seracare life sciences, inc. securities litigation 05-cv-02335-first amended consolidated

h 3:05-cv-02335-JLS-CAB Document 147 Filed 06/11/2007 of 124

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LERACH COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP

DANIEL S. DROSMAN (200643)LAURIE L. LARGENT (153493)655 West Broadway, Suite 1900San Diego, CA 92101Telephone: 619/231-1058619/231-7423 (fax)[email protected]@lerachlaw.com

COHEN, MILSTEIN, HAUSFELD& TOLL, P.L.L.C.

STEVEN J. TOLLANDREW N. FRIEDMANJOSEPH P. HELM III1100 New York Avenue, N.W.West Tower, Suite 500Washington, DC 20005-3964Telephone: 202/408-4600202/408-4699 (fax)

Co-Lead Counsel for Plaintiffs

[Additional counsel appear on signature page.]

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

In re SERACARE LIFE SCIENCES, INC. ) Master File No. 05-CV-2335-H(CAB)SECURITIES LITIGATION )

CLASS ACTION

This Document Relates To: ) FIRST AMENDED CONSOLIDATEDCOMPLAINT FOR VIOLATIONS OF THE

ALL ACTIONS. ) FEDERAL SECURITIES LAWS

DEMAND FOR JURY TRIAL


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TABLE OF CONTENTS

Page

INTRODUCTION ...........................................................................................................................1

JURISDICTION AND VENUE .................................................................................................... ..5

PARTIES ....................................................................................................................................... ..5

NATURE OF THE ACTION AND SUMMARY OF ALLEGATIONS ...................................... 12

A. SeraCare Needed Acquisitions to Grow ................................................................ 12

B. The Exchange Act Defendants Commit Accounting Fraud .................................. 14

C. KPMG Participated in SeraCare's Fraud ............................................................... 15

D. Crowley, Plost and Cresci Unload Their Stock ..................................................... 18

E. The Truth Comes Out ............................................................................................ 18

MATERIALLY FALSE AND MISLEADING STATEMENTS ISSUED DURING THECLASS PERIOD ................................................................................................................ 21

A. False 2Q 2003 Financials ....................................................................................... 21

B. False 3Q 2003 Financials ....................................................................................... 24

C. False FY 2003 Financials ....................................................................................... 25

D. False 1Q 2004 Financials ....................................................................................... 27

E. False 2Q 2004 Financials ....................................................................................... 28

F. False 3Q 2004 Financials ....................................................................................... 29

G. False FY 2004 Financials ....................................................................................... 31

H. False 1Q 2005 Financials ....................................................................................... 33

I. False 2Q 2005 Financials ....................................................................................... 35

J. False 3Q 2005 Financials ....................................................................................... 36

THE TRUTH EMERGES .............................................................................................................. 3 8

THE SECONDARY OFFERING AND SECTION 11 LIABILITY ............................................ 40

THE EXCHANGE ACT DEFENDANTS' ACCOUNTING FRAUD ANDSERACARE'S FALSE FINANCIAL REPORTING DURING THE CLASSPERIOD ............................................................................................................................. 47

SERACARE'S VIOLATION OF GAAP AND SEC RULES ...................................................... 47

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Page

CONFIDENTIAL SOURCES ....................................................................................................... 48

THE ACCOUNTING FRAUD ...................................................................................................... 52

A. Improper Revenue Recognition ............................................................................. 53

1. Premature Revenue Recognition of $1 Million Sale to Wyeth in 2003 ................ 53

2. Premature Revenue Recognition of $385 ,000 Sale to Biogen in 2003 .................. 55

3. Premature Revenue Recognition on Sale to Roche in 2004 .................................. 56

4. Premature Revenue Recognition of $1 Million Sale to Bio Vitrum in 2005 ......... 57

5. SeraCare's Continuing Improper Recognition of End-of-Quarter Orders ............. 58

6. SeraCare Admits It Improperly Recognized Revenue ........................................... 62

7. SeraCare Improperly Recognized Revenue in Violation of GAAP andSEC Rules .............................................................................................................. 62

B. Manipulation of Inventory and Inventory Reserves to Inflate GrossMargins and Earnings ............................................................................................ 64

1. During the Class Period SeraCare Maintained Worthless Inventory on ItsBooks and/or Failed to Maintain Adequate Reserves for Severely ImpairedInventory ................................................................................................................ 65

2. Improper Capitalization of Expenses to Inventory ................................................ 66

3. SeraCare Improperly Released Reserves for BBI Inventory During theClass Period ........................................................................................................... 70

4. MHM Corroborates the Confidential Witness Accounts of OverstatedInventory ................................................................................................................ 74

5. SeraCare Admits It Overstated Inventory Valuation ............................................. 74

6. SeraCare ' s Inventory Valuation Violated GAAP and SEC Rules ......................... 74

C. SeraCare Lacked Adequate Internal Controls ........................................................ 77

D. Defendants Crowley, Burdick and Hooson Certified False and MisleadingFinancial Results .................................................................................................... 79

E. SeraCare Board Members Exercised Improper Influence on FinancialReporting and External Auditors ........................................................................... 80

F. KPMG ' s Audit Violates Fundamental Concepts of GAAS ................................... 81

1. Confidential Witness 7 ........................................................................................... 83

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2. Confidential Witness 8 ...........................................................................................85

3. Confidential Witness 2 ...........................................................................................87

4. Confidential Witness 13 .........................................................................................87

5. KPMG' s Failure to Adhere to GAAS and Its Participation in the Fraud isCorroborated by Additional Evidence ................................................................... 88

THE GAAP VIOLATIONS WERE MATERIAL AND REQUIRED RESTATEMENTS........ .. 95

ADDITIONAL GAAP AND SEC VIOLATIONS...................................................................... ..96

SERACARE FAILED TO MAKE REQUIRED DISCLOSURES ............................................... 98

ADDITIONAL SCIENTER ALLEGATIONS ............................................................................ ..99

A. Insider Stock Sales ............................................................................................... .. 99

B. Corporate Acquisitions ........................................................................................ 100

1. BMR Acquisition ................................................................................................. 100

2. GCI Acquisition ................................................................................................... 100

3. BBI Acquisition ................................................................................................... 101

4. Celliance Acquisition ........................................................................................... 101

ADDITIONAL ALLEGATIONS OF CONFLICTS/CONTROL ............................................... 101

LOSS CAUSATION/ECONOMIC LOSS .................................................................................. 102

APPLICABILITY OF FRAUD-ON-THE-MARKET DOCTRINE AND THEPRESUMPTION OF RELIANCE ................................................................................... 104

NO STATUTORY SAFE HARBOR........................................................................................... 105

CLASS ALLEGATIONS ............................................................................................................ 105

PRAYER...................................................................................................................................... 113

JURY DEMAND ......................................................................................................................... 114

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INTRODUCTION

1. This is a securities class action on behalf of all persons who purchased securities

between May 14, 2003 and March 23, 2006, inclusive (the "Class Period ) of SeraCare Life

Sciences, Inc. ("SeraCare or the "Company ), for violations of the Securities Act of 1934 (the

"Exchange Act ) against the Company and certain of its current and former officers and directors,

KPMG LLP ("KPMG ), its former auditor and controlling shareholders (collectively, the "Exchange

Act Defendants ). In addition Plaintiffs are pursuing claims, pursuant to Section 11 ofthe Securities

Exchange Act of 1933 (the "Securities Act ) against the Company and certain of its officers and

directors, KPMG and investment bankers who underwrote SeraCare's Secondary Offering of stock

(the "Securities Act Defendants ).

2. During the Class Period, the Exchange Act Defendants signed, certified, and filed

with the Securities and Exchange Commission ("SEC ) SeraCare's financial statements. These

financials were false and misleading due to various accounting manipulations, including premature

revenue recognition in violation of Generally Accepted Accounting Principles ("GAAP ) and the

Company's own stated policies, and the intentional manipulation ofinventory and inventory reserves

in violation ofGAAP. These accounting shenanigans were facilitated by the Company's utter lack

of internal and disclosure controls over financial reporting, and were discovered shortly after the

Company's new independent auditor - Mayer Hoffman McCann P. C. ("MI-IM ) - came on board in

August 2005. When MHM uncovered the Exchange Act Defendants' egregious "cooking of the

books, many of the Exchange Act Defendants - including the CEO, CFO, Chairman of the

Board, and the Secretary - were summarily fired and ordered to resign from the Company's

board. The revelations of the Company's accounting fraud, the sudden firing of SeraCare's top

management during the Class Period, and its declaration ofbankruptcy caused the Company's stock

price to plummet in December 2005 and March 2006.

3. Currently, the Securities and Exchange Commission ("SEC ) and the Department of

Justice ("DOJ ) are actively investigating the Exchange Act Defendants, and have subpoenaed

hundreds of thousands of documents from SeraCare as part of their investigation.

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4. The Exchange Act Defendants were motivated to engage in this fraudulent practice in

order to meet SeraCare's financial covenants, acquire more companies, meet Wall Street's financial

estimates and push SeraCare's stock price to record breaking highs. Indeed, at the beginning of the

Class Period, the stock was trading in the $3-$4 range. Due to the Exchange Act Defendants'

repeatedly positive - but false - financial statements, the Company's stock price continued to climb,

reaching a Class Period high in December 2005 ofjust over $23.

5. The following graph shows the Exchange Act Defendants' false Class Period

statements, Class Period acquisitions and insider sales and demonstrates that SeraCare's stock price

climbed far higher than, and did not track, either the Nasdaq or the Biotech Index:

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SeraCare Life Sciences, Inc.January 2, 2003 to June 14, 2006

NL

L

aN

CO

0

$30

$25

$20

$15

$10

$5

$0

,DAI

?ch

5/11/04: SeraCarereports $6.5 million insales and inventoryvalued at $12.1 millionfor 2Q04.

2/12/04: SeraCarereports $5 million insales and inventoryvalued at $11.4 millionfor 1Q04.


7/03: SeraCareacquires BioMedicalResources, Inc., for$4 million.

Y

10115'ia-

5/14/03: SeraCare reports $6.1million in sales and inventoryvalued at $9 .3 million for 2Q03.

12/22/03: SeraCarereports $23. 2 million insales and inventoryvalued at $10.5 million for2003.

6/04: SeraCareacquires GenomicsCollaborative, Inc.,for $14.3 million.

9/04: SeraCareacquires BostonBiomedica, Inc.,for $30 million.


3/20/05: Crowley sells 15,000 shares $267,300.

)/27/05: Crowley sells 15,000 shares for $261,750.

10/4/05: Crowley sells 15,000 shares for $265,800.

10/11/05: Crowley sells 15,000 shares for $266,250.10/18/05: Crowley sells 15,000 shares for $262,050.'ti') inr.• rrnu4ci, ecII 4 n rnn ehoroc fnr @4 Q7 900.

,,/25/05: SeraCare conductsSecondary Offering for $39 millionproceeds. Plost sells 235,000shares for $2.8 million. Cresci se276,000 shares for $3.381 million

2/25/05: Crowleysells 14,000 sharesfor $188,000.

A A 1 f

12/05: SeraCareacquires Celliancefor $3.7 million.

12/20/05: SeraCarediscloses Mayer HoffmanMcCann letter.

I

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['IT L

8/10/05: SeraCarereports $14.2 million insales and inventoryvalued at $34 millionfor 3Q05.

2/9/05: SeraCare 5/5/05: SeraCare

reports $13 million in reports $14.8 million

sales and inventory in sales and inventory

valued at $28.7 million valued at $31.4 million

for 1 Q05. for 2QO5.

12/14/04: SeraCarereports $28.4 million insales and inventoryvalued at $26.1 millionfor 2004.

3/15/06: SeraCarediscloses that prior financialstatements cannot be reliedupon and fired Crowley,Plost, Burdick and Hooson.

3/22/06: SeraCare isdelisted from theNasdaq and declaresbankruptcy.

3/23/06:SeraCarediscloses ithas filed for

01/02/2003 06/19/2003 11/07/2003 03/30/2004 09/07/2004 01/25/2005 06/13/2005 10/27/2005 03/24/200604/02/2003 08/29/2003 01/21/2004 06/10/2004 11/15/2004 04/05/2005 08/19/2005 01/06/2006 06/02/2006

bankruptcy.


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6. SeraCare's false financial statements, including its overvalued inventory and

overstated revenue, allowed the Company to access millions of dollars through various credit

facilities . The Company used these credit facilities , as well as SeraCare's inflated stock, to acquire

four different companies from 2003 to 2005.

7. During the Class Period, defendants Plost, Crowley and Cresci, who had not sold

stock before the Class Period, sold thousands of shares of stock for millions of dollars in insider

trading proceeds. SeraCare also conducted a Secondary Offering in May 2005 (the "Secondary

Offering ), in which it reaped $39 million in proceeds. The Registration Statement and Prospectus

filed in connection with the Secondary Offering ("Registration Statement ) contained materially

false and misleading statements and omissions.

8. Lead Plaintiffs' Securities Act claims arise solely from the Secondary Offering and

are not based on any knowing or reckless conduct on the part of the Securities Act Defendants, i.e.,

they do not allege and do not sound in fraud. Rather, the Securities Act Claims are premised on the

fact that there were material misrepresentations and omissions in the Registration Statement, and the

Securities Act Defendants negligently failed to recognize that fact.

9. According to numerous confidential witnesses, throughout the Class Period, certain of

the Exchange Act Defendants , with the participation ofKPMG (SeraCare ' s former external auditor)

engaged in a practice ofprematurely recognizing revenue in violation ofGAAP and SEC guidelines

and improperly manipulated inventory and inventory reserves in violation of GAAP in order to

inflate gross margins and earnings . MHM, SeraCare ' s new external auditor hired in August 2005 to

review SeraCare ' s financials , reported the egregious accounting violations in a December 15, 2005

letter to SeraCare ' s Audit Committee (attached as Ex. 7).

• "It appears the Company has made numerous unsupported changes to costs of itemsin inventory, and to quantities of inventory items as of September 30, 2005 ;

• "There appears to be an absence of any method or process to evaluate the inventoryfor potential excess quantities on hand ;

• "We have inquired repeatedly with management regarding the appropriateness ofthemethods being used to account for inventory and the appropriateness of the changesthat were made to inventory balances. In response the Company has provided

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explanations that are not supported with adequate documentation or analysis and thatoften are conflicting ; and

• "Our concerns [regarding SeraCare's failure to implement Sarbanes-Oxley controls]result from (a) the quality of the documentation provided so far, (b) ourunderstanding that certain controls were not in place until August 2005, and (c) thefact that, as to our knowledge, the testing of the controls has not been completed. Inaddition, we have concerns about the control environment as discussed in No. 3above.

10. Pursuant to MHM's letter, an internal review was opened to explore the financial and

accounting issues raised by MHM.

11. On March 15, 2006, after an internal review of the Company's accounting and

controls, SeraCare admitted its fraud, disclosing:

• "[R]eports on Form 10-Q for the quarters December 31, 2004, March 31, 2005 andJune 30, 2005 should no longer be relied upon ;

• "[T]he Company expects to restate one or more ofits financial statements for the firstthree quarters of fiscal 2005 ; and

• "[T]he Company believes that there are material weaknesses in its internal controlover financial reporting.

See Ex. 17.

12. That same day, the Company also announced that it had summarily fired Plost

(Chairman of the Board), Crowley (Chief Executive Officer), Burdick (Secretary and former Chief

Financial Officer) and Hooson (Chief Financial Officer). Id.

13. SeraCare has provided preliminary results regarding the extent of its accounting

errors. The Company stated that its "bankable inventory is valued at approximately $17 million - a

50% overstatement from its last publicly-filed financial statement.

14. On March 22, 2006, SeraCare was delisted from the Nasdaq.

15. On March 23, 2006, SeraCare announced that it had declared bankruptcy.

16. On May 17, 2007, SeraCare announced that it completed its bankruptcy

reorganization and emerged from the bankruptcy proceeding.

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JURISDICTION AND VENUE

17. The claims asserted herein arise under § § 10(b), 20(a), and 20A ofthe Exchange Act,

15 U.S.C. §§78j(b), 78t(a), and 78t-1 and Rule l Ob-5 promulgated by the SEC thereunder [17 C.F.R.

§240.10b-5] and §§11 and 15 of the Securities Act, 15 U.S.C. §§77k and 77o.

18. This Court has jurisdiction over the subject matter of this action under §27 of the

Exchange Act, 15 U.S.C. §78aa, and 28 U.S.C. §§1331, 1337 and 1367 and §22 of the Securities

Act.

19. Venue is proper in this District pursuant to §27 of the Exchange Act, §22 of the

Securities Act, and 28 U.S.C. §1391(b). Many of the acts giving rise to the violations of law

:,omplained of, including the preparation and dissemination to the investing public ofmaterially false

and misleading information, occurred in substantial part in this District. In addition, SeraCare

maintains its corporate headquarters in this District.

20. In connection with the acts alleged in this complaint, Defendants directly or indirectly

used the means and instrumentalities ofinterstate commerce, including, but not limited to, the mails,

interstate telephone communications and the facilities of the Nasdaq.

PARTIES

21. Lead Plaintiff, the Westlund Family consists of Richard, Jana, David, John and

Lauren Westlund. As set forth in the attached certifications, the Westlund Family purchased

SeraCare common stock at artificially inflated prices during the Class Period and was damaged

thereby. See Exs. 1-5.

22. Lead Plaintiff Massachusetts State Guaranteed Annuity Fund ("MSGAF ), as set

forth in the attached certification, purchased SeraCare common stock at artificially inflated prices

during the Class Period and was damaged thereby. See Ex. 6. MSGAF's purchases include stock

purchased pursuant to, or traceable to, the Registration Statement issued in connection with the

Secondary Offering.

23. Defendant SeraCare is currently a Delaware corporation which maintains its principal

executive offices and corporate headquarters in West Bridgewater, Massachusetts. SeraCare filed

for bankruptcy on March 22, 2006 and was discharged from bankruptcy in May 2007 with a plan of

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reorganization. At the time Defendants engaged in the acts alleged herein, SeraCare's principal

executive offices and corporate headquarters were in Oceanside, California. SeraCare engages in the

manufacture and marketing of biological products for diagnostic, therapeutic, drug discovery and

research concerns. It offers various products, including quality controls for diagnostic tests, plasmas,

human and animal-based proteins and biological specimens, as well as quality control products for

infectious disease testing, and services, such as nucleic acid isolation and sequencing, SNP analysis,

target validation, and biorepository services. SeraCare also provides antibody-based products, which

are used as active ingredients in therapeutic and diagnostic products.

24. Defendant Michael F. Crowley, Jr. ("Crowley ) was SeraCare's Chief Executive

Officer ("CEO ) from July 10, 2002 until he was terminated on March 13, 2006 as a result of an

internal investigation by the Company's Board of Directors into SeraCare's financial reporting.

Defendant Crowley was also a director from July 10, 2002 until March 24, 2006, when he was

forced to resign from the Board in connection with his termination. Crowley previously served as

SeraCare's President and Chief Operating Officer from November 2000 until his appointment as

CEO. Prior to his role as President, Crowley served as SeraCare's Vice President of Operations

form January 1998 to November 2000, and was employed by the Company since 1986. Defendant

Crowley signed and certified the Company's Class Period SEC filings, including the Registration

Statement for SeraCare's Secondary Offering, which all contained false and misleading statements.

During the Class Period, defendant Crowley sold 100,000 shares ofhis SeraCare stock for proceeds

Df $1.77 million. Crowley directed and/or participated in virtually every aspect of the fraud

described in this Complaint.

25. Defendant Craig A. Hooson ("Hooson ) was SeraCare's Chief Financial Officer

("CFO ) from May 3, 2005 until he was terminated on March 13, 2006. Hooson signed and certified

the Company's Form 10-Q for the third quarter ended June 30, 2005, which contained the

Company's false and misleading financial statements.

26. Defendant Barry D. Plost ("Plost ) was Chairman of the Company's Board of

Directors of SeraCare from February 1998 until he was terminated on March 13, 2006. Plost was

also paid $200,000 per year by SeraCare as a consultant from October 1, 2004 to March 13, 2006,

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when the Company terminated his agreement. The consultancy arrangement was amended into an

employee contract commencing in October 2005, pursuant to which Plost received an annual base

salary of $250,000 plus benefits, plus payments in the event ofa change-in-control ofthe Company.

As a consultant, Plost provided acquisition advisory services to defendant Crowley. While serving

as Chairman of SeraCare, Plost also served as the president and a director ofBiomat USA. (Biomat

USA acquired SeraCare Life Sciences in 1998 and then spun it out as a public company in 2001.).

Plost also served on the Board of Probitas Pharma S.A. and was a member of its Executive

Committee. Probitas Pharma is the parent company of Instituto Grifols S.A. ("Grifols ), which

purchased Biomat USA, and is a major supplier to SeraCare.

27. Defendant Plost signed, or authorized the signing of, the Company's Form 10-Ks for

Fiscal years 2003 and 2004, and the Registration Statement for the Secondary Offering, each of

which contained false and misleading financial statements. Defendant Plost sold 230,000 shares of

his SeraCare stock in the Secondary Offering for gross proceeds of $2.81 million. Defendant Plost

was also a creditor to the Company as he, as well as defendant Kasten, loaned the Company $3.5

million in September 2004. Before the Secondary Offering, Plost owned 8.8% of SeraCare's

Dutstanding shares.

28. Defendant Jerry L . Burdick ("Burdick) was Secretary of the Company from

February 1998 until the Company fired him on March 13, 2006. Burdick was Chief Financial

Officer of the Company from February 7, 2005 to June 1, 2005. Burdick was also a paid consultant

to SeraCare from August 2004 until the Company terminated his consulting agreement on March 13,

2006. As a consultant, SeraCare paid Burdick a monthly retainer fee of $ 10,000 plus a $100 hourly

;,onsulting fee, through Burdick Management, Inc. (whose president was defendant Burdick).

Burdick was also a SeraCare director from February 1998 until he was ordered to resign from

SeraCare's Board of Directors on March 13, 2006. Burdick was also an executive vice president of

Biomat.

29. Burdick signed and certified the Company's Form 10-Q for the first and second

quarter of2005 and signed, or authorized the signing of, the Company's Form 10-Ks for fiscal years

2003 and 2004, and the Registration Statement for the Secondary Offering, each ofwhich contained

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the Company's false and misleading financial statements. During the Class Period, Burdick owned

aver 200,000 SeraCare shares.

30. Defendant Robert J. Cresci ("Cresci ) was, at all relevant times, a director of the

Company during the Class Period. Defendant Cresci signed, or authorized the signing of, the

Company's Form 10-Ks for fiscal years 2003 and 2004, and the Registration Statement for the

Secondary Offering. Defendant Cresci, on behalf of Pecks Management Partners, Ltd. (of which

Cresci is the managing director), sold at least 276,000 shares of SeraCare stock in the Secondary

Offering for gross proceeds of $3.381 million. Cresci is also Chairman of the Company's Audit

Committee. Before the Secondary Offering, Cresci, (on behalfofPecks Management Partners, Ltd.)

awned 15.7% of SeraCare's outstanding shares. Cresci is currently the Chairman of the Board of

Directors at SeraCare.

31. Defendant Thomas Lawlor ("Lawlor ) was SeraCare's Chief Operating Officer

("COO ) from December 13, 2004 to March 2006. Upon the termination of Crowley as CEO,

Lawlor was promoted to CEO and President of SeraCare. On June 25, 2006, Lawlor announced he

would resign from the Company effective July 15, 2006.

32. Defendants Crowley, Hooson, Plost, Burdick, Cresci and Lawlor are referred to as the

"Exchange Act Individual Defendants.

33. Defendant Samuel Anderson ("Anderson ) was a director ofthe Company. Anderson

signed, or authorized the signing of, the Company's Form 10-Ks for fiscal years 2003 and 2004, and

the Registration Statement for the Secondary Offering. Anderson was also paid by the Company as

a consultant until April 2005. As a consultant, Anderson served as an advisor to defendant Crowley.

Anderson was a member ofthe Board of Director's Compensation Committee and Nominating and

Governance Committee.

34. Defendant Ezzat Jallad ("Jallad ) was a director of the Company. Jallad signed, or

authorized the signing of, the Company's Form 10-Ks for fiscal years 2003 and 2004, and the

Registration Statement for the Secondary Offering. Jallad was a member ofthe Board ofDirector's

Audit and Compensation Committees.

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35. Defendant Dr. Bernard Kasten ("Kasten ) was a director ofthe Company during the

Class Period. Kasten signed, or authorized the signing of, the Company's Form 10-Ks for fiscal

years 2003 and 2004, and the Registration Statement for the Secondary Offering. Kasten was a

member of the Board of Director's Nominating and Governance Committee. Kasten was also a

;,reditor to the Company as he, as well as Plost, loaned the Company $3.5 million in September

2004. Kasten has replaced Burdick and is now Secretary of the Company.

36. Defendant Dr. Nelson Teng ("Teng ) was a director ofthe Company during the Class

Period. Teng signed, or authorized the signing of, the Company's Form 10-Ks for fiscal years 2003

and 2004, and the Registration Statement for the Secondary Offering. Teng was a member of the

Board of Director's Audit Committee.

37. Defendants Crowley, Plost , Burdick, Cresci, Anderson, Jallad, Kasten, and Teng are

referred to as the "Securities Act Individual Defendants . The Exchange Act Individual Defendants

and Securities Act Individual Defendants are collectively referred to as the "Individual Defendants.

38. Defendant CIBC World Markets Corp . ("CIBC ) is an integrated financial services

institution that provides commercial and banking services and acted as underwriter to the Company's

Secondary Offering.

39. Defendant Thomas Weisel Partners LLC ("Weisel ) is an integrated financial services


Secondary Offering.

40. Defendant William Blair & Co., LLC ("WBC ) is an integrated financial services


Secondary Offering.

41. CIBC, Weisel, and WBC are collectively referred to as the "Underwriter

Defendants.

42. Defendant KPMG LLP ("KPMG ) was SeraCare ' s outside accountant until it was

Fred in August 2005. KPMG provided accounting and auditing services to SeraCare prior to and in

;,onnection with the Secondary Offering. KPMG audited the Company's false and misleading

Financial statements contained in Form 10-Ks for fiscal years 2003 and 2004 and issued materially

-9- 05-CV-2335-H(CAB)


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false and misleading opinions on these statements. KPMG was intimately involved in the

preparation of SeraCare's quarterly financial statement during the Class Period. KPMG also

consented to be named as an "expert in SeraCare's Registration Statement and consented to the use

of its 2003 and 2004 audit reports in the Registration Statement. KPMG also provided tax services

and consulting services to SeraCare. KPMG participated in the scheme, plan, and common course of

conduct described herein.

43. Defendant Pecks Management Partners, Ltd. ("Pecks ) is an investment management

Firm. Defendant Cresci is the managing director of Pecks. Before the Secondary Offering, Pecks

held 14.7% of SeraCare's shares and 8.5% after the Secondary Offering. Thus, Pecks controlled

SeraCare, which it admitted in the Company's 2004 Form 10-K.

44. During the Class Period, each of the Exchange Act Individual Defendants, as senior

executive officers and/or directors of SeraCare, were privy to non-public information concerning the

Company's business, finances, products, markets and present and future business prospects via

access to internal corporate documents, conversations and connections with other corporate officers

and employees, attendance at management and Board ofDirectors meetings and committees thereof

and via reports and other information provided to them in connection therewith. In 2004, each

director attended at least 75% of the total board and committee meetings. Because of their

possession of such information, the Exchange Act Individual Defendants knew or recklessly

disregarded the fact that adverse facts specified herein had not been disclosed to, and were being

;,oncealed from, the investing public.

45. It is appropriate to treat the Exchange Act Individual Defendants as a group for

pleading purposes and to presume that the false, misleading and incomplete information conveyed in

the Company's public filings, press releases and other publications as alleged herein is the collective

action of the narrowly defined group of executive officer and director defendants described above.

Each of the Exchange Act Individual Defendants, by virtue of their high-level positions with the

Company, directly participated in the management of the Company, was directly involved in the

day-to-day operations ofthe Company at the highest levels and was privy to confidential proprietary

information concerning the Company and its business, operations, growth, financial statements and

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financial condition as alleged herein. Said defendants were involved in drafting, producing,

reviewing and/or disseminating the false and misleading statements and information alleged herein,

were aware, or recklessly disregarded, that the false and misleading statements were being issued

regarding the Company, and approved or ratified these statements, in violation of the federal

securities laws.

46. As officers and controlling persons of a publicly-held company whose securities

were , and are , registered with the SEC pursuant to the Exchange Act, and were traded on the Nasdaq

and governed by the provisions of the federal securities laws, the Exchange Act Individual

Defendants each had a duty to disseminate prompt, accurate and truthful material information with

respect to the Company's financial condition and performance , growth, operations , financial

statements , business , markets , management, earnings and present and future business prospects, and

to correct any previously -issued statements that had become materially misleading or untrue, so that

the market price of the Company's common stock would be based upon truthful and accurate

information . The Exchange Act Individual Defendants ' misrepresentations and omissions during the

Class Period violated these specific requirements and obligations.

47. The Exchange Act Defendants participated in the drafting, preparation and/or

approval of the various public, shareholder and investor reports, and other communications

:,omplained of herein and were aware of, or recklessly disregarded, the misstatements contained

therein and omissions therefrom, and were aware of their materially false and misleading nature.

Because oftheir Board membership and/or executive and managerial positions with SeraCare, each

Dfthe Exchange Act Individual Defendants had access to the adverse undisclosed information about

SeraCare's financial condition and performance as set forth herein and knew (or recklessly

disregarded) that these adverse facts rendered the Company's representations about its business

materially false and misleading.

48. The Exchange Act Individual Defendants are liable as a participant in a fraudulent

scheme and course ofbusiness that operated as a fraud or deceit on purchasers of SeraCare securities

by disseminating materially false and misleading statements and/or concealing material facts. The

scheme: (a) deceived the investing public regarding SeraCare' s business , operations, management

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and the intrinsic value of SeraCare common stock; and (b) caused plaintiffs and other members of

the Class to suffer damages thereby.

NATURE OF THE ACTION AND SUMMARY OF ALLEGATIONS

49. SeraCare was incorporated in 1984 as The Western States Group, Inc. In 2001, the

Company changed its name to SeraCare Life Sciences, Inc.

50. SeraCare is a manufacturer and supplier ofbiological materials and services essential

for the use and manufacture of diagnostic tests and the discovery, development and commercial

production of pharmaceuticals. SeraCare's business had two primary segments:

(a) diagnostics products, including laboratory products (reference tests used to

monitor the performance of laboratory tests for viruses that cause infectious diseases, in order to

detect errors and thereby lower the risk ofreporting inaccurate results) and diagnostic intermediates

(materials used to produce diagnostic test kits, such as human and animal plasma-based components

and biological products), and

(b) biopharmaceutical products, including discovery products and services and

bioprocessing products.

A. SeraCare Needed Acquisitions to Grow

51. SeraCare sought - under the stewardship ofthe Exchange Act Individual Defendants

- to become the industry-leading life sciences company. While the Company had some limited

internal, organic growth, the majority of its rise in the industry was due to acquisitions. On October

10, 2003, after SeraCare had completed the BioMedical Resources acquisition and obtained a $10

million credit facility, Crowley stated, "Having recently completed our first acquisition as a publicly-

traded company, we are pleased to announce this facility, as it further enhances our financial

flexibility. We anticipate that this line of credit will assist us in our pursuit of our acquisitions to

prudently grow our Company.

52. Indeed, from mid-2003 to the end of 2005, SeraCare acquired four different

:,ompanies, costing SeraCare over $52 million. The acquired companies were: (1) BioMedical

Resources, Inc. (`BMR ) ($4 million); (2) Genomics Collaborative, Inc. ("GCI ) ($14.3 million); (3)

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Boston Biomedica, Inc. ("BBI ) ($30 million and assumption of certain liabilities); and (4) Celliance

($3.7 million and assumption of certain liabilities).

53. SeraCare funded these acquisitions with cash and the Company's stock. The cash

was provided primarily to SeraCare in the form of loans. From 2001 to 2006, SeraCare had three

different credit facilities: a 2001 credit facility with Sanwa Bank for $20 million; a 2003 credit

facility with Brown Brothers Harriman & Co. ("BBH ) for $10 million; and a 2004 credit facility

with BBH and Union Bank for $25 million.

54. SeraCare drew $21 million from its credit facility to fund the $30 million acquisition

Df BBI in September 2004.

55. In fact, in 2004, Plost told investors that SeraCare was going to expand its acquisition

strategy, noting "we have our line of credit of $10,000,000 fully available to accomplish this task.

56. But the financial covenants associated with the lines of credit restricted the

Company's ability to borrow . The financial covenants were tied to the Company' s net worth and

inventory. Thus, if the Company's net worth or inventory fell below a certain level, the Company

would be restricted from borrowing or, in some cases , be deemed in default. For this reason, the

Exchange Act Defendants had a powerful motive to distort SeraCare's financial statements and

report inflated earnings.

57. SeraCare also paid for these acquisitions with the Company's stock. The Company

used 67,002 shares to fund the BMR acquisition and over a million shares of stock with an artificial

valuation ofapproximately $13 million to fund the GCI acquisition. Therefore, the higher the price

Df the Company's stock, the more acquisitions SeraCare could complete.

58. Ofthe $39 million raised in SeraCare's Secondary Offering, $29 million was used to

pay down its credit facility (which was increased by tens of millions of dollars in order to complete

the BBI acquisition) and the balance ($10 million) was to be used to fund future acquisitions.

59. In order for SeraCare to acquire these companies, and thus garner a larger market

share of the life sciences industry, the Exchange Act Defendants began distorting SeraCare's

Financial statements by prematurely booking revenue and improperly capitalizing overhead costs.

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B. The Exchange Act Defendants Commit Accounting Fraud

60. Beginning in 2003, defendants Burdick and Crowley began distorting the value of

SeraCare's inventory. Not only were the Exchange Act Defendants making unsupported changes to

inventory values, they were also improperly capitalizing overhead expenses to inventory valuations.

Thus, the Company was fraudulently reducing its periodic expenses while increasing its reported

inventory levels.

61. This is precisely what MHM discovered. In MHM's preliminary audit, it observed

that "[t]he Company has been unable to provide support for material amounts of inventory

recorded on its balance sheet at September 30, 2005. It appears the Company has made numerous

unsupported changes to costs of items in inventory, and to quantities of inventory items as of

September 30, 2005. There appears to be an absence ofany method orprocess to evaluate the

inventoryforpotential excess quantities on hand. 1 MHM further stated, "The Company has been

unable to relate overhead costs capitalized to specific items ofinventory to actual activity related to

those items during the period the costs were incurred.

62. In determining that it needed to restate SeraCare' s financials , the Company admitted

an March 27, 2006, that there were "errors with respect to ... inventory valuation and the

capitalization ofoverhead to inventory . SeraCare further admitted that the Company had made

errors in inventory reserves.

63. According to five confidential witnesses, the Exchange Act Individual Defendants

also prematurely recognized revenue in a number of its plasma sales to customers. Crowley,

Burdick and Plost would meet at night, when the office was closed, and determine what products

;,ould be prematurely shipped to meet it numbers. The premature shipments (generally recorded a

month or two before actual shipment date) and attendant improper revenue recognition was a regular

quarterly practice and usually occurred at the end of each quarter.

Here, as elsewhere, emphasis has been added, unless otherwise noted.

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x:05-cv-02335-JLS-CAB Document 147 Filed 06/11/2007 of 124

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64. In addition to these serious accounting violations, the Company had an inadequate

system of internal controls over financial reporting. And, for the controls that were in place, MHM

found, "the testing of the controls has not been completed. SeraCare conceded this, admitting:

"there are material weaknesses in its internal control overfinancial reporting.

C. KPMG Participated in SeraCare's Fraud

65. KPMG actively participated in the fraud. It provided unqualified audit opinions for

SeraCare's year-end financials for 2003 and 2004, both of which contained numerous false and

misleading statements resulting from the Exchange Act Individual Defendants' accounting

manipulations. KPMG was also intimately involved in creating and preparing the Company's

interim financial statements and Form 10-Qs (the Company's quarterly financial statements),

including the quarterly financial statements and Form 10-Qs for the first three quarters of the

Company's fiscal year 2005. With respect to SeraCare's quarterly financial statements and 10-Qs,

KPMG performed fieldwork, signed offon quarterly earnings releases, provided the Company with

financial statement feedback, revised the Company's financial statements, checked the Company's

final changes to the 10-Qs, and signed off on the 10-Qs. See, e.g., Ex. 10. KPMG's direct

participation in drafting SeraCare's quarterly financial statements is also demonstrated by KPMG's

"Timely Quarterly Review - Management Inquiries. See Ex. 11. As part of its work on SeraCare's

quarterly financials, KPMG attended quarterly "kick-off meetings with SeraCare management and

worked extensively with management in reviewing and analyzing the Company's quarterly activity,

including reviewing the design and operation ofthe Company's internal controls for deficiencies and

material weaknesses. See id. at SRLSEKL090137. Additionally, KPMG provided the Company

feedback and made substantive changes to the Company's 10-Qs and press releases. See, e.g., Exs.

12 and 13.

66. As demonstrated by KPMG' s "Interim Accounting Disclosure Checklist, KPMG

was also intimately involved in determining whether SeraCare' s interim/quarterly financial

statements and financial data contained the necessary disclosures. See, e.g., Ex. 14.

67. As a primary participant in the creation and preparation of the Company's quarterly

Financial statements and 10-Q filings throughout the Class Period, KPMG had access to all

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information that was available about SeraCare's quarterly financial results. KPMG intentionally

and/or recklessly ignored the false statements contained in the Company's 10-Qs filed during the

Class Period despite the fact that it knew that SeraCare investors would rely on the information

contained therein.

68. During the Class Period, KPMG regularly attended SeraCare's Audit Committee

meeting and discussed with SeraCare's Board members Company staffing issues, internal control

aver financial reporting issues , inventory valuations and increases in inventory. See Ex. 15. Three

KPMG employees attended each meeting : the engagement partner , the concurring partner and the

audit manager . Id. KPMG made presentations to the Audit Committee pertaining to both the

Company's quarterly and year-end financial statements . See Ex. 16. KPMG participated in the

Audit Committee meetings up until at least August 9, 2005 , two weeks before KPMG was

terminated.

69. In addition to performing audits and preparing SeraCare's quarterly financial

statements, KPMG also provided the following services during the Class Period: tax services,

including a large project involving a research and development tax credit for SeraCare, review and

testing of SeraCare's Sarbanes-Oxley procedures for fiscal year 2005, and acquisition services to the

Company, whereby KPMG would review an acquisition target's financials before SeraCare would

decide whether to purchase the company. For example, SeraCare engaged KPMG to assist the

Company with its assessment of risks and opportunities of the Company's acquisition of BBI. As

part ofthis engagement, KPMG reviewed and evaluated BBI's financial statements, including BBI's

inventory valuations and adequacy of inventory reserves, expenses, financial performance and

balance sheet information.

70. In the course ofKPMG's audits, it purportedly examined the Company's financials,

-.valuated its internal controls, and assessed the overall quality of its accounting and financial

reporting procedures. KPMG represented that it performed its audits in accordance with Generally

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Accepted Auditing Standards ("GAAS )2 and that the Company's financial statements were

prepared in accordance with GAAP. These statements were patently false.

71. For all of 2003 and 2004, KPMG only reviewed SeraCare's inventory on two

Dccasions, in October of 2003 and 2004. As detailed in ¶1296-337, KPMG failed to perform the

most basic functions of an audit. For example, KPMG never did physical tests of the inventory or

tested those counts performed by SeraCare employees. As a result, KPMG never even attempted to

become independently informed of the inventory levels or valuations, relying instead on

managements' representations alone.

72. Indeed, if KPMG had performed its audits according to GAAS - as it publicly

:,laimed - it would have detected the egregious financial manipulations identified by MHM in its

preliminary audit, including:

• "Therefore, we must again express our discomfort with the lack of analysis beingdone by the Company related to this transaction. Our knowledge of this transactionraises our concern that there may be other similar transactions of which we are notaware ;

• "The Company carries large inventory balances in relation to its sales and hascontinuing and increasing negative cash flows from operations in spite ofpositive netincome as a result of increases in these balances ;

• "The Company has been unable to provide support for material amounts ofinventoryrecorded on its balance sheet at September 30, 2005 ;

• "It appears the Company has made numerous unsupported changes to costs of itemsin inventory, and to quantities of inventory items as of September 30, 2005 ;

• "There appears to be an absence of any method or process to evaluate the inventoryfor potential excess quantities on hand ;

• "There are material amounts of inventory which appear adequate to provide fordecades of sales in some cases ;

• "The Company has been unable to relate overhead costs capitalized to specific itemsof inventory to actual related to those items during the period the costs wereincurred ;

In 2004, the GAAS Standards were incorporated into the Public Company Oversight Board.These standards are referred to throughout the Complaint as GAAS Standards.

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• "We have inquired repeatedly with management regarding the appropriateness ofthemethods being used to account for inventory and the appropriateness of the changesthat were made to inventory balances. In response the Company has providedexplanations that are not supported with adequate documentation or analysis and thatoften are conflicting ;

• "We continue to be very uncomfortable with the inventory balances as ofSeptember 30, 2005 ;

• "We are concerned that the Company was not adequately prepared for theimplementation of section 404 ofthe Sarbanes-Oxley Act. Our concerns result from(a) the quality of the documentation provided so far, (b) our understanding thatcertain controls were not in place until August 2005, and (c) the fact that, as to ourknowledge, the testing of the controls has not been completed. In addition, we haveconcerns about the control environment as discussed in No. 3 above ;

• "[W]e are being provided with conflicting statements, we are not being providedwith sufficient audit evidence, and we are uncomfortable relying on management'srepresentations ; and

• "These conditions increase our concern about whether there are misstatements in thefinancial statements that we have not identified.

73. As the intentional accounting errors piled up, SeraCare continuously posted positive

Financial results, and SeraCare's stock price continued to climb. In May 2003, at the start of the

Class Period, SeraCare's shares were trading in the $3-$4 range. As a result of its false and

misleading statements, the Company's stock price reached a Class Period high of $23.17 on

December 2, 2005.

D. Crowley, Plost and Cresci Unload Their Stock

74. In the interim - while the shares traded at artificially inflated levels - Crowley sold

114,000 shares for nearly $2 million in proceeds, Plost sold 235,000 shares for $2.8 million in

proceeds, and Cresci, on behalf ofPecks, sold 276,000 shares for $3.3 81 million in proceeds. These

defendants never sold stock before the Class Period.

75. The Company further benefited from SeraCare's artificially inflated stock price as it

;,ompleted a Secondary Offering in May 2005, in which it reaped $39 million.

E. The Truth Comes Out

76. In December 2005, the true state of SeraCare's financials began to emerge. On

December 14, 2005, SeraCare filed a press release and SEC Form 12b-25 (which was signed by

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Hooson) stating it could not timely file its Form 10-K. The Company claimed that the delay was due

to SeraCare having retained new auditors and that the "Form 10-K for fiscal 2005 will include a full

year of the results of operations from the Company's two significant acquisitions in the second half

of fiscal 2004. The Company is unable to provide a quantitative estimate of the results for the

current fiscal year pending completion of its ongoing audit.

77. In truth, however, completion of the audit was delayed because MHM had serious

:,oncerns regarding the veracity of the Company' s financial statements, the conflicting

representations ofmanagement, undue pressure from Plost and certain board members, and a woeful

lack of internal controls.

78. The following day - December 15, 2005 - MHM sent a letter to Cresci regarding its

delay in completing its audit . The letter is attached as Ex. 7. The letter stated in part:

We havepreviously expressed and we continue to have concerns with respect to theCompany'sfinancial statements and the representations ofmanagement We alsohave received conflicting representations from senior management, includingconflicting representationsfrom the same individual as well as representations thatconflict with other information we have been provided.

We have inquired repeatedly with management regarding the appropriateness of themethods being used to account for inventory and the appropriateness of the changesthat were made to inventory balances. In response the Company has providedexplanations that are not supported with adequate documentation or analysis andthat often are conflicting.

79. On December 20, 2005, the Company finally disclosed that they had received a letter

from MHM and summarized MHM's findings:

On December 15, 2005, the chairman of the Company 's audit committeereceived a letter from Mayer Hoffman McCann P.C. ("MHM ), the Company'sindependent auditors , in which MI-IM raised concerns with respect to the Company'sfinancial statements , accounting documentation and the ability of MHM to rely onrepresentations of the Company' s management . Specifically, the letter sets forthconcerns by MHM with respect to:

• certain of the Company's revenue recognition accounting policies andpractices,

• the accounting for and valuation of the Company's inventory,

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• MHM's perception that certain board members were exerting undueinfluence on the Company's financial reporting process and on the auditprocess, and

• the timeliness , quality and completeness of the Company' s implementationand testing of its internal control over financial reporting.

II See Ex. 18.

80. On December 20, 2005 , as a result ofthis shocking revelation , SeraCare 's stockprice

from $19.30, its previous day's close, to $10.04, a 47.9% drop on 11,678,960 traded shares.

81. SeraCare's audit committee retained Willkie Farr & Gallagher and Alix Partners to

11 conduct an investigation into SeraCare's fraudulent accounting and financial reporting process.

11 Also, as a result of SeraCare's revelations, both the SEC and Department of Justice initiated

11 investigations into the conduct of the Company and its managers and directors. To date, roughly

11490,000 pages of documents have been produced to government investigators pursuant to one or

more subpoenas.

82. SeraCare's shares were still trading at artificially inflated levels because investors

11 were still unaware that the fraud was so egregious that it would require a restatement of SeraCare's

financials and result in the mass firing of SeraCare' s most senior management and SeraCare's

bankruptcy. Furthermore, the Exchange Act Individual Defendants failed to disclose - until March

15, 2006 - that SeraCare's financials were riddled with errors and should not be relied upon.

83. On March 15, 2006, SeraCare admitted that its Board of Directors, upon the

I I recommendation of its Audit Committee, had concluded that SeraCare's previously issued financial

statements on its "reports on Form 10-Q for the quarters ended December 31, 2004, March 31, 2005

and June 30, 2005 shouldno longer be relied upon , and that while the Audit Committee's internal

review was not complete, SeraCare expected to "restate one or more ofthefinancial statements

the first three quarters offiscal 2005. See Ex. 17. Also, as a result of the internal review,

11 SeraCare determined "that there are material weaknesses in its internal control over financial

reporting and has retracted its previously issued guidance for fiscal 2005. Id. SeraCare also

revealed that it was "possible that the Audit Committee will, as a result of its continuing review,

determine that previously issued financial statements for other periods may require corrections.

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84. On March 15, 2006, SeraCare abruptly announced that it had terminated Burdick's

:,onsulting agreement, fired Plost as Chairman of SeraCare's Board of Directors, fired Crowley as

SeraCare's President and CEO, fired Burdick as the Secretary of the Company, fired Hooson as

CFO, and ordered Plost, Crowley and Burdick to resign from SeraCare's Board of Directors. Plost

and Crowley resigned from SeraCare's Board ofDirectors on March 23 and 24, 2006, respectively.

On this news, the Nasdaq halted all trading of SeraCare's shares.

85. On March 22, 2006, Nasdaq delisted SeraCare as a publicly traded stock forcing all

its securities to be traded on the Pink Sheets. That same day, SeraCare filed for Chapter 11

bankruptcy.

86. On March 23, 2006, SeraCare announced it had filed for Chapter 11 bankruptcy.

That day, SeraCare's stock price fell from $4.85 to $1.75 on volume of 3,517,008 shares.

MATERIALLY FALSE AND MISLEADINGSTATEMENTS ISSUED DURING THE CLASS PERIOD

A. False 2Q 2003 Financials

87. On May 14, 2003, SeraCare issued a press release reporting 2Q 2003 financial results.

The press release summarized SeraCare's second quarter financial results, and stated sales were $6.1

million, and net income was $0.79 million or $0.10 per diluted share.

88. On May 14, 2003, SeraCare filed its 2Q 2003 report on Form 10-Q for the quarter

ended March 31, 2003, which was signed by Crowley and former CFO Dennis Mulroy . The Form

I 0-Q included the Company's 2Q 2003 financial statements , as summarized in the Company's May

14, 2003 press release . In its Form 10-Q, SeraCare valued its inventory assets at $9,304,227.

89. The 10-Q further stated:

Revenue Recognition. We recognize revenue in accordance with SEC StaffAccounting Bulletin No. 101, "Revenue Recognition in Financial Statements, (SAB[Topic 13]). SAB [Topic 13] requires that four basic criteria must be met beforerevenue can be recognized: 1. pervasive evidence that an arrangement exists; 2.delivery has occurred; 3. the selling price is fixed and determinable; and 4.collectibility is reasonably assured. We record any material up-front payments asdeferred revenue in accrued expenses on the balance sheet and recognize revenueupon shipment ofthe product to the customer and when the four criteria noted aboveare met.

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Inventory. Inventory is carried at the lower of cost or market. We review inventoryfor estimated obsolescence or unmarketable inventory and provide an amount toreduce inventory to its net realizable value based on the assumptions about futuredemand and market conditions. If actual market conditions are less favorable thanthose conditions assumed by management, additional inventory provisions may berequired.

90. The Form 10-Q also contained the following certifications signed by both Crowley

and Mulroy:

I.... certify that:

1. I have reviewed this quarterly report on Form 10-Q of SeraCare LifeSciences, Inc;

2. Based on my knowledge, this quarterly report does not contain any untruestatement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, is made known to us by otherswithin our entity, particularly during the period in which this quarterly reportis being prepared;

b. evaluated the effectiveness ofthe registrant's disclosure controls andprocedures as of a date within 90 days prior to the filing date of thisquarterly report (the "Evaluation Date ); and

c. presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on ourmost recent evaluation, to the registrant's auditors and the audit committee ofregistrant's board of directors (or persons performing the equivalent functions):

a. all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant's ability to record,process, summarize and report financial data and have identified for theregistrant's auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material , that involves management or otheremployees who have a significant role in the registrant ' s internal controls;and

-22- 05-CV-2335-H(CAB)


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6. The registrant's other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

The undersigned ... of SeraCare Life Sciences, Inc. (the "Company ), pursuant to 18U.S.C. §1350, hereby certifies that:

(i) the Quarterly Report on Form 10-Q for the period ended ...of the Company (the "Report ) fully complies with the requirementsof Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operations ofthe Company.

91. The foregoing statements in ¶187-90 above were false and misleading when made

because:

(a) SeraCare had prematurely recognized $1 million in revenue in violation of

SAB Topic 133 as delivery of the albumin to Wyeth Pharmaceuticals, Inc. ("Wyeth ) had not yet

Dccurred (as described in ¶1200-211). Thus, SeraCare ' s reported sales of $6 . 1 million for the quarter

were inflated by at least a million dollars;

(b) SeraCare failed to write down inventory carried at above market value (as

described in ¶1242-248); and

(c) Defendant Crowley's certification that SeraCare had adequate internal and

disclosure controls to prevent the publication of such errors was false, as demonstrated by

SeraCare's admission "that there are material weaknesses in its internal control overfinancial

reporting, and by MHM's audit ofthe controls, which concluded "that certain controls were not in

' Staff Accounting Bulletin ("SAB ) Topic 13 represents the codification of certain StaffAccounting Bulletins, including SAB No. 101, Revenue Recognition in Financial Statements as ofMay 9, 2003. On December 17, 2003, SAB Topic 13 was revised by SAB No. 104, RevenueRecognition. Such revisions have been incorporated in all references to SAB Topic 13. As such, allreferences to SAB Topic 13 herein shall also include SAB No. 101 and SAB No. 104 for theapplicable periods.

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untilAugust 2005, and... the testing ofthe controls has not been completed (as described in

¶¶284-293).

B. False 3Q 2003 Financials

92. On August 8, 2003, SeraCare issued a press release reporting 3Q 2003 financial

results. The press release summarized SeraCare's third quarter financial results, and stated sales

were $6.4 million, and net income was $628,000 or $0.08 per diluted common share.

93. The August 8, 2003 press release was followed by an August 8, 2003 investor

conference call hosted by Crowley, Plost and Tim Hart (SeraCare's Chief Financial Officer),

wherein they repeated SeraCare's false fiscal year 2003 financial results. During the call, Crowley

stated:

For the third quarter ended June 30, 2003, net revenues were $6.4 million comparedto net revenues $6.1 million during the same period last year. Net income for theFiscal 2003 third quarter was $628,000 or eight cents per diluted common share.

94. On August 8, 2003, SeraCare filed its 3Q 2003 report on Form 10-Q for the quarter

ended June 30, 2003, which was signed by Crowley and Hart. The Form 10-Q included the

Company's false 3Q 2003 financial statements. In its Form 10-Q, SeraCare valued its inventory

assets at $9,376,128. The 10-Q also contained a statement of the Company's revenue recognition

practices and inventory accounting practices, which was materially identical to that set forth at ¶89.

95. The Form 10-Q also contained certifications materially identical to those set forth at

¶90, signed by both Crowley and Hart.


because:

(a) SeraCare had prematurely recognized $500,000 in revenue in violation of

SAB Topic 13 (as described in ¶1222-233) Thus, SeraCare's reported sales of $6.4 million for the

quarter were inflated by at least $500,000;



(c) Crowley's and Hart's certifications that SeraCare had adequate internal and

disclosure controls to prevent the publication of such errors were false, as demonstrated by

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11 SeraCare's admission "that there are material weaknesses in its internal control overfinancial

11 reporting, and by MHM's audit ofthe controls, which concluded "that certain control were not in


11¶1284-293).

False FY 2003 Financials

97. On December 22, 2003, SeraCare issued a press release reporting fiscal year 2003

II C.

11 financial results. The press release summarized SeraCare's year-end financial results and stated in

part:

Net sales for fiscal 2003 were $23.2 million compared to $25.3 million infiscal 2002. Net income for fiscal 2003 was $2.6 million, or $0.31 per diluted share,as compared to net income of $3.6 million, or $0.44 per diluted share, in fiscal 2002.

98. The December 22, 2003 press release was followed by a December 22, 2003 investor

11 conference call hosted by Crowley, Plost and Hart, wherein they repeated SeraCare's false fiscal

year 2003 financial results . Crowley stated:

Net sales for fiscal 2003 were 23.2 million, with a net income of 2.6 million or 31cents per share.

Neil Mattlins [Lincoln Funds - Analyst]:

And then you also show inventory increase of 2 million. Could you just give me thecomponents of that, please?

Tim Hart [SeraCare Life Sciences, Inc., Chief Financial Officer]:

Actually, not to sound redundant, but most ofthat came through the acquisition. Webought the assets of BioMedical Resources, and that was one of the large primaryassets . The second thing was the BioBank collections ofbuilding its inventory at thispoint, as well.

99. On December 23, 2003, SeraCare filed its fiscal year 2003 report on Form 10-K for

the year ended September 30, 2003, which was signed or authorized to be signed, by Crowley, Hart,

Plost, Cresci, Burdick, Anderson, Jallad, Kasten, and Teng. In its Form 10-K, SeraCare valued its

inventory assets at $10,553,658. The Form 10-K also contained the Company's revenue recognition

practices and inventory valuations, which were materially identical to those set forth at ¶89.

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100. The Form 10-K also contained certifications materially identical to those set forth at

11¶90, signed by both Crowley and Hart.

101. The Company' s Form 10-K included an Auditor's Report signed by the Company's

11 accountants, KPMG, which was integrated into SeraCare's Form 10-K report and stated the

11 following:

We have audited the accompanying balance sheets ofSeraCare Life Sciences,Inc. as of September 30, 2003 and 2002 and the related statements of operations,stockholders' equity, and cash flows for each of the years in the two-year periodended September 30, 2003 . These financial statements are the responsibility of theCompany's management . Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with auditing standards generallyaccepted in the United States ofAmerica. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free ofmaterial misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion , the financial statements referred to above presents fairly, in allmaterial respects, the financial position of SeraCare Life Sciences , Inc. as ofSeptember 30, 2003 and 2002 , and the results of its operations and its cash flows forthe years then ended, in conformity with accounting principles generally accepted inthe United States of America.


II because:

(a) SeraCare had prematurely recognized at least $2.5 million in revenue in

11 violation of SAB Topic 13 as described in ¶1200-212, 222-233);


11 described in ¶1242-248);

(c) Crowley and Hart's certifications that SeraCare had adequate internal and

11 disclosure controls to prevent the publication of such errors were false, as demonstrated by




11 11289-293);

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(d) KPMG did not perform its audit in accordance with GAAS (as described in

¶1296-337); and

(e) KPMG did not have a reasonable basis that SeraCare ' s financial position was

presented fairly or in accordance with GAAP (as described in ¶1296-337).

D. False 1Q 2004 Financials

103. On February 12, 2004, SeraCare issued a press release reporting its 1 Q 2004 financial

results . The press release summarized SeraCare's first quarter financial results , and stated sales were

S5 million, and net income was $767,000 or $0.09 per fully diluted share.

104. The February 12, 2004 press release was followed by a February 13, 2004 investor

:,onference call hosted by Crowley, Plost, and Hart, wherein they repeated SeraCare's false 1Q 2004

Financial results. During the conference call, Crowley stated:

Net sales for the first quarter were 5 million which reflected a loss previouslydisclosed of a human serum albumin customer. The human serum albumin is not aproduct we manufacture and has a lower margin legacy distribution product fromprior to our spinoff in 2001. Gross profit for the quarter increased at approximately11% from Q1 2002 to Q1 2003. Gross margin for the quarter also increased from30% in 2002 to 38% in 2003.

105. On February 17, 2004, SeraCare filed its IQ 2004 report on Form 10-Q for the

quarter ended December 31, 2004, which was signed by Crowley and Hart. The Form 10-Q

included the Company's false IQ 2004 financial statements. In its Form 10-Q, SeraCare stated its

inventory assets were valued at $11,434,000. The 10-Q also contained a statement of the

Company's revenue recognition practices and inventory valuations, which was materially identical

to that set forth at ¶89.

106. The Form 10-Q also contained certifications materially identical to those set forth in

X90, signed by both Crowley and Hart.


because:

(a) SeraCare had prematurely recognized approximately $500,000 in revenue in

violation of SAB Topic 13 (as described in ¶1222-233);

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(c) Crowley and Hart's certifications that SeraCare had adequate internal and




place until August 2005, and ... the testing of the controls has not been completed. (as described

in ¶1284-293).

E. False 2Q 2004 Financials

108. On May 7, 2004, SeraCare issued a press release reporting 2Q 2004 financial results.

The press release summarized SeraCare's second quarter financial results , and stated in part:

Second Quarter Financial Highlights:

• Net sales increased to $6.5 million, up 6% from the same period of fiscal2003.

• Gross margin was 34%, up 13% from the same period of fiscal 2003.

• Net income was $876,000, an increase of 11% from the same period offiscal2003.

• Diluted earnings per share for this quarter were $0.10. Net income for thefiscal year to date is $1.6 million, or $0.18 per diluted share.

109. The May 7, 2004 press release was followed by a May 7, 2004 investor conference

call hosted by Crowley, Plost, and Hart, wherein they repeated SeraCare's false 2Q 2004 financial

results. During the call, Crowley stated:

Net sales for the quarter were up 6% from the same period last year .... Net incomefor the quarter also increased to 11% and this is even as our effective cash ratedoubled from last year.


ended March 31, 2004, which was signed by Crowley and Hart. The Form 10-Q included the

Company's false 2Q 2004 financial statements. In its Form 10-Q, SeraCare stated its inventory

assets were valued at $12,105,000. The 10-Q also contained a statement ofthe Company's revenue

recognition practices and inventory valuations, which was materially identical to that set forth at ¶89.

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111. The Form 10-Q also contained certifications that were materially identical to those set

forth in ¶90, signed by both Crowley and Hart.

112. The foregoing statements in ¶¶108-111 above were false and misleading when made

because:


violation of SAB Topic 13 as delivery had not yet occurred (as described in ¶1220-233);


described in ¶1202-220);

(c) Sera Care improperly capitalized SG&A and overhead expenses to inventory

(as described in ¶1249-261); and

(d) Crowley and Hart's certifications that SeraCare had adequate internal and





in ¶1284-293).

F. False 3Q 2004 Financials

113. On August 16, 2004, SeraCare issued a press release reporting its 3Q 2004 financial

results. The press release summarized SeraCare's third quarter financial results and stated in part:

Financial Highlights:

• Quarterly net sales of $6.4 million were in-line with the same period of fiscal2003.

• Quarterly net income rose 43% to $899,000 versus the same period of fiscalyear 2003.

• Quarterly diluted EPS rose to $0.10 from $0.08 in the same period of fiscal2003.

• Net income for the nine months ended June 30, 2004 increased to $2.54million, or $0.28 per diluted share.

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:,onference call hosted by Crowley, Plost, and Hart, wherein they repeated SeraCare's false 3Q 2004

financial results. During the call, Crowley stated:

I want to give a quick highlight of the Company, a quick highlight of some of ouractivities and updates on the acquisitions that are pending. Net sales for the quarterfor the third quarter were 6.4 million....

Plost added:

[O]ur net income number was up 43%, and that would include the fact that we had toissue additional shares for the acquisition of GCI, so our share count wasapproximately 16% higher.


ended June 30, 2004, which was signed by Crowley and Hart. The Form 10-Q included the





X90, signed by both Crowley and Hart.


because:





(c) SeraCare improperly capitalized overhead costs and SG&A expenses to

inventory (as described in ¶1249-261); and





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in ¶1284-293).

G. False FY 2004 Financials

118. On December 13, 2004, SeraCare issued a press release reporting its fiscal year 2004

financial results. The press release summarized SeraCare's full fiscal year financial results and

stated in part:

Fiscal 2004 Highlights:

• FY'04 Net sales rose 23% to $28.4 million.

• FY'04 Net income rose nearly 59% to $4.16 million.

• Diluted EPS rose 45% to $0.45 in FY'04 vs. FY'03.

Fiscal 2004 Q4 Overview:

• Net sales for Q4 2004 were $10.6 million.

• Net income for Q4 2004 was $1.6 million.

• Diluted EPS was $0.16.

119. The December 13, 2004 press release was followed by a December 13, 2004 investor

conference call hosted by Crowley, Plost, Hart and Lawlor, wherein they repeated SeraCare's false

FY 2004 financial results. During the call, Crowley stated:

Now I would like to take a minute to review the highlights from our fiscal 2004 year-end, with some current company activities.

We were able this year to experience double-digit growth in 2004 in most areas ofour operations, including sales, gross margin, net income, and earnings per share.

Sales increased 23%, gross margin expanded to 38%, which we expect the trend tocontinue as we incorporate more of the BBI businesses.

Net income rose 59% and our diluted [earnings per share] EPS rose 45%.

120. During the question and answer session, Plost made the following false and

misleading statements:

Tim Madie [Primary Funds - Analyst] :

Where was the - were there any things in the quarter that surprised you?

Barry Plost [SeraCare Life Sciences, Inc. - Chairman]:

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No. It was a - you know, it was a typical quarter for us, quite honestly.

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Tim Madie [Primary Funds - Analyst] :

It looks like it was a pretty strong quarter on the top line. That why I ask.

Barry Plost [SeraCare Life Sciences, Inc. - Chairman]:

It was. We had served some orders, perhaps, that were pushed back becausecustomers didn't get purchase orders in to us and it is not inconceivable that a smallportion of that revenue could have been in the previous quarter. But unfortunatelythat's when the purchase orders came in, the ship dates, and we couldn't recognizerevenue until we shipped the product.

121. On December 14, 2004, SeraCare filed its fiscal year 2004 report on Form 10-K for

;he year ended September 30, 2004, which was signed, or authorized to be signed, by Crowley, Hart,

Plost, Burdick, Anderson, Cresci, Jallad, Teng and Kasten. In its Form 10-K, SeraCare valued its

nventory assets at $26,162,276. The Form 10-K also contained a statement of the Company's

revenue recognition practices and inventory valuations, which was materially identical to that set

forth at ¶89.

122. The Form 10-K also contained certifications materially identical to those set forth in

1190, signed by both Crowley and Hart.

123. The Company' s Form 10-K included an Auditors Report, signed by KPMG, which

was integrated into SeraCare's Form 10-K report and stated the following:

We have audited the accompanying balance sheets ofSeraCare Life Sciences,Inc. as of September 30, 2004 and 2003 and the related statements of income,stockholders' equity, and cash flows for each of the years in the three -year periodended September 30, 2004 . These financial statements are the responsibility of theCompany's management . Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with the standards of the PublicCompany Oversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free ofmaterial misstatement . An audit includes examining, on a testbasis , evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation . We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statement referred to above present fairly, in allmaterial respects, the financial position of SeraCare Life Sciences, Inc. as ofSeptember 30, 2004 and 2003 and the results of its operations and its cash flows foreach of the years in the three-year period ended September 30, 2004, in conformitywith U. S. generally accepted accounting principles.

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II because:

(a) SeraCare had prematurely recognized at least $2 million in revenue in





inventory (as described in ¶1249-261);






in ¶1284-293);

(e) KPMG did not perform its audit in accordance with the Public Company

Oversight Board (as described in ¶1296-337);

(f) KPMG did not have a reasonable basis that SeraCare's financial position was

presented fairly or in accordance with GAAP (as described in ¶1296-337); and

(g) SeraCare's inventory reserves were improper, as described in ¶1262-276.

H. False 1Q 2005 Financials

125. On February 9, 2005, SeraCare issued a press release reporting its 1 Q 2005 financial

results. The press release summarized SeraCare's first quarter financial results, and stated sales were

$13 million and net income was $1.68 million or $0.15 per diluted share.

126. The February 9, 2005 press release was followed by a February 9, 2005 investor

conference call hosted by Crowley and Plost, wherein they repeated SeraCare's false 1 Q 2005 false

financial results. During the call, Crowley stated:

Sales for the first quarter, 2005 increased 161 percent to 13 million. This includesboth the diagnostic segments and the bio-pharma segment achieving a triple digitgrowth rate this quarter.

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Net income increased 1.7 million which more than doubled last year's750,000. Major changes quarter over quarter were an increase in our tax rate to 38percent, a 24 percent share count increase primarily due to the GCI acquisition andthe pipe for the BBI acquisition, and approximately 500,000 in additional interestexpense.

127. On February 9, 2005, SeraCare filed its 1 Q 2005 report on Form 10-Q for the quarter

ended December 31, 2004, which was signed by Crowley and Burdick. The Form 10-Q included the

Company's false IQ 2005 financial statements. In its Form 10-Q, SeraCare stated its inventory




X90, signed by both Crowley and Burdick:


because:

(a) SeraCare had prematurely recognized at least $1 million in revenue in

violation of SAB Topic 13 as delivery had not yet occurred (as described in ¶1213-216, 222-233);

(b) SeraCare failed to write down inventory carried at above market value. MHM

ultimately concluded: "the Company has made numerous unsupported changes to costs ofitems in

inventory, and to quantities ofinventory items as ofSeptember 30, 2005 (as described in ¶¶242-

248);



(d) SeraCare's inventory reserves were improper, as the Company ultimately

admitted (as described in ¶1262-276);

(e) SeraCare conceded that the "quarterly report[] on Form 10-Q for the quarter[]

ended December 31, 2004... should no longer be relied upon (as described in ¶83); and

(f) Crowley and Burdick's certifications that SeraCare had adequate internal and



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until August 2005, and ... the testing of the controls has not been completed. (as described

in ¶1284-293).

False 2Q 2005 FinancialsIII.

130. On May 3, 2005, SeraCare issued a press release reporting it 2Q 2005 financial

11 results. The press release summarized SeraCare's second quarter financial results and stated sales

11 were $14. 8 million , gross profit was $6.7 million, operating income was $3.8 million, net income

was $2 million, and diluted EPS was $0.18.

131. The May 3, 2005 press release was followed by a May 3, 2005 investor conference

11 call hosted by Crowley and Plost, wherein they repeated SeraCare's false 2Q05 financial results.

During the call, Crowley stated:

Sure, thanks , Tim. In review of the financial results sales for the second-quarter ofour fiscal 2005 year increased 129% to 14 . 8 million, as compared to 6.5 million inthe year-ago period. Both of the SeraCare segments of diagnostics and biopharmaceuticals each achieved greater than 100% growth for the quarter. Thisgrowth is due to the increased numbers of customers and products from both theprevious year's acquisitions ofBoston Biomedica and Genomics Collaborative andour organic growth . We have also benefited from the addition of our scientificplatform from the acquisitions, which has expanded the SeraCare Life Sciences lineof proprietary products and developed new commercial applications for existingproducts . With these enhanced capabilities , the grow margin for the second quarterwas 46% as compared to 34% in the year-ago period.

Gross margin improvement has been a major Company focus and will continue to bea corporate objective. Net income for the quarter was approximately 2 million or$0.18 per diluted share as compared to net income last year of $900,000 or $0.10 perdiluted share.

Plost added:

Thank you, Mike. I think the numbers for the quarter speak for themselves quitefrankly. I think the Company lived up to the statements we have made earlier in theyear. I think despite the fact that we had a significantly higher tax rate, the fact thatwe have significantly improved our margin enhancements and the fact that we hadapproximately 20% more shares on a fully diluted basis, that our earnings for thequarter were still $0.20 per share and $0.18 fully diluted.


11 ended March 31, 2005, which was signed by Crowley and Burdick. The Form 10-Q included the

Company's false 2Q 2005 financial statements . In its Form 10-Q, SeraCare stated its inventory

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¶90, signed by both Crowley and Burdick.

134. Defendants' foregoing statements in ¶1130-133 above were false and misleading

II when made because:

(a) SeraCare had prematurely recognized at least $500,000 in revenue in violation

of SAB Topic 13 as delivery had not yet occurred (as described in ¶1222-233);





(d) SeraCare's inventory reserves were improper, as SeraCare ultimately admitted

(as described in ¶1262-276);

(e) SeraCare concluded that the "quarterly report[] on Form 10-Q for the quarter[]

ended March 31, 2005... should no longer be relied upon (as described in ¶83); and

(f) Crowley and Burdick's certifications that SeraCare had adequate internal and




place untilAugust 2005, and... the testing ofthe controls has not been completed (as described in

¶¶284-293).

J. False 3Q 2005 Financials

135. On August 10, 2005, SeraCare issued a press release reporting its 3Q 2005 financial

results. The press release summarized SeraCare's third quarter financial results and stated sales were

$14.2 million, gross profit was $6.7 million, and net income was $1. 9 million or $0.16 per diluted

share.

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:,onference call hosted by Crowley, Plost, and Hooson, wherein they repeated SeraCare's false 3Q

2005 false financial results. During the call, Crowley stated:

Thanks, Tim. In review of the financial results, sales for the third quarter ofthe fiscal 2005 year increased 123% to $14.2 million, as compared to $6.4 million inthe year-ago period. Both of the SeraCare segments of diagnostic and filepharmaceuticals each achieved approximately 100% growth for the quarter. Thegrowth is due primarily to the increased number ofproducts sold to customers andthe broadening of our sales channels.

Net income for the quarter was approximately $2 million, or $0.16 per dilutedshare. That's compared to net income last year of $900,000, or $0.10 per dilutedshare. SeraCare Life Sciences' tax rate for the quarter was 38%. That's compared to23% in the year-ago period.


ended June 30, 2005, which was signed by Crowley and Hooson. The Form 10-Q included the





X90, signed by both Crowley and Hooson.


because:

(a) SeraCare had prematurely recognized at least $500,000 in revenue in violation

Df SAB Topic 13 as delivery had not yet occurred (as described in ¶1222-233);





(d) SeraCare's inventory reserves were improper, as SeraCare ultimately admitted

as described in ¶1262-276);

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(e) SeraCare conceded that the "quarterly report[] on Form 10-Q for the quarter[]

ended June 30, 2005 ... should no longer be relied upon (as described in ¶83); and

(f) Crowley and Hooson's certifications that SeraCare had adequate internal and




place untilAugust 2005, and... the testing ofthe controls has not been completed (as described in

¶¶284-293).

THE TRUTH EMERGES

140. On December 14, 2005, SeraCare announced that it could not timely file its SEC

Form 10-K. The following day, defendant Cresci received a letter from SeraCare's newly-engaged

auditor, MHM, which detailed a number of egregious accounting violations. This letter is attached

as Ex. 7.

141. Pursuant to this letter, SeraCare's Board opened an internal investigation into the

issues raised by MHM.

142. On December 20, 2005, the Company publicly announced that it had received a letter

from MHM. SeraCare summarized the letter, stating that MHM had concerns about:

• certain of the Company's revenue recognition accounting policies andpractices;

• the accounting for and valuation of the Company's inventory;

• MHM's perception that certain board members were exerting undueinfluence on the Company's financial reporting process and on the auditprocess; and

• the timeliness, quality and completeness of the Company's implementationand testing of its internal control over financial reporting.

See Ex. 18.

143. On December 21, 2005, the Company drew down $2 million from its line of credit.

144. On December 22, 2005, the Company drew down an additional $3 million from its

line of credit.

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145. On December 30, 2005, the Company drew down an additional $3 million from its

line of credit.

146. Nonetheless, the Company still held itself out to investors as viable and able to

function adequately. On January 17, 2006, the Company issued the following press release:

SeraCare Life Sciences , Inc. (Nasdaq : SRLSE, SRLS), today announced thatit has closed its previously announced acquisition of the Milford, MA Diagnosticmanufacturing facilities and product lines ofthe Celliance subsidiary of SerologicalsCorporation (Nasdaq : SERO).

Michael F. Crowley, President and CEO of SeraCare Life Sciences said, "Weare pleased to have completed this acquisition as we expect it will increase ourportfolio of products in the areas of molecular diagnostic reagents , diagnosticintermediates and substrates . In connection with this acquisition, we have assumedthe lease on Celliance's state of the art manufacturing, storage and distributionfacility located near our West Bridgewater manufacturing site. We believe theproximity of these two diagnostic manufacturing facilities will allow us to achievesynergies in the areas of manufacturing, staffing and distribution.

147. On February 2, 2006, SeraCare had a hearing before the Nasdaq Listing

Qualifications Panel regarding whether the Nasdaq should continue to list SeraCare on its exchange.

148. On March 13, 2006, after the internal investigation findings were presented to the

Audit Committee, SeraCare abruptly fired Plost, Crowley, Burdick and Hooson - SeraCare's

Chairman of the Board, CEO, Secretary and CFO, respectively. The Company ordered Plost,

Crowley and Burdick to resign from the Board ofDirectors. The remaining Board ofDirectors then

formed a Special Committee, and the Board delegated all authority to this Committee.

149. On March 15, 2006, SeraCare admitted that its financial statements for the first three

quarters of 2005 were materially false and misleading, announcing:

• "[R]eports on Form 10-Q for the quarters ended December 31, 2004, March 31, 2005and June 30, 2005 should no longer be relied upon ;

• "[T]he Company expects to restate one or more ofits financial statements for the firstthree quarters of fiscal 2005 ; and

• "[T]he Company believes that there are material weaknesses in its internal controlover financial reporting.

See Ex. 17.

150. In addition, the Company disclosed that it had fired defendants Plost (Chairman ofthe

Board), Crowley (CEO), Hooson (CFO) and Burdick (Secretary). Id.

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151. The Company further disclosed that SeraCare and certain of its officers and directors

were the subject of criminal and civil investigations. The United States Attorney's Office for the

Southern District of California issued grand jury subpoenas to the Company and certain defendants

seeking documents in connection with the financial and accounting issues raised by SeraCare's

internal review. In addition, the SEC requested documents relating to the disclosed financial and

accounting issues.

152. On March 23, 2006, SeraCare announced that it had filed bankruptcy.

153. On May 17, 2007, SeraCare announced that it completed its bankruptcy

reorganization and emerged from the bankruptcy proceeding.

THE SECONDARY OFFERING AND SECTION 11 LIABILITY

154. On May 25, 2005, the Company filed its Prospectus and Registration Statement (the

"Registration Statement ) pursuant to its Secondary Offering of 3.5 million shares of its stock. This

Dffering included 3.024 million shares by the Company, 200,000 shares by Plost, and 276,000 shares

by Cresci. The Company, Plost and Cresci also offered an additional 525,000 shares as part of an

ever-allotment, which were also sold. Thus, SeraCare sold 3,477,600 shares for gross proceeds of

542.6 million, Plost sold 230,000 shares for gross proceeds of $2.81 million, and Cresci, on behalfof

Pecks, sold at least 276,000 shares for gross proceeds of $3.38 million.

155. The Registration Statement included the Company's fiscal 2003 and 2004 financial

statements and also included the Company's financial results for the six months ended March 31,

2005 (1Q and 2Q 2005):

Net sales totaled $11.4 million and $27.8 million for the six months ended March 31,2004 and 2005, respectively. Net income for the six months ended March 31, 2004totaled $1.6 million versus net income of $3.7 million for the six months endedMarch 31, 2005. Net sales totaled $23.2 million and $28.4 million for the yearsended September 30, 2003 and 2004, respectively. Net income for the year endedSeptember 30, 2003 totaled $2.6 million versus net income of $4.2 million for theyear ended September 30, 2004. The increase in net sales for the six months endedMarch 31, 2005 was principally due to contributions from acquisitions completed inthe second half of 2004, as well as from internal growth.

156. The Registration Statement included additional false and misleading statements:

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ASSETS 2003 2004 Six months endedMarch 31 , 2005 (1Q and2Q 2005) (unaudited)

Inventory $10,553,658 $26,162,276 $31,482,218

Total current assets $19,736,413 $40,932,047 $45,600,215

TOTAL ASSETS $27,851,847 $89,128,046 $92,986,073

2003 2004 Six months endedMarch 31, 2005 (1Q and2Q 2005) (unaudited)

Net sales $23,202,760 $28,441,448 $27,788,209

Gross profit $7,127,649 $10,740,164 $12,616,950

Operating income $2,894,298 $5,643,050 $7,084,413

Income before incometaxes $2,900,504 $5,396,296 $5,898,208

Net income $2,616,254 $2,616,254 $3,656,889

Earnings per commonshare (Note 3) basic $0.35 $0.51 $0.37

Diluted $0.31 $0.45 $0.33

Weighted average sharesoutstanding (Note 3) Basic 7,487,714 8,176,064 9,910,963

Diluted 8,321,113 9,333,913 10,994,115

157. These statements were false and misleading because:


SAB Topic 13 as delivery ofthe albumin to Wyeth had not yet occurred (as described in ¶1200-211);

(b) SeraCare had systematically, and prematurely, booked revenue, including

revenue for Biogen and Roche, in violation of SAB Topic 13 (as described in ¶1212-216, 222-233);

(c) SeraCare failed to write down inventory carried at above market value (as


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(d) SeraCare improperly capitalized overhead costs and SG&A expenses to


(e) SeraCare's inventory reserves were improper, as SeraCare ultimately admitted

as described in ¶1262-276); and

(f) SeraCare conceded that the "quarterly report[] on Form 10-Q for the quarters

ended December 31, 2004, March 31, 2005 ... should no longer be relied upon (as described in

X83).

158. Lead PlaintiffMSGAF purchased stock pursuant to , or traceable to, the Registration

Statement.

159. The Securities Act Individual Defendants all signed, or authorized the signing of,

SeraCare's Registration Statement.

160. The Underwriter Defendants were co-lead underwriters in the Secondary Offering.

161. KPMG issued unqualified opinions on SeraCare's fiscal year 2003 and 2004 Form

0-Ks, which were incorporated, with KPMG's consent, into the Registration Statement. KPMG

also consented to be named as an expert in the Registration Statement . KPMG stated in the

Registration Statement:

We have audited the accompanying balance sheets ofSeraCare Life Sciences,Inc. as of September 30, 2003 and 2004 and the related statements of income,shareholders ' equity, and cash flows for each of the years in the three-year periodended September 30, 2004 . These financial statements are the responsibility of theCompany's management . Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with the standards of the PublicCompany Oversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement . An audit includes examining, on a testbasis , evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation . We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in allmaterial respects , the financial position of SeraCare Life Sciences, Inc. as ofSeptember 30, 2003 and 2004 and the results of its operations and its cash flows foreach of the years in the three-year period ended September 30, 2004, in conformitywith U. S. generally accepted accounting principles.

162. KPMG's consent was false and misleading because:

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SAB Topic 13 as delivery ofthe albumin to Wyeth had not yet occurred (as described in ¶1200-211);

(b) SeraCare had systematically, and prematurely, booked revenue in violation of

SAB Topic 13 (as described in ¶1212-216, 222-233);

(c) SeraCare failed to write down inventory carried at above market value (as


(d) SeraCare improperly capitalized overhead costs and SG&A expenses to


(e) SeraCare's inventory reserves were improper, as SeraCare ultimately admitted

as described in ¶1262-276); and

(f) SeraCare conceded that the "quarterly report[] on Form 10-Q for the quarters

ended December 31, 2004, March 31, 2005 ... should no longer be relied upon (as described in

X83).

163. The independent auditor is a gatekeeper to the capital markets. A company that sells

new securities to the public is required to file a registration statement with the SEC, and the

Securities Act requires that the registration statement contain financial statements audited by an

independent auditor. Section 11 of the Securities Act imposes significant responsibilities on every

auditor who has with his or her consent been named as having certified any part of the registration

statement. Because of the significance of these responsibilities and their difference from the

auditor's responsibilities in ordinary circumstances , professional standards contain a separate

discussion ofthese additional responsibilities in AU 711, Filings UnderFederal Securities Statutes.

164. When an independent auditor's report is included in a registration statement, the

nature and extent of this responsibility are specified in some detail in the federal securities statutes

and in the related rules and regulations . AU 711.02 states that section 11(a) imposes responsibility

for false or misleading statements in an effective registration statement, or for omissions that render

statements made in such a document misleading on every auditor who consents to be named as

having certified any part of the registration statement, or as having prepared any report used in

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:,onnection with the registration statement, with respect to the statement or reporting in the

registration statement that purports to have been prepared or certified by him.

165. AU 711. 03 explains that section 11(b) states, in part , that no person whose report is

included in the registration statement on his authority as an expert shall be liable as provided therein

if that person sustains the burden of proof that, as regards the part of the registration statement

purporting to be made on his authority as an expert, or purporting to be a copy from a report of

himself as an expert, "he had after reasonable investigation, reasonable ground to believe and did

believe, at the time such part of the registration statement became effective, that the statements

therein were true and that there was no omission to state a material fact required to be stated therein

ar necessary to make the statements therein not misleading.

166. AU 711.03 also states as follows:

Section 11 further provides that in determining what constitutes reasonableinvestigation and reasonable ground to believe, "the standard ofreasonableness shallbe that required of a prudent man in the management of his own property.

Thus, this reasonableness requirement goes beyond the requirement of due professional care

imposed by the auditing standards.

167. One of the unique responsibilities related to the auditor's consent to the inclusion of

an audit report in a registration statement is that the decision to consent should be made in light of

the circumstances at the effective date. AU 711. 05 states as follows:

Because a registration statement under the Securities Act of 1933 speaks as of itseffective date, the independent accountant whose report is included in such aregistration statement has a statutory responsibility that is determined in light of thecircumstances on that date. This aspect of responsibility is peculiar to reports usedfor this purpose (see paragraphs .10 through .12).

168. This means that the auditor should view the continuing validity of the opinion

expressed at an earlier date from the perspective of the circumstances known at the effective date.

169. AU 711. 10 describes the auditor ' s responsibility to keep informed of relevant

:,ircumstances through the effective date as follows:

To sustain the burden of proof that he has made a "reasonable investigation (seeparagraph.03) as required under the Securities Act of 1933, an auditor should extendhis procedures with respect to subsequent events from the date of his audit report upto the effective date or as close thereto as is reasonable and practical in thecircumstances.

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170. AU 711. 10 describes the procedures that should be applied as including the normal

subsequent events review procedures as described in AU 560, Subsequent Events, plus reading the

entire prospectus and other pertinent portions of the registration statement and inquiring of and

Dbtaining written representations from management responsible for financial and accounting matters.

Naturally , the auditor is also responsible for any knowledge he or she has obtained in providing

professional services to the company since the audit through the effective date . KPMG, for example,

did quarterly work on significant revenue transactions and would be held to the knowledge obtained

in that work.

171. AU 711 .12 describes the auditor's responsibilities ifthe auditor discovers or becomes

aware of information that affects the audited financial statements included in the registration

statement or the audit report thereon as follows:

If subsequent to the date of his report on audited financial statements theauditor ... (a) discovers, in performing the procedures described in paragraphs .10and .11 above, subsequent events that require adjustment or disclosure in thefinancial statements, or (b) becomes aware that facts may have existed at the date ofhis report that might have affected his report had he then been aware of those facts,he should follow the guidance in sections 560 and 561.

Sections 560 and 561 relate to seeing that the proper adjustments or disclosures are made or

withdrawing a previously issued audit report.

172. AU 711 .13 imposes a similar responsibility for any unaudited financial statements or

unaudited interim financial information presented or incorporated by reference in a registration

statement that are not in conformity with GAAP.

173. Under both AU 711.12 and .13 if the financial statements or financial information is

not appropriately revised, the auditor should modify his or her audit report for the GAAP departure

and consider withholding the consent to the use of his or her report on the audited financial

statements in the registration statement.

174. KPMG consented on May 10, 2005 to the inclusion of its audit report in the

Registration Statement filed May 25, 2005 . The Registration Statement also included unaudited

interim financial information for SeraCare's first quarter and second quarter of 2005.

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175. KPMG should not have consented to the inclusion of its audit report in SeraCare's

Registration Statement because of the following matters, among others:

(a) Premature revenue transactions, including those with Wyeth, Biogen, Roche

and others.

(b) SeraCare maintained worthless inventory on its books and/or failed to

maintain adequate reserves for severely impaired inventory.


inventory.

(d) SeraCare improperly released reserves for BBI inventory.

176. KPMG should have evaluated whether to reissue its audit report on the SeraCare's FY

2003 and 2004 financial statements in light of the circumstances that existed on May 10, 2005.

177. IfKPMG had adequately considered these matters , KPMG would not have consented

to the inclusion of its audit report on the FY 2003 and 2004 financial statements in the Registration

Statement.

178. Thus, KPMG violated professional standards by consenting to the inclusion of its

audit reports for the year ended September 30, 2003 and September 30, 2004 in the Registration

Statement on May 10, 2005 , by ignoring what happened at SeraCare subsequent to the filing of the

September 30, 2004 financial statements . By including its consent in the Registration Statement,

KPMG was required to make a "reasonable investigation with respect to events at SeraCare

subsequent to the date of the audit report up to the date of the Registration Statement . AU 711.10.

KPMG was responsible for any knowledge it obtained in providing professional services through the

date of the Registration Statement, in addition to reading the entire prospectus and other pertinent

portions of the Registration Statement . As such, KPMG's liability arises not only from the

knowledge it obtained in connection with the September 30, 2003 and September 30, 2004 audits,

but also its quarterly reviews from December 31, 2004 and March 31 , 2005 . In those two quarters

alone , KPMG reviewed several new transactions for which KPMG fraudulently recorded revenue

and reviewed the capitalization of expenses to inventory and the release of reserves where the

impropriety of the accounting treatment was apparent.

-46- 05-CV-2335-H(CAB)

as 3:05-cv-02335 -JLS-CAB Document 147 Filed 06/11/2007 of 124

1 THE EXCHANGE ACT DEFENDANTS ' ACCOUNTING FRAUD AND SERACARE'SFALSE FINANCIAL REPORTING DURING THE CLASS PERIOD

2179. In order to artificially inflate SeraCare ' s stock price, the Exchange Act Defendants

3falsely reported SeraCare ' s financial results during the Class Period through the use of improper

4revenue recognition improper valuation of inventories , and by improperly capitalizing expenses to

5inventory , among numerous other significant accounting improprieties, thereby materially

6overstating the Company ' s revenue, net income, EPS, and financial position during that period.

7180. The Company has now admitted that it improperly recognized revenue in violation of

8GAAP by, among other things, improperly recording sales for which the earnings process was not

9complete and collectibility was not reasonably assured . SeraCare admitted that it improperly

10accounted for its inventory by not adequately booking reserves, improperly valuing inventory and

11capitalizing certain overhead costs as part of inventory rather than expensing such costs as incurred.

12SeraCare was able to disguise their fraudulent accounting schemes through a systemic process of

13intentionally ignoring GAAP and SEC rules , and by creating an accounting and business

14environment entirely lacking internal controls.

15SERACARE' S VIOLATION OF GAAP AND SEC RULES

16181. The published financial results , and the Exchange Act Defendants' representations

17about them, were false and misleading when made because , during the Class Period, SeraCare's

18financial statements did not fairly present its financial position and results of operations and were

19presented in violation of GAAP and SEC rules.

20182. GAAP are principles recognized by the accounting profession as the conventions,

21rules and guidelines that define accepted accounting practice at a particular time. SEC Regulation S-

22X (17 C.F.R. §210 .4-01(a)( 1)) states that financial statements filed with the SEC which are not

23prepared in compliance with GAAP are presumed to be misleading and inaccurate , despite footnotes

24or other disclosures. Regulation S-X requires that interim financial statements must also comply

25with GAAP, with the exception that interim financial statements need not include disclosures which

26would be duplicative of disclosures accompanying annual financial statements . 17 C.F.R. §210.10-

2701(a).

28

-47- 05-CV-2335-H(CAB)

I:05-cv-02335-JLS-CAB Document 147 Filed 06/11/2007 of 124

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183. The Exchange Act Individual Defendants caused SeraCare to falsify its reported

financial results through improper revenue recognition and improper valuation ofinventories, and by

improperly capitalizing expenses, among numerous other significant accounting improprieties,

thereby materially overstating the Company's net income, EPS, and financial position during the

Class Period. Indeed, the Company ultimately admitted that certain quarterly financial statements

would have to be restated. Absent the Company's improper accounting, SeraCare would have

reported materially lower EPS and net income.

CONFIDENTIAL SOURCES

184. Numerous former SeraCare employees have provided plaintiffs with information

demonstrating that defendants' statements were false and misleading and that defendants' knew or

recklessly disregarded this. The confidential witnesses ("CW ) include individuals formerly

employed at the Company during the Class Period, whose accounts corroborate one another and

facts now admitted by the Company. The witnesses provided information to plaintiffs on a

;,onfidential basis and are particularly described by job description, title, and/or duration of

employment, thereby providing sufficient detail demonstrating that each was in a position to know

the information provided and thus their accounts are reliable.

185. Confidential Witness 1 ("CW-1 ) was employed by SeraCare from approximately

September 1998 through July 2005. CW-1 began working at SeraCare as a salesperson on the

albumin and plasma side of the Company's business and was promoted to Vice President of

Bioprocessing Products in March 2005. During the time CW-1 was employed by SeraCare, CW-1

purchased products for the division and oversaw and conducted sales of the product line to

SeraCare's customers. CW-1 received commission on sales so product returns were reflected in

CW-l's commission checks. As part of CW-1's daily activities, CW-1 tallied all sales and

shipments in his division and kept the tallies on a spreadsheet. Since CW-1 was paid a commission

an what his division sold, he kept tallies of what was shipped. CW-1 worked closely and was in

frequent contact with defendant Crowley and other senior management at the Company regarding

product shipment. One of the accounts CW-1 was responsible for was Wyeth. CW-1's

responsibilities with respect to Wyeth included taking orders, meeting regularly with representatives

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Df Wyeth and monitoring shipments and deliveries ofproduct to Wyeth, including drop shipments

from SeraCare's manufactures. After leaving SeraCare in July 2005, CW-1 stayed in contact and

frequently spoke with management at SeraCare. As detailed below, CW-1 has information and

knowledge regarding inflated inventory calculations, premature revenue recognition and capitalizing

Dverhead to inventory in violation of GAAP.

186. Confidential Witness 2 ("CW-2 ) was a senior executive with BMR and worked for

SeraCare from the time the Company acquired BMR in July 2003 until CW-2 left SeraCare in the

summer of 2005 . As a subsidiary of SeraCare , BMR supplied raw materials or antibodies to

:,ompanies that used them to manufacture blood kits . The kits were used to determine if someone

had a particular disease . As detailed below, CW-2 has information and knowledge regarding

SeraCare ' s inflated inventory valuations and KPMG's participation in the fraud.

187. Confidential Witness 3 ("CW-3 ) worked for SeraCare from October 2003 until April

2005 in SeraCare's Hatboro, Pennsylvania subsidiary. CW-3 was responsible for shipping and

receiving inventory as well as performing laboratory tech tasks, including handling plasma. As

detailed below, CW-3 has information and knowledge regarding inflated inventory valuations.

188. Confidential Witness 4 ("CW-4 ) was employed at SeraCare from July 2003 through

May 2005 as Vice President of Sales of a SeraCare bio-processing division in Cambridge, MA.

CW-4 initially worked for SeraCare ' s new "Biobank division, and then worked for GCI after

SeraCare acquired GCI in June 2004 and merged Biobank into GCI. CW-4 initially reported to

SeraCare 's Chief Scientific Officer, and then reported directly to defendant Crowley throughout

most of the Class Period . As detailed below, CW-4 has information and knowledge regarding

inflated inventory valuations.

189. Confidential Witness 5 ("CW-5 ) was employed at SeraCare from 1998 to April 2004

as Manager of Bio-Pharmaceutical Sales . CW-5 reported directly to SeraCare 's Vice President of

Bioprocessing Products . As part of his employment duties , CW-5 closely monitored SeraCare's

sales and sent daily emails to defendant Crowley, advising Crowley of sales numbers and

developments . As detailed below, CW-5 has information and knowledge regarding premature

revenue recognition.

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190. Confidential Witness 6 ("CW-6 ) worked as a bookkeeper for SeraCare's Hatboro,

Pennsylvania subsidiary from July 2003 to April 2006. As the bookkeeper, CW-6 performed

accounting functions for shipments and inventory which were entered in the company-wide

information system. CW-6's office was next door to the Vice President ofDisease Sales, to whom

CW-6 directly reported. There was a doorway between their offices, but no door. CW-6 could hear

the Vice President of Disease Sales on the phone and see the Vice President through the doorway.

As detailed below, CW-6 has information and knowledge regarding inflated inventory valuations

and capitalizing overhead to inventory in violation of GAAP.

191. Confidential Witness 7 ("CW-7 ) was employed as a Warehouse Logistics Manager

at SeraCare's corporate headquarters from 2001 to October 2005. CW-7's responsibilities included

shipping and receiving final product and raw materials (both domestic and international shipments),

distributing and tracking production materials, managing inventory and performing annual inventory

audits at SeraCare's Oceanside, California facility. As part of his job responsibilities, CW-7 had

access to information concerning the value of SeraCare's inventory and could observe changes in

inventory values. CW-7 also had access to information concerning the age and quality of the

inventory. As detailed below, CW-7 has information and knowledge regarding inflated inventory

;,alculations, premature revenue recognition, capitalizing overhead to inventory in violation of

GAAP and KPMG's participation in the fraud.

192. Confidential Witness 8 ("CW-8 ) worked for SeraCare from April 2003 through

April 2006 in the Oceanside, California facility. CW-8 started at the Company as a Quality Control

Technician and was promoted to Quality Assurance Supervisor. As a Quality Control Technician,

CW-8 conducted quality control testing of raw materials and finished products, and prepared and

maintained batch records and device history records. As a Quality Assurance Supervisor, CW-8 was

involved with periodic supplier evaluations, equipment calibration and maintenance, and reviewing

batch records and shipping orders for compliance with internal and customer specifications. CW-8

also participated in annual and other periodic physical inventory counts at SeraCare's Oceanside

facility. CW-8 reported to Oceanside Facility Operations Manager, Duane Pinkerton. As detailed

below, CW-8 has information and knowledge regarding KPMG's participation in the fraud.

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193. Confidential Witness 9 ("CW-9 ) started working at SeraCare in approximately 1998

and left SeraCare in late 2000 or early 2001. CW-9 worked as President of SeraCare (formerly

known as Western States Group) from 1998 until he left the Company. CW-9 also served on

SeraCare's Board of Directors. After leaving the Company in 2001, CW-9 retained close contact

with senior management at SeraCare through 2005 and was periodically updated by the Company's

senior management on accounting and other issues at SeraCare. As detailed below, CW-9 has

information and knowledge regarding inflated inventory valuations.

194. Confidential Witness 10 ("CW-10 ) worked at the SeraCare facility in Frederick,

Maryland from 2001 until March 2006 as a Repository Manager. CW-10' s position required CW- 10

to oversee the repository of specimens that SeraCare maintained for various other companies and

agencies. During CW- 10's last year at the Company, CW-10 served as a "floater and went where

needed. As a result , CW- 10 worked in Frederick and sometimes in Gaithersburg . CW- 10 reported

to the Director of Repository Operations during the Class Period . Defendant Crowley also

supervised repository operations . As detailed below, CW-10 has information and knowledge

regarding KPMG' s participation in the fraud.

195. Confidential Witness 11 ("CW-11 ) was employed as a manufacturing associate in

SeraCare's Manufacturing Division at SeraCare's Oceanside, California facility from June 2004

through July 2005. CW-11 was responsible for processing the raw cell culture materials into sellable

goods. CW-11 reported directly to the Director of the Manufacturing Department. As detailed

below, CW-11 has information and knowledge regarding premature revenue recognition.

196. Confidential Witness 12 ("CW- 12 ) was employed by SeraCare from March 2006 to

October 2006 and worked in the Company's Finance Department . CW-12 reported to Tom Lawlor,

the then-acting CEO ofthe Company. SeraCare ' s director of finance, Kia Lodel, at the time reported

to CW-12. CW-12's job responsibilities included reviewing, evaluating and investigating the

Company's historical financial statements for the purpose ofpreparing the Company's bankruptcy

Flings . In the course of CW- 12's job duties , CW-12 interviewed various SeraCare employees

regarding SeraCare ' s historic financial statements and accounting treatments , including issues

;,oncerning inventory valuation , the amount of inventory carried on SeraCare's books during the

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Class Period and the capitalization of expenses to inventory, including selling, general and

administrative expenses ("SG&A ). As detailed below, CW-12 has information and knowledge

regarding inflated inventory valuations and the improper capitalization of expenses to inventory.

197. Confidential Witness 13 ("CW-13 ) worked at SeraCare as the Vice President of

Commercial Development from August 2004 until January 3, 2006. While at SeraCare, he reported

to Defendant Crowley, SeraCare's CEO. CW-13 worked out of his home, but visited the

Gaithersburg office in Maryland as well as the Oceanside office in California on occasion. CW- 13

estimated that he probably spent about 20% of his time in the Oceanside office. CW-13's job

entailed investigating different businesses that SeraCare acquired, including BBI and Genomics

Collaborative, Inc. ("GCI ) to determine how to best integrate these new products and services with

SeraCare's products and services. CW-13 also had to determine which products the Company

should emphasize and which products it should phase out. CW- 13 had weekly update meetings with

defendant Crowley on Fridays that lasted approximately an hour. He described them as "fairly

serious meetings. When not in Oceanside, they had these meetings over the phone. During these

weekly meetings, the topics CW-13 and Crowley discussed included GCI's sales and sales force, the

Company's organizational structure as a whole, how various employees were performing, new

products that SeraCare was developing, and possible acquisition opportunities. CW- 13 also talked

an an ad hoc basis with Defendant and ChiefFinancial Officer Craig Hooson whenever CW- 13 was

in the Gaithersburg, MD office. (Hooson worked out of the Gaithersburg office.) On these

Dccasions, the topics CW-13 and Hooson discussed included the inventory levels at the GCI and

Oceanside facilities, as well as the Company's revenue forecasts. CW- 13 indicated that he and

[boson had a fairly close professional relationship and when CW-13 was in town, they would

sometimes go to lunch together or would work late at night together. As detailed below, CW- 13 had

information and knowledge regarding inflated inventory calculations and KPMG's participation in

the fraud.

THE ACCOUNTING FRAUD

198. SeraCare operated more than 40 plasma collection centers in about 15 states. These

;,enters drew blood from paid donors and separated plasma from the blood. The Company processed

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this plasma in various ways and then sold its products to pharmaceutical manufacturing and biotech

;,ompanies. Through its biopharmaceutical unit, the Company sold the plasma to firms that use it in

the manufacture of drugs and other biopharmaceutical products. SeraCare's Diagnostic Products

unit marketed various kinds of testing kits and specialty plasma. SeraCare traded on the Nasdaq

until it was delisted in March 2006. SeraCare filed for Chapter 11 bankruptcy protection on March

22, 2006.

199. Throughout the Class Period, the Exchange Act Defendants assured investors that the

Company was successfully implementing a growth strategy that included growing sales and

inventory both organically and through acquisitions. Meanwhile, the Exchange Act Defendants

engaged in a scheme of systematic improper revenue recognition and overvaluation of inventory.

Moreover, this scheme was facilitated by an utter lack of internal and disclosure controls over

Financial reporting - controls that the Exchange Act Defendants assured investors were in place and

functioning properly. The following allegations detail several specific instances of the Exchange

Act Defendants' improper accounting tactics used to inflate the value of the Company's stock.

A. Improper Revenue Recognition

1. Premature Revenue Recognition of $1 Million Sale to Wyeth in 2003

200. CW-1 was responsible for the Wyeth account during his employment at SeraCare.

CW-1's main contacts at Wyeth were Tim Sparks and David Sponseller. CW-1's responsibilities for

the Wyeth account included taking orders, meeting regularly with Wyeth representatives and

monitoring shipments and deliveries ofproduct to Wyeth, including drop shipments from SeraCare's

manufacturers (i. e., Grifols). Wyeth and SeraCare had a purchase agreement whereby Wyeth would

buy several million dollars of albumin annually from SeraCare. The albumin Wyeth agreed to

purchase was manufactured by Grifols. Grifols was an overseas company located in Barcelona,

Spain. SeraCare was the U. S. distributor for Grifols.

201. According to CW- 1, in about October 2002, Wyeth agreed to purchase approximately

$1 million of albumin manufactured by Grifols, from SeraCare consisting of two lots (several

hundred thousand dollars each), and a lot of "safety stock or extra stock to be held by the

manufacturer ready to be shipped to the customer in case of emergency (about $400,000).

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202. According to CW-1, shortly after placing the $1 million order for albumin, CW-1

11 received a call from Wyeth canceling the order because Wyeth was not going to continue

I I manufacturing the products that required the use ofthis particular type ofalbumin. CW-1 stated that

11 when Wyeth cancelled the order, Grifols had not yet manufactured the albumin that Wyeth had

11 ordered . After receiving the call from Wyeth, CW-1 immediately reported the cancellation to

11 Crowley. Crowley told CW-1 to call Wyeth and tell Wyeth that the product had already been

manufactured, even though it had not, and that Wyeth could not cancel the order.

203. According to CW- 1, Crowley also instructed CW-1 to not report the cancellation to

11 Grifols because Crowley wanted the sale to go forward. In March 2003, at Crowley's direction CW-

1 told Wyeth that the albumin was already manufactured, even though it was not. CW-5, who

worked with CW-1 in the Bio-processing division, also recalls that Wyeth cancelled the $1 million

albumin order and recalls that SeraCare told Wyeth that the product had already been manufactured

so that Wyeth would be forced to take it.

204. According to CW-1, Wyeth did not want to take the albumin because it did not need

I I it. CW- 1 stated that Wyeth reluctantly agreed to take the product but refused to accept delivery or

pay for the product until Wyeth was ready for the product.

205. According to CW-1, the Exchange Act Defendants decided to book the revenue

the Wyeth sale in March 2003. However, SeraCare did not ship the albumin to Wyeth until

11 after fiscal year 2003 ended on September 30, 2003 . Indeed, the product had not even been

manufactured in March 2003 when SeraCare recognized the revenue. CW-1 stated that Plost and

Hart were aware of this fraudulent transaction as it was discussed in a meeting which they all three

attended. Since SeraCare had not shipped the product when it booked the revenue, Crowley directed

CW-1 to write an email as cover for the transaction in the event the SEC ever questioned the bogus

revenue recognition.

206. SeraCare improperly booked the revenue in the quarter ending March 2003, which

11 was the second quarter of SeraCare's fiscal year 2003. One million dollars was booked prematurely

(consisting of about $400,000 of safety stock and 2 other lots of albumin). At the time the revenue

was prematurely booked, Wyeth had neither received norpaidfor theproduct.

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207. Crowley spoke internally about how SeraCare needed to "punch up the numbers in

March 2003, at the time ofthis improper revenue recognition, during meetings attended by Crowley,

CW-1 and Tim Hart, which occurred about once a week. Plost was also "conferenced in for some

Df these meetings. Burdick also attended these meetings on occasion.

208. According to CW-1, the albumin was finally delivered to Wyeth in St. Louis roughly

six months after SeraCare recognized the revenue from sale. The product was sent to Wyeth via a

drop shipment directly from Grifols. Bob Markolina of Wyeth in St. Louis arranged the shipping.

Since Wyeth was CW-1's account, CW-1 monitored the shipment between Grifols and Wyeth. CW-

1 stated that Grifols' shipping coordinator contacted CW-1 in September 2003 to inform CW-1 that

the product was ready to ship to Wyeth. With regard to drop-shipments, Grifols also kept SeraCare

advised of the shipping date of product it sent out by providing SeraCare with a form "Shipping

Advice which included the date of shipment and confirmed that the product was shipped. See Ex.

23 at SRLSEXX000122. According to CW-1, Wyeth's customs brokers took care of the import

process. After leaving Grifols, CW-1 recalls that the shipment landed in Chicago. CW-1 was one of

the three contact people on the export documents. During the shipping process from Grifols to

Wyeth, CW-1 kept informed of the status of the shipment through phone calls, faxes and emails to

personnel from the United States Customs Service as well as employees of Wyeth.

209. According to CW-1, SeraCare was anxious to receive payment from Wyeth because

Df cash flow issues, but Wyeth did not want to pay for the albumin until the product was delivered.

210. Wyeth finally paid for the product in October 2003, after fiscal year 2003 had ended

and long after Defendants had recognized the revenue.

211. Defendant's knowledge ofpremature revenue recognition on the Wyeth transaction is

also corroborated by an internal e-mail dated September 26, 2003, in which Crowley is advised that

the albumin still has not been shipped to Wyeth. See Ex. 8. According to this e-mail , the earliest

that the albumin could be delivered to Wyeth was the very last day of SeraCare's fiscal year 2003.

2. Premature Revenue Recognition of $385,000 Sale to Biogen in 2003

212. In the beginning of2003, Biogen placed an order with SeraCare for albumin it needed

for the year to manufacture a multiple sclerosis drug. Approximately six months after it placed the

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Drder, CW-1 received a call from Biogen's purchasing agent canceling the order because the

:,ompany was moving to a new formulation for its products and therefore would not be using the

albumin it ordered from SeraCare. CW-1 reported the cancellation to Crowley. Crowley told CW-1

to ship the product to Biogen anyway. According to CW-1, despite the fact that Biogen cancelled

the order, SeraCare shipped $385,000 worth of albumin to Biogen anyway. Although Biogen

refused to pay for the albumin, SeraCare booked $385,000 in revenue. Approximately nine months

after SeraCare recognized the revenue from the transaction, the parties negotiated a resolution ofthe

matter. SeraCare agreed to discount the product and only charged Biogen $280,000 (SeraCare's cost

for the product). However, Biogen still did not need the product and eventually sent the product

back to SeraCare.

3. Premature Revenue Recognition on Sale to Roche in 2004

213. In the first quarter of 2005 (December 2004), one of SeraCare 's customers, Roche

Diagnostics ("Roche ), issued a purchase order to SeraCare for 72 blood panels at a purchase price

Df $454,080. See Ex. 23 at SRLSEXX000127. The sale was through SeraCare's BBI division.

Since Roche did not want the product all at once, the purchase order specified: "These shipments are

to occur January 1, 2005 through December 31, 2006. Ex. 23 at SRLSEXX000126. Under GAAP,

as well as SeraCare's own revenue recognition policies, the revenue could not be recognized until

the product was delivered to Roche.

214. However, since SeraCare wanted to recognize the full amount ofthe sale ($454,080)

in first quarter 2005, SeraCare asked Roche to agree to a sham bill-and-hold arrangement. SeraCare

prepared a bill-and-hold letter agreement for Roche to sign (see Ex. 23 at SRLSEXX000132). In the

letter agreement, SeraCare wanted Roche to acknowledge that it did not have storage space for the

72 blood panels and that Roche wanted SeraCare to store the product. SeraCare also asked Roche to

acknowledge that it obtained title to the product at the time of invoice. These statements were false.

In reality, the bill-and-hold arrangement was a fiction devised to enable SeraCare to recognize

revenue in the first quarter 2005. Because Roche's management would not agree to the terms ofthe

bill and hold, SeraCare knowingly had the agreement signed by Roche employee who did not have

the authority to sign on Roche's behalf.

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215. With regard to bill-and-hold arrangements , SEC StaffAccounting Bulletin : No. 101-

Revenue Recognition in Financial Statements, states that the buyer, not the seller, must request that

the transaction be on a bill-and-hold basis. The buyer must have a substantial business purpose for

Drdering the goods on a bill-and-hold basis and there must be a fixed schedule for delivery ofgoods.

The bill-and-hold arrangement with Roche violated SAB 101 since it was asked for by SeraCare (the

seller), was not for a substantial business purpose and the product did not have a fixed delivery

schedule. Rather the sham bill-and-hold agreement provided that BBI drop ship the panels upon

Roche's requests to the designated facility with no specific fixed delivery schedule. Ex. 23 at

SRLSEXX000127. Accordingly, SeraCare violated GAAP by improperly recognizing the entire

5454,080 in the first quarter of 2005.

216. In February 2005, after SeraCare had recognized the revenue, and a few days before

its earning release and the filing of its 10-Q for the first quarter 2005, Roche rejected the bill-and-

hold agreement. Although SeraCare knew that it could not now properly recognize the $454,080

revenue in first quarter 2005, SeraCare did not reverse the revenue. Rather it remained on the books

as recorded revenue for first quarter 2005. The $454,080 represented over 10% of the revenue

reported by BBI in first quarter 2005. See Ex. 23 at SRLSEXX0001 3 1. Thus, although SeraCare

was required to do so, SeraCare did not reverse the revenue because of the adverse impact it would

have had on its earnings for the first quarter 2005.

4. Premature Revenue Recognition of $1 Million Sale to Bio Vitrum in 2005

217. According to CW-1, Wyeth agreed to purchase $1 million ofalbumin from SeraCare

in 2005 when Wyeth (through Wyeth's European contractor, Bio Vitrum) started producing the

Refacto product in Europe.

218. SeraCare shipped the albumin to Bio Vitrum in November 2005. However, SeraCare

improperly and prematurely booked the $1 million sale to Bio Vitrum in September 2005 (which is

the last month of SeraCare's fiscal year).

219. According to CW- 1, this Bio Vitrum/Wyeth transaction alarmed SeraCare's new

auditors, MHM. On February 10, 2006, defendants Plost, Crowley, and Hooson (who participated

by phone) met with bankers in Frederick, Maryland and admitted that MHM believed that the $1

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million contract with Wyeth should not have been recognized as revenue in FY 2005 because the

product had not been delivered during FY 2005.

220. MHM opined that SeraCare had improperly booked $1 million in revenue in 4Q05

and FY 2005 (ending September 30, 2005): "The product was not picked up by the customer until

the middle of November 2005... [and] the goods were ready prior to October 4, 2005. MHM

inquired into how the Company could recognize this revenue in 2005:

In response we were told that the terms of the contract with the customer are Ex-works and no further analysis is required because title to the goods transfers when thegoods are ready for pick-up at the seller's facility. This is a material sale withcircumstances specifically addressed by relevant SEC guidance. Therefore, we mustagain express our discomfort with the lack of analysis being done by the Companyrelated to this transaction. Our knowledge ofthis transaction raises our concern thatthere may be other similar transactions of which we are not aware.

Ex. 7.

221. The BioVitrum transaction was also reviewed by SeraCare's Audit Committee as part

of its investigation into the issues raised by MHM. The emails and documents provided to the Audit

Committee confirm that the revenue from the BioVitrum sale were booked in fiscal year 2005 even

though the product was not shipped until fiscal year 2006 (November 2005). Ex. 23 at

SRLSEXX000102-SRLSEXX000113. This evidence precipitated the firing of Crowley, Hooson,

Plost and Burdick.

5. SeraCare's Continuing Improper Recognition of End-of-Quarter Orders

222. According to CW- 1 and CW-9, the Exchange Act Individual Defendants habitually

shipped product before customers wanted the product so they could recognize revenue during the

;,urrent quarter. Defendants Crowley, Burdick, and Plost (along with high level operations personnel

such as Duane Pinkerton) met late at night to discuss what they could ship to make the quarter.

Crowley, Burdick, and Plost then ordered the product to be shipped before the end of the quarter.

223. SeraCare would then receive calls from customers complaining about the early

shipments. Every company that SeraCare dealt with called to complain about receipt of goods

before the goods were wanted, including Sigma and Merck. CW-1 stated that "it got to be a joke.

Many of the customers returned the product. Customers usually called their SeraCare sales

representative or customer service representative to complain. The sales representatives and

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;,ustomer service people told Crowley about the customer complaints, but Crowley did nothing to

;,hange the situation.

224. In describing how SeraCare shipped customer orders early, CW-1 explained that

typically SeraCare first sent a sample of the biological material to the customer to test. The

;,ustomer tested this sample for approximately four weeks . Ifthe customer approved the sample and

wanted to buy the product, it ordered an entire lot (a lot consists of approximately 1,000 liters).

According to CW- 1, despite ordering the entire lot at once , the customer typically only wanted to

receive a certain quantity ofthe total amount each month (e.g., 100 liters per month). To recognize

the revenue early, however, SeraCare shipped the entire lot at the end of SeraCare ' s quarters and

before the customer wanted it.

225. According to CW- 1, some of the products that were shipped to customers before the

customers wanted them were albumin and fetal bovine serum. CW-1 said fetal bovine serum was

ane product that SeraCare typically shipped early (at the end of SeraCare's quarter) because it was a

high-priced item. Specifically, in 2003 and 2004, SeraCare shipped orders of fetal bovine serum at

the end of SeraCare's quarters but before the customer wanted it to Cascade Biologics, a customer

located in Portland Oregon. CW-1 recalls Cascade complaining about early shipments. Merck also

received early shipments of albumin (a Grifols product) so SeraCare similarly could recognize

revenue prematurely.

226. This premature shipping and improper revenue recognition pattern showed up in CW-

l's tallies of the division's numbers. As part of CW-1's daily activities, CW-1 tallied every sale in

the division and kept the tallies on a spreadsheet. CW-1 also kept tallies of the products that were

shipped. By way of an example, CW-1 said that during a typical quarter, SeraCare would ship

S 100,000 ofproduct during the first month, $300,000 during the second month and $1 million during

the third and final month. Based on CW-1's personal observations, this was a repeated pattern, and

;,ould not be attributed to any normal business cycle. CW-1 said that legitimate sales in his division

were between $300,000 to $500,000 per month. According to CW-1, at the end of each quarter

during the Class Period, SeraCare would prematurely book $500,000 or more in revenue.

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227. CW- 1 explained that the premature revenue booking practice made it much harder to

reach sales goals for the following quarter . For example , CW-1 said that divisions like the

Diagnostic division struggled to meet their numbers because of this practice . CW-1 knows this

because CW- 1 received sales reports for other divisions on a weekly and monthly basis which

showed each division ' s sales and any divisional shortfall . According to CW-1, CW-1's division was

pushed by management to sell more products to make up for the shortfall experienced by the other

divisions due to the premature revenue recognition practices.

228. CW-7, who was employed as a warehouse logistics manager at SeraCare from 2001

to October 2005, corroborates the account of CW-9 and CW-1. CW-7 reported that there were

always huge shipments at the end ofeach quarter from the time CW-7 started working at SeraCare in

2001, through CW-7's departure in mid-2005. These end-of-quarter shipments especially picked up

when the Company was not meeting its numbers in 2004. CW-7 recalled two instances in fiscal year

2004 when shipments were sent to Dong Shin Pharmaceutical Company of Korea and were

subsequently returned to SeraCare. According to CW-7, each incident involved an airfreight

shipment of 22 pallets, with each pallet holding 1,000 liters of product at "$90 - $200 per liter. 4

229. CW-7 knew that SeraCare was shipping inventory to its customers early in order to be

able to book the revenue before the end ofthe quarter. CW-7 commented, "There were three months

in every quarter, so why was it always in the last two days of the quarter that we were shipping out

most ofthe product to customers? CW-7 said this happened a lot in particular with the Company's

two largest customers, IDEXX and Sigma. CW-7 knew these orders were being shipped early

because many ofthem ended up being returned to SeraCare later for reasons that did not make sense.

CW-7 saw the invoices for these end-of-quarter shipments because the invoices went out to the

;,ustomer with the shipments. The invoices often included payment terms ofnet 90 or net 120. CW-

7 said this seemed odd because usually the products were shipped frozen (in dry ice) and were

$ 90 per liter x 22,000 = $1,980,000 + $22,000 shipping cost = $2,002,000$150 per liter x 22,000 = $3,300,000 + $22,000 shipping cost = $3,322,000$200 per liter x 22,000 = $4,400,000 + $22,000 shipping cost = $4,422,000

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intended to be used right away upon receipt. CW-7 observed that "million dollar orders were always

being shipped the last day of the month and the last day of the quarter. Additionally, CW-7 heard

defendant Crowley and other senior management at SeraCare say: "The customer doesn 't want the

shipment until mid-month next month, but let's send it now because we need to make our

numbers for the quarter.

230. CW-7 also reported that about two to four times per month, the following shipping

scenarios occurred: SeraCare shipped product to customers earlier than specified or SeraCare

shipped more product than the customer had ordered. These scenarios occurred even more

frequently at the end ofthe quarter, doubling to approximately four to eight such instances in the last

month ofthe quarter. Some ofthe companies who received unwanted product or product before they

wanted it were Dong Shin Pharmaceutical Co., IDEXX, and Abbott Laboratories.

231. Crowley visited CW-7's department once or twice a month, and was especially

visible at the end ofeach quarter. Crowley asked about sending and receiving orders, how they were

being shipped, how much was being shipped, etc. Sometimes Crowley made a point oftelling CW-7

that a certain order needed to be shipped immediately.

232. CW-2 recounted that in late September 2003, CW-2 took a desperate telephone call

from Crowley and Hart in which they asked CW-2 to do anything CW-2 could to ship out the

product before the end of September, which was also the end of SeraCare's fiscal year. Crowley told

CW-2 that they needed product shipped before the end of September because SeraCare was

5120,000 under analyst's consensus estimates. CW-2 was able to accelerate a few shipments

totaling $180,000 that "weren't exactly ready to go and that CW-2 had intended to ship the

following quarter. Crowley's dire need for revenues in the last days of fiscal year 2003 is shown by

his e-mail to a number of SeraCare employees, in which he states, "[w]e have two more days of the

quarter and continue your efforts to ship or book as much revenue as we can before the 30th. See

Ex. 9.

233. CW- 11 also reported that raw product (without required processing) was pushed

unnecessarily to customers at the end of each quarter to make the numbers and then returned to the

Company the following month. CW-11 reported that from October 2004 through the end of CW-

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11's employment at SeraCare in July 2005, there were discussions among SeraCare's shipping,

receiving and manufacturing personnel that the numbers on SeraCare's financial statements were

inflated and did not reflect the products which actually were manufactured, and that "something

Fishy was going on due to the rushed shipping of unprocessed materials at the end of the quarter,

which resulted in returns.

6. SeraCare Admits It Improperly Recognized Revenue

234. In its March 15, 2006 disclosure, SeraCare stated:

flits quarterly reports on Form 10-Qfor the quarters ended December 31, 2004,March 31, 2005 and June 30, 2005 should no longer be relied upon.... [T]heCompany expects to restate one or more of its financial statements for the first threequarters of fiscal 2005.

[I]t is also possible that the Audit Committee will, as a result of its continuingreview, determine that previously issued financial statements for other periods mayrequire corrections.

See Ex. 17.

235. On March 27, 2006, SeraCare announced that the Company's Audit Committee had

:,oncluded that its quarterly financial statements "should no longer be relied upon based upon "its

discovery, during the course of the internal review, of inventory accounting and revenue

recognition errors, including errors with respect to inventory reserves, inventory valuation and the

capitalization ofoverhead to inventory . See Ex. 19 at 3.

7. SeraCare Improperly Recognized Revenue in Violation of GAAP and SECRules

236. Defendants violated GAAP and SEC guidelines and improperly inflated reported

revenues, net income and EPS by improperly recognizing revenue on sales that did not pass title and

the risk of ownership to the customer and for which no sales arrangements existed with customers.

237. Defendants recorded revenues prior to delivery and acceptance of products by the

;,ustomers and for which there were not arrangements for the purchase ofproducts by the customer

and when the sales price was not fixed and determinable. As such, defendants recognized revenues

while not passing title and the risk of loss to the customers in direct violation of GAAP and SEC

guidelines. Such accounting improprieties materially overstated Class Period revenues.

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23 8. Financial Accounting Standards Board ("FAS ) Statement ofConcepts ("FASCON )

No. 5 ¶84(a) states in part that "two conditions (being realized or realizable and being earned) are

usually met by the time product or merchandise is delivered or services are rendered to customers,

and revenues from manufacturing and selling activities and gains and losses from sales of other

assets are commonly recognized at time of sale (usually meaning delivery). Additionally,

FASCON No. 5 ¶83(b) states that "an entity's revenue-earning activities involve delivering or

producing goods, rendering services, or other activities that constitute its ongoing major or central

Dperations, and revenues are considered to have been earned when the entity has substantially

accomplished what it must do to be entitled to the benefits represented by the revenues. The

Exchange Act Defendants knowingly ignored or recklessly disregarded the basic premise of

FASCON No. 5 requiring the delivery of merchandise and fraudulently recorded on sales that did

not pass title to the customer.

239. SAB Topic 13 §A1, Revenue recognition,5 states in part:

The staff believes that revenue generally is realized or realizable and earnedwhen all of the following criteria are met:

• Persuasive evidence of an arrangement exists,

• Delivery has occurred or services have been rendered,

• The seller's price to the buyer is fixed or determinable, and

• Collectibility is reasonably assured.

240. Furthermore , SAB Topic 13 §A3 , Delivery and performance , further defines the

:,oncept of delivery and performance and states in part: "The staffbelieves that delivery generally is

not considered to have occurred unless the customer has taken title and assumed the risks and

rewards ofownership ofthe products specified in the customer's purchase order or sales agreement.

Typically this occurs when a product is delivered to the customer's delivery site ....

SAB Topic 13 represents the codification of certain Staff Accounting Bulletins, includingSAB No. 101, Revenue Recognition in Financial Statements as ofMay 9, 2003. On December 17,2003, SAB Topic 13 was revised by SAB No. 104, Revenue Recognition. Such revisions, have beenincorporated in all references to SAB Topic 13.

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241. As described in ¶1200-240, SeraCare ignored the basic premises ofGAAP and SEC

guidelines by recording revenue on sales which no arrangements existed, no delivery had taken place

and for which the sales price was not fixed and determinable.

B. Manipulation of Inventory and Inventory Reserves to Inflate Gross Margins andEarnings

242. During the Class Period, SeraCare used several types ofaccounting manipulations on

its inventory and inventory reserves to achieve better results in key financial statement metrics, such

as gross margin and earnings per share . As described below, during the Class Period, SeraCare

engaged in a practice of improperly capitalizing expenses , including SG&A expenses , to inventory

to keep these expenses off its profit and loss statement ("P&L ). This practice inflated gross

margins and earnings . By inappropriately capitalizing expenses to inventory , SeraCare was left with

inventory that was actually valued above its market value and therefore required write-downs.

GAAP requires that inventory must be recorded at the lower of cost or market value. Because an

inventory write-down would be flushed through the P&L as a current period expense and would hurt

SeraCare ' s margins and earnings , SeraCare declined to record appropriate inventory write-downs

and was left with under-recorded expenses on its P&L and overvalued inventory on its balance sheet.

Consistent with its efforts to keep costs off the P&L using inventory accounts , SeraCare also failed

to record adequate reserves and/or write -downs on other inventory that it knew was impaired and/or

worthless due to obsolescence , lack of marketability, FDA expiration requirements , etc. Finally,

SeraCare used accounting manipulations in its business acquisitions by inappropriately placing large

reserves on the inventory it acquired and later liquidating these reserves to directly offset other costs

an the P&L and/or to sell inventory carried at a low cost basis to generate as much as 100% gross

profit margins . SeraCare's practice ofimproperly capitalizing expenses, failing to record inventory

write-downs, and improperly liquidating inventory reserves on acquired inventory allowed SeraCare

to overstate several closely followed financial statement metrics, including gross profit margin and

earnings , during the Class Period.

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1. During the Class Period SeraCare Maintained Worthless Inventory on ItsBooks and/or Failed to Maintain Adequate Reserves for Severely ImpairedInventory

243. CW- 12 explained that worthless inventory was not written off or properly reserved.

During CW-12's review and investigation of SeraCare's historic financial statements, CW-12

learned that the Company's inventory during the Class Period included plasma that was over 10

years old. CW-12 stated that despite the age of the inventory the Company only maintained a I%

reserve on the plasma which was insufficient given the impairment of the product. Since plasma

expires after 10 years, SeraCare should have either written the inventory off or maintained an

adequate reserve for the plasma.

244. During the Class Period, SeraCare intentionally failed to write-off worthless and/or

impaired inventory so as to avoid the impact the write off would have on its reported earnings. A

large part of SeraCare's business was selling disease-state plasma to its customers. The antibodies

;,ontained in the disease state plasma were used by SeraCare's customers to manufacture products

such as vaccines and test kits. SeraCare operated several plasma collection centers during the Class

Period. The plasma SeraCare collected at these centers was then processed and sold to SeraCare

;,ustomers. According to CW-3, SeraCare would accept any plasma donor at its plasma collection

;,enters rather than limiting collection from people who actually had a particular disease. Since

SeraCare was in the business of selling disease-state plasma, the plasma collected from persons other

than those who had a specified disease was virtually worthless. CW-3 referred to this type ofplasma

as "junk plasma because it has little or no value to SeraCare's customers and was extremely

difficult to sell. According to CW-3, even if the junk plasma was sold it was typically returned

because it did not meet the customer's specifications.

245. Much of the worthless/impaired plasma SeraCare carried as inventory was shipped

and stored in its Hatboro facility where CW-3 worked. When a shipment ofthe plasma was received

at Hatboro, CW-3 performed tests on the plasma to insure that it contained the actual disease or

antibodies needed. Most of the time, CW-3 found that the plasma sent to Hatboro did not contain

the necessary antibodies. CW-3 stated that the "junk plasma could not be sold and ended up sitting

in SeraCare's inventory. According to CW-3, SeraCare had to purchase more refrigerators for the

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EIataboro facility due to the "junk plasma that could not be sold. CW-3 also stated that the

worthless "junk plasma was valued the same as the plasma that contained the desired antibodies.

CW-3 also stated that the nothing was ever marked on the plasma containers to distinguish the

"junk plasma from the disease-state plasma.

246. CW-3 recalled that during a telephone conversation in October 2004 between a senior

executive at the Hatboro facility and defendant Crowley, the senior executive asked Crowley what

should be done with the "junk inventory. CW-3 recalled that Crowley told the executive to find

space in the Hatboro facility and hold it as inventory. The senior executive recounted this exchange

to CW-3.

247. According to CW- 1, in SeraCare 's inventory system, SeraCare did not distinguish

between low-titer plasma and high-titer plasma. Rather, the inventory system only recorded the

plasma lot number and value. Even though low-titer plasma had a lower value than high-titer

plasma, the inventory values were the same for both low- and high-titer plasma.

248. SeraCare's GCI division also maintained worthless/impaired inventory on its books.

According to CW-4, GCI did not even know what inventory it had after SeraCare acquired GCI. A

vice president who mostly worked with SeraCare's BBI division, was put in charge of cataloging

GCI inventory. A lot of GCI's inventory was "esoteric material of little or no interest to

researchers. That is, the plasma contained antibodies for diseases for which SeraCare's customers

were not interested. CW-4 needed to know what inventory GCI had so that the sales team could

market and sell it. CW-4 complained to Crowley about the worthless GCI inventory in numerous

;,onversations, and lobbied Crowley and the other Defendants to try to ascertain which inventories

would be saleable. During monthly telephone conference meetings attended by Crowley, Plost,

Burdick, and CW-4, and also in conversations observed by CW-4, which included Lawlor, Cresci

and Crowley, there were numerous discussions that SeraCare's inventory was losing tremendous

value on a weekly basis because the inventory was not meeting the demands of customers.

2. Improper Capitalization of Expenses to Inventory

249. According to several confidential witnesses, SeraCare would improperly capitalize

Dverhead and SG&A expenses to inventory. This improper accounting enabled the Exchange Act

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[ndividual Defendants to defer expenses by recording them as part of inventory on-hand, not as a

:,harge to earnings.

250. Beginning in 2004, CW-6 began to notice that SeraCare was improperly adding

Dverhead costs and SG&A expenses to inventory. During 2004, CW-6 had the ability to look up the

:,ost of inventory in SeraCare's MAS200 computer system. As an example, CW-6 said that an item

that was valued at $1.00 before the BMR acquisition and during due diligence would eventually

have a valuation of $13.00 after the acquisition. Because of the dramatically inflated value of the

inventory, in some cases, SeraCare was selling the BMR inventory for less than what SeraCare had

valued it. CW-6's supervisors questioned the cost of the inventory and called defendant Crowley

several times to question him about the inventory costs. CW-6 stated that the Company continued its

practice of adding costs to inventory up until the end of the Class Period. CW-6 said the costs were

added to inventory across the board and not just to particular products.

251. According to CW-2, in 2004 SeraCare improperly began adding excess overhead

:,osts to the value of the BMR inventory. CW-2 said the extra costs were never justified by the

Company and CW-2 described the inflated inventory values as "ridiculous and "unrealistic. In

some cases, after SeraCare added the extra costs to the inventory, the inventory value of the item

exceeded the market value ofthe product. As a result, SeraCare was selling some products at a loss.

CW-2 concurred with other confidential witnesses that SeraCare added these costs to all products

and not to any particular product. CW-2 could tell defendants were adding a percentage of the

Dverhead to inventory by looking at the new inventory list and seeing the input on the cost of

material.

252. CW- 1 confirmed that SeraCare ' s practice of adding excess overhead costs to

inventory also occurred at the Oceanside facility. CW-1 recalled that the Company automatically

increased the value of a product by 10% once it came in the door (after the BMR acquisition). CW-1

;,ould also look at the value of inventory in the MAS200 system. CW-1 stated that SeraCare would

also sometimes increase the value after the Company sold the product (but before it was off

SeraCare's books). Specifically, the Exchange Act Individual Defendants would attempt to

determine how much in costs they could add to inflate the inventory while still retaining some profit

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margin on the sold products . According to CW-1, Crowley directed Burdick to add costs to

inventory, and Burdick would actually add the costs to the MAS200 system.

253. CW-7 also corroborates the improper capitalization of expenses to inventory. In

2004, CW-7 was notified that a physical inventory count was needed "because we needed to adjust

the [inventory] values upward from $5 to $6. In order to increase the inventory values across the

board, the Exchange Act Individual Defendants needed to get an accurate count of all the inventory

an-hand. Despite this count, CW-7 was never able to match the quantity of inventory in the

;,omputer system with the physical quantity of inventory on hand.

254. In the course of handling paperwork for shipments of outgoing inventory to fill

;,ustomer orders, CW-7 noticed the inventory values increasing significantly around mid-2004,

including the value of SeraCare's plasma products. These were products that had been in SeraCare's

inventory and on the books since CW-7's arrival at SeraCare in 2001. According to CW-7, most

plasma products have a 10-year shelf life. These products were close to expiring and had been

valued at around $5.00/ml in CW-7's first few years at the Company, but suddenly they were being

valued at $20.00/ml starting around mid-2004. CW-7 noticed these increased valuations throughout

the Class Period. CW-7 believed that the increased valuation of old inventory was not justifiable

given that the products were close to expiring when they were sold. CW-7 said that he would notice

the inventory value increased mostly in large quantity shipments that went out at the end if the

quarter.

255. According to CW- 12, during fiscal years 2003 through 2005, SeraCare overstated its

inventory by capitalizing a significant portion of its SG&A expenses to inventory. Although the

Company valued its inventory at the $28 million at the beginning of fiscal year 2005, the real value

Df the inventory was about $12 million. According to CW-12, the inflated inventory value was due

to improper capitalization ofSG&A expenses to inventory and the inclusion ofimpaired inventory at

full value.

256. According to CW-9, a former board member and President of SeraCare until 2001,

Crowley and Burdick artificially increased the valuations of SeraCare's inventory of purportedly

disease-state materials to $ 8 million during the Class Period. CW-9 repeatedly complained about

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this during his tenure at the Company . CW-1 and CW-8 also confirmed that Burdick was involved

in valuing inventory . CW-8 stated Burdick "was involved to a great degree in valuing inventory.

However, Crowley and Burdick kept increasing the valuations on its disease-state plasma inventory

in violation of GAAP and SEC guidelines.

257. According to CW-9, Defendant Burdick, who worked in Los Angeles, periodically

visited Defendant Crowley in SeraCare's Oceanside offices to "work out inventory values.

258. According to CW-9, Burdick and Crowley prepared monthly reports showing the type

Df inventory (e.g., hepatitis positive), sales , albumin product inventory, where the inventory was

stored, and inventory values, broken down by particular types of inventory.

259. SeraCare's practice of improperly capitalizing expenses to inventory is also

:=firmed by internal SeraCare e-mails. In an e-mail between Defendant Crowley and Bill Kenealy,

Director of Finance, Kenealy acknowledged a plan established by Defendant Burdick in January

2005 whereby SG&A expenses were transferred to inventory. See Ex. 20. Bill Kenealy

acknowledged that SG&A spending was actually higher than reported on the financial statements

because a credit was booked to transfer the expenses to sales and inventory. This same practice is

also confirmed in the e-mail attached as Ex. 21. In an April 26, 2005 e-mail, Bill Kenealy confirmed

with Defendant Burdick that in order to deplete the Company's inventory overhead cost pool, the

rate at which the overhead cost pool was absorbed into inventory had to be increased 100%. See Ex.

21. Bill Kenealy stated that as a result inventory would be carried at a higher cost. See Ex. 21.

260. MHM confirmed SeraCare's improper inventory accounting practices. In a

December 28, 2005 report, MHM stated,

It appears that some 2005 overhead costs were capitalized into inventory using amethod that disproportionably increased the cost basis of inventory that either existedprior to 2005 and/or were the subject ofrelatively little ofthe work performed during2005 and allocated too little expense to items processed and sold during 2005, thuspotentially inflating the balance sheet and overstating income by a material amount.

See Ex. 22 at SRLSEJB032709.

261. The fact that SeraCare's inventory was overvalued is also confirmed by a valuation

that was prepared in connection with the bankruptcy proceedings . According to CW- 12, following

bankruptcy, the Company hired a third-party consultant to value its inventory. The third-party

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;,onsultant conducted an inventory count and looked at similar inventory at comparable companies.

CW-12 stated that the report prepared by the third-party consultant valued SeraCare's inventory at

approximately $8 to $10 million. The last reported inventory value contained in SeraCare's Form

10-Q for the quarter ending March 31, 2005 was $34 million.

3. SeraCare Improperly Released Reserves for BBI Inventory During the ClassPeriod

262. On April 16, 2004, SeraCare and BBI entered into an Asset Purchase Agreement

whereby SeraCare agreed to purchase BBI (consisting of two divisions - Diagnostic and Biotech).

On September 14, 2004, 16 days before SeraCare ' s fiscal year end, SeraCare concluded its purchase

Df BBI . The purchase price of $30 million was based on a preliminary net asset value on BBI's

;,losing balance sheet of $8.5 million . BBI's preliminary net asset value was arrived at using BBI's

historical accounting practices which were consistent with GAAP and were the agreed upon method

for calculating the closing balance sheet as listed in the Asset Purchase Agreement entered into by

both parties.

263. On November 12, 2004, SeraCare sent BBI proposed changes to the closing balance

sheet which listed a net asset value of only $5.4 million, a deficit of $3.1 million to the agreed upon

net asset value, and stated that SeraCare was due $3.1 million from BBI as a purchase price

adjustment. BBI immediately objected to this calculation and specifically questioned SeraCare's

method of calculating the value of inventory on the closing balance sheet. On November 15, 2004,

BBI sent a letter to SeraCare questioning SeraCare's calculation of BBI's net asset value.

Needless to say, when [BBI] received the Closing Balance Sheet, [BBI] wasextremely perplexed at SeraCare's calculation of the Adjustment Amount, whichshows a deficiency ofapproximately $3.1 million. One item of significant concern isSeraCare's valuation ofthe inventory, despite the parties agreement on the valuationmethodology during the negotiations of the Agreement.

See Ex. 24. SeraCare had disregarded the agreed-upon valuation method in the Asset Purchase

Agreement -which was consistent with GAAP - and had instead established large reserves against

the inventory accounts resulting in a decrease of $2.8 million - or 53% - to net inventory from BBI's

Driginal calculation of $5.2 million to SeraCare ' s new proposed calculation of $2.4 million.

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264. On November 22, 2004, BBI sent a letter agreement to SeraCare agreeing to

SeraCare's apparent request to defer the dispute over BBI's net asset value until December 15, 2004,

which happened to be the day after the filing date for SeraCare's 10-K for fiscal year 2004. See Ex.

25.

265. SeraCare's 2004 10-K contained the following disclosure:

On September 14, 2004, we announced the acquisition (the "BBIAcquisition ) of substantially all of the assets of BBI Diagnostics and BBI BiotechResearch Laboratories ....

The Company has not yet completed the evaluation and allocation of thepurchase price for the BBI acquisition as the appraisal associated with the valuationof certain tangible and intangible assets is not yet complete . The Company does notbelieve that the appraisal will materially modify the preliminary purchase priceallocation.

266. SeraCare's public statement was false and misleading because it knew that valuation

issues were being disputed, that the amounts being disputed represented material adjustments to the

numbers it had included in its 2004 10-K, and that the time frame for disputing the items had been

purposely pushed back to a date after the 10-K was filed.

267. According to Ex. 23 at SRLSEXX000135, the BBI inventory was transferred to

SeraCare and included in its September 30, 2004 10-K at the same carrying value assigned in the

proposed BBI closing balance sheet (net value of $2.4 million consisting of gross inventory of $8

million and inventory reserves of $5.6 million). The relevant accounting guidance - FAS 141

Accountingfor Business Combinations - clearly describes how newly acquired assets should be

valued on the acquirer's balance sheet. The BBI closing balance sheet (used specifically to

determine the final purchase price of BBI) was not an appropriate basis in valuing the inventory to

be placed on SeraCare's balance sheet as of September 14, 2004 according to FAS 141. FAS 141

states that all assets , including inventory, should be brought over at fair market value - which is

equal to the estimated selling price of those assets . Specifically, FAS 141 states:

when assigning amounts to inventory, the acquiring entity in future periods shouldrecognize only profits associated with value added to the acquired inventory after theacquisition date. [Values assigned are as follows:] Finished goods and merchandiseat estimated selling prices less the sum of costs of disposal and a reasonable profitallowance for the selling effort ofthe acquiring entity; work-in-process at estimated

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selling prices of finished goods less the sum of costs to complete, costs of disposal,and a reasonable profit allowance for the completing and selling effort of theacquiring entity based on profit for similar finished goods; raw materials atreplacement cost.

268. SeraCare failed to properly apply the provisions of FAS 141. The large inventory

reserves on BBI's closing balance sheet were inappropriately brought over to SeraCare's balance

sheet as of September 14, 2004, and included in SeraCare's September 30, 2004 10-K. SeraCare

was motivated to bring over the BBI inventory with large reserves so that the recorded amounts, on a

net basis, were far below actual expected sales prices. This improperly allowed for large gross profit

margins during FY 2005 when these units were sold. However, because FAS 141 calls for finished

goods and work in progress inventory to be brought over at amounts that include almost all

manufacturing profit (the difference between the carrying value and the expected sales price), little

ar no gross profit margin should have been recorded on the sale of any acquired inventory.

269. By inflating reserves on the BBI inventory (as described in ¶1267-268) and

incorrectly valuing the inventory at the time of the acquisition, SeraCare ultimately liquidated the

reserves directly to the P&L which reduced cost ofgoods sold and/or liquidated the reserves against

gross inventory, thereby lowering the cost of inventory and providing for greater margins when that

inventory was sold.

270. In e-mails dated April 26, 2005 and May 6, 2005, Bill Kenealy, Director ofFinance,

discussed SeraCare's ability to maintain its gross profit margins during the third and fourth quarters

Df FY 2005 by liquidating its inventory reserves:

The reported Gross Margin has been correctly supported by the liquidation ofInventory reserves established at purchase.

The ability of West Bridgewater [location of BBI operations] to continue toreport product margins consistent with Q 1 and Q2 is to be determined by the relativeimpacts of two opposing product cost events.

Product Cost event 1: Inventory Reserves of $4,000,000 are pushed down tothe lot level in inventory. This having been accomplished, the ability to consume/sellthese cost reduced inventory assets will have a favorable impact on gross margin.

See Ex. 21.

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271. A March 7, 2005 e-mail from CEO Mike Crowley to Bill Kenealy, Director of

Finance, states:

Bill,

... need the push down completed for the inventory and a list of all raw materials atZero on the books. We need to get this to Sales ASAP to create some revenue.

Thanks, Mike

See Ex. 26.

272. In an October 10, 2005 e-mail from Defendant Craig Hooson to Audit Committee

Chairman Cresci, Hooson discussed issues raised by Bill Kenealy when asked to sign the SeraCare

ethics policy. The email states:

The two areas that he is concerned about as indicated in his e-mail ... were:

Inventory valuation , . . . the selling of previously written off (at the time ofacquisition through Goodwill) inventory, which went through the Profit and Loss at100% gross margin, rather than an adjustment to the Goodwill created by theinventory reserve adjustment.

See Ex. 27.

273. In a presentation to the Audit Committee based on MHM's findings , the following

evidence is presented under the heading "BBI INVENTORY RESERVE AND RELEASE IN Q2

AND Q3 2005 :

e-mail dated July 18, 2005 from Kai Loedel to Bill Kenealy: Hi Bill.... Jerry saidto formally book the inventory reserve adjustment of $459k.

See Ex. 23 at SRLSEXX000137.

e-mail dated Dec 2, 2005 from Bill Kenealy to Craig Hooson: Spreadsheet adjustedfor Q3 reserve liquidation of 459,000 and Q4 provision of 126,000. Have littlebackup ... to support liquidation to P&L.


e-mail dated December 6, 2005 from Craig Hooson to Jerry Burdick; subj: invReserve YTD Change: Please take a look at this, need to pass over. This is ALL thecosts that people will admit to.


274. The documents above describe how SeraCare established large inventory reserves at

the time of the BBI acquisition. After the acquisition, in the second and third quarters of 2005, the

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arge reserves were liquidated either directly to the P&L as an offset to costs ofgoods sold or on the

balance sheet as an offset to gross inventory balances. The inventory was left on the balance sheet at

ittle or no value and SeraCare recognized 100% profit when the inventory was sold as opposed to

;he appropriate treatment under FAS 141, where the inventory would have been placed on the

balance sheet at fair market value and little or no profit would have been recognized on any acquired

nventory that was sold.

4. MHM Corroborates the Confidential Witness Accounts of OverstatedInventory

275. On December 15, 2005, after conducting a preliminary audit, MHM sent a letter to

;he Audit Committee which detailed numerous accounting irregularities associated with SeraCare's

nventory. MHM's letter stated, in part:

The Company carries large inventory balances in relation to its sales and hascontinuing and increasing negative cash flows from operations in spite ofpositive netincome as a result of increases in these balances. The Company has unable toprovide supportfor material amounts ofinventory recorded on its balance sheet atSeptember 30, 2005. It appears the Company has made numerous unsupportedchanges to costs or items in inventory, and to quantities of inventory items as ofSeptember 30, 2005. There appears to be an absence ofany method orprocess toevaluate the inventoryforpotential excess quantities on hand. There are materialamounts ofinventory which appear adequate to provide for decades of sales in somecases . The Company has been unable to relate overhead costs capitalized tospecific items ofinventory to actual activity related to those items during theperiodthe costs were incurred. We have inquired repeatedly with management regardingthe appropriateness of the methods being used to account for inventory and theappropriateness of the changes that were made to inventory balances. In responsethe Company has provided explanations that are not supported with adequatedocumentation or analysis and that often are conflicting. We continue to be veryuncomfortable with the inventory balances as of September 30, 2005. Ourawareness of these conditions raises our concern that there may be additionalmisstatements ofwhich we are not aware.

5. SeraCare Admits It Overstated Inventory Valuation

276. On March 27, 2006, SeraCare admitted that its financial statements were false due to

SeraCare's "inventory reserves, "inventory valuations, and "the capitalization of overhead to

nventory. See Ex. 19.

6. SeraCare ' s Inventory Valuation Violated GAAP and SEC Rules

277. SeraCare artificially inflated its profitability by improperly valuing its inventories and

mproperly capitalizing certain expenses as part of its inventory balances.

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278. GAAP and SEC rules require companies to carry their inventories at the lower ofcost

ar market.6 Market means current replacement cost either by purchase of reproduction, except that

market should not exceed its net realizable value.' Accounting for inventory under GAAP is set

forth in Accounting Research Bulletin No. 43 ("ARB 43 ), Chapter 4, Inventory Pricing.8 ARB 43,

Chapter 4, Statement 3 explains that "[t]he primary basis ofaccounting for inventories is cost, which

has been defined generally as the price paid or consideration given to acquire an asset. As applied to

inventories, cost means in principle the sum of the applicable expenditures and charges directly or

indirectly incurred in bringing an article to its existing condition and location. ARB 43, Chapter 4

¶5 further defines cost as "[t]he definition of cost as applied to inventories is understood to mean

acquisition and production cost. Companies are precluded from recording and valuing their

inventory above their cost and including other expenses in their basis for inventory. However, that is

exactly what Defendants did throughout the Class Period.

279. Furthermore , GAAP and SEC guidelines require companies to immediately record

inventory losses whenever the value of the inventory is less than its cost, regardless of the cause of

the loss in value . Accounting for inventory under GAAP is set forth in ARB 43, Chapter 4,

Discussion to Statement 5, which states : "[I]n accounting for inventories, a loss should be

recognized whenever the utility of goods is impaired by damage, deterioration, obsolescence,

:,hanges in price levels , or other causes ... recognized and accounted for in the current period.

280. Throughout the Class Period, SeraCare had accumulated millions of dollars of

improperly valued inventory, inventory that was old, excess , and obsolete. If this inventory had a

The primary basis ofaccounting for inventories is cost, which has been defined generally asthe price paid or consideration given to acquire an asset. As applied to inventories, cost means inprinciple the sum of the applicable expenditure and charges directly or indirectly incurred inbringing an article to its existing condition and location.

' Inventory cannot be recorded for more than "net realizable value, the amount expected to bereceived in cash or cash equivalents. ARB 43, Chapter 4, Statement 6.

' ARB 43, Chapter 4, was amended by Statement ofFinancial Accounting Standards ("FAS )No, 151, Inventory Costs, effective for inventory costs incurred during fiscal years beginningTune 15, 2005. Such, amendment does not impact references to ARB 43, Chapter 4, herein.

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market, it could only be sold for substantially below its recorded book value and its costs. Much of

this inventory may not have a market at all. GAAP, set forth in ARB 43 and FASB 5, calls for

companies to record valuation allowances (which increase expense and reduce the recorded value of

inventory) in the current period, in order to adjust inventory values to the lesser of cost or net

realizable value.

281. Furthermore, SeraCare failed to adequately account for their inventory at the lower of

:,ost or market value (net realizable value) as required by GAAP. The Company has admitted that

they did not timely account for slow moving inventory in the financial statements during the Class

Period . The Company was required to reduce its inventory and record a corresponding expense

when cost recovery for such goods is less than cost . ARB No. 43, Chapter 4, Statement 5 states in

Dart that:

A departure from the cost basis of pricing the inventory is required when the utilityof the goods is no longer as great as its cost. Where there is evidence that the utilityof goods, in their disposal in the ordinary course of business, will be less than cost,whether due to physical obsolescence, changes in price levels, or other causes, thedifference should be recognized as a loss of the current period. This is generallyaccomplished by stating such goods at a lower level commonly designated as market.

Ordinarily, market is defined as replacement cost or net realizable value at the balance sheet date.

SeraCare ignored these rules and failed to write-down slow moving inventory prior to and

throughout the Class Period. On April 7, 2006, the Company stated that its "bankable inventory is

S17 million. This was a 50% reduction from the inventory balance as of June 30, 2005 -

SeraCare's lastpublicly-filed financial statement.

282. GAAP requires that unallocated overheads are recognized as an expense in the period

in which they are incurred . Other items such as abnormal freights , handling costs, and amounts of

wasted materials (spoilage) require treatment as current period charges rather than as a portion ofthe

inventory costs . SeraCare ignored these basic GAAP concepts by improperly capitalizing

unallocated overhead costs as part of inventory.

283. SeraCare also failed to comply with GAAP - specifically FAS 141 - when assigning

values to the inventory acquired from BBI in September 2004.

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C. SeraCare Lacked Adequate Internal Controls

284. While conducting its audit of SeraCare's financials, MHM determined SeraCare

suffered from a number of material weaknesses in its internal control. Ex. 7. Shockingly, even

though companies were required by Sarbanes-Oxley Act of 2002 to implement certain controls,

MUM found "certain [internal] controls were not in place until August 2005 and ... the testing of

the controls has not been completed. Ex. 7. MHM's letter stated:

Internal control over financial reporting - We are concerned that theCompany was not adequately prepared for the implementation of section 404 of theSarbanes-Oxley Act. Our concerns results from (a) the quality of thedocumentation provided sofar, (b) our understanding that certain controls werenot in place until August 2005, and (c) the fact that, as to our knowledge, thetesting ofthe controls has not been completed. In addition, we have concerns aboutthe control environment as discussed in No. 3 above.

285. SeraCare admitted as much. In the Company's 8-K filed March 15, 2006, the

Company concluded that its certifications were wrong: "Also as a result of the internal review, the

Company believes that there are material weaknesses in its internal control over financial

reporting.

286. Section 13(b)(2) of the Exchange Act states, in pertinent part, that every reporting

:,ompany must:

(A) make and keep books, records, and accounts, which, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets ofthe issuer;

(B) devise and maintain a system of internal accounting controls sufficient toprovide reasonable assurances that -

(ii) transactions are recorded as necessary ... to permit preparation offinancial statements in conformity with [GAAP].

15 U.S.C. §78m(b)(2)(A)-(B).

287. These provisions require an issuer to employ and supervise reliable personnel, to

maintain reasonable assurances that transactions are executed as authorized, to properly record

transactions on an issuer's books, and, at reasonable intervals, to compare accounting records with

physical assets.

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288. The Exchange Act Defendants caused SeraCare to violate §13(b)(2)(A) of the

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Exchange Act by failing to maintain accurate records concerning revenue recognition and valuation

)f inventories and improperly capitalizing expenses , among numerous other significant accounting

mproprieties . SeraCare ' s inaccurate and false records were not isolated instances because the books

were improperly maintained for multiple reporting periods . Accordingly, these defendants violated

313(b)(2)(A) of the Exchange Act.

289. In addition, the Exchange Act Defendants caused SeraCare to violate § 13 (b)(2)(B) of

;he Exchange Act by failing to implement procedures reasonably designed to prevent accounting

rregularities. These defendants failed to ensure that proper review and checks were in place to

-.nsure that it was properly recognizing revenue, valuing its inventories , and recognizing expenses.

In fact, despite knowing or recklessly disregarding the true state ofthe Company 's complete lack of

adequate controls , the Exchange Act Defendants regularly issued quarterly and annual financial

statements throughout the Class Period without ever disclosing the deficiencies in SeraCare's

nternal accounting controls , falsely asserting that the Company ' s financial statements complied with

MAP.

290. The Exchange Act Defendants falsely represented the effectiveness oftheir internal

;ontrols over financial reporting with the SEC in their 2003 and 2004 (filed December 23, 2003 and

December 14, 2004, respectively) annual financial statements filed on Form 10-K, stating:

As of the end of the fiscal year ended September 30, 2003, we carried out anevaluation, under the supervision and with the participation of our Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of our disclosure controlsand procedures, as such term is defined in Rule 13a-15(e) promulgated under theSecurities and Exchange Act of 1934, as amended. Based on that evaluation, ourChiefExecutive Officer and ChiefFinancial Officer concluded that our disclosurecontrols and procedures were effective as ofSeptember 30, 2003 to ensure thatinformation required to be disclosed by us in reports that wefile or submit underthe Securities andExchange Act of1934 is recorded, processed, summarized andreported within the timeperiods specified in Securities andExchange Commissionrules and forms . There was no change in our internal controls over financialreporting during our fiscal year ended September 30, 2003 that materially affected, oris reasonably likely to materially affect, our internal controls over financial reporting.

As of the end of the fiscal year ended September 30, 2004, we carried out anevaluation, under the supervision and with the participation of our Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of our disclosure controls

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and procedures, as such term is defined in Rule 13a-15(e) promulgated under theSecurities and Exchange Act of 1934, as amended. Based on that evaluation, ourChief Executive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of September 30, 2004 to ensure thatinformation required to be disclosed by us in reports that we file or submit under theSecurities and Exchange Act of 1934 is recorded, processed, summarized andreported within the time periods specified in Securities and Exchange Commissionrules and forms. There was no change in our internal controls over financial reportingduring our fiscal year ended September 30, 2004 that materially affected, or isreasonably likely to materially affect, our internal controls over financial reporting.

D. Defendants Crowley, Burdick and Hooson Certified False and Misleading FinancialResults

291. Defendants Crowley, Burdick and Hooson knowingly certified false and misleading

financial statements . The following chart graphically depicts which individuals certified which

Financial statements during the Class Period:

SCHEDULE OF CERTIFIED FINANCIAL STATEMENTSFinancial StmtFiled on Form Filing Period Filing Date

Signed/Certifiedby CEO

Signed/Certifiedby CFO

10-Q 2Q 2003 5/14/2003 Crowley Mulroy10-Q 3Q 2003 8/8/2003 Crowley Hart10-K YE 2003 12/23/2003 Crowley Hart10-Q I Q 2004 2/17/2004 Crowle Hart10-Q 2Q 2004 5/11/2004 Crowley Hart10-Q 3Q 2004 8/16/2004 Crowley Hart10-K YE 2004 12/14/2004 Crowley Hart10-Q I Q 2005 2/9/2005 Crowley Burdick10-Q 2Q 2005 5/5/2005 Crowley Burdick10-0 30 2005 8/10/2005 Crowley Hooson

292. These financial statements were not in accordance with GAAP or SEC rules. Section

302 of the Sarbanes-Oxley Act of 2002 and SEC Rules 13A-14(a) and 15D-14(a) of the Exchange

!pct requires the chief executive officer and chief financial officer, respectively, to certify to the SEC

and investors both the fairness of the financial information in each quarterly and annual report.

Defendants Crowley, Hooson and Burdick certified to investors that the financial statements and

)they financial information included in the reports are fairly presented in all material respects.

Defendants Crowley, Hooson and Burdick also attested that the reports did not contain any untrue

statements ofmaterial fact or omit to state a material fact. In addition , defendants Crowley, Hooson

and Burdick stated that SeraCare established and maintained disclosure controls and procedures

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sufficient to ensure that the financial and non-financial information required to be disclosed in SEC

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reports was recorded, processed, summarized, and reported within the specified time periods.

293. Defendants Crowley, Hooson and Burdick knowingly or recklessly certified

misleading and inaccurate financial statements that were not in accordance with GAAP and SEC

rules. Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 and 18 U.S.C. § 1350, defendants

Crowley, Hooson and Burdick were required to certify each periodic report that includes financial

statements. Their signed certification falsely stated that: (i) the report fully complied with the

requirements of section 13(a) or 15(d) ofthe Exchange Act; and (ii) the information contained in the

report fairly presented, in all material respects, the financial condition and results of operations of

SeraCare.

E. SeraCare Board Members Exercised Improper Influence on Financial Reportingand External Auditors

294. Defendant Plost and other defendants knowingly engaged in a practice ofimproperly

.xercising undue influence over its financial reporting personnel and its external auditors, including

VIHM. Section 303 (a) of the Sarbanes-Oxley Act of 2002 , and as adopted by the SEC (17 C.F.R.

Part 240), prohibits such behavior:

It shall be unlawful, in contravention of such rules or regulations as the Commissionshall prescribe as necessary and appropriate in the public interest or for the protectionof investors, for any officer or director of an issuer, or any other person acting underthe direction thereof, to take any action to fraudulently influence, coerce, manipulate,or mislead any independent public or certified accountant engaged in theperformance of an audit of the financial statements of that issuer for the purpose ofrendering such financial statements materially misleading.

295. The MHM letter to SeraCare's audit committee dated December 15, 2005 confirmed

;his improper exercise of undue influence:

Tone at the top - the Chairman ofthe Board appears to be inserting himselfinto thefinancial reportingprocess in a manner thatprevents the concerns notedabove from being addressed appropriately. In addition, certain board membersappear to be exerting undue influence on the financial reporting team and onmembers ofthe audit team to reach a conclusion withoutproper consideration ofthefacts and circumstances . In the same connection, we call your attention to thefact that section 303(a) of the Sarbanes-Oxley Act has a provision that prohibitstaking any action to improperly influence the auditors. We are concerned that certainactions ofboard members during the course ofour audit could be construed to violatethat provision.

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F. KPMG's Audit Violates Fundamental Concepts of GAAS

296. KPMG was SeraCare's external auditors for three years, auditing SeraCare's books in

2002, 2003, and 2004. After KPMG was fired as SeraCare's auditor on August 22, 2005, MHM

began auditing SeraCare's books. In four short months, MHM found numerous egregious

accounting and financial reporting violations. MHM's findings show that KPMG's prior audits

amounted to no audit at all. KPMG refused to see, or simply ignored, obvious overstatements in

inventories, numerous unsupported sales transactions, changes to inventory balances, capitalization

Df overhead expenses, excess inventory, and prematurely recognized revenue. KPMG relied on

unsupported representations ofmanagement, failed to determine if certain internal controls were in

place (in fact, certain internal controls were entirely absent until August 2005), and never tested the

internal controls.

297. But, KPMG was not just involved in SeraCare's annual audits, it participated in

;seating and preparing SeraCare's interim financial statements filed on the Company's Form 10-Qs

with the SEC. With respect to SeraCare's quarterly financial statements and Form 10-Q's, KPMG

performed fieldwork, signed off on quarterly earnings releases, edited SeraCare's financial

statements and Form 10-Qs, checked the Company's final changes to the Form 10-Q's, and signed

Dff on the Form 10-Qs. See Ex. 10. KPMG's participation in the creation of SeraCare's financial

statements is also demonstrated by KPMG's "Timely Quarterly Review - Management Inquiries.

See Ex. 11. As part of its work on the quarterly financials, KPMG attended quarterly "kick-off

meetings with SeraCare management and worked extensively with management in reviewing and

analyzing the Company's quarterly activity, including reviewing the design and operation of the

Company's internal controls for deficiencies and material weaknesses. See id. at SRLSEKL090137.

Additionally, KPMG provided the Company feedback and made substantive changes to the

Company's Form 10-Qs and press releases. See Exs. 12 and 13. Further, as demonstrated by

KPMG's "Interim Accounting Disclosure Checklist, KPMG was also intimately involved in

determining whether SeraCare's interim/quarterly financial statements and financial data contained

the necessary disclosures. See Ex. 14.

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298. As a primary participant in the creation and preparation of the Company's quarterly

financial statements and 10-Q filings throughout the Class Period, KPMG had access to all

information that was available about SeraCare's quarterly financial results. KPMG intentionally

and/or recklessly ignored the misrepresentations and omissions contained in the Company's Form

10-Qs filed during the Class Period despite the fact that it knew that SeraCare's investors would rely

on the information contained therein.

299. Indeed, SeraCare admitted that KPMG evaluated the financials contained in its Form

10-Q for the period ended June 30, 2005 (SeraCare's last publicly filed financial statement) - which

the Company has now admitted are false (SeraCare's "quarterly report[] on Form 10-Q for the

quarter[] ended ... June 30, 2005 should no longer be relied upon ). According to CW-8, KPMG

started reviewing SeraCare's 3Q 2005 financials in July of 2005. And KPMG continued to work on

these financials until they were filed: "the Company was completing final edits to the Form 10-Q up

to such time to reflect continuing discussions with its auditors.

300. During the Class Period, KPMG regularly attended SeraCare's Audit Committee

meeting and discussed with SeraCare's Board members Company staffing issues, internal control

aver financial reporting issues, inventory valuations and increases in inventory. See Ex. 15. Three

KPMG employees attended each Audit Committee meeting: the engagement partner, the concurring

partner and the audit manager. KPMG made presentations to the Audit Committee pertaining to

both the Company's quarterly and year-end financial statements. See Ex. 16. KPMG participated in

the Audit Committee meetings up until at least August 9, 2005, two weeks before KPMG was

terminated.

301. In addition to performing audits and assisting SeraCare with the preparation of

quarterly financial statements, KPMG provided the following services to SeraCare during the Class

Period: tax services, including a large project involving a research and development tax credit for

SeraCare; review and testing of SeraCare's Sarbanes-Oxley procedures for fiscal year 2005; and

acquisition services, where KPMG would review an acquisition target's financials before SeraCare

would decide whether to purchase the company. For example, SeraCare engaged KPMG to assist

the Company with its assessment of risks and opportunities of the Company's acquisition of BBI.

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As part of this engagement KPMG reviewed and evaluated BBI's financial statements, including

BBI's inventory valuations and adequacy ofinventory reserves, expenses, financial performance and

balance sheet information.

302. According to four confidential witnesses (CW-8, CW-7, CW-2 and CW-13) who

were present when KPMG performed its audits, KPMG failed to follow the most basic standards of

GAAS.

1. Confidential Witness 7

303. CW-7 was employed as a Warehouse Logistics Manager at SeraCare ' s corporate

headquarters from 2001 to October 2005. CW-7 said that, although he was in charge of SeraCare's

inventory system, he was never able to get the quantities of inventory in the system to match the

physical quantities of inventory on hand.

304. CW-7 explained that he participated in the annual physical inventory audits at the

Oceanside facility during his employment. CW-7 said KPMG only participated in these physical

;,ounts "from afar and at most sometimes asked to review a specific "inventory card (the inventory

worksheets on which employees recorded the inventory figures during the process) to spot check the

data being recorded. CW-7 recalled "two main KPMG people who were present for the annual

inventory count each year, though he could not recall their names, and said the rest of the KPMG

representatives varied from year to year. During the inventory counts, KPMG's auditors never asked

questions ofthe SeraCare employees who were actually physically counting the inventory; they only

directed their questions to members of SeraCare's management, including CW-7's supervisor Duane

Pinkerton, Defendant Mike Crowley, Jr., and Defendant Jerry Burdick. CW-7 always thought it was

add that KPMG never talked to him during its annual audit about SeraCare's inventory and

inventory tracking processes and systems, given that CW-7 was in charge of keeping track of

inventory, and managing incoming inventory from vendors and outgoing shipments to customers.

305. CW-7 recalled the late September 2005 full inventory count (also described by CW-

8), and agreed that it occurred earlier than normal, since normally the count took place in early

October, just after the end of the Company ' s fiscal year (September 30). CW-7 also recalled

receiving a few weeks' notice a few times that his team needed to conduct a physical inventory count

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in between the annual physical counts . CW-7 recalled that in one specific instance in 2004, he was

notified that a physical inventory count was needed "because we needed to adjust the values

upward.

306. According to CW-7, KPMG representatives spent most of their time during the

;,ounts in the office located in the Oceanside facility's warehouse, away from where the physical

inventory count was occurring. CW-7 said the KPMG people did participate in some of the counts,

but SeraCare employees, including CW-7, did all the physical counting in all four of the annual

inventory counts that he participated in during his employment (2001 through October 2005),

including the test counts for KPMG. Despite his participation in the inventory counts, CW-7 never

saw anyone from KPMG physically count any of the inventory for the test counts.

307. CW-7 described one instance when he was tasked with taking two young KPMG

employees to the Miramar storage facility for a test count. The Miramar storage facility held much

more inventory than the Oceanside facility, and CW-7 said SeraCare stored 90% of its bulk units

there. Miramar typically had between 95 and about 112 palettes onsite, and each palette had about

24 units ofproduct on it. At the time ofthis particular test count, CW-7 recalled there were about 96

palettes present. CW-7 said the freezers in which the blood products were stored were -43° F, and so

CW-7 took the two KPMG employees into the freezer only long enough to show them the layout of

the freezer, and how products were organized and labeled. CW-7 said they were with him in the

freezer for about five minutes. After that, the two KPMG representatives reviewed an inventory list

that CW-7 had prepared for his own use. CW-7's inventory list included individual palette numbers,

each palette's contents, and the total number of units on each palette, among other criteria. After

looking at CW-7's list, the two KPMG representatives asked him to bring out two of the

approximately 96 palettes in the freezer. CW-7 retrieved the palettes and brought them out to the

loading dock area. The KPMG employees then asked CW-7 to count the items on each of these

palettes. CW-7 said neither of the KPMG representatives physically counted the units on the two

palettes. They only observed CW-7 count the units, but did not stand near him. CW-7 explained

that one of the two KPMG employees was particularly squeamish about the fact that the units were

blood products, and one of the palettes contained HIV human plasma, and so the two KPMG

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representatives stood about five feet away from him and the palettes. After CW-7 completed the

;,ount on these two palettes, the two KPMG representatives left the facility but did not return to the

Dngoing inventory count project at SeraCare's Oceanside facility. They both said they had personal

things to do at that point and they just "took off. CW-7 said the three ofthem were at the Miramar

facility for the test count for about 30 minutes. CW-7 returned directly to the Oceanside afterward,

and when he arrived, other KPMG representatives were surprised to see him return so quickly. He

explained to them exactly what he did at the Miramar site, and the KPMG people seemed

disappointed with what CW-7 told them. However, no KPMG employee ever went back to the

Miramar facility to re-do the test count. CW-7 believes he would know ifKPMG had returned to the

Miramar facility because he had the key to the Miramar facility, and someone would have to have

asked him for the key to go back there. CW-7 does not recall anyone from KPMG asking him for

the key to the Miramar facility.

308. Similarly, during the annual inventory counts at the Oceanside storage facility,

KPMG representatives asked CW-7 to pull only one or two palettes or carts (some inventory was

stored on carts at the Oceanside facility). Once he brought the units out of whichever freezer they

were stored in (there were four freezers of different sizes at Oceanside), a KPMG representative

would have CW-7 physically re-count the units on the one or two palettes he retrieved. CW-7 said

sometimes a KPMG representative stood close enough to him to observe him physically counting the

units, but most ofthe time that was not the case. CW-7 felt that this level ofparticipation in the test

;,ounts by KPMG representatives was not adequate to ensure that the sample re-counts that he and

Dther SeraCare employees did for KPMG resulted in accurate figures. He said his feeling was that

"if you want to know something, you've got to get involved, and, based on his experience, he does

not believe that KPMG was consistently and actively involved in the test counts.


309. CW-8 was employed by SeraCare from April 2003 through April 2006 in the

Oceanside, California facility. CW-8 started at SeraCare as a Quality Control Technician and was

promoted to Quality Assurance Supervisor, in which position he participated in annual and other

periodic physical inventory counts at SeraCare's Oceanside and Miramar facilities.

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310. CW-8 explained that SeraCare conducted annual physical inventory counts at its

Oceanside and Miramar facilities just after the end of each fiscal year, around the first of October.

At the Miramar facility, these inventories included products, most ofwhich were in cold storage, and

they lasted for about a week. CW-8 explained that it took two to three days to complete the counts at

the Oceanside facility and an additional one to two days at the Miramar facility.

311. CW-8 recounted that auditors from KPMG were present for the annual inventory

;,ounts. CW-8 said KPMG representatives were present each day ofthe count for a couple hours, but

not the whole time, and they "were standing as far back as they could from the actual physical

;,ounting going on because they were "squeamish about handling the plasma or even being near it,

for fear of HIV and other diseases that the plasma might contain. According to CW-8, the most

KPMG did was perform spot checks at both facilities of the paperwork being prepared from the

physical counts, that SeraCare employees conducted, by checking to see ifthe recorded figures were

the same as the figures being called out by SeraCare employees. CW-8 explained that some

SeraCare employees were assigned to physically count the inventory, while others were assigned to

record the counts on inventory worksheets.

312. CW-8 said that during the annual inventories , if a discrepancy was discovered in the

number of units of a particular lot, the SeraCare employee who discovered the discrepancy made a

note ofthe difference on his or her inventory worksheet. The inventory worksheets were then turned

in to Sue Mills (the system administrator for SeraCare's accounting system) at the end ofeach day or

when the count for a particular location (e.g., individual freezer) was completed. Mills' job was to

reconcile the numbers on inventory sheets and generate reports from SeraCare's enterprise system,

;,alled MAS 200, as part ofthe inventory process. CW-8 recalled that the inventory takers were not

required to report discrepancies to KPMG during the physical counts. If a KPMG auditor happened

to be present when the discrepancy was discovered, it was normally reported to that auditor, but the

inventory counts took place in different rooms within the Oceanside and Miramar facilities, the

KPMG representatives didn't always follow SeraCare employees from room to room, and the

employees did not go out of their way to go get a KPMG representative if a discrepancy was found.

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313. CW-2 was a senior executive with BioMedical Resources , Inc. ("BMR ) and worked

for SeraCare Life Science , Inc. ("SeraCare ) from the time SeraCare acquired BMR in July 2003

until CW-2 left SeraCare in the summer of 2005.

314. CW-2 said that one or two people from KPMG visited SeraCare's Hatboro facility in

2004. CW-2 was the main contact with KPMG at that facility. CW-2 said his people conducted the

actual physical count while KPMG sat there and oversaw the process. CW-2's shipping and

receiving clerks and possibly some Oceanside employees from Operations were present. The

inventory counts covered the Hatboro facility's huge walk-in freezers. CW-2 said the auditors spent

Dnly a couple days there.

315. CW-2 recalled that KPMG visited BMR near the end of September 2004. According

to CW-2, KPMG sent some "girl who was "fresh as a daisy and did not know "squat. CW-2

believed she was only a few months out of accounting school. CW-2 said that she sat there and

Dverlooked the inventory count.


316. According to CW-13, KPMG was a relatively passive audit firm during much of the

Class Period and did not pay much attention. Indeed, CW- 13 recalls CW-1 expressing surprise to

him in September 2004 or October 2004 that KPMG did not require SeraCare to write down

inventory. Dwayne Pinkerton made a similar comment to CW- 13 around the same time period.

Specifically, Pinkerton commented that he did not know why KPMG let the Company value the

inventory the way it was. CW- 13 did not have the sense anyone was trying to hide information from

KPMG. During one of their lunches together or while they were working late one night sometime

between March and June 2005, Defendant Hooson, SeraCare's CFO, commented to CW- 13 that he

was extremely surprised that KPMG allowed SeraCare to value the inventory in Oceanside the way

it did and could not understand how the inventory on the balance sheet was what it was.

317. After MHM replaced KPMG in August 2005, Hooson told CW-13 that MHM was

uncovering "a lot and he was feeling uncomfortable. MHM wanted more detail and appeared to

treat the audit more seriously than KPMG had. CW- 13 said the Company often compared the two

-87- 05-CV-2335-H(CAB)


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audit firms. Additionally, Defendant Burdick made the comment to CW-13 that MHM was

beginning to probe too much and ask questions that KPMG never asked.

318. KPMG's failure to do an inventory count or even perform test counts, instead relying

an the representations of management as to purported inventory levels , is an egregious deviation

from the third standard of field work under GAAS. Pursuant to this standard, an auditor must have

sufficient, competent , evidential matter obtained to afford a reasonable basis for an opinion on the

Financial statements under audit.

5. KPMG's Failure to Adhere to GAAS and Its Participation in the Fraud isCorroborated by Additional Evidence.

319. SeraCare admitted inventory manipulations occurred during KPMG's tenure as the

Company's auditor and yet KPMG failed to detect the inventory problems because it did not perform

its audits consistent with GAAS. For example, in a memo entitled "Oceanside Inventory Open

Items, dated February 8, 2006, prepared by MHM in connection with its audit, MHM notes that it

"has not received a response [from SeraCare management] regarding the problems we summarized

with identifying our selected items on the FY 2004 inventory detail listing. Please refer to emails

sent by MHM on 11/21, 11/23 and 11/28. See Ex. 28 at SRLSECH008049. The memo later notes

that MHM needs an "explanation for $700k variance between TB and the inventory listing for totals

as of 9/30/2004 for BBI. This memo supports the conclusion that SeraCare's admitted inventory

manipulation occurred during KPMG's tenure as the Company's auditor, and yet KPMG failed to

discover the inventory problems because it did not perform its audits consistent with GAAS.

320. KPMG falsely stated in SeraCare's 2003 Form 10-K, 2004 Form 10-K and in the

Registration Statement to the Secondary Offering that it performed its audits in accordance with

GRAS: "An audit includes examining, on a test basis , evidence supporting the amounts and

disclosures in the financial statements. But, according to CW-2, CW-7 and CW-8, KPMG never

tested the inventory count.

321. Furthermore, MHM confirmed that KPMG never tested the inventory counts : "certain

:,ontrols were not in place until August 2005, and ... the testing of the controls has not been

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:,ompleted. But, SeraCare stated publicly that its controls were in place and adequate, and that

KPMG had evaluated these controls.

322. Indeed, ifKPMG would have tested the inventory counts, controls, or performed its

audits in accordance with GAAS, it would have seen numerous accounting irregularities that MHM

discovered in merely four months. MHM made the following findings:

• "Therefore, we must again express our discomfort with the lack ofanalysisbeing done by the Company related to this transaction. Our knowledge ofthis transaction raises our concern that there may be other similar transactionsof which we are not aware ;

• "The Company carries large inventory balances in relation to its sales and hascontinuing and increasing negative cash flows from operations in spite ofpositive net income as a result ofincreases in these balances ;

• "The Company has been unable toprovide support for material amounts ofinventory recorded on its balance sheet at September 30, 2005 ;

• "It appears the Company has made numerous unsupported changes to costsof items in inventory, and to quantities of inventory items as of September30, 2005 ;

• "There appears to be an absence ofany method orprocess to evaluate theinventory for potential excess quantities on hand ;

• "There are material amounts ofinventory which appear adequate to providefor decades of sales in some cases ;

• "The Company has been unable to relate overhead costs capitalized tospecific items of inventory to actual activity related to those items during theperiod the costs were incurred ;

• "We have inquired repeatedly with management regarding theappropriateness of the methods being used to account for inventory and theappropriateness of the changes that were made to inventory balances. Inresponse the Company has provided explanations that are notsupported withadequate documentation or analysis and that often are conflicting ;

• "We continue to be very uncomfortable with the inventory balances as ofSeptember 30, 2005 ;

• "We are concerned that the Company was not adequately prepared for theimplementation of section 404 of the Sarbanes-Oxley Act. Our concerns[regarding SeraCare's failure to implement Sarbanes-Oxley controls] resultfrom (a) the quality of the documentation provided so far, (b) ourunderstanding that certain controls were not inplace untilAugust 2005, and

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(c) the fact that, as to our knowledge, the testing ofthe controls has not beencompleted. In addition, we have concerns about the control environment asdiscussed in No. 3 above ; and

• "These conditions increase our concern about whether there aremisstatements in the financial statements that we have not identified.

323. Over the course of 2003, as KPMG audited SeraCare's financials, KPMG met

regularly with defendants Cresci, Jallad, and Teng, who were members ofthe Audit Committee. At

some of these meetings , SeraCare ' s management was present . KPMG supposedly discussed the

following with these defendants:

• The audited financial statements for 2003;

• KPMG's overall scope and plans for the audit;

• KPMG's results of its audit examination;

• KPMG's evaluation ofthe Company's internal controls;

• KPMG's determination of the overall quality of SeraCare' s accountingprocedures;

• KPMG's judgment regarding the quality and acceptability ofthe Company'saccounting principles; and

• KPMG's judgment of the underlying estimates in SeraCare's financialstatements.

324. As stated above, KPMG only performed its inventory counts at the end ofeach fiscal

year, in October. KPMG and SeraCare conducted an inventory count in July 2005, rather than in

October, as KPMG began to evaluate SeraCare's 3Q 2005 financials.

325. Ten days after SeraCare filed its 3Q 2005 financial statements - on August 22, 2005 -

SeraCare fired KPMG and hired MHM as its replacement. In conjunction with KPMG's

termination, SeraCare stated:

The reports ofKPMG LLP on the financial statements for the Company for its fiscalyears ended September 30, 2004 and 2003 did not contain an adverse opinion or adisclaimer of an opinion, and were not qualified or modified as to uncertainty, auditscope, or accounting principles. During thefiscalyears endedSeptember 30, 2004and 2003, and through the date of this report, the Company has had nodisagreements with KPMG LLP on any matter of accounting principles orpractices, financial statement disclosure, or auditing scope orprocedures, whichdisagreements, ifnot resolved to the satisfaction ofKPMGLLPwouldhave caused

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them to make reference thereto in their report on thefinancial statements oftheCompanyfor such periods . During the fiscal years ended September 30, 2004 and2003, and through the date of this report, the Company has had no reportable eventsas defined in Item 304(a)(1)(v) of Regulation S-K.

326. KPMG agreed with the above statement , stating:

We were previously principal accountants for SeraCare Life Sciences, Inc.and, under the date ofDecember 10, 2004, except as to the fifth paragraph ofnote 5,which is as of December 14, 2004, we reported on the financial statements ofSeraCare Life Sciences, Inc. as of and for the years ended September 30, 2004 and2003. On August 22, 2005, our appointment as principal accountants wasterminated. We have read SeraCare Life Sciences, Inc.'s statements includedunder Item 4.01 of its Form 8-K dated August 22, 2005, and we agree with suchstatements , except that we are not in a position to agree or disagree with SeraCareLife Sciences, Inc.'s statements in paragraph 4.01(b).

327. Shortly after SeraCare hired MHM, Lawlor and Crowley warned SeraCare's

.mployees at other facilities that it had found "inconsistencies and MHM would more carefully

scrutinize these facilities.

328. CW-10 worked for SeraCare from 2001 until March 2006 as a Repository Manager.

CW-10 worked at SeraCare's Fredrick, Maryland facility and also worked out of the Gaithersburg

Facility. CW-10 reported to the Director ofRepository Operations. According to CW-10, there was

a conference call in mid-to-late 2005 that was attended by CW-10, all other repository managers

from the Fredrick facility, Lawlor and Crowley. On the call, the repository managers were warned

;hat SeraCare had hired new auditors and these auditors had found "inconsistencies. As a result of

these findings, they were warned that the Company would undergo more scrutiny.

329. Once MI-IM came on board, it ordered a full physical inventory count toward the end

)f September 2005. After this occurred, MHM required a second full physical inventory in late

Dctober or early November 2005. Thereafter, SeraCare conducted smaller weekly sample inventory

;ounts and then larger (but not comprehensive) monthly counts as well. During its audit, MHM

quickly identified numerous serious accounting violations that should have alerted any reasonable

auditor to SeraCare's fraud. See Ex. 7.

330. In SeraCare's 2003 Form 10-K, KPMG made the following statement:

We have audited the accompanying balance sheets ofSeraCare Life Sciences,Inc. as of September 30, 2003 and 2002 and the related statements of operations,stockholders' equity, and cash flows for each of the years in the two-year periodended September 30, 2003. These financial statements are the responsibility of the

-91- 05-CV-2335-H(CAB)


Company's management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

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We conducted our audits in accordance with auditing standards generallyaccepted in the United States ofAmerica. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free ofmaterial misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion , the financial statements referred to above presents fairly, in allmaterial respects, the financial position of SeraCare Life Sciences , Inc. as ofSeptember 30, 2003 and 2002 , and the results of its operations and its cash flows forthe years then ended, in conformity with accounting principles generally accepted inthe United States of America.

331. In 2004, KPMG issued another unqualified opinion, which was included in the

Company's Form 10-K:

We have audited the accompanying balance sheets ofSeraCare Life Sciences,Inc. as of September 30, 2004 and 2003 and the related statements of income,stockholders ' equity, and cash flows for each of the years in the three-year periodended September 30, 2004 . These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with the standards of the PublicCompany Oversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free ofmaterial misstatement . An audit includes examining, on a testbasis , evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation . We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in allmaterial respects , the financial position of SeraCare Life Sciences , Inc. as ofSeptember 30, 2004 and 2003 and the results of its operations and its cash flows foreach of the years in the three-year period ended September 30, 2004, in conformitywith U. S. generally accepted accounting principles.

332. On May 25, 2005, SeraCare filed its Registration Statement for the Secondary

Dffering, in which KPMG made the following statement:

We have audited the accompanying balance sheets ofSeraCare Life Sciences,Inc. as of September 30, 2003 and 2004 and the related statements of income,shareholders ' equity, and cash flows for each of the years in the three-year periodended September 30, 2004 . These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

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We conducted our audits in accordance with the standards of the PublicCompany Oversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free ofmaterial misstatement. An audit includes examining, on a testbasis , evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation . We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in allmaterial respects , the financial position of SeraCare Life Sciences , Inc. as ofSeptember 30, 2003 and 2004 and the results of its operations and its cash flows foreach of the years in the three-year period ended September 30, 2004, in conformitywith U. S. generally accepted accounting principles.

333. The statements in ¶1330-332 were, in fact, false and misleading. As described in

¶187-124, SeraCare ' s financial reports for 2003 and 2004 were false and misleading , and thus not in

;,onformity with GAAP. Nor did KPMG perform its audits in accordance with GAAS or the

standards articulated by the Public Company Oversight Board. See ¶1296-337. As described in

¶1296-337, KPMG never tested the inventory counts or the overall controls . KPMG also failed to

investigate the numerous red flags ofaccounting improprieties, as described in ¶322. KPMG simply

relied on the blanket representations of Crowley and Burdick and never established an independent

basis to form its opinions . See ¶1296-337.

334. KPMG sought to cover its tracks by petitioning the bankruptcy court overseeing

SeraCare' s reorganization to be employed as SeraCare' s tax accountants . On June 27, 2006, KPMG

informed the bankruptcy court it would waive the $83,412 it is owed from SeraCare for prior tax and

;,onsulting services ifthe bankruptcy court appointed KPMG as SeraCare's tax accountants.

335. Due to the accounting improprieties, KPMG sought appointment to prepare amended

tax returnsforfiscalyears ended 2002-2004 - the same years that KPMG supposedly audited the

Company's false financials. But, not only is KPMG willing to throw away $83,412 in fees, it is also

seeks to perform its tax services at discounted rates. KPMG has stated it will reduce it hourly rates

by 30% to prepare SeraCare's amended tax returns for fiscal years 2002-2004.

336. KPMG's failure to adequately perform its audit procedures to identify the

improprieties alleged herein, and its failure to report the problems, permitted the accounting

irregularities and improprieties to continue over a period of at least 32 months, leading to false and

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misstated financial statements . KPMG' s failure to identify SeraCare's false financial reporting

violated the following GAAS standards.

337. Due to KPMG' s false statements and failure to identify and modify its reports to

identify SeraCare ' s false financial reporting , KPMG violated the following GAAS standards (AU

§ 150):

(a) The first general standard is that the audit should be performed by persons

having adequate technical training and proficiency as auditors.

(b) The second general standard is that the auditors should maintain independence

in mental attitude in all matters relating to the engagement.

(c) The third general standard is that due professional care is to be exercised in

the performance of the audit and preparation of the report.

(d) The first standard of field work is that the audit is to be adequately planned

and that assistants should be properly supervised.

(e) The second standard offield work is that the auditor should obtain a sufficient

understanding of internal controls so as to plan the audit and determine the nature, timing and extent

Df tests to be performed.

(f) The third standard offield work is that sufficient, competent, evidential matter

is to be obtained to afford a reasonable basis for an opinion on the financial statements under audit.

(g) The first standard of reporting is that the report state whether the financial

statements are presented in accordance with GAAP.

(h) The second standard ofreporting is that the report shall identify circumstances

in which GAAP has not been consistently observed.

(i) The third standard ofreporting is that informative disclosures are regarded as

reasonably adequate unless otherwise stated in the report.

0) The fourth standard ofreporting is that the report shall contain an expression

Df opinion or the reasons why an opinion cannot be expressed.

-94- 05-CV-2335-H(CAB)

Case k

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THE GAAP VIOLATIONS WERE MATERIAL AND REQUIRED RESTATEMENTS

338. SeraCare's financial fraud alleged herein was material. As an initial matter,

SeraCare's financial misstatements were clearly material solely from a numerical (quantitative)

standpoint because the restatement represents at least a 50% overstatement of inventory,9 and

hundreds ofthousands, and in some cases, millions ofdollars ofimproperly booked revenue. In fact,

a preliminary analysis done by the Company shows pre-tax earnings were overstated by at least 50%

in 2005.

339. For example, the $1 million Wyeth transaction in the second quarter of FY 2003

increased SeraCare's Earnings Per Share ("EPS ) from $0.07 ($0.06 diluted) to $0.11 ($0.10

diluted); the $1 million Wyeth transaction and the $385,000 Biogen transaction in FY 2003

increased SeraCare's EPS from $0.30 ($0.27 diluted) to $0.35 ($0.31 diluted); the $454,000 Roche

transaction in first quarter FY 2005 increased SeraCare's EPS from $0.16 ($0.14 diluted) to $0.17

($0.15 diluted); the $552,000 inventory reserve liquidation in Q2 2005 increased SeraCare's EPS

from $0.16 ($0.15 diluted) to $0.21 ($0.18 diluted) and increased gross margin from 42% to 46%;

and the $459,000 inventory reserve liquidation in Q3 2005 increased SeraCare's EPS from $0.15

($0.13 diluted) to $0.17 ($0.16 diluted) and increased gross margins from 44% to 47%.

340. However, definitions of materiality are not limited to numbers and amounts - there

are qualitative factors as well. SEC SAB Topic 1M, Materiality, summarizes GAAP definitions of

materiality.10 Among other items, SAB Topic 1M says: "A matter is `material' if there is a

substantial likelihood that a reasonable person would consider it important. It also stresses that

materiality requires qualitative, as well as quantitative, considerations. For example, if a known

misstatement would cause a significant market reaction, that reaction should be taken into account in

determining the materiality of the misstatement.

9 On April 7, 2006, the Company stated its "bankable inventory was $17 million-one-half ofits stated inventory as of SeraCare's last publicly filed financial statement for the quarter endedJune 30, 2005.

10 SAB Topic 1 M, Materiality, represents the codification ofcertain StaffAccounting Bulletins,including SAB No. 99, Materiality, as ofMay 9, 2003. SAB No. 99 was effective August 12,1999.

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Case I

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341. SAB Topic 1M further states:

Among the considerations that may well render material a quantitativelysmall misstatement of a financial statement item are -

• whether the misstatement masks a change in earnings or other trends

• whether the misstatement hides a failure to meet analysts' consensusexpectations for the enterprise

• whether the misstatement concerns a segment or other portion of theregistrant's business that has been identified as playing a significant role inthe registrant's operations or profitability.

342. SAB Topic 1M also says that an intentional misstatement of even immaterial items

may be illegal and constitute fraudulent financial reporting.

343. SeraCare's misstatements, by the Company's own admissions, satisfy these criteria

and thus were material from both a quantitative and qualitative perspective.

ADDITIONAL GAAP AND SEC VIOLATIONS

344. Financial reporting includes not only financial statements, but also other means of

communicating information that relates directly or indirectly to the information in the financial

statements. See FASCON No. 1, ¶7. For this reason, in addition to SeraCare's failure to make the

required disclosures in its financial statements and in its SEC filings, SeraCare also shirked its duty

to make such disclosures in its conference calls, its press releases and its Annual Reports.

345. Due to these accounting improprieties, the Company presented its financial results

and statements in a manner that violated GAAP, including the following fundamental accounting

principles:

(a) The principle that interim financial reporting should be based upon the same

accounting principles and practices used to prepare annual financial statements (APB No. 28, 10);

(b) The principle that financial reporting should provide information that is useful

to present and potential investors and creditors and other users in making rational investment, credit

and similar decisions (FASCON No. 1, ¶34);

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Case I

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(c) The principle that financial reporting should provide information about the

economic resources of an enterprise, the claims to those resources, and the effects of transactions,

events and circumstances that change resources and claims to those resources (FASCON No. 1,

¶40);

(d) The principle that financial reporting should provide information about how

management ofan enterprise has discharged its stewardship responsibility to owners (stockholders)

for the use of enterprise resources entrusted to it. And to the extent that management offers

securities of the enterprise to the public , it voluntarily accepts wider responsibilities for

accountability to prospective investors and to the public in general (FASCON No . 1, ¶50);

(e) The principle that financial reporting should provide information about an

enterprise's financial performance during a period. Investors and creditors often use information

about the past to help in assessing the prospects of an enterprise. Thus, although investment and

credit decisions reflect investors' expectations about future enterprise performance, those

expectations are commonly based, at least partly, on evaluations of past enterprise performance

(FASCON No. 1, ¶42);

(f) The principle that financial reporting should be reliable in that it represents

what it purports to represent. That information should be reliable as well as relevant is a notion that

is central to accounting (FASCON No. 2, ¶¶58-59);

(g) The principle of completeness, which means that nothing is left out of the

information that may be necessary to insure that it validly represents underlying events and

conditions (FASCON No. 2, ¶79); and

(h) The principle that conservatism be used as a prudent reaction to uncertainty to

try to ensure that uncertainties and risks inherent in business situations are adequately considered.

The best way to avoid injury to investors is to try to ensure that what is reported represents what it

purports to represent (FASCON No. 2, ¶195, 97).

346. Moreover, the undisclosed, adverse, material information during the Class Period is

the type of information that, because of SEC regulations, national stock-exchange regulations and

customary business practice, investors and securities analysts expect to be disclosed and that

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Case

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corporate officials and their legal and financial advisors know to be the type of information that must

be disclosed.

SERACARE FAILED TO MAKE REQUIRED DISCLOSURES

347. The SEC requires that, as to annual and interim financial statements filed with the

SEC, registrants include a management's discussion and analysis section which provides information

with respect to the results of operations and "also shall provide such other information that the

registrant believes to be necessary to an understanding of its financial condition, changes in financial

condition and results of operations . See Regulation S-K, 17 C.F.R. §229.303(a). Regulation S-K

states that, as to annual results , the management's discussion and analysis section shall:

(i) Describe any unusual or infrequent events or transactions or anysignificant economic changes that materially affected the amount ofreported incomefrom continuing operations and, in each case, indicate the extent to which incomewas so affected. In addition, describe any other significant components ofrevenuesor expenses that, in the registrant's judgment, should be described in order tounderstand the registrant's results of operations.

(ii) Describe any known trends or uncertainties that have had or that theregistrant reasonably expects will have a material favorable or unfavorable impact onnet sales or revenues or income from continuing operations. If the registrant knowsof events that will cause a material change in the relationship between costs andrevenues (such as known future increases in costs of labor or materials or priceincreases or inventory adjustments), the change in the relationship shall be disclosed.

17 C.F.R. §229 . 303(a)(3).

348. The SEC also requires that, interim period financial statements filed with the SEC

include a management's discussion and analysis ofthe financial condition and results of operations

shall be provided so as to enable the reader to assess material changes in financial condition and

results of operations. Regulation S-K, 17 C.F.R. §229.303(b), states that "[t]he discussion and

analysis shall include a discussion ofmaterial changes in those items specifically listed in paragraph

(a) of this Item, except that the impact of inflation and changing prices on operations for interim

periods need not be addressed.

349. During the Class Period, SeraCare failed to disclose SeraCare's accounting policies

related to improper revenue recognition, improper valuation of inventories and improperly

capitalizing expenses, among numerous other significant accounting improprieties, and the

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unfavorable impact that improperly recording such transactions would have on the Company's

revenue, net income, EPS and financial position.

ADDITIONAL SCIENTER ALLEGATIONS

A. Insider Stock Sales

350. While SeraCare's top insiders were issuing false and misleading statements to the

public, defendants Crowley, Plost and Cresci were selling their holdings.

351. Defendant Crowley sold 114,000 shares for nearly $2 million in proceeds. A majority

ofthese sales occurred well into the Class Period (andjust a couple months before the truth began to

emerge), when SeraCare's stock was trading near all-time highs.

352. Defendant Crowley's sales are as follows:

Crowley, Michael Date Sales Price Proceeds02/25/2005 7 , 333 $ 13.610 $99 , 80202/25/2005 6, 667 $ 13.390 $89 ,27109/15/2005 15 ,000 $ 17.590 $263 , 85009/20/2005 15 ,000 $ 17.820 267 30009/27/2005 15 ,000 $ 17.450 S261 -75010/04/2005 15 ,000 $ 17.720 $265 - 90010/11/2005 15 ,000 $ 17.750 S266.25010/18/2005 15 ,000 $ 17.470 $262 -05010/25/2005 10,000 18.720 S 187 ,200TOTAL 114,000 $1 ,963,273

353. Defendant Plost sold 235,000 shares in the Secondary Offering for $2.8 million in

proceeds.

354. Defendant Cresci, on behalfofPecks, sold 276,000 shares in the Secondary Offering,

for $3.381 million in gross proceeds.

355. Defendants Plost, Crowley, Cresci and Pecks did not sell any SeraCare stock before

the Class Period.

356. At the same time that these defendants sold their shares of SeraCare common stock

on the open market, the Lead Plaintiffs made contemporaneous purchases. Thus, Plost, Crowley and

Pecks violated §20A of the Securities Exchange Act.

357. Lead Plaintiffs' contemporaneous purchases included purchases on May 24, 25, 27,

and 31, 2005; September 15, 19, and 20, 2005; and October 27, 28, and 31, 2005. See Exs. 1-6.

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B. Corporate Acquisitions

358. The Exchange Act Defendants were motivated to inflate SeraCare's stock as the

Company used its stock as currency to make acquisitions. SeraCare also depended on its credit

facilities to make acquisitions, which caused Defendants to systematically distort SearCare's

financial statements by prematurely booking revenue and improperly manipulating inventory values.

359. Defendants Plost and Crowley consistently told the market that their goal was to

aggressively acquire other companies so as to become a major player in their industry.

360. On October 9, 2003, SeraCare entered into a two-year, $10 million credit facility with

Brown Brothers Harriman & Co. The Company obtained this facility "primarily to finance future

acquisitions. Crowley stated,"' [w]e anticipate that this line of credit will assist us in our pursuit of

other acquisitions to prudently grow our company.'

361. Plost told the market on February 13, 2004, "[w]e are seeking aggressively,

acquisitions. Our acquisition program has been expanded, and we would look for deals through the

next 12 to 18 months that compliment our core capabilities.

362. As Plost told shareholders on December 13, 2004, the Company would pursue

"acquisitions that are in our core competencies and we think they may be coming along prior to the

end of the year. And, as disclosed in SeraCare's 2004 Form 10-K, the Company may need

additional capital because it "actively seek[s] out potential acquisition candidates.

1. BMR Acquisition

363. On July 16, 2003, SeraCare acquired BioMedical Resources, Inc. using cash and

Company stock. The Company paid nearly $4 million for BioMedical Resources, Inc., which

consisted of $3.5 million in cash and 67,002 shares valued at $400,000. To fund the cash portion of

the purchase price , the Company borrowed $2.5 million from Plost . On July 17, 2003, Crowley and

Plost held an investor conference call to discuss the successes of this acquisition.

2. GCI Acquisition

364. In June 2004, SeraCare announced the acquisition of substantially all the assets of

GCI. The Company paid $ 14.3 million for GCI, nearly all of this in SeraCare stock.

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3. BBI Acquisition

365. In September 2004, SeraCare acquired the assets of BBI Diagnostics and BBI

Biotechnology Research Laboratories, divisions of BBI. SeraCare paid $30 million cash and

assumed certain company liabilities for this acquisition. Twenty-one million in cash for this

acquisition was obtained by SeraCare through a credit facility from Union Bank and BBH. Crowley

stated in reference to the GCI and BBI acquisition:

"These acquisitions support our corporate goal of increasing shareholder value bybuilding SeraCare into a more comprehensive provider of biological materials andservices to the life sciences industry. We believe that the integration of theacquisitions will allow us to continue to improve our margins and increase ourmarket share while also becoming a valued partner to our life science customers. Welook forward to further progress in 2005 for our Company and all of ourshareholders.

4. Celliance Acquisition

366. In December 2005, after the Company disclosed the accounting issues uncovered by

MHM, SeraCare used $3.3 million from its line of credit to purchase Celliance, which it purchased

for $3.7 million in cash and the assumption of certain liabilities. Crowley stated in regards to this

acquisition:

"We are pleased to have completed this acquisition as we expect it will increase ourportfolio of products in the areas of molecular diagnostic reagents, diagnosticintermediates and substrates. In connection with this acquisition, we have assumedthe lease on Celliance's state of the art manufacturing, storage and distributionfacility located near our West Bridgewater manufacturing site. We believe theproximity of these two diagnostic manufacturing facilities will allow us to achievesynergies in the areas of manufacturing, staffing and distribution.

ADDITIONAL ALLEGATIONS OF CONFLICTS/CONTROL

367. While Plost was SeraCare's Chairman of the Board, he held controlling positions at

SeraCare's major suppliers. During 2003 and 2004, SeraCare purchased $2.6 million and $1.3

million in plasma products from Biomat USA, Inc., respectively. Also, during 2003 and 2004,

SeraCare purchased $5.7 million and $4.9 million in Human Serum Albumin from Instituto Grifols

S.A. (a subsidiary ofProbitas Pharma S.A.), respectively. Plost is the Chairman, President and Chief

Executive Officer of Biomat. Plost was on the Board of Probitas Pharma and a member of its

Executive Committee.

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368. In addition to holding these three positions at each ofthese companies, Plost was also

a paid SeraCare consultant. He was paid to advise defendant Crowley on potential acquisition

targets. He also loaned the Company, in conjunction with defendant Kasten, $3.5 million dollars to

fund a SeraCare acquisition. Indeed, Plost had the ability to, and in fact did, exercise actual control

over SeraCare. The Company's 2004 10-K confirmed this: "As of November 30, 2004, our

Chairman of the Board, Barry D. Plost, beneficially owned approximately 8.9% of our common

stock .. . Therefore, Mn Plost and Pecks Management Partners, Ltd each will have power to

exert significant influence on our management andpolicies.

369. Plost was not the only SeraCare director to hold well-paid consulting jobs with

SeraCare . The Company also paid defendant Burdick a $10,000 a month fee plus $100 per hour for

his consulting services . And, the Company paid Anderson as a consultant as well.

370. Defendant Pecks owned a significant portion of SeraCare shares. Indeed, SeraCare

admitted that Pecks controlled SeraCare : "As of November 30, 2004, ... Pecks Management

Partners , Ltd., as investment advisor for four separate investors , beneficially owns 14.7% of our

outstanding shares. Therefore, Mn Plost and Pecks Management Partners, Ltd each will have

to exert significant influence on our management andpolicies.

LOSS CAUSATION/ECONOMIC LOSS

371. During the Class Period, as detailed herein, the Exchange Act Individual Defendants

engaged in a scheme to deceive the market and a course of conduct that artificially inflated

SeraCare's stock price and operated as a fraud or deceit on Class Period purchasers of SeraCare

stock by misrepresenting the Company's present financial results.

372. Later, however, when the truth concerning SeraCare's false and misleading

accounting entered the market and became apparent to investors, SeraCare's stock fell precipitously

as the prior artificial inflation came out of SeraCare's stock price. As a result of their purchases of

SeraCare stock during the Class Period, plaintiffs and other members ofthe Class suffered economic

loss, i.e., damages under the federal securities laws.

373. By misrepresenting its sales, earnings and inventory valuations and falsifying the

Company's financial results, the Exchange Act Defendants presented a misleading picture of

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SeraCare' s business and prospects. Thus, the Exchange Act Individual Defendants caused SeraCare

to falsely report its financial results. See ¶187-139.

374. These false and misleading statements caused and maintained the artificial inflation in

SeraCare's stock price throughout the Class Period until the truth was revealed to the market. Thus,

Defendants' false and misleading statements caused SeraCare stock to trade at artificially inflated

levels - reaching as high as $23.17 per share - throughout the Class Period.

375. On December 20, 2005, the Company revealed that MHM had concerns regarding

SeraCare's "revenue recognition accounting policies and practices, the accounting for and valuation

of the Company's inventory, MHM's perception that certain board members were exerting undue

influence on the Company's financial reporting process and on the audit process, and the timeliness,

quality and completeness of the Company's implementation and testing of its internal control over

financial reporting. See Ex. 18.

376. As a result of this news, SeraCare's stock price fell from $19.30, its previous day's

close to $10.04, a 47.9% drop on 11,678,960 traded shares.

377. SeraCare's shares were still trading at artificially inflated levels as investors were still

unaware that the fraud was so egregious and pervasive that it would ultimately result in an expected

restatement, massive terminations of SeraCare's most senior executives and SeraCare's bankruptcy.

Furthermore, the Exchange Act Individual Defendants failed to disclose - until March 15, 2005 -

that its prior financials were significantly overstated.

378. On January 11, 2006, Steve Brozak, an analyst from WBB Securities, LLC issued a

securities analyst report. In the report, Mr. Brozak stated:

Based on SRLS' 12/30/2005 price depreciation and our opinion that SRLS'fundamentals remain the same, WBB Securities is raising our rating from Buy toStrong Buy with a 12-month price target of $19.

379. From December 20, 2005 to March 14, 2006, SeraCare stock traded between $8 and

$11 per share.

380. On March 15, 2006, SeraCare disclosed that it "expect[ed] to restate one or more of

its financial statements for the first three quarters of fiscal 2005. See Ex. 17. SeraCare further

announced that it "believe[d] that there [were] material weaknesses in its internal control over

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financial reporting. Finally, the Company announced that it was firing Crowley, Plost, Burdick,

and Hooson.

381. Between March 15, 2006 and March 21, 2006, the Nasdaq halted all trading of

SeraCare shares.

382. On March 21, 2006, SeraCare announced it was to be delisted from the Nasdaq the

following day. On March 22, 2006, SeraCare shares began trading on the pink sheets. On this day,

the first day SeraCare was allowed to trade, the stock price fell from $11.52 (the March 14, 2006

close) to $3.85, a one-day drop of 66.58%.

383. On March 23, 2006, SeraCare announced it had filed for Chapter 11 bankruptcy.

That day, SeraCare's stock price fell from $4.85 to $1.75 on 3,517,008 traded shares.

384. The timing and magnitude of SeraCare's stock price declines negate any inference

that the loss suffered by plaintiffs and other Class members was caused by changed market

conditions, macroeconomic or industry factors or Company-specific facts unrelated to the

defendants' fraudulent conduct. The economic loss, i. e., damages, suffered by plaintiffs and other

members of the Class was a direct result of defendants' fraudulent scheme to artificially inflate

SeraCare's stock price and the subsequent significant decline in the value of SeraCare's stock when

the truth was gradually revealed to the market.

APPLICABILITY OF FRAUD-ON-THE-MARKET DOCTRINEAND THE PRESUMPTION OF RELIANCE

385. The presumption ofreliance established by the fraud-on-the-market doctrine applies

to these allegations because:

(a) SeraCare common stock met the requirements for listing, and were listed, on

Nasdaq, a highly efficient market;

(b) As a regulated issuer, the Company filed periodic public reports with the SEC

and regularly communicated with public investors via established market communication

mechanisms, including through regular disseminations of press releases;

(c) The daily trading volume of the Company's stock was substantial, with

hundreds of thousands of shares traded each day;

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(d) SeraCare was followed by securities analysts employed by several major

brokerage firms, who wrote reports that were distributed to the sales force and certain customers of

such firms and were available to various automated data retrieval services;

(e) The misrepresentations and omissions alleged herein were material and would

tend to induce a reasonable investor to misjudge the value of SeraCare securities; and

(f) Plaintiffs and the members of the class purchased common stock during the

Class Period without knowledge of the omitted or misrepresented facts.

386. Based upon the foregoing, plaintiffs and the other members ofthe class are entitled to

a presumption ofreliance upon the integrity of the market for SeraCare securities for the purpose of

class certification as well as for ultimate proof of their claims on the merits.

NO STATUTORY SAFE HARBOR

387. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any ofthe allegedly false statements plead in this Complaint. None

ofthe false and misleading statements alleged in the Complaint were forward-looking. Many ofthe

statements pleaded herein were not specifically identified as "forward-looking statements when

made, and all were representations about the Company's present status. To the extent there were any

forward-looking statements: (a) there were no meaningful cautionary statements identifying the

important then-present factors that could cause actual results to differ materially from those in the

purportedly forward-looking statements; and (b) the particular speakers of such forward-looking

statements knew that the particular statements were false or misleading, and/or the forward-looking

statements were authorized and/or approved by an executive officer ofthe Company who knew that

those statements were false when made.

388. Any purported warnings contained in the press releases and statements quoted herein

were generic and unparticularized boilerplate statements of risks, and thus lacked the meaningful

cautionary language necessary to insulate any purportedly forward-looking statements.

CLASS ALLEGATIONS

389. Plaintiffs bring this action as a class action pursuant to Federal Rules of Civil

Procedure 23 on behalf of a class , consisting of all those who purchased or otherwise acquired the

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common stock of SeraCare during the Class Period and who were damaged thereby. Excluded from

the class are Defendants, the officers and directors of the Company, members of their immediate

families and their legal representatives, heirs, successors or assigns and any entity in which

defendants have or had a controlling interest.

390. The members of the class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, the Company's common stock was actively traded on

the Nasdaq. While the exact number of class members is unknown to plaintiffs at this time and can

only be ascertained through appropriate discovery, plaintiffs believe that there are hundreds of

thousands of members in the proposed class . The disposition of their claims in a class action will

provide substantial benefits to the parties and the Court.

391. Common questions of law and fact exist as to all members of the class and

predominate over questions solely affecting individual class members. The questions oflaw and fact

common to the Class include:

(a) Whether the federal securities laws were violated by defendants' acts and

omissions alleged herein;

(b) Whether Defendants omitted and/or misrepresented material facts;

(c) Whether the documents, reports, filings, releases and statements disseminated

to the public by defendants during the Class Period misrepresented material facts about the business,

performance and financial condition of SeraCare;

(d) Whether Defendants acted knowingly or with deliberate recklessness in

misrepresenting or omitting material facts;

(e) Whether the market price of SeraCare common stock during the Class Period

was artificially inflated due to the misrepresentations complained of herein; and

(f) Whether plaintiffs and other members of the class have sustained damages

and, if so, the appropriate measure thereof.

392. Plaintiffs will fairly and adequately represent and protect the interests ofthe members

ofthe class. Plaintiffs have retained competent counsel experienced in class and securities litigation.

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Plaintiffs do not have interests antagonistic to, or in conflict with, the interests ofthe other members

of the class.

393. Plaintiffs' claim's are typical ofthe claims ofthe members ofthe class. Plaintiffs and

all members of the class purchased SeraCare common stock during the Class Period at artificially

inflated prices and have sustained damages arising out of Defendants' conduct in violation of the

securities laws.

394. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy since joinder of all class members is not practical. Because the

damages suffered by individual class members may be relatively small, the expense and burden of

individual litigation make it virtually impossible for the class members individually to seek redress

for the wrongful conduct alleged. Plaintiffs know of no difficulty that will be encountered in the

management of this litigation that would preclude its maintenance as a class action.

FIRST CLAIM FOR RELIEFFor Violations of §10(b) of the Exchange Act and

Rule lOb-5 Against Defendants SeraCare, Plost, Crowley,Burdick, Hooson, Cresci, Lawlor, KPMG and Pecks

395. Plaintiffs repeat and reallege each and every allegation contained above.

396. This Count is asserted against defendants SeraCare, Plost, Crowley, Burdick, Hooson,

Cresci, Lawlor, KPMG and Pecks, and is based upon violations of § 10(b) of the Exchange Act, 15

U.S.C. §78j(b), and Rule lOb-5 promulgated thereunder.

397. KPMG, Pecks and the Exchange Act Defendants are liable for making false and

misleading statements, or failing to disclose material adverse facts and acting directly or indirectly as

a participant in a scheme and/or course ofbusiness which: (i) deceived the investing public regarding

SeraCare, its business, finances and prospects; (ii) artificially inflated the price of SeraCare common

stock during the Class Period; (iii) caused class members to purchase SeraCare stock at inflated

prices; and (iv) permitted defendants to sell shares of SeraCare stock at inflated prices.

398. KPMG, Pecks and the Exchange Act Defendants' direct participation included

preparing and/or reviewing SeraCare's false and/or misleading SEC filings and/or press releases, and

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knowingly or recklessly giving false information to securities analysts, money and portfolio

managers and institutional investors in conference calls and other presentations.

399. Despite their knowledge or reckless disregard of SeraCare's false and misleading

statements, the Exchange Act Defendants, KPMG and Pecks failed, throughout the Class Period, to

disclose material adverse facts about the financial condition and business prospects of SeraCare,

which caused the SEC filings, press releases and other public statements issued during the Class

Period to be materially false and misleading for the reasons set forth herein. The Exchange Act

Defendants, KPMG and Pecks directly and indirectly, knowingly or recklessly engaged and

participated in a fraudulent scheme and course of conduct to conceal adverse material information

about the business, finances, financial condition operations and future business prospects of

SeraCare.

400. As a result of the above described acts, the Exchange Act Defendants, KPMG and

Pecks have violated § 10(b) ofthe Exchange Act and Rule 1 Ob-5 promulgated thereunder in that they

(a) employed devices, schemes and artifices to defraud; (b) made untrue statements ofmaterial facts

or omitted to state material facts necessary in order to make the statements made in light of the

circumstances under which they were made not misleading; or (c) engaged in acts, practices and a

course of business which operated as a fraud or deceit upon plaintiffs and the other members of the

Class in connection with their purchases of SeraCare stock.

401. Plaintiffs and the other members of the Class, at the time of the misrepresentations

and omissions, did not know that these statements were false and misleading and believed them to be

true. In reliance upon the integrity of the market, plaintiffs and the other Class members were

damaged as they paid artificially inflated prices for SeraCare common stock. Had plaintiffs and the

other members of the Class known the truth, they would not have bought their shares at the prices

they paid.

402. KPMG, Pecks and the Exchange Act Defendants' misrepresentations and misleading

omissions were the reason for the loss suffered by plaintiffs and the other Class members.

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SECOND CLAIM FOR RELIEFFor Violations of §20(a) of the Exchange Act

Against SeraCare , Plost, Crowley, Burdick, Hooson, Cresci, Lawlor and Pecks.

403. Plaintiffs repeat and reallege each and every allegation contained above.

404. This Count is asserted against SeraCare, Plost, Crowley, Burdick, Hooson, Cresci,

and Pecks and each of them (the "§20(a) Defendants ).

405. The §20(a) Defendants acted as controlling persons of SeraCare within the meaning

of §20(a) of the Exchange Act, 15 U.S.C. §78t(a), as alleged herein. By virtue of their positions as

officers, directors or controlling shareholders of SeraCare, their high-level positions, and

participation in and/or awareness ofthe Company's operations, the §20(a) Defendants had the power

to influence and control and did influence and control, directly or indirectly, the decision-making of

the Company, including the content and dissemination of the various statements that plaintiff

contends are false and misleading. The §20(a) Defendants were provided with or had unlimited

access to copies ofthe Company's reports, press releases, public filings and other statements alleged

by plaintiffs to be misleading prior to and/or shortly after these statements were issued and had the

ability to prevent the issuance of the statements or cause the statements to be corrected.

406. In particular, each of the §20(a) Defendants had direct involvement or intimate

knowledge ofthe day-to-day operations ofthe Company during the Class Period. Therefore, each is

presumed to have had the power to control or influence the particular transactions giving rise to the

securities violations as alleged herein, and exercised the same.

407. By reason of such wrongful conduct, the §20(a) Defendants are liable pursuant to

§20(a) of the 1934 Act. As a direct and proximate result of the wrongful conduct, plaintiffs and

other members of the Class suffered damages in connection with their purchases of the Company's

stock during the Class Period.

THIRD CLAIM FOR RELIEFInsider Trading Under §20A of the Exchange Act

Against Plost, Crowley, and Pecks

408. Plaintiffs repeat and reallege each of the allegations set forth in the foregoing

paragraphs.

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409. This claim is asserted by plaintiffs under §20A of the 1934 Act against defendants

Plost, Crowley, and Pecks, on behalf of all persons who purchased SeraCare common stock

contemporaneously with the sale of SeraCare common stock by these defendants.

410. During the Class Period, Plost , Crowley, and Pecks occupied a position with

SeraCare that allowed access to confidential information concerning the Company, its operations,

finances, financial condition and future business prospects. Plost, Crowley, and Pecks public

representations on these subjects set forth herein were materially false and misleading.

411. Notwithstanding their duty to refrain from trading in SeraCare common stock unless

they disclosed the foregoing material adverse facts, and in violation of their fiduciary duties to

plaintiffs and other members of the Class, Plost, Crowley, and Pecks sold in the aggregate millions

of dollars worth of SeraCare common stock during the Class Period contemporaneously with

plaintiffs' and other Class members' purchases of SeraCare common stock.

412. Defendants Plost, Crowley, and Pecks sold their shares of SeraCare common stock, as

alleged above, at market prices artificially inflated by the nondisclosure and misrepresentations of

material adverse facts in the public statements released during the Class Period.

413. Each sale by Plost, Crowley, and Pecks occurred contemporaneously with SeraCare

common stock purchases by at least one or more of the members of the Class as detailed in the

portion ofthis Complaint detailing defendants ' insider sales during the Class Period. See ¶¶350-357.

414. Plost, Crowley, and Pecks knew that they were in possession of material adverse

information which was not known to the investing public, including plaintiffs and other members of

the Class. Before selling their stock to the public, they were obligated to disclose that information to

plaintiffs and other members of the Class.

415. By reason ofthe foregoing, Plost, Crowley, and Pecks, directly and indirectly, by use

ofthe means and instrumentalities of interstate commerce, the mails, and the facilities ofthe national

securities exchanges, employed devices, schemes, and artifices to defraud, and engaged in acts and

transactions and a course of business which operated as a fraud or deceit upon members of the

investing public who purchased SeraCare common stock contemporaneously with the sale of such

stock by Plost, Crowley, and Pecks.

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416. Plaintiffs and other members ofthe Class who purchased shares of SeraCare common

stock contemporaneously with Plost, Crowley, and Pecks sales of SeraCare common stock: (1) have

suffered substantial damages because they relied upon the integrity ofthe market and paid artificially

inflated prices for SeraCare common stock as a result of the violations of § 10(b) and Rule I Ob-5

alleged herein; and (2) would not have purchased SeraCare common stock at the prices they paid, or

at all, if they had been aware that the market prices had been artificially and falsely inflated by

defendants' misleading statements and concealment. At the time of the purchases by plaintiffs and

members of the Class, the fair and true value of SeraCare common stock was substantially less than

the prices paid by them.

417. This action was commenced within five years after the sales by the Plost, Crowley,

and Pecks while in possession of material, non-public information.

418. As a result of the foregoing, plaintiffs and the other members of the Class have

suffered substantial damages.

FOURTH CLAIM FOR RELIEFFor Violation of §11 of the Securities Act

Against SeraCare, All Individual Defendants(Except Hooson and Lawlor), the Underwriter Defendants , and KPMG

419. This claim is asserted against SeraCare, the Individual Defendants (except Hooson

and Lawlor), the Underwriter Defendants, and KPMG for violations of § 11 ofthe Securities Act, 15

U.S.C. §77k. This claim is based solely on claims of strict liability and/or negligence under the

Securities Act.

420. Each of the defendants named herein is liable because SeraCare's Registration

Statement contained "an untrue statement ofmaterial fact or omit[ed] to state a material fact required

to be stated therein or necessary to make the statements therein not misleading.

421. The Individual Defendants (except Hooson and Lawlor) each signed the Registration

Statement . Because the Registration Statement contained untrue statements of material fact or

omitted to state material facts necessary to make the facts stated therein not misleading , each ofthese

Individual Defendants are liable as a "person who signed the Registration Statement, under

§ 11(a)(1 ), 15 U.S.C. §77k(a)(1).

-111- 05-CV-2335-H(CAB)

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422. Defendants Crowley, Plost, Burdick,Cresci, Jallad, Kasten and Teng were directors of

SeraCare when the Registration Statement became effective . Because the Registration Statement

contained untrue statements of material fact or omitted to state material facts necessary to make the

facts stated therein not misleading , each of these defendants is liable as a "director as that term is

defined in § 11 (a)(2), 15 U.S.C. §77k(a)(2).

423. Defendant KPMG was SeraCare's external accountant when the Registration

Statement became effective . Because the Registration Statement contained untrue statements of

material fact or omitted to state material facts necessary to make the facts stated therein not

misleading, and because KPMG consented to being named as having prepared or certified any part

of the Registration Statement, or as having prepared or certified any report or valuation which was

used in connection with the Registration Statement , defendant KPMG is liable as an "accountant as

that term is defined in § 11 (a)(4), 15 U.S.C. §77k(a)(4).

424. Defendants CIBC, Weisel and WBC were underwriters with respect to the securities

of SeraCare offered in the Secondary Offering . Because the Registration Statement contained untrue

statements of material fact or omitted to state material facts necessary to make the facts stated

therein not misleading, each of these defendants is liable as an "underwriter as that term is defined

in §11 (a)(5), 15 U.S.C. §77k(a)(5).

425. Each of the defendants owed to the purchasers of the SeraCare stock, including

plaintiffs, the duty to make a reasonable and diligent investigation ofthe statements contained in the

Registration Statement at the time they became effective, to ensure that they were true and that there

was no omission to state a material fact required to be stated in order to make the statements

contained therein not misleading. In the exercise ofreasonable care, defendants should have known

of the material misstatements and omissions contained in the Registration Statements.

426. None of the defendants named in this Claim made a reasonable investigation or

possessed reasonable grounds for the belief that the statements contained in the Registration

Statement were accurate and complete in all material respects.

427. Plaintiffs purchased SeraCare stock pursuant and traceable to the false and misleading

Registration Statement without knowledge ofthe material untruths or omissions alleged herein. At

-112- 05-CV-2335-H(CAB)

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the time plaintiffs purchased SeraCare stock in the Secondary Offering, plaintiffs could not have

reasonably discovered the nature of these untruths and omissions, and did not know, or by the

exercise at reasonable care could not have known, of the facts concerning the inaccurate and

misleading statements alleged herein.

428. As a result of their purchases of the SeraCare stock in the Secondary Offering,

plaintiffs have suffered damages.

429. This action was brought within one year after the discovery ofthe untrue statements

and omissions and within three years of the Secondary Offering.

FIFTH CLAIM FOR RELIEFFor Violation of §15 of the Securities Act

Against SeraCare, All Individual Defendants and Pecks

430. The Individual Defendants, SeraCare and Pecks were controlling persons of SeraCare

within the meaning of § 15 of the Securities Act by virtue of their positions as senior officers and

directors at SeraCare, their power to control SeraCare's corporate actions and the transactions

alleged herein, and their ownership of a substantial amount of SeraCare stock. In particular, the

Individual Defendants and Pecks controlled the contents and the issuance of the Registration

Statement, which contained "an untrue statement ofmaterial fact or omit[ed] to state a material fact

required to be stated therein or necessary to make the statements therein not misleading.

431. The Individual Defendants, SeraCare or Pecks did not make a reasonable

investigation or possess reasonable grounds for the belief that the statements contained in the

Registration Statement were true and devoid ofany omissions ofmaterial fact. Therefore, by reason

of their status as controlling persons at the Company, as alleged herein, pursuant to § 15 of the

Securities Act, each of these defendants is liable jointly and severally to plaintiffs as a result of the

wrongful conduct alleged herein.

PRAYER

WHEREFORE, plaintiffs and other members of the Class pray for relief and judgment, as

follows:

A. Declaring this action to be a class action properly maintained pursuant to Rule 23 of

the Federal Rules of Civil Procedure, certifying plaintiffs as class representatives under Rule 23 of

-113- 05-CV-2335-H(CAB)

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the Federal Rules of Civil Procedure and designating this Complaint as the operable complaint for

class purposes;

B. Awarding compensatory damages in favor ofplaintiffs and the other Class members

against all defendants , jointly and severally , for all damages sustained as a result of defendants'

wrongdoing, in an amount to be proven at trial , including prejudgment and postjudgment interest

thereon;

C. Awarding extraordinary, equitable and/or injunctive relief as permitted by law, equity

and the federal statutory provisions sued hereunder, pursuant to Rules 64 and 65 and any appropriate

state law remedies to assure that the Class has an effective remedy;

D. Ordering defendants to disgorge their insider trading proceeds, including an

accounting and constructive trust over those proceeds;

E. Awarding plaintiffs and the Class their reasonable costs and expenses incurred in this

action , including counsel fees and expert fees and other costs and disbursements; and

F. Awarding such other and further relief as the Court may deem just and proper.

JURY DEMAND

Plaintiffs hereby demand a trial by jury.

DATED: June 1 , 2007 LERACH COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP

DANIEL S. DROSMANLAURIE L. LARGENT

s/ DANIEL S. DROSMANDANIEL S. DROSMAN

655 West Broadway, Suite 1900San Diego, CA 92101Telephone : 619/231-1058619/231-7423 (fax)

-114- 05-CV-2335-H(CAB)

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COHEN, MILSTEIN, HAUSFELD& TOLL, P.L.L.C.

STEVEN J. TOLLANDREW N. FRIEDMANJOSEPH P. HELM III1100 New York Avenue, N.W.West Tower, Suite 500Washington , DC 20005-3964Telephone : 202/408-4600202/408-4699 (fax)

Co-Lead Counsel for Plaintiffs

O'REILLY GROSSO & GROSS, P.C.JAMES F. GROSSO1671 Worcester Road, Suite 205Framingham , MA 01701-5400Telephone : 508/620-0055508/620-7655 (fax)

Additional Counsel for Plaintiffs

S:\CasesSD\SeraCare\CPT00042397-Amended.doc

-115- 05-CV-2335-H(CAB)


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DECLARATION OF SERVICE BY MAIL

I, the undersigned , declare:

1. That declarant is and was, at all times herein mentioned, a citizen ofthe United States

and a resident of the County of San Diego , over the age of 18 years, and not a party to or interested

party in the within action; that declarant ' s business address is 655 West Broadway, Suite 1900, San

Diego, California 92101.

2. That on June 1, 2007, declarant served the FIRST AMENDED CONSOLIDATED

COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS by depositing a true

copy thereof in a United States mailbox at San Diego, California in a sealed envelope with postage

thereon fully prepaid and addressed to the parties listed on the attached Service List.

3. That there is a regular communication by mail between the place of mailing and the

places so addressed.

I declare under penalty ofperjury that the foregoing is true and correct . Executed this 1st day

of June , 2007, at San Diego, California.

Case 3:05-cv-02335-JLS-CAB Document 147 Filed 06/11/2007 of 124

SERACARE (LEAD)

P :e List - 6/1/2007 (05-0243)

je 1 of 3

Counsel For Defendant(s)

Gwyn Quillen ***Kevin B. MartinScott Vick

Bingham McCutchen LLP1620 26th Street, 4th FloorSanta Monica, CA 90404-4060310/907-1000310/907-2000 (Fax)

Vincent J. MarellaBenjamin J. Gluck

Bird Marella Boxer Wolpert Nessim Drooks &Lincenberg P.C.1875 Century Park East, 23rd FloorLos Angeles, CA 90067-2561310/201-2100310/201-2110 (Fax)

Charles G. La BellaJohn D. Kirby

La Bella & McNamara LLP401 West A Street, Suite 1150San Diego, CA 92101619/696-9200619/696-9269 (Fax)

Craig E. Hunsaker

Mintz, Levin, Cohn, Ferris, Glovsky & Popel P.C.9255 Towne Centre Drive, Suite 600San Diego, CA 92121858/320-3000858/320-3001 (Fax)

Peter W. DevereauxEthan J. BrownJason J. Kim

Latham & Watkins LLP633 West Fifth St., Suite 4000Los Angeles, CA 90071-2007213/485-1234213/891-8763 (Fax)

Jerome C. Roth

Munger, Tolles & Olson LLP560 Mission Street , 27th FloorSan Francisco, CA 94105415/512-4000415/512-4077 (Fax)

*** De•notes service via Federal Exi.- ess.


SERACARE (LEAD)

e List - 6/11/2007 (05-0243)

;ge2of 3

Marc T.G. DworskyAaron M. May

Munger, Tolles & Olson LLP355 South Grand Avenue, 35th Floor

Los Angeles , CA 90071-1560213/683-9100213/687-3702 (Fax)

Meredith N. LandyLori E. Romley

O'Melveny & Myers LLP2765 Sand Hill RoadMenlo Park, CA 94025650/473-2600650/473-2601 (Fax)

Amy J. Longo

O'Melveny & Myers LLP

400 South Hope Street, 15th FloorLos Angeles, CA 90071-2899

213/430-6000213/430-6407 (Fax)

Counsel For Plaintiff(s)

Steven J. TollAndrew N. FriedmanJoseph P. Helm III

Cohen, Milstein , Hausfeld & Toll, P.L.L.C.1100 New York Ave., N.W., Suite 500Washington, DC 20005-3964

202/408-46002.021408-46,99 (Fax)

Thomas J. Nolan ***

Skadden , Arps, Slate, Meagher & Flom LLP300 S . Grand Ave., Suite 3400Los Angeles , CA 90071

213/687-5000213/687-5600 (Fax)

Aaron D. Krakow

Krakow & Souris, LLC225 Friend StreetBoston , MA 02114

617/723-8440617/723-8443 (Fax)


SERACARE (LEAD)

rice List - 6/11/2007 (05-0243)

rge 3 of 3

Daniel S. DrosmanLaurie L. Largent

Lerach Coughlin Stoia Geller Rudman &Robbins LLP655 West Broadway, Suite 1900San Diego, CA 92101

619/231-1058619/231-7423 (Fax)

James F. GrossoO'Reilly Grosso & Gross, P.C.1671 Worcester Road, Suite 205Framingham, MA 01701-5400508/620-0055508/620-7655 (Fax)

Case 3:05-cv-02335-JLS-CAB Document 147-2 Filed 06/11/2007 Page 1 of 8

EXHIBIT DESCRIPTION BATES RANGE1 Certification of Lead Plaintiff 1-4

Richard Westlund2 Certification of Lead Plaintiff 5-8

Jana Westlund3 Certification of Lead Plaintiff 9-10

David Westlund4 Certification of Lead Plaintiff 11-12

Lauren Westlund5 Certification of Lead Plaintiff 13-14

John Westlund6 Certification of Massachusetts 15-17

State Guaranteed AnnuityFund

7 December 15, 2005 letter from 18-20Mayer Hoffman McMann P.C.to SeraCare's AuditCommittee

8 September 26, 2003 e-mail 21chain to/from MichaelCrowley, Jr. regarding Wyeth

9 September 27, 2003 e-mail 22from Michael Crowley, Jr. tocertain SeraCare employeesregarding booking revenue

10 Q2 04 10-Q Reporting 23-29Schedule

11 KPMG Timely Quarterly 30-37Review-ManagementInquiries (Q1)

12 Facsimile dated May 2, 2005 38-48to Jerry Burdick, SeraCareLife Sciences from RicardoMartinez, KPMG LLP Audit,Advisory & CSS re. attacheddraft of SeraCare LifeSciences, Inc. Balance Sheets(unaudited)

13 E-mail dated February 3, 2005 49from Ricardo Martinez toJerry Burdick re. 10-Q inserts

14 KPMG Interim Accounting 50-88Disclosure Checklist (9/04)

15 Minutes of Meeting of the 89-92Audit Committee of the Boardof Directors of SeraCare Life

1


EXHIBIT DESCRIPTION BATES RANGESciences, Inc.

16 E-mail dated August 8, 2005 93from Ricardo Martinez toCraig Hooson and cc to JerryBurdick re. SeraCare Q3 05AC Presentation

17 Form 8-K, SeraCare Life 94-102Sciences, Inc., March 13, 2006

18 Form 8-K/A, SeraCare Life 103-109Sciences, Inc., December 14,2005

19 Form 8-K/A, SeraCare Life 110-118Sciences, Inc., March 13, 2006

20 E-mail dated 8/26/05 to Jerry 119Burdick from Mike Crowley,Jr. re. SG&A Expenses for Q3& July.XLS

21 E-mail dated 5/6/05 to Tom 120-121Lawlor from Bill Kenealy re.FY2005 Gross Margin IRENSystem Report

22 SeraCare Life Sciences, Inc. 122-137Project Status Report SOX404 Project as of 12/12/2005

23 International Chamber of 138-202Commerce official rules forthe interpretation of traderules, Incoterms 2000

24 Letter dated November 15, 203-2042004 to Michael Crowleyfrom Steven R. London re.Closing Balance Sheet

25 Letter Agreement Regarding 205-208Closing Balance Sheet Matterdated November 22, 2004signed Tim T. Hart, RichardT. Schumacher

26 Email dated March 7, 2005 to 209Bill Kenealy, Jess Roper, JerryBurdick and Tom Lawlor fromMike Crowley, Jr. re. WBWhas been running at capacity

27 Email dated October 10, 2005 210to [email protected] fromCraig Hooson re. Seracare

2


EXHIBIT DESCRIPTION BATES RANGEEthics Policy 2005

28 Oceanside Inventory OpenItems 2/8/2006

211-232

3


EXHIBIT I

Case 3:05-cv-02335-Jq$-CAB Document 147-2 FiIW6/11/2007 Page 5 of 8

CERTIFICATION OF PLAINTIFFPURSUANTTO FFDERAL.SFtC L W -

I, l 1G . ("Plaintiff'') declare, as to the claims asserted wider

the federal securities laws, that:

1. I have reviewed the class action complaint asserting securities claims against Seracare Life -

Sciences, Inc. ("SRLSE") and wish to join as a plaintiff retaining Cohen, Milstein, Havsfeld- & Toll,

P.L.L.C. as my counsel.

2.- Plaintiffdid not.pu rchase the security that is the subject of this action at the direction of

plaintiff's counsel or-in order to participate in this private action-

3. Plaintiff is willing to serve as a representative party on behalfofthe class, including

providing testimony at deposition and trial, ifnecessary. -

4. My transactions in SRLSE during the'Class Period were as. follows: -

DATE T RANSACFIDN-(boy/ielti NO. OF SHARES PRICE PER SHARE

5. During the three years prior to the date of this Ccitificate,. Plaintiffhas not sought to serve

or served as a representative party for a class 'in any action under the federal securities laws except as

follows:

6.- Plaintiffwill not acccpt any.payinent for serving as a representative party on behalf ofthe

class beyond plaintiffs pro rata share ofany recovery, except such reasonable costs and expenses

(including lost wages) diicdly relating to the representation ofthe class ass ordered or approved. by the

court.

- r.

-- Exhibit i I a -

Case 3:05-cv-02335-J-CAB Document 147-2 Filed 06/11/2007 Page 6 of 8

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Case 3 : 05-cv-02335 -JLS-CAB Document 147-2 Filed 06/11 /2007 Page 7 of 8

Pl+

CERTIFICATION OF PLAINTIFFUR.SUANt TO FEDERAL SECURITIES LAWS

X, 164,44dA)- 10 "Plaintiff') declare, as to the claims as'sertcd under

the federal securities laws, that:

I. I have reviewed the class action complaint asserting securities claims against Scracare Life

Sciences, Inc. ("SRLSE") and wish to join as a plaintiff, retaining.Coben, Milstein. Hausfeld & Toll,

P.L.LC. as my counsel.

2. Plaintifrdid not purchase the security that is the subject of this action at the direction of

plaintiffs counsel or in order to participate in this private action.

3. Plaintiff is willing to serve as a representative party on behalf of the class, including

providing testimony at deposition and trial, ifnecessary.

4. My transactions in SRLSE during the Class Period were as follows:

DATE TRANSACTION 7buy/ c fl OF SHARES PRICEPER SHARE

5 17q,

5. During the three years prior to the date .ofthis Certificate, Plaintiffhas not sought to serve

Or ctvcd as a representative party for a class in any action under the federal-securities laws except as

follows:

6. Plaintiff will not accept any payment for serving as a representative party on.behalf-ofthe

-class beyond plaintiffs pro rata share of any recovery, except such reasonable costs-and expenses

(including lost. wages) directly relating to ihercpresentation ofthe class as ordered or approved by'tbe

court.-

I


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EXHIBIT 2

Case 3 : 05-cv-02335-JLAB Document 147-3 File 06/11/2007 Page 2 of 5

CERTIFICATION OF PLAINTIFF . "FURSMANTTO FEDERAL SECURtTiES LAWS

I, a^eti !_- 6J S7L u . (`Plaintiff ') declare, as to the claims asserted under

the.frderal securities laws, tihat:

1. 1 have reviewed the class action complaint asserting securities claims against Seracarc Life

Sciences, Inc. ("SRLSE") and wish to join as a plaintiff, retaining Cohen, Milstein, Hausfeld dt Toll,

-P.L.L.C. as my counsel.

2. Plaintiffdid not purchase the security that is the subject of this action at the direction of .

plalntiWs counsel or in. order to participate in this private action.

3. Plaintiff is willing to serve as a representative party on behalfofthe class, including

providing testimony*at deposition and trial , ifnecessaiy.


_ATE TRANSACnON fbuvlscig NO. OF SHARES PRICE PER RARE

i7A C^5 LCD _, r- 3Ib-

S. During the three years prior to the date of this C sate, Plaintiff has notsought to serve

or served as a representative party fora class in any action under the federal securities jaws except as

follows:

6_ Plaintiffwiii not accept any payment for serving as a representative party on behalf ofthe

class beyond plaintiffs pm rata share of any recovery, except such reasonable costs and expenses

(nciuding lost wages) directly relating to the representation .ofthe class as. ordered or approved bythe

comet.

I declare underpenaityofpczjnty.thatlthe forgoing true and correct.

ocuted ibis day of : 20064 '

arut,lG 2zs4.wpoSiga

:Ex1 bit25


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Case 3:05-cv-02335-J -CAB Document 147-3 File6/11/2007 Page 4 of 5

CERTIFICATION OF PLAINTIFFPURSUANT TO EEI)ERALSECUIU'IIES LAWS

(`<Placntifl") declare, as to the claims asserted under

the federat securities laws, that:

1. 1 have reviewed the class action complaint .asserting securities :claims against Seracare Life

Sciences, Inca("SRLSE") and wish to join as a plaintiff, retaining Cohen, Milstein, Hausfcid & Toll,

P.L.L.C. asmncounsel

2. Plaintffdid not purchase the security that is the subject ofthis action at the direction of _


3. Plaintiffis willing to serve as a, representative party on behalfofthe class, including

providing testimony at deposition and tria}, ifneccssary.


-DATE TRANSACTIONtbwIjfl NO. OF SHARES PRICE PER SHARE

eiam 59L.

5. During the three years prior to the date of this Certificate, Plaintiffhas not sought to serve

or. served as a representative party for a,class in any action under the federal securities laws except as

follows:

6. Plaintiff will not accept any payment for serving as a. rcpreseatalive par(yon behalfofthe

class beyond plaintiffs pro rata share ofany recovery, except such reasonable costs and expenses

(including lost wages) dk ctly relating to the- representation-oftheclass as lordered or-appcoved-by the

.court.

7

i

I

I

Case 3:05-cv-02335-JLCAB Document 147-3 Filed 06/11/2007 Page 5 of 5

E7

1

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EXHIBIT 3

Case 3 : 05-cv-02335-JL -CAB Document 147-4 Filed 06/11 /2007 Page 2 of 3

CERTTFICAT[ON OFPLAINCIFFPURSUANT TO FEDERAL SECURITIES LAWS

I, ?^ ^ (cl^ir tC^^ ("Plaintiff declare, as to the claims asserted under

the federal securities laws,-that: -

1. I have reviewed the class action complaint asserting securities claims against saware Life

Sciences, inc. (SRLSE`) and wish to join as a plaintiff, retaining Cobcn,. Miilstein, flausfeld & Toll,

P.1-L.C, as my counsel. -

2. Plaintiffdid not purchase the security that is the subject of this action at the direction of

plaintiffs counsel or in order to participate in this private action. -

3. Plaintiffis willing to serve as a representative party on behalf ofthe class, including

providing testimony at deposition and trial , if necessary.

4. My transactions in SKLSEduring the Class Period were as follows:

DATE IRA_NSACIION (buvtscu) NO. OF SHARES M-f-E PERSHE

. 5. During -the three years prior to the date of this Certificate, Plaintiffhas-not sought to serve

or served as a representative party for a. class in any action under the federal securities lam except as

-follows:

6. Plaintiffwill not accept any payment for serving:as a representative party on behalfofthe

elassbeyond :plaintiffs pee rata share ofany recovery, except such reasonahle costs and expenses

.(including lost wages) directly relating. to the representation ofthe class as ordered.or-approvedby the

waft:

-Exhibit 3

.,

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EEXH:1BIT 4


n - ^ i -

CERTIFICATION OF PLAINTIFFPUUUAfTO FEDERAL SECUR 11 SLAWS

i, /? L /V- ("Plaintiff) declare, as to the claims asscJied under

T i. Sfthe federal securities laws„ that,

1. I have reviewed the class action complaint asserting securities claims against Saracare Life

SCienccs,:Inc. ("SRL' SE") and wish to join as aplainti[1, retaining Cohen. Milstein, Hausfcld dtToll,

P.LL.C. as my counsel.

2. Plaintifrdid not purchase the security that is the subject of this action at the direction of

plainfirs counsel or in order to participate in this private action.

3. Plaintiffis willing to serve as'a representative party an behalf ofthe class, including

providing-testimony at deposition and trial, if necessary.

4_ my-transactions in SRLSE during the Class Period were as follows:

PATE TRANSAMON tbuv tl) NO, OP StiARMS kfflC6 MUM"

..5- During the three years prior to the date of this Certiflcatr, Plaintiffbas not sought to serve

vrseived as a representative party for a class in any action under the federal securities laws except as

follows:

6. Plaintiff will not accept any payment for serving as a representative party on behalfof the

class beyond plaintiffs pro.rata share of any recovery, except such reasonable costs and expenses

1

(including:lost wages) directly relating to .tine representation ofthe class as ordered or approved-by the

COWL -

I- declare underpcoalty ofperjury that the foregoing trueand convex..

E*ecatecithis f' . - day of '' . 2406 ,. _


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EXH IBiT 5

Case 3:05-cv-02335-JLS-CAB Document 147-6 Filed 06/11/2007 Page 2 of 3.

CERTIFICATION OF PLAINTIFFPURSUANT TO FEDERAL SECURfITES LAWS

I, ^fl^ A, We s^'+ k sd . .(Plaintiff") declare, as to the claims asserted under

-the federal- securities laws, that:

1. I-have reviewed the class action complaint asserting securities claims against Scracare Life

Sciences, Inc. ("SRLSE") and wish to join as a plaintiM. rctaining Cohen; Milstein, Hausfefd & Toll,

P.LLC. as my counsel.

2. Plaintiffdid not purchase the security that is the subject ofthis action at the direction of


3. Plaintiffis willing to serve as a representative party on behalfof the class, including

providing testimony at deposition and trial , if necessary.

4. My transactions in SRLSE during the Class Period were as follows: _

ATF 7RANSACT[ON cy w_/ku) NO.OF- SHARES PRICEPERSHARE

9 ^sCz1 /7_ "S7. t0243

S. During the three years prior to the date ofthis Certificate, Plaintiff has not-sought to serve

or served as a representative -party for a class in any action under the federal securities laws except as

follows:

6. Plaintiffwill not-accept any. payment for serving as a representative party on behalfofthe

-class beyond plaintiff's,pro rata share ofany recovery, except such reasonable costs and expenses

(im luding-lost wages) directly relating to the representation ofthe class as ordered-or approved.by.the

court:

Exhibit-5

Case 3:05-cv-02335-JAS-CAB Document 147-6 Filed6/11/2007 Page 3 of 3

z

P4

B PI WIN I

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Case 3 : 05-cv-02335-JLS-CAB Document 147-7 Filed 06/11 /2007 Page 1 of 4

EXH`1.81T 6

Case 3:05-cv-02335-JLS-CAB Document 147-7 Filed 06111/2007 Page 2 of 4-

CERTIFICATION OF NAWD PLAINTIFFPURSUANT TO-FEDERAL SECURITIES LAWS

MASSACHUSETTS STATE GUARANTEED ANNUITYFUND ('Plaintiff')

declares:

-1.- Plaintiffhas reviewed a complaint and authorized its filing.

2. Plaintiff did dot acquire.the security that is the subject ofthisactian-at the -

direction-ofplaintiff's counsel or in order to participate in this primate action or any

other litigation under the federal securities laws..

3. Plaintiff is willing to serve as a_ representative party on behalf of the

.class,- including pr.ovid ng testimony at. deposition and trial, ifnecessary.-

4. Plaintiffhas-mad - the following transaction(s) during the Class Period:in

the securities that are the subject ofthis action:.

. ecurlty Transaction Date Price Per Share -- - See attached Schedule A.

5• (a).. -150ring #1 a three years prior. to the date ofthis Certificate, Plaintiff- ahas served as-a-lead plaintiff:fora. class in the €ollowing actions filed under the federal_securities laws:

In re Comerica Inc: Sec. Litig:, No.-02-CV-60211 (B-D.. 1Y1ich.,)Slutsky, et al.. v. EEndoca e, Inc,. el al, No. CV-O2-8429-D'1(CTx) (C.D. Cal.)

In re--Collins & A1kman.Corp: Sec. Litig.; No: 03-71173 {E. ). Mich.)In re ltlamosa Holdings, Inc .Sec L3.tig, No. 5:03.-CV-00289-0 - (N.D. Tex.)

Paragarnian v 'Neuron Pharmaceuticals; Ina, eta, No. 04-CV2627 {E.D. Pa.}

- t. During the.threeyearsprior to the date-oftl s Certif e, P!a tiffias served ass arepresentative party-for a class in the, following actions-wed underthefederal securities. Iawws _ -. _'^

In re Heim Com, an es See--M To. 5:02-CV-178(TJ )(E D Tex.)

Plaintiffhasan applicationto be appohited.lead piaintiffforactasset gently pending in t ie following actions:

Legion Pariner.. LIP y...Willbros Group, Inc., . ee.a, No. -4:05-caro'177g (3.D. TeX.)

-4ihit 6-SACMSt d tiinuiey:4cre sfl tCAR£ -


(d) Plaintiff initially sought to serve as a representative party for aclass in the following actions filed under the federal securities laws, but eitherwithdrew its appication orits application was denied in favor ofother investors withMore - significant losses:

-In.:re Kindred Healthcare, Inc, Sec. L1lg., No. 3:02-CV-600-H (W.D. Ky.)Foxhall v AdasAir. Worldwide Holdings, Inc., et at , No. 02M455 (S.D.N. Y.)

Vangsgard.v Arlba, Inc., it al., No; G03-0277-JF(N,D. Cat)

6. The Plaintiffwill notaccept anypayment for serving as a representative

party nn beef of the class beyond the Plaintiff's pro rata share of any recovery,

-except such reaionabte costs and expenses (including lost wages) directly relating to

the representation of.the class as ordered or approved by the court.

I declare under penalty of perjury that the foregoing is true and correct.

Exeeuted, th s 26th day .of January , 2006.

MASSACHUSETTS STATEGUARANTEED ANNUITYFUND

Or

Its: e

^1easE - r SE"C O

Case 3:05-cv-02335-JLS-CAB Document 147-7 Filed 06/1-1/2007 Page 4 of 4

SCHEDULE A

SECURFI1ES TRANSACTIONS

Acquisitions

Date Type/Amount of - -Acquired Securities Acquired Price - - -

05/2412005 - - 9.050 $12.2500 - --- - 05/26/2005 - 15 __ X13:5000

05127/2005 = - - 8.5- .$13.354605/31/2005 - 225 - - $13.440906/01/2015 -50 $13.423

_ 06/03f2005 50 $13.403505/06/2005 _ 35 _ $13.4943 - - -06/07/2005 30 $13.416706/08/2005 100 .$134898 -06/09/2005. - 360 - 11.3.473306/10/2005 520 $13.7851-"06%13/2005 880 - --$13.9928 - -06/14/2005 340 $13:9999.06/16/2005 60 $13-9837 -O6/1712005 405 - $14.00000612112005. - - 35 $14.0000 - -06122/2005 _ 50 - $144000 -10/27/22905 425 $18.942710128/2005 - 700- _119.1186 -

- 1/31%2005 125 $19.4311 -11/01/2005- - - 525 $201.57511/02/2005 175 $20.2760.12/19/2005 1.500 $.1.8.6356 -


EXHIBIT 7

Case 3:05-cv-02335-JLS-CAB Document 147-8 Filed 06/11/2007

Mayer Hoffman McCann P.C.

An Wcjxodent CPA Finn

6 Scripps SwwuitCourt?kao. Glifama 92431

.795-2001

December 15, 2005

To the Audit Committee

clo Mr. Robert CresciAudit Committee ChairmanSeraCare Life Sciences, Inc.1935 Avenida-del Oro, Suite F

Oceanside, CA 92056

Gentlemen:

Page 2 of 4

We--have been engaged to audit the balance sheet of SeraCare Life Sciences, Inc_ as of

September 30, 2005; and the related statements of income, stockholders'. equity, and cash

flows for the year then ended.. Because of the matters discussed below we have not

completed our audit. Accordingly, at this time, we do not express any opinion on'the.

Company's financial statements.

We have previously expressed and we continue to have concerns with respect to the

Company's financial statements and the representations of management. We also have

received conflicting representations from senior management, including conflicting

representations from the same individual as well as representations. that conflict with

other information we have been provided.

Specifically, our concerns relate too the following:

1. Revenue recognition - The Company recorded sales transactions to ' a customer

for approximately $1,000,000 on September 30; 2005. The. product was not

picked up by the customer until the middle of November 2005. It appears from

email ' communications and from inquiry with company personnel that the-

customer may not have been notified the goods -were.ready prior to October 4,

2005, and that terms of the contract. were modified to. extendpayment-terms to. 30

or 45 days :beyond the date the customer actually picked - the goods:- We

inquired with the Company regarding how these. circumstances - effect their

conclusion that revenues related to this transaction are recognizable on September

30, 2005. In response. we were told that the terms of the contract with :die

customer are Exworks and no further analysis is . requited because title to the

goods transfers. when the goods are ready for pick-up at the seller's facility. INS

is a material sale with circumstances specifically addressed by relevant SECguidance. Therefore, we must again express our discomfort with the lack of

analysis being -done by the Company related to_ this transaction- Our knowledge

Ca 3:05- v-02335-JLS-CAB Document 147-8 Filed 06/11/2007 Pa2g4e33 of 4^^tf !4;1^.dw13446.1 BC!!!!!Epdvn f oU69!!!!!q he!18(28 117!!!!!Qbhf !235!pd

Mr. Bob CresciAudit Committee Chairman

SeraCare Life Sciences, Inc.December 15, 2005

Page 2

of this transaction raises our concern that there may be other similar transactionsof which we are not aware. We believe the Audit Committee must undertake athorough independent review of the circumstances surrounding the recording ofthis transaction and of the application of appropriate revenue recognitionstandards to all transactions.

2. Inventory - The Company carries large inventory balances in relation to its salesand has continuing and increasing negative cash flows from operations in spite ofpositive net income as a result of increases in these balances. The Company hasbeen unable to provide support for material amounts of inventory recorded on itsbalance sheet at September 30, 2005. It appears the Company has madenumerous unsupported changes to costs of items in inventory, and to quantities ofinventory items as of September 30, 2005. There appears to be an absence of anymethod or process to evaluate the inventory for potential excess quantities on'hand. There are material amounts of inventory which appear adequate to providefor decades of sales in some cases. The Company has been unable to relateoverhead costs capitalized to specific items of inventory to actual activity relatedto those items during the period the costs were incurred. We have inquiredrepeatedly with management regarding the appropriateness of the methods beingused to account for inventory and the appropriateness of the changes that weremade to inventory balances. In response the Company has provided explanationsthat are not supported with adequate documentation or analysis and that often areconflicting. We continue to be very uncomfortable with the inventory balances asof September 30, 2005. Our awareness of these conditions raises our concern thatthere may be additional misstatements of which we are not aware. Again, webelieve the Audit Committee must undertake a thorough independent review of allaspects of the accounting for and valuation of inventory.

3. Tone at the top - The Chairman of the Board appears to be inserting himself into

the financial reporting process in a manner that prevents the concerns noted abovefrom being addressed appropriately. In addition, certain board members appear to

be exerting undue influence on the financial reporting team and on members ofthe audit team to reach a conclusion without proper consideration of the facts andcircumstances. In the same connection, we call your attention to the fact thatsection 303(a) of the Sarbanes-Oxley Act has a provision that prohibits taking anyaction to improperly influence the auditors. We are concerned that certain actions

of board members during the course of our audit could be construed to violate that

provision.

4. Internal control over financial reporting - We are concerned that the Companywas not adequately prepared for the implementation of section 404 of theSarbanes-Oxley Act. Our concerns result from (a) the quality of the

1 19-7- Exhibit A

Case 3 : 05-cv-02335-JLS-CAB Document 147-8 Filed 06/11/2007 Paqe 4 of 4Dbtf !4;16.dw13446.1 . BC!!!!!Epdvn f oU69!!!!!C rfie!18(p8 117!!!!!Qbhf !236!pdZ43

Mr. Bob CresciAudit Committee Chairman

SeraCare Life Sciences, inc.December 15, 2005

Page 3

documentation provided so far, (b) our understanding that certain controls werenot in place until August 2005, and (c) the fact that, as to our knowledge, thetesting of the controls has not been completed. In addition, we have concernsabout the control environment as discussed in No. 3 above.

In summary, we are being provided with conflicting statements, we are not beingprovided with sufficient audit evidence, and we are uncomfortable relying onmanagement's representations. These conditions increase our concern about whetherthere are misstatements in the financial statements that we have not identified. Wetherefore believe, the Audit Committee must undertake a thorough independent review ofall of the issues noted above and all other aspects of the financial statements that maycontain material misstatements.

Please respond to us promptly regarding your plans to address these issues . We willremain unable , under the standards of the Public Company Accounting Oversight Board,to issue an unqualified opinion on the financial statements of the Company, until theissues noted above have been appropriately resolved.

Truly yours,

J&r- Avr,$.. ^4WO 40 e-

20-g- £zbibit A


Page 1 of 1

From: Mike Crowley, Jr.

Sent: Friday, September 26; 200310:25 AM V

To:

Cc: rim Hart

Subjccf: RE: Wycth

Give Tim's number to Tim for us to try to work. out a payment method.

Mike

-Original Message----•Er-om: -Sent:: Friday, September 26, 2003 8:56 AMTo: Mike Crowley, Jr.-Cc: Tun Hart .Subject: Wyeth

As of this morning,the shipment still has not cleared FDA hold- Even if it dears today they will not be ableto pick it up untli. Monday for delivery on Tuesday. So if the receive it on Tuesday and cut cheek we will notreceive until Wednesday the 11 Tim Sparks is the controller fi St: Louis that gives the go ahead for WyethCorporate to cut the check. What do you suggest we do.

REDACTED


From: Mike Crowley. Jr.Sent Saturday, September 27. 2003 9:40 AMTo: Cacey Cooko; Derren Lowenthal; Duane Pinkerton, Frank Music;.

Joe Litavis; Marc Decbedt; Mark Ferreira: Nellie Brown; Nicole Gorton; RebeccaWatson; Sarah Neugebauer, ;Susan Gammon;Timi'Hart; ; Barry Plost

Dear Ali,

We have two:more days of the quarter and continue your efforts to ship or book as much revenue as we can before the30th- .

to addition. I am very much looking fonwvard to the sales meeting next week. I want every one to come prepared in osier tomaximize this time we have together. io&tics are being handled by Nellie Brown so issues with the hotel, flights,r sorvations; equipment needed for presentationls•etc we to be directed to Nellie.

Best Regards.

Mike

Michaal F. Crowley

CEO

SeraCare . Life Sciences, Inc.

'tote: 760-806-8922

ate 760-a06-8933

crowiey][email protected]

REDACTED


EXHIBIT 10


Q2 04 10-Q Reporting Schedule

Who When ' StatusSetup Pro-forma 10-Q Stella 6/1/2004 pm Done

Identify & conform 10-Q Exhibits Steve/Stella 6/4/2004 pm Done

1st Pass Vermed finaincials Stephanie 6/7/2004 pm Done

1st Pass CDIC financials Stella 6/7/2004 pm Done

1st Pass Combined statements Stella 6/8/2004 pm Done

Review financials Melanie/Steve 6/9/2004 pm Done

Prepare audit schedules Stella/Steph/Renate 6/10/2004 pm Done

Start fieldwork KPMG 6/11/2004 am Done

Earnings data & schedule to Bonnie Stella 6/11/2004 pm Done

Prepare Vermed & Medis acq FN's Stella/Steve 6/14/2004 pm Done

Draft earnings release Bonnie 6/15/2004 pm Done

10-Q F/S & FN's to Steve Stella/Melanie 6/22/2004 am Done

Sign off on earnings release KPMG 6/22/2004 pm Done

Audit Conf call All 6/22/2004 pm Done

Prepare Financial Drivers Summar3 Melanie/Steve 6/22/2004 pm Done

Analyst call/release earnings Mike/Steve 6/23/2004 pm Done

Review 10-Q F/S Steve 6/23/2004 pm

Full 10-Q to Steve Stella/Melanie 6/24/2004 am

10-Q F/S to KPMG Melanie 6/24/2004 pm

I0-Q F/S feedback KPMG 6/28/2004 pm

Review Full 10-Q Steve 6/28/2004 pm

Full 10-Q to KPMG/Pillsbury Melanie 6/29/2004 pm

QI Sign-off KPMG 7/1/2004 pm

Exhibits to Printer Melanie 7/2/2004 pm

Pillsbury feedback Dave 7/6/2004 am

KPMG l0-Q feedback KPMG 7/6/2004 am

10-Q to SEC Review Partner Melanie 7/6/2004 pm

10-Q to Audit committee Melanie 7/6/2004 pm

10-Q to Printer Melanie 7/6/2004 pm

Edgar Proofs Printer 7/7/2004 pm

Review Edgar Proofs Melanie 7/8/2004 pm

SEC partner feedback KPMG 7/8/2004 am

Audit Committee feedback Audit Comm. 7/8/2004 am

Final Edgar changes to printer Stella 7/8/2004 pm

Check final changes Melanie/KPMG 7/9/2004 am

10-Q & certification signatures Steve/Mike 7/9/2004 am

KPMG l0-Q sign-off KPMG 7/9/2004 am .

File 10-Q Printer 7/9/2004 pmMake final changes to Word doe Melanie 7/13/2004 pm

Post on web site Bonnie 7/13/2004 pm

Regular audit committee meeting All 7/13/2004 am

Regular Board Meeting CDIC/Pillsbury 7/15/2004 amMake 107Q'copies Helena 7/16/2004 pm

Exhibit 1.0 23Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKLO15001


For Q3

1st Pass Medis finaincials Renate 6/7/2004 pm

Confidential Treatment Requested by SeraCare Life Sciences, Inc.

24

SRLSEKLO15002


Seracare Life Sciences, Inc.FYE 9/30/05 FS Audit Planning and Reporting Timeline

PBC list provided to SLS

R&D tax credit calculation and support provided to MUM

Final Trial balance provided to MHM

Final goodwill impairment provided to MHM

Tax provision support provided to MHM

All requested PBC schedules provided to MHM

Commence fieldwork

Consolidated BS and IS provided to MHM

Draft Consolidated FS with footnotes, SOCF and all support provided to MHM

Complete draft 10-K with all supporting schedules provided to MHM

Preliminary 10-K review comments provided to SLS

Updated draft 10-K provided to MHM

Updated documentation to support R&D tax credits provided to MHM

Draft 10-K provided to MHM concurring partner and national office

Final 10-K comments provided to Seracare

Final 10-K provided to MHM

Draft consents, draft audit report provided to SLS

Draft SAS 61 letter provided to SLS and communication of all internal controlfindings pursuant to PCAOB Audit Standard 2.

Representation letter and PAJE schedule (if necessary) provided to SLS

Edgarized 10-K provided to MHM for final proofing

Signed representation letter and PAJE schedule (if necessary) provided to MUM

Final consents, final audit report provided to SLS

Responsibility Day Date

MHM

SLS

SLS

SLS

SLS

SLS

MUM

SLS

SLS

SLS

MHM

SLS

SLS

MHM

MHM

SLS

MUM

MHM

MHM

SLS

SLS

MUM

Confidential. Treatment Requested by SeraCare Life Sciences, Inc.

T 10/11/2005 am

,M 10/17/2005

M 10/24/2005

M 10/24/2005

M 10/24/2005

M 10/24/2005

M 10/24/2005

M 10/31/2005

M 11/7/2005

M 11/14/2005

M 11/21/2005

Th 11/24/2005

Th. 11/24/2005

M 11/28/2005

M 12/5/2005

Th 12/8/2005

F 12/9/2005

F 12/9/2005

F 12/9/2005

M 12/12/2005

M 12/12/2005

M 12/12/2005

Page 4 of 8

10/7/2005

Status

25SRLSEKLO15003


Seracare Life Sciences, Inc.FYE 9/30/05 ICFR Audit Planning and Reporting Timeline

Responsibility Day Date

Provide complete process for evaluating the design & operating effectiveness of IC to MHM SLS M 10/17/2005Provide managements assertions on ICFR including process for capturing deficiencies to M1 SLS M 11/14/200.5

Provide completed Fraud Management Program to MHM SLS M 11/14/2005

Provide Audit Committee Effectiveness Assessment to MTiM SLS M 11/14/2005

MHM completes testing MHM TH 11/17/2005

Preliminary conclusions provided to MI-IM concurring partner and national office MHM M 11/21/2005

Provide final IC findings to management MHM M 11/28/2005

Draft audit reports provided to SLS MHM F 12/9/2005

Edgarized 10-K provided to MHM for final proofing SLS M 12/12/2005

Final audit reports provided to SLS MHM M 12/12/2005

26Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKLOI5004


10/7/2005

Status


- 27SRLSEKL015005


Seracare Life Sciences, Inc.10-K Contact List

Check if

Comments Received

Executive Officers

Internal

Craig Hooson, Chief Financial Officer

E-mail: [email protected]

Office: 240-994-3021

Cell:

Office Fax:

Kai Loedel, Director of Finance

1935 Avendia Del Rio

Oceanside, CA

Email: kloedel@ seracare.com

Office: 760-806-8922

Cell:

Office Fax:

Audit Committee

Mayer Hoffman McCann P.C. (MHM)

Stuart Starr, Client Service Partner

10616 Scripps Summit Court

San Diego , CA 92131

E-mail : [email protected]

Office: 858-795-2017

Cell: 858-945-4156

Office Fax : 858-795-2001

James Comito, Audit Manager


San Diego, CA 92131


Office: 858-795-2029

Office Fax: 858-795-2001

Jim Putt, Audit Manager


San Diego, CA 92131


Office: 858-795-2029

Office Fax: 858-795-2001

--- 2 8Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKLO15006


Attorney

Printer

Confidential. Treatment Requested by SeraCare Life Sciences, Inc.

29

SRLSEKLO15007


EXHIBIT 11

Case 3 : 05-cv-02335-JLS-CAB

kpmg Timely Quarterly Review -Management Inquires (01)

Client Year-end / Quarter Ended

SeraCare Life Sciences, Inc. / 12/31/04

Prepared by Date W/P reference

Ricardo Martinez January 28, 2004 Q2-1

SAS 100 Quarterly Review Inquires

Completed by: Jess Roper

Name (Controller)

Reviewed by: Tim T. Hart

Name (CFO) Title

Controller 1/28/05

Title Date

Acting CFO 1/28/05

Date

PLEASE COMPLETE THIS QUESTIONAIRRE, AND BE PREPARED TO DISCUSS THEANSWERS TO EACH QUESTION IN OUR QUARTERLY KICK-OFF MEETING. PLEASEPROVIDE SUPPORTING DOCUMENTATION AND ANALYSIS WHERE NECESSARY.

l) Has management verified that the audit committee has pre-approved all audit , review and attest

services as well as all permitted non-audit services that the Company has engaged KPMG for?

YES.

2) What steps does management take to ensure they have a complete inventory of KPMG services,including new services each quarter, and that the audit committee has pre-approved-all servicesprior to commencement of the services? WE REVIEW THAT ANY NON-RECURRING KPMGSERVICES OUTSIDE THE 10-K, l0-Q AND TAX RETURN ARE APPROVED BY THEAUDIT COMMITTEE. ADDITIONALLY, WE ENSURE THAT THE AUDIT COMMITTEEREVIEWS THE AGREED UPON ENGAGEMENT ARRANGEMENT (AS DOCUMENTED INTHE ENGAGEMENT LETTERS) FOR RECURING 10-K, I0-Q AND TAX RETURNACTIVITIES.

3) Provide a list of or summary of changes in business activities in the quarter (including newsignificant or non-recurring transactions, significant or unusual revenue deals, significant or newlegal agreements, etc.). NONE DURING THE QUARTER ENDED DECEMBER 31, 2004.

4) Provide anupdate of the company''s business and internal control as.it relates to the preparation ofboth annual and interim financial . information,: concentrating on changes in the Company'sbusiness activities and internal control since tl e.last review (including the nature. and extent ofsuch changes). This should encompass the following:

a. Processes,

Page 1

Document 147-12 Filed 06/11/2007 Page 2 of 9

Exhibit 11 30

Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKL090132

Case 3:05-cv-02335-JLS-CAB Document 147-12

kpmg

b. policies,

c. systems,d. personnel ande. controls

Filed 06/11/2007 Page 3 of 9

Timely Quarterly Review -Management Inquires (01)

AS OF 12/31/04, THERE HAVE BEEN NO SIGNIFICANT CHANGES SINCE PRIOR QUARTERIN THE CONSOLIDATION AND PREPARATION OF FINANCIAL INFORMATION. DUE TOTHE ACQUISITION OF BBI IN THE PRIOR QUARTER, WE HAVE ACQUIRED ADDITIONALFINANCIAL SYSTEMS AND FINANCE DEPARTMENT PERSONNEL.. THE "ROLL UP",REVIEW, AND FINALIZE PREPARATION FUNCTIONS ARE STILL COMPLETED. BYCORPORATE.

5) Are there any controversial accounting or other financial matters, which should receive specialattention? Provide details of each accounting or financial matter, or refer to separatememorandum from management

NONE THAT ARE NOT DISCLOSED WITHIN THE 10-Q DOCUMENT.

6) Provide a. listing or summary of all new accounting and SEC standards that the Company adoptedduring the quarter. Attach management ' s documentation regarding the adoption of the newstandards , with the related financial statement impact analysis, journal entries, and draft footnotedisclosure , if applicable.

REFER TO 12/31/04 10-Q

7) Has management ' s understanding of the risk of material misstatement in the financial statementsdue to fraud changed since prior year-end or prior quarter (describe)?

NO.

8) Summarize management 's understanding of their responsibility for the design andimplementation of programs and controls to prevent and detect fraud

THIS IS DISCUSSED WITH SENIOR MANAGEMENT AT LEAST QUARTERLY. WECONTINUE TO REVIEW.OUR PRCESSES AND CONTROLS ON AN ONGOING BASISIN ORDER TO ACHIEVE A LEVEL OF "BEST PRACTICES."

9) Does management have any knowledge of fraudor suspected fraud affecting the entity whichinvolved:

Management,

Eri ployees who have significant roles in the financial. reporting process or internal, control

Others where the fraud could have a material. effect on the interim financial.inlormation

Other instances of fraud, regardless of materiality

Page 2

31Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRL-SEKLO90133


kpmgTimely Quarterly Review -Management Inquires (Q1)

NO KNOWLEDGE OF ANY FRAUD IN THE ABOVE AREAS.

10) Is management aware of any allegations of fraud or suspected fraud affecting the company, for

example, received in communications from employees, former employees, short sellers, financial

analysts, regulators, or others? If yes, please explain. NO

11) Has the interim financial information has been prepared in conformity with generally accepted

accounting principles and consistently applied? YES

12) Provide a list of, and support for (summary of transaction, analysis addressing applicable

accounting literature, journal entries, etc.), all unusual or complex situations that occurred during

the quarter, including but not limited to the following: (if not applicable, note as such)

restructuring charges taken in the current and prior quarters, and any reversals of priorrestructuring. accruals; N/A

n significant liabilities established in purchase accounting; and any reversals of priorreserves; N/A

n business combinations ; N/A THIS QUARTER

• disposal of a segment of a business or significant product discontinuances; N/A

• significant customers lost; NONE DURING THE YEAR

n significant, unusual or infrequently occurring transactions; N/A

n changes in or new litigation or contingencies ; REFER TO LEGAL CONFIRMATIONSTHAT SUM YIARIZE.ACTIVITY.

income tax examinations; N/A.

changes in or new commitments or.. contractual obligations; NO SIGNIFICANTCHANGES OTHER THAN I QUIP1IENT LEASE :F1NANCING ASSOCIATED WITHTHE BBI. ACQIJISI I ION. COMPLETE SCHEDULES HAVE BEEN PROVIDED DURINGTHE AUDIT

Page 3

- 32,onfidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKLO.90134



n changes in or new major contracts with customers or suppliers ; NO SIGNIFICANTCHANGES.

n changes in costs of raw materials , wages and salaries, or other major cost items; NO

n establishment or reversals of significant valuation allowances on future tax assets;PROVIDED DURING FIELD WORK

n changes in accounting principles or the methods of applying them; N/A

trends and developments affecting significant accounting estimates , such as allowances forbad debts and excess or obsolete inventories , provisions for warranties and employeebenefits, and realization of unearned income and deferred charges; NO TRENDS THATSIGNIFICANTLY IMPACT THE ABOVE DISCUSSED ITEMS.

n impairment of assets (goodwill, fixed assets, etc.); NO IMPAIRMENT RECOGNIZED

n property retirements or abandonment; NONE

n technological or other changes affecting inventory (if applicable); N/A

n other than temporary impairment for investment securities N/A

n material returns, consessions or allowances ; NO SIGNIFICANT ACTIVITY

n new or complex revenue recognition methods; NONE

• significant'or unusual sales incentives and other conditions near the.end of the reportingperiod -that may affect revenue recognition; N/A

use of derivative instruments and hedging activities; N/A

sa'Ies and transfers that may call into question the classification of investments in securities,including management's. intent and ability with respect to the remaining securitiesclassified as held to maturity; N/A

Page 4

-- 33



kpmg

Filed 06/11/2007 Page 6 of 9

Timely Quarterly Review -Management Inquires (Q1)

n computation of earnings per share in a complex capital structure; N/A

n adoption of new stock compensation plans or changes to existing plans; N/A

n compliance with debt covenants ; YES, WORKSHEET PROVIDED DURING THE 10-QREVIEW.

n changes in related parties or significant new related-party transactions ; DISCLOSED IN10-Q DOCUMENT

n material off-balance-sheet transactions , variable interest entities, and other equityinvestments ; MINIMAL ACTIVITY. LINE OF CREDIT DISCLOSED IN 10-Q.

n unique terms for debt or capital stock that could affect measurement and/or classification;NOTHING UNIQUE

13) Provide a list of all significant , unusual or non-routine journal entries and other adjustments durinthe quarter , with explanation of each entry. ALL ENTRIES PART OF MONTHLY /QUARTERLY CLOSE ENTRIES

14) Provide a list of significant or unusual transactions that occurred or were recognized in the lastseveral days of the interim period . TRANSFER OF ESCROW FUNDS THAT OCCURREDDURING DECEMBER 2004 FROM SELLING ENTITY OF BBI ACQUISITION PROVIDEDTO KPMG DURING THE AUDIT.

15) Are there any significant, non-routine , or unusual quarterly closin journal entries? If yes, providedetail entries and explanation . ALL ENTRIES PART OF MONTHLY / QUARTERLY CLOSEENTRIES

16) Are there any significant , non-routine, or unusual quarterly p-closing journal entries? If yes,provide detail entries and explanation . PROVIDED TO AUDTORS DURING THEQUARTERLY REVIEW PROCESS.

17) If applicable, document the status of uncorrected misstatements identified during the previousaudit and/or interim review (that is, whether adjustments have been recorded subsequent to theprior audit or interim period and, if so, the amounts recorded and period in which suchadjustments were recorded); N/A

Page 5

34

Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKLO90136


kpmg

Filed 06/11/2007 Page 7 of 9

Timely Quarterly Review -Management Inquires (Q1)

18) List all Type I and Type 11 subsequent events , and the Company' s analysis of required accrual

and/or disclosure. (especially , events subsequent to the date of the interim financial information

that could have a material effect on the presentation of such information ). NONE NOTED

19) Provide a description of all communications from regulatory agencies during the quarter, and

provide copies of such communication if written . NONE DURING THE QUARTER

20) Provide a list of significant deficiencies , including material weaknesses, in the design or operation

of internal controls which could adversely affect the company's ability to record, process,summarize , and report financial data. Describe the steps taken by management to address these

items and the expected date of remediation . NO SIGNIFICANT DEFIENCIES OR MATERIALWEAKNESSES NOTED.

21) Does the interim financial information agree with the accounting records (general ledger and subledger)? If there are reconciling items.between the financial statement balances and generalledger/sub ledger balances, please provide us with copies of the reconciliations. YES

22) Are there significant differences between procedures used in preparing interim financialinformation and those used at year end (i.e., journal entries, accruals, calculations, etc. not madefor interim purposes)? If yes, please explain such differences. NO

23) Has action been taken on comments regarding weaknesses in the internal control structure andother matters discussed in the most recent management letter? N/A

24) What, if any, significant accounting estimates have been made by management preparing interimfinancial information? ALL SIGNIFICANT ACCOUNTING ESTIMATES HAVE BEENDISCLOSED. SIGNIFICANT ACCOUNTING POLICIES ARE DISCLOSED W/IN THE 10-K.

25) Provide summary of all significant estimates and highlight significant revisions from prior periods.DISCUSSED AND PROVIDED DURING 10-Q REVIEW.

26) Have there been any significant accounting changes during the.quarter? If yes, provide basis forchanges; summary of accounting literature and other details as necessary. NO

27) Has any new legislation, governmental regulation , or political or economic factors significantlyaffected the Company's business? (E.conorriic :fActors may inclu°de m atters relating Lu;customerdemand, raw material supply, labor force :financial market, etc.)?. If yes, please explain, andexplain impact to company. NO

28) Provide a list of events which have occurred since the last audit or limited review that may have aneffect orhave had an effect on matters raised at the time. NONE

Page 6

35Confidential Treatment Requested by SeraC.are Life Sciences, Inc. SRLSEKLO90137


kpmg

Filed 06/11/2007 Page 8 of 9

Timely Quarterly Review -Management Inquires (01)

29) Provide a list of events that occurred in corporate meetings that may have a significant financial

impact on the interim financial statements or require disclosure. NONE

30) Are there any liquidity or going concern problems? If yes, please explain and provide analysis.

NO

31) Were there any accounting cutoff problems at the end of the quarter? If yes, please describe. NO

32) Has there been any noncompliance with significant agreements (long-term debt , sales, purchases,

etc.)? If yes, please explain and provide support (ie. calculation). NO

33) Have there been any changes in key management personnel , legal counsel , borrowing

relationships , etc.? If yes, please explain . NO, OTHER THAN THE ADDITION OF A CHIEFOPERATING OFFICER THAT OCCURRED DURING THE QUARTER.

34) What are analysts ' expectations for the Company's quarterly EPS? NOT COVERED

35) What are the major reasons the actual quarterly EPS did not agree to the analysts EPS? N/A

336) How did the quarterly results compare to budgeted results? What were the reasons for thedeviations? THERE WERE NOMINAL VARIANCES BETWEEN BUDGET AND ACTUAL.FOR THE QUARTER ENDED DECEMBER 2004, THE COMPANY IS MEETINGEXPECTATIONS.

37) Provide a list of related party transactions which occurred during the quarter . Include names,amounts and or terms . REFER TO 10-Q

38) Are there any significant bad debts or accounts in dispute for which provision has not been made?Provide details, or refer to separate schedule or memorandum from management outliningquestionable account balances and managements rationale for why a provision is not necessary.ALL SLOW PAYING ACCOUNTS DISCUSSED AND PROVIDED DURING THE 10-QREVIEW.

39) What stock / equity transactions have occurred in the period (ee and non-ee options granted,options exercised, option modifications , stock purchased or sold, etc).. Provide detail schedules asnece ssary. SOMEOPTION AND WARRANT EXERCISE ACTIVITY. EQUITY SCHEDULEPROVIDED DURING THE Q REVIEW.

40) For .contracts where revenue is recognized using percentage ofcoinpletion accounting

a) Are there any contracts that are in a loss position? NO, NOT THAT WE.ARE AWARE

b) Are there-any contracts that management believes have issues? NO

c) Are there any contracts where gross margin percentage to date does not equal anticipated

Page 7

-- 36Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKLO90138



margin on the overall contract? NO, NOT THAT WE ARE AWARE OF

41) What is the status of the Company 's progress towards compliance with Sarbanes Oxley Section404? THE COMPANY IS NOT AN ACCELERATED FILER FOR 404 PURPOSES. THECOMPANY HAS DEVELOPED A DRAFT OF THE PLAN. THE ACQUIRED DIVISIONS OFBBI BEGAN IMPLEMENATION OF 404 PREVIOUSLY. SERACARE WILL LIKELYADOPT SOME OF THE PROCEDURES AND PROCESSES OF BBI . SERACARE ISMOVING FORWARD IN EVALUATING 3PD PARTY SOX IMPLENTATION TEAMS TOAUGMENT THE COMPANY'S COMPLIANCE PROGRAM.

42) Is there anything else that occurred during or subsequent to the review period, which you believewould aid in completion of our review? NO.

Page 8


37SRLSEKLO90139


EXHIBIT 12


135/02/2005 09:03 FAX001

KPMG LLP - Audit, Advisory & CSS Telephone 619 233 8000

KPMG LLP Fax 619 233 8099

Suite 1.500

750 6 Street

San Diego, CA 92101-8191

To Jcrnr OIWOII;^k.Organization SCTa['acG l.r& Sueme-iFax (76a ) 33

Copy to _

Dale

Subject

From f1ra d, 1c r*ir z

Department San Diego office

Telephone ( FSd122F z?r

Fax 859-228-2020

Ref

Page 1 of I

The information contained in this-fa"csim ile .message is privileged andconfidential and intended solely for the use of the addressee listed above. If youare:nett#ierthe intended recipient northe employee or agent responsible fordelivering this message to the Intended recipient, you are hereby notified that

KPMG LLP, a U.S. limit^cf liability any.disclgsure,.aopying, or distribution and the taking-of any action in reliancepartnership, is the U.S. member on the information contained herein are strictly prohibited. If you have receivedfirm of KPMG International, a this facsimile message in error, please immediately notify the sender bySwiss cooperative. telephone to arrange for the return of the original document to us.

Exhibit 12 3 8onfidential Treatment Requested By SeraCare Life Sciences, SRLSF_IR1935A%1


t15/02/ 2005 09 :03 FAX U002

MFYY 01 21305 9:36PM ( 714 ) 256-4366 P.9

SeraCare Life Sciences, Inc.Balance Sheets(unaudited).

(In whole dollars, except share data)

March 31, September 30,2005 2004

Current assets:Cash and cash equivalentsAccounts receivable, net ofallowance for doubtful accounts of$87,000 as ofMarch 31, 2005 and $168,000 as of September 30, 2004

Inventory, netPrepaid expenses and other cumnt assets

Total current assets

Property and equipment, netGoodwillOther intangible assetsOther assets

Total assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:• Accounts payable

Accounts payable to related pattiesAccrued expensesCurrent portion long-term debt

Total current liabilitiesLong-term.debtNotes payable, related pattiesOther liabilities

Total liabilities

$ 1,259,542 $ 1,475,869

11,642,079 • 12,025,08131,482,218 • 26,162,2761,216,376 r 1,268,821

45,600,215 40,932,047

7,836,437 ' 7,423,04431,533,777 ' 33,197,4426,659,104 • 6,404,1311,356,540 1,171,382

S 92,986,073 S 89,128,046.

$ 6,933,638 a 5 7,180,4733,275,680 - 1,699,6662,731,358 '• 4,321,3703,852,108 • 3,807,66036,792,784 17,069,17022,353,748 • 22,466,5793,500,000 3,500,000415,812 • 388,578

43,062,344 43,364,327

Commitments and contingencies (Note 8)

Stockholders' equity.Preferred stock, no par value, 25,000,000 shares authorized, no aharee issuedand Outstanding,Connor stock, no par value; 25,000,000 shares authorized, 9,957,779 and

9,762,116 shares issued and outstanding as ofMarch 31, 2005 andSeptember 30, 2004, respectively

Additional paid-in capitalRetained carnage

Total .stockholders,' equityTotal liabilities andstoekholdera' equity

23,438,588 F 22,935,46613,519,422 13,519,422

See accompanying notes to unaudit ed aI statetncrits

3 •

3nfidentiai Treatment Requested By SeraCare Life Sciences,

_ 39

SRLSEJ.B193552 -

Case 3:05-cv-02335-JLS-CAB

05/02/2005 09:03 FAXMR,Y 01 2005 9:36PM [714) 256-4366 p.10

SeraCa re Life. Sciences, Inc. 4 -Statements of Cash Flows

(unaudited) P' a(in whole S, except per share data) 4c

^y^ pjJ ) Six months ended?(' March 31,

2005 2004Cash Flows from Operating activities: Y rNet income $ 3,656,889' S 1,643,646Adjustments to reconcile net income to cash used inoperating activities:

Depreciation and amortization 608,627 92,911Changes In operating assets and liabilities:Accounts receivable, net

inventoryPrepaid expenses and other current assetsOther assetsAccounts payableAccounts payable to related partiesAccrued expenses

Net cash pca^cied-bssed in operating activities

Document 147-13 Filed 06/11/2007 Page 4 of 12

CJ003

383,002"(5,319,942)

52,445'(185,158}

q& I tj o 14 •'-^" 1,576.,010(1,,562,777)-'(i,037,739)

Cash Plows from Tnvemt[ng activities:Purchase ofproperty and equipmentPurchase price adjustments and recoveries (1) I c 41% 41'.f l e'.rt.

Acquisition 4 assets ofBioMedicalResrnuces, Inc.Costs related to GQ and Bill acquisitions

Net ca51 'atsed) vesting activities

Ca3^b'omFinancing activities:Exercise of options and warrants -Principle payments on long-teem debtBorrowings on line ofcreditPrincipal payment ofrelated party bridge note

Net cash provided by (used in) financing activities

Net decrease in cash and cash, equivalentsCash and cash equivalents, beginning ofperiodCash and cash equivalents, end ofperiod

(104,213)(1,551,016)(915,214)(330,282)2,176,218

(1,518,310)220;112

(286,148)

(1,022,020). (81,767)1,663,665 -" -(254,973)"

(10,048)386,672 (91;815)

503;122(1,875,000)1,806,618

434,740

-(216,327)/1.475 869.

S 1,239,542

112,990

50D,000(],887,

887,01001

(2.264,973)2,983,723

$ 723,750

Supplemental disclosure of nos-casb investing and financing activities:Issuance of options 40

Cap tal.lease obligatic1Vldreh 31, 2005 when(l) The reduction in gi

sczond quarter andvalues to other anti

5

40

onfidential Treatment Requested By SeraCare Life Sciences, SRLSEJB193553


05/02/2005 09:03 FAX 44004

Three months ended Six months endedMarch 31, March 31,

2005 2004 2005 2004

Risk free interest rate 2% 2% 2% 2%Dividend yield 0% 0% 0% 0%Expected volatility of the company's stock 25% 25% 25% 25%

Weighted average expected life (in years) 3 3 3 3

3. - Earnines Per Share

Basic net income per common share is computed based on the weighted average number of conunon shares outstanding during

the period. Diluted net income per common share is computed based on the weighted average number of common shares

outstanding during the period increased by the effect of dilutive stock options and warrants, using the treasury stock method.

The computations for basic and diluted earnings per share are as follows:

Three months ended Six months ended

March 31, March 31,2005 2004 2005 2004

(in thousands, except for per share data)

Numerator for basic earnings per share - net income

Denominator - shares:Weighted average common shares for basic earnings pershare

Effect ofdilutive securities

)Dilutive potential shares for diluted earnings per share

$ 1,976 $ 876 $ 3,657 $ 1,644

9,937 7,814 9,911 7,772

1,083 1,244 1,083 1,237

11,020 9,058 10,994 9,009

Earnings per common share:Basic $ 0.20 $ 0.11 $ 0.37 $ 0.21

Dilutive $ 0.18 $ 0.10 $ 0.33 $ 0.18

Potentially dilutive securities not included above since theyare anti-dilutive 255 742 255 796

4. Income Taxes

The realization of deferred tax assets is dependent upon the Company's ability to generate taxable income in future periods. Asof March 31, 2005, management determined that it was more likely than not that the deferred tax assets will be realized in futureperiods. A deferred tax asset of $235,000 for California net operating logs carry-forwards was recorded as of March 31,2005.The CaliforniaNOL deferred tax asset is expected tobe utilized in 2005, a delay resulting from a two-year state unposedmoratorium on the use of these NOLs.

The Federal net op ratrig loss-carry-forward was used during fiscal 2004-and therefore, in accordance with.SFAS No. 109, theeffective ta' rate for 2004 assumed the use of all the federal net operating losses dieing fisca1.2004. For the three a id six monthsended March 31, 2005, the Company accrued income taz at the rate of 38.0%. For the three rind s monthperiods ended March31, 200d, the Company accitied income tax at the rate of 19.39'n'hnd 0.5% respeeti ely: AtMarch 31, 2005, the Company had nofederal net operating loss carry-forward and Californiastate net operating-loss cagy forwards of mtli on

5 . Long-term..debt

-one ofcredit

As of March 31 , 2005 the balance owed under the revolving loan was $10.0 million, the interest rate Was 7.0% and there was noavailability under such line.

7

Confidential. Treatment Requested By SeraCare Life Sciences,

- 41

SRLSEJBI9355.4


65/02/2005 09:04 FAX - 0005

MRY 01 2005 9:36PM (714) 256-4366 p.11

6. Se.ement Information and StEnifleant K tomers

SFAS No. 131, "Disclosures about Segments ofan Enterprise and Related Information" requires the reporting of information about

operating segments in annual financial statements and requires selected information in interim financial reports. Selected financial

infortmtion for the three months and six months endedMarch3l, 20D5 and 2004 is as follows:

Three month., ended March 31, Sir months ended March 31,

2005 2004 2005 2004

(in thousands)Net Sales-

Biopharmaceutical Products $ 5,997 $ 2,294 $ 12,296 S 4,087Diagnostic Products 8,791 /

14, 167 15.492

1

7,351Total $ 14,788 S 6,461 $ 27,788 S 11,438

Income (expense) from Operations:

Biopharmaceutical Products $ 1,511 441 S 2,905 $ 729Diagnostic Products 3,290 775 5, 651 1,254Corporate and Other (1,008)

'

(86) (1,472)

4

(262)

Total $ 3,793 - S 1,150 S 7,08 8 1,721

Income from operations is defined as income before income taxes, interest, and other non-operating income and expenses."Cocporath and other" includes selling, general' and administrative corporate expenses other than those directly atfnbubble to anoperating segment. The Company bad no inter-segment sales during the six months ended March 31, 2005 and 2004.

huuig the thr months ended March 31, 2005, approximately 15% ofnet sales were to one customer. ,oimb," During the-threemonths ended March 31,

2004, approxitnately 11% ofnet sales were to one customer During the six months ended March 31 , 2005, approximately 10%ofnet sales were to one customer. During the six months ended March 31, 2004, there were no customers that represented salesgreater than 10% ofnet sales for the period. As ofMarch 31, 2005, one customer had balances representing 24% ofnet accountsreceivable. As ofSeptember 30, 2004, two customers had balances representing 27% of the total balance of net accountsreceivable.

7. Related Party Relationships and Transactions

The Company is party to an agreement withBiornat USA, Inc. (our former parent and a subsidiary ofProbitas Phazma S.A.)which sets forth the terms and conditions pursuant to which Biotnat USA. Inc. (` Biomat") will supply the Company with certainplasma products until January 2006 at prices which will be agreed upon on an annual basis .. Under tins agreement. Biomat alsoprovides plasmapheresis services an donors referred by the Company, including collecting, testing and delivering the plasma to

us. The plasma products provided by Biomat to the Company under this agreement are subject to minimum quality specifications

set forth in the agreement and are subject to specifications for delivery, storage and handling ofthe. plasms in accordance withapplicable laws, industry standards and good manufacturing practices.

The Company Is also a party to an agreement with Insututo tprifols, 5./i. (also a>subsidiary, of Probitas Phanna S.A.), under whichInstituto Grifols, S.A. ("Ixutituto Grifals") supplies the Company With Human Serum Albumin, which the Company thendistributes to various biotech companies. i}ntler i s agreeemen -Institute Crrifols also supplies the Companywith Human Serum EAlbum in for use in diagnostic products. The Gb y obtains a substantial portion of our revenue. nd operating margin frotrisates of:products ineoxpornting the I Euriian supp3ii d to nsby Insdtuto C?rttols wider this agreement this sf71raid?7 T6 age iue:it.w.'r nmcncjcd in X01 tIS ^ tmfil March 3 1,

260,6 Incot dn . t.ionn with an agin-meet for the

.supply ofIitim^an 5er m2 Albumin that the Comp n • entered into with one oft a Company's signihcant custemcrs, the Cur: y:also amended th a terms of ouragreameot with Ias€[tuto Cols t coatirm ceitazn acpecis ofthe ag eemerit with tlfe iigfvficattt:ustmner`s contract

ant eptember 25, 2001, Probates Pbzmnsm, through ads subsidiary :t tsttt^tto ±C ols, acquired Biomat, our fourier pm

$477,000 and $876,000 intcwnan b?cod plassisix mo tlis laded March31, 2005 and 2004, hees, respectively, fiom`Biomat. '. Dining the three

8

Confidential Treatment Requested By SeraCare Life Sciences,

Th;:services

March

- 42SRLSEJB193555


'05/02/2005 09:04 FAX t1006

MAY 01 2005 9:36PM (714) 256-4366 p.12

1, 2005 and 2004. the Companypurchased plasma products from otters subsidiaries ofProbitas Ihauna totaling $2,233,000 and$563,000, respectively. During the aix months ended March 31, 2005 and 2004, the Company purcbased plasma pioduets fromother subsidiaries ofProbitas Pbarma totaling $2.9 million and S 1.5 mullion, respectively. As ofMarch 31, 2005 and September30, 2004, the Company had accounts payable owed to Instituto Grifols and related subsidiaries totaling $3,276,000 and$1,682,000, respectively. These amounts are classified accounts payable related parties in the accompanying balance sheets.

In connection with the spin-offfrom Biomat USA, Inc., on September 24, 2001, the Company issued a warrant to YrobitasPharma to purchase 563,347 sbarca of the Company' s common stock at an exercise price of 33.05 per share. The warrant has anexpiration date of September 24, 2006_ This warrant has subsequently been assigned by Probitas Phanna to four investors.

Mn Barry D. Plost is currently Chairman of our Board ofDirectors. Mr. Float is also President ofBiomat USA, The. and serves asa director ofPsobitaa Pbanma SA. Mr. Pleat became a consultant to the Company effective October 1, 2004, for which he iscompensated $200,000 annually.

M. Jerry L. Burdick is currently our Sccretafy as well as a member ofourBoard of Directors. In addition, Mr. Burdick became aconsultant to the Company in August 2004 and effective February 7, 2005, Mr. Burdick became Acting ChefFinancial' Officer, aposition he will hold until a new CFO is selected. The Companypays Mr. Burdick a monthly retainer fee of $10,000 plus onhourly consulting the for services performed. Mr. Burdick also became a consultant to Biomat USA, Inc. in August 2004.

Mr. Samuel Anderson, a current Board Member, became a consultant to the Company effective April 15, 2002. Mr. Anderson'sconsulting agreement expired by its terms on April 15, 2005. Under the consulting agreement, the Company paid Mn Andersonan annual consulting for, of$56,000.

Forservices on the Scientific Advisory Board relating primarily to merger and acquisitions, one Board Member was granted anoption in October 2003 to purchase 25,000 shares of common stock at an exercise equal to the fair market value ofthe stock at thedate of grant. The fair value of the options was determined using the Black-Scholes model and$40,000 was recorded as a unit-cash acquisition cost during the quarter ended December 31, 2003. The fair value ofthe option grant was detezmined.using thefollowing assumptions: a risk free interest rate of2%; dividend yield of zero; voiatility"uf the expected market price oftheCompany's common stock of 30%, and a weighted average expected life of the option of3 years.

Commitments and Contingencies

^, Ngation

On April 8, 2005, a complaint, entitled PrecisionMed International Inc. v. SeraCare Life Sciences, Inc., was filed against us in theSuperior Court of California, County of San Diego. In April 2003, we entered into an agreement with PrecisionMed Internationalfor the collection, storage; marketing, sales and distribution of certain biological matc[ials'frompatients diagnosed withrheumatoid arthritis. The agreement was amended in September 2003 and in October 2004, we notified PrecisiouMcdIntonational of our termination of the agreement. PrecisionMed International alleges that we breached the material teams of theagreement, by among other matters, failing to provide to PrecisionMed International periodic reports with respect to activityunder the agreement as well as access to samples stored by us under the agreement. PrccisiorMed International also alleges thatwe had a fiduciary duty to it and breached that duty by our alleged actions and omissions under the agreement. The complaint also

includes allegations of constructive fraud, negligence, conversion, unfair competition and ante ence with prospective economic

advantage and seeks unspecified damages alleged to exceed $5 million in addition to punitive damages and injunctive relief. Thecomplaint has not yet been served on us. We believe the complaint is without merit and, ifserved with the complaint, intend tovigorously defend ourselves.

In addition, we we involved from time to time in litigation incidental to the conduct ofoar buprior paragraph, we are not currently a party to any material lawsuit or proceeding agalas capital Les

;On Niovember 18, 2004, the Company entered into a $352,000under a sixty mo, tbi lease at $7,000 per month:

Guarantee.,

The Company iw3evraifies directors and otlicera f, #htrd }icilydircctors.or officers. Certain costs incurred for providing such-iThe Coif parry has nottncu:rad obligations:under these indemWsignificant obligations in the future. Accord ugly the Cornpan.indetanification obligations. The maxi um pot ntial amount ofunder the indem nification arrangemerkts relating to offeels and

leaee with KoyCorporate Capital, Lao. for vaz ttus equipment

iaiutein actacuels for piste die dirernerits that the Company could be =

uniitnltrid

9

uties asranee policies.0.t to hiispfPtcerd to make

43

,onfidentiai Treatment Requested By SeraCare Life Sciences, SRLSEJB193566


'05/02 / 2005 09:04 FAX t 007

MRS' 01 2005 9:37PM 1714) 256-4366 p.13

;consisted of 1,065,683 shares ofour common stock and cash of approximately $1.2 million (including transaction costs). GC) isbased in Cambridge, Massachusetts and provides clinical samples and applies human genetics to target validation for drugdiscovery. We paid $30.0 million in cash plus the assumption ofcertain liabilities for the assets ofthe BBI divisions. Theacquired divisions include in vitro diagnostics operations and BioBank related operations, which we believe will complement ourexisting operations. The acquired assets are located at faeilitics in West Bridgewater, Massachusetts, Frederick, Maryland, andGaithersburg, Maryland. In February 2005. we entered into a closing balance sheet agreement with BBI pursuant to which wereceived S 1.0 million of the amount previously escrowed by the parties in satisfaction ofadjustments relating to the net assets test

provided for in the•asset purchase agreement.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2005 vs Three Months Ended March 31, 2004

Net Sae

Net sales totaled $14. 8r'^tullion and $6.5 Xmtllion for the three months ended Match 31, 2005 and 2004, respectively. This $8.3million or 129'/u increase in sales for the three months ended larch 31, 2005 is primarily the result of the acquisitions of certainassets of GO and BBI since March 2004. Due to these acquisitions and internal growth, biophaanaceutical segment productsales totaled S6 ion, an in of $3. 7 million or 161% and diagnostic segment product sales totaled $8.8 million, an

'increase of54. million or % in revenue.

Gross Profit fills

:Grass profit and gross margin totaled $6.7lmill n and 46%orespectively, fur the three months ended March 31, 2005 compared

to S2. 2 million and 34%, respectively, for the three v ontbs ended Marcb 31, 2004. The increase in gross profit is the direct result

.of improved margins generated by a shrift in product mix in both the biopharmaceutical And diagnostic segments, primarily as aresult ofthe acquisitions ofBBI and GCLAdditionally, the customer base has continued to shift from fewer and more significantcustoms to a more diversified customer base with customers that had lower average sales and higher profit margins in both theiophsrmaceutical and diagnostic segments . The material cost component of cost of sales included an excess inventory benefit of4156,000 related to inventory previously written off and utilized in production or sold.

Research and Development Expenses

Research and development expenses totaled $60,000 for the three months ended March 31, 2005. These expenditures wereincurred by operations acquired on September 14,2004.

Selling. General and Administrative Exnetomes

Selling, general and administrative expenses totaled $2.million and $1.1 million for the three months ended March 31, 2005 and

2004, respectively, The h reaec in selling, general and administrative oxpeosos is primarily the result ofthe acquisitions ofGUI

and BBI which has resulted in an expansion of sales and marketing activities related to the new and expanded productionfacilities and products acquired.. Also adding to the ' are increases in legal and auditing fees associated with SBC filingActivities and requirements. No bad debt expense was ' ed d

Interest

the three months ended March 31, 2005 or 2004.

memo t) I,O

Interest cxpcme totaled $604,000 for the three months ended March 31, 2005 an .$44,000 for the three months ended March 31,

2004. The increase in interest expense is:=primarily a result of the debt incurred .in September 2004, which was usedprima ty'to

acquire certain assets ofBBl.

Income Tarr Frpease

As a result of the above, net income increased by S 1. 1 nnillion for ttie three months to $1 ,976,000 fromthe prior year period-

12 -

44Confidential Treatment Requested By SeraCare Life Sciences, SRLSEJB193557

Net Ineome


,05/02/2005 09:04 FAX X1008

Mf1Y 01 2005 9:37PM 1714) 256-4366 p.14

Six Months Ended March 31, 2005 vs Six Months Ended March " 31, 2004

Net Sales

Net sales totaled $27.8 m llion and $11.4 million for the six mouths ended March 31, 2005 and 2004, respectively. This $16.4

million or 143% increase in Bales for the sixmontba ended March 31, 2005 is priman`ly the result of the acquisitions of certain

assets ofGO and BBI sirsce March 2004. Due to these acquisitions and internal growth, biophaunaeenticat segment product

sales totaled $123 million, an increase of $8.2 million or 201% and diagnostic segment product sales totaled 915.5 million. an

inercase of 58.1 million or 111% in revenue.

Goss Profit

Gross profit and gross margin totaled $12,6 nlllion and 46'x., respectively, for the six months ended March 31, 2005 compared to$4.1 million and 36%, respectively, for the six months ended March 31, 2004. The b=ase in gross profit is the direct result ofimproved margins generated by a shift in product mix in both the biopharmaceutical and diagnostic segownts, primarily as aresult of the acquisitions of BBI and OCT. Additionally, the customer base has continued to shift from fewer and more significantcustomers Sc) a wore diversified customer base with customers that had lower average sales and higher profit quagins in both thebiopharmaceutical and diagnostic segments. The material cost component ofcost of sales included. an excess inventory benefit of$439,000 related to inventory previously written offand utilized in production or sold,

Research and Development Expenses

Research and development expenses totaled $114,000 for the six months ended March 31, 2005. These expenditures wareincurred by operations acquired on September 14, 2004.

Selling, General and Administrative Escenes

Selling, general and administrative expenses totaled $5.4 million and $2.4million for the six months ended March 31, 2005 and2004, respectively. The increase in sellng, general and administrative expenses is primarily the result ofthe acquisitions ofGMand BBI which has resulted in an expansion of sales and marketing activities related to the now and expanded production facilitiesand products acquired. Also adding to the increase an increases in legal d auditing fees associated with SEC filing activitiesand requirements . No bad debt expense was incurred during the six month ended March 31, 2005 or 2004,

Interest expense tuetl "'t

Interest expense totaled $1.2 million for the six months ended March 31, 2005 and $67,000 for the six months ended March 31,2004. The increase in interest expense is primarily a result ofthe debt incurred in September 2004, which was used primanly toacquire ceitsin assets ofBBI.

Income JU Expense15A_

19' Q Q.-r 61-11 14--

Income tax expense totaled $2.2 $9,000 for the six months ended March 31, 2005 and 2004, respectively. The annualeffective tax rate was 38.0% 0.5'Y or the six months ended March 31 , 2005 and 2004, respectively. The provision forincome taxes during interim qu yreporting periods is based on estimates ofthe effective tax ratca for the respective frill fiscalyear , The effective tax rate for the current year period has been reduced from the statutory into to reflect projected state researchcredits.

Net Income

Asa result ofthe above, net income increased by $2.0 m llion for the six months to $3,657,000 from the prior year period,

j^aputoriry Anro:carrr^ti comic

As ofMarch 31, 2003, the Cos any's current assets exceeded current I abilities by 328 8 riillion cc rpstrecl to $23.4 million asofSepteaoaber 30, 2004, and aecordiregly, our ratio ,C'U' rent assets to current liabilit%s'was 2_T to 1 ss bfMarch 31, 2005 co p'u edto 44 to I as ti# 5epfetvbar 30, 2004. Total l bilities a3 ofMatbb 31, 2005 were $43_i million cornpet rd to;343.4 million os ofSepticmBcr 30, 2004. 'the total debt to dgtuly ra o as ofMarclt.3 ," 2005' was 0.86 conrparcii to 0.95 as ofSeptur her 30, 2004.

G^frent liabilit s decreased by $216,000 from September 30, 2004.to March 31, 2005, .pdman'ly as. a rcsult of u sedductiori,inac^nxc experts, pzimnrily due io the tinting ofpayment of expenses. Thegrowth iu.mvry'resulted in an increase m .the currentratio, while the growth to eguty, prim azy r from etxningx,xesulted u adecrea9e in the total debtto equity ratio as ofmuch 31, 2005 compared to the same ratioafor-ihe yearended September 30; 2004.

13

45

.onfidential Treatment Requested By SeraCare Life Sciences, SRLSEJBI93558nc

Case 3:05-cv-02335-JLS-CAB Document 147-13 Filed 06/11/2007 Page 10 of 1205/02 / 2005 09:05 FAX U009Mf1Y 01 2005 9:38pP 1 714) 256-4366 p.15

Net cash used in operating activities during the six months ended March 31, 2005 was $1,037,000 compareddnet cash used in

operating activities during the six months ended March 31, 2004 of $286,000. The increase in net cash used operating activities

for the six months ended March 31, 2005 was primarily due to the increase in inventory and reduction of accrued expenses and

was partially offset by the increase in accounts payable to related parties . Inventory increased by $5.3 million from September

30, 2004 to March 31 , 20D5 primarily in the biopharmaceutical product segment to support expected future sales.

Cash flows provided by investing activities for the six months ended March 31 , 2005 totaled$386,000 compared to cob used in

investing activities of $92 ,000 for Urn comparable prior year period. The cash generated by investing activities for the six months

ended March 31, 2005 was primarily the result ofa $1 .0 million cashreceipt which represented a purchase piica adjustment,

partially offietby the purchase ofproperty and equipment used to support ongoing business operations.

Net cash provided by financing activities for the six months ended March 31, 2005 totaled $ 435,000, which resulted primarily

from the exercise of options and warrants . Borrowings and repayments under our credit facility were tnostly offsetting.

Management believes that internally generated cash flow will be sufficient to meet the ongoing working capital requirements of

out current operations for the next twelve months. However, any significant expansion or acquisition may need to be funded

externally by some combination ofbridge financing, private placement(s), and/or other capital infusion. Going forward, we

expect to generate positive cash flows from operations for the foreseeable future. Accordingly, management expects internally

generated cash flow will be adequate for the foreseeable future to cover existing operations as well as our non-cancelable leases,

purchase commitments, and credit facility commitments as described in notes to the financial statements for the fiscal year ended

September 30, 2004 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

On April 18, 2005, the Company filed a registration statement on Form S4 for the offering ofup to 3,500,000 shares of CommonStock, ofwhich up to 3,000,000 shares would be offered for sale by the Company and up to 500,000 shares would be offered forsale by the selling shareholders named in the registration statement The registration statement also provides for the offering ofanadditional 525;000 shares of Common Stock (450,000 shares from the Company and 75,000 from the selling shareholders) if theoverallotment option described in the registration atatement.is exercised by the underwriters. As described under the "Use ofProceeds" caption in the registration statement, the Company intends to use the act proceeds from the offering, ifconsummated,to. repay the revolving loan portion ofour senior credit facility, which had a balance of $10.0 million as ofMarch 31, 2005, with.the balance ofthe net proceeds, from the offering to be used to finance future acquisitions and for general corporate purposes,including working capital.

fsltTtcAL ACCOl r4TING PcrI.iciES

To prepare the financial statements in conformity with accounting principles generally accepted in the United States, managementis required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosureofcontingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expensesduring the reporting period. In particular, we provide for estimates the collectibiility of accounts receivable, the net realizablevalue of our inventory, the, recoverability of long-lived assets, as well as our defemd tax asset valuation allowance. On anongoing basis, we evaluate oar estimates based on historical experience and various other assumptions that we believe to bereasonable under the circumstances, the results ofwhich foam the basis for making judgmenla about the carrying values of assets.and liabilities. Future financial results could differ materially from current financial results.

Revenue Recognition. We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104 "Revenue Recognition,Corrected Copy," (SAB I04). SAB 104 requires that four basic criteria be met before revenue can be recognized: (1) pervasiveevidence that :an arrangement exists; .(2) delivery has occurred; (3) the selling price is Axed and deteumnable; and (d')collect b tyis seasonably assured :We record any material up-front payments as defer d revenue in ofer liabilities on.thebalance beetand recognize revenue upon shipment ofta pioduct to the customer and when the four criteria-noted above aresort

Returns. We will accept return of oods if prior to ,eP B retort ggoods; rite pum a= contacts us and requests a Return AuthorizationNumber, cJe'arly stating the reason for the return. Request for rcptaczments or cralit must be"received within 10 days aftershipment. We ere notliable for products Wet become umaablc d e to impropersh rugs, is proper i eatmetit, or expirat^b Certainretarris arc subject to a 15% handling and-icetocking cha ge.-Biopharmaceutical roducts will onlybe accepted with a Rttkin,Ant lion Number and a letter stab g adhcr x to Prrscription Drug Marketing Act Storage Cotnlsliance. Items that are non-return le include frozen items, custoam:orders, products=fiat have been altexcd I any ucuinet from their state or not inofg^ndl ,their contain and;bi harmsceut l items fox use ti dinTS. o'p 3'. .cuetornexs: Rctut^ascrereGOrded as a decrease iurevenue atthe time information is-available.

14

Confidential Treatment Requested By SeraCare Life Sciences,Inc.

-- 46S:R4SEJB193659


05/02/2005 09:05 FAXMRY 01 2005 3:38PM (714) 256-4366

Page 11 of 12

Uoiop.16

Accounts Receivable. We perform ongoing credit evaluations of our customers and adjust credit limits based on payment historyand the.pustomera' current buying habits. We monitor collections and payments from our customers and maintain a provision forestimated credit losses based on spocifio customer collection issues that have been identified.

Inventory. Inventory is carried at the lower of cost or market. We review inventory for estimated obsolescence or unmarketableinventory and provide in amount to reduce inventory to its net realizable value based on the assumptions about future demandand market conditions. At the point of the loss recognition, a now, lower-cost basis for that inventory is established, andsubsequent changes in facts and circumstances do not result in the restoration or increase in that newly established coat basis. Ifactual market conditions are less favorable than those conditions assumed by management, additional inventory provisions maybe required.

Long-lived Assets. We assess the impairment of long-lived assets, including goodwill, aurally or whenever events or changes incirciunstances indicate the carrying amount ofan asset may not be recoverable. Recoverability ofassets to be held for use is basedon expectations of future undisconnted cash flows from the related operatiouos, and when circumstances dictate, we adjust theasset to the extent the carrying value exceeds the fair value of the asset Ourjudgments related to the expected useful lives oflong-lived assets and our ability to realize undiscounted cash flows in excess ofthe carrying amounts ofsuch assets are affectedby factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, and changes inoperating performance. As we assess the ongoing expected cash flows and carrying amounts of our long-lived assets , these factorscould cause us to realize a material impaitnacut charge, which would result in decreased results of operations, and potentiallydecrease the carrying value of these assets. -

Deferred Tar Assets. Deferred tax assets are recorded net of a valuation allowance, The valuation allowance reduces the carryingamounts of deferred tax assets to an amount management believes is more likely than not realizable. In making the determinationprojections of taxable income, past operating results and tax planing strategies are considered.

Purchase Price AllocationsforAcqulsiA"ons. The allocation of the purchase price for acquisitions requires extensive use ofaccounting estimates andjudgments to :allocate the purchase price to identifiable tangible and intangible assets acquired andliabilities assumed based upon their respective fair values . Additionally, we must determine whether an acquired entity isconsidered to be a business, or a set QfAct assets, because a portion of the purchase price can only be allocated . to goodwill in abusiness combination . During-fiseal 2004, we:determined that the GO.acquisition and the BBI acquisition were businesscoinbiuations . We reached our conclusions regarding the valuations assigned to identifiable tangible and intangible assets basedupon a number of factors, including valuations and appraisals from an independent firm We, however, are ultimately responsible

)` n for these valuations . We have completed the evaluation and allocation ofthe purchase price for the BE! acquisition whichC (, resulted in the allocation. of $420,000 front goodwill to other intangible assets. We have recorded the amortization ofother

intangible assets in the first quarter of fiscal 2005. including an immaterial amount relating to the period prior to September 30,2004. During the first quarter of fiscal 2005, $412,000 was received relating to trade receivables whichwere guaranteed andultimately assumed by the seller. During the second quarter of fiscal 2005,$1.0 was received in settlement of certain closingbalance sheet issues. The $1 .0 million was recorded as a reduction .-of Goodwill. We believe the fair values assigned- to the assetsacquired and liabilities assumed are based on reasonable assumptions.

INFLATION

We believe that inflation generally causes an increase insoles prices with an offsetting unfavorable effect on the cost ofproductssold and other operating expenses. Accordingly, with the possible exception ofthe impact on interest rates, nwnagcmcnt believesthat inflation will have. no significant effecton our results of operations or financial condition.

OFFB LANCE SHEET ARRANGEMENTS

We are not a party to any, off-balance sheet arrangements , do netengage Juliading activities involving nonexchangetradedcontracts, and are not a party to any transaction with.pe Bona car activities tat:dative be fits, except as disclosed herein, fromtheir non indeperuleatrelationships witb'us.

I4'1' ACCO M.. R ,Oy-ATGE3 Ii NTS

In November 2004, theFinancial Aoeo ntiug Standards Board issued Sta pent of Financial Accouiibgg tanda s No 131. :(SFAS'Tfo 151), "Inver or r Ct =amamm^ o Al t i No 743 Chapter 4" SFAS No 5l a vends the gwaance .in ARB No.43 C pter4, "Inventory Pricin "to ckui the acco . "g,. nnfing for sbnorJ:iWamounts of Idle faralrty ciepensc, freight, handlingscalar and wasted materal (spoilage). Paragraph 5 ofARE X43, Chapter 4, previously staled Shat ` .. under sei a circumstances,items such as idle facility .ewe, excessive spoilage, double freight, and rc-bandlieg costs maybe so abnormal as to require

15

47^onfdoritial Treatment Requested By SeraCare Life Sciences, SRLSEJB193660


05/02/2005 09:05 FAX. 16011

SeraCare Q2 EPS Rose 80IN'to $0.18fon a 129%I Sales IncreaseCompany adds to Management teamConference Call Today 11:00 EST

Oceanside, Ca - May3, 2005 -SeraCare Life Sciences, Inc. (NASDAQ - SRLS), aninnovative developer and provider of human and animal based diagnostic, therapeutic and

research products and services for the life science industry, today reported financialresults for the fiscal 2005 second quarter ended March 31, 2005.

Sales for the fiscal 2005 second quarter increased 129%4o $14.9million compared with$6.5inillion in the year-ago period. This $8.3/million increase in sales for the threemonths ended March 31, 2005 is primarily the result of acquisitions completed in 2004,as well -as organic growth. The company's continued focus on bi er margin productsincreased gross profit to $6.7/Inillion , orI of sales from $2.2 Ilion , or 3l % of salesin the year-ago period. t

Due to acquisition-related borrowings, in"t expense rose to $0.64ciillion in. the FY2005 second quarter, compared to $0. on a year-ago. This qua is operatingresults were taxed at 38%, resulting in an income tax expense of $1.2 million, versus $0.2,1million in the year-ago period.

Despite higher interest expense and income tax provisions , net income for the secondquarter of fiscal 2005 more than doubled to $.1,976;0004r $0.18Jper diluted share, ascompared to net income of $876,004,or $0. 10/per diluted share, in the second quarter offiscal 2004. The Company's-weighted average diluted share count increasedapproximately 229F(to 11.0 ion in the second quarter of fiscal 2005 , compared to 9.1/million in the second quarter of fiscal 2004.

Michael F. Crowley, Jr., President and CEO of SeraCare Life Sciences, said, "Wecontinue to be pleased with the progress of our integration of the operations that weacquired from Genomics Collaborative, Inc. and Boston Biomedica , Inc. We expect thoseintegration efforts to be largely completed by the end of fiscal 2005 and remaincommitted beyond this initial integration to reviewing all of our facilities, operations andproduct, lines in order to evaluate the possibilities for combining or re-characterizingproduct lines , processes and facilities in order to :achieve improved quality and greaterefficiency."

SeraCare Addsto Senior Management Team:

The company today announced the appointment ofCraig 13oosan:as its Chief FinancialOffiicer. Mr. Idoosan, who is joining:the company this month is the former X)OC at X7X3f,where he spent XX years. Kevin S. Gould has recency joined the-company as Vice..President, Sales & Marketing, of its,BBI Diagnosties Division. He joinsSeraCare fromMedical Analysis Systems , a wholly owned. subsidiary offisher Scientific International,

x

48Confidential Treatment Requested By SeraCare Life Sciences, SRLSEJB193561Inc.


EXHIBIT 13


From : Martinez, