##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, DC 20549




---

FORM 10-K/A

(Amendment No. 1)


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(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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Explanatory Note

This amendment on Form 10-K/ A (this
Amendment) to our Annual Report on Form 10-K
for the fiscal year ended December 28, 2003 (the
Original Filing) is being filed (i) to refile
in its entirety Part I 
Item 1.  Business of the Original Filing
to conform the Special Note Regarding Forward-Looking
Statements and the Cautionary Statements
disclosure contained therein to the corresponding disclosure set
forth in our Registration Statement on Form S-3 (Commission
File No. 333-113953) and to revise the discussion of
patents on one of our products set forth under the caption
Overview of Operations; (ii) to refile in its
entirety Part II.  Item 7. 
Managements Discussion and Analysis of Financial Condition
and Results of Operations to amend the disclosure
contained under Critical Accounting Policies 
Inventory and to amend the disclosure related to a
take-or-pay contract under the caption Results of
Operations; and (iii) to refile in its entirety
Part IV.  Item 15.  Exhibits,
Financial Statements and Reports on Form 8-K to provide
updated certifications of our President and Chief Executive
Officer and Vice President, Finance and Chief Financial Officer.
This Amendment does not amend any other information previously
filed in the Original Filing, including our consolidated
statements of income, balance sheets, statements of cash flow,
or statements of stockholders equity. The Original Filing
is hereby superseded and amended with respect to the sections
set forth in this filing.

TABLE OF CONTENTS

|                                 |  |                                                                                           |  |   
|-------------------------------- |  | ----------------------------------------------------------------------------------------- |  | --
|PART I.                          |  |                                                                                           |  |   
|Item 1.                          |  | Business                                                                                  |  | 3 
|PART II.                         |  |                                                                                          
|Item 7.                          |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  | 21
|PART IV.                         |  |                                                                                          
|Item 15.                         |  | Exhibits, Financial
    Statements and Reports on Form 8-K                                |  | 37
|SIGNATURE                        |  | 42                                                                                       
|EX-31.3 302 CERTIFICATION OF CEO
|EX-31.4 302 CERTIFICATION OF CFO
|EX-32.3 906 CERTIFICATION OF CEO
|EX-32.4 906 CERTIFICATION OF 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 validation of the new
    Bio-Process manufacturing facility during 2004;                                                                                                                                               
|
| |  | 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;                                                                                                                                                 
|
| |  | fluctuations in foreign currency exchange
    rates;                                                                                                                                                                                            
|
| |  | 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.                                                                                         

2



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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.                                                                                                                                                                                                                                                                                                                                                                                                                

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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 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
manufacturing process for EX-CYTE® is patented.
Serologicals has also received a patent on a proprietary
purification process used in the manufacture of EX-CYTE®.
The process inactivates infectious prions, which are the cause
of mad cow disease. 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.

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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.

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.

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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 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

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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.

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

7



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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
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.

8



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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.

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%.

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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 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

10



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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.


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.

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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 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

12



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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, 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 risk 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

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could seriously harm our business and financial
results. In such case, the trading price of our securities could
decline.


If we are unable to implement our growth
strategy, the price of our common stock may be adversely
affected.

Our growth 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. However, we cannot guarantee that we
will continue to expand successfully or that growth or expansion
will result in continued profitability. Our ability to implement
our growth strategy will depend upon a variety of factors that
are not entirely within our control, 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.                                                                                       

Our growth strategy includes growth by
acquisitions. We compete for acquisition opportunities with
companies that have significantly greater financial resources
than we have. Therefore, there is a risk that we may be unable
to complete an acquisition that we believe could be important to
our growth strategy because one of our competitors may be
willing to pay more for a potential acquisition candidate or may
be able to use its financial resources to acquire a potential
acquisition candidate before we are able to obtain financing.

If we implement our growth strategy but are
unable to manage our growth, our sales and profitability might
be adversely affected.

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. If we are unable to manage our growth,
the price of our common stock may be adversely affected.

We may not be able to raise the additional
capital necessary to implement our growth
strategy.

Our growth strategy requires that we make
expenditures in connection with new products and the acquisition
of other companies. During fiscal 2004, we expect that our
expenditures in connection with our growth strategy will be
approximately $12 million to $15 million. Although we
believe we have sufficient resources to finance the expected
fiscal 2004 expenditures in connection with our growth strategy,
if our actual expenditures exceed our estimates, we may be
required to seek additional sources of financing, which may
include issuing additional debt or equity securities during the
next year to finance potential acquisitions.

