##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

|           |  |                                                                                          |  | 
|---------- |  | ---------------------------------------------------------------------------------------- |  | 
|(Mark One) |  |                                                                                          |  | 
|x          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  |  | 
|           |  |                                                                                          |  | 
|           |  | For the quarterly period ended June 29, 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                                              |  | 30092                                  
|(Address of principal
executive offices)                       |  | (Zip Code)                             

(678) 728-2000
(Registrants Telephone Number Including Area Code)

Indicate by check 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 o   No o

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

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date:

|                                       |  |                              
|-------------------------------------- |  | -----------------------------
|Class                                  |  | Outstanding at August 7, 2003
|                                       |  |                              
|Common Stock, $.01 par value per share |  | 24,562,142                   





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##### 



INDEX

SEROLOGICALS CORPORATION AND SUBSIDIARIES

|                                                                                              |                                                                                                                  |  |    |   | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- |  | -- | - | 
|PART I                                                                                        |                                                                                                                  |  |    |  
|Item 1. Financial Statements                                                                  |                                                                                                                  |  |    |  
|                                                                                              | Unaudited Consolidated Balance Sheets -
June 29, 2003 and December 29, 2002                                      |  |    | 3 | 
|                                                                                              | Unaudited Consolidated Statements of Income -
For the three and six months ended June 29, 2003 and June 30, 2002 |  |    | 4 | 
|                                                                                              | Unaudited Consolidated Statements of Cash Flows -
For the six months ended June 29, 2003 and June 30, 2002       |  |    | 5 | 
|                                                                                              | Unaudited Notes to Consolidated Financial Statements                                                             |  |    | 6 | 
|Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                                  |  | 16 |  
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                                  |  | 29 |  
|Item 4. Controls and Procedures                                                               |                                                                                                                  |  | 29 |  
|                                                                                              |                                                                                                                  |  |    |  
|PART II                                                                                       |                                                                                                                  |  |    |  
|Item 1. Legal Proceedings                                                                     |                                                                                                                  |  | 30 |  
|Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                  |  | 30 |  
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                  |  | 31 |  
|SIGNATURES                                                                                    |                                                                                                                  |  | 32 |  





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##### 



PART I.

Item 1. Financial Statements

SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)

|                                                                      |                                                                    |                            |                                            |         |          |         |              |         |         |         | 
|--------------------------------------------------------------------- | ------------------------------------------------------------------ | -------------------------- | ------------------------------------------ | ------- | -------- | ------- | ------------ | ------- | ------- | ------- | 
|                                                                      |                                                                    |                            |                                            |         | June 29, |         | December 29,
|                                                                      |                                                                    |                            |                                            |         | 2003     |         | 2002        
|                                                                      |                                                                    |                            |                                            |         |          |         |             
|ASSETS                                                               
|CURRENT ASSETS:                                                       |                                                                    |                            |                                            |         |          |         |              |        
|                                                                      | Cash and cash equivalents                                          |                            | $                                          | 4,957   |          |         | $            | 12,850  |        
|                                                                      | Trade accounts receivable, net                                     |                            |                                            | 33,759  |          |         |              | 35,868  |        
|                                                                      | Inventories                                                        |                            |                                            | 38,614  |          |         |              | 26,305  |        
|                                                                      | Other current assets                                               |                            |                                            | 8,305   |          |         |              | 6,692   |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|                                                                      |                                                                    | Total current assets       |                                            |         | 85,635   |         |              |         | 81,715  |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|PROPERTY AND EQUIPMENT, net                                           |                                                                    |                            | 65,798                                     |         |          |         | 55,461       |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|OTHER ASSETS:                                                         |                                                                    |                            |                                            |         |          |         |              |        
|                                                                      | Goodwill                                                           |                            |                                            | 101,744 |          |         |              | 39,226  |        
|                                                                      | Intangible assets, net                                             |                            |                                            | 51,197  |          |         |              | 14,212  |        
|                                                                      | Other, net                                                         |                            |                                            | 670     |          |         |              | 551     |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|                                                                      |                                                                    | Total other assets         |                                            |         | 153,611  |         |              |         | 53,989  |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|                                                                      |                                                                    |                            | Total assets                               |         | $        | 305,044 |              |         | $       | 191,165 | 
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                 
|CURRENT LIABILITIES:                                                  |                                                                    |                            |                                            |         |          |         |              |        
|                                                                      | Current maturities of long-term debt and capital lease obligations |                            | $                                          | 1,871   |          |         | $            | 385     |        
|                                                                      | Accounts payable                                                   |                            |                                            | 3,972   |          |         |              | 5,361   |        
|                                                                      | Accrued liabilities                                                |                            |                                            | 17,246  |          |         |              | 10,501  |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|                                                                      |                                                                    | Total current liabilities  |                                            |         | 23,089   |         |              |         | 16,247  |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current
maturities |                                                                    |                            | 87,536                                     |         |          |         | 39           |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|DEFERRED INCOME TAXES                                                 |                                                                    |                            | 17,211                                     |         |          |         | 4,116        |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|OTHER LIABILITIES                                                     |                                                                    |                            | 407                                        |         |          |         | 393          |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|STOCKHOLDERS EQUITY:                                                 |                                                                    |                            |                                            |         |          |         |              |        
|                                                                      | Preferred stock                                                    |                            |                                            |        |          |         |              |        |        
|                                                                      | Common stock                                                       |                            |                                            | 278     |          |         |              | 277     |        
|                                                                      | Additional paid-in capital                                         |                            |                                            | 118,709 |          |         |              | 118,116 |        
|                                                                      | Retained earnings                                                  |                            |                                            | 75,365  |          |         |              | 72,211  |        
|                                                                      | Accumulated other comprehensive income                             |                            |                                            | 2,796   |          |         |              | 113     |        
|                                                                      | Less: Common stock held in treasury                                |                            |                                            | (20,347 | )        |         |              | (20,347 | )      
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|                                                                      |                                                                    | Total stockholders equity |                                            |         | 176,801  |         |              |         | 170,370 |        
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        
|                                                                      |                                                                    |                            | Total liabilities and stockholders equity |         | $        | 305,044 |              |         | $       | 191,165 | 
|                                                                      |                                                                    |                            |                                            |         |          |         |              |        

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

3



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##### 



SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except share and per share data)

|                             |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |            |  
|---------------------------- | -------------------------------------------- | - | ------------------ | ---------- | ---------------- | - | -------- | ---------- | -------- | - | ------ | ---------- |  | - | ------ | ---------- | -
|                             |                                              |   | Three Months Ended |            | Six Months Ended
|                             |                                              |   |                    |            |                 
|                             |                                              |   | June 29,           |            | June 30,         |   | June 29, |            | June 30,
|                             |                                              |   | 2003               |            | 2002             |   | 2003     |            | 2002    
|                             |                                              |   |                    |            |                  |   |          |            |         
|Net sales                    |                                              | $ | 43,924             |            |                  | $ | 37,292   |            |          | $ | 74,092 |            |  | $ | 68,763 |           
|Costs and expenses:          |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           
|                             | Cost of sales                                |   |                    | 23,334     |                  |   |          | 18,672     |          |   |        | 39,783     |  |   |        | 34,660     |  
|                             | Selling, general and administrative
expenses |   |                    | 12,286     |                  |   |          | 10,163     |          |   |        | 20,152     |  |   |        | 20,381     |  
|                             | Research and development                     |   |                    | 1,944      |                  |   |          | 1,380      |          |   |        | 2,970      |  |   |        | 2,376      |  
|                             | Amortization of intangibles                  |   |                    | 685        |                  |   |          | 233        |          |   |        | 931        |  |   |        | 476        |  
|                             | Special charges, net                         |   |                    | 2,234      |                  |   |          | 1,309      |          |   |        | 3,573      |  |   |        | 1,309      |  
|                             |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           
|Operating income             |                                              |   | 3,441              |            |                  |   | 5,535    |            |          |   | 6,683  |            |  |   | 9,561  |           
|                             | Other expense, net                           |   |                    | 193        |                  |   |          | 99         |          |   |        | 262        |  |   |        | 35         |  
|                             | Interest expense (income), net               |   |                    | 1,495      |                  |   |          | (382       | )        |   |        | 1,557      |  |   |        | (458       | )
|                             |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           
|Income before income taxes   |                                              |   | 1,753              |            |                  |   | 5,818    |            |          |   | 4,864  |            |  |   | 9,984  |           
|Provision for income taxes   |                                              |   | 622                |            |                  |   | 2,036    |            |          |   | 1,711  |            |  |   | 3,494  |           
|                             |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           
|Net income                   |                                              | $ | 1,131              |            |                  | $ | 3,782    |            |          | $ | 3,153  |            |  | $ | 6,490  |           
|                             |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           
|Net income per common share: |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           
|                             | Basic                                        |   | $                  | 0.05       |                  |   | $        | 0.16       |          |   | $      | 0.13       |  |   | $      | 0.27       |  
|                             |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           
|                             | Diluted                                      |   | $                  | 0.05       |                  |   | $        | 0.15       |          |   | $      | 0.13       |  |   | $      | 0.26       |  
|                             |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           
|Weighted average shares:     |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           
|                             | Basic                                        |   |                    | 24,485,369 |                  |   |          | 24,339,675 |          |   |        | 24,469,451 |  |   |        | 24,303,005 |  
|                             |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           
|                             | Diluted                                      |   |                    | 24,847,669 |                  |   |          | 24,921,293 |          |   |        | 24,807,618 |  |   |        | 24,872,093 |  
|                             |                                              |   |                    |            |                  |   |          |            |          |   |        |            |  |   |        |           

