 2,325   |       
|Shares issued through employee stock purchase
    plans            |                      |              | 24,858     |            |  |          |    |               |  |                | 326     |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 326     |       
|Deferred and other compensation                                    |                      |              |           |            |  |          |    |               |  |                | 198     |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 198     |       
|Repurchase of common stock                                         |                      |              |           |            |  |          |    |               |  |                |        |        |  |        |       |        |  |   |      |       |   |  | (20,000    | ) |  |   | (347    | ) |  |   | (347    | )     
|Tax effect of stock option exercise                                |                      |              |           |            |  |          |    |               |  |                | 780     |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 780     |       
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|BALANCE, December 29, 2002                                         |                      |              | 27,730,053 |            |  |          | 277 |               |  |                | 118,116 |        |  |        | 72,211 |        |  |   | 113   |       |   |  | (3,288,000 | ) |  |   | (20,347 | ) |  |   | 170,370 |       
|Comprehensive income:                                              |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|Net income                                                         |                      |              |           |            |  |          |    |               |  |                |        |        |  |        | 1,506  |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 1,506   |       
|Foreign currency translation adjustments, net of
    tax of $1,916 |                      |              |           |            |  |          |    |               |  |                |        |        |  |        |       |        |  |   | 4,078 |       |   |  |           |   |  |   |        |   |  |   | 4,078   |       
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|                                                                   | Comprehensive income |              |            |           |  |          |     |              |  |                |         |       |  |        |        | 1,506  |  |   |       | 4,078 |   |  |            |  |  |   |         |  |  |   |         | 5,584  | 
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|Exercise of stock options                                          |                      |              | 287,553    |            |  |          | 3   |               |  |                | 1,956   |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 1,959   |       
|Shares issued through employee stock purchase
    plans            |                      |              | 42,391     |            |  |          | 1   |               |  |                | 352     |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 353     |       
|Deferred and other compensation                                    |                      |              | 1,793      |            |  |          |    |               |  |                | 83      |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 83      |       
|Tax effect of stock option exercise                                |                      |              |           |            |  |          |    |               |  |                | 623     |        |  |        |       |        |  |   |      |       |   |  |           |   |  |   |        |   |  |   | 623     |       
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       
|BALANCE, December 28, 2003                                         |                      |              | 28,061,790 |            |  | $        | 281 |               |  | $              | 121,130 |        |  | $      | 73,717 |        |  | $ | 4,191 |       |   |  | (3,288,000 | ) |  | $ | (20,347 | ) |  | $ | 178,972 |       
|                                                                   |                      |              |            |            |  |          |     |               |  |                |         |        |  |        |        |        |  |   |       |       |   |  |            |   |  |   |         |   |  |   |         |       

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

F-5



---



##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 28, 2003,
December 29, 2002 and December 30, 2001


(in thousands)


|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |         |        |         |  
|----------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------------------------------------------------------- | ------- | ------ | -------- | ------ | ------- | ------- | ------- | ------- | ------- | ------ | ------- | -
|                                                                  |                                                                                                                      | 2003                                                                   |                                                         | 2002    |        | 2001    
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |         
|OPERATING ACTIVITIES:                                             |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|                                                                  | Net income                                                                                                           |                                                                        | $                                                       | 1,506   |        |          | $      | 13,949  |         |         | $       | 17,092  |       
|                                                                  | Income (loss) from discontinued operations                                                                           |                                                                        |                                                         | (10,561 | )      |          |        | 7,229   |         |         |         | 10,870  |       
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|                                                                  | Net income from continuing operations                                                                                |                                                                        |                                                         | 12,067  |        |          |        | 6,720   |         |         |         | 6,222   |       
|                                                                  | Adjustments to reconcile net income from
    continuing operations to net cash provided by operating
    activities: |                                                                        |                                                         |         |        |          |        |         |         |         |         |         |       
|                                                                  |                                                                                                                      | Depreciation and amortization                                          |                                                         |         | 9,477  |          |        |         | 5,433   |         |         |         | 3,492  |        
|                                                                  |                                                                                                                      | Tax benefit from exercise of stock options                             |                                                         |         | 623    |          |        |         | 780     |         |         |         | 3,679  |        
|                                                                  |                                                                                                                      | Deferred and other compensation                                        |                                                         |         | 83     |          |        |         | 198     |         |         |         | 91     |        
|                                                                  |                                                                                                                      | Deferred income tax provision                                          |                                                         |         | (1,257 | )        |        |         | 2,908   |         |         |         | 1,637  |        
|                                                                  |                                                                                                                      | Non-cash special charges and write-off of
    deferred financing costs |                                                         |         | 6,402  |          |        |         | 347     |         |         |         |       |        
|                                                                  | Changes in operating assets and liabilities, net
    of acquisitions of businesses:                                  |                                                                        |                                                         |         |        |          |        |         |         |         |         |         |       
|                                                                  |                                                                                                                      | Trade accounts receivable, net                                         |                                                         |         | (6,518 | )        |        |         | (11,075 | )       |         |         | (806   | )      
|                                                                  |                                                                                                                      | Inventories                                                            |                                                         |         | (6,552 | )        |        |         | (2      | )       |         |         | 1,024  |        
|                                                                  |                                                                                                                      | Other assets                                                           |                                                         |         | 961    |          |        |         | 1,771   |         |         |         | 1,576  |        
|                                                                  |                                                                                                                      | Accounts payable                                                       |                                                         |         | (1,185 | )        |        |         | (376    | )       |         |         | (2,332 | )      
|                                                                  |                                                                                                                      | Accrued liabilities                                                    |                                                         |         | 4,895  |          |        |         | 165     |         |         |         | (545   | )      
|                                                                  |                                                                                                                      | Other, net                                                             |                                                         |         | (891   | )        |        |         | 373     |         |         |         | (56    | )      
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|                                                                  |                                                                                                                      |                                                                        | Total adjustments                                       |         |        | 6,038    |        |         |         | 522     |         |         |        | 7,760   |  
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|                                                                  |                                                                                                                      |                                                                        | Net cash provided by operating activities               |         |        | 18,105   |        |         |         | 7,242   |         |         |        | 13,982  |  
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|INVESTING ACTIVITIES:                                             |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|                                                                  | Purchases of property and equipment                                                                                  |                                                                        |                                                         | (19,644 | )      |          |        | (11,457 | )       |         |         | (3,098  | )     
|                                                                  | Purchases of businesses, net of cash acquired                                                                        |                                                                        |                                                         | (97,344 | )      |          |        | (327    | )       |         |         | (41,369 | )     
|                                                                  | Other, net                                                                                                           |                                                                        |                                                         | (246    | )      |          |        |        |         |         |         |        |       
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|                                                                  |                                                                                                                      |                                                                        | Net cash used in investing activities                   |         |        | (117,234 | )      |         |         | (11,784 | )       |         |        | (44,467 | )
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|FINANCING ACTIVITIES:                                             |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|                                                                  | Proceeds from issuance of convertible debentures                                                                     |                                                                        |                                                         | 130,000 |        |          |        |        |         |         |         |        |       
|                                                                  | Proceeds from issuance of term loan                                                                                  |                                                                        |                                                         | 82,500  |        |          |        |        |         |         |         |        |       
|                                                                  | Repayment of term loan                                                                                               |                                                                        |                                                         | (82,500 | )      |          |        |        |         |         |         |        |       
|                                                                  | Payments on long-term debt and capital lease
    obligations                                                         |                                                                        |                                                         | (387    | )      |          |        | (4,040  | )       |         |         | (191    | )     
|                                                                  | Proceeds from stock plans and warrants                                                                               |                                                                        |                                                         | 2,312   |        |          |        | 2,651   |         |         |         | 13,313  |       
|                                                                  | Payment of debt issuance costs                                                                                       |                                                                        |                                                         | (8,931  | )      |          |        | (537    | )       |         |         |        |       
|                                                                  | Repurchase of common stock                                                                                           |                                                                        |                                                         |        |        |          |        | (347    | )       |         |         |        |       
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|                                                                  |                                                                                                                      |                                                                        | Net cash provided by (used in) financing
    activities |         |        | 122,994  |        |         |         | (2,273  | )       |         |        | 13,122  |  
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|Net cash provided by discontinued operations                      |                                                                                                                      |                                                                        | 11,282                                                  |         |        |          | 10,390 |         |         |         | 6,146   |        
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|Effects of exchange rate changes on cash and cash
    equivalents |                                                                                                                      |                                                                        | (1,825                                                  | )       |        |          | (452   | )       |         |         | (180    | )      
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS          |                                                                                                                      |                                                                        | 33,322                                                  |         |        |          | 3,123  |         |         |         | (11,397 | )      
|CASH AND CASH EQUIVALENTS, beginning of
    year                  |                                                                                                                      |                                                                        | 15,242                                                  |         |        |          | 12,119 |         |         |         | 23,516  |        
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|CASH AND CASH EQUIVALENTS, end of
    year                        |                                                                                                                      | $                                                                      | 48,564                                                  |         |        | $        | 15,242 |         |         | $       | 12,119  |        
|                                                                  |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|SUPPLEMENTAL DISCLOSURE:                                          |                                                                                                                      |                                                                        |                                                         |         |        |          |        |         |         |         |         |        
|                                                                  | Accrued acquisition consideration                                                                                    |                                                                        | $                                                       |        |        |          | $      |        |         |         | $       | 570     |       
|                                                                  | Accrued purchase of property and equipment                                                                           |                                                                        |                                                         | 1,235   |        |          |        |        |         |         |         | 612     |       

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

F-6



---



##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 28, 2003, December 29, 2002
and December 30, 2001




|   |                                     
|-- | ------------------------------------
|1. | Organization and Business Operations

Serologicals Corporation, a Delaware corporation,
(together with its subsidiaries, the Company or
Serologicals) is a global provider of biological
products and enabling technologies to life science companies.
The Companys products are essential for the research,
development and manufacturing of biologically based life science
products. The Companys products and technologies are used
in a wide variety of applications within the areas of oncology,
hematology, immunology, cardiology and infectious diseases, as
well as in the study of molecular biology. The Companys
customers include many of the leading life sciences companies
throughout the world.

The Company conducts operations of its research
segment through Chemicon International (Chemicon),
which was acquired effective April 1, 2003. Chemicon
provides a broad range of specialty reagents, kits, antibodies
and molecular biology tools to biotechnology, pharmaceutical and
academic research customers working in the areas of
neuroscience, infectious disease, drug discovery, cancer
research, stem cell research and proteomics. Chemicon is also a
leading supplier of monoclonal antibodies, conjugates, antibody
blends and kits for use in diagnostic laboratories. Chemicon,
headquartered in Temecula, California, has manufacturing and
distribution operations in California, Australia and the United
Kingdom.

The Company manufactures cell culture and
diagnostic products in facilities located in North America and
the United Kingdom. The Company operates protein fractionation
facilities located in Kankakee, Illinois and Toronto,
Ontario and has a third facility under construction in Lawrence,
Kansas. These facilities provide a variety of highly purified
proteins used in diagnostic reagents and cell culture media
components for use in the development and manufacturing of
biotechnology products. Additionally, these facilities produce a
line of highly purified animal proteins known as cell culture
media components that are used primarily by biopharmaceutical
and biotechnology companies as nutrient additives in cell
culture media. One example of these media components is
EX-CYTE®, which is produced through a patented
manufacturing process. The Company manufactures monoclonal
antibodies in its Scotland facility. The monoclonal antibodies
are used in diagnostic products such as blood typing reagents
and in controls for diagnostic tests for certain infectious
diseases. The Company also operates a facility in Milford,
Massachusetts that includes a central distribution facility as
well as operations related to production of substrates used in
diagnostic assays.

The industries in which the Company operates are
subject to strict regulation and licensing by the FDA and
similar regulatory bodies in many of the states and foreign
countries where the Company or its customers conduct business.
Changes in existing federal, state or foreign laws or
regulations could have an adverse effect on the Companys
business.

The Company generates significant sales outside
the United States and is subject to risks generally associated
with international operations. The Companys operations in
the United Kingdom, Australia and Canada, which accounted for
approximately 30% of the Companys net sales in 2003,
generate certain net sales and incur expenses in foreign
currencies. Accordingly, the Companys financial results
from international operations may be affected by fluctuations in
currency exchange rates.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies



| |                      
| | ---------------------
| | Basis of Presentation

The accompanying consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. The
Companys fiscal period end for financial reporting
purposes is the last Sunday of each period and the fiscal year
ends on the Sunday closest to December 31. Fiscal years
2003, 2002 and 2001 included 52 weeks.

F-7



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Certain prior year amounts have been reclassified
to conform to the current year presentation.



| |                 
| | ----------------
| | Use of Estimates

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



| |                 
| | ----------------
| | Cash Equivalents

For financial reporting purposes, the Company
considers all investments purchased with an original maturity of
three months or less to be cash equivalents.



| |                    
| | -------------------
| | Accounts Receivable

The Company provides an allowance for doubtful
accounts equal to the estimated uncollectible amounts. The
Companys estimate is based on historical collection
experience and a review of the current status of trade accounts
receivable. It is reasonably possible that the Companys
estimate of the allowance for doubtful accounts will change.
Accounts receivable are presented net of an allowance for
doubtful accounts of $1.2 million and $1.0 million at
December 28, 2003, and December 29, 2002, respectively.



| |            
| | -----------
| | Inventories

Inventories are stated at the lower of cost or
market, cost being determined on a first-in, first-out basis.
Market for product inventories is net realizable value and for
supplies is replacement cost.

Inventories at December 28, 2003 and
December 29, 2002 consisted of the following (in thousands):

|                |  |      |        |      |  |   |        | 
|--------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                |  | 2003 |        | 2002
|                |  |      |        |     
|Raw materials   |  | $    | 9,097  |      |  | $ | 4,167  | 
|Work in process |  |      | 10,554 |      |  |   | 4,132  | 
|Finished goods  |  |      | 14,175 |      |  |   | 11,236 | 
|                |  |      |        |      |  |   |        | 
|                |  | $    | 33,826 |      |  | $ | 19,535 | 
|                |  |      |        |      |  |   |        | 



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are stated at cost. Major
property additions, replacements, and betterments are
capitalized, while maintenance and repairs which do not extend
the useful lives of these assets are expensed as incurred.
Depreciation is provided using the straight-line method over the
estimated useful lives for financial reporting purposes. For
income tax purposes, the Company uses accelerated depreciation
methods. Depreciable lives for equipment, furniture and fixtures
generally range from three to ten years. Leasehold improvements
are amortized over the shorter of the lease term or the economic
lives of the assets. Buildings and improvements are depreciated
over lives ranging from 20 to 32.5 years.

Software developed or acquired for internal use
is accounted for in accordance with Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use (SOP 98-1).
SOP 98-1 requires certain direct development costs
associated with internal-use software to be capitalized,
including external direct costs of material and services and
payroll costs for employees devoting time to the software
projects. Costs incurred during the preliminary project stage,
as well as for maintenance and training are expensed as
incurred. During 2003 and 2002, the Company capitalized costs
associated with

F-8



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

various projects totaling approximately
$1.0 million and $3.0 million, respectively. As of
December 28, 2003 and December 29, 2002, the net book
value of capitalized software project costs was approximately
$3.5 million and $3.7 million, respectively.
Capitalized software project costs are depreciated over
5 years and are included in Furniture, fixtures and
equipment in the following table.

Property and equipment at December 28, 2003
and December 29, 2002 consisted of the following (in
thousands):

|                                          |  |      |         |      |  |   |         |  
|----------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                          |  | 2003 |         | 2002
|                                          |  |      |         |     
|Land, buildings and improvements          |  | $    | 21,315  |      |  | $ | 21,407  |  
|Leasehold improvements                    |  |      | 7,912   |      |  |   | 2,296   |  
|Furniture, fixtures and equipment         |  |      | 46,876  |      |  |   | 34,222  |  
|Construction in progress                  |  |      | 18,760  |      |  |   | 4,766   |  
|                                          |  |      |         |      |  |   |         |  
|Total property and equipment              |  |      | 94,863  |      |  |   | 62,691  |  
|Accumulated depreciation and amortization |  |      | (21,659 | )    |  |   | (13,966 | )
|                                          |  |      |         |      |  |   |         |  
|Property and equipment, net               |  | $    | 73,204  |      |  | $ | 48,725  |  
|                                          |  |      |         |      |  |   |         |  

Construction in progress at December 28,
2003 relates primarily to expenditures on the construction of
the Companys new protein fractionation facility in
Lawrence, Kansas.

Consolidated depreciation expense was
$6.6 million, $4.2 million and $2.5 million in
2003, 2002 and 2001, respectively.



| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets

Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets requires companies to cease amortizing
goodwill and establishes a new method for testing goodwill for
impairment on an annual basis (or an interim basis if an event
occurs that might reduce the fair value of a reporting unit
below its carrying value). SFAS No. 142 also requires
that an identifiable intangible asset which is determined to
have an indefinite useful economic life not be amortized, but be
separately tested for impairment using a fair value based
approach.

The changes in the carrying amount of goodwill
during 2003 and 2002 are summarized as follows (in thousands):

|                                  |  |          |        |              |  |            |        |       |  |   |       |  |  |   |        | 
|--------------------------------- |  | -------- | ------ | ------------ |  | ---------- | ------ | ----- |  | - | ----- |  |  | - | ------ | 
|                                  |  | Research |        | Cell Culture |  | Diagnostic |        |      
|                                  |  | Products |        | Products     |  | Products   |        | Total
|                                  |  |          |        |              |  |            |        |      
|Balance as of December 30, 2001   |  | $        |       |              |  | $          | 24,320 |       |  | $ | 2,626 |  |  | $ | 26,946 | 
|Goodwill acquired during the year |  |          | 1,211  |              |  |            | 2,271  |       |  |   | 384   |  |  |   | 3,866  | 
|                                  |  |          |        |              |  |            |        |       |  |   |       |  |  |   |        | 
|Balance as of December 29, 2002   |  |          | 1,211  |              |  |            | 26,591 |       |  |   | 3,010 |  |  |   | 30,812 | 
|Goodwill acquired during the year |  |          | 62,765 |              |  |            |       |       |  |   |      |  |  |   | 62,765 | 
|                                  |  |          |        |              |  |            |        |       |  |   |       |  |  |   |        | 
|Balance as of December 28, 2003   |  | $        | 63,976 |              |  | $          | 26,591 |       |  | $ | 3,010 |  |  | $ | 93,577 | 
|                                  |  |          |        |              |  |            |        |       |  |   |       |  |  |   |        | 

The Company tested goodwill and intangible assets
with indefinite useful lives as of June 29, 2003 for
impairment, as required by SFAS No. 142, utilizing a
combination of valuation techniques including the expected
present value of future cash flows, a market multiple approach,
and a comparable transaction approach. The analysis did not
result in an impairment during fiscal 2003. As of
December 28, 2003 the Company does not believe any of its
goodwill or long-lived assets are impaired.

F-9



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Prior to the adoption of SFAS No. 142,
goodwill was amortized on a straight-line basis over 22 1/2
years. Had the Company accounted for goodwill and intangibles
with indefinite useful lives consistent with the provisions of
SFAS No. 142 in prior periods, the Companys net
income would have been affected as follows (in thousands, except
per share data):

|                                            |  |      |       |      |  |      |        |  |  |   |        | 
|------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                            |  | 2003 |       | 2002 |  | 2001
|                                            |  |      |       |      |  |     
|Reported net income                         |  | $    | 1,506 |      |  | $    | 13,949 |  |  | $ | 17,092 | 
|Add back: goodwill amortization, net of tax |  |      |      |      |  |      |       |  |  |   | 920    | 
|                                            |  |      |       |      |  |      |        |  |  |   |        | 
|Adjusted net income                         |  | $    | 1,506 |      |  | $    | 13,949 |  |  | $ | 18,012 | 
|                                            |  |      |       |      |  |      |        |  |  |   |        | 
|Basic earnings per share:                   |  |      |       |      |  |      |        |  |  |   |        | 
|Reported net income                         |  | $    | 0.06  |      |  | $    | 0.57   |  |  | $ | 0.72   | 
|Add back: goodwill amortization, net of tax |  |      |      |      |  |      |       |  |  |   | 0.04   | 
|                                            |  |      |       |      |  |      |        |  |  |   |        | 
|Adjusted net income                         |  | $    | 0.06  |      |  | $    | 0.57   |  |  | $ | 0.76   | 
|                                            |  |      |       |      |  |      |        |  |  |   |        | 
|Diluted earnings per share:                 |  |      |       |      |  |      |        |  |  |   |        | 
|Reported net income                         |  | $    | 0.06  |      |  | $    | 0.56   |  |  | $ | 0.70   | 
|Add back: goodwill amortization, net of tax |  |      |      |      |  |      |       |  |  |   | 0.04   | 
|                                            |  |      |       |      |  |      |        |  |  |   |        | 
|Adjusted net income                         |  | $    | 0.06  |      |  | $    | 0.56   |  |  | $ | 0.74   | 
|                                            |  |      |       |      |  |      |        |  |  |   |        | 

Developed products, patents and proprietary
know-how, customer relationships, trademarks and other
intangibles are initially measured based on their fair values
and amortized over their estimated economic life. Costs relating
to obtaining the Debentures (Note 8) and Revolver
(Note 9) are capitalized and amortized over the term
of the related debt using the straight-line method. The
following table sets forth the gross balance and accumulated
amortization of all intangible assets as of December 28,
2003 and December 29, 2002 (in thousands):

|                                 |  |          |             |       |  |              |        |       |  |              |        |   |  |   |        |  |  |   |        |  
|-------------------------------- |  | -------- | ----------- | ----- |  | ------------ | ------ | ----- |  | ------------ | ------ | - |  | - | ------ |  |  | - | ------ | -
|                                 |  |          |             |       |  |             
|                                 |  |          |             | 2003  |  | 2002        
|                                 |  | Weighted |             |       |  |             
|                                 |  | Average  |             |       |  | Accumulated  |        |       |  | Accumulated 
|                                 |  | Life     |             | Gross |  | Amortization |        | Gross |  | Amortization
|                                 |  |          |             |       |  |              |        |       |  |             
|Amortized intangible assets:     |  |          |             |       |  |              |        |       |  |              |        |   |  |   |        |  |  |   |        |  
|Developed products               |  |          | 18.6  years |       |  | $            | 24,000 |       |  | $            | (1,013 | ) |  | $ |       |  |  | $ |       |  
|Patents and proprietary know-how |  |          | 15 years    |       |  |              | 11,354 |       |  |              | (1,563 | ) |  |   | 11,500 |  |  |   | (796   | )
|Customer relationships           |  |          | 20 years    |       |  |              | 2,500  |       |  |              | (255   | ) |  |   | 2,500  |  |  |   | (130   | )
|Debt issuance costs              |  |          | 5 years     |       |  |              | 4,518  |       |  |              | (357   | ) |  |   | 537    |  |  |   | (146   | )
|Other intangibles                |  |          | 6.5 years   |       |  |              | 1,547  |       |  |              | (150   | ) |  |   |       |  |  |   |       |  
|                                 |  |          |             |       |  |              |        |       |  |              |        |   |  |   |        |  |  |   |        |  
|                                 |  |          |             |       |  | $            | 43,919 |       |  | $            | (3,338 | ) |  | $ | 14,537 |  |  | $ | (1,072 | )
|                                 |  |          |             |       |  |              |        |       |  |              |        |   |  |   |        |  |  |   |        |  
|Unamortized intangible assets:   |  |          |             |       |  |              |        |       |  |              |        |   |  |   |        |  |  |   |        |  
|Trademarks                       |  |          |             |       |  | $            | 9,300  |       |  | $            |       |   |  | $ | 300    |  |  | $ |       |  
|                                 |  |          |             |       |  |              |        |       |  |              |        |   |  |   |        |  |  |   |        |  

The consolidated amortization of all intangibles
assets was approximately $2.9 million, $1.2 million
and $1.0 million in 2003, 2002 and 2001, respectively.
Amortization expense is expected to be $3.3 million in 2004
through 2007 and $3.0 million in 2008. Amortization of debt
issuance costs is included in Interest expense and
amortization of the remaining intangible assets is included in
Amortization of intangibles in the accompanying
Consolidated Statements of Income.

F-10



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                    
| | -------------------
| | Accrued Liabilities

Accrued liabilities at December 28, 2003 and
December 29, 2002 consisted of the following (in thousands):

|                                                             |  |      |        |      |  |   |        | 
|------------------------------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                                                             |  | 2003 |        | 2002
|                                                             |  |      |        |     
|Accrued payroll, bonuses, severance and related
    benefits |  | $    | 7,211  |      |  | $ | 4,156  | 
|Accrued taxes                                                |  |      | 3,873  |      |  |   | 352    | 
|Accrued royalties                                            |  |      | 2,880  |      |  |   |       | 
|Accrued interest                                             |  |      | 1,890  |      |  |   | 75     | 
|Accrued purchase of property and equipment                   |  |      | 1,235  |      |  |   |       | 
|Accrued inventory                                            |  |      | 957    |      |  |   | 156    | 
|Deferred revenue                                             |  |      | 750    |      |  |   | 668    | 
|Other                                                        |  |      | 3,550  |      |  |   | 5,111  | 
|                                                             |  |      |        |      |  |   |        | 
|                                                             |  | $    | 22,346 |      |  | $ | 10,518 | 
|                                                             |  |      |        |      |  |   |        | 



| |                                             
| | --------------------------------------------
| | Revenue Recognition and Deferred
    Revenue

The Company generally recognizes product revenue
when persuasive evidence of an arrangement exists, delivery has
occurred, the sales price is fixed or determinable, and
collectibility is probable. In instances where final acceptance
of the product is specified by the customer, revenue is deferred
until all acceptance criteria have been met. Cash payments
received in advance are recorded as deferred revenue. In certain
situations, the Company permits returns of products, in
accordance with contractual agreements with certain customers,
if returned in a timely manner, in good condition, from normal
channels of distribution. Revenue is recorded net of an
allowance for estimated returns, price concessions, and other
discounts. Such allowance is reflected as a reduction to
accounts receivable when the Company grants credits for such
items; otherwise, it is reflected as a liability. Allowances for
returns are provided for based upon an analysis of the
Companys historical pattern of returns matched against the
sales from which they originated. The Company establishes a
warranty reserve at the time revenue is recorded. The
Companys warranty reserve was approximately
$0.5 million and $0.2 million at December 28,
2003 and December 29, 2002, respectively. See
Schedule 2  Valuation and Qualifying
Accounts for detail of changes in the warranty reserve.