We cannot predict the amount of our expenditures
in connection with our growth strategy in years after fiscal
2004 because opportunities for implementing our growth strategy
arise unexpectedly. This is particularly the case for
acquisition opportunities. In the past, when an acquisition
opportunity arose, we were required to obtain financing
simultaneously with our attempt to negotiate the terms of the
acquisition. Our dependence on additional financing may place us
at a disadvantage in competing for acquisitions. When a future
acquisition opportunity arises, we will be required to evaluate
the sources of financing and the terms of the financing

14



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available at the time. If we cannot find
financing on acceptable terms, we may be unable to make the
acquisition.


Our competitors may increase the sales of
their products in a way that results in decreased sales of our
products and our loss of market share.

The markets for many of our products,
particularly our research products, are very competitive and
price sensitive. The following companies are our most
significant competitors:



| |   |                                      
| | - | -------------------------------------
| |  | Amersham plc                         
|
| |  | Apogent Technologies, Inc.           
|
| |  | Beckman Coulter, Inc.                
|
| |  | Bio-Rad Laboratories, Inc.           
|
| |  | Cambrex Corporation                  
|
| |  | CSL Limited                          
|
| |  | Fisher Scientific International, Inc.
|
| |  | Invitrogen Corporation               
|
| |  | Merck KgaA                           
|
| |  | Millipore Corporation                
|
| |  | Qiagen N.V.                          
|
| |  | Sigma-Aldrich Corp                   
|
| |  | Techne Corporation                   

Some of our competitors have significant
financial, operational, sales and marketing resources, and
significant experience in research and development. Our
competitors may develop new technologies that compete with our
products or 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 prospectus, which could have an adverse
effect on our financial condition.

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.

We intend to compete in our industry by
leveraging and expanding upon the business and operational
structure that we put in place during the past twelve months.
Among other things, we intend to leverage our expanded sales and
marketing structure, to expand our investment in research and
development and to continue to evaluate acquisitions of
businesses and technologies that will further accelerate our
growth in both revenue and profitability. However, we cannot
assure you that our plans will be successful and that we will be
able to maintain or increase our market share.

If our supply of bovine serum or human
recombinant insulin is interrupted or if the price of such
materials increases and we are unable to pass the increases to
our customers, our cell culture business would be materially
adversely affected.

Our cell culture business relies on the continued
availability of bovine serum, which is the raw material from
which our EX-CYTE® product is derived and which is a
component used in the manufacture of other cell culture
products, and of human recombinant insulin, which we distribute
to our cell-culture-product

15



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customers. The availability and price of bovine
serum has been affected by scares or outbreaks of disease or
similar health concerns or perceptions about the safety of
bovine serum, government regulation and trade restrictions. Cows
afflicted with bovine spongiform encephalopathy
(BSE, commonly referred to as mad cow
disease) were recently discovered in Canada and the
northwestern United States. These animals were the first known
cases of mad cow disease in North America. The discovery of mad
cow disease 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 close our Canadian
manufacturing facility for a period of time and 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.


We now obtain all the bovine serum we use to
manufacture our cell culture products from a single privately
held abattoir located in Illinois. If we are unable to obtain
bovine serum from our existing supplier because of a future
outbreak of BSE, we will contact other suppliers and attempt to
find a source of supply in one of the few countries that is
believed to be free from BSE. We have not arranged a source of
supply from a source in one of such countries and do not know
that we will be able to do so. If we cannot find another source,
our cell culture products business will be materially adversely
affected.

We obtain the human recombinant insulin that we
distribute to our cell-culture-supplement customers from
Novo-Nordisk A/ S, a company based in Denmark. We recently
entered into a three-year contract with this supplier. We do not
have an alternate source of supply for human recombinant
insulin. We do not believe that we could readily obtain another
source of human recombinant insulin, if our supply from
Novo-Nordisk A/ S were interrupted. If our supply were
interrupted, our cell culture business and our results of
operations would be materially adversely affected.

Our EX-CYTE® product sales are driven
by market demand for therapeutic drugs that we do not
manufacture or sell. If such drugs are not commercially
successful, the companies that manufacture them will not
purchase EX-CYTE®, and our results of operations may be
materially adversely affected.