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

4



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##### 



SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |          |   |        |        |  
|------------------------------------------------- | ----------------------------------------------------------------------------------- | - | ------------------------------ | --------------------------------------------------- | - | ---------------- | -------- | -------- | - | ------ | ------ | -
|                                                  |                                                                                     |   |                                |                                                     |   | Six Months Ended
|                                                  |                                                                                     |   |                                |                                                     |   |                 
|                                                  |                                                                                     |   |                                |                                                     |   | June 29,         |          | June 30,
|                                                  |                                                                                     |   |                                |                                                     |   | 2003             |          | 2002    
|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |         
|Operating activities:                             |                                                                                     |   |                                |                                                     |   |                  |          |         
|                                                  | Net income                                                                          |   | $                              | 3,153                                               |   |                  | $        | 6,490    |  
|                                                  | Adjustments to reconcile net income to net cash provided
by operating activities:  
|                                                  | Depreciation and amortization                                                       |   | $                              | 4,895                                               |   |                  | $        | 3,328    |  
|                                                  | Loss on disposal of assets                                                          |   |                                | 115                                                 |   |                  |          |         |  
|                                                  | Tax benefit from exercise of stock options                                          |   |                                | 86                                                  |   |                  |          | 746      |  
|                                                  | Non-cash special charges                                                            |   |                                | 2,509                                               |   |                  |          | 532      |  
|                                                  | Deferred and other compensation                                                     |   |                                | 38                                                  |   |                  |          | 117      |  
|                                                  | Changes in operating assets and liabilities, net of effect
of business combination: |   |                                |                                                     |   |                  |          |          |  
|                                                  |                                                                                     |   | Trade accounts receivable, net |                                                     |   | 7,040            |          |          |   | (3,010 | )     
|                                                  |                                                                                     |   | Inventories                    |                                                     |   | (6,080           | )        |          |   | (2,811 | )     
|                                                  |                                                                                     |   | Income tax receivable          |                                                     |   | (398             | )        |          |   | 1,843  |       
|                                                  |                                                                                     |   | Other assets                   |                                                     |   | 43               |          |          |   | (3,175 | )     
|                                                  |                                                                                     |   | Accounts payable               |                                                     |   | (2,770           | )        |          |   | (342   | )     
|                                                  |                                                                                     |   | Accrued liabilities            |                                                     |   | 1,966            |          |          |   | (3,152 | )     
|                                                  |                                                                                     |   | Deferred revenue               |                                                     |   | (557             | )        |          |   | 1,187  |       
|                                                  |                                                                                     |   | Other, net                     |                                                     |   | 762              |          |          |   | 873    |       
|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |          |  
|                                                  |                                                                                     |   | Total adjustments              |                                                     |   | 7,648            |          |          |   | (3,864 | )     
|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |          |  
|                                                  |                                                                                     |   |                                | Net cash provided by operating activities           |   |                  | 10,802   |          |   |        | 2,626  |  
|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |          |  
|Investing activities:                             |                                                                                     |   |                                |                                                     |   |                  |          |         
|                                                  | Purchases of property and equipment                                                 |   |                                | (6,641                                              | ) |                  |          | (6,406   | )
|                                                  | Purchase of business, net of cash received                                          |   |                                | (97,097                                             | ) |                  |          |         |  
|                                                  | Other                                                                               |   |                                |                                                    |   |                  |          | (189     | )
|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |          |  
|                                                  |                                                                                     |   |                                | Net cash used in investing activities               |   |                  | (103,738 | )        |   |        | (6,595 | )
|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |          |  
|Financing activities:                             |                                                                                     |   |                                |                                                     |   |                  |          |         
|                                                  | Proceeds from term loan and revolving credit facility                               |   |                                | 88,500                                              |   |                  |          |         |  
|                                                  | Payments on long-term debt and capital leases                                       |   |                                | (378                                                | ) |                  |          | (3,935   | )
|                                                  | Proceeds from stock plans                                                           |   |                                | 470                                                 |   |                  |          | 2,101    |  
|                                                  | Payment of debt issuance costs                                                      |   |                                | (4,413                                              | ) |                  |          |         |  
|                                                  | Other                                                                               |   |                                | 864                                                 |   |                  |          | (347     | )
|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |          |  
|                                                  |                                                                                     |   |                                | Net cash provided by (used in) financing activities |   |                  | 85,043   |          |   |        | (2,181 | )
|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |          |  
|Net decrease in cash and cash equivalents         |                                                                                     |   | (7,893                         | )                                                   |   |                  | (6,150   | )       
|Cash and cash equivalents, beginning of period    |                                                                                     |   | 12,850                         |                                                     |   |                  | 10,780   |         
|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |          |  
|Cash and cash equivalents, end of period          |                                                                                     | $ | 4,957                          |                                                     |   | $                | 4,630    |         
|                                                  |                                                                                     |   |                                |                                                     |   |                  |          |          |  
|Supplemental Disclosures:                         |                                                                                     |   |                                |                                                     |   |                  |          |         
|Interest paid, net of amounts capitalized         |                                                                                     | $ | 534                            |                                                     |   | $                |         |         
|Income taxes paid                                 |                                                                                     | $ | 1,711                          |                                                     |   | $                | 2,777    |         
|Non-Cash Investing and Financing Activities:      |                                                                                     |   |                                |                                                     |   |                  |          |         
|Contingent consideration payable                  |                                                                                     | $ |                               |                                                     |   | $                | 327      |         
|Stock acquired by employees in lieu of cash bonus |                                                                                     | $ | 138                            |                                                     |   | $                | 212      |         

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

5



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##### 



SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 2003
(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Serologicals
Corporation, a Delaware corporation, (together with its
subsidiaries, The Company or Serologicals) is
a global provider of biological products and enabling technologies to
life science companies. 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
operations have historically been organized into four primary
operating segments: cell culture products, diagnostic products,
research products and therapeutic plasma 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.

We
manufacture our cell culture and diagnostics products in facilities
located in North America and Europe. 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 tissue culture media components that are
used primarily by biopharmaceutical and biotechnology companies as
nutrient additives in cell culture media. We manufacture monoclonal
antibodies in our Scotland facility which is 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 product distribution
facility, as well as operations related to our human-sourced
polyclonal antibody business and production of substrates for use in
diagnostic assays.

We
conduct the operations of our research segment primarily through
Chemicon, which we acquired in April 2003 for $95.0 million in
cash, plus assumed liabilities and direct costs related to the
transaction. Chemicon provides a broad range of specialty reagents,
kits, antibodies and molecular biology tools to biotechnology,
pharmaceutical and academic research customers working in the areas
of neuroscience, infectious disease, drug discovery, cancer research,
stem cell research and proteomics. Chemicon is also a leading
supplier of monoclonal antibodies, conjugates, antibody blends and
kits for use in the diagnostic laboratory. Chemicon, headquartered in
Temecula, California, has manufacturing and distribution operations
in Temecula, California, Australia and the United Kingdom. Chemicon
will operate as a stand alone division of the company, and will be
reported in our research products segment.

The Company conducts its therapeutic
products segment (or blood plasma operations) through a national
network of 10 donor centers that specialize in the collection of
hyper-immune human antibodies. As noted in Note 6, we have announced our intention to
exit the therapeutic plasma business.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the
accounts of Serologicals and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
accompanying statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments, which are of a normal recurring nature, to
present fairly Serologicals financial position, results of operations and cash
flows at the dates and for the periods presented. Interim results of
operations are not necessarily indicative of results to be expected for the
full year. The interim financial statements should be read in conjunction with
the audited consolidated financial statements as of December 29, 2002 and the
notes thereto included in the Companys Annual Report on Form 10-K for the year
ended December 29, 2002, as amended in Form 8-K filed on August 8, 2003.

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

6



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##### 



Inventories

Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis. Market for work-in-process and
finished goods inventories is net realizable value and for raw materials is
replacement cost. The components of inventories are stated as follows (in
thousands):

|                |       |   |          |        |              |   |        |        | 
|--------------- | ----- | - | -------- | ------ | ------------ | - | ------ | ------ | 
|                |       |   | June 29, |        | December 29,
|                |       |   | 2003     |        | 2002        
|                |       |   |          |        |             
|Raw materials   |       | $ | 10,529   |        |              | $ | 4,167  |       
|Work in process |       |   | 8,754    |        |              |   | 4,132  |       
|Finished goods  |       |   | 19,331   |        |              |   | 18,006 |       
|                |       |   |          |        |              |   |        |       
|                | Total |   | $        | 38,614 |              |   | $      | 26,305 | 
|                |       |   |          |        |              |   |        |       

Earnings Per Share

Basic earnings per share are calculated by dividing net income by the
weighted average number of common shares outstanding during the period. The
calculation of diluted earnings per share is similar to basic earnings per
share, except the weighted average number of shares includes the dilutive
effect of stock options and similar instruments.

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

|                            |                                                                                     |                            |   |                    |      |                  |   |          |      |          |   |        |      |  |   |        |      | 
|--------------------------- | ----------------------------------------------------------------------------------- | -------------------------- | - | ------------------ | ---- | ---------------- | - | -------- | ---- | -------- | - | ------ | ---- |  | - | ------ | ---- | 
|                            |                                                                                     |                            |   | Three Months Ended |      | Six Months Ended
|                            |                                                                                     |                            |   |                    |      |                 
|                            |                                                                                     |                            |   | June 29,           |      | June 30,         |   | June 29, |      | June 30,
|                            |                                                                                     |                            |   | 2003               |      | 2002             |   | 2003     |      | 2002    
|                            |                                                                                     |                            |   |                    |      |                  |   |          |      |         
|Basic earnings per share:   |                                                                                     |                            |   |                    |      |                  |   |          |      |          |   |        |      |  |   |       
|                            | Net income                                                                          |                            | $ | 1,131              |      |                  | $ | 3,782    |      |          | $ | 3,153  |      |  | $ | 6,490  |     
|                            | Weighted average shares of common stock outstanding                                 |                            |   | 24,485             |      |                  |   | 24,340   |      |          |   | 24,469 |      |  |   | 24,303 |     
|                            |                                                                                     |                            |   |                    |      |                  |   |          |      |          |   |        |      |  |   |       
|                            |                                                                                     | Net income per share       |   | $                  | 0.05 |                  |   | $        | 0.16 |          |   | $      | 0.13 |  |   | $      | 0.27 | 
|                            |                                                                                     |                            |   |                    |      |                  |   |          |      |          |   |        |      |  |   |       
|Diluted earnings per share: |                                                                                     |                            |   |                    |      |                  |   |          |      |          |   |        |      |  |   |       
|                            | Net income                                                                          |                            | $ | 1,131              |      |                  | $ | 3,782    |      |          | $ | 3,153  |      |  | $ | 6,490  |     
|                            | Weighted average shares of common stock outstanding                                 |                            |   | 24,485             |      |                  |   | 24,340   |      |          |   | 24,469 |      |  |   | 24,303 |     
|                            | Effect of dilutive securities:                                                      |                            |   |                    |      |                  |   |          |      |          |   |        |      |  |   |        |     
|                            |                                                                                     | Stock options and warrants |   |                    | 344  |                  |   |          | 567  |          |   |        | 321  |  |   |        | 556  | 
|                            |                                                                                     | Common stock awards        |   |                    | 19   |                  |   |          | 14   |          |   |        | 18   |  |   |        | 13   | 
|                            |                                                                                     |                            |   |                    |      |                  |   |          |      |          |   |        |      |  |   |       
|                            | Weighted average shares of common stock outstanding,
including dilutive instruments |                            |   | 24,848             |      |                  |   | 24,921   |      |          |   | 24,808 |      |  |   | 24,872 |     
|                            |                                                                                     |                            |   |                    |      |                  |   |          |      |          |   |        |      |  |   |       
|                            |                                                                                     | Net income per share       |   | $                  | 0.05 |                  |   | $        | 0.15 |          |   | $      | 0.13 |  |   | $      | 0.26 | 
|                            |                                                                                     |                            |   |                    |      |                  |   |          |      |          |   |        |      |  |   |       

The following shares issuable under stock option agreements were excluded
from the calculation of dilutive earnings per share for the periods indicated
as the option price exceeded the average market price for the Companys stock
and thus their effect would have been anti-dilutive (in thousands):

|                   |       |                  |  |          |  |          |  |       |  |  |  |     | 
|------------------ | ----- | ---------------- |  | -------- |  | -------- |  | ----- |  |  |  | --- | 
|Three Months Ended |       | Six Months Ended
|                   |       |                 
|June 29,           |       | June 30,         |  | June 29, |  | June 30,
|2003               |       | 2002             |  | 2003     |  | 2002    
|                   |       |                  |  |          |  |         
|                   | 1,433 |                  |  | 571      |  |          |  | 1,347 |  |  |  | 472 | 
|                   |       |                  |  |          |  |          |  |       |  |  |  |    

7



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##### 



Stock-Based Compensation Plan

At June 29, 2003, the Company has one stock-based employee compensation
plan. The Company accounts for this plan under the recognition and measurement
principles of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. No stock-based
employee compensation cost is reflected in net income, as all options granted
under this plan had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation (in thousands, except per share amounts):

|                                                                                                                                            |                     |   |                    |      |                  |   |          |      |          |   |       |      |  |   |       |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | - | ------------------ | ---- | ---------------- | - | -------- | ---- | -------- | - | ----- | ---- |  | - | ----- | ---- | 
|                                                                                                                                            |                     |   | Three Months Ended |      | Six Months Ended
|                                                                                                                                            |                     |   |                    |      |                 
|                                                                                                                                            |                     |   | June 29,           |      | June 30,         |   | June 29, |      | June 30,
|                                                                                                                                            |                     |   | 2003               |      | 2002             |   | 2003     |      | 2002    
|                                                                                                                                            |                     |   |                    |      |                  |   |          |      |         
|Net income, as reported                                                                                                                     |                     | $ | 1,131              |      |                  | $ | 3,782    |      |          | $ | 3,153 |      |  | $ | 6,490 |     
|Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method for
all awards, net of
related tax effects |                     |   | 621                |      |                  |   | 280      |      |          |   | 1,242 |      |  |   | 560   |     
|                                                                                                                                            |                     |   |                    |      |                  |   |          |      |          |   |       |      |  |   |       |     
|Pro forma net income                                                                                                                        |                     | $ | 510                |      |                  | $ | 3,502    |      |          | $ | 1,911 |      |  | $ | 5,930 |     
|                                                                                                                                            |                     |   |                    |      |                  |   |          |      |          |   |       |      |  |   |       |     
|Earnings per share:                                                                                                                         |                     |   |                    |      |                  |   |          |      |          |   |       |      |  |   |       |     
|                                                                                                                                            | Basic-as reported   |   | $                  | 0.05 |                  |   | $        | 0.16 |          |   | $     | 0.13 |  |   | $     | 0.27 | 
|                                                                                                                                            | Basic pro forma    |   |                    | 0.02 |                  |   |          | 0.14 |          |   |       | 0.08 |  |   |       | 0.24 | 
|                                                                                                                                            | Diluted-as reported |   | $                  | 0.05 |                  |   | $        | 0.15 |          |   | $     | 0.13 |  |   | $     | 0.26 | 
|                                                                                                                                            | Diluted-pro forma   |   |                    | 0.02 |                  |   |          | 0.14 |          |   |       | 0.08 |  |   |       | 0.24 | 

Under SFAS No. 123, the fair value of stock-based awards is calculated
through the use of option-pricing models, even though such models were
developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which differ significantly from the
Companys stock option grants. These models also require subjective
assumptions, including future stock price volatility and expected lives of each
option grant.

Comprehensive Income

The following table sets forth the calculation of comprehensive income for
the periods indicated below (in thousands):

|                                           |                                          |   |                    |       |                  |   |          |       |          |   |       |       |  |   |       |       | 
|------------------------------------------ | ---------------------------------------- | - | ------------------ | ----- | ---------------- | - | -------- | ----- | -------- | - | ----- | ----- |  | - | ----- | ----- | 
|                                           |                                          |   | Three Months Ended |       | Six Months Ended
|                                           |                                          |   |                    |       |                 
|                                           |                                          |   | June 29,           |       | June 30,         |   | June 29, |       | June 30,
|                                           |                                          |   | 2003               |       | 2002             |   | 2003     |       | 2002    
|                                           |                                          |   |                    |       |                  |   |          |       |         
|Net income, as reported                    |                                          | $ | 1,131              |       |                  | $ | 3,782    |       |          | $ | 3,153 |       |  | $ | 6,490 |      
|Add: other comprehensive loss, net of tax: |                                          |   |                    |       |                  |   |          |       |          |   |       |       |  |   |       |      
|                                           | Foreign currency translation adjustments |   |                    | 2,043 |                  |   |          | 1,252 |          |   |       | 2,683 |  |   |       | 1,048 | 
|                                           |                                          |   |                    |       |                  |   |          |       |          |   |       |       |  |   |       |      
|Comprehensive income                       |                                          | $ | 3,174              |       |                  | $ | 5,034    |       |          | $ | 5,836 |       |  | $ | 7,538 |      
|                                           |                                          |   |                    |       |                  |   |          |       |          |   |       |       |  |   |       |      

8



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##### 



Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB 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
subordinated financial support from other parties. FIN 46 is effective
immediately for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The adoption of this
standard did not have any impact on the Companys financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment to Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. SFAS No. 149 is applied prospectively and is effective for contracts
entered into or modified after June 30, 2003, except for SFAS No. 133
implementation issues that have been effective for fiscal quarters that began
prior to June 15, 2003 and certain provisions relating to forward purchases and
sales on securities that do not yet exist. The adoption of this standard did
not have any impact on the Companys financial statements.

During May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity. SFAS
150 is effective for financial instruments entered into or modified after May
31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The Company anticipates that there will
be no impact on its consolidated financial statements upon the
adoption of SFAS 150.

2. ACQUISITION

Acquisition of Chemicon

Effective April 1, 2003, Serologicals completed the acquisition of 100% of
the common stock of Chemicon International, Inc. (Chemicon), a
privately-owned company based in Temecula, California. Chemicon has
manufacturing, distribution and research and development operations in
Temecula, California, Australia and the United Kingdom. Chemicon provides a
broad range of specialty reagents, kits, antibodies and molecular biology tools
to biotechnology, pharmaceutical and academic research customers working in the
areas of neuroscience, infectious disease, drug discovery, cancer research,
stem cell research and proteomics. Chemicon is also a leading supplier of
monoclonal antibodies, conjugates, antibody blends and kits for use in the
diagnostic laboratory. The acquisition of Chemicon greatly expanded the
Companys range of products and customers within the research market. The
purchase price of $95.0 million in cash was funded with the proceeds from an
$82.5 million five-year term loan and cash on hand. The results of operations
of Chemicon are included in the Companys financial statements beginning April
1, 2003.

9



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The Company preliminarily allocated the purchase price to the fair value
of identifiable long-lived assets and intangibles based on an independent third
party appraisal. This allocation has not been finalized. Management expects
to finalize the allocation by the end of the fourth quarter of 2003. None of
the goodwill related to the acquisition of Chemicon is expected to be
deductible for tax purposes. Chemicon is included in the research products
segment. The preliminary purchase price allocation resulted in the following
long-term asset classifications (in thousands):

|                           |  |                 |        |                       |  |            |  | 
|-------------------------- |  | --------------- | ------ | --------------------- |  | ---------- |  | 
|Asset Description          |  | Estimated Value |        | Weighted Average Life
|                           |  |                 |        |                      
|Developed products         |  | $               | 24,000 |                       |  | 18.6 years
|Trademarks and trade names |  |                 | 9,000  |                       |  | Indefinite
|Information database       |  |                 | 600    |                       |  | 10 years  
|Customer relationships     |  |                 | 500    |                       |  | 5 years   
|Distributor relationships  |  |                 | 200    |                       |  | 5 years   
|Goodwill                   |  |                 | 62,518 |                       |  | Indefinite

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

In conjunction with the business combination, the Company is evaluating
the consolidation of certain components of Chemicons operations. Any costs
incurred related to a restructuring resulting from this effort will be included
in the purchase price of Chemicon in accordance with Emerging Issues Task Force
(EITF) 95-3, Recognition of Liabilities in Connection with a Purchase
Business Combination. These costs may include termination benefits,
relocation costs, asset impairments and lease commitments. The Company expects
to complete its evaluation by the end of fiscal year 2003.

The following table summarizes the results of Serologicals on a pro forma
basis for the three and six months ended June 29, 2003 and June 30, 2002 as if
the acquisition of Chemicon had occurred at the beginning of each
period. The pro forma results exclude certain
expenses totaling approximately $0.4 million that were recorded by Chemicon as
a result of the acquisition. These costs primarily include professional and
other fees paid as a direct result of the transaction. These results do not
purport to represent what the results of operations for Serologicals would have
actually been or to be indicative of the future results of operations of
Serologicals (in thousands, except per share amounts).

|                             |  |                    |        |                  |  |          |        |          |  |   |        |  |  |   |        | 
|---------------------------- |  | ------------------ | ------ | ---------------- |  | -------- | ------ | -------- |  | - | ------ |  |  | - | ------ | 
|                             |  | Three Months Ended |        | Six Months Ended
|                             |  |                    |        |                 
|                             |  | June 29,           |        | June 30,         |  | June 29, |        | June 30,
|                             |  | 2003               |        | 2002             |  | 2003     |        | 2002    
|                             |  |                    |        |                  |  |          |        |         
|Revenue                      |  | $                  | 43,924 |                  |  | $        | 47,247 |          |  | $ | 85,242 |  |  | $ | 88,556 | 
|Net income                   |  |                    | 1,131  |                  |  |          | 3,297  |          |  |   | 2,973  |  |  |   | 5,748  | 
|Net income per common share: |  |                    |        |                  |  |          |        |          |  |   |        |  |  |   |        | 
|Basic                        |  | $                  | 0.05   |                  |  | $        | 0.14   |          |  | $ | 0.12   |  |  | $ | 0.24   | 
|Diluted                      |  |                    | 0.05   |                  |  |          | 0.13   |          |  |   | 0.12   |  |  |   | 0.23   | 

3. SPECIAL CHARGES

During the second quarter of 2003, the Company approved a plan to transfer
the responsibility for manufacturing and distribution of research products from
Gaithersburg, Maryland to the Chemicon division. This transfer is expected to
provide a more competitive focus for the manufacturing, sales and distribution
of these products and is anticipated to be complete by the end of the third
quarter of 2003. In addition, during the quarter, the Company continued to
review its infrastructure to ensure the staffing is optimal to focus on the
primary growth areas related to the Companys strategic plan. As a result of
these efforts, including its ongoing

10



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product rationalization initiatives, the Company reduced its workforce at
various locations including the Gaithersburg facility, the Kankakee facility,
the Milford facility and the corporate office. As a result of these
restructurings, the Company recorded $1.3 million in special charges in the
accompanying consolidated statement of income. The components of the special
charge included approximately $0.4 million for employee severance, $0.8 million
related to the impairment of certain long-lived assets at Gaithersburg,
Maryland and $0.1 million related to other restructuring costs. Employee
termination costs are expected to be paid by the end of 2004. The Company
estimates that the cost to complete the relocation of manufacturing and
distribution of research products from Gaithersburg, Maryland, which will be
expensed in the second half of 2003, will be approximately $0.2 to $0.3
million, primarily related to severance costs, moving and lease obligations.

During the second quarter of 2003, the Company also incurred $0.9 million
resulting from the Bovine Spongiform Encephalopathy (BSE) or mad-cow
disease scare in Canada. This charge included costs associated with writing
off certain inventory that had been sourced from Canadian raw materials and the
cost of shutting down and cleaning a section of the Toronto manufacturing
facility to prepare for the switchover to U.S.-sourced raw materials. Prior to
the announcement that a single cow had tested positive for BSE, the Company
procured certain bovine raw materials from Canadian sources. As a result of
this issue, and after discussions with customers, the Company began sourcing
all bovine raw materials used in the Toronto facility from the United States.
The Toronto plant was partially shutdown for approximately one month during the
quarter for cleaning and sterilization. Additionally, certain inventory that
was manufactured in Canada and scheduled to be shipped to international
customers was delayed by foreign governments. The United States Department of
Agriculture ban on Canadian imports of bovine materials prevented the transfer
of products from Toronto to our distribution facility in Massachusetts for part
of the quarter.

During the first quarter of 2003, the Company closed three of its thirteen
donor centers, located in Birmingham, Alabama; Washington, D.C.; and Provo,
Utah. The donor base for the Provo center was integrated into the Companys
Salt Lake City, Utah center. As a result of these closings, the Company
recorded a charge of $0.8 million. The components of the charge included
approximately $0.3 million for employee termination costs, $0.3 million for
lease termination costs and $0.2 million related to write-off of certain
long-lived assets. Employee termination costs related to the center closings
and lease termination costs are expected to be paid by the end of 2003. The
employee termination costs also includes employees terminated at the
Companys central testing laboratory.

During the first quarter of 2003, the Company also incurred special
charges of approximately $0.5 million. Subsequent to notifying the lender of
our intent to terminate our then existing credit facility, the Company recorded
a charge of approximately $0.4 million related to the write-off of debt
issuance costs. Additionally, the Company recorded a charge of $0.1 million
related to a loss associated with an equipment failure at the Toronto facility
and other termination costs. These termination benefits were paid in full
during the second quarter 2003.

During the second quarter of 2002, the Company recorded a charge totaling
approximately $1.3 million related to the closure of four of its donor centers.
The decision to close the centers resulted from an extensive evaluation of the
operations of the Therapeutics business segment. The charge consisted of
severance payments, costs associated with lease obligations at the four
centers, write-offs of certain assets, including leasehold improvements and
equipment, and intangible assets related to the centers, such as FDA licenses
and non-compete agreements.

11



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

|                      |  |                    |       |                  |  |          |       |          |  |   |       |  |  |   |       | 
|--------------------- |  | ------------------ | ----- | ---------------- |  | -------- | ----- | -------- |  | - | ----- |  |  | - | ----- | 
|                      |  | Three Months Ended |       | Six Months Ended
|                      |  |                    |       |                 
|                      |  | June 29,           |       | June 30,         |  | June 29, |       | June 30,
|                      |  | 2003               |       | 2002             |  | 2003     |       | 2002    
|                      |  |                    |       |                  |  |          |       |         
|Research products     |  | $                  | 899   |                  |  | $        |      |          |  | $ | 899   |  |  | $ |      | 
|Cell culture products |  |                    | 1,032 |                  |  |          |      |          |  |   | 1,186 |  |  |   |      | 
|Diagnostic products   |  |                    | 58    |                  |  |          |      |          |  |   | 116   |  |  |   |      | 
|Therapeutic products  |  |                    | 141   |                  |  |          | 1,309 |          |  |   | 920   |  |  |   | 1,309 | 
|Corporate             |  |                    | 104   |                  |  |          |      |          |  |   | 452   |  |  |   |      | 
|                      |  |                    |       |                  |  |          |       |          |  |   |       |  |  |   |       | 
|                      |  | $                  | 2,234 |                  |  | $        | 1,309 |          |  | $ | 3,573 |  |  | $ | 1,309 | 
|                      |  |                    |       |                  |  |          |       |          |  |   |       |  |  |   |       | 

The following table summarizes the activity in the accrual for termination
benefits and other costs for the six months ended June 29, 2003 (in thousands):

|                           |  |          |       |          |  |      |       |           |  |         |        |          |  |   |        |   |  |   |     | 
|-------------------------- |  | -------- | ----- | -------- |  | ---- | ----- | --------- |  | ------- | ------ | -------- |  | - | ------ | - |  | - | --- | 
|                           |  | Balance, |       |          |  |      |       | Cash      |  | Noncash |        | Balance,
|Description                |  | 12/29/02 |       | Expenses |  | Paid |       | Writeoffs |  | 6/29/03
|                           |  |          |       |          |  |      |       |           |  |        
|Employee termination costs |  | $        | 1,026 |          |  | $    | 719   |           |  | $       | (1,377 | )        |  | $ |       |   |  | $ | 368 | 
|Lease termination costs    |  |          | 325   |          |  |      | 244   |           |  |         | (170   | )        |  |   |       |   |  |   | 399 | 
|Asset impairment           |  |          |      |          |  |      | 2,274 |           |  |         |       |          |  |   | (2,274 | ) |  |   |    | 
|Other                      |  |          |      |          |  |      | 336   |           |  |         | (101   | )        |  |   | (235   | ) |  |   |    | 
|                           |  |          |       |          |  |      |       |           |  |         |        |          |  |   |        |   |  |   |     | 
|                           |  | $        | 1,351 |          |  | $    | 3,573 |           |  | $       | (1,648 | )        |  | $ | (2,509 | ) |  | $ | 767 | 
|                           |  |          |       |          |  |      |       |           |  |         |        |          |  |   |        |   |  |   |     | 

The remaining accrual of $0.8 million is included in Accrued liabilities
in the Consolidated Balance Sheets. All of these amounts are expected to be
paid in 2003 and 2004.

4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations at June 29, 2003 and December
29, 2002 consisted of the following (in thousands):

|                                                                                |  |          |        |              |  |   |     | 
|------------------------------------------------------------------------------- |  | -------- | ------ | ------------ |  | - | --- | 
|                                                                                |  | June 29, |        | December 29,
|                                                                                |  | 2003     |        | 2002        
|                                                                                |  |          |        |             
|Term loan                                                                       |  | $        | 82,500 |              |  | $ |    | 
|Revolving credit facility                                                       |  |          | 6,000  |              |  |   |    | 
|Notes payable at 3.48%, maturing in 2003                                        |  |          | 864    |              |  |   |    | 
|Capital lease obligations at varying interest rates and terms, maturing
in 2004 |  |          | 43     |              |  |   | 424 | 
|                                                                                |  |          |        |              |  |   |     | 
|                                                                                |  |          | 89,407 |              |  |   | 424 | 
|Less: current maturities                                                        |  |          | 1,871  |              |  |   | 385 | 
|                                                                                |  |          |        |              |  |   |     | 
|                                                                                |  | $        | 87,536 |              |  | $ | 39  | 
|                                                                                |  |          |        |              |  |   |     | 

On April 7, 2003, the Company entered into a new $82.5 million five-year
term loan. This term loan, combined with a four-year revolving credit
facility (Revolver) of $35 million, replaced the Companys existing $65
million facility. The new credit facility 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 base rate loans is 3.25% and 2.75% for the
term loan and Revolver, respectively. The margin on Eurodollar loans is 4.25%
and 3.75% for the term loan and Revolver, respectively. The Company is
required to pay a commitment fee ranging from .5% to .75%, depending on the
Companys leverage and amounts borrowed under the revolving credit facility.
The applicable margins and commitment fees on the unused portion of the
Revolver are subject to adjustment on future adjustment dates based on the
consolidated leverage ratio of the Company. The term loan and Revolver

12



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##### 



are secured by substantially all of the assets of the Company. The term
loan and Revolver contain certain financial covenants that require the
maintenance of a minimum interest coverage ratio, a fixed charge coverage ratio
and earnings before interest, taxes, depreciation and amortization and that
also provide for a maximum leverage ratio and limitations on capital
expenditures. Furthermore, under the terms of the term loan and Revolver,
there are restrictions dealing with acquisitions, repurchasing common stock and
on the Companys ability to pay dividends. The following table reflects the
principal payments under the term loan and Revolver (in thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|2003 |  | $ | 500    | 
|2004 |  |   | 4,625  | 
|2005 |  |   | 12,375 | 
|2006 |  |   | 26,813 | 
|2007 |  |   | 28,187 | 
|2008 |  |   | 16,000 | 
|     |  |   |        | 
|     |  | $ | 88,500 | 
|     |  |   |        | 

During the second quarter of 2003, the Company entered into an agreement
to finance insurance premiums, pursuant to which it issued an
unsecured promissory note in the amount of $0.9 million. The notes bears interest at 3.48% and requires
that principal payments be made monthly according to a fixed payment schedule.

The Company capitalizes interest on borrowings during the active
construction period of major capital projects. During the three and six months
ended June 29, 2003 the Company capitalized approximately $0.1 million in
connection primarily with the construction of the new EX-CYTE® plant in
Lawrence, Kansas. During the three months and six months ended June 30, 2002,
the Company capitalized approximately $0.2 million and $0.3 million,
respectively, in connection with various projects.

5. SEGMENT INFORMATION

SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, requires the reporting of information about operating segments in
annual financial statements and requires selected information in interim
financial reports. Beginning in 2003, for management purposes the operations
of the Companys subsidiaries are organized into four primary operating
segments: Research Products (Research), Cell Culture Products (Cell
Culture), Diagnostic Products (Diagnostics) and Therapeutic Products
(Therapeutics). These segments are based primarily on the differing
production, manufacturing and other value-added processes performed by the
Company with respect to the products and, to a lesser extent, the differing end
use and customer bases to which each reportable segment sells its products.
During 2002, the Company reported only three operating segments, Biotechnology
and Molecular Biology Products, Therapeutic Products and Diagnostic Products.
As a result of the Chemicon acquisition, the Company has developed a
significant portfolio of products used in applications within the research
products field.

13



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The activities of the Research segment primarily include manufacturing and
sales of reagents, cell-based assays, antibodies and molecular biology
products. Key products within the Research segment are ESGRO®, Arthrogen-CIA®
and Amplifuor®. The Cell Culture segment products consist of cell culture
media and supplements for drug development, biomanufacturing and life science
research. The Companys flagship product within this segment is EX-CYTE®.
Other key products within the Cell Culture segment include bovine serum albumin
(BSA), recombinant insulin and other products used principally in mammalian
cell culture. The key products within the Diagnostic segment are monoclonal
antibodies used in blood typing reagents and diagnostic antibodies and certain
human-sourced polyclonal antibodies. The key products within the Therapeutic
segment are hyper immune antibodies. All of the comparisons discussed below
reflect the restatement of the prior year segments so that they are consistent
with the current year presentation.

|                           |                                     |   |                    |        |                  |   |          |        |          |   |        |        |  |   |        |        |  
|-------------------------- | ----------------------------------- | - | ------------------ | ------ | ---------------- | - | -------- | ------ | -------- | - | ------ | ------ |  | - | ------ | ------ | -
|                           |                                     |   | Three Months Ended |        | Six Months Ended
|                           |                                     |   |                    |        |                 
|                           |                                     |   | June 29,           |        | June 30,         |   | June 29, |        | June 30,
|                           |                                     |   | 2003               |        | 2002             |   | 2003     |        | 2002    
|                           |                                     |   |                    |        |                  |   |          |        |         
|Net sales:                 |                                     |   |                    |        |                  |   |          |        |          |   |        |        |  |   |        |       
|                           | Research products                   |   | $                  | 13,116 |                  |   | $        | 1,038  |          |   | $      | 14,164 |  |   | $      | 2,049  |  
|                           | Cell culture products               |   |                    | 15,499 |                  |   |          | 17,665 |          |   |        | 29,265 |  |   |        | 32,855 |  
|                           | Diagnostic products                 |   |                    | 7,947  |                  |   |          | 6,281  |          |   |        | 15,116 |  |   |        | 12,982 |  
|                           | Therapeutic products                |   |                    | 7,362  |                  |   |          | 12,308 |          |   |        | 15,547 |  |   |        | 20,877 |  
|                           |                                     |   |                    |        |                  |   |          |        |          |   |        |        |  |   |        |        |  
|                           |                                     | $ | 43,924             |        |                  | $ | 37,292   |        |          | $ | 74,092 |        |  | $ | 68,763 |       
|                           |                                     |   |                    |        |                  |   |          |        |          |   |        |        |  |   |        |        |  
|Gross profit :             |                                     |   |                    |        |                  |   |          |        |          |   |        |        |  |   |        |       
|                           | Research products                   |   | $                  | 7,647  |                  |   | $        | 416    |          |   | $      | 8,464  |  |   | $      | 813    |  
|                           | Cell culture products               |   |                    | 8,069  |                  |   |          | 10,263 |          |   |        | 15,148 |  |   |        | 18,124 |  
|                           | Diagnostic products                 |   |                    | 4,432  |                  |   |          | 2,902  |          |   |        | 8,305  |  |   |        | 6,577  |  
|                           | Therapeutic products                |   |                    | 442    |                  |   |          | 5,039  |          |   |        | 2,392  |  |   |        | 8,589  |  
|                           |                                     |   |                    |        |                  |   |          |        |          |   |        |        |  |   |        |        |  
|                           |                                     |   | 20,590             |        |                  |   | 18,620   |        |          |   | 34,309 |        |  |   | 34,103 |       
|Reconciling items:         |                                     |   |                    |        |                  |   |          |        |          |   |        |        |  |   |        |       
|                           | Selling, general and administrative |   |                    | 12,286 |                  |   |          | 10,163 |          |   |        | 20,152 |  |   |        | 20,381 |  
|                           | Research and development            |   |                    | 1,944  |                  |   |          | 1,380  |          |   |        | 2,970  |  |   |        | 2,376  |  
|                           | Amortization of intangibles         |   |                    | 685    |                  |   |          | 233    |          |   |        | 931    |  |   |        | 476    |  
|                           | Special charges, net                |   |                    | 2,234  |                  |   |          | 1,309  |          |   |        | 3,573  |  |   |        | 1,309  |  
|                           | Other expense, net                  |   |                    | 193    |                  |   |          | 99     |          |   |        | 262    |  |   |        | 35     |  
|                           | Interest expense (income), net      |   |                    | 1,495  |                  |   |          | (382   | )        |   |        | 1,557  |  |   |        | (458   | )
|                           |                                     |   |                    |        |                  |   |          |        |          |   |        |        |  |   |        |        |  
|Income before income taxes |                                     | $ | 1,753              |        |                  | $ | 5,818    |        |          | $ | 4,864  |        |  | $ | 9,984  |       
|                           |                                     |   |                    |        |                  |   |          |        |          |   |        |        |  |   |        |        |  

During the second quarter of 2003, in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, the Company completed an annual
impairment review of its goodwill and indefinite lived intangible assets as of
the end of the second quarter with the assistance of an independent valuation
firm. Based on this valuation, the Company determined that no impairment of
these assets existed as of June 29, 2003.

14



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6. SUBSEQUENT EVENTS

The Company
announced on July 10, 2003 that its Board of Directors had
approved a plan to exit the Therapeutics business. This will impact the
Companys ten plasma collection centers and its central testing laboratory in
Clarkston, GA. The Company intends to pursue exit opportunities, including the
potential sale of some or all of the assets related to the business. As part
of this exit plan, the Company expects to address and resolve all contractual
commitments with customers and suppliers. Beginning in the third quarter of
2003, the Company expects to account for the results of this segment as
discontinued operations in accordance with SFAS No. 144, Impairment of
Long-Lived Assets and Discontinued Operations. The major classes of assets
and liabilities of Therapeutics included in the consolidated balance sheet as
of June 29, 2003 are as follows (amounts in thousands):

|             |                                      |                                          |   |       |       | 
|------------ | ------------------------------------ | ---------------------------------------- | - | ----- | ----- | 
|Assets:      |                                      |                                          |   |      
|             | Accounts receivables                 |                                          | $ | 6,717 |      
|             | Inventories                          |                                          |   | 5,789 |      
|             | Property and equipment, net          |                                          |   | 5,838 |      
|             | Goodwill and other intangible assets |                                          |   | 8,632 |      
|Liabilities: |                                      |                                          |   |      
|             |                                      | Accounts payable and accrued liabilities |   |       | 1,635 | 

15



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FORWARD-LOOKING STATEMENTS

This
Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the federal securities laws. Statements that
are not historical facts, including statements about the
Companys beliefs and expectations, are forward-looking
statements. Forward-looking statements may be identified by the use
of words such as may, will,
expect, intend, estimate,
anticipate, 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. The forward-looking statements
contained in this Quarterly Report on Form 10-Q are based on the
Companys current views and assumptions regarding future events
and operating performance. These assumptions could prove inaccurate,
or unknown risks or uncertainties materialize, which could cause
actual results to differ materially from expectations or predictions.
Many of these factors are beyond the Companys ability to
control or predict.

Factors
that could cause actual results to differ materially include:

| |   |  |                                                                                                                                                                                                                                      
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | the ability to manage growth and
expansion;                                                                                                                                                                                          
| |  |  | the ability to raise capital;                                                                                                                                                                                                        
| |  |  | the ability to find acceptable
acquisitions in the future and to integrate and manage them;                                                                                                                                          
| |  |  | the ability to compete effectively
within the life sciences research industry;                                                                                                                                                       
| |  |  | the dependence on suppliers and
the ability to maintain favorable supplier agreements and
relationships with them;                                                                                                                   
| |  |  | our dependence on the success of
the customers of our EX-CYTE® product in developing and
marketing new drugs using the product;                                                                                                      
| |  |  | the ability to attract and retain
qualified scientific and production personnel;                                                                                                                                                     
| |  |  | the ability to comply with
regulatory, customer and industry regulations and guidelines;                                                                                                                                             
| |  |  | the ability to identify new
commercial product opportunities;                                                                                                                                                                        
| |  |  | the ability to protect
intellectual property;                                                                                                                                                                                        
| |  |  | the effect on 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;             
| |  |  | adoption of, or changes in,
domestic and foreign laws and regulations that could affect the
ability to maintain existing regulatory licenses and approvals; and                                                                      
| |  |  | changes in industry trends,
customer specifications and demand, market demand in general and
potential foreign restrictions of the importation of products that
could impact internal and external growth, earnings and market share.

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.

Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations

Overview

Serologicals
Corporation, a Delaware corporation, (together with its
subsidiaries, The Company or Serologicals) is
a global provider of biological products and enabling technologies to
life science companies. 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
operations have historically been organized into four primary
operating segments: cell culture products, diagnostic products,
research products and therapeutic plasma 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.

16



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We
manufacture our cell culture and diagnostics products in facilities
located in North America and Europe. 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 tissue culture media components that are
used primarily by biopharmaceutical and biotechnology companies as
nutrient additives in cell culture media. We manufacture monoclonal
antibodies in our Scotland facility which is 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 product distribution
facility, as well as operations related to our human-sourced
polyclonal antibody business and production of substrates for use in
diagnostic assays.

We
conduct the operations of our research segment primarily through
Chemicon, which we acquired in April 2003 for $95.0 million in
cash, plus assumed liabilities and direct costs related to the
transaction. Chemicon provides a broad range of specialty reagents,
kits, antibodies and molecular biology tools to biotechnology,
pharmaceutical and academic research customers working in the areas
of neuroscience, infectious disease, drug discovery, cancer research,
stem cell research and proteomics. Chemicon is also a leading
supplier of monoclonal antibodies, conjugates, antibody blends and
kits for use in the diagnostic laboratory. Chemicon, headquartered in
Temecula, California, has manufacturing and distribution operations
in Temecula, California, Australia and the United Kingdom. Chemicon
will operate as a stand alone division of the company, and will be
reported in our research products segment.

The activities of the Research segment primarily include manufacturing and
sales of reagents, cell-based assays, antibodies and molecular biology
products. Key products within the Research segment are ESGRO®, Arthrogen-CIA®
and Amplifuor®. The Cell Culture segment products consist of cell culture
media and supplements for drug development, biomanufacturing and life science
research. The Companys flagship product within this segment is EX-CYTE®.
Other key products within the Cell Culture segment include bovine serum albumin
(BSA), recombinant insulin and other products used principally in mammalian
cell culture. The key products within the Diagnostic segment are monoclonal
antibodies used in blood typing reagents and diagnostic antibodies and certain
human-sourced polyclonal antibodies. The key products within the Therapeutic
segment are hyper-immune antibodies. All of the comparisons discussed below
reflect the restatement of the prior year segments so that they are consistent
with the current year presentation.

The
Company conducts its therapeutic products segment (or blood plasma
operations) through a national network of 10 donor centers that
specialize in the collection of hyper-immune human antibodies.
As noted in Note 6, we have announced our intention to exit the therapeutic plasma business.

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. Such principals require management to make estimates that affect the amount of
revenues, expenses, assets and liabilities reported. The
critical accounting policies that are both very important to the portrayal of
the Companys financial condition and results of operations and require
managements most difficult, subjective, or complex judgments
are described below. The accounting
for these matters were

17



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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.

Revenue recognition

The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101).
SAB 101 requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and (4)
collectibility is reasonably assured. Determination of criteria (3) and (4) are
based on managements judgments regarding the fixed nature of the selling
prices of the products delivered and the collectibility of those amounts.

Accounts receivable

The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and the customers current
credit worthiness, as determined by review of current credit information. The
Company monitors collections and payments from its customers and maintains a
provision for estimated credit losses based upon historical experience and any
specific customer collection issues that have been identified. These estimates
may prove to be inaccurate, in which case the Company may have over or under
stated the reserve required for uncollectible accounts receivables and selling,
general and administrative expense, accordingly.

Inventory

Inventories are carried at the lower of cost or market. Cost of
work-in-process and finished goods include 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
reserves for excess, obsolete or unsaleable inventory. These reviews require
management to assess customer and market demand as well as age of inventory
on-hand. These estimates may prove to be inaccurate, in which case the Company
may have over or under stated the reserve required for excess, obsolete or
unsaleable inventory and its cost of goods sold, accordingly.

Valuation of goodwill and other intangible assets

The Company periodically evaluates its goodwill and other intangible
assets for potential impairment whenever events or changes occur that indicate
the carrying value may no longer be recoverable. Evaluations are primarily
based on estimated discounted future cash flows from the use and eventual
disposition of the underlying assets. In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, the Company completed an annual
impairment review of its goodwill and indefinite lived intangible assets as of
the end of the second quarter with the assistance of an independent valuation
firm. Based on this evaluation, the Company determined that no impairment
existed as of June 29, 2003. The estimates used to evaluate the fair value of
goodwill and other intangibles assets may prove to be inaccurate, in which case
the Company may have over stated goodwill and other intangible assets.

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 not probable, a valuation allowance is recorded
against these assets. The estimates used to evaluate the recoverability of
deferred tax assets may prove to be inaccurate, in which case the Company may
have over or under stated income tax valuation allowances and its provision for
income taxes, accordingly.

18



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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 those estimates.

Results of Operations

The following discussion and analysis of Serologicals financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements and Notes thereto.

The following table sets forth certain operating data of Serologicals as a
percentage of net sales for the periods indicated below.

|                                             |  |                    |       |                  |  |          |       |          |  |  |       |   |  |  |       |  
|-------------------------------------------- |  | ------------------ | ----- | ---------------- |  | -------- | ----- | -------- |  |  | ----- | - |  |  | ----- | -
|                                             |  | Three Months Ended |       | Six Months Ended
|                                             |  |                    |       |                 
|                                             |  | June 29,           |       | June 30,         |  | June 29, |       | June 30,
|                                             |  | 2003               |       | 2002             |  | 2003     |       | 2002    
|                                             |  |                    |       |                  |  |          |       |         
|Net sales                                    |  |                    | 100.0 | %                |  |          | 100.0 | %        |  |  | 100.0 | % |  |  | 100.0 | %
|Gross profit                                 |  |                    | 46.9  | %                |  |          | 49.9  | %        |  |  | 46.3  | % |  |  | 49.6  | %
|Selling, general and administrative
expenses |  |                    | 28.0  | %                |  |          | 27.2  | %        |  |  | 27.2  | % |  |  | 29.6  | %
|Research and development                     |  |                    | 4.4   | %                |  |          | 3.7   | %        |  |  | 4.0   | % |  |  | 3.5   | %
|Amortization of intangibles                  |  |                    | 1.6   | %                |  |          | 0.6   | %        |  |  | 1.3   | % |  |  | 0.7   | %
|Special charges, net                         |  |                    | 5.1   | %                |  |          | 3.5   | %        |  |  | 4.8   | % |  |  | 1.9   | %
|Net income                                   |  |                    | 2.6   | %                |  |          | 10.1  | %        |  |  | 4.3   | % |  |  | 9.4   | %

Quarters Ended June 29, 2003 and June 30, 2002

The following table sets forth a breakdown of revenue and gross profit
contributions by segment for the quarters ended June 29, 2003 and June 30,
2002:

|           |                       |   |               |        |               |  |        |    |         |   |        |        |  |  |     |    |  
|---------- | --------------------- | - | ------------- | ------ | ------------- |  | ------ | -- | ------- | - | ------ | ------ |  |  | --- | -- | -
|           |                       |   | June 29, 2003 |        | June 30, 2002
|           |                       |   |               |        |              
|           |                       |   | Actual        |        | % Total       |  | Actual |    | % Total
|           |                       |   |               |        |               |  |        |    |        
|Net sales: |                       |   |               |        |               |  |        |    |         |   |        |        |  |  |     |   
|           | Research products     |   | $             | 13,116 |               |  |        | 30 | %       |   | $      | 1,038  |  |  |     | 3  | %
|           | Cell culture products |   |               | 15,499 |               |  |        | 35 | %       |   |        | 17,665 |  |  |     | 47 | %
|           | Diagnostic products   |   |               | 7,947  |               |  |        | 18 | %       |   |        | 6,281  |  |  |     | 17 | %
|           | Therapeutics products |   |               | 7,362  |               |  |        | 17 | %       |   |        | 12,308 |  |  |     | 33 | %
|           |                       |   |               |        |               |  |        |    |         |   |        |        |  |  |     |    |  
|           |                       | $ | 43,924        |        |               |  | 100    | %  |         | $ | 37,292 |        |  |  | 100 | % 
|           |                       |   |               |        |               |  |        |    |         |   |        |        |  |  |     |    |  

|              |                       |   |        |       |     |  |        |    |     |   |        |        |  |  |    |    |  
|------------- | --------------------- | - | ------ | ----- | --- |  | ------ | -- | --- | - | ------ | ------ |  |  | -- | -- | -
|              |                       |   | Actual |       | GM% |  | Actual |    | GM%
|              |                       |   |        |       |     |  |        |    |    
|Gross profit: |                       |   |        |       |     |  |        |    |     |   |        |        |  |  |    |   
|              | Research products     |   | $      | 7,647 |     |  |        | 58 | %   |   | $      | 416    |  |  |    | 40 | %
|              | Cell culture products |   |        | 8,069 |     |  |        | 52 | %   |   |        | 10,263 |  |  |    | 58 | %
|              | Diagnostic products   |   |        | 4,432 |     |  |        | 56 | %   |   |        | 2,902  |  |  |    | 46 | %
|              | Therapeutics products |   |        | 442   |     |  |        | 6  | %   |   |        | 5,039  |  |  |    | 41 | %
|              |                       |   |        |       |     |  |        |    |     |   |        |        |  |  |    |    |  
|              |                       | $ | 20,590 |       |     |  | 47     | %  |     | $ | 18,620 |        |  |  | 50 | % 
|              |                       |   |        |       |     |  |        |    |     |   |        |        |  |  |    |    |  

NET SALES

Consolidated

Consolidated net sales increased approximately $6.6 million, or 18%, from
$37.3 million in the second quarter of 2002 to $43.9 million in the same period
in 2003. The increase was primarily due to the sales contribution from
Chemicon, offset by a reduction in Therapeutic and Cell Culture product sales.

