Seracare Life Sciences (SRLS) 10-Q 2007 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

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: 0-33045

SeraCare Life Sciences, Inc.

(Exact name of registrant as specified in its charter)

DE (State or other jurisdiction of incorporation or organization)	33-0056054 (I.R.S. Employer Identification No.)
37 Birch Street Milford, MA (Address of principal executive offices)	01757 (Zip Code)

Registrant’s telephone number, including area code: (508) 244-6400

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yeso Noþ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero	Accelerated filero	Non-accelerated filerþ	Smaller reporting companyo
		(Do not check if a smaller reporting company)

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yeso Noþ

     The number of shares of common stock outstanding as of April 30, 2008 was 18,563,476.

TABLE OF CONTENTS

	Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements		2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		25
Item 4. Controls and Procedures		25
PART II: OTHER INFORMATION
Item 1. Legal Proceedings		27
Item 1A. Risk Factors		27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3. Defaults upon Senior Securities		36
Item 6. Exhibits		36
EX-31.1 Sarbanes-Oxley Act Section 302 Certification of Susan L.N. Vogt.
EX-31.2 Sarbanes-Oxley Act Section 302 Certification of Gregory A. Gould.
EX-32.1 Sarbanes-Oxley Act Section 906 Certification of Susan L.N. Vogt and Gregory A. Gould.

PART I: FINANCIAL INFORMATION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     We caution you that this document contains disclosures that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about SeraCare Life Sciences, Inc. (“SeraCare” or the “Company”). All statements regarding our expected future financial position, results of operations, cash flows, dividends, financing plans, business strategy, budget, projected costs or cost savings, capital expenditures, competitive positions, growth opportunities for existing products or products under development, plans and objectives of management for future operations and markets for stock are forward-looking statements. In addition, forward-looking statements include statements in which we use words such as “expect,” “believe,” “anticipate,” “intend,” or similar expressions. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, we cannot assure you that these expectations will prove to have been correct, and actual results may differ materially from those reflected in the forward-looking statements. Factors that could cause our actual results to differ from the expectations reflected in the forward-looking statements in this document include those set forth in “Risk Factors” in Part II, Item 1A. Many of these factors are beyond our ability to control or predict.

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Item 1. Financial Statements

SERACARE LIFE SCIENCES, INC.

STATEMENTS OF OPERATIONS – UNAUDITED

	For the three months ended						For the nine months ended
	June 30,						June 30,
	2007			2006			2007			2006
Revenue	$	11,961,463		$	12,859,891		$	35,861,144		$	38,367,135
Cost of revenue		8,191,523			7,204,904			26,289,482			25,137,783
Gross profit		3,769,940			5,654,987			9,571,662			13,229,352
Research and development expense		109,522			97,587			290,503			392,591
Selling, general and administrative expenses		4,099,066			2,891,907			10,847,647			10,320,472
Reorganization items		58,843			2,766,429			4,922,502			7,427,986
Operating loss		(497,491	)		(100,936	)		(6,488,990	)		(4,911,697	)
Interest expense		(148,574	)		(471,586	)		(589,221	)		(1,775,901	)
Interest expense to related parties		(63,973	)		(122,500	)		(312,862	)		(367,500	)
Other income, net		43,939			51,485			128,437			371,249
Loss before income taxes		(666,099	)		(643,537	)		(7,262,636	)		(6,683,849	)
Income tax expense (benefit)		3,899			(2,231	)		42,509			(23,167	)
Net loss from continuing operations		(669,998	)		(641,306	)		(7,305,145	)		(6,660,682	)
Loss from discontinued operations, net of income tax		(16,958	)		(474,851	)		(109,438	)		(14,145,419	)
Net loss	$	(686,956	)	$	(1,116,157	)	$	(7,414,583	)	$	(20,806,101	)
Loss per common share
Basic and diluted net loss per common share
Continuing operations	$	(0.04	)	$	(0.05	)	$	(0.49	)	$	(0.48	)
Discontinued		—			(0.03	)		(0.01	)		(1.01	)
Net loss	$	(0.04	)	$	(0.08	)	$	(0.50	)	$	(1.49	)
Weighted average shares outstanding
Basic and diluted		16,351,629			14,082,966			14,972,508			13,943,149

See accompanying notes to financial statements.

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SERACARE LIFE SCIENCES, INC.

BALANCE SHEETS – UNAUDITED

	As of			As of
	June 30,			September 30,
	2007			2006
ASSETS
Current assets
Cash and cash equivalents	$	9,653,823		$	13,560,768
Accounts receivable, less allowance for doubtful accounts of $215,032 and $216,941 as of June 30, 2007 and September 30, 2006, respectively		7,010,378			8,385,292
Taxes receivable		1,779,973			1,801,927
Inventory		6,959,692			5,737,836
Prepaid expenses and other current assets		1,318,151			1,797,908
Total current assets		26,722,017			31,283,731
Property and equipment, net		4,333,626			4,798,298
Assets held for sale		—			917,414
Goodwill		27,362,559			27,362,559
Other intangible assets		5,732,615			5,930,993
Other assets		928,803			815,302
Total assets	$	65,079,620		$	71,108,297
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	2,983,135		$	1,543,322
Prepetition liabilities		334,774			9,108,613
Accrued expenses and other liabilities		3,231,332			2,263,508
Current portion of long-term debt		161,597			10,591,420
Total current liabilities		6,710,838			23,506,863
Long-term debt		2,178,562			2,218,297
Long-term notes payable to related parties		—			3,500,000
Other liabilities		366,771			317,122
Total liabilities		9,256,171			29,542,282
Commitments and contingencies
Stockholders’ equity
Preferred stock-2007, $.001 par value, 5,000,000 shares authorized; no shares issued or outstanding; 2006, no par value, 25,000,000 shares authorized, no shares issued or outstanding		—			—
Common stock-2007, $.001 par value, 35,000,000 shares authorized; 18,557,948 shares issued and outstanding as of June 30, 2007; 2006, no par value, 25,000,000 shares authorized, 14,282,948 shares outstanding as of September 30, 2006		18,558			66,884,081
Additional paid-in capital		99,285,451			10,747,911
Retained earnings		(43,480,560	)		(36,065,977	)
Total stockholders’ equity		55,823,449			41,566,015
Total liabilities and stockholders’ equity	$	65,079,620		$	71,108,297

See accompanying notes to financial statements.

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SERACARE LIFE SCIENCES, INC.

STATEMENTS OF CASH FLOWS — UNAUDITED

	For the nine months ended
	June 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(7,414,583	)	$	(20,806,101	)
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization		1,039,850			1,510,277
Amortization of deferred financing expenses		14,990			419,667
Bad debt expense		9,228			119,521
Write-down of inventory		631,346			345,390
Impairment of goodwill		—			12,576,595
Gain on disposition of certain assets of Genomics Collaborative division		(791,661	)		—
Stock-based compensation		1,946,308			540,642
(Increase) decrease from changes, net of effects from acquisitions:
Accounts receivable		1,365,686			1,817,639
Taxes receivable		21,954			(594,079	)
Inventory		(1,853,202	)		(2,137,281	)
Prepaid expenses and other current assets		478,762			(1,444,295	)
Other assets		116,824			(72,256	)
Increase (decrease) from changes, net of effects from acquisitions
Accounts payable		1,439,813			(3,538,967	)
Prepetition liabilities		(8,773,839	)		5,440,090
Accrued expenses and other liabilities		1,022,543			2,822,234
Net cash used in operating activities		(10,745,981	)		(3,000,924	)
Cash flows from investing activities:
Purchases of property and equipment		(296,800	)		(689,947	)
Acquisition of certain assets of BioMedical Resources, Inc.		—			(290,463	)
Acquisition of certain assets of Celliance division		—			(3,588,796	)
Proceeds from the disposition of certain assets of Genomics Collaborative division		2,000,000			—
Proceeds from the disposal of property and equipment		—			5,000
Net cash provided by (used in) investing activities		1,703,200			(4,564,206	)
Cash flows from financing activities:
Repayments of long-term debt		(10,549,558	)		(18,354,147	)
Repayment of related party debt		(3,500,000	)		—
Deferred financing expenses		(539,627	)		—
Proceeds from long term debt		—			15,000,000
Funding received from Rights Offering, net of issue costs		19,576,771			—
Proceeds from exercise of options, warrants and ESPP transactions		148,250			292,990
Net cash provided by (used in) financing activities		5,135,836			(3,061,157	)
Net decrease in cash and cash equivalents		(3,906,945	)		(10,626,287	)
Cash and cash equivalents, beginning of period		13,560,768			29,553,647
Cash and cash equivalents, end of period	$	9,653,823		$	18,927,360

See accompanying notes to financial statements.

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SERACARE LIFE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS

1. Basis of Presentation

     The unaudited condensed financial statements of SeraCare Life Sciences, Inc. (“SeraCare” or the “Company”) for the nine months ended June 30, 2007 and 2006 presented herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In addition, the September 30, 2006 unaudited condensed Balance Sheet was derived from the audited financial statements, but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the audited financial statements for the year ended September 30, 2006 and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007. The accounting policies used in preparing these unaudited condensed financial statements are materially consistent with those described in the audited September 30, 2006 financial statements.

     The financial information in this Report reflects, in the opinion of management, all adjustments of a normal recurring nature necessary to present fairly the results for the interim period. Quarterly operating results are not necessarily indicative of the results that may be expected for other interim or annual periods.

     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in many areas. Following are some of the areas requiring significant judgments and estimates: revenue recognition, accounts receivable, inventory, cash flow and valuation assumptions in performing asset impairment tests of long-lived assets, income taxes, and stock-based compensation value.

2. Recent Accounting Pronouncements

SFAS No. 157, “Fair Value Measurements”

     SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), has been issued by the Financial Accounting Standards Board (the “FASB”). This new standard provides guidance for using fair value to measure assets and liabilities. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. Currently, over 40 accounting standards within GAAP require (or permit) entities to measure assets and liabilities at fair value. The standard clarifies that for items that are not actively traded, such as certain kinds of derivatives, fair value should reflect the price in a transaction with a market participant, including an adjustment for risk, not just the company’s mark-to-model value. SFAS 157 also requires expanded disclosure of the effect on earnings for items measured using unobservable data. Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. In this standard, the FASB clarified the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.

     The FASB agreed to defer the effective date of SFAS 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The FASB again rejected the proposal of a full-one year deferral of the effective date of SFAS 157. SFAS 157 was issued in September 2006, and is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Accordingly, the Company will adopt this statement on October 1, 2008. The Company is currently assessing the impact of this statement.

SFAS No. 141 (Revised 2007),“Business Combinations”

     On December 4, 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”).Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific items, including:

• acquisition costs will be generally expensed as incurred;

• noncontrolling interests will be valued at fair value at the acquisition date;

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• acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies;

• in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date until the completion or abandonment of the associated research and development efforts;

• restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and

• changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

     SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, the Company will adopt this statement on October 1, 2009. The Company is currently assessing the impact of this statement.

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51”

     On December 4, 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, the Company will adopt this statement on October 1, 2009. The Company is currently assessing the impact of this statement.

FIN No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”

     FASB Interpretation  No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”(“FIN 48”) was issued on July 13, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”.FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new FASB standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

     The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN 48. The cumulative effect of applying the provisions of FIN 48 should be reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that fiscal year. The Company will adopt FIN 48 on October 1, 2007 and is currently assessing the impact of this adoption.

3. Background

(a) Background and Organization

     SeraCare Life Sciences, Inc. (“SeraCare” or the “Company”), a Delaware corporation, serves the global life sciences industry by providing vital products and services to facilitate the discovery, development and production of human and animal diagnostics and therapeutics. SeraCare’s operations are based in Milford, Massachusetts, with satellite manufacturing and offices in: West Bridgewater, Massachusetts; Frederick, Maryland; and Gaithersburg, Maryland. The Company’s business is divided into two segments: Diagnostic & Biopharmaceutical Products and BioServices. SeraCare’s Diagnostic & Biopharmaceutical Products segment includes two types of products: controls and panels, which include the manufacture of products used for quality control of infectious disease testing in hospital and clinical testing labs and blood banks, and byin vitrodiagnostic (“IVD”) manufacturers; and reagents and bioprocessing products, which include the manufacture and supply of biological materials and intermediates used in the research, development and manufacturing of human and animal diagnostics, therapeutics and vaccines. The BioServices segment includes biobanking, sample processing and testing services for research and clinical trials, and contract research services in molecular biology, virology and biochemistry.

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     SeraCare’s customer base is diverse and operates in a highly regulated environment. SeraCare has built its reputation on providing a comprehensive portfolio of products and services and operating state-of-the-art facilities that incorporate the industry’s highest quality standards. SeraCare’s customers include IVD manufacturers; hospital-based, independent and public health labs; blood banks; government and regulatory agencies; and organizations involved in the discovery, development and commercial production of human and animal therapeutics and vaccines, including pharmaceutical and biotechnology companies, veterinary companies and academic and government research organizations.

