SERACARE INC, 10KSB40/A, 1998-01-12

SERACARE INC
10KSB40/A, 1998-01-12
SPECIALTY OUTPATIENT FACILITIES, NEC

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - KSB/A
(Amendment No.1)

( ) ANNUAL REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)

For the fiscal year ended February 28, 1997
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from to .
--------------------- --------------------
--------------------- --------------------

Commission file number 0-21781
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SERACARE, INC.
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(Name of Small Business Issuer in its charter)

Delaware 95-4343492
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1925 Century Park East, Suite 1970
Los Angeles, California 90067
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(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (310) 772-7777
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Securities registered under Section 12(b) of the Exchange Act: NONE

Securities to be registered under Section 12(g) of the Exchange Act:

Common Stock, $.001 Par Value
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(Title of Class)

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. ( X ) Yes ( ) No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. ( )

The issuer's revenue for its fiscal year ended February 28, 1997 was
$6,661,679.

As of May 14,1997 the aggregate market value of the issuers voting shares held
by non-affiliates was approximately $9,724,410 based on the last price per
share of such common stock at which the stock was sold on such date as reported
by the NASDAQ Stock Market's Bulletin Board.

As of May 14, 1997, the issuer had 3,990,623 shares of its common stock, $.001
par value issued and outstanding.

Transitional Small Business Disclosure Format Yes No X
--- ---

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PART I
ITEM 1. BUSINESS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for historical information contained herein, the statements in this
report (including without limitation, statements indicating that the Company
"expects," "estimates," "anticipates," or "believes" and all other statements
concerning future financial results, product offerings or other events that have
not yet occurred) are forward-looking statements that are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995,
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. Forward-looking statements involve
known and unknown factors, risks and uncertainties which may the Company's
actual results in future periods to differ materially from forecasted results.
Those factors, risks and uncertainties include, but are not limited to: the
positioning of the Company's products in the Company's market segment; the
Company's ability to effectively manage its various businesses in a rapidly
changing environment; new competition for donors and customers; the inability of
the Company to obtain FDA approval of newly established centers; and the
introduction of synthetic products which could eliminate the need for plasma
products.

DESCRIPTION OF THE BUSINESS

SeraCare, Inc. ("SeraCare" or the "Company") was incorporated under the laws of
the State of Delaware in 1991 and changed its name from American Blood
Institute, Inc. to SeraCare, Inc. effective February 6, 1996. The Company's
principal business and executive offices are at 1925 Century Park East, Suite
1970, Los Angeles, California 90967, telephone (310) 772-7777.

THE FILING UNDER CHAPTER 11 OF THE BANKRUPTCY CODE AND THE RESTRUCTURING PLAN.
Prior to October 1993, SeraCare, Inc. (the "Company") was named American Blood
Institute, Inc. and was engaged in the business of whole blood collection and
distribution on a "for profit" basis. As such, the company was in direct
competition with the American Red Cross. After significant and accelerating
losses, an in-depth analysis of the business was done and a plan was formulated
to restructure the company as a "Plasma Collection" company through the
acquisition of AVRE, Inc. and Binary Associates, Inc. Accordingly, meetings were
held with the major secured creditor who voiced support for the plan and
provided the necessary financing and on October 4, 1993 the Company acquired
AVRE, Inc. and Binary Associates, Inc. which owned and operated six plasma
collection centers. Before implementing the balance of the restructuring plan
for the Company, management again met with the secured creditor and obtained
their verbal support and cooperation to proceed with the discontinuation of the
whole blood collection operations and the restructuring of the Company's
financial obligations. The secured lender encouraged the Company to hold a
meeting of the unsecured creditors to discuss the background of the Company's
financial troubles and to establish their support for an "Out-of-Court"
restructuring. Such a meeting was held in conjunction with the National Credit
Managers Association in early December 1993. After much discussion, the
unsecured creditors voiced unanimous support for an Out-of-Court restructuring
of the Company's financial obligations. Very shortly thereafter, the Secured
Lender called a default and attempted to foreclose on the six plasma collection
centers on the basis that the Company had held a general meeting of creditors
which was an event of default under the terms of their loan. At the time, the
Company was current in their payments to

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the secured lender. Consequently the Company filed for protection under Chapter
11 of the Bankruptcy Code on January 7, 1994 in order to stay the foreclosure
process of the secured lender.

During the initial stages of the Bankruptcy, the Company implemented the
restructuring plan which had been previously defined and which encompassed the
following actions:

- - increased income by renegotiating all plasma sales contracts.

- - developed marketing strategies including demographic studies and donor
pricing analyses for each of its six plasma centers.

- - reduced costs by reorganizing the management structure of the Company and
closing the regional offices including laying off of regional managers and
other administrative personnel. Also replaced three of the six center
managers because of performance related issues.

- - applied for and obtained Quality Plasma Program Certification from the
American Blood Resources Association for all six centers.

- - establish strategies, policies and procedures in order to compete in the
rapidly changing plasma industry with increasing FDA requirements, emerging
QPP standards which required expanded testing and restrictions on donor
qualifications. Focused on a rapidly expanding demand for plasma both
within and outside the United States.

With the initial operating strategies having been implemented while under the
protective wing of the Federal Bankruptcy Code and the Company reflecting
profitability, the Company then developed a plan for emerging from Bankruptcy.
The basic structure of the plan was as follows:

A. Priority Claims (taxes and wages) would be paid in full on the effective
date of the plan.

B. The Secured Creditor would receive $625,000 in cash on the effective date
of the plan and a note for $1,150,000 with interest payable monthly at 14%
and principal payable quarterly.

C. Unsecured creditors totaling approximately $2.0 million would receive a
maximum of $.10 for each claim dollar with a limit of $200,000 for such
distribution and 10,000 shares of common stock in the reorganized company.

D. Unsecured Note Holders totaling approximately $450,000 would receive
105,275 shares of the Company's common stock in full satisfaction of their
claims.

E. The pre-petition preferred and common equity interests of the Company would
be canceled. A new capital structure would be established in conjunction
with a proposed private placement which would provide the financing for the
plan.

The proposed plan was approved by the creditors and financing of $1.2 million
was obtained via a private placement. On January 24, 1996 the plan was
approved and entered by the Federal Bankruptcy Court and became effective on
February 6, 1996.

PRINCIPAL BUSINESS OPERATIONS The Company's principal business is collecting
and selling source and hyperimmune plasma to manufacturers of pharmaceutical and
diagnostic products

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(called Fractionators). During the fiscal year ended February 28, 1997, the
Company collected and sold two hyperimmune plasmas, Cytomegalovirus Antibody
Plasma (CMV) and Tetanus Antibody Plasma. Of the Company's total volume of
plasma, about 87% consisted of Source Plasma and approximately 13% represented
hyperimmune plasma. The Company's customers process plasma into such products
as gamma globulin (used to provide passive immunity for infectious diseases such
as hepatitis B, tetanus and rabies), the Antihemophilic factor (used to treat
hemophiliac victims), normal serum albumin (used for shock, trauma and burn
victims), diagnostic test kits for hepatitis and allergies, and blood bank
typing reagents.

The process of collecting plasma is called Plasmapheresis, which consists of
drawing whole blood from a donor; centrifuge separation of the whole blood into
its components; removal of the plasma component; and returning of the red blood
cells to the donor; all in the same process. Because the red blood cells are
returned to the donor, it is possible to donate plasma more frequently than
whole blood. Pursuant to FDA rules, a donor can donate plasma up to twice per
week or 104 times per year.

The Company currently sells all of the source plasma it collects to
fractionators under two or three year contracts which allow for annual pricing
adjustments. The fractionators process the plasma into therapeutic products
which are then sold for distribution to the end users of the products. None of
the source plasma collected by the Company is sold or administered to an end
user without being processed by a fractionator.

CURRENT OPERATIONS. The business of the Company is currently conducted through
its four wholly-owned subsidiaries: AVRE, Inc., a Nevada corporation, Binary
Associates, Inc., a Colorado corporation, BHM, Inc., an Arkansas corporation,
and SeraCare Acquisitions, Inc., a Nevada corporation. On July 2, 1996, the
Company acquired the operating assets and licenses of Silver State Plasma Center
in Las Vegas, Nevada from Nations Biologics in an asset purchase. Effective
November 1, 1996, Silver State Plasma Center was merged into the Company's Los
Vegas collection center. On July 9, 1996 the Company acquired BHM Labs, Inc.,
which owns and operates a plasma collection center in Ft. Smith, Arkansas.
Effective September 2, 1996, the Company completed the acquisition of two
initial stage plasma collection centers in Clearfield, Utah and Raleigh, North
Carolina. The Clearfield, Utah collection center opened on November 19, 1996
under a Reference Number from the FDA and has subsequently received approval of
its license application, but QPP Certification is still pending. The Raleigh,
North Carolina collection center opened on December 17, 1996 under a Reference
Number from the FDA and approval of its license application is still pending.
QPP Certification is not requested regarding newly established centers until the
FDA license application has been approved. The Company has also opened new
centers in Macon, Georgia, which opened on December 18, 1996; Pasco, Washington,
which opened on April 1, 1997; and Toledo, Ohio, which opened on May 1, 1997.
Each of these collection centers is operating under a Reference Number from the
FDA pending approval of its license application. Collection centers which have
not received FDA approval of its license application are allowed to operate
under a Reference Number and process donors in order to develop sufficient
training and records for review by FDA inspectors to establish the locations
ability to comply with FDA Regulations. Such centers are however, precluded
from selling any of the collected plasma until final approval of its license
application. Historically, it has taken approximately twelve to eighteen months
from date of filing to obtain final FDA approval. The Company's customers
require both an FDA license and QPP Certification under all current contracts.
QPP Certification for such centers is requested when the FDA license application
has been approved and takes approximately six to eight weeks.

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The Company is just beginning the construction phase for a plasma center which
is expected to open about September 1, 1997 in Savanah, Georgia. In addition,
the Company is currently in the final stages of lease negotiations in two other
cities.

The Company's common stock was approved for quotation on The NASDAQ Stock
Market's Bulletin Board in May 1996 and is currently traded under the symbol
"SERC".

The plasma centers are operating under the tradename "SeraCare" which is
registered with the United States Patent and Trademark Office.

CUSTOMERS

During the fiscal year ended February 28, 1997 about eighty three percent of
plasma revenue was from sales to Alpha Therapeutic, a subsidiary of Green Cross
Corporation of Japan ("Alpha"). Seven of the Company's current operations were
committed to Alpha as of February 28, 1997. Each location has its own contract
which is independent of the other contracts in terms, pricing, billing practices
and enforcement. Accordingly, no single contract is deemed to be one upon which
the Company is materially dependent. In addition, there was one contract
covering the sale of CMV plasma (approximately thirteen percent of overall
revenue). The current contracts with Alpha Therapeutic expire and are renewable
on various dates beginning in May 1997 through October 1998. Terms are fob
plasma center with Alpha paying for all shipping, softgoods and testing.
Payment terms are generally net 10 days.

During the fiscal year ended February 28, 1997 about thirteen percent of plasma
revenue was from sales to DCI Management Group, Inc. Such sales were from six
of the Company's current operations under a long-term agreement for CMV plasma.

In addition, there is a very active "Spot Market" for plasma via which the
Company could sell excess plasma should any of their location contracts not be
renewed. Prices for "Spot Market" plasma vary, but generally run ten to fifteen
percent higher than the Company's current contract pricing.

Newly opening centers including Clearfield, Utah; Raleigh, NC; Toledo, Ohio;
Macon, Georgia; and Pasco, Washington have been contractually committed to North
American Biologics, Inc. contingent upon final approval of the FDA license
applications and QPP certifications for those centers.

Most of the plasma which the Company sells to its customers is sold under long-
term contracts and relationships which once established continue to be renewed.
The plasma collected by the Company is generally used in the manufacture of
therapeutic products to treat certain diseases. Several companies are attempting
to develop and market products to treat these diseases based upon technology
which would lessen or eliminate the need for human blood plasma. Such products,
if successfully developed and marketed, could adversely affect the demand for
plasma. Products utilizing technology developed to date have not yet proven as
cost-effective or as marketable to healthcare providers as products based on
human blood plasma. However, there

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can be no assurances that such technology will not ultimately become
economically viable and cause a severe adverse impact upon the Company and the
plasma industry as a whole.

COMPETITION
The Company competes for donors with pharmaceutical companies which collect
plasma for their own use, several other commercial plasma collection companies,
and non-profit organizations, such as the American Red Cross and community blood
banks, which solicit the donation of whole blood. A number of these competitors
have access to greater financial, marketing and other resources than the
Company. If the Company is unable to maintain and expand its donor base, its
business and future prospects will be adversely affected.

TRADEMARKS
The Company's plasma collection centers are operated under the tradename
"SeraCare" which is registered with the United States Patent and Trademark
Office.

REGULATORY ISSUES
The plasma collection and derivative industry is one of the most heavily
regulated in the United States. Federal, state and local regulations are
designed to protect the health of the donors as well as the integrity of the
products. The Food and Drug Administration (the "FDA") administers the federal
regulations across the country. Failure to comply with FDA regulations, or
state and local regulations, may result in the forced closure of a collection
center or monetary fines or both, depending upon the issues involved. The
Company is also subject to regulation by Occupational Safety and Health
Administration ("OSHA"). The following summarizes the nature of these
regulations:

FEDERAL GOVERNMENT

FOOD AND DRUG ADMINISTRATION:

The Food and Drug Administration has extensive regulations pertaining to
the collection, storage and transport of human SOURCE PLASMA. These
regulations are found in the Code of Federal Regulations 21: Parts 207,
211, 606 and 640.

Part 207 requires the operators of blood and blood products establishments
to register and list their products with the Center for Biologics
Evaluation and Research ("CBER"), FDA. Part 211, Subparts B and C regulate
the quality control personnel and facilities as well as the overall
facilities themselves.

Part 606 relates to the qualifications of the center personnel, both
medical and technical as well as the plant or center facilities and
buildings. Part 640, Subpart G titled Source Plasma is a comprehensive set
of regulations covering virtually every aspect of a plasma center
operation. These include but are not limited to:

informed consent,
medical supervision,
donor suitability,
collection of blood for source plasma,
plasmapheresis (the actual procedure of collecting plasma),
required laboratory tests,
processing of plasma,

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general requirements,
labeling of containers,
manufacturing responsibility,
records,
reporting of donor reactions,
modification of source plasma and
shipping and storage of plasma.

In addition to the Code of Federal Regulations, the FDA regularly releases
various guidelines to which all registered blood establishments are
expected to comply.

To ensure compliance, the FDA, through their various regional offices,
conduct unannounced inspections of all plasma and blood centers. These
inspections are usually annual and the results are kept on record at CBER,
FDA. The inspectors generally examine records, equipment, facilities,
review the training documents for personnel, review the physical
examination procedures and observe the various procedures being
accomplished. These inspections typically last from two to five days and
may involve more than one inspector. The observations of an inspector are
recorded on a Form 483, a copy of which is given to the local manager.
These observations must be responded to within a two week period, detailing
what, if any, actions have been taken to correct the observation. The
regional office generally makes a determination together with CBER as to
whether these responses properly address the issues. If the observations
were considered serious enough; or, if the answers were not considered
adequate, CBER will issue a REGULATORY LETTER. This is considered a "red
flag" in the industry and if not responded to in a timely and appropriate
manner, can result in CBER taking further action, including actually
closing the center.

The FDA, through the Federal Register, frequently prints any actions taken
against a blood bank or plasma center as a result of compliance problems.
These are easily obtained either by contacting the FDA directly or on the
FDA world wide web page "www. fda.com". At this time, the Company has no
unresolved compliance issues relating to its ongoing operations.

SeraCare has an appointed individual who serves in the capacity of
"RESPONSIBLE HEAD". This position is one mandated by the FDA and serves as
the communication link between the company and the FDA. Our Responsible
Head has over eighteen years in the plasma industry and is well known and
respected by the FDA. She makes periodic unannounced compliance inspections
at the centers, simulating the FDA inspections. In addition to the
Responsible Head, the fractionators (manufacturers to whom we sell the
plasma) conduct compliance inspections in our centers on an annual basis.
Because some of our products find their way into Europe, we are also
periodically inspected by members of the European country's equivalent to
the FDA. All of this regulatory activity serves to ensure that each and
every one of our centers are in compliance with all FDA regulations that
protect the integrity of the products and the safety of the donors.