19



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Research Products

Net sales of Research products increased $12.1 million from $1.0 million
in the second quarter of 2002 to $13.1 million in the second quarter of 2003 as
a result of the Chemicon acquisition. The sales contribution from Chemicon was
$11.9 million for the second quarter, with the balance of sales in this segment
representing sales of Serologicals research products produced in its
Gaithersburg, Maryland facility. Beginning in the third quarter of 2003, all
of our Research product operations will be centralized in the Chemicon
distribution system.

Cell Culture Products

Net sales of Cell Culture products decreased $2.2 million, or 12%, from
$17.7 million in the second quarter of 2002 to $15.5 million in the second
quarter of 2003. This decrease is primarily due to lower sales of EX-CYTE®,
which decreased $2.9 million from $9.2 million in the second quarter of 2002 to
$6.3 million in the second quarter of 2003, primarily due to the fact that one
of the Companys major customers deferred its shipments until the second half
of 2003. Sales of BSA increased slightly over the prior year from $3.6 million
in the second quarter of 2002 to $3.8 million in the second quarter of 2003,
but sales of our products manufactured in Toronto were negatively impacted by
the Canadian mad-cow issue described under the caption Special Charges
below.

Diagnostic Products

Net sales of Diagnostic products increased approximately $1.6 million, or
25%, from $6.3 million in the second quarter of 2002 to $7.9 million in the
second quarter of 2003. This increase is primarily due to higher sales of
monoclonal antibodies and related products which increased from $3.3 million in
the second quarter of 2002 to $6.1 million in the second quarter of 2003. The
Company expects sales of monoclonal antibodies and related products to continue
to be strong for the remainder of the year due to new blood typing regulations
in Europe. This increase in monoclonal antibodies and related products was
partially offset by decreased sales of human-sourced polyclonal antibodies,
detection products and other diagnostic products. Human-sourced polyclonal
antibody sales have been negatively impacted by the Health Insurance
Portability and Accountability Act (HIPPA), which have adversely affected
access to qualified donors.

Therapeutic Products

Sales of Therapeutic products declined from $12.3 million in the second
quarter of 2002 to $7.4 million in the second quarter of 2003. This was due to
continuing difficulties in recruiting donors for the vaccinia program and
weaker demand for our anti-hepatitis product. Sales of anti-hepatitis declined
from $7.2 million in the second quarter of 2002 to $1.0 million in the second
quarter of 2003. Declines in anti-hepatitis were partially offset by increased
sales of vaccinia, from $0.2 million in the second quarter of 2002 to $2.7
million in the second quarter of 2003.

GROSS PROFIT

Consolidated

Consolidated gross profit increased approximately $2.0 million, or 11%,
from $18.6 million in the second quarter of 2002 to $20.6 million during the
second quarter of 2003. This increase was primarily due to increased sales.
Gross margin decreased from 50% in the second quarter of 2002 to 47% in the
second quarter of 2003. This decrease is primarily related to the declines in
sales of certain Therapeutics and Cell Culture products.

20



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Research Products

Gross profit from Research products increased $7.2 million, from $0.4
million in the second quarter of 2002 to $7.6 million in the second quarter of
2003. Gross margin increased from 40% in the second quarter of 2002 to 58% in
the second quarter of 2003. Increases in gross profit and gross margin are due
to the acquisition of Chemicon, which was effective April 1, 2003. Gross
profit in the second quarter of 2003 was negatively impacted by a $0.2 million
charge to cost of sales as a result of inventory adjustments to Chemicons
opening inventory required under purchase accounting rules. The Company
expects to record an additional $0.2 million charge to cost of sales during the
third quarter of 2003 as this inventory is sold.

Cell Culture Products

Gross profit from Cell Culture products decreased $2.2 million, from $10.3
million in the second quarter of 2002 to $8.1 million during the second quarter
of 2003. Gross margin decreased from 58% in the second quarter of 2002 to 52%
in the second quarter of 2003. Gross margins were lower in the second quarter
of 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 the second quarter of 2002.

Diagnostic Products

Gross profit from Diagnostic products increased $1.5 million, or 53%, from
$2.9 million in the second quarter of 2002 to $4.4 million in the second
quarter of 2003. Gross margins on Diagnostic products increased from 46% in
the second quarter of 2002 to 56% in the second quarter of 2003. Gross margins
increased primarily due to efficiencies gained from increased production at our
Scotland facility, increased sales prices of monoclonal antibodies and the
significant increase in the monoclonal antibody and related product sales,
which are relatively higher margin products.

Therapeutic Products

Gross profit from Therapeutic products decreased from $5.0 million in the
second quarter of 2002 to $0.4 million in the second quarter of 2003. Gross
margins decreased from 41% in the second quarter of 2002 to 6% in the second
quarter of 2003. Margins were negatively impacted by considerably higher costs
incurred to recruit donors for the vaccinia program and excess capacity in the
donor centers. This excess capacity has resulted in a higher cost of
production, which resulted in a write-down in inventory to net realizable value
during the quarter of approximately $0.6 million. The Company is actively
pursuing a price adjustment for the vaccinia program as the result of
mandated regulatory changes that have impacted our costs and ability to
recruit donors. Based on current order volume the Company expects it may
continue to experience excess capacity, which could result in additional net
realizable value adjustments to the carrying value of inventories yet to be
produced during the remainder of 2003.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Consolidated selling, general and administrative expenses (SG&A)
increased approximately $2.1 million, or 21%, in the second quarter of 2003,
from $10.2 million in the second quarter of 2002 to $12.3 million in the second
quarter of 2003. As a percentage of revenues, SG&A was 28% during the second
quarter of 2003 compared with 27% in the second quarter of 2002. SG&A
increased approximately $4.8 million due to SG&A contributed by Chemicon during
the second quarter of 2003. 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. SG&A spending as a percentage of
sales is expected to be in the range of 26% to 28% for the remainder of the
year.

21



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RESEARCH AND DEVELOPMENT

Research and development expenses increased approximately $0.5 million
from $1.4 million in the second quarter of 2002 to approximately $1.9 million
in the second quarter of 2003. As a percentage of sales, spending in this area
remained constant at 4% in the second quarter of 2002 and 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.
During the second quarter of 2003, Chemicon introduced 172 new products,
bringing the total for the year to 318 new products. The Company continued to
advance various projects in the Cell Culture area related to the
characterization of EX-CYTE® and other cell culture supplements.

AMORTIZATION OF INTANGIBLES

Amortization of intangibles increased approximately $0.5 million from $0.2
million in the second quarter of 2002 to $0.7 million in the second quarter of
2003 due to the acquisition of Chemicon during the quarter.

SPECIAL CHARGES

During the second quarter of 2003, the Company approved a plan to transfer
the responsibility for manufacturing and distribution of research products from
Gaithersburg, Maryland to the Chemicon division. This transfer is expected to
provide a more competitive focus for the manufacturing, sales and distribution
of these products and is anticipated to be complete by the end of the third
quarter of 2003. In addition, during the quarter, the Company continued to
review its infrastructure to ensure the staffing is optimal to focus on the
primary growth areas related to the Companys strategic plan. As a result of
these efforts, including its ongoing product rationalization initiatives, the
Company reduced its workforce at various locations including the Gaithersburg
facility, the Kankakee facility, the Milford facility and the corporate office.
As a result of these restructurings, the Company recorded $1.3 million in
special charges in the accompanying consolidated statement of income. The
components of the special charge included approximately $0.4 million for
employee severance, $0.8 million related to the impairment of certain
long-lived assets at Gaithersburg, Maryland and $0.1 million related to other
restructuring costs. Employee termination costs are expected to be paid by the
end of 2004. The Company estimates that the cost to complete the relocation of
Manufacturing and distribution of research products from Gaithersburg,
Maryland, which will be expensed in the second half of 2003, will be
approximately $0.2 to $0.3 million, primarily related to severance costs,
moving and lease obligations.

During the second quarter of 2003, the Company also incurred $0.9 million
resulting from the Bovine Spongiform Encephalopathy (BSE) or mad-cow
disease scare in Canada. This charge included costs associated with writing
off certain inventory that had been sourced from Canadian raw materials and the
cost of shutting down and cleaning a section of the Toronto manufacturing
facility to prepare for the switchover to U.S.-sourced raw materials. Prior to
the announcement that a single cow had tested positive for BSE, the Company
procured certain bovine raw materials from Canadian sources. As a result of
this issue, and after discussions with customers, the Company began sourcing
all bovine raw materials used in the Toronto facility from the United States.
The Toronto plant was partially shutdown for approximately one month during the
quarter for cleaning and sterilization. Additionally, certain inventory that
was manufactured in Canada and scheduled to be shipped to international
customers was delayed by foreign governments. The United States Department of
Agriculture ban on Canadian imports of bovine materials prevented the transfer
of products from Toronto to our distribution facility in Massachusetts for part
of the quarter.

During the second quarter of 2002, the Company recorded a charge totaling
approximately $1.3 million related to the closure of four of its donor centers.
The decision to close the centers resulted from an extensive evaluation of the
operations of the Therapeutics business segment. The charge consisted of
severance payments, costs associated with lease obligations at the four
centers, write-offs of certain assets, including leasehold improvements and
equipment, and intangible assets related to the centers, such as FDA licenses
and non-compete agreements.

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OTHER EXPENSE, NET

Other expense, net remained relatively constant at $0.1 million in the
second quarter of 2002 and $0.2 million in the second quarter of 2003. Other
expense, net primarily relates to gains and losses from foreign currency
transactions.

INTEREST EXPENSE (INCOME), NET

Interest expense (income), net decreased from interest income of $(0.4)
million in the second quarter of 2002 to interest expense of $1.5 million in
the second quarter of 2003. The increase in interest expense was due to
borrowings under the Companys term loan used to finance the Chemicon
acquisition during the first six months of 2003, and draws on its Revolver in
the first six months of 2003 to fund construction of the new EX-CYTE® plant in
Lawrence, Kansas.

Six Months Ended June 29, 2003 and June 30, 2002

The following table sets forth a breakdown of revenue and gross profit
contributions by segment for the six months ended June 29, 2003 and June 30,
2002:

|           |                       |   |               |        |               |  |        |    |         |   |        |        |  |  |     |    |  
|---------- | --------------------- | - | ------------- | ------ | ------------- |  | ------ | -- | ------- | - | ------ | ------ |  |  | --- | -- | -
|           |                       |   | June 29, 2003 |        | June 30, 2002
|           |                       |   |               |        |              
|           |                       |   | Actual        |        | % Total       |  | Actual |    | % Total
|           |                       |   |               |        |               |  |        |    |        
|Net sales: |                       |   |               |        |               |  |        |    |         |   |        |        |  |  |     |   
|           | Research products     |   | $             | 14,164 |               |  |        | 19 | %       |   | $      | 2,049  |  |  |     | 3  | %
|           | Cell culture products |   |               | 29,265 |               |  |        | 40 | %       |   |        | 32,855 |  |  |     | 48 | %
|           | Diagnostic products   |   |               | 15,116 |               |  |        | 20 | %       |   |        | 12,982 |  |  |     | 19 | %
|           | Therapeutics products |   |               | 15,547 |               |  |        | 21 | %       |   |        | 20,877 |  |  |     | 30 | %
|           |                       |   |               |        |               |  |        |    |         |   |        |        |  |  |     |    |  
|           |                       | $ | 74,092        |        |               |  | 100    | %  |         | $ | 68,763 |        |  |  | 100 | % 
|           |                       |   |               |        |               |  |        |    |         |   |        |        |  |  |     |    |  

|              |                       |   |        |        |     |  |        |    |     |   |        |        |  |  |    |    |  
|------------- | --------------------- | - | ------ | ------ | --- |  | ------ | -- | --- | - | ------ | ------ |  |  | -- | -- | -
|              |                       |   | Actual |        | GM% |  | Actual |    | GM%
|              |                       |   |        |        |     |  |        |    |    
|Gross profit: |                       |   |        |        |     |  |        |    |     |   |        |        |  |  |    |   
|              | Research products     |   | $      | 8,464  |     |  |        | 60 | %   |   | $      | 813    |  |  |    | 40 | %
|              | Cell culture products |   |        | 15,148 |     |  |        | 52 | %   |   |        | 18,124 |  |  |    | 55 | %
|              | Diagnostic products   |   |        | 8,305  |     |  |        | 55 | %   |   |        | 6,577  |  |  |    | 51 | %
|              | Therapeutics products |   |        | 2,392  |     |  |        | 15 | %   |   |        | 8,589  |  |  |    | 41 | %
|              |                       |   |        |        |     |  |        |    |     |   |        |        |  |  |    |    |  
|              |                       | $ | 34,309 |        |     |  | 46     | %  |     | $ | 34,103 |        |  |  | 50 | % 
|              |                       |   |        |        |     |  |        |    |     |   |        |        |  |  |    |    |  

NET SALES

Consolidated

Consolidated net sales increased approximately $5.3 million, or 8%, from
$68.8 million in the first six months of 2002 to
$74.1 million during the first six
months of 2003. The increase was primarily attributable to the sales growth
related to the Chemicon acquisition, offset partially by declines in
Therapeutic and Cell Culture sales.

Research Products

Net sales of Research products increased $12.2 million from $2.0 million
in the first six months of 2002 to $14.2 million in the first six months of
2003 as a result of the Chemicon acquisition. The sales contribution from
Chemicon was $11.9 million, with the balance of sales in this segment
representing sales of our Research products produced in Gaithersburg, Maryland.
Beginning in the third quarter of 2003, all of our research product operations
are centralized in the Chemicon distribution system.

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Cell Culture Products

Net sales of Cell Culture products decreased $3.6 million from $32.9
million in the first six months of 2002 to $29.3 million in the first six
months of 2003. This decrease is primarily due to lower sales of EX-CYTE®,
which decreased $4.2 million from $15.2 million in the first six months of 2002
to $11.0 million in the first six months of 2003, primarily due to one of the
Companys major customers deferred its shipments until the second half of
2003. Lower sales of EX-CYTE® were partially offset by increased sales of BSA.
BSA increased from $7.0 million in the first six months of 2002 to $8.2
million in the first six months of 2003. Sales of BSA manufactured in Toronto
were negatively impacted by the Canadian mad-cow issue described under
Special Charges below.

Diagnostic Products

Net sales of Diagnostic products increased approximately $2.1 million, or
16%, from $13.0 million in the first six months of 2002 to $15.1 million in the
first six months of 2003. This increase is primarily due to sales of
monoclonal antibodies and related products which increased from $7.2 million in
the first six months of 2002 to $11.5 million in the first six months of 2003.
The Company expects sales of monoclonal antibodies and related products to
continue to be strong for the remainder of the year due to new blood typing
regulations in Europe. This increase in monoclonal antibodies and related
products was partially offset by decreased sales of human-sourced polyclonal
antibodies, detection products and other diagnostic products. Human-sourced
polyclonal antibody sales have been negatively impacted by new HIPPA laws which
have adversely affected access to qualified donors.

Therapeutic Products

Sales of Therapeutic products declined from $20.9 million in the first
half of 2002 to $15.5 million in the first six months of 2003. This was due to
continuing difficulties in recruiting donors for the vaccinia program and weak
demand for our anti-hepatitis product. Sales of anti-hepatitis declined from
$12.9 million in the first six months of 2002 to $1.7 million in the first six
months of 2003. Declines in anti-hepatitis were partially offset by increased
sales of vaccinia, from $0.2 million in the first six months of 2002 to $8.3
million in the first six months of 2003.

GROSS PROFIT

Consolidated

Consolidated gross profit in the first six months of 2003 remained
consistent at $34 million with the first six months of 2002. Gross margin
decreased from 50% in the first six months of 2002 to 46% in the first six
months of 2003. This decrease is primarily related to the Therapeutics and
Cell Culture products.

Research Products

Gross profit from Research products increased $7.7 million, from $0.8
million in the first six months of 2002 to $8.5 million in the first six months
of 2003. Gross margin increased from 40% in the first six months of 2002 to
60% in the first six months of 2003. Increases in gross profit and gross
margin are attributable to the acquisition of Chemicon, which was effective
April 1, 2003. Gross profit in the first six months of 2003 was negatively
impacted by a $0.2 million charge to cost of sales as a result of inventory
adjustments to Chemicons opening inventory required under purchase accounting
rules. The Company expects to record an additional $0.2 million charge to cost
of sales during the third quarter of 2003 as this inventory is sold.

Cell Culture Products

Gross profit from Cell Culture products decreased $3.0 million, from $18.1
million in the first six months of 2002 to $15.1 million during the first six
months of 2003. Gross margin decreased from 55% in the first six months of 2002 to 52% in the first six months of 2003. Gross

24



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margins
were lower in the first six months of 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 the first six months of
2002.

Diagnostic Products

Gross profit from Diagnostic products increased $1.7 million, or 26%, from
$6.6 million in the first six months of 2002 to $8.3 million in the first six
months of 2003. Gross margins on Diagnostic products increased from 51% in the
first six months of 2002 to 55% in the first six months of 2003. Gross margins
increased primarily due to efficiencies gained from increased production at our
Scotland facility, increased sales prices of monoclonal antibodies and the
significant increase in the monoclonal antibody and related product sales,
which are relatively higher margin products.

Therapeutic Products

Gross profit from Therapeutic products decreased from $8.6 million in the
first six months of 2002 to $2.4 million in the first six months of 2003.
Gross margin decreased from 41% in the first six months of 2002 to 15% in the
first six months of 2003. Margins were negatively impacted by considerably
higher costs incurred to recruit donors for the vaccinia program and excess
capacity in the donor centers. This excess capacity has resulted in a higher
cost of production, which resulted in a write-down of inventory to net
realizable value during the six months ended June 29, 2003 of approximately
$1.1 million. The Company is actively pursuing a price adjustment for the
vaccinia program as the result of mandated regulatory changes that have
impacted our costs and ability to recruit donors. Based on current order
volume the Company expects it may continue to experience excess capacity, which
could result in additional net realizable value adjustments to the carrying
value of inventories yet to be produced during the remainder of 2003.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A decreased approximately $0.2 million, or 1%, in the first six months
of 2003, from $20.4 million in the first six months of 2002 to $20.2 million in
the first six months of 2003. As a percentage of revenues, SG&A was 27%
during the first six months of 2003 compared with 30% in the first six months
of 2002. The decrease was attributable to the continued emphasis on cost
controls over SG&A at all locations including its corporate office. Reductions
due to cost controls were partially offset as a result of the Chemicon
acquisition. Included in SG&A is $4.8 million incurred at Chemicon in the
second quarter of 2003. SG&A spending as a percentage of sales is expected to
be in the range of 26% to 28% for the remainder of the year.

RESEARCH AND DEVELOPMENT

Research and development expenses increased approximately $0.6 million
from $2.4 million in the first six months of 2002 to approximately $3.0 million
in the first six months of 2003. As a percentage of sales, spending in this
area increased from 3% in the first six months of 2002 to 4% during the first
six months of 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. During the first six months of 2003,
Chemicon introduced 318 new products. The Company continued to advance various
projects in the Cell Culture area related to the characterization of EX-CYTE®
and other cell culture supplements.

SPECIAL CHARGES

During the second quarter of 2003, the Company approved a plan to transfer
the responsibility for manufacturing and distribution of research products from
Gaithersburg, Maryland to the Chemicon division. This transfer is expected to
provide a more competitive focus for the manufacturing, sales and distribution
of these products and is anticipated to be complete by the end of the third
quarter of 2003. In addition, during the quarter, the Company continued to
review its infrastructure to ensure the staffing is optimal to focus on the
primary growth areas related to the Companys strategic plan. As a result of
these efforts, including its ongoing product rationalization initiatives, the
Company reduced its workforce at various locations including the

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Gaithersburg facility, the Kankakee facility, the Milford facility and the
corporate office. As a result of these restructurings, the Company recorded
$1.3 million in special charges in the accompanying consolidated statement of
income. The components of the special charge included approximately $0.4
million for employee severance, $0.8 million related to the impairment of
certain long-lived assets at Gaithersburg, Maryland and $0.1 million related to
other restructuring costs. Employee termination costs are expected to be paid
by the end of 2004. The Company estimates that the cost to complete the
relocation of Manufacturing and distribution of research products from
Gaithersburg, Maryland, which will be expensed in the second half of 2003, will
be approximately $0.2 to $0.3 million, primarily related to severance costs,
moving and lease obligations.

During the second quarter of 2003, the Company also incurred $0.9 million
resulting from the Bovine Spongiform Encephalopathy (BSE) or mad-cow
disease scare in Canada. This charge included costs associated with writing
off certain inventory that had been sourced from Canadian raw materials and the
cost of shutting down and cleaning a section of the Toronto manufacturing
facility to prepare for the switchover to U.S.-sourced raw materials. Prior to
the announcement that a single cow had tested positive for BSE, the Company
procured certain bovine raw materials from Canadian sources. As a result of
this issue, and after discussions with customers, the Company began sourcing
all bovine raw materials used in the Toronto facility from the United States.
The Toronto plant was partially shutdown for approximately one month during the
quarter for cleaning and sterilization. Additionally, certain inventory that
was manufactured in Canada and scheduled to be shipped to international
customers was delayed by foreign governments. The United States Department of
Agriculture ban on Canadian imports of bovine materials prevented the transfer
of products from Toronto to our distribution facility in Massachusetts for part
of the quarter.

During the first six months of 2003, the Company closed three of its
thirteen donor centers, located in Birmingham, Alabama; Washington, D.C.; and
Provo, Utah. The donor base for the Provo center was integrated into the
Companys Salt Lake City, Utah center. As a result of these closings, the
Company recorded a charge of $0.8 million. The components of the charge
included approximately $0.3 million for employee termination costs, $0.3
million for lease termination costs and $0.2 million related to write-off of
certain long-lived assets. The employee termination costs covered
approximately 46 employees. Employee termination costs and lease termination
costs are expected to be paid by the end of 2003. The employee termination and
headcount also includes employees terminated at the Companys central testing
laboratory.