(b) Reorganization

     SeraCare Life Sciences, Inc. filed for bankruptcy under Chapter 11 of the Bankruptcy Code in March of 2006.  In May 2007, the Company emerged from bankruptcy proceedings pursuant to a merger of SeraCare Life Sciences, Inc., a California corporation into SeraCare Reorganization Company, Inc. (“Reorganized SeraCare”), a Delaware corporation.  Subsequently, Reorganized SeraCare changed its name to SeraCare Life Sciences, Inc.

4. Reorganization

     On March 22, 2006, the Company filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California (the “Bankruptcy Court”). This action was triggered by the notice of default and acceleration of debt from its senior secured lenders and the cross-default of another secured debt facility. The default was due to the violation of certain financial covenants and the failure to deliver annual audited financial statements on a timely basis. Subsequently, the Bankruptcy Court allowed the Company to operate its business as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and the orders of the Bankruptcy Court.

     The Company emerged from bankruptcy protection under the Joint Plan of Reorganization (the “Plan of Reorganization”) which was confirmed by the Bankruptcy Court on February 21, 2007 and after each of the conditions precedent to the consummation was satisfied or waived, became effective May 17, 2007. The Plan of Reorganization allowed SeraCare to pay off all its creditors in full and exit bankruptcy under the ownership of its existing shareholders and provided for the settlement of SeraCare’s alleged liabilities in a previously filed shareholders’ class action lawsuit. Accordingly, each of the Revolving/Term Credit and Security Agreement between the Company, Union Bank of California and Brown Brothers Harriman & Co. and the Subordinated Note Agreement between the Company and Barry Plost, Bernard Kasten and Jacob Safier was terminated and the principal amount and interest outstanding under each agreement was paid off with the proceeds from a rights offering (the “Rights Offering”).

     Reorganization items include legal, accounting and other professional fees related to the Company’s bankruptcy proceedings, reorganization and litigation. For the quarters ended June 30, 2007 and 2006, reorganization items totaled $58,843 and $2,766,429, respectively. Reorganization items totaled $4,922,502 and $7,427,986 for the nine months ended June 30, 2007 and 2006, respectively.

5. Inventory

     Inventory consists primarily of human blood plasma and products derived from human blood plasma. Inventory is carried at specifically identified cost and assessed periodically to ensure it is valued at the lower of cost or market. The Company reviews inventory periodically for impairment based upon factors related to usability, age and fair market value and provides a reserve where necessary to ensure the inventory is appropriately valued. A provision has been made to reduce excess and not readily marketable inventories to their estimated net realizable value.

	At June 30,			At September 30,
	2007			2006
Raw materials and supplies	$	1,429,422		$	1,525,196
Work in process		1,367,081			1,249,992
Finished goods		6,320,263			4,757,046
Gross inventory		9,116,766			7,532,234
Reserve for obsolete inventory		(2,157,074	)		(1,794,398	)
Net inventory	$	6,959,692		$	5,737,836

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6. Long-Term Debt

     Long-term debt, excluding amounts due to related parties, consists of the following:

	At June 30,			At September 30,
	2007			2006
Revolving credit facility	$	—		$	9,950,000
Real property mortgage note		2,072,164			2,119,083
Notes payable		—			500,000
Capital leases		267,995			240,634
Total debt		2,340,159			12,809,717
Less current portion		(161,597	)		(10,591,420	)
Total long-term debt	$	2,178,562		$	2,218,297

Revolving Credit Facility and Term Notes

     On June 7, 2007, the Company entered into a three-year Credit and Security Agreement, dated as of June 4, 2007, with Merrill Lynch Capital (now GE Capital) pursuant to which a $10.0 million revolving loan facility was made available to the Company.  Obligations under the Credit and Security Agreement are secured by substantially all the assets of the Company excluding the Company’s real property located at its West Bridgewater facility, which is subject to a separate mortgage.  The revolving credit facility, which may be used for working capital and other general corporate purposes, is governed by a borrowing base.  The loan bears interest at a rate per annum equal to 2.75% over LIBOR.  Interest is payable monthly.  Amounts under the revolving loan facility may be repaid and re-borrowed until June 4, 2010.  Mandatory prepayments of the revolving loan facility are required any time the outstanding revolving loan balance exceeds the borrowing base.  The agreement contains standard representations, covenants and events of default for facilities of this type. In addition, the agreement prohibits the payment of dividends during the term of the agreement.  Occurrence of an event of default allows the lenders to accelerate the payment of the loans and/or terminate the commitments to lend, in addition to the exercise of other legal remedies, including foreclosing on collateral.  As of June 30, 2007, approximately $6.8 million was available for borrowing at an interest rate of 8.07%. The Company is currently in compliance with all covenants. There were no draw downs on the line of credit during the quarter ended June 30, 2007.

     Effective September 14, 2004, the Company entered into a four-year $25,000,000 Revolving/Term Credit and Security Agreement with Brown Brothers Harriman & Co. as the collateral agent and Union Bank of California, N.A. as the administrative agent (the “Credit Agreement”), pursuant to which a $15,000,000 term loan facility (the “Term Loan Facility”) and a $10,000,000 revolving loan facility (“Revolving Loan Facility”) were made available to the Company. Obligations under the Credit Agreement were secured by substantially all the assets of the Company excluding the Company’s real property located at its West Bridgewater facility, which is subject to a separate mortgage.  On September 14, 2004, the Company used the proceeds of $15,000,000 of the Term Loan Facility and $6,000,000 of the Revolving Loan Facility under the Credit Agreement to fund a portion of the acquisition of substantially all of the assets of the BBI Diagnostics and BBI Biotech Research Laboratories, Inc. (“BBI Biotech”) divisions of Boston Biomedica, Inc. (“BBI”) (the “BBI Acquisition”) and to repay amounts outstanding under an existing credit agreement, which was terminated. The Revolving Loan Facility, which was available for working capital and other general corporate purposes, was governed by a borrowing base equal to 60% to 80% of eligible accounts receivable and the lesser of $7,500,000 or 30% of eligible inventory.

     Until September 14, 2005, the loans bore interest at fluctuating rates equal to 3.25% over LIBOR and 1.25% over the prime rate of Union Bank of California, N.A. (as selected by the Company), which rates may have thereafter decreased to as low as 2.25% over LIBOR and .25% over Union Bank of California, N.A. prime rate, depending on a ratio tied to the Company’s total indebtedness. Interest was payable at the end of each LIBOR interest period (but no less frequently than every three months), as selected by the Company, or, in the case of a prime rate loan, monthly. The Credit Agreement required equal quarterly repayments of principal under the Term Loan Facility of $937,500 commencing December 31, 2004, with the final payment due on September 14, 2008. Amounts under the Term Loan Facility may have been prepaid at any time without a prepayment fee, but could not have been re-borrowed. Amounts under the Revolving Loan Facility could have been repaid and re-borrowed until September 14, 2008. Mandatory prepayments of the Term Loan Facility and the Revolving Loan Facility were required upon the occurrence of certain events, as defined in the Credit Agreement.

     On October 3, 2005, the Company entered into an amendment to its Credit Agreement with the lenders named therein, Brown Brothers Harriman & Co. and Union Bank of California, N.A. The amendment (a) increased the aggregate revolving loan commitment by

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$15,000,000 from $10,000,000 to $25,000,000; (b) added a swing line facility in the amount of $2,000,000; and (c) made certain other modifications as set forth therein.

     The Credit Agreement contained standard representations, covenants and events of default for facilities of this type. Occurrence of an event of default allowed the lenders to accelerate the payment of the loans and/or terminated the commitments to lend, in addition to the exercise of other legal remedies, including foreclosing on collateral.

     The Credit Agreement between the Company, Union Bank of California and Brown Brothers Harriman & Co. was terminated and the principal amount and interest outstanding was paid off with the proceeds from the Rights Offering in May 2007.

Real Property Mortgage Note

     Pursuant to the BBI Acquisition, the Company entered into an Assumption and Modification Agreement, dated as of September 14, 2004 (the “Assumption Agreement”), with Commerce Bank & Trust Company (“Commerce Bank”), pursuant to which the Company assumed certain of BBI’s obligations under the loan documents referenced therein (the “Loan Documents”). The obligations assumed by the Company include a promissory note (the “Note”) with an outstanding principal balance of approximately $2,280,000. The Note is secured by a mortgage on the real property located at 375 West Street, West Bridgewater, Massachusetts (the “Real Property”), which was acquired by the Company pursuant to the BBI Acquisition. The Company also entered into a Guaranty (the “Guaranty”) in favor of Commerce Bank, to secure its obligations under the Loan Documents. The outstanding principal balance under the Note bears interest at a rate per annum of 9.75% until February 25, 2005, at which time the rate per annum adjusted to a rate equal to 0.75% in excess of Commerce Bank’s published corporate base rate. The effective interest rate as of June 30, 2007 was 9.0%. The unpaid principal and interest under the Note is due and payable in full on August 31, 2009, although the Note may be repaid in whole or part, at any time, without penalty. The outstanding principal balance under the Note, together with all unpaid interest, may be accelerated and become immediately due and payable following a default under the Note or the loan agreement (and the expiration of applicable cure periods) or if the Real Property is transferred by the Company to a third party without Commerce Bank’s consent. The Company is currently in compliance with all covenants.

Subordinated Notes

     On September 14, 2004, the Company entered into a four-and-one-half-year $4,000,000 Subordinated Note Agreement (“Subordinated Note Agreement”) with certain lenders. Two of the three lenders (Barry Plost and Dr. Bernard Kasten who collectively held $3,500,000) were members of the Board of Directors of the Company, and the administrative agent was a corporation controlled by Mr. Plost. The $3,500,000 was classified as long-term notes payable to related parties in the accompanying September 30, 2006 balance sheet. The remaining $500,000 was classified as a component of long-term debt. The Company issued the $4,000,000 in notes under the Subordinated Note Agreement to fund a portion of the purchase price for the BBI Acquisition. Until September 15, 2006, the notes bore interest at a rate equal to 14% per annum, increasing thereafter to 16% per annum. Interest was payable monthly in cash, except that any amount in excess of 14% per annum shall be paid in kind, unless payment in cash was permitted under the Credit Agreement and the Company elected to pay such amount in cash. The notes were due on March 15, 2009 and had no scheduled prepayments or sinking fund requirements. The notes could have been repaid at any time prior to March 15, 2005 in an amount equal to the principal thereof plus accrued interest. At any time after March 15, 2005 until and including March 15, 2008, the notes may have been repaid only with the repayment of a fee equal to 3% (initially) of the amount to be repaid, declining each year by 1%. Mandatory prepayment of the notes was required upon a change of control in an amount equal to 101% of the principal thereof, plus accrued interest.

     The Subordinated Note Agreement was secured by substantially all the assets of the Company, second in priority to the lien securing obligations under the Credit Agreement, and was subordinated in right of payment to obligations under the Credit Agreement.

     The Subordinated Note Agreement contained standard representations, covenants and events of default for facilities of this type. Occurrence of an event of default allowed the holders to accelerate payment of the notes, in addition to the exercise of other legal remedies, including foreclosing on collateral, subject to the provisions of the subordination agreement with the lenders under the Credit Agreement.

     The Subordinated Note Agreement was terminated and the principal amount and interest outstanding under each note was paid off with the proceeds from the Rights Offering during May 2007.

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Aggregate Maturities

     As of June 30, 2007, the aggregate maturities of long-term debt for the remainder of fiscal 2007 and for each of the five fiscal years subsequent to September 30, 2007 are as follows:

2007 (July 1, 2007 through September 30, 2007)	$	41,020
2008		187,771
2009		2,050,332
2010		30,743
2011		17,931
2012		12,362
Thereafter		—
	$	2,340,159

7.      Commitments and Contingencies

Chapter 11 Bankruptcy

     On March 22, 2006, SeraCare Life Sciences, Inc., a California corporation, filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court. On February 21, 2007, the Bankruptcy Court entered an order confirming the Plan of Reorganization. The Plan of Reorganization became effective on May 17, 2007, on which date the provisions of the Plan of Reorganization became operative and the transactions contemplated by the Plan of Reorganization were consummated.

Shareholder Litigation

     The Company and certain of its former officers and directors and one of its current directors were named in a number of federal securities class action lawsuits as well as federal and state derivative class action lawsuits. Beginning on December 22, 2005, the first of seven shareholder class action complaints was filed in the United States District Court for the Southern District of California.  Those cases were subsequently consolidated under the captionIn re SeraCare Life Sciences, Inc. Securities Litigation, Master File No. C-05-2335-H.  On September 4, 2007, the United States District Court for the Southern District of California approved the motion for final settlement of the federal class actions and entered an order of settlement and final judgment dismissing with prejudice the claims.  There were no objections to the final settlement.  Shareholders owning a nonmaterial number of shares opted out of the final settlement.  Pursuant to the settlement, $4.4 million was provided pursuant to the Company’s insurance policy with Carolina Casualty, of which $3.0 million was awarded to the plaintiffs, $0.5 million was reserved to cover ongoing legal expenses for directors and officers related to the SEC and Department of Justice (“DOJ”) investigation (described below) and the remaining $0.9 million was reserved to cover the defendants’ previously incurred legal expenses.  All of the defendants in the lawsuit settled with the Company by waiving any future indemnification with respect to the DOJ investigation and/or other matters in exchange for being released by the Company with respect to any derivative action. 

