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 this Annual Report on Form 10-K.

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 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.

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.

The accompanying discussion and analysis of SeraCare's financial condition and results of operations are based upon the financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and reported amounts of revenue and expenses during the reporting periods. We evaluate our estimates on an ongoing basis. SeraCare bases its estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. However, future events may cause us to change our assumptions and estimates requiring routine adjustment. Actual results could differ from these estimates.

Results of Operations

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

                                                            Year Ended September 30,
                                                          2008         2007        2006

 STATEMENT OF OPERATIONS DATA:                                 %           %           %
 Revenue                                                    100.0       100.0       100.0
 Cost of revenue                                             69.3        71.7        66.2

 Gross profit                                                30.7        28.3        33.8
 Research and development expense                             3.6         1.2         1.0
 Selling, general and administrative expenses                32.9        30.7        27.1
 Impairment of assets                                        16.3        11.0           -
 Reorganization items                                         2.8        11.1        19.1

 Operating loss                                             (24.9 )     (25.7 )     (13.4 )
 Interest expense                                            (0.8 )      (1.5 )      (4.3 )
 Interest expense to related parties                            -        (0.6 )      (1.0 )
 Other income, net                                            0.5         0.4         0.6

 Loss before income taxes                                   (25.2 )     (27.4 )     (18.1 )
 Income tax (benefit) expense                                (0.8 )       0.2           -

 Net loss from continuing operations                        (24.4 )     (27.6 )     (18.1 )
 Loss from discontinued operations, net of income tax           -        (0.2 )     (31.3 )

 Net loss                                                   (24.4 )     (27.8 )     (49.4 )

Comparison of years ended September 30, 2008 and September 30, 2007

Revenue

The following table sets forth segment revenue in millions of dollars for the
years ended September 30, 2008 and 2007, respectively:


                                                       September 30,        September 30,        Percent
                                                           2008                 2007             change

Diagnostic & Biopharmaceutical Products               $          35.0      $          35.0              0 %
BioServices                                                      14.0                 12.3             14 %

Total revenue                                         $          49.0      $          47.3              4 %

Revenue for the year ended September 30, 2008 increased by 4%, or $1.7 million, to $49 million from $47.3 million in fiscal 2007. Diagnostic & Biopharmaceutical Products revenue remained flat, while BioServices revenue increased by $1.7 million, a 14% increase. Diagnostic & Biopharmaceutical Products revenue included $2.6 million from therapeutic grade human serum albumin products for fiscal 2008 as compared to $7.9 million for fiscal 2007. This revenue decreased due to the validation requirements to switch suppliers of raw materials used in biopharmaceutical manufacturing. The Company switched suppliers in December 2007 as its previous supply agreement was not renewed. Excluding therapeutic grade human serum albumin products, our total revenue increased $7.0 million, or 18% and the core Diagnostic & Biopharmaceutical Products increased $5.3 million, or 20%, due to organic growth. Revenue for our BioServices segment increased $1.7 million in fiscal 2008 due to increased testing services to non-government entities and $1.0 million billed pursuant to government contracts which related to the settlement of indirect billing rates used in previous periods.

Gross Profit

During fiscal 2008, gross profit margin increased to $15.0 million, or 31% of revenue, as compared to $13.4 million, or 28% of revenue, for fiscal 2007. The increase in gross profit margin was mainly due to the benefit of achieving higher revenue in our core Diagnostic & Biopharmaceutical Products, as compared to therapeutic grade human serum albumin products, which have lower margins, and improved margin rates due to increased pricing in fiscal 2008. Our margin rates also benefited by $1.0 million from billings pursuant to government contracts which related to the settlement of indirect billing rates used in previous periods. These factors were partially offset by increased inventory write-offs during fiscal 2008.

Research and Development Expense

Research and development expense totaled $1.8 million, or 4% of revenue, in the year ended September 30, 2008 and $0.6 million, or 1% of revenue, in the year ended September 30, 2007. 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. As part of our strategic plan, we have increased spending on research and development activities 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 $16.1 million, or 33% of revenue in the year ended September 30, 2008, from $14.5 million, or 31% of revenue in the year ended September 30, 2007. The increase primarily reflects the impact of increased headcount due to building a new management team and strengthening our sales and accounting teams, higher compensation expense due to a new company-wide bonus plan, increased accounting and legal fees, higher marketing expenses and increased consulting associated with the rebranding strategy. These were offset by lower stock-based compensation expense which decreased to $1.5 million for fiscal 2008 as compared to $2.3 million for fiscal 2007.