During the first six months of 2003, the Company also incurred special
charges of approximately $0.5 million. Subsequent to notifying the lender of
our intent to terminate the then existing credit facility the Company recorded
a charge of approximately $0.4 million related to the write-off of debt
issuance costs. Additionally, the Company recorded a charge of $0.1 million
related to a loss associated with an equipment failure at the Toronto facility
and other termination costs. These termination benefits were paid in full
during the second quarter 2003.

During the first six months of 2002, the Company recorded a charge
totaling approximately $1.3 million related to the closure of four of its donor
centers. The decision to close the centers resulted from an extensive
evaluation of the operations of the Therapeutics business segment. The charge
consisted of severance payments, costs associated with lease obligations at the
four centers, write-offs of certain assets, including leasehold improvements
and equipment, and intangible assets related to the centers, such as FDA
licenses and non-compete agreements.

OTHER EXPENSE, NET

Other expense, net increased to $0.3 million in the first six months of
2003. Other expense, net primarily relates to gains and losses from foreign
currency transactions.

INTEREST EXPENSE (INCOME), NET

Interest expense (income), net decreased from interest income of $(0.5)
million in the first six months of 2002 to interest expense of $1.6 million in
the first six months of 2003. The increase in interest expense was

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due to borrowings under the Companys term loan used to finance the
Chemicon acquisition during the first six months of 2003, and draws on its
Revolver in the first six months of 2003 to fund construction of the new
EX-CYTE® plant in Lawrence, Kansas.

Financial Condition and Liquidity and Capital Resources

The following table sets forth certain indicators of financial condition
and liquidity as of June 29, 2003 and December 29, 2002 (in thousands, except
for percentages):

|                                                   |  |          |         |              |  |   |         |  
|-------------------------------------------------- |  | -------- | ------- | ------------ |  | - | ------- | -
|                                                   |  | June 29, |         | December 29,
|                                                   |  | 2003     |         | 2002        
|                                                   |  |          |         |             
|Cash and cash equivalents                          |  | $        | 4,957   |              |  | $ | 12,850  |  
|Working capital                                    |  |          | 62,546  |              |  |   | 65,468  |  
|Total long-term debt and capital lease obligations |  |          | 89,407  |              |  |   | 424     |  
|Stockholders equity                               |  |          | 176,801 |              |  |   | 170,370 |  
|Total debt to equity ratio                         |  |          | 50.6    | %            |  |   | 0.2     | %

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 $35.0 million. As of August 8, 2003, 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 in the first six months of 2003
was $10.8 million as compared to net cash provided of $2.6 million in the first
six months of 2002. This increase was primarily attributable to incremental
decline in accounts receivable and increase in accrued liabilities of $10.1
million and $5.1 million, respectively, $2.0 million more non-cash special
charges than in the first six months of 2002, offset by lower net income of
$3.3 million and incremental increases in inventories and decreases in accounts
payable of $3.3 million and $2.4 million, respectively. Accounts receivable
historically decline in the first six months of each year due to the fourth
quarter of each year typically being the strongest sales quarter of the year.
Additionally, inventories historically rise in the first six months of each
year, but this year inventories rose more than in 2002 due to the delays in
EX-CYTE® shipments discussed earlier.

Net cash used in investing activities in the first six months of 2003 was
$103.7 million, compared with $6.6 million in the first six months of 2002.
Investing activities during the first six months of 2003 included the
acquisition of Chemicon for $97.1 million, net of cash received and capital
expenditures of $6.6 million. Investing activities during the first six months
of 2002 include capital expenditures of $6.4 million. Capital expenditures for
the first six months of 2003 consisted primarily of construction of the
Companys new EX-CYTE® manufacturing facility in Lawrence, Kansas and
completion of the Companys Enterprise Resource Planning system implementation
project. The Company anticipates capital expenditures for the remainder of the
year to total approximately $23 million to $27 million. The most significant
expenditure anticipated for the remainder of 2003 is the continued construction
of the Companys new EX-CYTE® manufacturing facility.

Net cash provided by financing activities in the first six months of 2003
was $85.0 million, compared with net cash used in of $2.2 million during the
same period in 2002. Financing activities in the first six months of 2003
primarily consisted of proceeds from term loan and revolving credit facility
borrowing of $88.5 million and payment of debt issuance costs of $4.4 million.
Financing activities in the first six months of 2002 primarily consisted of
payment of long-term debt and capital leases of $3.9 million and proceeds from
stock options of $2.1 million.

On April 7, 2003, the Company entered into a new $82.5 million five-year
term loan. This term loan, combined with a revolving credit facility
(Revolver) of $35 million, replaced the Companys existing $65

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million facility. The credit facility 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 base rate loans is 3.25% and 2.75% for the
term loan and Revolver, respectively. The margin on Eurodollar loans is 4.25%
and 3.75% for the term loan and Revolver, respectively. The Company is
required to pay a commitment fee ranging from .5% to .75%, depending on the
Companys leverage and amounts borrowed under the revolving credit facility.
The applicable margins and commitment fees on the unused portion of the
Revolver are subject to adjustment on future adjustment dates based on the
consolidated leverage ratio of the Company. The term loan and Revolver are
secured by substantially all of the assets of the Company. The term loan and
Revolver contain certain financial covenants that require the maintenance of a
minimum interest coverage ratio, a fixed charge coverage ratio and earnings
before interest, taxes, depreciation and amortization and that also provide for
a maximum leverage ratio and limitations on capital expenditures. Furthermore,
under the terms of the term loan and Revolver, there are covenants dealing with
acquisitions, repurchasing common stock and on the Companys ability to pay
dividends.

The
following table reflects the principal payments under the term loan
and Revolver (in thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|2003 |  | $ | 500    | 
|2004 |  |   | 4,625  | 
|2005 |  |   | 12,375 | 
|2006 |  |   | 26,813 | 
|2007 |  |   | 28,187 | 
|2008 |  |   | 16,000 | 
|     |  |   |        | 
|     |  | $ | 88,500 | 
|     |  |   |        | 

During the second quarter of 2003, the Company entered into an agreement
to finance insurance premiums. The notes bears interest at 3.48% and requires
that principal payments be made monthly according to a fixed payment schedule.
As of June 29, 2003, $0.9 million was included in current maturities of
long-term debt and capital lease obligations on the accompanying Consolidated
Balance Sheet.

Other than as discussed above, there have been no material changes
regarding Serologicals contractual obligations from the information provided
in our Annual Report on Form 10-K for the fiscal year ended December 29, 2002.
The contractual obligations are discussed under the caption Liquidity and
Capital Resources in Item 7-Managements Discussion and Analysis of Financial
Condition and Results of Operations, contained in the Form 10-K
as amended in Form 8K dated August 8, 2003.

The Company has no off-balance sheet financing arrangements and has not
created any variable interest 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.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46, or 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
subordinated financial support from other parties. FIN 46 is effective
immediately for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The adoption of this
standard did not have any impact on the Companys financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment to Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. SFAS No. 149 is applied prospectively and is effective for contracts
entered into or modified after June 30,

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2003, except for SFAS No. 133 implementation issues that have been effective
for fiscal quarters that began prior to June 15, 2003 and certain provisions
relating to forward purchases and sales on securities that do not yet exist.
The adoption of this standard did not have any impact on the Companys
financial statements.

During May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS 150 clarifies the
accounting for certain financial instruments with characteristics of both
liabilities and equity and requires that those instruments be classified as
liabilities in statements of financial position. Previously, many of those
financial instruments were classified as equity. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The Company anticipates that there will be no impact on
its consolidated financial statements upon the adoption of SFAS 150.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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
variable rate of interest. A one-percentage point increase in interest rates
affecting the Companys floating rate long-term debt would reduce pre-tax
income by $0.9 million over the next fiscal year. A one-percentage point change
in interest rates would not have a material effect on the fair value of the
Companys fixed rate long-term debt.

There have been no material changes other than discussed above regarding
Serologicals market risk position from the information provided in our Annual
Report on Form 10-K for the fiscal year ended December 29, 2002. The
quantitative and qualitative disclosures about market risk are discussed under
the caption Market Risk in Item 7-Managements Discussion and Analysis of
Financial Condition and Results of Operations, contained in the Form 10-K.

Item 4. Controls and Procedures

a. Evaluation of disclosure controls and procedures.

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

b. Changes in internal controls.

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

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PART II.

Item 1. Legal Proceedings

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

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

The Company held its 2003 Annual Meeting of Stockholders on May 16, 2003.

At the Annual Meeting, David A. Dodd, Wade Fetzer, III and Ronald G.
Gelbman were re-elected directors. The number of shares of Common Stock voted
in the election of Mr. Dodd was 17,382,419 FOR and 1,250,801 withheld. The
number of shares of common stock voted in the election of Mr. Fetzer was
17,384,051 FOR and 1,249,169 withheld. The number of shares of common stock
voted in the election of Mr. Gelbman was 17,384,776 FOR and 1,248,444 withheld.

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Item 6. Exhibits and Reports on
Form 8-K

|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a. |  | Exhibits
(numbered in accordance with Item 601 of Regulation S-K):
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|   |  | 3.1                                                                |  | Amended and Restated Certificate of Incorporation
(Exhibit 3.1 to the Companys Annual Report on Form 10-K for
the period ending 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                                                                |  | Specimen Form of Rights Certificate (Exhibit 2.1 of
the Companys Registration Statement on Form 8-A (File
No.000-26126) filed August 10, 1999, is hereby incorporated by
reference).                                                                                                                                                           
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|   |  | 4.3                                                                |  | Form of Rights Agreement, dated as of August 2, 1999, between the Company and State Street Bank & Trust
Company, N.A. (Exhibit 2.2 of the Companys Registration
Statement on Form 8-A (File No. 000-26126) filed August 10,
1999, is hereby incorporated by reference).                                                                        
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|   |  | 4.4                                                                |  | Form of Certificate of Designation, Preferences and
Rights of Series B Preferred Stock (Exhibit 2.3 of the
Companys Registration Statement on Form 8-A (File No.
000-26126) filed August 10, 1999, is hereby incorporated by
reference).                                                                                                       
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|   |  | 4.5                                                                |  | Summary of Rights Plan (Exhibit 2.4 of the
Companys Registration Statement on Form 8-A (File No.
000-26126) filed August 10, 1999).                                                                                                                                                                                                            
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|   |  | 31.1                                                               |  | Certification Pursuant to Form of Rule 13a-14(a),
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                         
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|   |  | 31.2                                                               |  | Certification Pursuant to Form of 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.                                                                                                                                                                                              
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|b. |  | Reports on
Form 8-K filed during the quarter ended June 29, 2003: 
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|   |  | 1)                                                                 |  | Form 8-K/A filing the pro forma financial
statements for the Chemicon acquisition on May 14, 2003.                                                                                                                                                                                                                                              
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|   |  | 2)                                                                 |  | Form 8-K furnishing the Companys restated segment
revenue and gross profit in accordance with regulation FD on
May 1, 2003.                                                                                                                                                                                                                    
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|   |  | 3)                                                                 |  | Form 8-K furnishing the Companys first quarter
2003 earnings release on April 24, 2003                                                                                                                                                                                                                                                         
|   |  |                                                                    |  |                                                                                                                                                                                                                                                                                                                                                 
|   |  | 4)                                                                 |  | Form 8-K filing the Audited combined balance sheets
of Chemicon International, Inc. and Affiliates for the years
ended December 31, 2002 and 2001 and the related combined
statements of income, comprehensive income and retained
earnings, and cash flows for each of the three years in the
period ended December 31, 2002 on April 11, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                     |  |     |  |                                      
|-------------------- |  | --- |  | -------------------------------------
|                     |  |     |  | SEROLOGICALS CORPORATION
(Registrant)
|                     |  |     |  |                                      
|Date: August 8, 2003 |  | By: |  | /s/ Harold W. Ingalls                
|                     |  |     |  |                                      
|                     |  |     |  | Harold W. Ingalls                    
|                     |  |     |  | Vice President Finance and           
|                     |  |     |  | Chief Financial Officer              

32