Department of Justice/Securities and Exchange Commission

     In the first half of 2006, the U.S. Attorney’s Office for the Southern District of California issued grand jury subpoenas to the Company and to certain former officers and directors requesting the production of certain documents.  At about the same time, the Company learned that the staff of the SEC, Division of Enforcement was also conducting an investigation of the events that led the Company to bankruptcy.  The SEC issued five subpoenas to the Company for the production of documents throughout 2006 and made requests for additional information in 2007.   Certain current and former employees also provided testimony as part of the investigation.  The Company is cooperating fully with the requests of these agencies. 

CTL Analyzers, LLC

     In July 2006, CTL Analyzers, LLC (“CTL”), a medical technology company that makes devices to measure cellular immune responses, asserted a claim for breach of contract under the Company’s Plan of Reorganization in the Bankruptcy Court. The Company has objected to such claim.  The total amount claimed by CTL is $2.4 million, although the Company believes that its liability is significantly lower.  The Company is in continued negotiations with CTL, which are anticipated to result in a resolution (the precise amount of which is being negotiated) to be returned to the claimant in full satisfaction of the claim asserted against the Company. A hearing is scheduled for June 2008 in the Bankruptcy Court. The Company does not expect any settlement to have a material impact on the financial statements.

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     In addition, the Company is involved from time to time in litigation incidental to the conduct of the Company’s business, but except as noted in the prior paragraph, the Company is not currently a party to any material lawsuit or proceeding.

8.     Leases

     As of June 30, 2007, the Company is leasing properties in Milford, Massachusetts, Frederick, Maryland and Gaithersburg, Maryland and these operating leases expire October 2008, July 2015 and October 2017, respectively, and consisted of approximately 37,000 square feet, 65,000 square feet and 36,000 square feet, respectively. These properties include laboratories, refrigerated storage facilities and administrative offices. These leases are accounted for as operating leases.

     On April 3, 2007, the Company entered into a 60 month capital lease for testing equipment. On November 18, 2004, the Company entered into a 60 month capital lease for various equipment. The Company had equipment related to capital leases of $427,909 and $347,909 at June 30, 2007 and September 30, 2006, respectively, and accumulated amortization was $127,310 and $87,542, respectively.

     Future minimum rental obligations under the aforementioned lease agreements are as follows:

	Capital			Operating
Fiscal Years Ended September 30,	Leases			Leases		Total Leases
2007 (July 1, 2007 through September 30, 2007)	$	26,745		$	489,637	$	516,382
2008		106,984			1,985,056		2,092,040
2009		106,984			1,627,589		1,734,573
2010		34,439			1,638,762		1,673,201
2011		19,930			1,687,919		1,707,849
Thereafter		12,766			8,859,452		8,872,218
Total minimum lease payments		307,848		$	16,288,415	$	16,596,263
Less: amounts representing interest		(39,853	)
Present value of future minimum capital lease payments	$	267,995

     Rent expense amounted to $577,723 and $783,245 for the quarters ended June 30, 2007 and 2006, respectively. For the nine months ended June 30, 2007 and 2006, rent expense amounted to $1,950,447 and $2,149,940, respectively. Rent expense is recognized on a straight-line basis over the term of the lease agreement. During the nine months ended June 30, 2007, the Company terminated the lease for the Genomics Collaborative division facility. The breakage fee of $295,000 is included in discontinued operations.

     Operating lease commitments include $0.5 million of obligations which were superseded by the lease entered into by the Company on October 1, 2007. The lease existing on September 30, 2007 would otherwise have expired in October 2009. For more detail on the new lease, see Note 18, Subsequent Events.

9. Income Taxes

     The Company will adopt the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109” (“FIN 48”) as of October 1, 2007 and is currently assessing the impact of this adoption.

10. Related Party Transactions

     The following is a description of the transactions the Company has engaged in with the Company’s directors and officers and beneficial owners of more than five percent of the Company’s voting securities and their affiliates:

• Harbinger Capital Partners Master Fund I Ltd. and Harbinger Capital Partners Special Situations Fund L.P. (collectively, “Harbinger”), a greater than 5% beneficial owner of the Company, has appointed two directors to the Company’s Board of Directors pursuant to the Plan of Reorganization.

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• Black Horse Capital LP, Black Horse Capital (QP) LP, Black Horse Capital Offshore Ltd. (collectively, “Black Horse Capital”), a greater than 5% beneficial owner, has appointed one director to the Company’s Board of Directors pursuant to the Plan of Reorganization.

• Barry Plost and Bernard L. Kasten, two former directors, were parties to the Subordinated Note Agreement between the Company and other note holders.  During the nine months ended June 30, 2007 and 2006, the Company incurred related party interest expense of $312,862 and $367,500, respectively. As of September 30, 2006, the Company had $3,500,000 of long-term notes payable to related parties and $288,742 of accrued interest expense included in prepetition liabilities related to these subordinated notes. The debt was paid in full with the proceeds of the Rights Offering and the agreement was terminated in May 2007. The Company therefore had no liability for these notes at June 30, 2007.

11. Stockholders’ Equity

     As of September 30, 2006, the total number of shares outstanding was 14,282,948.

     In the nine months ended June 30, 2007, Board members exercised 25,000 options. In addition, the Company raised capital through the Rights Offering, which entitled each holder of common stock to purchase its pro rata share. Unexercised subscription rights were purchased by the backstop purchasers. Through the Rights Offering the Company issued 4,250,000 shares of common stock at $4.75 per share. The $20,187,500 raised through the Rights Offering was used to settle the claims and administrative cost of the bankruptcy. The Company incurred $610,729 of costs related to the Rights Offering.

     Prior to the merger of SeraCare Life Sciences, Inc., a California corporation, into SeraCare Reorganization Company, Inc., a Delaware corporation, SeraCare Life Sciences, Inc. was authorized to issue up to 25,000,000 shares of common stock and 25,000,000 shares of preferred stock at no par value. Subsequent to the merger, SeraCare Reorganization Company, Inc. was authorized to issue 35,000,000 shares of common stock and 5,000,000 shares of preferred stock at $0.001 par value. The Board of Directors may, without further action by the Company’s shareholders, issue preferred stock in one or more series. These terms may include voting rights, preferences as to dividends and liquidation, and conversion and redemption rights.

     As of June 30, 2007, the total number of shares outstanding was 18,557,948.

     The Company is prohibited from paying dividends under the Credit and Security Agreement with GE Capital. 

12. Stock-Based Compensation Plans

     The Company’s Amended and Restated 2001 Stock Incentive Plan (the “Plan”) provides for the issuance of up to 1,800,000 shares of common stock (subject to adjustment in the event of stock splits and other similar events) pursuant to awards granted under the Plan. These include non-qualified stock options, incentive stock options, restricted stock, stock units, stock bonuses, dividend equivalents, deferred payment rights and other awards. Incentive stock options covering up to 1,000,000 shares may be granted under the Plan. Unless the Compensation Committee otherwise provides, stock options vest ratably over three years. The maximum term of stock options is ten years. Options that are granted to Board members generally vest immediately. No restricted stock or stock units have been issued under the Plan.

     As of June 30, 2007, 797,008 shares of common stock remain available for future grants under the Plan. Options covering 211,492 shares of common stock have been exercised under the Plan. During the first three quarters of fiscal 2007, options to purchase 150,000 shares of common stock were issued under the Plan. Employees and members of the Board of Directors received options to purchase 70,000 shares and 80,000 shares of common stock, respectively. Through the nine months ended June 30, 2007, options to purchase 227,835 shares of common stock expired. In addition, options to purchase 25,000 shares of common stock were exercised. As of June 30, 2007, options to purchase 791,500 shares of common stock remained outstanding, of which 694,833 were exercisable.

Options Granted Outside of the Plan

     As of September 30, 2006, options to purchase 640,000 shares of common stock were issued outside of the Plan. For the nine months ended June 30, 2007, an additional option to purchase 250,000 shares of common stock was issued outside of the Plan. Options to purchase 160,000 shares of common stock expired during the same period. As of June 30, 2007, options to purchase 730,000 shares were outstanding, of which 30,000 were exercisable. The remaining 700,000 options vest in equal annual installments over a period of three years and have a maximum term of ten years.

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     A summary of the Company’s options as of June 30, 2007 and changes during the nine months then ended is presented below:

						Weighted-Average
						Remaining
	Number of			Weighted-Average		Contractual Term		Aggregate
Options	Options			Exercise Price		(in Yrs)		Intrinsic Value
Outstanding September 30, 2006		1,534,335		$	7.44
Granted		400,000		$	6.21
Exercised		(25,000	)	$	5.93
Cancelled/Forfeited		(387,835	)	$	5.64
Outstanding June 30, 2007		1,521,500		$	7.60		5.45	$	889,150
Exercisable at June 30, 2007		724,833		$	9.43		2.00	$	279,416

13. Earnings Per Share

     Basic net loss per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed in accordance with the “if converted” method, which uses the weighted average number of common shares outstanding during the period and also includes the dilutive effect of potentially issuable common stock from outstanding stock options and warrants.

     The following table sets out the computations of basic and diluted net income per common share:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
Numerator:
Loss from continuing operations	$	(669,998	)	$	(641,306	)	$	(7,305,145	)	$	(6,660,682	)
Loss from discontinued operations, net of income tax		(16,958	)		(474,851	)		(109,438	)		(14,145,419	)
Net loss	$	(686,956	)	$	(1,116,157	)	$	(7,414,583	)	$	(20,806,101	)
Denominator:
Weighted average common shares outstanding		16,351,629			14,082,966			14,972,508			13,943,149
Effect of dilutive securities:
Stock options1		—			—			—			—
Diluted weighted average common shares outstanding		16,351,629			14,082,966			14,972,508			13,943,149
Basic and diluted net loss per common share:
Continuing operations	$	(0.04	)	$	(0.05	)	$	(0.49	)	$	(0.48	)
Discontinued operations		—			(0.03	)		(0.01	)		(1.01	)
Net loss	$	(0.04	)	$	(0.08	)	$	(0.50	)	$	(1.49	)

¹ Excluded from the calculation of diluted net loss per common share for the three months ended June 30, 2007 and 2006 were 1,570,722 and 1,554,939 shares, respectively, related to stock options because their effect was anti-dilutive. For the nine months ended June 30, 2007 and 2006, 1,714,138 and 1,834,011 shares, respectively, were excluded from the calculation of diluted net loss per common share related to stock options because their effect was anti-dilutive.

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14. Segment Information

     The Company’s business is divided into two segments: Diagnostic & Biopharmaceutical Products and BioServices. SeraCare’s Diagnostic & Biopharmaceutical Products segment includes two categories: controls and panels used for the evaluation and quality control of infectious disease tests in hospital and clinical labs and blood banks, and by IVD manufacturers; and reagents and bioprocessing products, which include the manufacture and supply of processed biological materials used in the research, development and manufacturing of human and animal diagnostics, therapeutics and vaccines. The BioServices segment includes biobanking, sample processing and testing services for research and clinical trials, and contract research services in molecular biology, virology and biochemistry. These reportable segments are strategic business lines that offer different products and services and require different marketing strategies.

     The Company utilizes multiple forms of analysis and control to evaluate the performance of the segments and to evaluate investment decisions. Revenue and gross profit are deemed to be the most significant measurement of performance, since administrative expenses are not allocated or reviewed by management at the segment level. Therefore, management has not allocated research and development expense, selling, general and administrative expenses, interest expense or reorganization items to the segments. Amortization of intangibles is not allocated to the segment level and accordingly has not been included in this data. The impact of discontinued operations has also been excluded from the data disclosed here. The following segment financial statements have been prepared on the same basis as the Company’s financial statements.

     The Company’s segment information for the three months and nine months ended June 30, 2007 and 2006 is as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2007		2006		2007		2006
Revenue:
Diagnostic & Biopharmaceutical Products	$	8,771,970	$	10,009,513	$	26,528,780	$	30,093,637
BioServices		3,189,493		2,850,378		9,332,364		8,273,498
Total revenue	$	11,961,463	$	12,859,891	$	35,861,144	$	38,367,135
Gross profit:
Diagnostic & Biopharmaceutical Products	$	3,229,003	$	5,097,256	$	7,971,403	$	12,188,739
BioServices		540,937		557,731		1,600,259		1,040,613
Total gross profit	$	3,769,940	$	5,654,987	$	9,571,662	$	13,229,352

15. Discontinued Operations, Genomics Collaborative

     On March 29, 2007, the Company and BioServe Technologies, LLC (“BioServe”) entered into an asset purchase agreement pursuant to which BioServe agreed to purchase certain assets principally used in the business the Company acquired from Genomics Collaborative, Inc. and assume certain limited liabilities of the business. Under the terms of the asset purchase agreement, the consideration consists of $2,000,000 cash, subject to reduction for inventory adjustments, and a 7.5% royalty on BioServe’s net sales related to the business for five years. The assets sold included $917,414 of fixed assets, certain intangible assets which were fully amortized and its library of specimens which had a carrying amount of $0. The Company recorded a gain on the sale of $791,661.

     In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS 144”), the results of operations and the gain on disposal of the business has been excluded from continuing operations and reported as discontinued operations for the current and prior periods. Furthermore, the assets included as part of this divestiture have been reclassified as held for sale in the Balance Sheet for prior periods. During the second quarter of 2006, the Company assessed its long-lived assets and recorded a

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goodwill impairment of $12,576,595 related to this business. During the fourth quarter of 2006, the Company placed this business for sale in order to focus on its core business. As a result, the Company recorded an additional goodwill impairment of $808,254.

     The significant components of the Company’s results from discontinued operations, net of income taxes, for the three months and nine months ended June 30, 2007 and 2006 are as follows:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
Revenue	$	—		$	948,422		$	965,938		$	2,784,970
Goodwill impairment	$	—		$	—		$	—		$	(12,576,595	)
Pretax losses	$	(16,958	)	$	(474,851	)	$	(901,099	)	$	(14,145,419	)
Income tax benefit	$	—		$	—		$	—		$	—
Gain on disposal	$	—		$	—		$	791,661		$	—
Income tax on disposal	$	—		$	—		$	—		$	—
Net loss from discontinued operations	$	(16,958	)	$	(474,851	)	$	(109,438	)	$	(14,145,419	)

16. Intangibles

June 30, 2007

	Estimated
	useful life		Gross cost			Accumulated		Net intangible
	(years)		intangible asset			amortization		asset
Developed product technology		5	$	150,000		$	82,500	$	67,500
Customer relationships		4-5		1,090,000			644,885		445,115
BBI trade name (see Note 18)	indefinite			5,220,000			—		5,220,000
					��
			$	6,460,000		$	727,385	$	5,732,615

September 30, 2006

	Estimated
	useful life		Gross cost		Accumulated		Net intangible
	(years)		intangible asset		amortization		asset
Developed product technology		5	$	150,000	$	60,000	$	90,000
Customer relationships		4-5		1,090,000		469,007		620,993
BBI trade name (see Note 18)	indefinite			5,220,000		—		5,220,000
			$	6,460,000	$	529,007	$	5,930,993

     Amortization expense for the three months ended June 30, 2007 and 2006 was $66,126, and $106,101, respectively. For the nine months ended June 30, 2007 and 2006, amortization expense was $198,378 and $324,542, respectively.

     The estimated aggregate amortization expense for intangible assets owned as of June 30, 2007 for the remainder of 2007 and for each of the succeeding years is as follows:

2007 (July 1 through September 30, 2007)	$	66,126
2008		264,504
2009		181,985
	$	512,615

17. Employee Benefit Plans

     Employees of the Company participate in the Company’s 401(k) defined contribution plan (the “401(k) Plan”). Effective January 1, 2007, the company amended the 401(k) Plan to match employee contributions each pay period at a rate of 25% of eligible

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contributions to employees who had more than one year of service with the Company. Eligible contributions are defined as employee contributions up to a maximum of 6% of employee compensation. Total matching contributions made to the 401(k) Plan and charged to expense by the Company for the three months and nine months ended June 30, 2007 were $23,019 and $49,137, respectively.

     Prior to January 1, 2007, the Company only paid a discretionary matching contribution to the 401(k) Plan. The Company made an $183,765 discretionary matching contribution to the 401(k) Plan that was expensed and paid by the Company in February 2006 and distributed to the plan participants. This match was calculated as 20% of 401(k) elective deferrals up to 6% of employee gross compensation earned during the calendar year ended December 30, 2005.

18. Subsequent Events

     In the fourth quarter of fiscal 2007, as a result of the completion of a new branding strategy, SeraCare decided to phase out the BBI (Boston Biomedica, Inc.) brand name, resulting in a write-off of intangible assets of $5.2 million.

     On October 1, 2007, the Company entered into a lease agreement, pursuant to which the Company is leasing an additional 23,000 square feet for a total of approximately 60,000 rentable square feet in three buildings in a business park in Milford, Massachusetts.  The initial term of the lease agreement is approximately ten years, which may be extended by the Company for three successive extension terms of five years each, subject to certain conditions set forth in the lease agreement.  The new campus expands upon space currently occupied by the Company at the Milford site.  Renovations on the buildings in the new Milford facility began in early October 2007. In January 2008, the Company moved its headquarters from its West Bridgewater facility to its Milford facility. The Company’s Milford facility will house SeraCare’s entire Massachusetts operations of 130 employees, including the Company’s corporate headquarters. The renovations to the Milford facility will generate an increase in capital expenditures related to leasehold improvements net of a $1.2 million landlord allowance in fiscal 2008. In October 2007, the Company began marketing the West Bridgewater facility and land for sale. The net book value of these assets was $2.0 million as of June 30, 2007. See Note 8, Leases.

     Future minimum rental obligations under the aforementioned lease agreement are as follows:

Fiscal Year Ended September 30,
2008	$	637,637
2009		713,719
2010		770,664
2011		857,981
2012		880,759
Thereafter		5,079,549
	$	8,940,309

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the financial statements, related notes and other financial information included elsewhere in thisForm 10-Q and our Annual Report onForm 10-K for the year ended September 30, 2007 which includes the audited financial statements for September 30, 2006.

Reorganization

     On March 22, 2006, the Company filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court. This action was triggered by the notice of default and acceleration of debt from its senior secured lenders and the cross-default of another secured debt facility. The default was due to the violation of certain financial covenants and the failure to deliver annual audited financial statements on a timely basis. Subsequently, the Bankruptcy Court allowed the Company to operate its business as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and the orders of the Bankruptcy Court.

     The Company emerged from bankruptcy protection under the Plan of Reorganization which was confirmed by the Bankruptcy Court on February 21, 2007 and after each of the conditions precedent to the consummation was satisfied or waived, became effective May 17, 2007. The Plan of Reorganization allowed SeraCare to pay off all its creditors in full and exit bankruptcy under the ownership of its existing shareholders and provided for the settlement of SeraCare’s alleged liabilities in a previously filed shareholders’ class action lawsuit. As at least 50% of the existing shareholders continued to own the Company, we did not qualify for fresh-start accounting treatment. Each of the Revolving/Term Credit and Security Agreement between the Company, Union Bank of California and Brown Brothers Harriman & Co. and the Subordinated Note Agreement between the Company, Barry Plost, Bernard Kasten and Jacob Safier was terminated and the principal amount and interest outstanding under each agreement was paid off with the proceeds from the Rights Offering.

Business Overview

     SeraCare serves the global life sciences industry by providing vital products and services to facilitate the discovery, development and production of human and animal diagnostics and therapeutics. The Company’s innovative portfolio includes diagnostic controls plasma-derived reagents and molecular biomarkers and biobanking and contract research services. SeraCare’s quality systems, scientific expertise and state-of-the-art facilities support its customers in meeting the stringent requirements of the highly regulated life sciences industry.

     The Company’s business is divided into two segments: Diagnostic & Biopharmaceutical Products and BioServices. SeraCare’s Diagnostic & Biopharmaceutical Products segment includes two types of products: controls and panels, which include the manufacture of products used for quality control of infectious disease testing in hospital and clinical testing labs and blood banks, and by in-vitro diagnostic (“IVD”) manufacturers; and reagents and bioprocessing products, which include the manufacture and supply of biological materials used in the research, development and manufacturing of human and animal diagnostics, therapeutics and vaccines. The BioServices segment includes biobanking, sample processing and testing services for research and clinical trials, and contract research services in molecular biology, virology, immunology and biochemistry. In March 2007, we sold some assets, including human clinical specimens and their accompanying medical information for use in drug discovery, as well as the assumption of some limited liabilities of our Genomics Collaborative division to BioServe Biotechnologies Limited.

     Our customer base is diverse and operates in a highly regulated environment. SeraCare has built its reputation on providing a comprehensive portfolio of products and services and operating state-of-the-art facilities that incorporate the industry’s highest quality standards. SeraCare’s customers include IVD manufacturers; hospital-based, independent and public health labs; blood banks; government and regulatory agencies; and organizations involved in the discovery, development and commercial production of human and animal therapeutics and vaccines, including pharmaceutical and biotechnology companies, veterinary companies and academic and government research organizations.

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Results of Operations

     The following table shows gross profit and expense items as a percentage of revenue:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
STATEMENT OF OPERATIONS DATA:		%			%			%			%
Revenue		100.0			100.0			100.0			100.0
Cost of revenue		68.5			56.0			73.3			65.5
Gross profit		31.5			44.0			26.7			34.5
Research and development expense		0.9			0.8			0.8			1.0
Selling, general and administrative expenses		34.3			22.5			30.3			26.9
Reorganization items		0.5			21.5			13.7			19.4
Operating loss		(4.2	)		(0.8	)		(18.1	)		(12.8	)
Interest expense		(1.2	)		(3.7	)		(1.6	)		(4.6	)
Interest expense to related parties		(0.5	)		(0.9	)		(0.9	)		(1.0	)
Other income, net		0.3			0.4			0.3			1.0
Loss before income taxes		(5.6	)		(5.0	)		(20.3	)		(17.4	)
Income tax expense (benefit)		0.0			0.0			0.1			(0.1	)
Net loss from continuing operations		(5.6	)		(5.0	)		(20.4	)		(17.3	)
Loss from discontinued operations, net of income tax		(0.1	)		(3.7	)		(0.3	)		(36.9	)
Net loss		(5.7	)		(8.7	)		(20.7	)		(54.2	)

Comparison of the quarters ended June 30, 2007 and June 30, 2006

Revenue

     The following table sets forth segment revenue in millions of dollars for the quarters ended June 30, 2007 and 2006, respectively:

	June 30,		June 30,		Percent
	2007		2006		change
Diagnostic & Biopharmaceutical Products	$	8.8	$	10.0		(12.0	)%
BioServices		3.2		2.9		10.3	%
Total revenue	$	12.0	$	12.9		(7.0	)%

     Net revenue for the third quarter of 2007 decreased by 7.0%, or $0.9 million compared to the third quarter of 2006. Diagnostic & Biopharmaceutical Products revenue decreased by $1.2 million, a 12.0% decrease, and BioServices revenue increased by $0.3 million, a 10.3% increase. Diagnostic & Biopharmaceutical Products revenue decreased due to lower sales in animal, therapeutic grade albumin and disease state products, offset by strong sales in bulk human plasma. Our BioServices segment benefited from increases in repository services and contract research.

Gross Profit

     For the quarter ended June 30, 2007, the Company reported a gross profit of $3.8 million, or 31.5% of revenue, compared to a gross profit of $5.7 million, or 44.0% of revenue, for the quarter ended June 30, 2006. The overall decrease in gross profit was the result of the lower revenue discussed above and also the higher percentage of revenue generated from the BioServices segment, which has

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historically delivered lower margins than product revenue. In addition, we experienced increases in raw materials costs for Diagnostic & Biopharmaceutical Products due to increases in our sourced plasma costs stemming from worldwide shortages in plasma.

Research and Development Expense

     Research and development expense totaled $0.1 million, or 0.9% of revenue, for the quarter ended June 30, 2007 and $0.1 million, or 0.8% of revenue for the quarter ended June 30, 2006.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased to $4.1 million, or 34.3% of revenue, in the third quarter of fiscal 2007 from $2.9 million, or 22.5% of revenue, in the third quarter of fiscal 2006 due to stock-based compensation expense of $0.8 million for the quarter ended June 30, 2007 compared to $0.3 million in fiscal 2006 and increases in headcount and sales and marketing initiatives.

Reorganization Items

     Reorganization items include legal, accounting and other professional fees related to our bankruptcy proceedings, reorganization and litigation. These expenses totaled $0.1 million in the third quarter of fiscal 2007 as compared to $2.8 million in the third quarter of fiscal 2006.

Interest Expense

     Interest expense totaled $0.1 million in the quarter ended June 30, 2007 and $0.5 million in the quarter ended June 30, 2006. The Company paid the Senior Debt and related parties debt in full during the quarter ended June 30, 2007. Interest expense to related parties totaled $0.1 million in the third quarter of fiscal 2007 and fiscal 2006.

Net Loss from Continuing Operations

     As a result of the above, net loss from continuing operations for the quarter ended June 30, 2007 totaled $0.7 million compared to a net loss of $0.6 million for the quarter ended June 30, 2006.

Loss from Discontinued Operations

     Losses from discontinued operations were generated by the sale of the Genomics Collaborative division of the business in March 2007. Losses related to that business unit totaled $0.5 million in the quarter ended June 30, 2006 and was zero in the quarter ended June 30, 2007 as this operation was sold in March 2007.

Net Loss and Net Loss Per Share

     Net loss was $0.7 million in the quarter ended June, 30, 2007, compared to a net loss of $1.1 million in the quarter ended June 30, 2006. Net loss per share on a basic and diluted basis was $0.04 for the quarter ended June 30, 2007 compared to $0.08 for the quarter ended June 30, 2006.