Milestone-based fees are recognized upon
completion of specified milestones according to contract terms.
In general, the Company recognizes revenue on signing of a
license agreement that grants rights to a product or technology
to a third party if the Company has no further obligation to
provide products or services to the third party after granting
the license. Royalties from licensees are based on third-party
sales of licensed products and are recorded in accordance with
contract terms when third-party results are reliably measurable
and collectibility is reasonably assured. Royalty estimates are
made in advance of amounts collected using historical and
forecasted trends. Revenue from milestone agreements and license
arrangements was $0.1 million and $2.0 million,
respectively, in 2003. Revenue from these sources were
immaterial in 2002 and 2001.



| |                            
| | ---------------------------
| | Shipping and Handling Costs

The Companys shipping and handling costs
are included in Cost of sales in the accompanying
Consolidated Statements of Income for all periods presented.



| |                               
| | ------------------------------
| | Research and Development Costs

All research and development costs are charged to
operations as incurred and included in Research and
development in the accompanying Consolidated Statements of
Income.

F-11



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                   
| | ------------------
| | Foreign Operations

The financial statements of the Companys
manufacturing operations located in the United Kingdom,
Australia, and Canada have been translated into
U.S. dollars in accordance with SFAS No. 52,
Foreign Currency Translation. Under
SFAS No. 52, all balance sheet accounts are translated
at the year-end exchange rate. Income statement items are
translated at the average exchange rate for the year.
Translation adjustments are not included in determining net
income but are accumulated and reported as a component of
stockholders equity and comprehensive income. Realized
gains and losses, which result from foreign currency
transactions, are included in Other expenses, net
within the accompanying Consolidated Statements of Income.
Realized foreign currency losses were $0.2 million in 2003.
Realized foreign currency gains (losses) were immaterial in 2002
and 2001.



| |                   
| | ------------------
| | Earnings Per Share

Basic earnings per share are calculated by
dividing net income by the weighted average number of common
shares outstanding during the period. The calculation of the
Companys diluted earnings per share is similar to basic
earnings per share, except that net income is adjusted by the
after-tax interest expense on convertible indebtedness that is
dilutive and the weighted average number of shares includes the
dilutive effect of stock options, stock awards, convertible
indebtedness and similar instruments.

The following table sets forth the calculation of
basic and diluted earnings per share (in thousands, except per
share amounts):

|                                                                            |                                            |            |        |         |       |      |        |       |        |  |        |        |        | 
|--------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------ | ------- | ----- | ---- | ------ | ----- | ------ |  | ------ | ------ | ------ | 
|                                                                            |                                            | 2003       |        | 2002    |       | 2001
|                                                                            |                                            |            |        |         |       |     
|Numerator:                                                                  |                                            |            |        |         |       |      |        |       |        |  |        |       
|                                                                            | Net income from continuing operations      |            | $      | 12,067  |       |      | $      | 6,720 |        |  | $      | 6,222  |       
|                                                                            | Income (loss) from discontinued operations |            |        | (10,561 | )     |      |        | 7,229 |        |  |        | 10,870 |       
|                                                                            |                                            |            |        |         |       |      |        |       |        |  |        |       
|                                                                            |                                            | Net income |        | $       | 1,506 |      |        | $     | 13,949 |  |        | $      | 17,092 | 
|                                                                            |                                            |            |        |         |       |      |        |       |        |  |        |       
|Denominator:                                                                |                                            |            |        |         |       |      |        |       |        |  |        |       
|Basic earnings (loss) per share 
    weighted average shares outstanding   |                                            |            | 24,549 |         |       |      | 24,357 |       |        |  | 23,749 |       
|                                                                            | Effect of dilutive securities:             |            |        |         |       |      |        |       |        |  |        |        |       
|                                                                            | Stock options and warrants                 |            |        | 388     |       |      |        | 466   |        |  |        | 678    |       
|                                                                            | Common stock awards                        |            |        | 23      |       |      |        | 14    |        |  |        | 11     |       
|                                                                            |                                            |            |        |         |       |      |        |       |        |  |        |       
|Diluted earnings (loss) per share 
    weighted average shares outstanding |                                            |            | 24,960 |         |       |      | 24,837 |       |        |  | 24,438 |       
|                                                                            |                                            |            |        |         |       |      |        |       |        |  |        |       
|Basic earnings (loss) per share:                                            |                                            |            |        |         |       |      |        |       |        |  |        |       
|                                                                            | Continuing operations                      |            | $      | 0.49    |       |      | $      | 0.28  |        |  | $      | 0.26   |       
|                                                                            | Discontinued operations                    |            |        | (0.43   | )     |      |        | 0.29  |        |  |        | 0.46   |       
|                                                                            |                                            |            |        |         |       |      |        |       |        |  |        |       
|                                                                            |                                            | Net income |        | $       | 0.06  |      |        | $     | 0.57   |  |        | $      | 0.72   | 
|                                                                            |                                            |            |        |         |       |      |        |       |        |  |        |       
|Diluted earnings (loss) per share:                                          |                                            |            |        |         |       |      |        |       |        |  |        |       
|                                                                            | Continuing operations                      |            | $      | 0.48    |       |      | $      | 0.27  |        |  | $      | 0.26   |       
|                                                                            | Discontinued operations                    |            |        | (0.42   | )     |      |        | 0.29  |        |  |        | 0.44   |       
|                                                                            |                                            |            |        |         |       |      |        |       |        |  |        |       
|                                                                            |                                            | Net income |        | $       | 0.06  |      |        | $     | 0.56   |  |        | $      | 0.70   | 
|                                                                            |                                            |            |        |         |       |      |        |       |        |  |        |       

F-12



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The diluted earnings (loss) per share calculation
for 2003, 2002 and 2001 excludes the effect of options to
purchase approximately 1.0 million, 0.9 million and
0.3 million shares, respectively, as the option price
exceeded the average market price for the Companys stock
during the period and thus their effect was anti-dilutive.

The Company also excluded from the calculation of
dilutive earnings (loss) per share approximately
8.8 million shares issuable upon conversion of the
$130.0 million principal amount of the Companys
4.75% Convertible Senior Subordinated Debentures due
August 15, 2033 (Debentures) (Note 8).
These shares were excluded from the calculation of dilutive
earnings (loss) per share as the conversion requirements were
not met during 2003.



| |                              
| | -----------------------------
| | Stock-Based Compensation Plan

At December 28, 2003, the Company had three
stock-based employee compensation plans, which are described
more fully in Note 7. The Company accounts for these plans
under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. No
stock-based employee compensation cost was reflected in net
income, as all options granted under these plans had an exercise
price equal to the market value of the underlying common stock
on the date of grant. The following table illustrates the effect
on net income and earnings (loss) per share if the Company had
applied the fair value recognition provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation (in
thousands, except per share amounts):

|                                                                                                                                                    |                       |      |       |       |   |      |        |      |  |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ---- | ----- | ----- | - | ---- | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                                                    |                       | 2003 |       | 2002  |   | 2001
|                                                                                                                                                    |                       |      |       |       |   |     
|Net income, as reported                                                                                                                             |                       | $    | 1,506 |       |   | $    | 13,949 |      |  | $ | 17,092 |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |                       |      | 2,482 |       |   |      | 1,119  |      |  |   | 2,209  |     
|                                                                                                                                                    |                       |      |       |       |   |      |        |      |  |   |        |     
|Pro forma net income (loss)                                                                                                                         |                       | $    | (976  | )     |   | $    | 12,830 |      |  | $ | 14,883 |     
|                                                                                                                                                    |                       |      |       |       |   |      |        |      |  |   |        |     
|Earnings (loss) per share:                                                                                                                          |                       |      |       |       |   |      |        |      |  |   |        |     
|                                                                                                                                                    | Basic  as reported   |      | $     | 0.06  |   |      | $      | 0.57 |  |   | $      | 0.72 | 
|                                                                                                                                                    | Basic  pro forma     |      |       | (0.04 | ) |      |        | 0.53 |  |   |        | 0.63 | 
|                                                                                                                                                    | Diluted  as reported |      | $     | 0.06  |   |      | $      | 0.56 |  |   | $      | 0.70 | 
|                                                                                                                                                    | Diluted  pro forma   |      |       | (0.04 | ) |      |        | 0.53 |  |   |        | 0.62 | 

Under SFAS No. 123, the fair value of
stock-based awards is calculated through the use of
option-pricing models, even though such models were developed to
estimate the fair value of freely-tradable, fully-transferable
options without vesting restrictions, which differ significantly
from the Companys stock option grants. These models also
require subjective assumptions, including future stock price
volatility and expected lives of each option grant. The fair
value for each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

|                                |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                |  | 2003 |      | 2002 |  | 2001
|                                |  |      |      |      |  |     
|Expected life (years)           |  |      | 4.3  |      |  |      | 4.2  |   |  |  | 4.6  |  
|Dividend yield                  |  |      | 0    | %    |  |      | 0    | % |  |  | 0    | %
|Expected stock price volatility |  |      | 65   | %    |  |      | 65   | % |  |  | 100  | %
|Risk-free interest rate         |  |      | 2.06 | %    |  |      | 4.14 | % |  |  | 4.15 | %

Using these assumptions, the weighted average
fair value per share of options granted in 2003, 2002 and 2001
was $6.10, $10.73 and $12.52, respectively.

F-13



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

In January 2003, as revised in December 2003, the
Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin
No. 51. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have
the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its
activities without additional financial support from other
parties. FIN 46 is effective for the periods ending after
December 15, 2003 for certain types of entities and after
March 15, 2004 for other types of entities. The Company
does not expect the adoption of FIN 46 will have a material
effect on its consolidated financial statements.



|   |             
|-- | ------------
|3. | Acquisitions



| |                                                
| | -----------------------------------------------
| | Acquisition of Chemicon
    International, Inc.

Effective April 1, 2003, Serologicals
completed the acquisition of 100% of the common stock of
Chemicon, a privately-owned company based in Temecula,
California. Chemicon has manufacturing, distribution and
research and development operations in California, Australia and
the United Kingdom. Chemicon provides a broad range of specialty
reagents, kits, antibodies and molecular biology tools to
biotechnology, pharmaceutical and academic research customers
working in the areas of neuroscience, infectious disease, drug
discovery, cancer research, stem cell research and proteomics.
Chemicon is also a leading supplier of monoclonal antibodies,
conjugates, antibody blends and kits for use in the diagnostic
laboratory. The acquisition of Chemicon greatly expanded the
Companys range of products and customers within the
research market. The purchase price of $95 million in cash
was initially funded with the proceeds from an
$82.5 million five-year term loan and cash on hand. The
results of operations of Chemicon are included in the
Companys financial statements beginning April 1, 2003.

The components of the total purchase price are
presented below (in thousands):

|                              |  |   |         | 
|----------------------------- |  | - | ------- | 
|Cash paid at closing          |  | $ | 95,000  | 
|Direct costs of acquisition   |  |   | 2,392   | 
|Current liabilities assumed   |  |   | 7,444   | 
|Long-term liabilities assumed |  |   | 12,012  | 
|                              |  |   |         | 
|                              |  | $ | 116,848 | 
|                              |  |   |         | 

The Company has allocated the purchase price
based on the estimated fair values of the assets and liabilities
as follows (in thousands):

|                                      |  |   |         | 
|------------------------------------- |  | - | ------- | 
|Cash and cash equivalents             |  | $ | 295     | 
|Accounts receivable, net of allowance |  |   | 4,932   | 
|Inventory                             |  |   | 7,234   | 
|Other current assets                  |  |   | 1,983   | 
|Property and equipment                |  |   | 5,556   | 
|Developed products                    |  |   | 24,000  | 
|Trademarks and trade names            |  |   | 9,000   | 
|Other intangible assets               |  |   | 1,330   | 
|Goodwill                              |  |   | 62,518  | 
|                                      |  |   |         | 
|                                      |  | $ | 116,848 | 
|                                      |  |   |         | 

F-14



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Company allocated the purchase price to the
fair value of identifiable long-lived assets and intangibles
based on a number of factors, including an independent third
party appraisal. None of the goodwill related to the acquisition
of Chemicon is expected to be deductible for tax purposes.
Chemicon is included in the research products segment. The
following table sets forth the weighted average lives for the
intangible assets acquired:

|                           |  |              |            | 
|-------------------------- |  | ------------ | ---------- | 
|                           |  | Weighted    
|Description                |  | Average Life
|                           |  |             
|Developed products         |  |              | 18.6 years | 
|Trademarks and trade names |  |              | Indefinite | 
|Other intangible assets    |  |              | 6.5 years  | 
|Goodwill                   |  |              | Indefinite | 

In connection with the allocation of the purchase
price, and after considering the results of the independent
appraisal, the Company determined that none of the purchase
price should be allocated to in-process research and development
projects, since Chemicons research and development efforts
are focused primarily on developing applications and uses of
existing technologies.