Impairment of Assets

As a result of the turmoil in the financial markets and the associated decline in the Company's stock price, the Company recorded an impairment to goodwill during the fourth quarter of fiscal 2008 in the amount of $8.0 million related to its Diagnostic and Biopharmaceutical Products segment. 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 Diagnostics brand name, resulting in a write-off of intangible assets of $5.2 million.

Reorganization Items

Reorganization items include legal, accounting and other professional fees related to our bankruptcy proceedings, reorganization, litigation, relisting on NASDAQ and efforts to become compliant with the SEC. These expenses totaled $1.3 million and $5.2 million in the fiscal years ended September 30, 2008 and 2007, respectively.

Operating Loss

Operating loss resulted from the factors above and included reorganization items as well as stock-based compensation expense and impairment charges. Operating loss was $12.2 million for fiscal 2008, which included stock-based compensation expense, reorganization expense and impairment of goodwill totaling $1.8 million, $1.3 million and $8.0 million, respectively, as compared to operating loss of $12.2 million for fiscal 2007, which included stock-based compensation expense, reorganization expense and impairment of trade name totaling $2.4 million, $5.2 million and $5.2 million, respectively.

Interest Expense and Other Income

Interest expense totaled $0.4 million for fiscal 2008, as compared to $0.7 million for fiscal 2007. The decrease in interest expense is due to a lower level of borrowed funds in fiscal 2008 compared to fiscal 2007 resulting from repayment of a portion of long-term debt in the first quarter of fiscal 2007 and full repayment of the then-existing senior debt commitments in May 2007. Interest expense to related parties totaled $0.3 million during fiscal 2007. Notes payable to related parties were repaid in full in May 2007. Other income totaled $0.2 million in each of fiscal 2008 and 2007.

Income Tax (Benefit) Expense

During fiscal 2008, the Company recognized a tax benefit of $0.4 million as a result of amending its previously filed tax returns. The company recorded an expense of $0.1 million for state taxes during fiscal 2007. As of September 30, 2008 and 2007, the Company had deferred tax assets, net of liabilities, of $26.4 million and $25.4 million, respectively, that are fully reserved on the balance sheet.

Net Loss from Continuing Operations

As a result of the above, net loss from continuing operations for the year ended September 30, 2008 totaled $12.0 million compared to a net loss of $13.1 million for the year ended September 30, 2007.

Loss from Discontinued Operations

Loss from discontinued operations was generated by the Genomics Collaborative division of the business which was sold in March 2007. As such, there was no activity during fiscal 2008. The loss related to that division totaled $0.1 million in fiscal 2007, which included a gain on the sale of $0.8 million.

Net Loss and Net Loss Per Share

Net loss was $12.0 million in the year ended September 30, 2008 compared to a net loss of $13.2 million in the year ended September 30, 2007. Net loss per share on a basic and fully diluted basis was $0.64 in fiscal 2008 compared to $0.83 in fiscal 2007.

Comparison of years ended September 30, 2007 and September 30, 2006

Revenue

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


                                                       September 30,        September 30,        Percent
                                                           2007                 2006             change

Diagnostic & Biopharmaceutical Products               $          35.0      $          37.8           (7.4 )%
BioServices                                                      12.3                 11.4            7.9 %

Total revenue                                         $          47.3      $          49.2           (3.9 )%

Revenue for the year ended September 30, 2007 declined by 3.9%, or $1.9 million, to $47.3 million from $49.2 million in fiscal 2006. Diagnostic & Biopharmaceutical Products revenue during the same period decreased by $2.8 million, a 7.4% decline, while BioServices revenue increased by $0.9 million, a 7.9% increase. Diagnostic & Biopharmaceutical Products revenue fell in fiscal 2007 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 fiscal 2007 due to an increase in work under two key 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 by 5.5% to 28.3% in fiscal 2007 from 33.8% in fiscal 2006. The overall decrease in gross profit margin 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 while our competitors offered more favorable terms and pricing during the period in which were operating as a debtor-in-possession.