Comparison of the nine months ended June 30, 2007 and June 30, 2006

Revenue

     The following table sets forth segment revenue in millions of dollars for the nine months ended June 30, 2007 and 2006, respectively:

	June 30,		June 30,		Percent
	2007		2006		change
Diagnostic & Biopharmaceutical Products	$	26.5	$	30.1		(12.0	)%
BioServices		9.4		8.3		13.3	%
Total revenue	$	35.9	$	38.4		(6.5	)%

     Revenue for the nine months ended June 30, 2007 declined by 6.5%, or $2.5 million, to $35.9 million from $38.4 million in the nine months ended June 30, 2006. Diagnostic & Biopharmaceutical Products revenue during the same period decreased by $3.6 million, a 12.0% decrease, while BioServices revenue increased by $1.1 million, a 13.3% increase. Diagnostic & Biopharmaceutical Products revenue fell in the fiscal 2007 period as a result of the challenges in converting new customers and maintaining existing customers while we were in bankruptcy proceedings and rebuilding our sales force. Revenue for our BioServices segment increased in the same period

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due to an increase in work under three government contracts as well as the addition of a new commercial repository contract to provide clinical trial repository services.

Gross Profit

     Gross profit margin declined to 26.7% in the nine months ended June 30, 2007 from 34.5% in the prior year period. The overall decrease in gross profit was the result of the lower revenue discussed above and also the higher percentage of revenue generated from the BioServices segment, which has historically delivered lower margins than product revenue. In addition, we experienced increases in raw materials costs for Diagnostic & Biopharmaceutical Products due to increases in our sourced plasma costs stemming from worldwide shortages in plasma. We also received less favorable pricing and terms from many vendors during the period in which we were operating as a debtor-in-possession.

Research and Development Expense

     Research and development expense totaled $0.3 million, or 0.8% of revenue, in the nine months ended June 30, 2007 and $0.4 million, or 1.0% of revenue, in the nine months ended June 30, 2006. Our research and development activities are focused around development of new controls and panels, as well as refinement of existing control and panel product lines. In the fiscal 2007 period, we launched five new panel products in addition to introducing our ELISpot assay kit, which is anin vitromeasure of cellular immunity. We plan to increase our research and development spending in fiscal 2008 as we emphasize the creation of new products and technologies.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased to $10.8 million, or 30.3% of revenue for the nine months ended June 30, 2007, from $10.3 million, or 26.9% of revenue for the nine months ended June 30, 2006. Excluding the effects of stock-based compensation expense included in selling, general and administrative expense of $1.9 million and $0.5 million in the nine months ended June 30, 2007 and 2006, respectively, selling, general and administrative expenses decreased by $0.9 million compared to the prior year. The reduction was mainly due to the elimination of eight accounting and administrative positions when we closed the facilities in Oceanside, California and consolidated the operations and headquarters into our Massachusetts facilities, and the reorganization of our sales force, which occurred during the fiscal 2007 period.

Reorganization Items

     Reorganization items include legal, accounting and other professional fees related to our bankruptcy proceedings, reorganization and litigation. These expenses totaled $4.9 million and $7.4 million for the nine months ended June 30, 2007 and 2006, respectively.

Interest Expense

     Interest expense totaled $0.6 million for the nine months ended June 30, 2007 and $1.8 million for the nine months ended June 30, 2006. The decrease in interest expense is due to a lower level of borrowed funds in the fiscal 2007 period compared to the fiscal 2006 period resulting from repayment of a portion of long-term debt in the first quarter of fiscal 2007 and full payment of the then-existing senior debt commitments in May 2007. Interest expense to related parties totaled $0.3 million for the nine months ended June 30, 2007 and $0.4 million for the nine months ended June 30, 2006. The related parties debt was paid in full during the quarter ended June 30, 2007.

Income Tax Expense

     Income tax expense or benefit was immaterial in the fiscal 2007 period and the fiscal 2006 period.

Net Loss from Continuing Operations

     As a result of the above, net loss from continuing operations for the first three quarters of 2007 totaled $7.3 million compared to a net loss of $6.7 million for the first three quarters of 2006.

Loss from Discontinued Operations

     Losses from discontinued operations were generated by the Genomics Collaborative division of the business which was sold in March 2007. Losses related to that segment totaled $0.1 million for the first three quarters of 2007 which included a gain on the sale of $0.8 million as compared to losses of $14.1 million for the first three quarters of 2006 which included a $12.6 million impairment of goodwill.

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Net Loss and Net Loss Per Share

     Net loss was $7.4 million for the nine months ended June 30, 2007 compared to a net loss of $20.8 million for the nine months ended June 30, 2006. Net loss per share on a basic and fully diluted basis was $0.50 in the fiscal 2007 period compared to $1.49 in the fiscal 2006 period.

Liquidity and Capital Resources

Cash Flows

     The following table summarizes our sources and uses of cash over the periods indicated (in millions):

	For the period ended June 30,
	2007			2006
Net cash used in operating activities	$	(10.7	)	$	(3.0	)
Net cash provided by (used in) investing activities		1.7			(4.5	)
Net cash provided by (used in) financing activities		5.1			(3.1	)
Net decrease in cash and cash equivalents	$	(3.9	)	$	(10.6	)

     As of June 30, 2007, our cash balance was $9.7 million, a decline of $3.9 million from our cash balance as of September 30, 2006. During the nine months ended June 30, 2007, we had a net loss of $7.4 million. Excluding non-cash charges of approximately $2.9 million, the net loss would have been $4.5 million. In addition, we raised $19.6 million in our Rights Offering (net of offering costs), which was used to pay off our then-existing debt and other bankruptcy liabilities of approximately $22.8 million, resulting in a net cash outflow of $3.2 million. Other sources and uses of cash for the nine months ended June 30, 2007 included: $2.0 million in proceeds from the sale of the Genomics Collaborative division; a decrease in prepaid expenses of $0.5 million; an increase in accounts payable and accrued liabilities of $2.5 million as we negotiated more favorable payment terms with vendors after emerging from bankruptcy; a decrease in accounts receivable of $1.4 million resulting from a renewed focus on cash collections; and investments in inventory of $1.9 million.

     We had a current ratio of 4.0 to 1 as of June 30, 2007 compared to 1.3 to 1 as of September 30, 2006. Total liabilities as of June 30, 2007 were $9.3 million compared to $29.5 million as of September 30, 2006. The total debt to equity ratio as of June 30, 2007 was 0.04 compared to 0.39 as of September 30, 2006.

     We believe our current cash on hand and future operating cash flows will be sufficient to meet our future operating cash needs in fiscal 2008. Furthermore, our availability under our credit agreement with Merrill Lynch Capital provides an additional source of liquidity should it be required.

Operating Cash Flows

     Cash used in operating activities was $10.7 million for the nine months ended June 30, 2007, an increase of $7.7 million compared to the nine months ended June 30, 2006. The net loss for the first three quarters was less in fiscal 2007 by $13.4 million and non-cash charges were also lower by $12.2 million. Other changes in operating items were largely driven by the emergence from bankruptcy, including the payment of most prepetition liabilities during the first three quarters of 2007, a decrease in prepaid expenses and an increase in accounts payable as the Company was no longer required to pay a majority of its vendors in advance or immediately upon invoice. Since our emergence from bankruptcy, we have worked to renegotiate terms with vendors, which has had a favorable impact on cash.

Investing Cash Flows

     Cash provided by investing activities was $1.7 million for the nine months ended June 30, 2007, an increase of $6.3 million compared to cash used of $4.6 million for the nine months ended June 30, 2006. During the first three quarters of 2006, the Company spent $3.6 million to acquire certain assets of the Celliance division of Serologicals Corporation. During the nine months ended June 30, 2007 the Company received $2.0 million for the sale of the Genomics Collaborative division to BioServe. Capital expenditures were $0.4 million lower in the nine months ended June 30, 2007 than in the same period of 2006 because some routine projects were put on hold until we emerged from bankruptcy.

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Financing Cash Flows

     Cash provided by financing activities was $5.1 million in the first three quarters of 2007 compared to cash used of $3.1 million in the first three quarters of 2006. In the third quarter of 2007, the Company raised $19.6 million (net of offering costs) in the Rights Offering and paid off then-existing senior debt of $10.5 million and subordinated debt of $3.5 million during the nine months ended June 30. In fiscal 2006, we received cash of $15.0 million as we entered into a new Revolving/Term Credit and Security Agreement in October 2005, then subsequently made payments on our senior debt of $18.4 million during the nine months ended June 30, 2006.

Off-Balance Sheet Arrangements

     During the first nine months of fiscal 2007, we were not party to any off-balance sheet arrangements.

Debt

     On June 7, 2007, the Company entered into a three-year Credit and Security Agreement, dated as of June 4, 2007, with Merrill Lynch Capital (now GE Capital) pursuant to which a $10.0 million revolving loan facility was made available to the Company. Obligations under the Credit and Security Agreement are secured by substantially all the assets of the Company excluding the Company’s real property located at its West Bridgewater facility, which is subject to a separate mortgage. The revolving loan facility, which may be used for working capital and other general corporate purposes, is governed by a borrowing base. The loan bears interest at a rate per annum equal to 2.75% over LIBOR. Interest is payable monthly. Amounts under the revolving loan facility may be repaid and re-borrowed until June 4, 2010. Mandatory prepayments of the revolving loan facility are required any time the revolving loan outstanding balance exceeds the borrowing base. The agreement contains standard representations, covenants and events of default for facilities of this type. Occurrence of an event of default allows the lenders to accelerate the payment of the loans and/or terminate the commitments to lend, in addition to the exercise of other legal remedies, including foreclosing on collateral. As of June 30, 2007, we had not drawn down on the line of credit. As of the same date, we had $6.8 million available for borrowing at an interest rate of 8.07%.

     The Company is also subject to an Assumption and Modification Agreement, dated September 14, 2004, between the Company and Commerce Bank & Trust Company which is secured by a mortgage on the Company’s West Bridgewater facility. At June 30, 2007, the principal amount outstanding under the promissory note related to this assumption agreement is approximately $2.1 million.

Critical Accounting Policies and Estimates

     We have determined that for the periods reported in our Form 10-Q for the quarter ended June 30, 2007, the following accounting policies and estimates are critical in understanding the financial condition and results of our operations.

     Revenue Recognition.Revenue from the sale of products is recognized when we meet all of the criteria specified in Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition in Financial Statements” (“SAB 104”). These criteria include:

• Evidence of an arrangement exists;

• Delivery or performance has occurred;

• Prices are fixed or determinable; and

• Collection of the resulting receivable is reasonably assured.

     Signed customer purchase orders or sales agreements evidence our sales arrangements. These purchase orders and sales agreements specify both selling prices and quantities, which are the basis for recording sales revenue. Trade terms for the majority of our sales contracts indicate that title and risk of loss pass from us to our customers when we ship products from our facilities, which is when revenue is recognized. Revenue is deferred until the appropriate time in situations where trade terms indicate that title and risk of loss pass from us to the customers at a later stage in the shipment process. We maintain allowances for doubtful accounts for estimated losses resulting from our customers’ inability to make required payments. Revenue from service arrangements is recognized when the services are provided as long as all other criteria of SAB 104 are met.

     Inventory valuation.Inventory consists primarily of human blood plasma and products derived from human blood plasma.  Inventory is carried at specifically identified cost and assessed periodically to ensure it is valued at the lower of cost or market. We review inventory periodically for impairment based upon factors related to usability and fair market value and provide a reserve where necessary

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to ensure the inventory is appropriately valued.  A provision has been made to reduce excess and not readily marketable inventories to their estimated net realizable value. The Company’s recorded inventory reserve was $2.2 million and $1.8 million as of June 30, 2007 and September 30, 2006, respectively.

     Valuation of Long-Lived and Intangible Assets and Goodwill.Valuation of certain long-lived assets, including property, plant and equipment, intangible assets and goodwill requires significant judgment. Assumptions and estimates are used in determining the fair value of assets acquired and liabilities assumed in a business combination. A significant portion of the purchase price in our acquisitions is assigned to intangible assets and goodwill. Assigning value to intangible assets requires that we use significant judgment in determining (i) the fair value and (ii) whether such intangibles are amortizable or non-amortizable and, if the former, the period and the method by which the intangible assets will be amortized. Changes in the initial assumptions could lead to changes in amortization expense recorded in our future financial statements.

     For intangible assets and property, plant and equipment, we assess the carrying value of these assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include but are not limited to the following:

• significant underperformance related to historical or expected projected future operating results; or

• significant changes or developments in strategy or operations which affect our long-lived assets.

     Should we determine that the carrying value of long-lived assets and intangible assets may not be recoverable, we will measure any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in our current business model. Significant judgments are required to estimate future cash flows, including the selection of appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for these assets.

     We perform annual reviews for impairment of goodwill or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill may be considered to be impaired if we determine that the carrying value of the reporting unit, including goodwill, exceeds the reporting unit’s fair value. Assessing the impairment of goodwill requires us to make assumptions and judgments regarding the fair value of the net assets of our reporting units.

     Contingencies and Litigation Reserves.The Company is a party to legal actions and investigations. These claims may be brought by, among others, the government, clients, customers, employees and other third parties. Management considers the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some cases relating to the outcome of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved, coupled with the material impact on our results of operations that could result from litigation or other claims. In determining contingency and litigation reserves, management considers, among other issues:

• interpretation of contractual rights and obligations;

• the status of government regulatory initiatives, interpretations and investigations;

• the status of settlement negotiations;

• prior experience with similar types of claims;

• whether there is available insurance; and

• advice of counsel.