The Company is continuing its evaluation of a
restructuring of certain components of Chemicons
operations. Any costs incurred related to a restructuring
resulting from this evaluation will be recorded to goodwill as
an adjustment to the purchase price of Chemicon in accordance
with Emerging Issues Task Force (EITF) 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination. These costs may include termination
benefits, relocation costs, asset impairments and lease
commitments. The Company expects to complete its plan before the
end of the first quarter of 2004.



| |                                          
| | -----------------------------------------
| | Acquisition of Intergen Company,
    L.P.

On December 13, 2001, the Company completed
the acquisition of Intergen Company, L.P. (Intergen
or Intergen Company), a privately held limited
partnership. The assets, liabilities and results of operations
of Intergen have been included in the Companys
consolidated financial statements since the date of acquisition.
Intergen was a developer, manufacturer and supplier of a variety
of biological products and technologies to the life sciences
industry. The acquisition of Intergen greatly expanded the
Companys range of products and customers within the life
sciences industry, particularly within the research and
pharmaceutical drug development sectors and enhanced the
Companys research and development capabilities. Intergen
was fully integrated into the Company during 2002. The operating
results of the former Intergen Company are included in the
Companys Cell Culture, Diagnostic and Research segments.

The total consideration was $58.4 million,
which includes cash paid to date, direct costs of acquisition
and liabilities assumed. The Company entered into an earnout
agreement with Intergens partners, which required the
Company to pay additional consideration to Intergens
partners based on a defined formula if Intergens sales
exceeded $8 million during the first quarter of 2002. This
provision resulted in a payment in July 2002 of approximately
$0.3 million that was recorded as an adjustment to goodwill
on the accompanying Consolidated Balance Sheets and is included
in the total consideration above. Also, a second component of
the earnout agreement requires the Company to pay additional
consideration based on a formula related to sales arising from
certain Intergen technologies over a five year period ending
December 31, 2006. Payments made under the earnout
agreement are treated as additional consideration and accounted
for as additional goodwill. The Company paid $0.2 million,
included in the total consideration above, under this component
of the earnout agreement during 2003. No payments were made
under this component of the earnout agreement during 2002.

During 2002, the Company recorded several
additional purchase price adjustments to goodwill totaling
$3.7 million. These adjustments included additional
severance costs related to the acquisition, adjustments to the
preliminary opening inventory valuation based on the final
analysis, a discount related to early payment of

F-15



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

a supplier note payable and an accrual for
certain license agreements. Additionally in 2002, the Company
reversed into income $0.4 million of allowance for doubtful
accounts, offset by an additional $0.4 million accruals for
certain pre-acquisition expenses.

The Company has reached an agreement in principal
with the former partners of Intergen to settle an
indemnification claim for recovery of certain costs incurred as
a result of material breaches of representations and warranties
under the terms of the purchase agreement. The expected
settlement is in a range of $1.0 million to
$1.5 million and is expected to be finalized during the
first quarter of 2004. No provision for recovery has been
recorded in 2003.



| |          
| | ---------
| | Proformas

The following table summarizes the results of
Serologicals on a pro forma basis for the years ended
December 28, 2003 and December 29, 2002 as if the
acquisition of Chemicon had occurred at the beginning of the
period. The 2003 pro forma results exclude certain expenses
totaling approximately $0.4 million that were recorded by
Chemicon as a result of the acquisition. These costs primarily
include professional and other fees paid as a direct result of
the transaction. These results do not purport to represent what
the results of operations for Serologicals would have actually
been or to be indicative of the future results of operations of
Serologicals (in thousands, except per share amounts).

|                                                            |         |      |         |      |  |   |         |      | 
|----------------------------------------------------------- | ------- | ---- | ------- | ---- |  | - | ------- | ---- | 
|                                                            |         | 2003 |         | 2002
|                                                            |         |      |         |     
|Revenue                                                     |         | $    | 158,065 |      |  | $ | 139,594 |     
|Net income from continuing operations                       |         |      | 11,887  |      |  |   | 4,355   |     
|Net income                                                  |         |      | 1,326   |      |  |   | 11,584  |     
|Net income from continuing operations per common
    share: |         |      |         |      |  |   |         |     
|                                                            | Basic   |      | $       | 0.48 |  |   | $       | 0.18 | 
|                                                            | Diluted |      |         | 0.48 |  |   |         | 0.18 | 
|Net income per common share:                                |         |      |         |      |  |   |         |     
|                                                            | Basic   |      | $       | 0.05 |  |   | $       | 0.48 | 
|                                                            | Diluted |      |         | 0.05 |  |   |         | 0.47 | 



|   |                        
|-- | -----------------------
|4. | Discontinued Operations

On July 10, 2003, the Company announced its
intention to exit the therapeutic plasma business. As a result,
this business was classified as a discontinued operation as it
met the criteria prescribed by SFAS No. 144,
Impairment of Long-Lived Assets and Discontinued
Operations. The therapeutic plasma business consisted of
the Companys ten plasma collection centers and a central
testing laboratory. On December 19, 2003, the Company
executed a definitive Stock Purchase Agreement to sell the
therapeutic plasma business to Gradipore Limited
(Gradipore), a company based in Sydney, Australia,
effective December 28, 2003. This transaction was completed
on January 15, 2004. The Company received $3.5 million
in cash at closing. Gradipore also assumed $1.3 million of
current and long term liabilities of the business. The balance
consisted of two secured promissory notes; a short term note in
the amount of $1.5 million bearing interest at London
Interbank Offered Rate (LIBOR) plus 5% due on
December 31, 2004, and a long term note (Long Term
Note), which was recorded at its estimated net realizable
value of $6.4 million. The Long Term Note is non-interest
bearing and includes payment terms of $1.0 million on
July 31, 2004 and quarterly payments of $1.1 million
beginning on April 30, 2005 through July 31, 2007.
These payments may be partially deferred until July 31,
2007 if certain revenue goals are not achieved by the
therapeutic plasma business, as defined in the Stock Purchase
Agreement.

F-16



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

During 2003, the Company recorded an impairment
loss of $12.6 million, based on the total consideration
received for this transaction, which is included as a component
of Income (loss) from discontinued operations in the
accompanying Consolidated Statements of Income. No additional
gain or loss was recorded in January 2004 at the time of
closing. The Company retained approximately $1.8 million of
accrued liabilities related to the therapeutic plasma business.

The Company has guaranteed real estate lease
obligations totaling approximately $4.2 million related to
the therapeutic plasma business. If Gradipore defaults on the
lease payments, the Company would be required to assume these
leases. The Company has also indemnified Gradipore, up to a cap
of $2.0 million, for certain matters specified in the Stock
Purchase Agreement, including material breaches of
representations and warranties. The Company has accrued a stand
ready obligation of $0.2 million in accordance with FASB
Interpretation No. 45, Guarantor Accounting and
Disclosure Requirement for Guarantees for these guarantees.

The Company has retained the rights to any
amounts realized from a pending claim asserted against a
therapeutic plasma customer for an equitable adjustment relating
to a plasma supply agreement. The claim seeks recovery of
approximately $4.8 million in excess costs incurred by the
Company in connection with changes in the protocol for
collection of vaccinia immune globulin. No amounts with respect
to this claim have been recorded in the accompanying
Consolidated Statements of Income because the Company is unable
to predict the outcome of this claim.

At December 28, 2003, the assets of
discontinued operations have been reclassified on the
accompanying Consolidated Balance Sheets to reflect the
anticipated realization based on the maturities of the net
realizable value of the total consideration. The following table
presents the assets and liabilities of discontinued operations
(in thousands):

|             |                                          |              |                                    |              |        |       |       |        |        |        | 
|------------ | ---------------------------------------- | ------------ | ---------------------------------- | ------------ | ------ | ----- | ----- | ------ | ------ | ------ | 
|             |                                          | December 28, |                                    | December 29,
|             |                                          | 2003         |                                    | 2002        
|             |                                          |              |                                    |             
|Assets:      |                                          |              |                                    |              |        |       |       |       
|             | Cash overdraft                           |              | $                                  | (70          | )      |       | $     | (2,392 | )     
|             | Trade accounts receivable                |              |                                    | 6,112        |        |       |       | 13,778 |       
|             | Inventories                              |              |                                    | 5,481        |        |       |       | 6,770  |       
|             | Other current assets                     |              |                                    | 127          |        |       |       | 1,146  |       
|             | Property and equipment, net              |              |                                    | 943          |        |       |       | 6,736  |       
|             | Goodwill and other intangible assets     |              |                                    |             |        |       |       | 8,861  |       
|             | Other noncurrent assets                  |              |                                    | 39           |        |       |       | 227    |       
|             |                                          |              |                                    |              |        |       |       |       
|             |                                          | Total assets |                                    |              | 12,632 |       |       |        | 35,126 |       
|             |                                          |              | Less: Amounts presented as current |              |        | 7,019 |       |        |        | 19,302 | 
|             |                                          |              |                                    |              |        |       |       |       
|             |                                          |              | Amounts presented as long-term     |              | $      | 5,613 |       |        | $      | 15,824 | 
|             |                                          |              |                                    |              |        |       |       |       
|Liabilities: |                                          |              |                                    |              |        |       |       |       
|             | Accounts payable and accrued liabilities |              | $                                  | 2,864        |        |       | $     | 1,518  |       
|             | Noncurrent liabilities                   |              |                                    | 172          |        |       |       | 352    |       
|             |                                          |              |                                    |              |        |       |       |       
|             |                                          | $            | 3,036                              |              |        | $     | 1,870 |       
|             |                                          |              |                                    |              |        |       |       |       

F-17



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table contains results of
operations from discontinued operations (in thousands):

|                                           |  |      |         |      |  |      |        |   |  |   |        |  
|------------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                           |  | 2003 |         | 2002 |  | 2001
|                                           |  |      |         |      |  |     
|Net sales                                  |  | $    | 29,736  |      |  | $    | 46,181 |   |  | $ | 56,228 |  
|Cost of sales                              |  |      | 26,676  |      |  |      | 29,551 |   |  |   | 34,749 |  
|                                           |  |      |         |      |  |      |        |   |  |   |        |  
|Gross profit                               |  |      | 3,060   |      |  |      | 16,630 |   |  |   | 21,479 |  
|Selling, general and administrative        |  |      | 3,772   |      |  |      | 4,164  |   |  |   | 4,920  |  
|Research and development                   |  |      | 550     |      |  |      |       |   |  |   |       |  
|Amortization of intangibles                |  |      | 13      |      |  |      | 57     |   |  |   | 503    |  
|Impairment loss                            |  |      | 12,554  |      |  |      |       |   |  |   |       |  
|Special charges (credits)                  |  |      | 1,657   |      |  |      | 1,319  |   |  |   | (811   | )
|                                           |  |      |         |      |  |      |        |   |  |   |        |  
|Operating income (loss)                    |  |      | (15,486 | )    |  |      | 11,090 |   |  |   | 16,867 |  
|Other (income) expenses, net               |  |      | 110     |      |  |      | (32    | ) |  |   | (117   | )
|                                           |  |      |         |      |  |      |        |   |  |   |        |  
|Income (loss) before taxes                 |  |      | (15,596 | )    |  |      | 11,122 |   |  |   | 16,984 |  
|Income tax (benefit) provision             |  |      | (5,035  | )    |  |      | 3,893  |   |  |   | 6,114  |  
|                                           |  |      |         |      |  |      |        |   |  |   |        |  
|Income (loss) from discontinued operations |  | $    | (10,561 | )    |  | $    | 7,229  |   |  | $ | 10,870 |  
|                                           |  |      |         |      |  |      |        |   |  |   |        |  

As part of the therapeutic plasma disposition,
the Company sold certain products and related inventory
comprised of human-sourced disease state polyclonal antibodies.
Sales and gross margin for these products are included in the
Diagnostic segment in the accompanying Consolidated Statement of
Income. The following table sets forth net sales and gross
profit of such products that are included in the accompanying
Consolidated Statements of Income prior to the sale (in
thousands):

|             |  |      |       |      |  |      |       |  |  |   |       | 
|------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|             |  | 2003 |       | 2002 |  | 2001
|             |  |      |       |      |  |     
|Net sales    |  | $    | 2,812 |      |  | $    | 3,888 |  |  | $ | 5,535 | 
|Gross profit |  |      | 153   |      |  |      | 2,039 |  |  |   | 3,742 | 



|   |                
|-- | ---------------
|5. | Special Charges



| |     
| | ----
| | 2003

During 2003, the Company approved a plan to
transfer the responsibility for manufacturing and distribution
of research products produced at the Gaithersburg, Maryland
facility to Chemicon. This transfer is expected to provide a
more competitive focus for the manufacturing, sales and
distribution of these products. In addition, the Company
continued to review its infrastructure to ensure the staffing is
optimal to focus on the primary growth areas related to the
Companys strategic plan. As a result of these efforts,
including its ongoing product rationalization initiatives, the
Company reduced its workforce at various locations including
Gaithersburg, Kankakee, Milford and the corporate office. As a
result of these restructurings, the Company recorded
$1.7 million in Special charges in the
accompanying Consolidated Statements of Income. The components
of the special charge included approximately $0.6 million
for employee severance, $0.8 million related to the
impairment of certain long-lived assets at Gaithersburg,
Maryland, $0.1 million of lease termination costs and
$0.2 million of other miscellaneous costs. Employee
termination costs included approximately 30 employees and are
expected to be paid by the end of 2004.