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.

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 also must be
approved by the FDA and/or similar governmental bodies in other
countries. Our facilities are also subject to periodic
inspection by the FDA and other similar governmental bodies to
ensure their compliance with applicable laws and regulations.
Failure to comply with these laws and regulations can lead to
sanctions by the governmental bodies, 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. In the past, we have received notifications and
warning letters from the FDA relating to deficiencies in our
compliance with FDA requirements. We were required to take
measures to respond to the deficiencies. There can be no
assurance that the FDA will not request that we take additional
steps to correct these deficiencies or other deficiencies in
compliance raised by the FDA in the future. Correction of the
deficiencies could have a material adverse affect on our
business.

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

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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. In this regard, during
2002 and 2003 we experienced a delay in demonstrating to our
customers satisfaction that our Toronto manufacturing
facility complied with their QSR requirements. This delay
resulted in lost sales and increased costs during fiscal 2002
and 2003. We are beginning the process of demonstrating QSR
compliance of our new manufacturing facility in Lawrence,
Kansas, to our customers. Delays in their acceptance of our
plant could cause lost sales and increased costs.


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.

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 are not able to identify new
licensing opportunities or to enter into licenses for new
products on acceptable terms, we may be unable to offer new
products, which would adversely affect our results of
operations.

A component of our business strategy is to
increase the number of products we offer by licensing products
developed by other biotechnology companies or academic research
laboratories. We attempt to market such products to our
customers. Often, we attempt to improve the licensed products
using our technologies. Therefore, we depend on the success of
our licensing efforts for a portion of our new products. There
can be no assurance that our licensing efforts will be
successful.

We license technology that enables us to access
proprietary biological materials that we use to manufacture our
products. Some of the licenses do not provide guarantees that we
will have all legal rights to sell products that are derived
from the licensed technology. Therefore, we may be prevented
from selling products produced with the licensed biological
materials because of competing technologies owned by others,
including patented technologies. If our products are found by a
court to infringe intellectual property rights of a third party,
we may be prevented from practicing that technology. 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.

In the ordinary course of business we receive
notices alleging that one or more of our approximately 7,000
research products violates a patent or other intellectual
property right. Although we have not in the past incurred
material liabilities as a result of infringement claims with
respect to our research products, we have

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no assurance that we will not incur material
liability as a result of an infringement claim in the future,
which could materially adversely affect our results of
operations.


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.

If we do not protect our intellectual
property, our business could be materially adversely
affected.

Many of our current products are not protected by
patents that we own or license. We attempt to protect these
products by maintaining our intellectual property related to
them as trade secrets. 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.

We own approximately 60 patents and have
approximately 24 patent applications pending, most of which
relate to our research products business. Our issued patents
expire beginning in May 2004 through October 2020. Several of
our patents are on EX-CYTE®, which is our most important
cell culture product. We have also obtained a federal trademark
registration on the name of the product. One patent on the
process used to make EX-CYTE® expires in October 2006 in
the United States and in April 2006 in Europe and Japan. Other
patents associated with the process for making EX-CYTE®
expire in 2012 and beyond. After the expiration of our process
patents on EX-CYTE®, other companies could produce products
similar to EX-CYTE® using our process. If other companies
did so, sales of EX-CYTE® could be materially adversely
affected. We believe that our intellectual property protection
with respect to EX-CYTE® is material to our business. We do
not believe that any of our other patents is material to our
business.

We have approximately 400 licenses from others
and we have approximately 100 licenses to others. Most of our
licenses from others relate to our research products business.
The licenses from others typically cover patents or biological
materials, such as cell lines, that we use to develop new
products. Most of them are for fixed terms with options for
renewal. No single license is material to our business.

In the ordinary course of business we receive
notices alleging that one or more of our products may violate
the intellectual property rights of others. Although we have not
in the past incurred material liabilities as a result of such
infringement claims, we have no assurance that we will not incur
material liability as a result of an infringement claim in the
future, which could materially adversely affect our business.

All of our current employees are required to sign
confidentiality and non-disclosure agreements. The agreements
restrict the ability of our employees to disclose proprietary
company data without our prior permission. We enforce these
agreements when appropriate. However, if one of our current or
former employees discloses proprietary company data in violation
of these agreements, our business could be materially adversely
affected.