     Stock-Based Compensation.On October 1, 2005, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004) “Share-Based Payment” (“SFAS 123R”), which requires us to recognize share-based payments to employees and directors as compensation expense using a fair value-based method in the results of operations. Prior to the adoption of SFAS 123R and as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation,” we accounted for share-based payments to employees using the intrinsic value method pursuant to Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. We used the modified prospective method when we adopted SFAS 123R and, accordingly, did not restate the results of operations for the prior periods. Compensation expense of $1.9 million and $0.5 million was recognized in the nine months ended June 30, 2007 and 2006, respectively, for all awards granted on or after October 1, 2005 as well as for the unvested portion of awards granted before October 1, 2005.

     Stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period. We estimate the fair value of our stock options using the Black-Scholes option-pricing model and the fair value of our stock awards and stock units based on the quoted market price of our common stock. We recognize the associated compensation expense on a graded vesting method over the vesting periods of the awards, net of estimated forfeitures. Forfeiture rates are estimated based on historical pre-vesting forfeiture history and are updated to

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reflect actual forfeitures of unvested awards and other known events. Management believes this graded vesting methodology is a truer reflection of the expenses incurred for the options granted than the alternative straight-line method.

     Estimating the fair value for stock options requires judgment, including estimating stock-price volatility, expected term, expected dividends and risk-free interest rates. The expected volatility rates are based on the historical fluctuation in the stock price since inception. The average expected term was calculated using Staff Accounting Bulletin No. 107, “Simplified Method for Estimating the Expected Term.” Expected dividends are estimated based on our dividend history as well as our current projections. The risk-free interest rate for periods approximating the expected terms of the options is based on the U.S. Treasury yield curve in effect at the time of grant. These assumptions will be updated at least on an annual basis or when there is a significant change in circumstances that could affect these assumptions.

     Accounting for Income Taxes.As part of the process of preparing consolidated financial statements, management is required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are included within the balance sheet.  Management must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent management believes that recovery is not likely, a valuation allowance must be established.  To the extent management establishes a valuation allowance or increases this allowance in a period, an increase to expense within the provision for income taxes in the statement of operations will result.

     Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded in connection with the deferred tax assets.  We have recorded a valuation allowance of $19.2 million as of June 30, 2007 and September 30, 2006 due to uncertainties related to our ability to utilize the deferred tax assets, primarily consisting of certain net operating losses carried forward, before they expire. The valuation allowance is based on management’s current estimates of taxable income for the jurisdictions in which SeraCare operates and the period over which the deferred tax assets will be recoverable.  In the event that actual results differ from these estimates, or these estimates are adjusted in future periods, an additional valuation allowance may need to be established which would increase the tax provision, lowering income and impacting SeraCare’s financial position.  Should realization of these deferred assets previously reserved occur, the provision for income tax would decrease, raising income and positively impacting SeraCare’s financial position.

Recent Accounting Pronouncements

SFAS No. 157, “Fair Value Measurements”

     SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), has been issued by the Financial Accounting Standards Board (the “FASB”). This new standard provides guidance for using fair value to measure assets and liabilities. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. Currently, over 40 accounting standards within GAAP require (or permit) entities to measure assets and liabilities at fair value. The standard clarifies that for items that are not actively traded, such as certain kinds of derivatives, fair value should reflect the price in a transaction with a market participant, including an adjustment for risk, not just the company’s mark-to-model value. SFAS 157 also requires expanded disclosure of the effect on earnings for items measured using unobservable data. Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. In this standard, the FASB clarified the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.

     The FASB agreed to defer the effective date of SFAS 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The FASB again rejected the proposal of a full one year deferral of the effective date of SFAS 157. SFAS 157 was issued in September 2006, and is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Accordingly, the Company will adopt this statement on October 1, 2008. The Company is currently assessing the impact of this statement.

SFAS No. 141 (Revised 2007), “Business Combinations”

     On December 4, 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”).Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific items, including:

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• acquisition costs will be generally expensed as incurred;

• noncontrolling interests will be valued at fair value at the acquisition date;

• acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies;

• in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date until the completion or abandonment of the associated research and development efforts;

• restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and

• changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

     SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, the Company will adopt this statement on October 1, 2009. The Company is currently assessing the impact of this statement.

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51”

     On December 4, 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51”(“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, the Company will adopt this statement on October 1, 2009. The Company is currently assessing the impact of this statement.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     Interest Rate and Market Risk.As of June 30, 2007, our only assets or liabilities subject to risks from interest rate changes are (i) debt under the West Bridgewater mortgage note in the aggregate amount of $2.1 million and (ii) cash and cash equivalents of $9.7 million, substantially all of which are collateralized by short-term federal government securities. Our mortgage debt bears interest at a variable rate. If interest rates affecting the Company’s floating rate long-term debt were to change by one percentage point from levels at June 30, 2007, we estimate that the fair value of that debt will change by an immaterial amount, and therefore, our exposure to interest rate changes is immaterial.

     Foreign Currency Exchange Risk.The Company does not believe that it currently has material exposure to foreign currency exchange risk because substantially all international sales are designated in U.S. dollars.

     We were not a party to any derivative financial instruments at June 30, 2007.

Item 4. Controls and Procedures

     On December 15, 2005, the chairman of the Company’s Audit Committee received a letter from Mayer Hoffman McCann P.C. (“MHM”), our independent registered public accounting firm, a copy of which was presented to our Board of Directors, in which MHM raised concerns with respect to the Company’s financial statements, accounting documentation and the ability of MHM to rely on representations of the Company’s management. Following an investigation by the Audit Committee in March 2006, the Company announced that previously issued financial statements in quarterly reports for the quarters ended December 31, 2004, March 31, 2005 and June 30, 2005, should no longer be relied upon. Since March 2006 the Company has implemented several improvements to the internal control system (see Changes in Internal Controls).

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Disclosure Controls and Procedures

     Rule 13a-15(b) under the Exchange Act and Item 307 of Regulation S-K require management to evaluate the effectiveness of the design and operation of our disclosure controls and procedures as of the end of each fiscal quarter. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including our principal executive officer and principal financial offer, as appropriate, to allow timely decisions regarding required disclosure.

     The Company’s management, including the principal executive officer and the principal financial officer, conducted an evaluation as of the end of the quarter ending June 30, 2007 of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level. The Company was unable to complete and file its Form 10-Q for the quarter ended June 30, 2007 by the prescribed filing date without unreasonable effort and expense due to the fact that it spent significant resources on completing its financial statements and obtaining audits for fiscal years 2005, 2006 and 2007. The Company also had issues with staffing and accumulating documentation associated with the challenges and volume of work and information necessary to complete three years of financial statements and audits that were required for the September 30, 2007 Form 10-K. These matters negatively impacted the Company’s ability to timely finalize its accounting documentation and analyses necessary to accurately prepare its financial statements which were to be included in its quarterly report on Form 10-Q for the quarter ended June 30, 2007 by the prescribed filing date. This quarterly report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s registered public accounting firm.

Changes in Internal Control

     As required by Rule 13a-15(d) of the Exchange Act, the Company’s management, including the principal executive officer and the principal financial officer conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Subsequent to the March 2006 investigation and report by the Company regarding its financial reporting issues, management has implemented several safeguards to address, among other things, the matters noted in MHM’s letter to management, as well as to prepare us for eventual compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. The Company’s efforts included (1) hiring a new management team, including the Chief Executive Officer, Chief Financial Officer, and key members of the finance staff, (2) hiring a business advisory and consulting firm to reassess the design of our internal controls to facilitate documentation of the process, evaluation and identification of the key controls, and initiation of the testing process, (3) educating all employees on compliance with the requirements of the Sarbanes-Oxley Act, (4) establishing a new whistleblower hotline, (5) ensuring that no member of the financial staff serves as a director on our Board, (6) limiting purchasing authority, and (7) implementing additional controls to ensure segregation of responsibilities. Upon the Company’s emergence from bankruptcy in May 2007, the Board of Directors approved new internal control policies, including a Whistleblowing Policy, a Insider Trader Policy, Corporate Governance Guidelines, a Code of Ethics for the Chief Executive and senior financial officers and a Code of Business Conduct and Ethics.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings

     With respect to the fiscal quarter ended June 30, 2007, the information required in response to this Item is set forth in Note 7 to our condensed interim Financial Statements contained in this report, and such information is hereby incorporated herein by reference. Such description contains all of the information required with respect hereto.

Item 1A. Risk Factors

     You should carefully consider the risks described below and other information in this quarterly report. Our business, financial condition, and operating results could be seriously harmed if any of these risks materialize. The trading price of our common stock may also decline due to any of these risks.

RISKS RELATED TO OUR BUSINESS

Quarterly revenue and operating results may fluctuate in future periods, and the Company may fail to meet investor expectations.

     Our quarterly revenue and operating results have fluctuated significantly in the past and are likely to continue to do so in the future due to a number of factors, many of which are not within our control. If quarterly revenue or operating results fall below the expectations of investors, the price of our common stock could decline significantly. Factors that might cause quarterly fluctuations in revenue and operating results include the following:

• changes in demand for the Company’s products and services, and the ability to attain the required resources to satisfy customer demand on a cost-effective basis or even to attain the required resources at all;

• ability to develop, introduce, market and gain market acceptance of new products or services in a timely manner;

• ability to manage inventories, accounts receivable and cash flows; and

• ability to control costs.

     The amount of expenses incurred depends, in part, on expectation regarding future revenue. In addition, since many expenses are fixed in the short term, we cannot significantly reduce expenses if there is a decline in revenue to avoid losses.

We depend on contracts with government agencies, which if terminated or reduced, would have a material adverse effect on our business.

     A large percentage of our revenue is derived from sales to government agencies. Such government agencies may be subject to budget cuts, budgetary constraints or a reduction or discontinuation of funding. A significant reduction in funds available for government agencies to purchase professional services and related products would have a material adverse effect on our business, financial condition and results of operations.

We derive a substantial amount of our revenue from a limited number of customers.

     Although we provide products and services to many customers, a significant portion of our revenue is generated from a few of our larger customers. For the nine months ended June 30, 2007, our top five customers accounted for 45.8% of our revenue from continuing operations. It is not possible for us to predict the future level of demand for our products and services that will be generated by these customers or the future demand for the products in the end-user marketplace. Our customer concentration exposes us to the risk of changes in the business condition of any of our major customers and to the risk that the loss of a major customer would materially adversely affect our results of operations. Our relationship with these customers is subject to change.

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An interruption in the supply of diagnostic and therapeutic products at competitive prices that we purchase from third parties could cause a decline in our revenue.

     We purchase certain raw materials, components, services and equipment used in the manufacturing of our products, and the loss of, or disruption to, any plant or supplier could adversely affect our ability to manufacture or sell many of our products from third parties. We may experience an interruption of supply if a supplier is unable or unwilling to meet our time, quantity and quality requirements. There are relatively few alternative suppliers for some of these raw materials and components. Any or all of these suppliers could discontinue manufacturing or supplying these products and components, experience interruptions in their operations or raise their prices. We may not be able to identify and integrate alternative sources of supply in a timely fashion or at all. Any transition to alternate suppliers may result in production delays and increased costs and limit our ability to deliver products to our customers. Furthermore, if we are unable to identify alternative sources of supply, we would have to modify our products to use substitute components, which may cause delays in shipments, increased design and manufacturing costs, increased prices for our products and lost product revenue. In addition, we compete with large companies as well as smaller, independent plasma collection centers and brokers of plasma products for plasma source material and processing.

We may be unable to realize our growth strategy if we cannot identify suitable acquisition opportunities in the future or if we cannot integrate acquired businesses or technologies into our business.

     As part of our business strategy, we expect to continue to grow our business through acquisitions of technologies or companies. We may not identify or complete complementary acquisitions in a timely manner, on a cost-effective basis, or at all. In addition, we compete with other companies, including large, well-funded competitors, to acquire suitable targets, and may not be able to acquire certain targets that we seek. There can be no assurance that we will be able to execute this component of our growth strategy, which may harm our business and hinder our future growth. To achieve desired growth rates as we become larger, we may seek larger and/or public companies as potential acquisition candidates. The acquisition of a public company may involve additional risks, including the potential for lack of recourse against public shareholders for undisclosed material liabilities of the acquired business. In addition, if we were to proceed with one or more significant future acquisitions in which the consideration consisted of cash, a substantial portion of our available cash resources could be used. Furthermore, for any such acquisition, we will incur significant legal, accounting and other expenses, including expenses associated with a change of control. If an acquisition was not completed for any reason, we will have incurred substantial expenses without realizing the anticipated benefits of the pending acquisition, including anticipated net reductions in costs and expenses and our stock price may decline to the extent that the current market price reflects a market assumption that the acquisition will be completed.