The Company also incurred $0.9 million of
special charges in 2003, resulting from the Bovine Spongiform
Encephalopathy (BSE) or mad-cow disease
scare in Canada. This charge included costs associated with
writing off certain inventory that had been sourced from
Canadian raw materials and the cost of shutting down and
cleaning a section of the Toronto manufacturing facility to
prepare for the switchover to U.S.-sourced raw

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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

materials. Prior to the announcement that a
single cow had tested positive for BSE, the Company procured
certain bovine raw materials from Canadian sources. As a result
of this issue, and after discussions with customers, the Company
began sourcing all bovine raw materials used in the Toronto
facility from the United States. The Toronto plant was partially
shut down for approximately one month during the year for
cleaning and sanitization. Additionally, certain inventory that
was manufactured in Canada and scheduled to be shipped to
international customers was delayed by foreign governments. The
United States Department of Agriculture ban on Canadian imports
of bovine materials prevented the transfer of products from
Toronto to the Companys distribution facility in
Massachusetts for part of the third quarter of 2003.

Additionally in 2003, the Company recorded a
special charge of $0.1 million related to a loss associated
with an equipment failure at the Toronto facility.



| |     
| | ----
| | 2002

During 2002, the Company recorded a charge of
$1.9 million related primarily to the reorganization of the
research and development organization, as well as personnel
restructurings within the sales organization and at the
Companys manufacturing locations in Canada and Scotland.
The components of the charge included $1.3 million for
severance and termination benefits, $0.1 million for
relocation costs, $0.1 million related to lease obligations
and $0.3 million related to the write-off of certain
long-lived assets. The severance payments covered approximately
30 employees. Severance payments and lease obligations were
paid by the end of 2003.



| |     
| | ----
| | 2001

During the second quarter of 2001, the Company
recorded a charge for $0.9 million to write off incremental
external due diligence costs related to the evaluation of the
potential acquisition of Intergen. At the time of the charge,
the Company did not consider the acquisition probable of being
completed. Subsequently, negotiations resumed with Intergen and
all incremental external direct costs incurred after that date
were capitalized and included as a component of the purchase
price. The Company also recorded a special charge of
approximately $0.2 million in 2001 to cover severance costs.

Additionally in 2001, the Company reversed an
accrual totaling approximately $0.3 million representing
amounts recorded for contingencies as part of the acquisition of
the Kankakee facility in December 1998. The Company determined
these amounts were no longer required to be maintained as all
material anticipated contingencies were resolved.

The following table summarizes special charges by
segment (in thousands):

|                      |  |      |       |      |  |      |       |  |  |   |       |  
|--------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | -
|                      |  | 2003 |       | 2002 |  | 2001
|                      |  |      |       |      |  |     
|Research products     |  | $    | 1,163 |      |  | $    | 112   |  |  | $ |      |  
|Cell culture products |  |      | 1,218 |      |  |      | 174   |  |  |   | (300  | )
|Diagnostic products   |  |      | 127   |      |  |      | 940   |  |  |   |      |  
|Corporate             |  |      | 270   |      |  |      | 683   |  |  |   | 1,172 |  
|                      |  |      |       |      |  |      |       |  |  |   |       |  
|                      |  | $    | 2,778 |      |  | $    | 1,909 |  |  | $ | 872   |  
|                      |  |      |       |      |  |      |       |  |  |   |       |  

F-19



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table summarizes the activity in
the accrual for termination benefits and other costs for the
periods ended December 28, 2003 and December 29, 2002,
respectively (in thousands):

|                           |  |          |       |          |  |              |       |            |  |          |        |   |  |   |        |   |  |   |     | 
|-------------------------- |  | -------- | ----- | -------- |  | ------------ | ----- | ---------- |  | -------- | ------ | - |  | - | ------ | - |  | - | --- | 
|                           |  | Balance, |       |          |  | Cash         |       | Noncash    |  | Balance,
|Description                |  | 12/29/02 |       | Expenses |  | Expenditures |       | Write-offs |  | 12/28/03
|                           |  |          |       |          |  |              |       |            |  |         
|Employee termination costs |  | $        | 942   |          |  | $            | 647   |            |  | $        | (1,439 | ) |  | $ |       |   |  | $ | 150 | 
|Lease termination costs    |  |          | 70    |          |  |              | 120   |            |  |          | (190   | ) |  |   |       |   |  |   |    | 
|Asset impairment           |  |          |      |          |  |              | 1,719 |            |  |          |       |   |  |   | (1,719 | ) |  |   |    | 
|Other                      |  |          |      |          |  |              | 292   |            |  |          | (101   | ) |  |   | (191   | ) |  |   |    | 
|                           |  |          |       |          |  |              |       |            |  |          |        |   |  |   |        |   |  |   |     | 
|                           |  | $        | 1,012 |          |  | $            | 2,778 |            |  | $        | (1,730 | ) |  | $ | (1,910 | ) |  | $ | 150 | 
|                           |  |          |       |          |  |              |       |            |  |          |        |   |  |   |        |   |  |   |     | 

|                           |  |          |     |          |  |              |       |            |  |          |      |   |  |   |      |   |  |   |       | 
|-------------------------- |  | -------- | --- | -------- |  | ------------ | ----- | ---------- |  | -------- | ---- | - |  | - | ---- | - |  | - | ----- | 
|                           |  | Balance, |     |          |  | Cash         |       | Noncash    |  | Balance,
|Description                |  | 12/30/01 |     | Expenses |  | Expenditures |       | Write-offs |  | 12/29/02
|                           |  |          |     |          |  |              |       |            |  |         
|Employee termination costs |  | $        | 200 |          |  | $            | 1,281 |            |  | $        | (539 | ) |  | $ |     |   |  | $ | 942   | 
|Relocation costs           |  |          |    |          |  |              | 140   |            |  |          | (140 | ) |  |   |     |   |  |   |      | 
|Lease termination costs    |  |          |    |          |  |              | 120   |            |  |          | (50  | ) |  |   |     |   |  |   | 70    | 
|Asset impairment           |  |          |    |          |  |              | 347   |            |  |          |     |   |  |   | (347 | ) |  |   |      | 
|Other                      |  |          |    |          |  |              | 21    |            |  |          |     |   |  |   | (21  | ) |  |   |      | 
|                           |  |          |     |          |  |              |       |            |  |          |      |   |  |   |      |   |  |   |       | 
|                           |  | $        | 200 |          |  | $            | 1,909 |            |  | $        | (729 | ) |  | $ | (368 | ) |  | $ | 1,012 | 
|                           |  |          |     |          |  |              |       |            |  |          |      |   |  |   |      |   |  |   |       | 

The remaining accrual of $0.2 million at
December 28, 2003 is included in Accrued
liabilities in the accompanying Consolidated Balance
Sheets and will be paid during 2004.



|   |                     
|-- | --------------------
|6. | Stockholders Equity



| |                        
| | -----------------------
| | Stockholder Rights Plan

On July 26, 1999, the Board of Directors
adopted a stockholder rights plan, pursuant to which one
preferred stock purchase right (a Right) was
distributed for each outstanding share of common stock held of
record on August 25, 1999. Each Right represents a right to
purchase, under certain circumstances, one one-thousandth
(1/1000) of a share of a new series of preferred stock at an
exercise price of $45.00. If any person or group acquires 15% or
more of the common stock of the Company (except in transactions
approved by the Board of Directors of the Company in advance),
each Right will then entitle its holder, other than the person
or group owning 15% or such other persons or groups, to acquire,
at the exercise price, shares of the Companys common stock
with a market value equal to twice the exercise price. The
Company may elect, however, to exchange a newly issued share of
the Companys common stock for each Right. If any person or
group owns 15% or more of the Companys common stock, and
the Company is acquired in a merger or other business
combination, or if 50% of its earning power or assets are sold,
each Right will entitle its holder, other than the person or
group owning 15%, to acquire, at the exercise price, shares of
the acquiring companys common stock with a market value of
twice the exercise price.

Persons owning 15% or more of Companys
common stock on the date the plan was adopted were exempt, so
long as they do not acquire an additional number of shares
greater than 2% of the outstanding shares, other than in a
transaction approved by the Board of Directors of the Company in
advance. The Rights expire on August 2, 2009.

F-20



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |              
| | -------------
| | Capital Stock

Under the terms of its amended and restated
articles of incorporation, the Company has authorized
50,000,000 shares of common stock and 1,000,000 shares
of preferred stock that may contain such preferences and rights
as determined by the Companys Board of Directors.



| |                                    
| | -----------------------------------
| | Common Shares Reserved for Issuance

Shares of common stock reserved for issuance at
December 28, 2003 and December 29, 2002 consisted of
the following:

|                              |  |      |           |      |  |  |           | 
|----------------------------- |  | ---- | --------- | ---- |  |  | --------- | 
|                              |  | 2003 |           | 2002
|                              |  |      |           |     
|Various stock option plans    |  |      | 4,237,370 |      |  |  | 4,502,073 | 
|Employee stock purchase plans |  |      | 489,648   |      |  |  | 456,900   | 
|                              |  |      |           |      |  |  |           | 
|                              |  |      | 4,727,018 |      |  |  | 4,958,973 | 
|                              |  |      |           |      |  |  |           | 

The Company expects to register and reserve
8.8 million shares of its common stock under terms of its
Debentures (Note 8).



| |                         
| | ------------------------
| | Common Stock Repurchases

During 2002, the Company repurchased
20,000 shares of common stock in a private transaction with
a director of the Company at a per share price of $17.35.

In October 2002, the Companys Board of
Directors authorized a program to repurchase up to
2.0 million shares of its outstanding common stock between
October 2002 and December 31, 2004. The repurchases can be
made from time to time in the open market, in block trades or in
private transactions, subject to price, market and general
business conditions. The Company did not repurchase any shares
under this program during 2002 or 2003.



|   |                         
|-- | ------------------------
|7. | Stock Compensation Plans



| |                                                  
| | -------------------------------------------------
| | Serologicals Corporation Stock Incentive
    Plan

The Companys Stock Incentive Plan (the
Incentive Plan) was approved in May 2001 and
succeeded the existing plans described in further detail below.
The Incentive Plan provides for the issuance of up to
approximately 2.8 million stock options to key employees
and directors, which includes approximately 1.3 million
options that were available for issuance under existing Company
option plans at the time this plan was approved. The exercise
price of the options is the fair market value of the common
stock on the date of grant. Options granted under the Incentive
Plan can have varying terms as determined by the Board of
Directors. Options granted in 2001, 2002 and 2003 under the
Incentive Plan vest ratably over a period of one year for
directors and four years for employees, and have terms of six
years. Vested options held by terminated employees allow for
exercise periods of three months following termination. Pursuant
to the Incentive Plan, each director is entitled to receive an
automatic grant of options annually to purchase
10,000 shares (15,000 shares for a non-executive
Chairman of the Board) on May 15 each year. As of
December 28, 2003, options to purchase approximately
1.2 million shares were outstanding under the Incentive
Plan, approximately 0.3 million of which were exercisable.
As of December 28, 2003, the Company had approximately
1.6 million shares available for grant under the plan.