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

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 have not attempted to mitigate the risk of fluctuations in
currency exchange rates by entering into hedging financial
arrangements. We have not entered into foreign exchange hedging
financial arrangements because the foreign sales of our research
products segment, which are frequently in foreign currencies,
tend to offset the U.S. sales of our diagnostics segment,
which are frequently denominated in U.S. dollars.
Therefore, we believe that the risk to our results of operations
posed by fluctuations in foreign exchange rates does not
currently warrant a hedging arrangement.

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.

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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.                                                             

Compliance with environmental laws and
regulations could adversely affect our results of
operations.

We are subject to environmental laws and
regulations governing the use of materials and chemicals used in
our business. We use many chemicals that are classified as
hazardous substances in our manufacturing operations, including
organic solvents. We believe that our safety and environmental
policies for handling and disposing of such materials comply
with standards prescribed by state and federal agencies. There
is a risk, however, that we might accidentally release a
hazardous substance into the environment. In addition, we cannot
assure you that laws, rules and regulations or enforcement
policies that are more restrictive than those with which we now
comply will not be adopted in the future. If so, we would be
required to change our compliance programs, which could make
compliance more expensive or otherwise adversely affect our
results of operations.

The market price of our stock could be
volatile.

The market price of our common stock has been
subject to volatility. During 2002, the price of a share of our
common stock ranged from $7.32 to $22.00. During 2003, the price
ranged from $7.68 to $18.50. During the first quarter of 2004,
the price of a share of our common stock ranged from $14.34 to
$21.17. 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.

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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. Investors who require
dividend income should not invest in our common stock. An
investment in our common stock will provide a return only if you
are able to sell our common stock for more than you paid for it.
We cannot guarantee that the price of our stock will increase.
Stock prices are inherently unpredictable.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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

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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 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

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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
methods 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. Management is not aware of any instances where its
previous estimates or assumptions, which were used to determine
the net realizable value of inventory at December 28, 2003
and December 29, 2002, materially varied from actual
results. Management does not expect its estimates or assumptions
to change in the future.

Gross inventories at December 28, 2003 and
December 29, 2002, were $39.6 million and
$24.1 million, respectively. Inventories are presented on
the balance sheet net of adjustments for excess, obsolete and
unsalable inventory of $5.8 million and $4.6 million
at December 28, 2003 and December 29, 2002,
respectively.

The following table sets forth a roll forward of
the inventory adjustments for the years ended December 28,
2003, December 29, 2002 and December 30, 2001 (in
millions):

|                      |                   |              |   |            |  |            |   |                 |  |            |   |               |     |  |   |      |   |  |   |      |   |  |   |     | 
|--------------------- | ----------------- | ------------ | - | ---------- |  | ---------- | - | --------------- |  | ---------- | - | ------------- | --- |  | - | ---- | - |  | - | ---- | - |  | - | --- | 
|                      |                   | Balance at   |   | Charged to |  |            |   | Foreign         |  |            |   |              
|                      |                   | Beginning of |   | Costs and  |  | Charged to |   | Currency Effect |  |            |   | Balance at   
|                      |                   | Period       |   | Expenses   |  | Goodwill   |   | on Transaction  |  | Deductions |   | End of Period
|                      |                   |              |   |            |  |            |   |                 |  |            |   |              
|Inventory Adjustments |                   |              |   |            |  |            |   |                 |  |            |   |               |     |  |   |      |   |  |   |      |   |  |   |    
|Year Ended:           |                   |              |   |            |  |            |   |                 |  |            |   |               |     |  |   |      |   |  |   |      |   |  |   |    
|                      | December 28, 2003 |              | $ | 4.6        |  |            | $ | 3.0             |  |            | $ | 1.6           | (a) |  | $ | (0.3 | ) |  | $ | (3.1 | ) |  | $ | 5.8 | 
|                      | December 29, 2002 |              |   | 2.9        |  |            |   | 1.8             |  |            |   | 3.0           | (b) |  |   |     |   |  |   | (3.1 | ) |  |   | 4.6 | 
|                      | December 30, 2001 |              |   | 2.2        |  |            |   | 1.2             |  |            |   | 1.1           | (b) |  |   | (0.5 | ) |  |   | (1.1 | ) |  |   | 2.9 | 



---



|    |  |                                                                                         
|--- |  | ----------------------------------------------------------------------------------------
|(a) |  | Adjustment established upon purchase of Chemicon
    effective April 1, 2003.           
|   
|(b) |  | Adjustment established as a result of the
    purchase of Intergen on December 13, 2001.

These estimates may prove to be inaccurate, in
which case the Company may have overstated or understated the
adjustment required for excess, obsolete or unsaleable inventory
and its cost of goods sold, accordingly.

At December 28, 2003, inventory adjustments
determined on specific identification, age of inventory and
excess supply represented 45%, 39%, 7%, respectively, of the
inventory adjustment balance. The following table presents the
sensitivity analysis on the inventory adjustment at
December 28, 2003 adjusted for the items that are age
sensitive and potentially in excess supply assuming the age and
forecast were expanded by increasing the time periods by 25% or
reduced by decreasing the time periods by 25%, which management
considers to be an extreme case scenario. Adjustments for
inventory evaluated under the specific identification method can
not be evaluated for sensitivity. Amounts in the table are in
millions.

|                     |  |             |     |                |  |                  |     |  |  |   |     | 
|-------------------- |  | ----------- | --- | -------------- |  | ---------------- | --- |  |  | - | --- | 
|                     |  | As Reported |     | Reduced by 25% |  | Increased by 25%
|                     |  |             |     |                |  |                 
|Inventory adjustment |  | $           | 5.8 |                |  | $                | 5.1 |  |  | $ | 7.0 | 

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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 | % 
|              |                       |        |        |        |  |        |    |      |   |        |        |        |  |  |    |    |   |   |        |        |  |  |    |   

In the fourth quarter of 2003, the Company
recorded $3.5 million in revenue in the Cell Culture
Products segment arising from a take or pay contract for
EX-CYTE® with a major customer without having to deliver
any product. Accordingly, total and Cell Culture Product net
sales, gross profit and operating income in 2003 were favorably
impacted by $3.5 million. The Company was able to reduce
production of EX-CYTE® in the fourth quarter of 2003 in
anticipation of this event and therefore it had no impact on
inventory on hand. The customer does not have any minimum
commitment to take additional delivery of EX-CYTE® in 2004
and the Company does not expect any revenue under the take or
pay provision in 2004. The Company does not expect EX-CYTE®
revenues in the future to be materially impacted by changes in
volume under this contract.

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

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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.

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. Sales of
EX-CYTE® in 2003 included $3.5 million in revenue from
a take or pay contract with a major customer as more fully
described in Results of Operations above.

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.

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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 as more fully described
in Results of Operations above. Neither party has
any continuing obligations under the take or pay provision in
2004. Gross margins for Cell Culture would have been 51% if 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

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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 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.

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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.

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.

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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®.

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

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$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.

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.

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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.

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

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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.

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

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|    |                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 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 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

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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.

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.

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| |               
| | --------------
| | 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.

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.

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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 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.




PART IV.






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



|       |                     
|------ | --------------------
|(a)(1) | Financial Statements

See (a)(1) Financial Statements on
page 41 of the Original Filing



|       |                              
|------ | -----------------------------
|(a)(2) | Financial Statement Schedules

See (a)(2) on page 41 of the Original
Filing.



|    |                    
|--- | -------------------
|(b) | Reports on Form 8-K

See (b) on page 41 of the Original
Filing.

37



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##### Table of Contents





|    |         
|--- | --------
|(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)                                                                                                                                                                                                            
| | 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).                                                                                                                                                                                                                                
| | 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.*                                                                                                                                                                                                                                                                                                                                                                 

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##### Table of Contents



| |    |       |  |                                                                                                                                                                                                                                                   
| | -- | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.*                                                        
| | 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.*                                                                                                                          
| | 31 | .3    |  | Certification Pursuant to Rule 13a-14(a), as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.**                                                                                                                         

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##### Table of Contents



| |    |    |  |                                                                                                                                                             
| | -- | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 31 | .4 |  | 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.* 
| | 32 | .3 |  | 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 | .4 |  | 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 with the Original Filing



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



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

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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 June 3, 2004.



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



| |     |                      
| | --- | ---------------------
| | By: | /s/ HAROLD W. INGALLS

| |                                                        
| | -------------------------------------------------------
| |                                                        
| | Harold W. Ingalls                                      
| | Vice President, Finance and Chief Financial
    Officer

42