CLINICAL LABORATORY IMPROVEMENT ACT OF 1988:

In 1988, the U.S. Department of Public Health introduced an updated set of
laboratory regulations. One of the many areas which this law, regulates
is the definition of the education level of personnel required to perform
clinical laboratory tests as well as regulating

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the equipment and the required controls and calibrations. Among the various
tests that must be passed by plasma center personnel, there are several
that fall under the guidelines of this act. Although in most states the
Federal Government has specifically delegated the enforcement of this act
to the States, the act is universally applied. Plasma centers are
periodically inspected under the CLIA 88 regulations.

Part of the required compliance is that centers participate in a quality
control program which is CLIA approved. Consistent with such quality
control program, center personnel perform the test, the results of which
are transmitted to the program administrators. The results must fall within
an acceptable range in order for the center to maintain its CLIA approval.
To date, no SeraCare center has failed to obtain CLIA approval.

OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION:

As with most operating companies, all of our centers must comply with both
Federal and State OSHA regulations. SeraCare trains its employees in
current OSHA standards, provides hepatitis vaccine to employees when
desired, and maintains all required records. OSHA does inspect operating
locations as they deem appropriate, and generally do so without advance
notice. SeraCare has no outstanding issues relating to an OSHA inspection
which required corrective action.

STATE GOVERNMENTS

NEVADA:

Nevada law parallels the federal requirements as stated above with one
addition. The state requires that all employees of plasma centers be
certified with the state. This requires 6 months of experience, a completed
application and a fee.

ALL OTHER STATES

All other states in which SeraCare operates have regulations that parallel
the federal regulations. Most states do conduct periodic unannounced
inspections and require licensing under each states procedures. The
Company currently has no unresolved issues relating to any state
regulations.

INDUSTRY STANDARDS

AMERICAN BLOOD RESOURCES ASSOCIATION:

The American Blood Resources Association, an industry organization
headquartered in Maryland, represents the majority, by far, of both plasma
collection companies and manufacturers. ABRA has established a voluntary
program in which member centers agree to adhere to a set of standards that
exceed those of FDA or state and local agencies. This program, entitled
the Quality Plasma Program ("QPP"), has been supported by the FDA, the
National Hemophilia Association as well as many European regulatory
agencies. The QPP program requires a biannual inspection which focuses on:
employee training; facilities, including cleanliness; and donor selection.
The QPP criteria includes but is not limited to:

Donors must have permanent addresses with 150 miles of the center.
The rates of viral marker tests must be within set national limits.

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A record of all employee training must be available along with the
training procedure.
A program of donor drug testing must be implemented.
All new donors must be checked with the National Donor Deferral
Registry.
The facility must meet all published standards, including location and
neighborhood.

All of SeraCare's operating centers are QPP approved. In addition, the
Company's startup centers and initial stage centers have been designed and
planned to QPP specifications.

During the past five years, the QPP program has created a higher level of
performance criteria and has upgraded the image of the U.S. plasma
collection industry. Examples of the requirements which are enforced by the
FDA, state authorities and ABRA include facilities upgrade, high operating
standards, strict donor screening for drugs and disease, verified addresses
for all donors, use of a national registry of deferred donors and
controlled viral reactive rates to insure they remain within prescribed
limits. The Quality Plasma Program ("QPP") is designed to eliminate the
collection of plasma from donors who are homeless, transient or drug
addicted. In addition, it requires all certified centers to maintain
documented and approved employee-training programs. All testing required by
the center must be performed in a QPP-approved laboratory.

The Company's management closely monitors compliance with applicable
governmental regulations, ABRA standards imposed through QPP and the
Company's own quality assurance standards. In addition, contracts with
fractionators require that individual locations be reviewed and approved
by such customer in order to allow them to sell their end products in
various countries throughout the world.

THE INDUSTRY AND THE MARKET

THE PRODUCT
Currently, the Company's primary product is "SOURCE PLASMA." SOURCE PLASMA is
plasma collected from humans. Plasma is the liquid part of blood and is
collected through a procedure similar to giving blood. The clear plasma is
mechanically separated from the cellular elements of the blood (such as red and
white blood cells and platelets) through centrifugation or membrane filtration
at the time the donation is made. These cellular elements are then returned to
the donor as part of the same procedure. The process of collecting plasma is
known as PLASMAPHERESIS. Because blood cells are returned, it is possible for
individuals to donate plasma more frequently than whole blood. Donations of
plasma can be made up to twice per week or 104 times per year pursuant to FDA
rules.

PLASMA DERIVED PRODUCTS
Source plasma is sold to fractionators who process the plasma into two primary
groups of plasma products: INJECTABLE AND NON-INJECTABLE. These products are
used throughout the world to prevent illness and treat injuries.

Pursuant to FDA Regulations, plasma collected by the Company is placed in
storage on site while a sample thereof is sent to a lab for testing. No plasma
can be shipped unless test results

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are received which indicate the plasma is free of any bacterial or viral
occurrences. If results of the testing indicate any bacterial or viral
presence, the plasma cannot be sold as source plasma and is generally destroyed.
In addition, each of our customers (fractionators) has its own STANDARD
OPERATING PROCEDURES which SeraCare, Inc. is obligated to follow. These
procedures which are prepared and provided by the fractionator, carefully spell
out all safety related instructions. In accordance with such procedures, all
initial donors are given a physical examination before being accepted as a
plasma donor. Additionally, every time the donor donates, he is tested for the
presence of blood borne pathogens such as hepatitis B, hepatitis C, HIV (antigen
and antibody)and liver enzymes (indication of liver disease, such as other types
of hepatitis). The donor is also checked for serum protein content and
hematocrit (percent of red blood cells in serum). These tests serve as a safety
mechanism for both the donor and the plasma. New donors are also checked for
syphilis and drug use. Repeat donors are re-tested for syphilis three times
each year and for drug use once each year.

All plasma collected from a donor is held until the results of his viral tests
are completed. If a donor has a reactive result, all of that donor's plasma is
usually culled from the inventory and destroyed. In most cases, the fractionator
operates the laboratory which performs these tests.

Once the plasma arrives at the fractionation facility, all plasma containers are
checked by the fractionator's quality control staff. The unique donor number is
matched to the test results to ensure no plasma is used that has been found
reactive to viral tests. Once cleared, the fractionator processes the plasma
into its final products. That processing consists of various procedures that, in
and of themselves, reduce the presence of any microorganisms that might have
been in the plasma pool. Temperature and pH are brought to specific levels, then
the in-process products are subjected to a solvent detergent that further
reduces viral activity. There are a number of additional steps, depending on the
product, including dry heat, acetone drying, lyophilizing and membrane
filtration that all reduce the presence of any microorganisms. Some
fractionators actually perform further testing both on in-process products and
final products, so sensitive, that the presence of any single microorganism will
be detected.

The Company's primary customer Alpha Therapeutic is a manufacturer of
pharmaceutical and diagnostic products (fractionator). In addition to the
preventive measures indicated above, Alpha also processes the plasma which it
purchases from SeraCare, Inc. and their other contract centers through two
sterilization processes; A. a pasteurization process and B. a detergent
scrubbing process. The objective of both processes is to render the finished
product free of any contamination from bacterial or viral occurrences.

None of the source plasma or hyperimmune plasma collected by SeraCare, Inc. is
given to end users without first being processed by a fractionator.

Donor safety is very important to the Company. Accordingly, operating
procedures require that donors have the process thoroughly explained, including
the hazards and side effects and that an informed consent form be signed by
each donor The Company does extensive training of employees in order to insure
the safety of its donors.

INJECTABLE PLASMA PRODUCTS

SOURCE PLASMA is the base raw material used to manufacture many injectable
therapeutic products, the most important of which are:

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NORMAL SERUM ALBUMIN AND PLASMA PROTEIN FRACTION, which are primarily used
to keep vessel walls from collapsing following major injury, as blood
volume expanders and as a protein replacement. They are used:

- to treat shock due to trauma or hemorrhage;

- to treat fluid loss due to severe burns;

- in cardiovascular surgery;

- to treat liver and kidney diseases; and

- as a carrier for many other injectable solutions.

IMMUNE GLOBULINS, which are used to strengthen the immune system in order
to fight off common diseases such as:

- Suppressed immune systems in cases of organ transplants, HIV
and other immune deficiencies;

- Hepatitis B;

- Tetanus;

- Rabies, whooping cough, measles and polio; and

- Other immune related diseases.

ANTIHEMOPHILIC FACTORS, which are specific proteins found in plasma that
are an integral part of the blood clotting mechanism. Persons born with an
absence or a deficient amount of the protein suffer from hemophilia, types
A, B, or Von Willebrand's Disease.

RH IMMUNE GLOBULIN, which is a substance administered to prevent
incompatibilities between the blood of a fetus and mother. Rh
incompatibility occurs when an Rh-negative woman is pregnant with an
Rh-positive fetus. This occurs in 9-10% of pregnancies. If no
preventive measures are taken, 0.7-1.8% of Rh-negative women with an
Rh-positive fetus will become isoimmunized antenatally, developing Rh
(D) antibody through exposure to fetal blood; 8-15% will become
isoimmunized at birth, 3-5% after abortion (spontaneous or
therapeutic), and 2.1-3.4% after amniocentesis. Rh(D) isoimmunization
currently occurs at a rate of about 1.5 per 1000 births. Its effects
on the fetus or newborn include hemolytic anemia, hyperbilrubinemia,
kernicterus, or intrauterine deaths due to hydrous fetalis. About 45%
of cases require intrauterine or exchange transfusions to survive, and
there are about four deaths from this disease per 100,000 total
births. The prevalence of Rh(D) isoimmunization has declined
significantly following the introduction of Rh(D) immune globulin in
the 1960's. Between 1970 and 1979, the crude incidence fell from 40.5
cases to 14.3 cases per 10,000 total births.

The administration of Rh(D) immune globulin to these women prevents
maternal sensitization and subsequent hemolytic disease in Rh-positive
infants. RhIG must be administered after abortion, amniocentesis,
ectopic pregnancy, and antepartum hemorrhage, as well as after
delivery. Time series studies have shown a dramatic decline in the
incidence of Rh isoimmunization, from 13-17% in the mid-1960's to 0.3-
1.9% in the mid-1970's. In Canada, where compliance with prophylaxis
was maximized, Rh isoimmunization fell from 10.3 per 1000 births and
55 deaths in 1964 to 3.4 per 1000 births and 1 death in 1975.

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NON-INJECTABLE PLASMA PRODUCTS
A secondary use of plasma is to manufacture certain diagnostic products which
are for the most part non- injectable. Some of the primary diagnostic products
are:

- BLOOD GROUPING AND TYPING REAGENTS which are used by blood banks
to match donor blood with the recipient.

- LABORATORY CONTROL REAGENTS which are used by laboratories to
assure the quality control of their tests.

- SPECIAL TEST KIT REAGENTS which are derived from the plasma of
donors known to have a specific disease and are used in the
laboratory as a positive control test.

SPECIALTY PLASMAS

Specialty Plasmas generally contain high concentrations of specific antibodies
and are used primarily to manufacture immune globulin therapeutic products which
bolster the immunity of patients to fight a particular infection or to treat
certain immune system disorders. Following advances in intravenous therapy in
the mid-1980s, use of specialty plasmas for therapeutic purposes significantly
increased. Among the current uses for specialty plasmas are the production of
products to prevent hepatitis, Rh incompatibility in newborns, tetanus and
rabies. Specialty plasmas are also widely used for diagnostic and tissue culture
purposes. Depending on the rarity of the antibody or medical history of the
donor, the pricing for specialty plasmas currently ranges from $80 to $3,500 per
liter. The average spot price (free market price) of source plasma is currently
approximately $76. Most specialty plasma is derived serendipitously (not the
result of stimulation) which poses no abnormal risk to the plasma collector.

The Company currently collects and sells two specialty plasmas, Cytomegalovirus
Antibody Plasma (CMV) and Tetanus Antibody Plasma. The Company intends to place
increased emphasis on the collection of specialty plasmas by identifying
potential specialty plasma donors through screening and testing procedures and
by developing more FDA-licensed programs to inoculate potential donors.

THE PLASMA INDUSTRY

The blood resource industry can be divided into two industry segments. One is
the non-profit or voluntary sector which is commonly thought of as Red Cross and
independent non-profit blood centers. This "non-profit" sector is primarily
concerned with providing whole blood and components of whole blood for
transfusion in medical applications at hospitals. The other is the commercial or
"for-profit" segment such as plasma collection centers. This "for-profit"
commercial sector consists of plasma collection operations which collect plasma
from paid donors and sell the plasma to Fractionators, who produce plasma
derivative products or fractions that are used in therapeutics.

Plasma is collected at centers owned by both foreign and U.S. fractionators and
by independent companies who sell to diagnostic companies and other
fractionators.

<PAGE>

Plasma collection centers are found in most states throughout the United States
as presented in the following illustration:

DISTRIBUTION OF PLASMA CENTERS BY STATE - 1996

[MAP OF USA]

SOURCE: AMERICAN BLOOD RESOURCES ASSOCIATION

PLASMA MARKET
The source plasma industry has experienced a number of fluctuations in the
supply and demand cycles. The market factors driving the plasma industry have
included:

- The expanded use of immune globulins to prevent and treat
disease.

- The worldwide plasma shortage.

- Extensive public concern over the safety of blood products.

- An increase in domestic and foreign regulatory control over the
collection and testing of plasma.

A worldwide shortage of plasma began in 1991, driven partially by the increased
need for plasma components to treat larger and older populations, and partially
by a diminished pool of donors that resulted from more restrictive testing and
screening requirements imposed by regulatory authorities. In 1991, the FDA
required mandatory screening for hepatitis C, thereby disqualifying donations
from a significant portion of the then existing donor base. Another market
factor has been increasing public concern over HIV and other viruses which has
lead to increased testing and tighter scrutiny.

The Company has generally sold its plasma under contracts ranging from one to
three years which allow for annual pricing renegotiations. Pricing for product
deliveries is generally mutually agreed upon prior to the beginning of the
contract year and fixed for that year. Consequently, the Company may be
adversely or beneficially affected if its costs of collecting and selling plasma
rise or fall during the year as a result of changes in government regulation,
donor fees or other factors.

FRACTIONATORS

Fractionation is the process of separating the raw source plasma into a variety
of derivative products (see "The Product" above). Prior to being fractionated,
source plasma is blended into batches of 7,500 to 10,000 liter units from many
different donor sources.

<PAGE>

The five leading fractionators in the United States are:

ALPHA THERAPEUTIC a subsidiary of The Green Cross
CORPORATION Corp. of Japan

CENTEON a subsidiary of Rhone-Poulenc-Rorer, a French
PHARMACEUTICALS government owned pharmaceutical conglomerate

MILES LABORATORIES a division of Germany's Bayer A.G.

HYLAND THERAPEUTICS a division of Baxter, Inc., an $8.1 billion
revenue U.S. company.

NORTH AMERICAN a public U.S. company with $160 million
BIOLOGICALS, INC. revenue - traded on NASDAQ

CURRENT OPERATIONS

CURRENT PLASMA CENTERS

As of May 1, 1997, the Company had twelve plasma centers in operation: one in
Las Vegas, Nevada; two (2) in Colorado Springs, Colorado; one in Clarkesville,
Tennessee; one in Phoenix, Arizona; one in Pueblo, Colorado; one in Ft. Smith,
Arkansas; one in Clearfield, Utah; one in Raleigh, North Carolina; one in Pasco,
Washington; one in Toledo, Ohio; and one plasma center in Macon, Georgia. As of
May 1, 1997, such centers were collecting plasma at an annualized rate of about
191,000 liters. The Raleigh, Macon, Pasco, and Toledo, centers which opened
December 17, 1996, December 18, 1996, April 1, 1997 and May 1, 1997 respectively
were operating under Reference Numbers pending FDA approval of license
applications.