     Although we expect to realize strategic, operational and financial benefits as a result of these acquisitions, we cannot predict whether and to what extent such benefits will be achieved. Working through integration issues is complex, time-consuming and expensive and could significantly disrupt our business. There are significant challenges to integrating the acquired operations into our business, including:

• successfully managing and assimilating the operations, facilities and technology of the acquired businesses;

• maintaining and increasing the customer base for the acquired products;

• demonstrating to customers and suppliers that the acquisitions will not result in adverse changes in service standards or business focus;

• minimizing the diversion of management attention from ongoing business concerns;

• maintaining employee morale and retaining key employees, integrating cultures and management structures and accurately forecasting employee benefit costs;

• consolidating our management information, inventory, accounting and other systems;

• our ability to assess accurately the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates;

• the potential loss of key personnel of an acquired business;

• our ability to integrate acquired businesses and to achieve identified financial and operating synergies anticipated to result from an acquisition;

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• increased pressure on our staff and on our operating systems; and

• unanticipated changes in business and economic conditions affecting an acquired business.

     Our failure to successfully integrate and operate the acquired businesses, and to realize the anticipated benefits of these acquisitions, could adversely impact our operating performance and financial results.

Our success depends in large part upon the continued services of our senior executives and other key employees, including certain sales, consulting and technical personnel.

     Our success depends on our ability to attract, retain and motivate the qualified personnel that will be essential to our current plans and future development. The competition for such personnel is substantial and we cannot assure you that we will successfully retain our key employees or attract and retain any required additional personnel. The loss of the services of any significant employee could have a material adverse effect on our business. In the past, employees have resigned from the Company and joined competitors or formed competing companies. The loss of such personnel and the resulting loss of existing or potential clients to any such competitor has had, and could continue to have, a material adverse effect on our business, financial condition and results of operations.

We may face additional expenses and disruption due to the relocation and eventual sale of our manufacturing facility in West Bridgewater, Massachusetts.

     In order to accommodate growth in our operations, we entered into a lease for a 60,000 square foot three-building facility in Milford, Massachusetts that will serve as our new corporate headquarters and main manufacturing plant. We began to move into this facility in January 2008. As a result of the move, we have incurred and will incur additional expenses and may encounter disruption of operations related to the move, all of which could delay shipment of products, reduce our sales volume and increase our working capital requirements.

     In addition, it may take months and possibly a year or longer to sell the West Bridgewater facility at a suitable price. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand that are beyond our control. We cannot predict whether we will be able to sell the property for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of the property. If we are unable to sell the property when we determine to do so, it could have a significant adverse effect on our cash flow and results of operations.

Lack of early success with our pharmaceutical and biotechnology customers can shut us out of future business with those customers.

     Many of the products we sell to the pharmaceutical and biotechnology customers are incorporated into the customers’ drug manufacturing processes. In some cases, once a customer chooses a particular product for use in a diagnostic and therapeutic testing process or drug manufacturing process, it is less likely that the customer will later switch to a competing alternative. In many cases, the regulatory license for the product will specify the separation and cell culture supplement products qualified for use in the process. Obtaining the regulatory approvals needed for a change in the manufacturing process is time consuming, expensive and uncertain. Accordingly, if we fail to convince a diagnostic or therapeutic customer to choose our products early in its manufacturing design phase, we may permanently lose the opportunity to participate in the customer’s production of such product. Because we face vigorous competition in this market from companies with substantial financial and technical resources, we run the risk that our competitors will win significant early business with a customer making it difficult for us to recover that opportunity.

Our profits will likely decline if we are unable to pass price increases on to customers or obtain necessary raw materials at their current prices.

     Most of our customer contracts are firm, fixed price contracts, providing for a predetermined fixed price for the products that we make, regardless of the costs we incur. If we experience significant increases in the expense of producing products due to increased cost of

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materials, components, labor, capital equipment or other factors and are unable to pass through such increases to our customers, our profitability will likely decline. The cost of producing the Company’s products and services is also sensitive to the price of energy. The selling prices of the Company’s products and services have not always increased in response to raw material, energy or other cost increases and the Company is unable to determine to what extent, if any, it will be able to pass future cost increases through to its customers. The Company’s inability to pass increased costs through to its customers could materially and adversely affect its financial condition or results of operations.

Our failure to improve our product offerings and develop and introduce new products may negatively impact our business.

     Our future success depends on our ability to continue to improve our product offerings and develop and introduce new product lines and extensions that integrate new technological advances. If we are unable to integrate technological advances into our product offerings or to design, develop, manufacture and market new product lines and extensions successfully and in a timely manner, our operating results will be adversely affected. While we expect to continue to invest in research and development for all of our market segments, we cannot assure you that our product and process development efforts will be successful or that new products we introduce will achieve market acceptance.

We are subject to the risks associated with international sales.

     International sales accounted for 23% of our revenue from continuing operations during the nine months ended June 30, 2007. We anticipate that international sales will continue to account for a significant percentage of our revenue. Risks associated with these sales include:

• political and economic instability;

• export controls;

• changes in legal and regulatory requirements;

• United States and foreign government policy changes affecting the markets for our products; and

• changes in tax laws and tariffs.

     Any of these factors could have a material adverse effect on our business, results of operations and financial condition.

     We sell our products in certain international markets mainly through independent distributors. If a distributor fails to meet annual sales goals, it may be difficult and costly to locate an acceptable substitute distributor. If a change in our distributors becomes necessary, we may experience increased costs, as well as a substantial disruption in operations and a resulting loss of revenue.

Our financial condition could suffer if we experience unanticipated costs or enforcement action as a result of the Securities and Exchange Commission investigation, the Department of Justice investigation and other lawsuits and claims.

     The Company is currently subject to investigations by the Securities and Exchange Commission and Department of Justice and party to one outstanding bankruptcy claim. The period of time necessary to resolve such investigations is uncertain and these matters could require significant management and financial resources which could otherwise be devoted to the operation of our business. If we are subject to an adverse finding resulting from any or all such investigations, we could be required to pay damages or penalties or have other remedies imposed upon us. In addition, considerable legal and accounting expenses related to these matters have been incurred to date and significant expenditures may continue to be incurred in the future.

We may need additional capital.

     In order to implement our growth strategy and remain competitive, we must make investments in research and development to fund new product initiatives, continue to upgrade our process technology and manufacturing capabilities, and actively seek out potential acquisition candidates. Although we believe that internal cash flows from operations, along with the existing capacity under our line of

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credit, will be sufficient to satisfy our working capital and normal operating requirements during the next fiscal year, we may not be able to fund our planned research and development, capital investment programs, and potential acquisitions without seeking additional capital.

     Our ability to raise additional capital depends on a variety of factors, some of which may not be within our control, including investor perceptions of our management, our business, and the industries in which we operate. In June 2007, we entered into a $10.0 million senior secured credit facility with Merrill Lynch Capital. As of June 30, 2007, we had not drawn down on the line of credit. As of the same date, we had $6.8 million available for borrowing at an interest rate of 8.07%. Our ability to finance future acquisitions under our senior credit facility will be subject to certain conditions as set forth in the credit agreement as well as the level of available borrowing at that time. Even if we are able to access our credit facility for future acquisitions, we cannot assure you that our borrowing capacity under the credit facility, combined with cash generated from operations, will be sufficient to implement our growth strategy. In such event, we may need to raise additional capital. If we raise additional capital through borrowings, we may become subject to restrictive covenants. If we raise money through the issuance of equity securities, your stock ownership will be diluted. Any inability to successfully raise needed capital on a timely or cost-effective basis could have a material adverse effect on our business, financial condition, and operating results.

If we fail to maintain adequate quality standards for our products and services, our business may be adversely affected and our reputation harmed.

     Our customers are subject to rigorous quality standards in order to maintain their products and the manufacturing processes and testing methods that generate them. A failure to sustain the specified quality requirements, including the processing and testing functions performed by our products, could result in the loss of the applicable regulatory license. Delays or quality lapses in our customers’ production lines could result in substantial economic losses to them and to us. For example, large production lots of plasma are expensive and a failure to properly categorize the disease state of plasma could result in the contamination of the entire lot, requiring its destruction. We also perform services that may be considered an extension of our customers’ manufacturing and quality assurance processes, which also require the maintenance of prescribed levels of quality. Although we believe that our continued focus on quality throughout the Company adequately addresses these risks, there can be no assurance that we will not experience occasional or systemic quality lapses in our manufacturing and service operations. If we experience significant or prolonged quality problems, our business and reputation may be harmed, which may result in the loss of customers, our inability to participate in future customer product opportunities and reduced revenue and earnings.

Our principal shareholders may exert significant influence on us.

     As of June 30, 2007, Harbinger and Black Horse Capital were beneficial owners of approximately 23.3% and 8.2%, respectively, of the Company’s common stock. Under the Plan of Reorganization, Harbinger appointed two members and Black Horse Capital appointed one member to the Company’s Board of Directors. Therefore, Harbinger and Black Horse Capital have power to exert significant influence on our management and policies.

We heavily rely on air cargo carriers and other third party package delivery services, and a significant disruption in these services or significant increases in prices may disrupt our ability to import or export materials, increase our costs and lower our profitability.

     We ship a significant portion of our products to our customers through independent package delivery companies. In addition, we transport materials among our facilities, including our facilities in Maryland, and import raw materials from worldwide sources. Consequently, we heavily rely on air cargo carriers and third party package delivery providers. If any of our key third party package delivery providers experiences a significant disruption such that any of our products, components or raw materials cannot be delivered in a timely fashion or such that we incur additional shipping costs that we could not pass on to our customers, our costs may increase and our relationships with certain of our customers may be adversely affected. In particular, our products are particularly sensitive to temperature and delays in shipping could damage the products. In addition, if our third party package delivery providers increase prices and we are not able to find comparable alternatives or make adjustments to our delivery network, our profitability could be adversely affected.

We have limited manufacturing capabilities, and if our manufacturing capabilities are insufficient to produce an adequate supply of products at appropriate quality levels, our growth could be limited and our business could be harmed.

     We currently have limited resources and facilities for the commercial manufacturing of sufficient quantities of product to meet expected demand. We have focused significant effort on continual improvement programs in our manufacturing operations intended to improve quality, yields and throughput. Although we believe we have made progress in manufacturing to enable us to supply adequate amounts of product to support our commercialization efforts, there can be no assurances that supply will not be constrained going forward. If we are unable to manufacture a sufficient supply of our products for which we may receive approval, maintain control over expenses or

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otherwise adapt to anticipated growth, or if we underestimate growth, we may not have the capability to satisfy market demand and our business will suffer.

The cost of compliance or failure to comply with the Sarbanes-Oxley Act of 2002 may adversely affect our business.

     As a public reporting company, we are subject to the provisions of the Sarbanes-Oxley Act of 2002, which may result in higher compliance costs and may adversely affect our financial results and our ability to attract and retain qualified members of our Board of Directors or qualified executive officers. The Sarbanes-Oxley Act affects corporate governance, securities disclosure, compliance practices, internal audits, disclosure controls and procedures, and financial reporting and accounting systems. Section 404 of the Sarbanes-Oxley Act, for example, requires a company subject to the reporting requirements of the U.S. securities laws to conduct a comprehensive evaluation of its and its consolidated subsidiaries’ internal controls over financial reporting. The failure to comply with Section 404 may result in investors losing confidence in the reliability of our financial statements (which may result in a decrease in the trading price of our common stock), prevent us from providing the required financial information in a timely manner (which could materially and adversely impact our business, our financial condition and the trading price of our common stock), prevent us from otherwise complying with the standards applicable to us as a public company and subject us to adverse regulatory consequences.

A disaster at our facilities could substantially impact our business.

     Our business and operations depend on the extent to which our facilities and products are protected against damage from fire, earthquakes, power loss and similar events. Despite precautions we have taken, a natural disaster or other unanticipated problem could, among other things, hinder our research and development efforts, delay the shipment of our products and affect our ability to receive and fulfill orders. For example, our two facilities in Maryland store approximately 17 million biological samples for our government and commercial customers, and such samples are irreplaceable. Additionally, our Milford facility is our primary manufacturing plant. Although we believe that our back-up power sources are sufficient in an emergency situation, an earthquake, fire, other disaster or power outage at any of these locations would have a material adverse effect on our business, financial condition and results of operations. While we believe that our insurance coverage is comparable to those of similar companies in our industry, it does not cover terrorism nor all natural disasters, in particular, floods.

Our inability to protect our intellectual property rights could prevent us from selling our products and hinder our financial performance.

     The technology and designs underlying our products may not be fully protected by patent rights. Our future success is dependent primarily on non-patented trade secrets and on the innovative skills, technological expertise and management abilities of our employees. Our technology may not preclude or inhibit competitors from producing products that have identical performance as our products. In addition, we cannot guarantee that any protected trade secret could ultimately be proven valid if challenged. Any such challenge, with or without merit, could be time consuming to defend, result in costly litigation, divert the attention and resources of our management and, if successful, require us to pay monetary damages.

Product liability claims could have a material adverse effect on our reputation, business, results of operations and financial condition.

     As a manufacturer and marketer of various diagnostic and therapeutic products, our results of operations are susceptible to adverse publicity regarding the performance, quality or safety of our products. Even though we believe that our current product liability insurance is sufficient at this time, product liability claims challenging performance, quality or safety of our products may result in a decline in sales for a particular product, which could adversely affect our results of operations. This could be true even if the claims themselves are proven not to be true or settled for immaterial amounts.