F-21



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                                                        
| | -----------------------------------------------------------------------
| | Second Amended and Restated 1994 Omnibus
    Incentive Plan, as Amended

The Companys Second Amended and Restated
1994 Omnibus Incentive Plan, as Amended (the Omnibus
Plan) was succeeded by the Incentive Plan as described
above. The exercise price of the options granted under the
Omnibus Plan is the fair market value of the common stock on the
date of grant. Options granted under the Omnibus Plan have
varying terms as determined by the Board of Directors. Options
granted through 2001 under the Omnibus Plan generally vest
ratably over three to four years or in full after three years
and have terms of six to ten years. Options held by terminated
employees allow for exercise periods ranging from 3 to
24 months following termination. As of December 28,
2003, options to purchase approximately 0.9 million shares
were outstanding and 0.8 million were exercisable under the
Omnibus Plan. No further grants will be issued under the Omnibus
Plan.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Amended and Restated 1995 Non-Employee
    Director Stock Option Plan, as Amended

The Companys Amended and Restated 1995
Non-Employee Directors Stock Option Plan, as amended (the
Director Plan) was succeeded by the Incentive Plan
as described above. Pursuant to the Director Plan, each person
who became a non-employee director of the Company prior to May
2000 was automatically granted an option to purchase
36,000 shares of the Companys common stock on the
date of adoption or on the day after such persons first
election to the Board of Directors. The exercise price of the
options is the fair market value of the common stock on the date
of grant, and the options vest over three years. During 2000,
the Company amended the Director Plan, pursuant to which each
non-employee director is entitled to receive an automatic grant
of options annually to purchase 10,000 shares
(15,000 shares for a non-executive Chairman of the Board)
on the day after the original lump-sum option becomes vested,
pro-rated to the first anniversary of the preceding Annual
Meeting date. Options granted under the amended plan subsequent
to May 2000 vest over a one-year period. Options granted between
1996 and May 2000 under the Director Plan typically vest over a
four-year period. As of December 28, 2003, options to
purchase approximately 0.2 million shares were outstanding
and exercisable under the Director Plan. No further grants will
be issued under the Director Plan.



| |                      
| | ---------------------
| | Stock Option Activity

The following table summarizes the activity for
all stock options outstanding:

|                                   |  |        |           |           |  |        |       |           |  |        |           |           |  |   |       |  |  |  |            |   |  |   |       | 
|---------------------------------- |  | ------ | --------- | --------- |  | ------ | ----- | --------- |  | ------ | --------- | --------- |  | - | ----- |  |  |  | ---------- | - |  | - | ----- | 
|                                   |  |        |           |           |  |       
|                                   |  | 2003   |           | 2002      |  | 2001  
|                                   |  |        |           |           |  |       
|                                   |  |        |           | Weighted- |  |        |       | Weighted- |  |        |           | Weighted-
|                                   |  |        |           | Average   |  |        |       | Average   |  |        |           | Average  
|                                   |  |        |           | Exercise  |  |        |       | Exercise  |  |        |           | Exercise 
|                                   |  | Shares |           | Price     |  | Shares |       | Price     |  | Shares |           | Price    
|                                   |  |        |           |           |  |        |       |           |  |        |           |          
|Outstanding at beginning of year   |  |        | 2,248,876 |           |  | $      | 13.46 |           |  |        | 2,208,737 |           |  | $ | 12.23 |  |  |  | 3,162,470  |   |  | $ | 11.20 | 
|Granted                            |  |        | 632,307   |           |  |        | 11.71 |           |  |        | 527,701   |           |  |   | 20.00 |  |  |  | 358,494    |   |  |   | 16.83 | 
|Exercised                          |  |        | (264,703  | )         |  |        | 7.09  |           |  |        | (249,405  | )         |  |   | 9.13  |  |  |  | (1,241,185 | ) |  |   | 10.53 | 
|Forfeited                          |  |        | (221,928  | )         |  |        | 17.97 |           |  |        | (238,157  | )         |  |   | 20.94 |  |  |  | (71,042    | ) |  |   | 17.86 | 
|                                   |  |        |           |           |  |        |       |           |  |        |           |           |  |   |       |  |  |  |            |   |  |   |       | 
|Outstanding at end of year         |  |        | 2,394,552 |           |  |        | 13.28 |           |  |        | 2,248,876 |           |  |   | 13.46 |  |  |  | 2,208,737  |   |  |   | 12.23 | 
|                                   |  |        |           |           |  |        |       |           |  |        |           |           |  |   |       |  |  |  |            |   |  |   |       | 
|Options exercisable at end of year |  |        | 1,316,586 |           |  | $      | 13.58 |           |  |        | 1,238,570 |           |  | $ | 13.07 |  |  |  | 1,068,866  |   |  | $ | 11.88 | 
|                                   |  |        |           |           |  |        |       |           |  |        |           |           |  |   |       |  |  |  |            |   |  |   |       | 

F-22



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table summarizes information about
all stock options outstanding at December 28, 2003:

|                |  |                     |           |             |  |           |     |                     |  |           |       |  |  |  |           |  |  |   |       | 
|--------------- |  | ------------------- | --------- | ----------- |  | --------- | --- | ------------------- |  | --------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |                     |           |             |  |          
|                |  | Options Outstanding |           |             |  |          
|                |  |                     |           |            
|                |  |                     |           | Weighted-   |  |           |     | Options Exercisable
|                |  |                     |           | Average     |  |           |     |                    
|                |  |                     |           | Remaining   |  | Weighted- |     |                     |  | Weighted-
|                |  | Outstanding         |           | Contractual |  | Average   |     | Exercisable         |  | Average  
|Range of        |  | At                  |           | Life        |  | Exercise  |     | at                  |  | Exercise 
|Exercise Prices |  | 12/28/2003          |           | (years)     |  | Price     |     | 12/28/2003          |  | Price    
|                |  |                     |           |             |  |           |     |                     |  |          
|$ 4.06  $ 5.00 |  |                     | 359,243   |             |  |           | 2.1 |                     |  | $         | 4.93  |  |  |  | 299,743   |  |  | $ | 4.92  | 
|$ 5.01  $ 7.50 |  |                     | 378,251   |             |  |           | 2.3 |                     |  |           | 5.77  |  |  |  | 275,375   |  |  |   | 5.76  | 
|$ 7.51  $10.00 |  |                     | 13,862    |             |  |           | 2.0 |                     |  |           | 8.23  |  |  |  | 12,737    |  |  |   | 8.22  | 
|$10.01  $15.00 |  |                     | 759,439   |             |  |           | 4.7 |                     |  |           | 11.88 |  |  |  | 128,481   |  |  |   | 11.99 | 
|$15.01  $20.00 |  |                     | 385,553   |             |  |           | 3.6 |                     |  |           | 17.16 |  |  |  | 275,100   |  |  |   | 17.20 | 
|$20.01  $25.00 |  |                     | 324,229   |             |  |           | 3.6 |                     |  |           | 21.22 |  |  |  | 151,175   |  |  |   | 21.37 | 
|$25.01  $30.00 |  |                     | 173,975   |             |  |           | 1.6 |                     |  |           | 29.94 |  |  |  | 173,975   |  |  |   | 29.94 | 
|                |  |                     |           |             |  |           |     |                     |  |           |       |  |  |  |           |  |  |   |       | 
|                |  |                     | 2,394,552 |             |  |           | 3.4 |                     |  |           | 13.28 |  |  |  | 1,316,586 |  |  |   | 13.58 | 
|                |  |                     |           |             |  |           |     |                     |  |           |       |  |  |  |           |  |  |   |       | 



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

Pursuant to the terms of the Companys 1996
Employee Stock Purchase Plan (the Purchase Plan),
eligible employees are able to purchase shares of the
Companys common stock through a payroll deduction program.
The Company has reserved 0.6 million shares for issuance
pursuant to the Purchase Plan. Employees may have up to 25% of
their compensation withheld to purchase shares at a price equal
to 85% of the lower of the closing price on the first or last
day of each successive three month purchase period. As of
December 28, 2003, approximately 0.2 million shares
had been acquired pursuant to the Purchase Plan.

Pursuant to the terms of the Companys UK
Share Incentive Plan (the UK Plan), eligible
employees are able to purchase shares of the Companys
common stock through a payroll deduction program. The Company
has reserved 0.1 million shares for issuance pursuant to
the UK Plan. Employees may have up to 10% of their compensation
withheld to purchase shares of the Companys common stock
at the lower of fair market value at the beginning of the
accumulation period or the acquisition date, as defined in the
UK Plan. The Company will match 1 share for every
6 shares purchased in an accumulation period. Employees are
required to hold these matching shares for a period of at least
3 years.



|   |                                               
|-- | ----------------------------------------------
|8. | Convertible Senior Subordinated
    Debentures

On August 20, 2003, the Company issued
$130.0 million principal amount of the Debentures to
certain institutional investors. After expenses, the Company
received net proceeds of $126.1 million. Interest on the
Debentures is payable semi-annually on February 15th and
August 15th. The Debentures are convertible into shares of
Serologicals common stock at an initial rate of
67.6133 shares of common stock per $1,000 principal amount
of the Debentures (or approximately 8.8 million shares of
common stock at a conversion price of $14.79 per share of
common stock), subject to the satisfaction of certain
conditions, such as obtaining a trading price of $17.75 over 20
trading days over a period of 30 consecutive trading days
ending on the last trading day of the preceding fiscal quarter,
the Company calls the debentures for redemption, or upon the
occurrence of certain corporate transactions.

The Debentures may be redeemed, in whole or in
part, at the Companys option on or after August 22,
2008 at 100% of the principal amount. In addition, the holders
of the Debentures may require the Company to repurchase all or a
portion of the Debentures for 100% of the principal amount, plus
accrued interest, on August 15, 2008, August 15, 2010,
August 15, 2013, August 15, 2018, August 15,
2023, August 15, 2028, or at

F-23



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

any time prior to their maturity following a
fundamental change in the business, as defined in the Indenture
for the Debentures. For any Debentures that the holders require
the Company to repurchase, other than on August 15, 2008,
the Company may, at its option, pay the repurchase price in cash
or shares of the Companys common stock. The Company has
established a policy that all repurchases will be in cash. The
Debentures are unsecured obligations of the Company and are
subordinated to all of the Companys senior debt, including
any debt incurred under the new revolving credit facility
(Note 9).

On October 17, 2003, the Company entered
into an interest rate swap on $70.0 million principal
amount of the Debentures. The objective of the swap is to
convert the 4.75% fixed interest rate on this portion of the
Debentures to a variable interest rate based on the 6-month
LIBOR at the end of each interest period plus a spread of
66 basis points. The gain or loss from changes in the fair
value of the swap is expected to offset the gain or loss from
the changes in the fair value of the cash flows from the
Debentures throughout the expected life of the Debentures. At
December 28, 2003 the fair market value of the interest
rate swap was a receivable of $0.9 million. There was no
ineffectiveness recorded during 2003. This interest rate swap
was designated and qualified as a fair value hedge in accordance
with SFAS No. 133, Accounting for Derivative and
Hedging Activities and related interpretations and
amendments. The fair value of the interest rate swap was
included in Other assets in the accompanying
Consolidated Balance Sheets.



|   |                                                
|-- | -----------------------------------------------
|9. | Long Term Debt and Capital Lease
    Obligation

On August 29, 2003, the Company entered into
a new $30.0 million three-year revolving credit facility
(Revolver). The new Revolver bears interest at a
floating rate of interest determined by reference to a base rate
or to Eurodollar interest rates, plus a margin. The margin on
the Eurodollar interest rate ranges from 2.00% to 2.75% and the
margin on the base rate ranges from 1.00% to 1.75% based on the
Companys leverage ratio. The Company is required to pay a
commitment fee of .5% per annum on undrawn balances. The
Revolver is secured by substantially all of the assets of the
Company. The Revolver contains certain financial covenants that
require the maintenance of a minimum fixed charge coverage ratio
and earnings before interest, taxes, depreciation and
amortization and also provides for a maximum leverage ratio and
limitations on capital expenditures. Furthermore, under the
terms of the Revolver, there are restrictions on the
Companys ability to make acquisitions, repurchase common
stock and to pay dividends. As of December 28, 2003, there
were no amounts outstanding under the Revolver.

At closing of the Debentures
(Note 8) and the Revolver, the Company repaid the
balances in full and terminated its previous $82.5 million
term loan and $35.0 million revolving credit facility. The
Company also recorded a non-cash charge of approximately
$4.1 million related to the write-off of deferred financing
costs associated with the terminated facilities. Additionally,
during 2003 the Company recorded a charge of approximately
$0.4 million related to the write-off of deferred financing
costs related to the Companys revolving credit facility
that was in place prior to the $82.5 million term loan.

The Company has signed a letter of intent and
anticipates that it will lease $3.5 million of production
equipment at its new fractionation facility in Lawrence, Kansas
effective April 2004. The Company expects to account for this
transaction as a capital lease in accordance with
SFAS No. 13, Accounting for Leases. The
expected terms under this agreement are 24 monthly payments
of $0.2 million with a bargain buyout at the end of the
lease.

The Company made interest payments of
approximately $2.3 million, $0.4 million, and
$0.3 million during 2003, 2002 and 2001, respectively. The
Company capitalizes interest on borrowings during the active
construction period of major capital projects. The Company
capitalized approximately $0.5 million in connection
primarily with the construction of the new protein manufacturing
facility in Lawrence, Kansas in 2003 and various projects in
2002. The Company did not capitalize any interest in 2001.

F-24



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                              
|--- | -----------------------------
|10. | Commitments and Contingencies



| |                 
| | ----------------
| | Operating Leases

The Company leases office space, laboratory and
manufacturing facilities and laboratory and other equipment
under non-cancelable operating lease agreements. During 2003,
the Company entered into a sublease agreement for a vacated
laboratory facility. Future minimum annual rental obligations
and related sublease income under the non-cancelable portion of
operating leases as of December 28, 2003 were as follows
(in thousands):

|                    |  |            |        |          |  |   |     | 
|------------------- |  | ---------- | ------ | -------- |  | - | --- | 
|                    |  |            |        | Sublease
|                    |  | Obligation |        | Income  
|                    |  |            |        |         
|2004                |  | $          | 2,929  |          |  | $ | 99  | 
|2005                |  |            | 2,762  |          |  |   | 102 | 
|2006                |  |            | 2,555  |          |  |   | 105 | 
|2007                |  |            | 2,562  |          |  |   | 108 | 
|2008                |  |            | 2,402  |          |  |   | 111 | 
|2009 and thereafter |  |            | 9,967  |          |  |   | 76  | 
|                    |  |            |        |          |  |   |     | 
|                    |  | $          | 23,177 |          |  | $ | 601 | 
|                    |  |            |        |          |  |   |     | 

Rent expense was approximately $2.6 million,
$2.1 million and $1.3 million during 2003, 2002 and
2001, respectively. Sublease rental income was approximately
$0.1 million in 2003.



| |           
| | ----------
| | Litigation

The Company is involved in certain litigation
arising in the ordinary course of business. In managements
opinion, the ultimate resolution of these matters will not have
a material adverse effect on the Companys financial
position or results of operations.



| |                    
| | -------------------
| | Royalty Commitments

The Company has entered into various license
agreements whereby the Company may use certain characters and
properties in conjunction with its products. Such license
agreements call for royalties to be paid at 1% to 65% of net
sales with minimum guarantees and advance payments. Royalty
expense under these agreements, which is included in Cost
of sales in the accompanying Consolidated Statements of
Income, was $3.1 million in 2003 and immaterial in 2002 and
2001. Future annual minimum royalty commitments as of
December 28, 2003, are as follows:

|     |  |   |       | 
|---- |  | - | ----- | 
|2004 |  | $ | 955   | 
|2005 |  |   | 170   | 
|2006 |  |   | 80    | 
|     |  |   |       | 
|     |  | $ | 1,205 | 
|     |  |   |       | 



| |                                     
| | ------------------------------------
| | Major Capital Expenditure Commitment

At December 28, 2003, the Company had a
remaining commitment for expenditures of approximately
$8.5 million for construction and acquisition of property
and equipment at the Companys new protein fractionation
facility in Lawrence, Kansas, all of which are expected to be
incurred before the end of the second quarter of 2004.

F-25



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                          
| | -------------------------
| | Environmental Contingency

The Company is currently undertaking an
investigation of groundwater contamination at its
Kankakee, Illinois facility pursuant to the Illinois
Environmental Protection Agencys regulations. The Company
believes that it is reasonably possible that remediation maybe
required. Until the investigation is complete it is uncertain as
to the course and cost of remediation, if any, which maybe
required. The Company has given notice to the former owner of
the property of the Companys claim for indemnification for
costs of the investigation and any costs of remediation, should
remediation be required, under the terms of the purchase
agreement. Although the Company believes that it will be
indemnified for these costs, to some extent, the Company is
unable to predict whether it will recover any amounts from the
former owner with respect to these matters.



|    |                                                         
|--- | --------------------------------------------------------
|11. | Disclosure About Fair Value of Financial
    Instruments



| |                                                                     
| | --------------------------------------------------------------------
| | Cash Equivalents, Trade Accounts Receivable
    and Accounts Payable

The Company estimates that the fair value of cash
equivalents, trade accounts receivable and accounts payable
approximates carrying value due to the short maturity of these
instruments.



| |                                               
| | ----------------------------------------------
| | Convertible Senior Subordinated
    Debentures

The Company estimates that the fair value of the
Debentures is approximately $191.1 million at
December 28, 2003. The fair value of the Debentures was
estimated using the open market price for the Debentures on
December 28, 2003. The Debentures had a carrying amount of
$130.9 million at December 28, 2003.

Disclosure about the estimated fair value of
financial instruments is based on pertinent information
available to the Company as of December 28, 2003 and
December 29, 2002. Although the Company is not aware of any
factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the
periods presented and current estimates of fair value may differ
significantly from the amounts presented herein.



|    |             
|--- | ------------
|12. | Income Taxes

The income tax provision for the years ended
December 28, 2003, December 29, 2002 and
December 30, 2001 consisted of the following (in thousands):

|                     |                        |      |        |        |   |      |       |       |  |   |       |       | 
|-------------------- | ---------------------- | ---- | ------ | ------ | - | ---- | ----- | ----- |  | - | ----- | ----- | 
|                     |                        | 2003 |        | 2002   |   | 2001
|                     |                        |      |        |        |   |     
|Current:             |                        |      |        |        |   |      |       |       |  |   |       |      
|                     | U.S. federal and state |      | $      | 3,294  |   |      | $     | 208   |  |   | $     | 524   | 
|                     | Foreign                |      |        | 3,500  |   |      |       | 501   |  |   |       | 1,219 | 
|                     |                        |      |        |        |   |      |       |       |  |   |       |      
|                     |                        |      | 6,794  |        |   |      | 709   |       |  |   | 1,743 |      
|                     |                        |      |        |        |   |      |       |       |  |   |       |      
|Deferred:            |                        |      |        |        |   |      |       |       |  |   |       |      
|                     | U.S. federal and state |      |        | (1,090 | ) |      |       | 2,855 |  |   |       | 1,384 | 
|                     | Foreign                |      |        | (167   | ) |      |       | 53    |  |   |       | 253   | 
|                     |                        |      |        |        |   |      |       |       |  |   |       |      
|                     |                        |      | (1,257 | )      |   |      | 2,908 |       |  |   | 1,637 |      
|                     |                        |      |        |        |   |      |       |       |  |   |       |      
|Income tax provision |                        | $    | 5,537  |        |   | $    | 3,617 |       |  | $ | 3,380 |      
|                     |                        |      |        |        |   |      |       |       |  |   |       |      

F-26



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The income tax provision as reported in the
accompanying Consolidated Statements of Income differs from the
amounts computed by applying federal statutory rates due to the
following (in thousands):

|                                                          |  |      |        |      |  |      |       |   |  |   |       |  
|--------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                          |  | 2003 |        | 2002 |  | 2001
|                                                          |  |      |        |      |  |     
|Federal income taxes at statutory rate                    |  | $    | 6,161  |      |  | $    | 3,617 |   |  | $ | 3,361 |  
|State income taxes, net of federal income tax
    benefit |  |      |       |      |  |      | 149   |   |  |   | 375   |  
|Impact of foreign tax rates and credits                   |  |      | (1,108 | )    |  |      | (737  | ) |  |   | (768  | )
|Other                                                     |  |      | 484    |      |  |      | 588   |   |  |   | 412   |  
|                                                          |  |      |        |      |  |      |       |   |  |   |       |  
|                                                          |  | $    | 5,537  |      |  | $    | 3,617 |   |  | $ | 3,380 |  
|                                                          |  |      |        |      |  |      |       |   |  |   |       |  

Income from continuing operations before taxes
summarized by region for the years ended December 28, 2003,
December 29, 2002 and December 30, 2001 are as follows:

|              |  |      |        |      |  |      |        |  |  |   |       | 
|------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|              |  | 2003 |        | 2002 |  | 2001
|              |  |      |        |      |  |     
|United States |  | $    | 6,998  |      |  | $    | 8,751  |  |  | $ | 5,002 | 
|Foreign       |  |      | 10,606 |      |  |      | 1,586  |  |  |   | 4,600 | 
|              |  |      |        |      |  |      |        |  |  |   |       | 
|              |  | $    | 17,604 |      |  | $    | 10,337 |  |  | $ | 9,602 | 
|              |  |      |        |      |  |      |        |  |  |   |       | 

Deferred income tax assets and liabilities
reflect the impact of temporary differences between the amounts
of assets and liabilities for financial reporting and income tax
reporting purposes. Temporary differences which gave rise to
deferred tax assets and liabilities at December 28, 2003
and December 29, 2002, were as follows (in thousands):

|                           |                                         |      |         |         |   |   |        |        |  
|-------------------------- | --------------------------------------- | ---- | ------- | ------- | - | - | ------ | ------ | -
|                           |                                         | 2003 |         | 2002   
|                           |                                         |      |         |        
|Deferred tax assets:       |                                         |      |         |         |   |   |        |       
|                           | Accruals and reserves                   |      | $       | 2,527   |   |   | $      | 1,560  |  
|                           | Unearned compensation                   |      |         | 170     |   |   |        | 320    |  
|                           | Loss on sale of discontinued operations |      |         | 3,912   |   |   |        |       |  
|                           | Other                                   |      |         | 1,362   |   |   |        | 230    |  
|                           |                                         |      |         |         |   |   |        |       
|                           |                                         |      | 7,971   |         |   |   | 2,110  |       
|                           |                                         |      |         |         |   |   |        |       
|Deferred tax liabilities:  |                                         |      |         |         |   |   |        |       
|                           | Goodwill and intangible amortization    |      |         | (14,504 | ) |   |        | (2,408 | )
|                           | Excess tax depreciation                 |      |         | (1,675  | ) |   |        | (1,092 | )
|                           | Other                                   |      |         | (2,699  | ) |   |        | (616   | )
|                           |                                         |      |         |         |   |   |        |       
|                           |                                         |      | (18,879 | )       |   |   | (4,116 | )     
|                           |                                         |      |         |         |   |   |        |       
|Net deferred tax liability |                                         | $    | (10,907 | )       |   | $ | (2,006 | )     
|                           |                                         |      |         |         |   |   |        |       

The Company did not record any valuation
allowance against federal deferred tax assets at
December 28, 2003 and December 29, 2002 as it believes
it is more likely than not that the deferred tax assets will be
realizable through future taxable income. As of
December 28, 2003 and December 29, 2002, the Company
has state income tax net operating loss benefits worth
approximately $3.5 million and $1.8 million,
respectively, expiring in various amounts over the next
15 years. Due to the uncertainty over the ability to use
these net operating losses during the carry forward period, a
valuation allowance equal to 100% of the benefit was recorded at
December 28, 2003 and December 29, 2002.

The Company made income tax payments of
approximately $3.2 million, $5.6 million and
$5.5 million during 2003, 2002 and 2001, respectively. As
of December 28, 2003 the Company had an income tax payable

F-27



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##### Table of Contents



SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

of $2.7 million and at December 29,
2002, the Company had an income tax receivable of
$0.6 million. Income tax payable is included in
Accrued liabilities and income tax receivable is
included in Other current assets in the accompanying
Consolidated Balance Sheets.



|    |                                             
|--- | --------------------------------------------
|13. | Concentration of Customers and
    Suppliers

The Companys ten largest customers
accounted for approximately 45%, 54% and 58% of consolidated net
sales for the years ended December 28, 2003,
December 29, 2002 and December 30, 2001, respectively.
Customers making up greater than 10% of consolidated net sales
of the Company during such periods are as follows:

|                    |  |      |    |      |  |      |    |   |  |  |    |  
|------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                    |  | 2003 |    | 2002 |  | 2001
|                    |  |      |    |      |  |     
|Johnson & Johnson   |  |      | 17 | %    |  |      | 20 | % |  |  | 23 | %
|Eli Lilly & Company |  |      | *  |      |  |      | *  |   |  |  | 13 | %



---



|  |                                      
|- | -------------------------------------
|* | Less than 10% consolidated net sales.

At December 28, 2003 and December 29,
2002, the Companys 5 largest customers represented
46% and 53%, respectively, of the Companys accounts
receivable balance.

At December 28, 2003, the Company received
all of its bovine serum from a single abattoir in Illinois. The
Company has a long term agreement with the supplier pursuant to
which the Company is guaranteed certain minimum levels of serum.
Additionally, the contract provides the Company with certain
rights in the event of a change in control of this supplier.

At December 28, 2003, the Company purchases
all of its human recombinant insulin from Novo-Nordisk, under a
long term agreement which guarantees certain minimum levels of
insulin.



|    |                          
|--- | -------------------------
|14. | Employee Retirement Plans

The Company maintains a defined contribution
401(k) savings plan for all eligible employees. Under the plan,
the Company matches a specified percentage of each participating
employees compensation. Employees become immediately
vested in the Companys contributions as they are made. The
Companys contributions were $0.7 million,
$0.5 million and $0.3 million in 2003, 2002 and 2001,
respectively.



|    |                                   
|--- | ----------------------------------
|15. | Segment and Geographic Information

SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information defines
operating segments to be those components of a business for
which separate financial information is available that is
regularly evaluated by management in making operating decisions
and in assessing performance. SFAS No. 131 further
requires that the segment information presented be consistent
with the basis and manner in which management internally
disaggregates financial information for the purposes of
assisting in making internal operating decisions. Beginning in
2003, for management purposes the operations of the
Companys subsidiaries are organized into three primary
operating segments: Research Products (Research),
Cell Culture Products (Cell Culture) and Diagnostic
Products (Diagnostics). These segments are based
primarily on the differing production, manufacturing and other
value-added processes performed by the Company with respect to
the products and, to a lesser extent, the differing end use and
customer bases to which each reportable segment sells its
products. During 2002, the Company reported three operating
segments, Biotechnology and Molecular Biology Products,
Therapeutic Products and Diagnostic Products. The Therapeutic
Products segment was accounted for as discontinued operations in
2003 (Note 4). All of the comparisons discussed below
reflect the restatement of the prior year segments so that they
are consistent with the current year presentation.

F-28



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SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The activities of the Research segment primarily
include manufacturing and sales of reagents, cell-based assays,
antibodies and molecular biology products. The Cell Culture
segment products consist of cell culture media and supplements
for drug development, biomanufacturing and life science
research. The Companys most significant product within
this segment is EX-CYTE®. Other key products within the
Cell Culture segment include proprietary bovine serum albumin
(BSA), recombinant insulin and other products used
principally in mammalian cell culture. The key products within
the Diagnostic segment are monoclonal antibodies used in blood
typing reagents and diagnostic antibodies.

The Companys senior management utilizes
multiple forms of analysis of operating and financial data to
assess segment performance and to make operating decisions with
respect to the segments. While segment financial statements are
prepared on the same basis as the Companys consolidated
financial statements, the primary focus of senior management is
on sales and gross profit. The accounting policies of the
segments are the same as those described in the summary of
significant accounting policies (Note 2).

The Companys segment information for the
years ended December 28, 2003, December 29, 2002 and
December 30, 2001 is as follows (in thousands):

|                   |                                               |      |   |         |   |      |   |        |   |  |   |        |  
|------------------ | --------------------------------------------- | ---- | - | ------- | - | ---- | - | ------ | - |  | - | ------ | -
|                   |                                               | 2003 |   | 2002    |   | 2001
|                   |                                               |      |   |         |   |     
|Net sales:         |                                               |      |   |         |   |      |   |        |   |  |   |       
|                   | Research products                             |      | $ | 43,043  |   |      | $ | 4,137  |   |  | $ |       |  
|                   | Cell Culture products                         |      |   | 73,986  |   |      |   | 68,140 |   |  |   | 30,601 |  
|                   | Diagnostic products                           |      |   | 29,886  |   |      |   | 27,012 |   |  |   | 22,963 |  
|                   |                                               |      |   |         |   |      |   |        |   |  |   |       
|                   | Total                                         |      | $ | 146,915 |   |      | $ | 99,289 |   |  | $ | 53,564 |  
|                   |                                               |      |   |         |   |      |   |        |   |  |   |       
|Gross profit:      |                                               |      |   |         |   |      |   |        |   |  |   |       
|                   | Research products                             |      | $ | 26,677  |   |      | $ | 1,577  |   |  | $ |       |  
|                   | Cell Culture products                         |      |   | 38,621  |   |      |   | 37,083 |   |  |   | 17,358 |  
|                   | Diagnostic products                           |      |   | 15,942  |   |      |   | 13,553 |   |  |   | 13,328 |  
|                   |                                               |      |   |         |   |      |   |        |   |  |   |       
|                   | Total                                         |      |   | 81,240  |   |      |   | 52,213 |   |  |   | 30,686 |  
|Reconciling items: |                                               |      |   |         |   |      |   |        |   |  |   |       
|                   | Selling, general and administrative expenses  |      |   | 43,668  |   |      |   | 33,811 |   |  |   | 18,601 |  
|                   | Research and development                      |      |   | 6,214   |   |      |   | 5,628  |   |  |   | 1,665  |  
|                   | Amortization of intangibles                   |      |   | 2,175   |   |      |   | 895    |   |  |   | 1,013  |  
|                   | Special charges                               |      |   | 2,778   |   |      |   | 1,909  |   |  |   | 872    |  
|                   | Other expense, net                            |      |   | 180     |   |      |   | 31     |   |  |   | 72     |  
|                   | Write-off of deferred financing costs         |      |   | 4,492   |   |      |   |       |   |  |   |       |  
|                   | Interest expense                              |      |   | 4,384   |   |      |   | 239    |   |  |   | 512    |  
|                   | Interest income                               |      |   | (255    | ) |      |   | (637   | ) |  |   | (1,651 | )
|                   |                                               |      |   |         |   |      |   |        |   |  |   |       
|                   | Income from continuing operations, before tax |      | $ | 17,604  |   |      | $ | 10,337 |   |  | $ | 9,602  |  
|                   |                                               |      |   |         |   |      |   |        |   |  |   |       

The Company does not currently segregate assets
by segment as a significant portion of the Companys total
assets are shared or non-segmented assets which the Company does
not assign to its three operating segments.

Geographic Information

The Company markets its products and services to
numerous countries worldwide and has operations in the United
States, Canada, the United Kingdom and Australia. Other than in
the United States, the Company

F-29



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SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

does not conduct business in any one country in
which its sales in that country are more than 10% of the
Companys consolidated net sales. However, the majority of
the Companys remaining foreign sales are to Western
Europe. Net sales are attributed to regions based on the country
to which the Company ships its products, which can differ from
their ultimate destination. The composition of the
Companys net sales to unaffiliated customers between those
in the United States and other foreign locations and of the
Companys long-lived assets for the years ended
December 28, 2003, December 29, 2002 and
December 30, 2001 are set forth below (in thousands):

|                                     |                |      |         |         |  |      |        |        |  |   |        |        | 
|------------------------------------ | -------------- | ---- | ------- | ------- |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                     |                | 2003 |         | 2002    |  | 2001
|                                     |                |      |         |         |  |     
|Net sales to unaffiliated customers: |                |      |         |         |  |      |        |        |  |   |        |       
|                                     | United States  |      | $       | 93,523  |  |      | $      | 45,266 |  |   | $      | 27,766 | 
|                                     | Other foreign  |      |         | 53,392  |  |      |        | 54,023 |  |   |        | 25,798 | 
|                                     |                |      |         |         |  |      |        |        |  |   |        |       
|                                     |                | $    | 146,915 |         |  | $    | 99,289 |        |  | $ | 53,564 |       
|                                     |                |      |         |         |  |      |        |        |  |   |        |       
|Long-lived assets:                   |                |      |         |         |  |      |        |        |  |   |        |       
|                                     | United States  |      | $       | 191,040 |  |      | $      | 69,682 |  |   | $      | 63,787 | 
|                                     | Canada         |      |         | 17,166  |  |      |        | 15,454 |  |   |        | 12,996 | 
|                                     | United Kingdom |      |         | 9,317   |  |      |        | 8,490  |  |   |        | 6,347  | 
|                                     | Australia      |      |         | 525     |  |      |        |       |  |   |        |       | 
|                                     |                |      |         |         |  |      |        |        |  |   |        |       
|                                     |                | $    | 218,048 |         |  | $    | 93,626 |        |  | $ | 83,130 |       
|                                     |                |      |         |         |  |      |        |        |  |   |        |       



|    |                                                
|--- | -----------------------------------------------
|16. | Quarterly Results of Operations
    (Unaudited)

The quarterly results of operations for the years
ended December 28, 2003 and December 29, 2002,
respectively, are as follows (in thousands, except per share
amounts):

|                                      |  |       |        |        |  |       |        |        |  |   |        |   |  |   |        |  
|------------------------------------- |  | ----- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------ | - |  | - | ------ | -
|                                      |  | First |        | Second |  | Third |        | Fourth
|                                      |  |       |        |        |  |       |        |       
|2003                                  |  |       |        |        |  |       |        |        |  |   |        |   |  |   |        |  
|Net sales                             |  | $     | 21,983 |        |  | $     | 36,562 |        |  | $ | 42,010 |   |  | $ | 46,360 |  
|Gross profit                          |  |       | 11,769 |        |  |       | 20,148 |        |  |   | 23,296 |   |  |   | 26,027 |  
|Special charges (Note 5)              |  |       | 181    |        |  |       | 2,093  |        |  |   | 504    |   |  |   |       |  
|Net income from continuing operations |  |       | 1,920  |        |  |       | 1,737  |        |  |   | 1,394  |   |  |   | 7,016  |  
|Discontinued operations               |  |       | 102    |        |  |       | (606   | )      |  |   | (7,930 | ) |  |   | (2,127 | )
|Net income                            |  |       | 2,022  |        |  |       | 1,131  |        |  |   | (6,536 | ) |  |   | 4,889  |  
|Basic net income per share(1)         |  |       | 0.08   |        |  |       | 0.05   |        |  |   | (0.26  | ) |  |   | 0.20   |  
|Diluted net income per share(1)       |  |       | 0.08   |        |  |       | 0.05   |        |  |   | (0.26  | ) |  |   | 0.19   |  

F-30



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SEROLOGICALS CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                      |  |       |        |        |  |       |        |        |  |   |        |  |  |   |        | 
|------------------------------------- |  | ----- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------ |  |  | - | ------ | 
|                                      |  | First |        | Second |  | Third |        | Fourth
|                                      |  |       |        |        |  |       |        |       
|2002                                  |  |       |        |        |  |       |        |        |  |   |        |  |  |   |        | 
|Net sales                             |  | $     | 22,901 |        |  | $     | 24,984 |        |  | $ | 23,726 |  |  | $ | 27,678 | 
|Gross profit                          |  |       | 11,933 |        |  |       | 13,581 |        |  |   | 12,633 |  |  |   | 14,066 | 
|Special charges (Note 5)              |  |       |       |        |  |       |       |        |  |   |       |  |  |   | 1,909  | 
|Net income from continuing operations |  |       | 1,228  |        |  |       | 2,121  |        |  |   | 2,078  |  |  |   | 1,293  | 
|Discontinued operations               |  |       | 1,480  |        |  |       | 1,661  |        |  |   | 1,203  |  |  |   | 2,885  | 
|Net income                            |  |       | 2,708  |        |  |       | 3,782  |        |  |   | 3,281  |  |  |   | 4,178  | 
|Basic net income per share(1)         |  |       | 0.11   |        |  |       | 0.16   |        |  |   | 0.14   |  |  |   | 0.17   | 
|Diluted net income per share(1)       |  |       | 0.11   |        |  |       | 0.15   |        |  |   | 0.13   |  |  |   | 0.17   | 



---



|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Basic and diluted earnings per share are computed
    independently for each of the quarters presented. As such, the
    summation of the quarterly amounts may not equal the total basic
    and diluted earnings per share reported for the year.

F-31



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SEROLOGICALS CORPORATION

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

An analysis of the allowance for doubtful
accounts and warranty reserve for the three fiscal years ended
December 28, 2003 is as follows (in thousands):

|                                |  |              |       |            |  |          |     |            |  |           |     |     |  |   |      |   |  |   |       | 
|------------------------------- |  | ------------ | ----- | ---------- |  | -------- | --- | ---------- |  | --------- | --- | --- |  | - | ---- | - |  | - | ----- | 
|                                |  | Balance at   |       | Charged to |  | Charged  |     |            |  | Balance  
|                                |  | Beginning of |       | Costs and  |  | to Other |     |            |  | at End of
|                                |  | Period       |       | Expenses   |  | Accounts |     | Deductions |  | Period   
|                                |  |              |       |            |  |          |     |            |  |          
|Allowance for Doubtful Accounts |  |              |       |            |  |          |     |            |  |           |     |     |  |   |      |   |  |   |       | 
|Year Ended December 28, 2003    |  | $            | 954   |            |  | $        | 497 |            |  | $         | 500 | (a) |  | $ | (737 | ) |  | $ | 1,214 | 
|Year Ended December 29, 2002    |  |              | 1,186 |            |  |          | 131 | (b)        |  |           |    |     |  |   | (363 | ) |  |   | 954   | 
|Year Ended December 30, 2001    |  |              | 458   |            |  |          | 14  |            |  |           | 714 | (c) |  |   |     |   |  |   | 1,186 | 

|                             |  |              |     |            |  |          |       |            |  |           |     |     |  |   |        |   |  |   |     | 
|---------------------------- |  | ------------ | --- | ---------- |  | -------- | ----- | ---------- |  | --------- | --- | --- |  | - | ------ | - |  | - | --- | 
|                             |  | Balance at   |     |            |  | Charged  |       |            |  | Balance  
|                             |  | Beginning of |     | Charged to |  | to Other |       |            |  | at End of
|                             |  | Period       |     | Net Sales  |  | Accounts |       | Deductions |  | Period   
|                             |  |              |     |            |  |          |       |            |  |          
|Warranty Reserve             |  |              |     |            |  |          |       |            |  |           |     |     |  |   |        |   |  |   |     | 
|Year Ended December 28, 2003 |  | $            | 227 |            |  | $        | 2,353 |            |  | $         | 114 | (a) |  | $ | (2,208 | ) |  | $ | 486 | 
|Year Ended December 29, 2002 |  |              | 137 |            |  |          | 1,247 |            |  |           |    |     |  |   | (1,157 | ) |  |   | 227 | 
|Year Ended December 30, 2001 |  |              |    |            |  |          | 691   |            |  |           |    |     |  |   | (554   | ) |  |   | 137 | 



---



|    |  |                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Reserve established upon purchase of Chemicon
    effective April 1, 2003.                                                              
|   
|(b) |  | Included in this amount is the reversal of
    $0.4 million of allowance established upon purchase of
    Intergen on December 13, 2001.
|   
|(c) |  | Allowance established upon purchase of Intergen
    on December 13, 2001.                                                               



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SEROLOGICALS CORPORATION