The Company collected approximately 140,500 liters of plasma in the fiscal year
ending February 28, 1997. This represented a 31%, or approximately 33,500
liter, increase over 1996. The actual liters collected includes two centers
which were acquired in July 1996, and three newly established centers which
opened for business in November and December 1996. Accordingly, the current
collection rate on an annualized basis would be about 191,000 liters.

DONORS

FDA standards restrict the frequency in which a donor may give plasma to twice a
week or 104 times per year. Most regular donors donate between 40 and 60 times
per year.

The QPP certification program is focused on excluding drug or alcohol addicts or
homeless persons by requiring proof of permanent address as well as alcohol and
drug use testing.

MARKETING/DONOR RECRUITMENT

Effective recruitment, management and retention of donors are essential to the
Company's plasma business. The Company seeks to attract and retain its donor
base in the following ways:

<PAGE>

- by utilizing competitive financial incentives which the Company
offers for the donation of the plasma.

- by providing outstanding customer service to its donors.

- by implementing programs designed to attract donors through
education as to the uses of plasma.

- by encouraging regular participation in its donor programs.

- by providing incentives to encourage donors to return.

Repeat donors are important because of the lower cost associated with obtaining
their plasma and less risk that their plasma will not satisfy regulatory and
customer requirements. The Company's centers advertise for donors through
targeted mailings, flyers and newspapers. Radio and television ads are also used
when advantageous.

The Company's donor records are maintained with the assistance of donor database
systems at each center which allows the Company's personnel to track the
frequency of donor visits. When a donor has not visited a center in over one
month, the center sends a reminder card to the donor emphasizing the importance
of the donor's continued participation.

DONOR PROCESSING
On their first visit all new donors are given a physical examination by either a
licensed physician or physician substitute. The National Donor Deferral Registry
and the deferral lists of the Fractionators and other local plasma centers are
all checked to determine if the donor has ever had positive viral test results
or has ever been previously deferred or rejected as a donor. In addition to the
deferral list checks, each time the donor visits, the donor is given the
opportunity to defer himself confidentially and is asked a number of screening
questions which he must audibly answer. In addition, each time he visits, the
donor is tested for: blood pressure; temperature; pulse; weight; hematocrit;
total proteins; HIV; hepatitis B and C; and liver enzymes.

QUALITY AND OPERATIONAL CONTROLS

Through its QPP and internal operating procedures and policies, the Company
strives to maintain a high level of quality control. The Company's policies
require that donor charts be audited on a daily basis, and that equipment be
regularly recalibrated. Quality control records and procedures are maintained at
a detailed level.

TRAINING

The Company is focusing on two levels of training: (a) technical training of
employees; and (b) center management skills and development.

All employees are required to read and study detailed training materials and are
then given a written test covering that material. Results of the written tests
must be kept available for FDA inspection. Employees are also required to
demonstrate specific skills to an FDA-certified trainer. Each level of an
employee's training is tracked and documented and each employee is required to
be retested on all material every six months. All employees are "cross trained"
in all three of the center's functional areas, allowing for more efficient
scheduling. Ongoing or continuing education sessions are periodically held to
review new procedures, equipment and FDA requirements. All training
documentation is subject to FDA approval.

It is the Company's philosophy to continually develop competent individuals
within the Company to move into management positions. Selected individuals are
sent to outside

<PAGE>

management development seminars in addition to the in-house program of
development. Consequently, all of the open manager positions during the past
three years have been filled with existing in-house personnel.

EMPLOYEES

As of May 1, 1996, the Company employed 127 full time employees and 37 part
time employees.

Of the full time employees four were corporate officers, two were corporate
clerical employees, twelve were location managers, nine were nurses, one was a
doctor and the balance were cross-trained as
technicians/receptionists/phlebotomists.

Of the part time employees, 6 were nurses and the balance were cross-trained as
technicians/receptionists/phlebotomists.

The Company believes that the relations between the Company's management and its
employees are good, although there can be no assurances that such relations will
continue. The inability of the Company to attract or retain qualified personnel
could have a material adverse effect on the Company.

ITEM 2. PROPERTIES

The Company currently occupies fifteen locations with executive offices at 1925
Century Park East, Suite 1970, in Los Angeles and fourteen plasma centers in:
Las Vegas, Nevada (2 locations); Clarkesville, Tennessee; Phoenix, Arizona;
Colorado Springs, Colorado (2 centers); Pueblo, Colorado; Ft. Smith, Arkansas;
Clearfield, Utah; Raleigh, North Carolina; Macon, Georgia; Pasco, Washington;
Toledo, Ohio; and Savanah, Georgia. The Savanah location is currently being
remodeled in preparation for starting a new center. All of the Company's
leased property, comprising fourteen locations and approximately 57,000 square
feet, is leased from unaffiliated parties under leases expiring through 2006.
Most of these leases contain renewal options which permit the Company to renew
the leases for periods of from two to five years at the then fair rental value.
One of the Company's centers is leased on a month-to-month basis. The Company
believes that in the normal course of its business it will be able to renew or
replace its existing leases. The Company believes that the space it occupies is
adequate for its existing centers.

The Company's plasma collection centers range in size from approximately 2,950
to 5,500 square feet and generally are located in population centers of 60,000
to 1,000,000 people.

The Company also owns two parcels totaling approximately one acre of land in
Fort Worth, Texas which was obtained in the purchase of the original six
plasma centers. These parcels are currently listed for sale and are not being
considered for plasma collection center development.

ITEM 3. LEGAL PROCEEDINGS.

There are no material pending legal proceedings, other than routine litigation
occurring in the normal course of the Company's operations, to which the Company
is a party or of which any of its property is subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not Applicable.

<PAGE>

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

(a) MARKET INFORMATION:

The Company's Common Stock is quoted on the NASD's OTC Bulletin Board Service
("Bulletin Board") and is traded under the symbol "SERC". The Company emerged
from bankruptcy on February 6, 1996 and began trading on the Bulletin Board in
May 1996. The following table sets forth the range of bid prices for the Common
Stock during the periods indicated, and represents inter-dealer prices, without
retail mark-up, mark-down or commission to the broker-dealer, and may not
represent actual transactions. The information summarized in the following
table has been derived from the NASD's Monthly Statistical Report.

The Company's Common Stock was not traded on any market prior to May 1996.

High Low
---- ---
For the period May 1, 1996 through May 31, 1996 1 1/2 1
For the period June 1, 1996 through August 31, 1996 1 3/4 1/2
For the period September 1, 1996 through November 30, 1996 2 1/2
For the period December 1, 1996 through February 28, 1997 3 9/16 1 1/8

(b) HOLDERS:

Approximate Number of
Record Holders (as
Title of Class of April 30, 1997)
- -------------- -------------------
Common Stock, $.001 par value 360 (1)

- --------------------
(1) Certain of the Company's shareholders hold shares under "street name" and
are not identified individually. Accordingly, the Company estimates that
it has a total of approximately 460 beneficial shareholders.

The Company has never paid cash dividends on its Common Stock. Pursuant to the
terms and conditions of the Amended and Restated Loan Agreement dated February
5, 1996, between CVD Financial Corporation (referred to therein as "Lender") and
SeraCare, Inc., Avre Incorporated, and Binary Associates, Inc. (referred to
collectively therein as "Borrowers"), the Company may not declare or pay
dividends on account of any stock of the Borrowers, except that SeraCare, Inc.
may issue warrants, options, stock, rights or any other form of equity security
as a dividend. The declaration and payment of dividends in the form of equity
securities by the Company's board of directors will depend, among other factors,
on earnings as well as the operating and financial condition of the Company. At
the present time, the Company does not expect to declare or issue any dividends
within the foreseeable future.

<PAGE>

ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for historical information contained herein, the statements in this
report (including without limitation, statements indicating that the Company
"expects," "estimates," "anticipates," or "believes" and all other statements
concerning future financial results, product offerings or other events that have
not yet occurred) are forward-looking statements that are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995,
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. Forward-looking statements involve
known and unknown factors, risks and uncertainties which may cause the Company's
actual results in future periods to differ materially from forecasted results.
Those factors, risks and uncertainties include, but are not limited to: the
positioning of the Company's products in the Company's market segment; the
Company's ability to effectively manage its various businesses in a rapidly
changing environment; new competition for donors and customers; the inability of
the Company to obtain FDA approval of newly established centers; and the
introduction of synthetic products which could eliminate the need for plasma
products.

1997 AS COMPARED TO 1996

In comparing the 1997 fiscal year results with the comparable period in 1996, it
is necessary to combine the two periods presented, the period from March 1, 1995
through February 5, 1996 and February 6, 1996 through February 29, 1996. The
presentation of the two periods is necessary in order to reflect the change in
legal structure afforded companies emerging from Chapter 11 of the U.S.
Bankruptcy Code. The combining is necessary in order to establish comparable 12
month periods for evaluating operating results.

RESULTS OF OPERATION

SALES

The Company collected about 140,540 liters of plasma during the year ended
February 28, 1997 compared to about 107,051 for the comparable prior period or
an increase of thirty-one percent. Net sales decreased by $7,845 to $6,661,679
and were approximately the same as the $6,669,524 recorded for the 1996 twelve
month period. The primary offsetting factors reflected in those results were
primarily the fact that about sixty percent of 1996 revenue was from sales to
Europe whereby sales pricing is gross (exclusive of softgoods and testing) while
all of the 1997 revenue was domestic whereby sales pricing is net (reduced to
reflect the cost of softgoods and testing). This restructuring of the pricing
was mostly offset by the increased revenue from the acquisitions of the two
centers, Silver State and BHM which added $1,174,202 to 1997 revenue. The
increased volumes were the result of the acquisitions of Silver State and BHM
and the newly established centers in Clearfield, Raleigh and Macon. The three
newly established centers were operating under a Reference Number from the FDA
during 1997 and were thus not allowed to sell or ship plasma during the period,
although they were collecting plasma during the period.

<PAGE>

GROSS PROFIT

Gross profit decreased by $313,317 or 38 percent in 1997 to $512,859 primarily
due to higher donor fees of $815,830 and higher salaries of $627,658 and other
operating costs of $470,205 resulting from higher volumes (mainly from the
acquisitions of Silver State and BHM) and increased competition in certain
locations, mostly offset by the lower softgoods and testing costs of $1,582,376
associated with the shift from European sales to domestic sales and the related
restructuring of the pricing. The Gross Profit percentage went down from 12.4%
in fiscal 1996 to 7.7% in fiscal 1997, primarily due to the restructured
pricing.

GENERAL AND ADMINISTRATIVE EXPENSES

General and Administrative expenses for 1997 were lower by $87,805 or 10 percent
primarily due to a reduction in administrative salaries partially offset by the
non-cash charge of $78,980 associated with the implementation of an accounting
standard. See Notes 6 and 8 to the Company's Consolidated Financial Statements.

INTEREST EXPENSE

Interest expense of $10,727 in fiscal 1996 results from the debt to CVD
Financial which was assumed in the Plan of Reorganization. Interest expense of
$208,255 in the 1997 period results from the debt to CVD Financial which was
assumed in the Plan of Reorganization, the note payable to Nations Biologics
which was associated with the acquisition of Silver State Plasma and the
$550,000 bridge loan which provided the cash portion of the Silver State Plasma
acquisition price. Additionally, there is a $100,000 original issue discount
charge which results from the implementation of an accounting standard. See
Note 4 to the Company's Consolidated Financial Statements.

OTHER ITEMS

Other items reflected on the Consolidated Statement of Operations which were
unique to the year ended 1996 include: Reorganization expense items of
$491,877, the extraordinary net gain from debt discharge of $2,584,496,
and step-up in basis of assets from reorganization of $805,038. There were
no comparable items in 1997.

INCOME TAXES

State income taxes were $16,000 due to the profitability of certain operations
in certain state.

As of February 28, 1997, the tax effects of temporary differences for
depreciation, amortization, and valuation allowances from current and prior
periods and net operating loss carryforwards could give rise to the recording of
deferred tax assets. The Company is unable to reasonably determine the amounts
of net operating loss carryforwards available to offset against future taxable
income. Furthermore, the Company was unable to determine whether it was more
likely than not that the deferred tax asset would be realized, therefore a 100%
valuation allowance was established.

NET INCOME

As a result of the above, there was a net loss for the year ended February 28,
1997 of $511,108 compared to a net income of $2,839,214 in 1996.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

As of February 28, 1997, the Company's current liabilities exceeded current
assets by $390,635 as compared to $542,400 in the prior year. This improvement
was primarily due to improved payment terms associated with the change in the
Company's primary customer.

The year ended February 28, 1997 was a year of restructuring and growth through
the acquisition of two established plasma collection centers in Ft. Smith and
Las Vegas, the acquisition of two early stage developmental plasma centers in
Clearfield and Raleigh and the establishment of new plasma collection centers
in Macon, Pasco and Toledo. The Company has accordingly established itself in a
strong growth posture in order to be able to meet the strong increased demand
for plasma which the Company believes will accelerate through fiscal years
ending in 1998 and 1999. With this strategic focus on growth in the volume of
plasma collected, the short-term impact on the Company's earnings and cash flow
has been to postpone significant profitability and positive cash flows until the
later part of fiscal 1998 when the Company believes that the volumes in several
of the newly established centers will reach maturity, new products will begin
shipping, new sales contracts will bring higher plasma pricing and new softgoods
and supplies pricing will provide for improved gross margins. Meanwhile, the
Company's projected capital requirements for fiscal 1998 include the
establishment of seven new plasma centers.

Net cash used in operations decreased from cash provided of $159,520 in 1996
to cash used in operations of $745,309 for the comparable period in 1997.
The decrease was primarily related to the net operating losses incurred in
1997 and a decrease in the accounts payable balances and accrued liabilities
associated with the purchase of softgoods in fiscal 1996 which were paid for
during fiscal 1997, which was partially offset by increased depreciation and
amortization expense, non-cash interest and non-cash general and
administrative expenses.. Cash flow from investing activities for the year
ended February 28, 1997 resulted in net cash used of $1,584,401 compared to
$21,661 for the comparable prior year period. This increase in cash used
resulted from the acquisitions of Silver State and BHM and from the capital
requirements of the newly established plasma collection centers in
Clearfield, Raleigh, Macon and Pasco. Cash flows provided by financing
activities was $2,293,311 for the current period compared to $338,100 for
the comparable prior period. This increase was primarily due to the private
placements the Company completed, receiving net proceeds of $2,557,191 and
the proceeds from the bridge loans of $650,000. This was partially reduced by
the repayments made on long-term debt and the bridge loans. See Notes 4,
5, and 6 to the Consolidated Financial Statements. The net proceeds were
used to finance the Companies expansion program and for working capital.

Management believes that the capital expenditures necessary for this expansion
and the related increase in working capital requirements will be funded by a
combination of internally generated cash flows, short term bridge financing,
private placements and a planned public offering.

<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125)
issued by the Financial Accounting Standards Board (FASB) is effective for
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. Earlier or retroactive application is
not permitted. The new standard provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
The Company does not expect adoption to have a material effect on its financial
position or results of operations.

Statements of Financial Standards No. 128, "Earnings Per Share" (SFAS 128) is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Earlier application is not permitted. SFAS
128 requires dual presentation of basic and diluted earnings per share (EPS) on
the face of the consolidated statement of operations. It also requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. This statement
also requires restatement of all prior-period EPS data presented. The Company
has not determined the effect on its EPS from the adoption of this statement.

INFLATION

Management believes that inflation generally causes an increase in sales prices
with an offsetting unfavorable effect on the cost of products sold and other
operating expenses. Accordingly, with the possible impact on interest rates,
management believes that inflation will have no significant effect on the
Company's results of operations or financial condition.

ITEM 7. FINANCIAL STATEMENTS.

All financial statements required to be filed herewith are attached hereto
following the signature page.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The Company is headquartered in Los Angeles, California and operates with a
corporate office staff of five people. The office of the Chief Operating
Officer is in Clearfield, Utah.

The present term of office of each director will expire at the next Annual
Meeting of Shareholders. Executive Officers of the Company are elected
annually at the first meeting of the Company's Board of Directors held after the
annual meeting of shareholders. Each executive officer will hold office until
his or her successor is duly elected and qualified or until his or her death or
resignation or until he or she shall have been removed in the manner provided in
the

<PAGE>

Company's Bylaws. The name and position with the Company and age of each
officer and director, and the period during which each director has served are
as follows:

Director
Name Age Position Since
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Barry D. Plost ................ 50 Chairman of the Board, President and CEO 1996
Jerry L. Burdick............... 51 Executive Vice President, Chief Financial Officer, 1995
Secretary and a Director
Brad Rabe...................... 36 Vice President and Chief Operating Officer
Brian Olson.................... 56 Vice President, Operations
Sam Anderson................... 58 Director 1996
Susan Preston.................. 41 Director 1996
Ezzat Jallad................... 35 Director 1996
Nelson Teng.................... 51 Director 1997
</TABLE>

____________________

BARRY D. PLOST began serving as Chairman, President and Chief Executive Officer
of the Company on February 6, 1996. Prior to joining the Company, he was a
Management Consultant with the management consulting firm of David Barrett, Inc.
for the period January 1995 until February 6, 1996. Mr. Plost was President and
Chief Executive Officer of Country Wide Transport Services, Inc., a trucking
company, from February 1991 through June 1994, and President and Chief Operating
Officer of Freymiller Trucking, Inc., a trucking company, from November 1979
through August 1991.

JERRY L. BURDICK was appointed Executive Vice President, Chief Financial
Officer, Secretary and a Director effective December 1, 1995. From August 1993
through March 1995, Mr. Burdick was a consultant to SeraCare, Inc. in the areas
of financing, internal controls, cost accounting and was specifically requested
to evaluate the whole blood operations of the Company and make recommendations
for correcting the increasing losses. When the Company filed for protection
under Chapter 11 of the Federal Bankruptcy Code, Mr. Burdick was asked to
provide guidance to the Controller and financial staff on appropriate
bankruptcy filings and regulations. Mr. Burdick also drafted the first proposed
Reorganization Plan and accompanying Private Placement Memorandum for SeraCare,
Inc. during that period. During that period, Mr. Burdick had no direct reports
and acted only in an advisory capacity reporting to the President of the
Company. In October 1994, the Company hired Mr. Burdick as an accountant. In
March 1995, the Company determined to terminate the Controller and Chief
Financial Officer (same person) and have Mr. Burdick fill that role on an acting
basis during the remaining tenure of the bankruptcy, through February 6, 1996.
Mr. Burdick previously operated his own consulting practice from March 1988
through August 1993. Mr. Burdick is a Certified Public Accountant in the State
of California. At the time the Company filed for protection under Chapter 11 of
the Federal Bankruptcy Code, Mr. Burdick was a consultant to the Company. Mr.
Burdick has also participated in various other Chapter 11 restructurings as a
consultant, and for about one year as controller of a company which was in
bankruptcy when he joined the company.

BRAD RABE was appointed Vice President and Chief Operating Officer effective
September 1, 1996. Prior to joining the Company, Mr. Rabe spent sixteen years
with the Plasma Collection Division of Bayer Corporation, a large
pharmaceutical company, most recently as Operations Director.

<PAGE>

BRIAN OLSON has served as Vice President, Operations of the Company since July
1992 and was a Director of the Company from February 1996 until October 1996.
Prior to joining the Company, Mr. Olson held the position of Director of Plasma
Supply with Alpha Therapeutic Corporation, a manufacturer of pharmaceutical
products, from July 1987 through June 1992. At the time the Company filed for
protection under Chapter 11 of the Federal Bankruptcy Code, Mr. Olson was
serving as Vice President, Operations.

SAM ANDERSON was elected a Director effective April 16, 1996. Since April of
1996, Mr. Anderson has also been a consultant to SeraCare, Inc. in the areas of:
finding and evaluating potential acquisitions; helping the Company in developing
a strategic plan for increasing the volume of hyperimmune plasma collected
including targeting the particular type of hyperimmune the company should
target; and advising the Chief Executive Officer of the Company on industry
trends and potential changes in regulations and the ramifications thereof. Mr.
Anderson's role is strictly advisory and he has no direct reports within
SeraCare, Inc.. Since March 1991, Mr. Anderson has served as a consultant to
various companies in the plasma business and specifically in pharmaceutical
products, fractionation and hyperimmune plasma. From March 1990 to March 1991,
Mr. Anderson served as president of Trancel, Inc., a start-up bio-tech
development company in the area of insulin dependent diabetes and prior to that
served as Chairman and Chief Executive Officer of Alpha Therapeutic Corporation,
a manufacturer of pharmaceutical products and also the largest plasma collection
company and fractionator in the world, until he retired in February 1990.

SUSAN PRESTON was elected a Director effective April 16, 1996. Ms. Preston has
been a practicing attorney for the law firm of Weiss, Jensen, Ellis & Howard in
Seattle, Washington since May 1994 and previously served as corporate counsel
for various other companies.

M. EZZAT JALLAD was elected a Director effective October 28, 1996. Mr. Jallad
has been Chairman and President of Softpoint, Inc., which develops and markets
point of sale software and hardware for the fast food and retail markets since
June 1995. Previously, he was Executive Vice President of SCIM Corporation, a
financial consulting firm, from April 1988 to May 1995.

NELSON TENG was elected a Director effective January 29, 1997. Dr. Teng has
been the Director of Gynecologic Oncology and Associate Professor of Gynecology
and Obstretrics at Stanford University School of Medicine since 1981. Dr. Teng
also co-founded ADEZA Biomedical in 1984, and UNIVAX Biologics in 1988. In
addition, Dr. Teng has served as a scientific advisor and consultant to several
biotechnology companies and venture capital firms and has authored over 100
publications and 15 patents. Dr. Teng serves on several other boards of
directors.

The Board of Directors currently consists of six directors: Barry D. Plost ,
Chairman, President and Chief Executive Officer; Jerry L. Burdick, Executive
Vice President, Chief Financial Officer and Secretary; Sam Anderson, outside
Director; Susan Preston, outside Director; Ezzat Jallad, outside Director; and
Nelson Teng, outside Director.

ITEM 10. EXECUTIVE COMPENSATION

The Company does not have key man insurance on any of its employees. Sam
Anderson, an outside Director, has entered into a three year consulting
agreement with the Company at $50,000 per year plus fully vested

<PAGE>

options to purchase 30,000 shares of the Company's common stock at $1.50 per
share which expire in three years. Mr. Anderson also was granted fully vested
options to purchase 20,000 shares of the Company's common stock at $1.00 per
share, which expire in three years, in conjunction with a $100,000 bridge loan
Mr. Anderson made to the Company on July 2, 1996. Susan Preston has been granted
fully vested options to purchase 15,000 shares of the Company's common stock at
$1.50 per share which expire in three years. Mr. Teng has been granted fully
vested options to purchase 50,000 shares of the Company's common stock at $1.50
per share which expire in three years.

The following table sets forth the cash compensation and other consideration
paid by the Company to its executive officers whose cash compensation exceeded
$100,000.

Paid Paid Paid
Fiscal Fiscal Fiscal
Name and Principal Position 1997 1996 1995 Options Other
- --------------------------- ---------------------------------------- -----
(7)Barry D. Plost, President, $124,167 $4,327 - 56,147 (1) (6)(5)
Chairman and CEO
150,000 (2)
100,000 (3)
130,000 (4)
(8)Jerry L. Burdick, 125,000 83,749 26,667 42,110 (1) (6)(5)
Executive V. P.,
Secretary and CFO

- --------------------------
(1) These three year options were granted on February 6, 1996 in conjunction
with the Plan and were vested as of October 1996 and are exercisable over
five years from date of grant at a price of $1.25.

(2) These options were granted on February 6, 1996. The prices are 50,000 at
$1.00, 50,000 at $2.00, and 50,000 at $3.00 per share. These options were
fully vested in January 1997 and expire January 2002.

(3) These options were granted on February 6, 1996 and are fully vested at
$1.00 per share which expire at the end of five years.

(4) Mr. Plost was granted on July 2, 1997 and July 17 1997 fully vested three
year options to purchase 130,000 shares of the Company's common stock at and
exercise price of $1.00 per share in conjunction with a $400,000 bridge loan
Mr. Plost made to the Company on July 2, 1996 and a $50,000 bridge loan he
made to the Company on July 17, 1996. The options granted represented 100%
of the options granted employees in the year 1997.

(5) The Company has established a Management Bonus Pool whereby ten percent
(10%) of earnings before taxes which are in excess of $920,549 in the year
ending February 28, 1997; $2,590,160 in the year ending February 28, 1998,
and $4,384,187 in the year ending February 28, 1999 will be allocated to a
bonus pool to be paid pro rata to all officers of the Company on the basis
of salaries.

(6) To the extent that quarterly earnings before taxes exceed $100,000, the
excess will be paid on a pro-rata basis to all officers up to an annual
maximum of $10,000 each.

(7) Effective on February 6, 1996, the Company signed a contract with Mr. Plost
through February 5, 1999 at a base salary of $75,000. Such salary was
increased to $170,000 on November 1, 1996 by the Board of Directors. Mr.
Plost also participates in the Management Bonus Pool on the same basis as
other officers of the Company during the term of his agreement and also
received certain options as indicated. Mr. Plost was not an employee prior
to February 6, 1996.

(8) Effective on February 6, 1996, the Company signed a contract with Mr.
Burdick through February 5, 1999 at a base salary of $125,000. Mr. Burdick
also participates in the Management Bonus Pool on the same basis as other
officers of the Company during the term of his agreement and also received
stock options as indicated above. Mr. Burdick functioned as an accountant
and consultant to the Company prior to February 6, 1996.

<PAGE>

Aggregate Options/SAR Exercises in last fiscal year and FY- End Option/SAR
Values

<TABLE>
<CAPTION>
Number of Shares Value of
Shares Acquired Value Underlying Unexercised
Name and Principal Position on Exercise Realized Unexercised In-the-Money
- --------------------------- --------------- -------- Options at Options at
Year-End (1) Year-End(1)
-------------------------------
<S> <C> <C> <C> <C>
Barry D. Plost, President, NA NA 56,147 $14,037
Chairman and CEO 150,000 $25,000
100,000 $50,000
130,000 $65,000
Jerry L. Burdick, NA NA 42,110 $10,528
Executive V. P., Secretary
and CFO
</TABLE>

(1) As of February 28, 1997, there were no options which were unexercisable.

ITEM 11. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
SECURITYHOLDERS

The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's common shares at February 28,
1997 of each present director, all officers, all officers and directors as a
group and each beneficial owner of more than 5% of the Company's common stock.

PRESENTLY EXERCISABLE
---------------------
% OF COMMON SERIES A
INDIVIDUAL / GROUP CLASS SHARES OPTIONS WARRANTS
- ------------------------------------- -------- -------- ------- ------------

<S> <C> <C> <C> <C>
Barry D. Plost, President & Chairman 16.0% 239,284 436,147 70,000
Brad Rabe, Executive VP & COO 8.2% 283,764 - 62,500
J.L. Burdick, Executive, CFO & Director 1.0% - 42,110 -
Brian Olson, VP Operations 1.8% 45,777
Nelson Teng, Director 8.1% 200,000 50,000 100,000
Samual Anderson, Director 4.9% 105,000 50,000 52,500
Susan Preston, Director 0.4% - 15,000 -
Ezzat Jallad, Director - - - -
All Officers and Directors 35.2% 873,825 621,330 285,000
Other Beneficial Owners:
William M. Hitchcock 5.3% 201,247 - 17,500
Brad Gaspard 13.1% 400,000 - 200,000
</TABLE>

Of the issued and outstanding shares as of May 1, 1997, Brad Gaspard owns 10%.
No other person or entity owns or controls 10% or more of the company's common
stock.

Pursuant to the acquisition agreement dated September 2, 1996, Mr. Brad Rabe may
receive up to 125,000 additional shares if certain earnings performance criteria
are met. These additional shares are not reflected in the above table.

<PAGE>

PRICE AND EXERCISE DATE OF SERIES A WARRANTS LISTED ABOVE.

A. Barry D Plost - President 70,000 Series A Warrants

Mr. Plost acquired 14 Units of the June 1, 1996 Private Placement for
$105,000 and 14 Units of the October 1, 1996 Private Placement for
$105,000. Each Unit consisted of 5,000 shares of common stock and 2,500
Series A warrants to purchase one share of the company's common stock at
$2.75. The Series A warrants are exercisable immediately and terminate on
the earlier of (i) six years from the date of issuance and (ii) three
years from the date of the initial effectiveness of the "Initial
Registration Statement". The Series A warrants are redeemable by the
Company at $.01 per share, upon 30 days notice, if the common stock is
publicly traded and the average of the closing price per share of the
common stock for each of the 20 consecutive trading days immediately prior
to the mailing of such notification and for each day thereafter until the
redemption date shall have exceeded 133.3% of the existing exercise price.

B. Nelson Teng - a Director 100,000 Series A Warrants
Dr. Teng acquired 40 Units of the October 1, 1996 Private Placement for
$300,000.
See explanation under A. above.

C. Brad Rabe - Executive Vice President 62,500 Series A Warrants
Mr. Rabe acquired 25 Units of the October 1, 1996 Private Placement. See
explanation under A. above.

E. All Officers and Directors 285,000 Series A Warrants
Represents the total of A., B., C. plus Sam Anderson.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

BRIDGE LOANS TO THE COMPANY.

In order to close the acquisition of the Silver State Plasma Center in Las
Vegas, Nevada on July 2, 1996, the Board of Directors unanimously approved
$550,000 in bridge loans. The terms of the bridge loans included interest at
twelve percent and 150,000 three year options, each option to purchase one share
of the Company's common stock at $1.00. Of the total amount of the bridge
loans, $450,000 was advanced by Mr. Barry Plost, the Company's President and
Chief Executive Officer, and the remaining $100,000 was advanced by Mr. Samuel
Anderson, a member of the Company's Board of Directors. Both Mr. Plost and Mr.
Anderson opted to participate in the Private Placement dated June 1, 1996
instead of receiving repayment of their note.

Mr. Plost converted $105,000 face value of notes into 14 Units of the June 1,
1996 Private Placement and $105,000 face value of notes into 14 Units of the
October 1, 1996 Private Placement. The two conversions resulted in a total of
140,000 shares of common stock and 70,000 Series A Warrants being issued in the
name Barry D. Plost. In addition, Mr. Plost converted $22,500 face value of
notes into three Units which consists of 15,000 shares of common stock and 7,500
Series A Warrant which were issued in the name Rena Plost.

Mr. Samuel Anderson wanted to purchase 14 Units of the June 1, 1996 Private
Placement. Fourteen Units at $7,500 totaled $105,000. Mr. Anderson had only
loaned the Company $100,000. Accordingly, Mr. Anderson remitted an additional
$5,000 in order to cover the total cost of $105,000. The 14 Units consisted of
70,000 shares of common stock and 35,000 Series A

<PAGE>

Warrants which were issued in the name The Samuel and Mary Ann Anderson Trust,
of which Mr. Anderson is a Trustee.

In each case, the shares issued are restricted shares and the terms of purchase
were consistent with the terms provided to all participants in the Private
Placements dated June 1, 1996 and/or October 1, 1996 as outlined therein. Such
terms included registration rights (see Note 2 to the Consolidated Financial
Statements) and the exercise price and terms of the Series A Warrants. Each
Series A Warrant authorizes the holder to purchase one share of the company's
common stock at $2.75. The Series A Warrants are exercisable immediately and
terminate on the earlier of (i) six years from the date of issuance and (ii)
three years from the date of the initial effectiveness of the "Initial
Registration Statement". The Series A Warrants are redeemable by the Company at
$.01 per share, upon 30 days notice, if the common stock is publicly traded and
the average of the closing price per share of the common stock for each of the
20 consecutive trading days immediately prior to the mailing of such
notification and for each day thereafter until the redemption date shall have
exceeded 133.3% of the existing exercise price.

ACQUISITION OF CLEARFIELD AND RALEIGH PLASMA CENTERS.

On September 2, 1996, the Company acquired from Mr. Brad Rabe, Vice President
and Chief Operating Officer of the Company, all rights and interests in leases,
leasehold improvements, fixed assets and/or any other personal property,
licenses, certifications or rights attributable to both the Clearfield Center
and the Raleigh Center, including the rights to any FDA or QPP licenses and/or
certifications which attach or may attach to those locations, including the
right to file for such licenses and/or certifications if they have not already
been applied for. Mr. Rabe also agreed to complete the process of establishing
both startup locations as operational plasma collection centers by opening
plasma collection centers in both locations within a reasonable period of time
not to exceed 120 days from September 2, 1996.

BASE CONSIDERATION. As consideration to Mr. Rabe, the Company agreed to deliver
175,000 shares of Common Stock of the Company within fifteen days of the date
when both the Raleigh and Clearfield locations have processed their first
donors. The 175,000 shares of Common Stock may be increased or decreased
depending on whether the buildout costs for the two centers exceed $135,000. The
value per share was defined within the contract at $1.50 per share. At
February 28, 1997, the company estimated that the shares to be issued under this
provision would be 119,875. The Company valued this transaction at $179,813,
which was based on the fair market value of the stock at the date of
acquisition.

ADDITIONAL CONSIDERATION. In addition to the Base Consideration, the Company and
Mr. Rabe agreed on certain operational performance criteria which will serve as
the basis for Additional Consideration of a maximum of 125,000 shares of common
stock of the Company if all performance criteria for the centers are met.
Accordingly, if Clearfield Center and Raleigh Center in total generate a net
profit before taxes of $310,000 for the measurement period of twelve months
ending on the last day of eighteenth month following the Closing Date, Mr. Rabe
shall receive as additional consideration 62,500 shares of Common Stock of the
Company. Further, if Clearfield Center and Raleigh Center in total generate a
net profit before taxes of $310,000 for the measurement period of twelve months
ending on the last day of thirtieth month following the Closing Date, Mr. Rabe
shall receive as additional consideration another 62,500 shares of Common Stock
of the Company.

<PAGE>

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)(1) THE FOLLOWING FINANCIAL STATEMENTS ARE BEING FILED AS PART OF THIS
REPORT:

SERACARE, INC. AND SUBSIDIARIES

Report of Independent Certified Public Accountants -
BDO Seidman, LLP

Consolidated Balance Sheets - February 28, 1997 and February 29, 1996

Consolidated Statements of Operations - Year ended February 28, 1997
- Period February 6, through February 29, 1996
- Period March 1, 1995 through February 5, 1996

Consolidated Statements of Stockholders Equity - Periods March 1, 1995
through February 28, 1997

Consolidated Statements of Cash Flows - Year ended February 28, 1997
- Period February 6, through February 29, 1996
- Period March 1, 1995 through February 5, 1996

Summary of Accounting Policies

Notes to Consolidated Financial Statements

(a)(2) THE FOLLOWING EXHIBITS HAVE BEEN PREVIOUSLY FILED WITH THE COMMISSION
AND ARE HEREBY INCORPORATED HEREIN BY REFERENCE THERETO.

INDEX OF DOCUMENTS PREVIOUSLY FILED AS PART OF REGISTRATION STATEMENT
ON FORM 10SB FILED WITH THE COMMISSION ON NOVEMBER 21, 1996:

Exhibit
Number Description of Document
- ------ -----------------------
2.1 Restated Articles of Incorporation filed on February 6, 1996.

2.2 By-laws of American Blood Institute, Inc. (now known as SeraCare,
Inc.) dated June 10, 1992.

3.1 Certificate of Designation of Series A Preferred Stock filed on July
10, 1996.

6.1 Employment Agreement dated February 5, 1996 between the Company and
Barry D. Plost

6.2 Employment Agreement dated November 14, 1995 between the Company and
Jerry L. Burdick

6.3 Employment Agreement dated November 14, 1995 between the Company and

<PAGE>

Brian Olson

6.4 Employment Agreement dated September 3, 1996 between the Company and
Brad Rabe

6.5 Consulting Agreement dated July 2, 1996 between the Company and Samuel
Anderson

6.6 Bridge Note Agreement dated July 2, 1996 between the Company and Barry
D. Plost

6.7 Bridge Note Agreement dated July 17, 1996 between the Company and
Barry D. Plost

6.8 Bridge Note Agreement dated July 2, 1996 between the Company and
Samuel Anderson.

6.9 Asset Purchase Agreement dated September 3, 1996 between the Company
and Brad Rabe

6.10 Asset Exchange Agreement dated July 2, 1996 between the Company and
Silver State Plasma Products, Inc.

6.10(a) Note payable dated July 2, 1996 between the Company and Silver State
Plasma Products, Inc.

6.11 Amended and Restated Loan Agreement between the Company and CVD
Financial Corporation.

6.11(a) Note payable dated February 6, 1996 between the Company and CVD
Financial Corporation

6.12 Contract for Exchange of Corporate Stock date July 9, 1996 between the
Company and Mr. Burt H. McGhee

6.13 Series A Warrant Agreement dated September 4, 1996.

6.14 Series A Warrant Agreement dated October 23, 1996.

6.15 Registration Rights Agreement dated September 4, 1996.

6.16 Registration Rights Agreement dated October 23, 1996.

6.17 Dealer Warrant Agreement dated September 4, 1996.

6.18 Dealer Registration Rights Agreement September 4, 1996.

6.19 Motion for Order Confirming Third Amended Joint Plan of Reorganization
of American Blood Institute, Inc., AVRE, Inc. and Binary Associates,
Inc. dated January 24, 1996.

6.19(a) Order Confirming Third Amended Joint Plan of Reorganization of
American Blood Institute, Inc., AVRE, Inc. and Binary Associates, Inc.
dated and filed January 24, 1996.

10.1 Subsidiaries of Registrant

(b) REPORTS ON FORM 8 - K

On March 3, 1997, the Company filed a Current Report on Form - 8K
with respect to a material contract between the Company and North American
Biologicals, Inc. ("NABI") for plasma from startup plasma collection centers
established or to be established in Clearfield, Utah; Raleigh, North Carolina;
Macon, Georgia; Pasco, Washington; and Toledo, Ohio. Included with such filing
was a copy of the agreement relating to the Clearfield, Raleigh and Macon
locations.

<PAGE>

GLOSSARY OF TERMS

ALBUMIN A large molecule found in abundance in plasma which assists
in maintaining the body's fluid levels.

ANTIBODY A protein molecule produced in response to a specific
foreign substance to which the antibody may bind and destroy
to protect the body from foreign invasion.

ANTIGEN A foreign substance such as a virus, bacteria or toxin which
stimulates the production of antibodies.

CLOTTING FACTORS A series of protein substances involved in the clotting
processes. The most frequently used are referred to as
Factors VIII and IX.

CYTOMEGALOVIRUS A virus commonly infecting various populations, resulting in
flu-like symptoms and the development of CMV antibodies in
an otherwise healthy person. If it infects a person with a
compromised immune system, it has much more severe
consequences, including causing death.

HEMOPHILIA Any of several blood-coagulation disorders in which the
blood fails to clot normally because of a deficiency or an
abnormality of one of the clotting factors.

HEPATITIS Inflammation of the liver caused by infectious or toxic
agents and characterized by jaundice, fever, liver
enlargement and abdominal pain. There are various forms of
viral hepatitis, including hepatitis A, B, and C, which
cause different disease conditions.

HIV Human Immunodeficiency Virus, a virus that causes AIDS.

IMMUNE GLOBULINS A group of proteins which contains antibodies.

ORPHAN DRUG STATUS A designation given by FDA to a drug which treats
relatively rare diseases or diseases affecting fewer than
200,000 persons in the United States at the time of the
application for such status. The company to first receive
orphan drug status and receive FDA marketing approval is
entitled to a seven-year exclusive marketing period in the
United States.

PLASMA Liquid portion of blood which contains various proteins, as
distinguished from formed elements of the blood such as red
blood cells, white blood cells and platelets. Plasma also
contains antibodies.

PLASMAPHERESIS A process in which plasma is removed from whole blood and
the remaining components of the whole blood are returned to
the donor.

PLATELETS Cells in blood which promote blood clotting.

RED BLOOD CELLS Principal cell found in whole blood, containing hemoglobin,
the primary carrier of oxygen to the body.

SOURCE PLASMA The proper name of a product defined as a liquid portion of
human blood collected by plasmapheresis meeting the FDA
criteria or "source plasma"

<PAGE>

and intended as source material for further manufacturing
use. Source plasma is sometimes referred to as normal
plasma.

SPECIALTY PLASMA Plasma collected to provide specific antibodies to
manufacture immune globulins for specific diseases or
collected according to special specifications for further
manufacturing either into therapeutic or diagnostic
products.

WHITE BLOOD CELLS Several types of specialized cells found in whole blood that
are a critical part of the defense of the body against
disease and infections.

<PAGE>

SIGNATURES

In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.

SERACARE, INC.
(Registrant)

Dated December 29, 1997 By: /s/ Barry D. Plost
------------------------------
Barry D. Plost, President & CEO

By: /s/ Jerry L. Burdick
------------------------------
Jerry L. Burdick
Principal Accounting and
Finance Officer

In accordance with Section 12 of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and in
the capacities and on the dates indicated.

SIGNATURES TITLE DATE
- ---------- ----- ----

/s/ BARRY D. PLOST CHAIRMAN OF THE BOARD AND CEO December 29, 1997
- ----------------------
BARRY D. PLOST

/s/ JERRY L. BURDICK EXECUTIVE VICE PRESIDENT AND CFO December 29, 1997
- ----------------------
JERRY L. BURDICK

/s/ SAMUEL ANDERSON DIRECTOR December 29, 1997
- ----------------------
SAMUAL ANDERSON

/s/ SUSAN PRESTON DIRECTOR December 29, 1997
- ----------------------
SUSAN PRESTON

/s/ EZZAT JALLAD DIRECTOR December 29, 1997
- ----------------------
EZZAT JALLAD

/s/ DR. NELSON TENG DIRECTOR December 29, 1997
- ----------------------
DR. NELSON TENG

<PAGE>

PART F/S

SERACARE, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants 34

Consolidated Financial Statements

BALANCE SHEETS 35

STATEMENTS OF OPERATIONS 37

STATEMENTS OF SHAREHOLDERS' EQUITY 39

STATEMENTS OF CASH FLOWS 40

Summary of Accounting Policies 43

Notes to Consolidated Financial Statements 48

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

THE BOARD OF DIRECTORS AND STOCKHOLDERS
SERACARE, INC.

WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF SERACARE, INC.
(REORGANIZED COMPANY) AND SUBSIDIARIES AS OF FEBRUARY 28, 1997 AND FEBRUARY 29,
1996 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS'
EQUITY, AND CASH FLOWS FOR THE YEAR ENDED FEBRUARY 28, 1997 AND FOR THE PERIOD
FEBRUARY 6, 1996 TO FEBRUARY 29, 1996. WE HAVE ALSO AUDITED THE CONSOLIDATED
STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY AND CASH FLOWS OF AMERICAN BLOOD
INSTITUTE, INC. (PREDECESSOR COMPANY) FOR THE PERIOD MARCH 1, 1995 TO FEBRUARY
5, 1996. THESE FINANCIAL STATEMENTS ARE THE RESPONSIBILITY OF THE COMPANY'S
MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL
STATEMENTS BASED ON OUR AUDITS.

WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING
STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDIT TO OBTAIN
REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS ARE FREE OF MATERIAL
MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING
THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. AN AUDIT ALSO INCLUDES
ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY
MANAGEMENT, AS WELL AS EVALUATING THE OVERALL PRESENTATION OF THE FINANCIAL
STATEMENTS. WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR
OPINION.

IN OUR OPINION, THE CONSOLIDATED FINANCIAL STATEMENTS REFERRED TO ABOVE PRESENT
FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF SERACARE, INC.
(REORGANIZED COMPANY) AND SUBSIDIARIES AS OF FEBRUARY 28, 1997 AND FEBRUARY 29,
1996 AND THE RESULTS OF THEIR OPERATIONS AND THEIR CASH FLOWS FOR THE YEAR ENDED
FEBRUARY 28, 1997 AND FOR THE PERIOD FEBRUARY 6, 1996 TO FEBRUARY 29, 1996 AND
THE RESULTS OF OPERATIONS AND CASH FLOWS OF AMERICAN BLOOD INSTITUTE, INC.
(PREDECESSOR COMPANY) FOR THE PERIOD MARCH 1, 1995 TO FEBRUARY 5, 1996, IN
CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.

/s/ BDO SEIDMAN, LLP

LOS ANGELES, CALIFORNIA
MAY 2, 1997

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Reorganized Company
----------------------------------
February 28, February 29,
1997 1996
-------------- --------------

<S> <C> <C>
ASSETS (Notes 1, 2, 4 and 5)

CURRENT ASSETS
Cash and cash equivalents $ 544,077 $ 580,476
Accounts receivable 236,571 199,862
Inventory 342,504 279,758
Prepaid expenses and other current assets 62,269 33,572
----------- -----------

Total current assets 1,185,421 1,093,668
----------- -----------

PROPERTY AND EQUIPMENT, net (Note 3) 890,153 71,840
----------- -----------

LAND AVAILABLE FOR SALE 25,000 25,000

FDA LICENSES, less accumulated amortization
of $26,250 and $0 1,321,745 900,000

DONOR BASE AND RECORDS, less accumulated
amortization of $35,000 and $0 879,008 600,000

REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED
TO IDENTIFIABLE ASSETS, less accumulated amortization
of $53,022 and $2,374 (Note 2) 969,447 965,753

GOODWILL, less accumulated amortization of $16,434 901,487 -

OTHER ASSETS 150,939 17,640
----------- -----------

$ 6,323,200 $ 3,673,901
----------- -----------
----------- -----------
</TABLE>

See accompanying summary of accounting policies and notes
to consolidated financial statements.

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Reorganized Company
----------------------------------
February 28, February 29,
1997 1996
-------------- --------------

<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable $ 605,492 $ 723,951
Accrued payroll and related expenses 177,995 113,456
Accrued expenses 162,711 470,090
Bridge loans from related parties (Note 4) 197,500 -
Current portion of long-term debt (Notes 1 and 5) 432,358 328,571
----------- -----------

Total current liabilities 1,576,056 1,636,068
----------- -----------

LONG-TERM DEBT (Notes 1 and 5) 678,484 821,429
----------- -----------

SERIES A REDEEMABLE PREFERRED STOCK, 2,800 issued
and outstanding (Notes 1, 6 and 7) 389,047 -

COMMITMENTS (Notes 9, 11 and 12)

STOCKHOLDERS' EQUITY (Notes 1, 6, and 8)
Common stock, $.001 par value, 25,000,000 shares
authorized; 4,149,387 (including 718,764 to be
issued) and 2,115,500 issued and outstanding 4,149 2,115
Additional paid-in capital 4,182,954 1,210,671
Retained earnings (deficit) (507,490) 3,618
----------- -----------

Total stockholders' equity 3,679,613 1,216,404
----------- -----------

$ 6,323,200 $ 3,673,901
----------- -----------
----------- -----------
</TABLE>

See accompanying summary of accounting policies and
notes to consolidated financial statements.

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Reorganized Company Predecessor Company
-------------------------------- --------------------
February 6, March 1
1996 1995
Year Ended through through
February 28, February 29, February 5,
1997 1996 1996
------------ ------------ ------------

<S> <C> <C> <C>
NET SALES (Note 12) $ 6,661,679 $ 510,148 $ 6,159,376

COST OF SALES 6,148,820 446,253 5,397,095
------------ ------------ ------------
GROSS PROFIT 512,859 63,895 762,281

GENERAL AND ADMINISTRATIVE EXPENSES 674,199 47,050 793,934

NON-CASH GENERAL AND ADMINISTRATIVE
EXPENSES RELATING TO THE IMPLEMENTATION
OF AN ACCOUNTING STANDARD (Notes 6 and 8) 78,980 - -
------------ ------------ ------------
OPERATING INCOME (LOSS) (240,320) 16,845 (31,653)

INTEREST EXPENSE (208,255) (10,727) -

NON-CASH INTEREST EXPENSE RELATING TO
THE IMPLEMENTATION OF AN ACCOUNTING
STANDARD (Note 4) (100,000) - -

OTHER INCOME (EXPENSE) 53,467 - (30,408)
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS BEFORE
REORGANIZATION ITEMS, INCOME TAXES,
AND EXTRAORDINARY ITEM (495,108) 6,118 (62,061)

REORGANIZATION ITEMS - PROFESSIONAL FEES - (2,500) (491,877)
- ADJUSTMENT OF NET
ASSETS TO FAIR VALUE - - 805,038
------------ ------------ ------------

INCOME (LOSS) FROM OPERATIONS BEFORE
INCOME TAXES AND EXTRAORDINARY ITEM (495,108) 3,618 251,100

STATE INCOME TAX EXPENSE (Note 10) 16,000 - -
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (511,108) 3,618 251,100
------------ ------------ ------------
EXTRAORDINARY NET GAIN FROM DEBT
DISCHARGE AND STEP-UP IN ASSETS
FROM REORGANIZATION (Note 2) - - 2,584,496
------------ ------------ ------------
NET INCOME (LOSS) $ (511,108) $ 3,618 $ 2,835,596
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

See accompanying summary of accounting policies and
notes to consolidated financial statements.

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)

Reorganized Company
------------------------
February 6,
1996
Year Ended through
February 28, February 29,
1997 1996
------------ ------------

EARNINGS (LOSS) PER COMMON SHARE (A) $ (.20) $ .00
----------- -----------
----------- -----------

WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 2 ,509,042 2,115,500
----------- -----------
----------- -----------

(A) The earnings (loss) per common share for the period March 1, 1995 through
February 5, 1996 is not presented as the shares were determined on a
different basis and therefore earnings (loss) per common share are not
meaningful or comparative.

See accompanying summary of accounting policies and notes to consolidated
financial statements.

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Preferred Stock Common Stock
-------------------- ----------------------------------------
Class B
----------------------
Shares Amount Shares Amount Shares Amount
----------- ---------- ---------- ---------- ------------ ------------

<S> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1995 43,918 334,394 - $ - 4,350,912 $ 5,731
Net loss for period March 1, 1995 to
February 5, 1996 before extinguishment
of stockholders' equity - - - - - -
Extinguishment of stockholders' equity
in connection with bankruptcy (Note 2) (43,918) (334,394) - - (4,350,912) (5,731)
---------- ---------- ---------- ---------- ---------- ----------

Balance, February 5, 1996 - - - - - -
Common stock issued for:
Conversion of debt (Note 6) - - 115,275 115 - -
Services (Note 6) - - 389,518 389 - -
Private placement (Note 6) - - 1,610,707 1,611 - -

Net income for period February 6, 1996
to February 29, 1996 - - - - - -
---------- ---------- ---------- ---------- ---------- ----------

Balance, February 29, 1996 - - 2,115,500 2,115 - -

Common stock issued or deemed to be issued for:
Private placements, net of costs of $255,309 (Note 6) - - 1,653,333 1,653 - -
Conversion of debt (Note 6) - - 221,667 222 - -
Acquisition of plasma centers (Note 6) - - 119,875 120 - -
Services (Note 6) - - 38,889 39 - -
Other - - 123 - - -

Additional paid-in-capital relating to the implementation
of accounting standards:
Compensation expense related to non-employee
stock options (Notes 6 and 8) - - - - - -
Issuance of options in conjunction with the
original issue discount associated with
the bridge loans (Note 4) - - - - - -

Net loss for the year - - - - - -

---------- ---------- ---------- ---------- ---------- ----------

Balance, February 28, 1997 - - 4,149,387 $ 4,149 - $ -
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>

Additional Retained
Paid-In Earnings
Capital (Deficit) Total
-------------- -------------- --------------

<S> <C> <C> <C>
Balance, March 1, 1995 $ 2,583,349 $ (5,759,070) $ (2,835,596)
Net loss for period March 1, 1995 to
February 5, 1996 before extinguishment
of stockholders' equity (553,938) (553,938)
Extinguishment of stockholders' equity
in connection with bankruptcy (Note 2) (2,583,349) 6,313,008 3,389,534
------------ ------------ ------------

Balance, February 5, 1996 - - -
Common stock issued for:
Conversion of debt (Note 6) 77,789 - 77,904
Services (Note 6) 171,393 - 171,782
Private placement (Note 6) 961,489 - 963,100

Net income for period February 6, 1996
to February 29, 1996 - 3,618 3,618
------------ ------------ ------------

Balance, February 29, 1996 1,210,671 3,618 1,216,404

Common stock issued or deemed to be issued for:
Private placements, net of costs of $255,309 (Note 6) 2,223,038 - 2,224,691
Conversion of debt (Note 6) 332,278 - 332,500
Acquisition of plasma centers (Note 6) 179,693 - 179,813
Services (Note 6) 58,294 - 58,333
Other - - -

Additional paid-in-capital relating to the implementation
of accounting standards:
Compensation expense related to non-employee
stock options (Notes 6 and 8) 78,980 - 78,980
Issuance of options in conjunction with the
original issue discount associated with
the bridge loans (Note 4) 100,000 - 100,000

Net loss for the year - (511,108) (511,108)
------------ ------------ ------------

Balance, February 28, 1997 $ 4,182,954 $ (507,490) $ 3,679,613
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

See accompanying summary of accounting policies
and notes to consolidated financial statements.

39
<PAGE>

SERACARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Reorganized Company Predecessor Company
--------------------------------------------------------
February 6, March 1
1996 1995
Year Ended through through
February 28, February 29, February 5,
INCREASE (DECREASE) IN CASH 1997 1996 1996
------------ ------------ ------------

<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (511,108) $ 3,618 $ 2,835,596
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Extraordinary gain from:
Debt discharge (Note 2) - - (2,584,496)
Step-up in assets from reorganization
(Note 2) - - (805,038)
Depreciation and amortization 185,560 3,236 77,058
Non-cash interest expense 100,000 - -
Write-down of land - - 26,285
Non-cash general and administrative
expenses 78,980 - -
Issuance of common stock in exchange
for services 58,333 - -
(Increase) decrease from changes in:
Accounts receivable (7,911) 98,081 (119,052)
Inventory (62,746) 58,532 96,308
Prepaid expenses and other
current assets (25,475) 3,988 13,604
Other assets (133,299) - 8,819
Accounts payable (122,345) (272,269) 209,856
Accrued payroll and related expenses 50,152 (11,822) (47,124)
Accrued expenses (355,450) (21,608) 585,948
------------ ------------ ------------

Net cash provided by (used in)
operating activities (745,309) (138,244) 297,764
------------ ------------ ------------
</TABLE>

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)

<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (861,079) (2,096) (19,565)
Additions to FDA licenses (297,995) - -
Additions to donor base and records (214,008) - -
Purchase of goodwill (176,838) - -
Cash acquired in non-cash acquisitions 19,860 - -
Additions to other intangibles (54,341) - -
------------ ------------ ------------

Net cash used in investing activities (1,584,401) (2,096) (19,565)
------------ ------------ ------------

Cash flows from financing activities
Proceeds from long-term debt 45,000 - -
Repayment of long-term debt (384,158) - (625,000)
Net proceeds from private placements 2,224,691 - 963,100
Payments on redemption of preferred
stock (122,222) - -
Proceeds from bridge loans - officers
and directors 650,000
Repayments on bridge loans - officers
and directors (120,000) - -
------------ ------------ ------------

Net cash provided by financing activities 2,293,311 - 338,100
------------ ------------ ------------
</TABLE>

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)

Reorganized Company Predecessor Company
----------------------------------------------
February 6, March 1
1996 1995
Year Ended through through
February 28, February 29, February 5,
INCREASE (DECREASE) IN CASH 1997 1996 1996
------------ ------------ ------------

NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (36,399) (140,340) 616,299

CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 580,476 720,816 104,517
------------ ------------ ------------

CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 544,077 $ 580,476 $ 720,816
------------ ------------ ------------
------------ ------------ ------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

(a) Cash paid for:
Interest $ 212,367 $ - $ -
State income taxes $ 8,500 $ - $ -

(b) Non-cash transactions:

On July 2, 1996, the Company acquired the assets of Silver State Plasma
Center in exchange for a $300,000 note payable and $500,000 in cash
(Note 1).

On July 9, 1996, the Company acquired BHM Labs, Inc. in exchange for 3,600
shares of the Company's Series A Redeemable Preferred Stock (Notes 1
and 6).

On September 3, 1996, the Company acquired the assets and rights of two
plasma centers in exchange for shares of common stock currently estimated
at 119,875 (Notes 1 and 6).

During 1996, the Company converted $332,500 of its notes payable to
officers and directors to 221,667 shares of common stock and warrants,
which was in connection with the private placements. (Notes 4 and 6).

See accompanying summary of accounting policies
and notes to consolidated financial statements.

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

SUMMARY OF ACCOUNTING POLICIES

ORGANIZATION

SeraCare, Inc. (formerly American Blood Institute, Inc.) (the "Company"), a
Delaware corporation, was formed on November 8, 1991. The business of the
Company is currently carried out through its wholly-owned subsidiaries AVRE,
Inc., a Nevada corporation, BHM Labs, Inc., an Arkansas corporation, Binary
Associates, Inc., a Colorado corporation, and SeraCare Acquisitions, Inc., a
Nevada corporation.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.

REVENUE RECOGNITION

The Company recognizes revenues upon shipment of plasma. The Company generally
sells its plasma to fractionators under long-term contracts. A fractionator is
a company that manufactures pharmaceutical and diagnostic products by processing
the raw source plasma into a variety of derivative products.

INVENTORY

Inventory, which primarily consists of blood plasma collected from donors, is
valued at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated using the straight
line method over the estimated useful lives of five to ten years. Leasehold
improvements are recorded at cost and are amortized using the straight- line
method, over the lesser of the estimated useful lives of the property or the
lease term not to exceed ten years.

INCOME TAXES

The Company accounts for income taxes by using the asset and liability method
for financial accounting and reporting of deferred income taxes. This method
provides for recognition of deferred tax assets in the current period for the
future benefit of net operating loss carryforwards and items for which expenses
have been recognized for financial statement purposes but will be deductible for
income tax purposes in future periods. A valuation allowance is recognized if
management cannot determine it is more likely than not that some portion or all
of the deferred tax asset will be realized.

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents.

REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS

Under the principles of "fresh-start" reporting, the Company allocated total
reorganization value among identifiable tangible and intangible assets on the
basis of their estimated fair values. The remaining amount is classified as
reorganization value in excess of amounts allocable to identifiable assets and
is being amortized over twenty years. The Company evaluates and assesses the
overall recoverability of this asset by determining if the unamortized balance
can be recovered through undiscounted future operating cash flows.

FDA LICENSES

Food and Drug Administration ("FDA") licenses which are required to operate a
plasma center, are assigned a value based on either the fair market value of
acquiring a FDA license or the incremental costs incurred during the FDA
approval process, not to exceed the fair market value. Costs incurred during
this process consist of salaries, occupancy costs, and other related expenses.
The value assigned to an FDA license acquired in a business combination is
$150,000, which approximates fair market value. The Company evaluates and
assesses the overall recoverability of an FDA license by determining if the
unamortized balance can be recovered through undiscounted future operating cash
flows. Management believes that as long as the Company continues to demonstrate
compliance, an FDA license has an unlimited useful life. Accordingly, the FDA
licenses are being amortized using the straight-line method over forty years.

DONOR BASE AND RECORDS

Donor base and records arise from business combinations or from the costs
incurred in establishing a donor base and records of a new center. These costs
consist of incremental salaries, occupancy costs, and other related expenses
incurred during the pre-licensing period. The value assigned to the donor base
and records acquired in a business combination is $100,000, which approximates
fair market value. The value assigned to donor base and records established by
the Company is valued at the costs incurred,

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)

DONOR BASE AND RECORDS (CONTINUED)

not to exceed the fair market value. The Company evaluates and assesses the
overall recoverability of donor base and records by determining if the
unamortized balance can be recovered through undiscounted future operating cash
flows. Donor base and records are being amortized using the straight-line
method over an estimated useful life of twenty years.

GOODWILL

Goodwill represents the excess of the purchase price over the fair value of net
assets of businesses acquired and is amortized using the straight-line method
over a period of twenty years. The Company assesses the recoverability of its
goodwill periodically by evaluating the expected future cash flows
(undiscounted) for individual centers to determine whether they are sufficient
to support recorded goodwill. If undiscounted cash flows are not sufficient to
support the recorded asset, an impairment loss is recognized to reduce the
carrying value of the goodwill based on the expected discounted cash flows of
the center.

START-UP COSTS

Start-up costs of $46,145 were included in other assets at February 28, 1997.
These costs represent one-time, non-recurring expenditures directly related to
and incurred during the start-up phase of the opening of the Company's newly
established centers. Start-up costs consist primarily of direct labor and
overhead associated with the start-up phase. The start-up costs are being
amortized on a straight-line basis over a period not to exceed three years.
Recoverability of these costs are assessed on an on-going basis.

EARNINGS (LOSS) PER COMMON SHARE

Earnings (loss) per common share has been computed based on the weighted average
number of common and common equivalent shares outstanding, including shares to
be issued. Common equivalent shares, representing the common shares that would
be issued on exercise of outstanding stock options and warrants reduced by the
number of shares which could be purchased from the related exercise proceeds,
are not included since their effect would be anti-dilutive or not material.

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)

STOCK-BASED COMPENSATION

As of March 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which
establishes a fair value method of accounting for stock-based compensation plans
and for transactions in which a company acquires goods or services from non-
employees in exchange for equity instruments. In accordance with SFAS 123, the
Company has chosen to continue to account for employee stock-based compensation
utilizing the intrinsic value method prescribed in APB 25. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair market price of the Company's stock at the date of grant over the amount an
employee must pay to acquire the stock.

Also, in accordance with SFAS 123, the Company has provided footnote disclosure
with respect to stock-based employee compensation. The cost of stock-based
employee compensation is measured at the grant date based on the value of the
award and is recognized over the service period. The value of the stock based
award is determined using a pricing model whereby compensation cost is the
excess of the fair value of the stock as determined by the model at grant date
or other measurement date over the amount an employee must pay to acquire the
stock.

ACCOUNTING ESTIMATES

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

FAIR VALUE OF LONG-TERM DEBT

The fair value of the Company's long-term debt, which approximates the carrying
value is estimated based on the quoted market prices for the same or similar
issues.

RECLASSIFICATIONS

Certain reclassifications have been made to conform the prior period amounts to
the current year presentation.

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)

NEW ACCOUNTING PRONOUNCEMENTS

Statements of Financial Standards No. 128, "Earnings Per Share" (SFAS 128) is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Earlier application is not permitted. SFAS
128 requires dual presentation of basic and diluted earnings per share (EPS) on
the face of the statement of operations. It also requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. This statement also requires
restatement of all prior-period EPS data presented. The Company has not
determined the effect on its EPS from the adoption of this statement.

<PAGE>

SERACARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS OPERATIONS

GENERAL

The Company was initially engaged in the business of whole blood collection and
distribution. After significant and accelerating losses, it changed the focus
of the business from whole blood to plasma collection and distribution. The
Company currently collects and sells source plasma and two hyperimmune plasmas.
On October 4, 1993, the Company acquired 100% of the outstanding common shares
of AVRE, Inc. and Binary Associates, Inc., which owned and operated six plasma
collection centers. On January 7, 1994, the Company and its subsidiaries filed
for protection under Chapter 11 of the U.S. Bankruptcy Code. The restructuring
plan which was implemented encompassed the following actions: renegotiating all
plasma sales contracts to fractionators; developing marketing strategies
including demographic studies and donor pricing analyses for each of its six
plasma centers; reorganizing the management structure of the Company by moving
the headquarters to Los Angeles, discontinuing regional manager positions and
changing three of the six center managers; obtaining Quality Plasma Program
("QPP") certification from the American Blood Resources Association for all six
centers; and establishing consistent strategies, policies and procedures in
order to compete in the emerging plasma industry. The Company emerged from
Chapter 11 effective February 6, 1996. During fiscal 1997, the Company acquired
additional centers and started new centers. At February 28, 1997, the Company
was operating eleven plasma collection centers, three centers of which were
operating under reference numbers from the FDA pending approval of license
applications. The plasma centers currently operated by the Company are
operative under the tradename "SeraCare". The name "SeraCare" is registered
with the United States Patent and Trademark Office.

ACQUISITIONS

On July 2, 1996, the Company acquired the operating assets and licenses of
Silver State Plasma Center in Las Vegas, Nevada for a purchase price of
$800,000, which was composed of $500,000 in cash and $300,000 in a three year
note payable with interest accruing at eight percent (Note 5).

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

1. BUSINESS OPERATIONS (CONTINUED)

ACQUISITIONS (CONTINUED)

On July 9, 1996, the Company acquired BHM Labs, Inc., which owns and operates a
plasma collection center in Ft. Smith, Arkansas in exchange for 3,600 shares of
the Company's Series A Redeemable Preferred Stock. The Company determined the
purchase price was approximately $490,800 based on the redemption value of the
preferred stock (Note 7).

On September 2, 1996, the Company acquired all assets, rights and lease
commitments to two plasma centers in exchange of common stock. The purchase
price was based on the Company issuing 175,000 shares of its common stock within
fifteen days of the date when both the centers process their first donors.
However, the agreement contained a provision which adjusted the 175,000 shares
of common stock depending on certain performance based criteria. At February
28, 1997, the Company determined that the estimated shares to be issued under
this agreement would be 119,875 and has reflected such amount in the financial
statements. The Company valued this transaction at $179,813, which was based on
the fair market value of the stock at the date of acquisition. The agreement
also includes contingent consideration of a maximum of 125,000 shares of the
Company's common stock if certain performance based criteria are satisfied. At
February 28, 1997, the performance requirements had not been satisfied and
management could not reasonably determine if the requirements would be met in
the future.

All acquisitions were accounted for using the purchase method of accounting.
Accordingly, the results of operations are reported as of the dates of
acquisition. The purchase price has been allocated to the net assets acquired
based upon fair market values at the date of acquisition. The excess purchase
price over the net assets acquired was recorded as goodwill and is being
amortized over twenty years.

The unaudited proforma results of operations, assuming the acquisitions occurred
as of the beginning of the respective period for revenue, net income (loss) and
loss per share, is as follows:

For the period For the period
February 6, March 1, 1995
Year Ended through through
February 28, February 29, February 5,
1997 1996 1996
------------ -------------- --------------

Revenue $ 7,334,779 $ 642,562 $ 8,046,295
Net income (loss) (483,008) 9,139 2,914,253
Loss per share (.21) .00 -

For the period March 1, 1995 through February 5, 1996 the earnings (loss) per
common share is not presented as the number of common shares outstanding were
determined on a different basis and therefore earnings (loss) per common share
is not meaningful or comparative.

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

2. REORGANIZATION AND BASIS OF REPORTING

On January 4, 1994, the Company filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. The Company confirmed a plan of reorganization (the
"Plan") with the U.S. Bankruptcy Court for the Central District of California
(the "Bankruptcy Court") on January 24, 1996 ("the Petition Date"). The Company
emerged from bankruptcy on February 6, 1996 (the "Effective Date"). Pursuant to
the Plan:

(i) The Company obtained $1.2 million in Debtor Notes financing which
was fully subscribed on the Effective Date;

(ii) Class 1 priority claims (unsecured) were entitled to full payment
equal to the amount of the allowed claim;

(iii) Class 2 secured claim of CVD Financial was satisfied in the amount
of $1,775,000 as follows: (a) a cash repayment of $625,000 on the
Effective Date (b) the balance of $1,150,000, interest at 14%
payable monthly, with principal payable quarterly at $82,142 over
three and one-half years;

(iv) Class 3 allowed claims of Unsecured Creditors were settled as
follows: (a) $.10 cash for each dollar claim up to a maximum of
$200,000 in total, (b) a pro rata share of 10,000 shares of common
stock of the Reorganized Company, and (c) 50% of any net affirmative
preference payment recoveries received from debtors.

(v) Class 4 allowed claims of Unsecured Note Holders were settled
through the issuance of 105,275 shares of common stock of the
reorganized Company;

(vi) Class 5 and 6 allowed claims of the unsecured creditors of two
wholly-owned subsidiaries received $.80 for each claim dollar;

(vii) All preferred and common equity interests of the Company on the
Effective Date were deemed canceled, annulled and terminated, and
any such holders of such interests received no distributions;

(viii) The Company retained full interest in the two wholly-owned
subsidiaries.

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

2. REORGANIZATION AND BASIS OF REPORTING (CONTINUED)

The financial statements as of and for the period ended February 29, 1996
reflect the Company's emergence from Chapter 11 and were prepared according to
the principles of fresh-start accounting contained in the provisions of American
Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"). As a result of the implementation of "fresh-start" accounting,
the Company's financial statements as of and for the period ended February 29,
1996 are not comparable to the Company's financial statements of prior periods.
Therefore, financial statements for the "Reorganized Company" have been
separately identified from those of the "Predecessor Company".

Reorganization value approximates fair value of the entity before considering
liabilities and approximates the amount a buyer would pay for the assets of the
Company after the reorganization.

The total reorganization value assigned to the Company's assets was based on the
$1.2 million debtor note financing which was converted into common stock which
represented 76.2% of the total common stock shares issued pursuant to the
Company's Plan of Reorganization. These convertible debtor notes have were used
as the basis for determining the net worth of the Company at the Effective Date.
The excess of the reorganization value over the value of the identifiable assets
is reported as "Reorganization Value in Excess of Amount Allocable to
Identifiable Assets" and is being amortized over twenty years. Under the
principles of "fresh-start" accounting, the Company's total assets were recorded
at this assumed reorganization value, with the reorganization value allocated to
identifiable tangible and intangible assets on the basis of their estimated fair
value. In addition, the Company's accumulated deficit was eliminated.

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

2. REORGANIZATION AND BASIS OF REPORTING (CONTINUED)

The effect of the reorganization and the implementation of "fresh-start"
accounting on the Company's balance sheet as of February 5, 1996 was as follows:

Pre-Fresh
Start Balance Fresh-Start
Sheet Reorganization Balance Sheet
February 5, of fair value February 6,
1996 Adjustments(A) 1996
---------- -------------- --------------

<S> <C> <C> <C>
Cash $ 322,716 $ 398,100 $ 720,816

Accounts receivable, net 297,943 - 297,943

Inventories 338,290 - 338,290

Prepaid expenses and other
current assets 37,560 - 37,560

Property, equipment and
improvements, net 70,606 - 70,606

Land available for sale 25,000 - 25,000

FDA license - 900,000 900,000

Donor base and records - 600,000 600,000

Excess of cost over net assets
acquired , net of accumulated
amortization 788,403 (788,403) -

Reorganization value in excess
of amounts allocated to
identifiable assets - 1,035,127 1,035,127

Other assets 17,640 - 17,640
------------ ------------ ------------

Total assets $ 1,898,158 $ 2,144,824 $ 4,042,982
------------ ------------ ------------
------------ ------------ ------------

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

2. REORGANIZATION AND BASIS OF REPORTING (CONTINUED)

Pre-Fresh
Start Balance Fresh-Start
Sheet Reorganization Balance Sheet
February 5, of fair value February 6,
1996 Adjustments(A) 1996
-------------- -------------- --------------

<S> <C> <C> <C>
Accounts payable and accrued
expenses pre-petition $ 1,761,071 $ (1,761,071) $ -

Accounts payable 996,220 - 996,220

Accrued expenses 556,976 60,000 616,976

Short-term notes payable 587,189 (587,189) -

Long-term debt 1,386,236 (236,236) 1,150,000

Series A preferred stock 334,394 (334,394) -

Common stock - Class A 5,731 (3,616) 2,115

Paid-in capital 2,583,349 (1,305,678) 1,277,671

Accumulated deficit (6,313,008) 6,313,008 -
------------ ------------ ------------

Total liabilities and stockholders'
equity $ 1,898,158 $ 2,144,824 $ 4,042,982
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

(A) To record the transactions applicable to the reorganization as outlined in
the above footnote, eliminate the accumulated deficit balance and record
the adjustments to state assets and liabilities at fair value in accordance
with SOP 90-7.

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

2. REORGANIZATION AND BASIS OF REPORTING (CONTINUED)

Operating results in the accompanying consolidated statements of operations
include a charge for professional fees attributable to implementation of the
Plan of Reorganization of $491,877 and $2,500 for the period March 1, 1995
through February 5, 1996 and the period February 6, 1996 through February 29,
1996, respectively. The period March 1, 1995 through February 5, 1996 also
includes a net gain of $805,038 which resulted from the utilization of the
"Fresh Start" accounting treatments afforded in accordance with SOP 90-7, i.e.
adjusted the net assets to fair value.

The period March 1, 1995 through February 5, 1996 also includes an extraordinary
net gain of $2,584,496 from the debt discharge resulting from implementing the
Plan of Reorganization.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Reorganized Company
------------------------------
February 28, February 29,
1997 1996
------------ ------------
Furniture and equipment $ 288,738 $ 44,797
Leasehold improvements 408,747 27,905
Construction-in-process 250,760 -
---------- ----------

948,245 72,702
Less: accumulated depreciation and amortization 58,092 862
---------- ----------

Property and equipment, net $ 890,153 $ 71,840
---------- ----------
---------- ----------

Depreciation and amortization expense on property and equipment was $57,230,
$862 and $10,566 for the year ended February 28, 1997, and for the periods ended
February 29 and February 5, 1996, respectively.

As of February 28, 1997, the estimated cost to complete construction-in-progress
was approximately $70,000.

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

4. BRIDGE LOANS FROM RELATED PARTIES

In conjunction with the acquisition of Silver State Plasma Products, the Company
entered into agreements with related parties, which were approved by the Board
of Directors, and which provided for bridge loans of $550,000, due upon demand.
The bridge loans are secured by all of the assets of SeraCare's consolidated
operations which are not pledged to CVD Financial and by a second position
behind CVD Financial on those assets which secure the CVD Financial loan (See
Note 5). The loans accrue interest at twelve percent per annum. In connection
with the bridge loans, the Company granted three year options to purchase
150,000 shares of common stock at an exercise price of $1.00. In accordance
with Accounting Principles Board Opinion #14, "Accounting for Convertible Debt
and Debt issued with Stock Purchase Warrants," the Company calculated $100,000
as the value (original issue discount) of the options issued in conjunction with
the bridge loans, which estimated fair market value of these options at the date
of issue. The original issue discount was amortized to interest expense. The
original issue discount was fully amortized at February 28, 1997. During the
year ended February 28, 1997, the bridge loan holders converted $332,500 of debt
to equity in the private placements. The holders received 221,667 shares of
common stock and warrants to purchase 112,500 shares of common stock at a
exercise price at $2.75. The outstanding balance at February 28, 1997 was
$197,500, which is due upon demand. On February 21, 1997, the Company entered
into an agreement with a related party which provided for $100,000 in short-term
financing. This balance was fully repaid as of February 28, 1997.

5. LONG-TERM DEBT

CVD FINANCIAL CORPORATION

Effective February 5, 1996 and in conjunction with the Plan of Reorganization
approved by the Bankruptcy Court, SeraCare agreed to an Amended and Restated
Loan Agreement with CVD Financial Corporation. This loan is secured by all the
assets of SeraCare, Inc. and its two wholly-owned subsidiaries, AVRE, Inc. and
Binary Associates, Inc. The principal amount of the loan on the effective date
was $1,150,000 with interest at 14% per annum payable monthly and principal
payable quarterly. The first principal payment was due May 1, 1996 and the
final interest and principal payment is due on August 1, 1999. The Agreement
requires the Company to meet certain covenants, including various financial
ratios. Under the terms of the Agreement, the Company may not declare or pay
any cash dividends. At February 28, 1997, the Company was in compliance with
all covenants. At February 28, 1997, the outstanding balance of this loan was
$821,432.

SILVER STATE PLASMA PRODUCTS, INC.

On July 2, 1996, the Company acquired the operating assets and licenses of
Silver State Plasma Center in Las Vegas, Nevada from Silver State Plasma
Products, Inc. for $500,000 in cash and $300,000 in a note payable. The note
payable accrues interest at 8%. Principal and interest payments are due monthly
through August 1999. The note payable is secured by all the assets acquired in
the Silver State Plasma Center acquisition. The outstanding balance of the note
payable at February 28, 1997, was $247,328.

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

5. LONG-TERM DEBT (CONTINUED)

KIER CORPORATION

On September 2, 1996, the Company assumed a $45,000 note payable to The Kier
Corporation, a lessor, in conjunction with the Company's acquisition of the
rights to the Clearfield, Utah plasma collection center. The note payable
accrues interest at 10.5% and is payable in monthly installments of $967. These
monthly installments have been added to the base rental payments and are paid
monthly over a 5 year period. The first monthly installment of interest and
principal commenced on October 20, 1996 and the final installment is due on
September 20, 2001. If the lease is terminated or the Company defaults on the
lease, the remainder of the loan is due in full immediately. At February 28,
1997, the outstanding balance on the note payable was $42,082.

Future minimum payments to be made, as of February 28, 1997:

Fiscal year ended Amount
----------------- ------

1998 $432,358
1999 441,316
2000 220,305
2001 10,324
2002 6,539
----------

1,110,842

Less current portion 432,358
----------

$ 678,484
----------
----------

6. STOCKHOLDERS' EQUITY

COMMON STOCK

As discussed in Note 1, all preferred and common stock equity interests issued
prior to the Effective Date of the Reorganization have been extinguished. The
new authorized capital stock of the company consists of 25,000,000 shares of
Common Stock, par value $.001 per share, and 25,000,000 shares of Preferred
Stock, par value $.001 per share.

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

6. STOCKHOLDERS' EQUITY (CONTINUED)

COMMON STOCK (CONTINUED)

Under the terms of a Private Placement Memorandum ("PPM") dated December 14,
1995, and as a result of the success of that offering, the Company received net
proceeds of $963,100 through the issuance of Convertible Debtor Notes. As of
February 29, 1996 the net proceeds had been received by the Company and 100% of
the Debtor Notes had been converted to shares of common stock totaling 1,610,707
outstanding shares. Additionally, the Company issued 200,023 shares of common
stock as finders fees and compensation for services provided by various parties
in connection with the PPM.

In conjunction with the implementation of the Plan, unsecured Note Holders were
issued 105,275 common shares and unsecured creditors were issued 10,000 common
shares as discussed in Note 2. These shares have been reflected in the
financial statements as of February 29, 1996.

Also reflected as of February 29, 1996 was 189,495 shares of common stock, which
were issued to current and previous management in conjunction with the Plan.

On October 23, 1996, the Company completed the private placement offering dated
June 1, 1996 and received net proceeds of $1,023,291. The net proceeds
consisted of $1,047,500 in cash, and $227,500 in debt conversion, less $251,709
of related offering costs and expenses. In connection with this offering the
Company issued 850,000 shares of its common stock. The offering also included
Series A warrants to purchase 425,000 shares of common stock at an exercise
price of $2.75 per share expiring on the earlier of six years from date of
issuance or three years from effective date of the initial registration
statement, discussed under Series A Warrants below. The proceeds of this
offering were used to finance the expansion program of the Company and for
working capital.

During the period October 1, 1996 through February 28, 1997, the Company
completed multiple closings related to the private placement offering dated
October 1, 1996 and received net proceeds of $1,533,900. The net proceeds
consisted of $1,432,500 in cash and $105,000 in debt conversion, less $3,600 of
related offering costs and expenses. In connection with this offering the
Company issued 1,025,000 shares of its common stock. The offering also included
Series A warrants to purchase 662,500 shares of common stock at an exercise
price of $2.75 per share expiring on the earlier of six years from date of
issuance or three years from effective date of the initial registration
statement, discussed under Series A Warrants below. Certain of the share
certificates related to this private placement, had not been issued as of
February 28, 1997, however the financial statements have been prepared on the
basis that all shares are deemed issued and outstanding as of February 28, 1997.
During the October 1, 1996 private placement, two directors and an officer
purchased 360,000 shares of the Company's common stock and Series A Warrants to
purchase 180,000 shares of common stock for cash of $540,000. In conjunction
with both the June 1, 1996 and October 1, 1996 private placements, two directors
who were also bridge loan holders converted $332,500 of bridge loans into
221,667 shares of the Company's common stock and Series A Warrants to purchase
112,500 shares of common stock (see Note 4).

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

6. STOCKHOLDERS' EQUITY (Continued)

COMMON STOCK (Continued)

On September 2, 1996, the Company entered into an agreement to acquire the
assets and rights to two plasma centers in exchange of common stock. The
purchase price was based on the Company issuing 175,000 shares of common stock
within fifteen days of the date when both the centers process their first
donors. A provision exists in the agreement which adjusts the 175,000 shares of
common stock depending on certain performance based criteria. As of February
28, 1997, the Company has estimated that 119,875 shares will be issued, however
such shares had not been issued. The financial statements have been prepared on
the basis that all such shares are deemed issued and outstanding. The actual
shares will be determined upon the final settlement. The Company has valued
this transaction at $179,813, which is based on the fair market value of the
stock at the date of acquisition. The agreement also includes contingent
consideration of a maximum of 125,000 shares of common stock of the Company,
which is based on certain earnings performance criteria. Management cannot
reasonably determine if the performance will be met in the future.

On September 2, 1996, the Company entered into a contract for services whereby
the contractor could be paid in cash or 38,889 shares of common stock for
services rendered. During the period, the Company recorded an expense of
$58,333 to reflect the value of the services rendered. As of February 28, 1997,
the contractor elected to receive the 38,889 shares of common stock. Although
the shares had not been issued, the financial statements have been prepared on
the basis that the shares are deemed issued and outstanding.

The Company granted 50,000 options during fiscal 1997 to an outside director.
As a result, the Company recorded non-cash compensation expense related to these
options of $78,980, which is classified as non-cash general and administrative
expenses relating to the implementation of an accounting standard on the
Consolidated Statement of Operations (Note 8).

SERIES A WARRANTS

Series A Warrants were issued in connection with the two private placements
offered during the year. Each warrant allows the holder to purchase one share
of common stock of the Company exercisable at $2.75. The Series A Warrants are
exercisable immediately and will terminate on the earlier of six years from the
date of issuance or three years from the date of the initial effectiveness of
the "Initial Registration Statement" under Securities Act of 1933. The Initial
Registration Statement will register the

<PAGE>
SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

6. STOCKHOLDERS' EQUITY (Continued)

SERIES A WARRANTS (Continued)

shares issued in conjunction with both private placements and the common stock
underlying Series A Warrants. The Series A Warrants provide for adjustments
consisting of a reduction of the exercise price of each Series A Warrant by $.10
upon the 270th day following the October 23, 1996 and for each subsequent month
thereafter until the Company effectuates such registration. Such reduction
shall be subject to a floor of $1.50. The Warrants are redeemable by the
Company at $.01 per share, upon thirty days notice, if the common stock is
publicly traded and the average of the closing price per share of the common
stock for each of the twenty consecutive trading days immediately prior to the
mailing of such notification and for each day thereafter until the redemption
date shall have exceeded 133.3% of the then existing exercise price. No call
for redemption shall be made unless the Company shall have an effective
registration statement on file relating to the common stock issued in
conjunction with the private placements and the common stock underlying Series A
Warrants.

7. SERIES A REDEEMABLE PREFERRED STOCK

On July 7, 1996, the Company acquired BHM Labs, Inc. in exchange for 3,600
shares of the Company's Series A Preferred Stock. The preferred stock is
redeemable over three years, in 36 monthly installments with imputed interest at
the rate of eight percent per annum starting June 1996. Upon receipt of each
monthly payment, the holder shall deliver to the Company Series A Stock
Certificates representing 1/36th (one hundred shares) of the preferred stock
initially issued to the holder in connection with the acquisition. As of
February 28, 1997, the holder redeemed 800 shares of the preferred stock for
$122,222 in cash. The shares are redeemable at $183,336, $183,336 and $61,106
during 1998, 1999 and 2000, respectively.

8. STOCK OPTIONS AND WARRANTS

The Company has entered into various employment and consulting agreements with
officers and directors of the Company. As part of the agreements the officers
and directors were granted stock options as follows:

The president and chief executive officer of the Company was granted an
option to purchase 100,000 shares of common stock of the Company for the
price of $1.00 per share, which was greater than the fair market value at
the date of grant. These options became fully vested upon execution of the
agreement in February 1996 and are exercisable until January 2001.

<PAGE>
SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

8. STOCK OPTIONS AND WARRANTS(Continued)

Additionally the president and chief executive officer was granted the
following options, which became fully vested during fiscal year 1997 and
are exercisable for a period of five years from the vesting date, unless
noted otherwise. The following options were granted at or above fair
market value at the time of grant, except for (3) below.

(1) Option to purchase 56,147 shares of common stock of the Company
for the price of $1.25 per share. The options became fully vested in
October 1996.

(2) During fiscal year 1996, the Company granted options to purchase
150,000 shares of common stock of the Company for the price ranging
from $1.00 to $3.00 per share. These options became fully vested in
January 1997.

(3) In conjunction with the Bridge loans made to the Company (see
Note 4), the Company granted options to purchase 130,000 shares of
common stock of the Company for the price of $1.00 per share. These
options were fully vested on the date granted, and are exercisable for
a period of three years from the vesting date.

In conjunction with the Plan, the Vice President of Finance and Vice
President of Operations were granted options to purchase 42,110 and 28,073
shares of common stock of the Company, respectively. The option purchase
price of the options related to the Vice President of Operations is a mean
price between $.74 and the weighted average, as defined in the agreement.
The options related to the Vice President of Finance became fully vested in
October 1996 at an option price set at $1.25 per share. These options are
exercisable for a period of five years from the vesting date. The options
related to the Vice President of Operations vest one-third each year over a
three year period beginning in January 1997 and vest only if the Company
achieves certain projected operating results as defined in the agreement.

In March 1996 and July 1996, a director was granted 30,000 options and
20,000 options, respectively, to purchase shares of common stock of the
Company at an exercise price of $1.50 and $1.00, respectively. These
options were fully vested at the granting date and are exercisable for a
period of three years.

In March 1996, another director was granted 15,000 options to purchase
shares of common stock of the Company at an exercise price of $1.50. These
options were fully vested at the granting date and are exercisable for a
period of three years.

<PAGE>
SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

8. STOCK OPTIONS AND WARRANTS(Continued)

In January 1997, a director was granted 50,000 options to purchase shares
of common stock of the Company for the price of $1.50. These options were
granted at a price below market, and the Company recorded compensation
expense of $78,980 in the consolidated statement of operations. These
options became fully vested at the granting date and are exercisable for a
period of three years.

All options granted during the year ended February 28, 1997 and for the
period February 6, 1996 through February 29, 1996 were outstanding at
February 28, 1997. All options issued prior to February 6, 1996 were
canceled or terminated in connection with the Plan.

In connection with the private placements, the Company issued Series A Warrants
to purchase 1,087,500 shares of common stock at an exercise price of $2.75 (See
Note 6).

Information relating to stock options and warrants at February 28, 1997
summarized by exercise price are as follows:

Outstanding Exercisable
--------------------------------------------- ---------------------------
Weighted Average Weighted Average
Exercise Price ------------------------------- ---------------------------
Per Share Shares Life (Months) Exercise Price Shares Exercise Price
- -------------- ---------- ------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 300,000 39.8 $1.00 204,167 $ 1.00
$1.25 98,257 46.0 1.25 32,752 1.25
$1.50 95,000 29.8 1.50 45,417 1.50
$2.00 50,000 59.0 2.00 4,167 2.00
$2.75 1,087,500 69.2 2.75 252,083 2.75
$3.00 50,000 59.0 3.00 4,167 3.00
--------- ---- ----- ------- ------

1,680,757 59.1 $2.38 542,753 $ 1.89
--------- ---- ----- ------- ------
--------- ---- ----- ------- ------

</TABLE>

The above schedule excludes the effects of options to purchase 28,073 shares of
common stock of the Company, discussed above, because the exercise price is not
fixed.

All stock options issued to employees have an exercise price not less than the
fair market value of the Company's common stock on the date of the grant, and in
accordance with accounting for such options utilizing the intrinsic value method
there is no related compensation expense recorded in the Company's financial
statements. Had compensation cost for stock-based compensation been determined
based on the

<PAGE>
SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

8. STOCK OPTIONS AND WARRANTS(Continued)

fair value at the grant dates consistent with the method prescribed by SFAS 123,
the Company's net income (loss) and income (loss) per share for the year ended
February 28, 1997 and for the period ended February 29, 1996 would have been
changed as presented below:

For the period
For the year February 6,
ended through
February 28, February 29,
1997 1996
------------ --------------
Net income (loss)
As reported $ (511,108) $3,618
Pro forma $ (575,108) 1,718

Net loss per share
As reported $ (.20) $ -
Pro forma $ (.23) $ -

The earnings (loss) per common share for the period March 1, 1995 through
February 5, 1996 was excluded as the shares were determined on a different basis
and therefore earnings (loss) per common share are not meaningful or
comparative.

The fair value of option grants is estimated on the date of grant utilizing the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1997; expected life of options of 3 through 5 years,
expected volatility of 22%, risk-free interest rate of 6.2% and a 0% dividend
yield. The weighted average fair value on the date of grants for options
granted during 1997 approximated $.27 per option.

9. LEASES

The Company is currently leasing its corporate office under a noncancelable
lease agreement, which expires in May 1999.

The Company is also obligated under various lease agreements for 13 donor
centers operated by the four wholly-owned subsidiaries. One donor center lease
is a month-to-month agreement. The remaining leases expire at various dates
ranging from November 1997 to September 2006.

<PAGE>

SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

9. LEASES (Continued)

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

Fiscal year ended Amount
----------------- ------
1998 $ 406,797
1999 361,128
2000 274,587
2001 223,500
2002 157,963
Thereafter 215,277
----------
$1,639,252
----------
----------

Rent expense amounted to $319,751, $14,735 and $159,890 for the year ended
February 28, 1997 and the periods ended February 29, 1996, and February 5, 1996,
respectively.

10. INCOME TAXES

Provisions for income taxes included in the accompanying consolidated statements
of operations consist of the following components:

For the period For the period
For the year February 6, March 1, 1995
ended through through
February 28, February 29, February 5,
1997 1996 1996
------------ -------------- --------------
Currently payable:
State $ 16,000 $ - $ -
------------ -------------- --------------

Total income tax provision $ 16,000 $ - $ -
------------ -------------- --------------

The effective tax rate on loss before income taxes in fiscal 1997 differed from
the federal statutory tax rate primarily due to the increase in the valuation
allowance for deferred tax assets, except for state income tax expense of
$16,000.

<PAGE>
SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

10. INCOME TAXES (Continued)

Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities recognized for financial reporting purposes and
such amounts recognized for tax purposes. The tax effects of temporary
differences for depreciation, amortization, and valuation allowances from
current and prior periods and net operating loss carryforwards could give rise
to the recording of deferred tax assets. The Company is unable to reasonably
determine the amount of net operating loss carryforwards available to offset
future taxable income. Furthermore, the Company was unable to determine whether
it was more likely than not that the deferred tax assets would be realized,
therefore a 100% valuation allowance was established.

11. COMMITMENTS

The Company has entered into various employment and consulting agreements with
current and previous officers and directors of the Company. The following
describes certain terms and obligations provided by the agreements entered into
by the Company with such officers and directors:

The Company is obligated to the president and chief executive officer to
pay an annual base salary of $75,000 for a three year period beginning in
February 1996. The salary under this agreement was increased to $170,000
during fiscal 1997. The salary is subject to quarterly adjustments with an
annual increase of up to $10,000 in the event the Company achieves
quarterly pre-tax earnings in excess of $100,000.

The Company is obligated to the vice president of finance to pay an annual
salary of $125,000 for a three year period beginning in February 1996. The
salary is subject to quarterly adjustments with an annual increase of up to
$10,000 in the event the Company achieves quarterly pre-tax earnings in
excess of $100,000.

The Company is obligated to the vice president of operations to pay an
annual salary of $90,000 for a three year period beginning in February
1996. The salary is subject to quarterly adjustments with an annual
increase of up to $10,000 in the event the Company achieves quarterly
pre-tax earnings in excess of $100,000.

The Company is obligated to the chief operating officer to pay an annual
salary of $100,000 for a two and one-half year period beginning in
September 1996. The salary is subject to quarterly adjustments with an
annual increase of up to $10,000 in the event the Company achieves
quarterly pre-tax earnings in excess of $100,000.

The employment agreements also provide for a management bonus which will
allocate on the basis of salaries, 10% of pre-tax earnings to management
personnel in the event the Company achieves certain minimum annual pre-tax
earnings, as defined in the agreements.

<PAGE>
SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

11. COMMITMENTS (Continued)

The Company is obligated to a director of the Company to pay an annual
consulting fee of $50,000 for a three year period beginning April 1996.

In February 1996, the Company entered into a termination agreement with the
previous president and chief executive officer. Under the terms of the
agreement, the Company paid the terminated officer $16,666 in two monthly
installments of $8,333 in February and March of 1996 and was obligated to pay
$50,000 in twelve installments of $4,167 beginning in February 1996. This
termination agreement effectively cancels any previous employment agreements
entered into between the Company and the terminated officer. The Company had
satisfied this commitment in full as of February 28, 1997.

The Company has estimated costs to complete construction-in-progress of
approximately $70,000 as of February 28, 1997.

12. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SALES COMMITMENTS

The Company sells its only product, plasma, on credit primarily to fractionators
in the health care industry. The plasma provides specialty antibody products
that are used as the active ingredients in pharmaceutical products.

Plasma collection, storage, labeling and distribution activities are subject to
strict regulation and licensing by the U.S. Food and Drug Administration
("FDA"). The Company's facilities are subject to periodic inspection by the
FDA. Failure to comply or correct deficiencies with applicable laws or
regulations could subject the Company to enforcement action, including product
seizures, recalls, center or facility closure, license revocations and civil and
criminal penalties, any one or more could have a material adverse effect on the
Company's business.

Laws and regulations with similar substantive and enforcement provisions are
also in effect in many of the states and municipalities where the Company does
business. Any change in existing federal, state or municipal laws or
regulations, or in the interpretation or enforcement thereof, or the
promulgation of any additional laws or regulations could have an adverse effect
on the Company's business.

The Company is required to obtain from each donor an informed consent regarding
the donation procedure. Failure of the Company to obtain an adequate consent
could have a material adverse effect on the Company.

<PAGE>
SeraCare, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Continued)

12. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SALES COMMITMENTS
(Continued)

Approximately 83% and 13% of the net sales for the year ended February 28, 1997
were made to two customers. Three customers accounted for 100% of the net sales
for the periods ended February 29, 1996 and February 5, 1996.

The Company is currently obligated to two significant customers under the terms
of nine agreements relating to the eight donor centers whereby the Company has
committed to sell substantially all of the plasma collected from those centers
at various unit prices as specified in those agreements. The agreements expire
at various dates through October 31, 1998 and may be terminated if the donor
centers fail to comply with various FDA, QPP and customer initiated procedures.

The Company entered into a contract with one customer relating to five start-up
facilities whereby the Company has committed to sell substantially all of the
plasma collected from those centers at various unit prices specified in the
agreement. The agreement expires January 31, 2000 and may be terminated if the
donor centers fail to comply with various FDA, QPP and customer initiated
procedures. These three centers are currently collecting plasma, however have
not yet received either the required QPP certificate, FDA license, or both,
necessary to begin selling the plasma.

13. SUBSEQUENT EVENTS

The Company has signed a lease for a plasma center in Savannah, Georgia and will
begin remodeling in June 1997. The Company is in lease negotiations for two
other locations.