Research and Development Expense

Research and development expense totaled $0.6 million, or 1.2% of revenue, in the year ended September 30, 2007 and $0.5 million, or 1.0% of revenue, in the year ended September 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 fiscal 2007, we launched five new panel products in addition to introducing our ELISpot assay kit, which is an in vitro measure of cellular immunity.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $14.5 million, or 30.7% of revenue in the year ended September 30, 2007, from $13.3 million, or 27.1% of revenue in the year ended September 30, 2006. Excluding the effects of stock-based compensation expense included in selling, general and administrative expenses of $2.3 million and $0.6 million in fiscal 2007 and fiscal 2006, respectively, selling, general and administrative expenses decreased by $0.5 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 fiscal 2007. Increased legal fees attributable to securities compliance offset these benefits during fiscal 2007.

Impairment of Assets

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 Diagnostics brand name, resulting in a write-off of intangible assets of $5.2 million.

Reorganization Items

Reorganization items include legal, accounting and other professional fees related to our bankruptcy proceedings, reorganization and litigation. These expenses totaled $5.2 million and $9.4 million in the fiscal years ended September 30, 2007 and 2006, respectively.

Operating Loss

Operating loss resulted from the factors above and included reorganization items as well as stock-based compensation expense and an impairment charge in fiscal 2007. Operating loss was $12.2 million for fiscal 2007, which included stock-based compensation expense, reorganization expense and impairment of trade name totaling $2.4 million, $5.2 million and $5.2 million, respectively, as compared to operating loss of $6.6 million for fiscal 2006, which included stock-based compensation expense and reorganization expense totaling $0.8 million and $9.4 million, respectively.

Interest Expense and Other Income

Interest expense totaled $0.7 million in fiscal 2007 and $2.1 million in fiscal 2006. The decrease in interest expense is due to a lower level of borrowed funds in fiscal 2007 compared to fiscal 2006 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 in fiscal 2007 and $0.5 million in fiscal 2006. Other income totaled $0.2 million and $0.3 million in fiscal 2007 and 2006, respectively.

Income Tax (Benefit) Expense

Income tax expense or benefit was immaterial in fiscal 2007 and 2006. As of September 30, 2007 and 2006, the Company had deferred tax assets, net of liabilities, of $25.4 million and $19.2 million, respectively, that are fully reserved on the balance sheet.

Net Loss from Continuing Operations

As a result of the above, net loss from continuing operations for the year ended September 30, 2007 totaled $13.1 million compared to a net loss of $8.9 million for the year ended September 30, 2006.

Loss from Discontinued Operations

Loss from discontinued operations was generated by the sale of the Genomics Collaborative division of the business in March 2007. The loss related to that segment totaled $0.1 million in fiscal 2007 and $15.4 million in fiscal 2006.

Net Loss and Net Loss Per Share

Net loss was $13.2 million in the year ended September 30, 2007 compared to a net loss of $24.3 million in the year ended September 30, 2006. Net loss per share on a basic and fully diluted basis was $0.83 in fiscal 2007 compared to $1.74 in fiscal 2006.

Liquidity and Capital Resources

Cash Flows

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


                                                                 September 30,
                                                          2008       2007        2006

   Net cash used in operating activities                 $ (2.6 )   $ (10.6 )   $  (6.2 )
   Net cash (used in) provided by investing activities     (3.8 )       1.5        (4.8 )
   Net cash (used in) provided by financing activities     (0.2 )       5.1        (5.0 )

   Net decrease in cash and cash equivalents             $ (6.6 )   $  (4.0 )   $ (16.0 )

As of September 30, 2008, our cash balance was $2.9 million, a decline of $6.6 million from our cash balance as of September 30, 2007. During the fiscal year ended September 30, 2008, we had a net loss of $12.0 million, which included non-cash charges of approximately $14.3 million, primarily related to goodwill impairment, inventory write-downs, stock based compensation and depreciation and amortization. Excluding these non-cash charges, we would have had net income of $2.3 million. Inventory increased by $7.8 million while taxes receivable decreased by $1.2 million. We had increases in accounts payable and accrued expenses of $0.6 million and $0.9 million, respectively. The increase in inventory relates primarily to the manufacture of larger lots and a build-up of inventory due to the increase in customer demand for our core Diagnostic & Biopharmaceutical Products and in preparation for the move of our manufacturing operations from West Bridgewater, Massachusetts to Milford, Massachusetts which occurred at the end of fiscal 2008. The increase was also impacted by the purchase of scarce materials for which there is limited supply in the market. We

received tax refunds from both the federal and state governments which totaled $1.6 million and recorded additional tax receivables of $0.4 million based on our amended tax returns. Accounts payable increased during the period due to the increase in inventory and the timing of payments. Accrued expenses increased primarily due to an increase in accrued compensation due to the build up of the bonus accrual and the timing of payroll. Other sources and uses of cash include $5.0 million in capital expenditures, primarily related to the construction in Milford, Massachusetts and reimbursement of tenant improvement costs of $1.2 million. We recorded the landlord reimbursement of $1.2 million as a deferred lease liability which is recognized over the term of the lease using the straight-line method. We are also in the process of renovating our Gaithersburg, Maryland facility and have recorded a $0.5 million receivable from our landlord and an offsetting deferred lease liability which is recognized over the term of the lease using the straight-line method. As such, our other liabilities increased to $2.2 million as of September 30, 2008. During fiscal 2008, we made payments of $0.2 million for our mortgage note and capital leases.

We had a current ratio, current assets to current liabilities, of 2.7 to 1 as of September 30, 2008 compared to 4.7 to 1 as of September 30, 2007. Total liabilities as of September 30, 2008 were $10.7 million compared to $7.9 million as of September 30, 2007. The total debt to equity ratio was 0.3 and 0.2 as of September 30, 2008 and September 30, 2007.

We believe our current cash on hand combined with future operating cash flows and our availability to draw funds under our credit agreement with GE Capital will be sufficient to meet our future operating cash needs in fiscal 2009. As of September 30, 2008, we had $5.6 million available for borrowing under the credit agreement. The Company utilized the line of credit in November 2008. As of November 30, 2008, the balance outstanding under the line of credit was $2.3 million.

Operating Cash Flows

Cash used in operating activities was $2.6 million for the year ended September 30, 2008, an improvement of $8.0 million compared to cash used of $10.6 million during fiscal 2007. During fiscal 2008, our net loss was less by $1.2 million and non-cash charges were higher by $5.2 million while inventory purchases increased $5.5 million due to the factors discussed above. Other changes in operating items were largely driven by the emergence from bankruptcy, including the payment of most prepetition liabilities during fiscal 2007 and a large decrease in prepaid expenses during fiscal 2007 as the Company was no longer required to pay its vendors in advance.

Investing Cash Flows

Cash used in investing activities was $3.8 million for the year ended September 30, 2008, an increase in cash used in investing activities of $5.3 million as compared to cash provided by investing activities of $1.5 million in fiscal 2007. Cash used in investing activities in fiscal 2008 relate primarily to capital expenditures for the construction of our new corporate offices and expansion of our manufacturing facility in Milford, Massachusetts, net of landlord reimbursements. During fiscal 2007, we received $2.0 million from the sale of our Genomics Collaborative division. In addition, we were operating under Chapter 11 of the United States Bankruptcy Code during the first half of fiscal 2007, which limited our ability to invest in capital expenditures for the future growth of the Company.

Financing Cash Flows

Cash used in financing activities was $0.2 million during fiscal 2008 compared to cash provided of $5.1 million during fiscal 2007. The $0.2 million used in fiscal 2008 was for the repayment of our mortgage note and capital leases. During fiscal 2007, the Company received $19.6 million from the Rights Offering, net of issuance costs and used the proceeds to pay down $10.6 million in long-term debt, $3.5 million of related party debt and the bankruptcy claims discussed above. In addition, we incurred $0.5 million in deferred financing costs related to the establishment of a $10.0 million revolving loan facility.

Off-Balance Sheet Arrangements

During fiscal 2008, 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 note. 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 September 30, 2008, we had not drawn down on the line of credit and had . . .