Foreign restrictions on importation and exportation of blood derivatives.

     Concern over blood safety has led to movements in a number of European and other countries to restrict the importation and exportation of blood and blood derivatives, including antibodies collected outside the countries’ borders or, in the case of certain European countries, outside Europe. To date, these efforts have not led to any meaningful restriction on the importation or exportation of blood or blood derivates and have not adversely affected our business. Such restrictions, however, continue to be debated, and there can be no assurance that such restrictions will not be imposed in the future. If imposed, such restrictions could have a material adverse effect on the demand for our products.

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RISKS RELATED TO OUR INDUSTRY

The industries and market segments in which we operate are highly competitive, and we may not be able to compete effectively with larger companies with greater financial resources than we have.

     The markets for our products and services are highly competitive and often lack significant barriers to entry, enabling new businesses to enter these markets relatively easily. Some of our competitors have greater financial resources than we do, making them better equipped to license technologies and intellectual property from third parties or to fund research and development, manufacturing and marketing efforts. Moreover, competitive conditions in many markets in which we operate restrict our ability to implement price increases to fully recover any higher costs of acquired goods and services resulting from inflation and other drivers of cost increases. Our competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics. Although we believe that we have certain technological and other advantages over our competitors, maintaining these advantages will require us to continue to invest in research and development, sales and marketing and customer service and support.

     Competition for customers depends primarily on the ability to provide products or services of the quality and in the quantity required by customers. If we succeed in bringing one or more products to market, we will compete with many other companies that may have extensive and well-funded marketing and sales operations. Our failure to provide products of the quality and quantity demanded by our customers and successfully market new products could have a material adverse effect on our future business, financial condition and results of operation.

     Certain of our disease state products are derived from donors with rare characteristics, resulting in increased competition for such donors. If we are unable to maintain and expand our donor base, this could have a material adverse effect on our future business, financial condition and results of operation.

We are subject to significant regulation by the government and other regulatory authorities.

     Our business is heavily regulated in the United States and internationally. In addition to the FDA which regulates, among other matters, the testing, manufacturing, storage, labeling, export, and marketing of blood products and IVD products, various other federal, state and local regulations also apply and can be, in some cases, more restrictive. If we fail to comply with FDA or other regulatory requirements, we could be subjected to civil and criminal penalties, or even required to suspend or cease operations. Any such actions could severely curtail our sales to biologics companies. Failure of our plasma suppliers or customers to comply with FDA requirements could also adversely affect us. In addition, more restrictive laws, regulations or interpretations could be adopted, which could make compliance more difficult or expensive or otherwise adversely affect our business. We also invest significant resources in developing quality assurance programs, such as ISO certification.

     We devote substantial resources to complying with laws and regulations; however, the possibility cannot be eliminated that interpretations of existing laws and regulations will result in findings that we have not complied with significant existing regulations. Such a finding could materially harm the business. Moreover, healthcare reform is continually under consideration by regulators, and the Company does not know how laws and regulations will change in the future.

Failure to comply with environmental, health and safety laws and regulations, including the federal Occupational Safety and Health Administration Act, may result in fines and penalties and loss of licensure, and have a material adverse effect upon the Company’s business.

     The Company is subject to licensing and regulation under federal, state and local laws and regulations relating to the protection of the environment and human health and safety, including laws and regulations relating to the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials as well as regulations relating to the safety and health of laboratory employees. All of the Company’s laboratories are subject to applicable federal and state laws and regulations relating to biohazard disposal of all laboratory specimens, and we utilize outside vendors for disposal of such specimens. In addition, the federal Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for health care employers, including clinical laboratories, whose workers may be exposed to blood-borne pathogens, such as HIV and HBV. These

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requirements, among other things, require work practice controls, protective clothing and equipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to, and transmission of, blood-borne pathogens.

     Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal agencies, we cannot assure you that we will be able to continue to comply with all applicable standards or that violations will not occur. Failure to comply with federal, state and local laws and regulations could subject the Company to denial of the right to conduct business, fines, criminal penalties and/or other enforcement actions which would have a material adverse effect on its business. In addition, compliance with future legislation could impose additional requirements on the Company which may be costly. In addition, we cannot provide assurance that more restrictive laws, rules and regulations or enforcement policies will not be adopted in the future which could make compliance more difficult or expensive or otherwise adversely affect our business or prospects.

Changes in demand for plasma-derived products and the availability of donated plasma could affect profitability.

     A majority of our business depends on the availability of donated plasma. Only a small percentage of the population donates plasma and regulations intended to reduce the risk of introducing infectious diseases in the blood supply have decreased the pool of potential donors. If the level of donor participation declines, the Company may not be able to obtain adequate supply at a reasonable cost to maintain profitability in plasma-derived products.

We are subject to governmental reforms and the adequacy of reimbursement.

     Our products and services are primarily intended to function within the structure of the healthcare financing and reimbursement system currently being used in the United States. In recent years, the healthcare industry has changed significantly in an effort to reduce costs. These changes include increased use of managed care, cuts in Medicare and Medicaid reimbursement levels, consolidation of pharmaceutical and medical-surgical supply distributors, and the development of large, sophisticated purchasing groups. We expect the healthcare industry to continue to change significantly in the future. Some of these changes, such as adverse changes in government funding of healthcare services, legislation or regulations governing the privacy of patient information, or the delivery or pricing of pharmaceuticals and healthcare services or mandated benefits, may cause healthcare industry participants to greatly reduce the amount of our products and services they purchase or the price they are willing to pay for our products and services.

RISKS RELATED TO OUR STOCK

Stocks traded on the Pink Sheets are subject to greater market risks than those of exchange-traded and NASDAQ stocks since they are less liquid.

     Our common stock was delisted from the NASDAQ National Market effective March 22, 2006 because of the Company’s failure to timely complete and file certain SEC reports. Since being delisted, the common stock has traded on the Pink Sheets. Our securities are thinly traded and not subject to the level of regulation imposed on securities listed or traded on NASDAQ or on a national securities exchange. As a result, an investor may find it difficult to dispose of the Company’s common stock or to obtain accurate quotations as to its price.

Stock price could be volatile.

     The price of our common stock has fluctuated in the past and may be more volatile in the future. Factors such as the announcements of government regulation, new products or services introduced by the Company or by the competition, healthcare legislation, trends in health insurance, litigation, fluctuations in operating results and market conditions for healthcare stocks in general could have a significant impact on the future price of our common stock. In addition, the stock market has from time to time experienced extreme price and volume fluctuations that may be unrelated to the operating performance of particular companies. The generally low volume of trading in our common stock makes it more vulnerable to rapid changes in price in response to market conditions.

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We may issue preferred stock in the future.

     We have authorized in our Certificate of Incorporation the issuance of up to 5,000,000 shares of preferred stock. Our Board of Directors may, without further action by our shareholders, issue preferred stock in one or more series. These terms may include voting rights, preferences as to dividends and liquidation and conversion and redemption rights. Although we have no present plans to issue shares of preferred stock or to create new series of preferred stock, if we do issue preferred stock, it could affect the rights, or even reduce the value, of our common stock.

Anti-takeover effects of certain charter and bylaw provisions.

     Certain provisions of our Certificate of Incorporation and bylaws may be deemed to have anti-takeover effects and may discourage, delay or prevent a takeover attempt that might be considered in the best interests of our shareholders. These provisions, among other things:

• eliminate cumulative voting rights;

• authorize the issuance of “blank check” preferred stock having such designations, rights and preferences as may be determined from time to time by the Board of Directors, without any vote or further action by our shareholders; and

• eliminate the right of shareholders to act by written consent.

Lack of dividend payments.

     The Company intends to retain any future earnings for use in its business and therefore does not anticipate declaring or paying any cash dividends in the foreseeable future. The declaration and payment of any cash dividends in the future will depend on the Company’s earnings, financial condition, capital needs and other factors deemed relevant by the Board of Directors. In addition, the Company’s credit agreement prohibits the payment of dividends during the term of the agreement. The agreement terminates on June 4, 2010.

Our shareholders’ ability to sell shares of the Company’s stock may be limited.

     Three of our shareholders, Harbinger, Black Horse and Ashford Capital Management Inc. (“Ashford Capital”), collectively, are owners of approximately 40% of our outstanding shares of common stock. Accordingly, we have a very limited number of shares in our public float, and as a result, there could be extreme fluctuations in the price of our common stock and the ability to buy and sell our shares could be impaired. If any or all of Harbinger, Black Horse or Ashford Capital were to liquidate their shares, the market price could decline significantly.

Additional risk factors

     In addition to the foregoing risk factors, our business, financial condition, and operating results could be seriously harmed by additional factors, including but not limited to the following:

• our ability to maintain favorable supplier agreements and relationships with major customers and suppliers;

• the loss of any significant customers or reduced orders from significant customers;

• our ability to maintain and expand our customer base;

• increased competition for donors, which may affect our ability to attract and retain qualified donors;

• our ability to meet future customer demand for plasma products; and

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• changes in industry trends, customer specifications and demand, market demand in general and potential foreign restrictions of the importation of our products.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

     Set forth below is information regarding shares of common stock issued, and options granted, by us during the quarter ended June 30, 2007 that were not registered under the Securities Act of 1933 (the “Securities Act”). Also included is the consideration, if any, we received for such shares and options and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.

1. In accordance with the Plan of Reorganization, a Rights Offering was consummated on May 17, 2007. During January 2007, all existing shareholders were entitled to purchase their pro rata share of 4,250,000 newly issued shares of Reorganized SeraCare common stock at a price of $4.75 per share. In connection with the Plan of Reorganization, stockholders who were members of the Ad Hoc Committee committed to fully participate in the Rights Offering. In addition, certain members of the Ad Hoc Committee, as backstop purchasers, agreed to purchase unexercised subscription rights (the “Backstop Shares”) in accordance with the terms of the backstop commitment letters. Shareholders were required to elect to exercise their subscription rights and pay for newly issued Reorganized SeraCare common stock by January 31, 2007. Shareholders exercised 3,530,885 subscription rights, and, combined with the 719,115 Backstop Shares purchased by the backstop purchasers, proceeds of the Rights Offering for the Company totaled $20.2 million. Holders of 83% of the Company’s shares participated in the Rights Offering. Pursuant to Section 1145 of the Bankruptcy Code, all shares purchased in the Rights Offering, except shares purchased by Rule 145 affiliates, are exempt from registration under the Securities Act. Accordingly, shares purchased in the Rights Offering other than the shares purchased by Rule 145 affiliates are unrestricted and may be resold in the public market. The sale of the Backstop Shares qualified under different exemptions from securities law registration, including Section 4(2) and Rule 144A of the Securities Act. Accordingly, the Backstop Shares are restricted and are not available for resale in the public market until such shares are registered in accordance with the Securities Act.

2. On May 11, 2007, an option to purchase 25,000 shares of the Company’s common stock was exercised by Bernard L. Kasten for $5.93/share.

3. On May 18, 2007, the Company granted options to non-employee directors to purchase 80,000 shares of the Company’s common stock at an exercise price of $7.50/share.

     No general solicitation was made in the United States by us or any person acting on our behalf; the securities sold are subject to transfer restrictions; and certificates for the shares contain appropriate legends stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom.

Item 3. Defaults upon Senior Securities

     As discussed in Note 4 to the condensed interim Financial Statements contained in this report, on March 22, 2006, SeraCare Life Sciences, Inc., a California corporation, filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court. On February 21, 2007, the Bankruptcy Court entered an order confirming the Plan of Reorganization. The Plan of Reorganization became effective on May 17, 2007, on which date the provisions of the Plan of Reorganization became operative and the transactions contemplated by the Plan of Reorganization were consummated. Accordingly, each of the Revolving/Term Credit and Security Agreement between the Company, Union Bank of California and Brown Brothers Harriman & Co. and the Subordinated Note Agreement between the Company and Barry Plost, Bernard Kasten and Jacob Safier was terminated and the principal amount and interest outstanding under each agreement was paid off with the proceeds from the Rights Offering and we were no longer in default under these agreements. See Note 6 to the financial statements contained in this report for additional information regarding these agreements.

     As of June 30, 2007, the Company was in default under a real property mortgage note for failure to provide annual audited financial statements. This default was cured on January 31, 2008 when the Company provided audited financials for fiscal 2005, 2006 and 2007. The Company is no longer in default and is currently in compliance with all covenants under the real property mortgage note.

Item 6. Exhibits

(a)Exhibits.

     The Exhibits listed in the Exhibit Index immediately preceding the Exhibits are filed as a part of this Quarterly Report on Form 10-Q.

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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.

SERACARE LIFE SCIENCES, INC.
/s/ Gregory Gould
By: Gregory Gould
Title:	Chief Financial Officer, Treasurer and Secretary

Date: May 15, 2008

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INDEX TO EXHIBITS

Exhibit
Number	Exhibit Description
31.1	Sarbanes-Oxley Act Section 302 Certification of Susan L.N. Vogt.
31.2	Sarbanes-Oxley Act Section 302 Certification of Gregory A. Gould.
32.1	Sarbanes-Oxley Act Section 906 Certification of Susan L.N. Vogt and Gregory A. Gould.

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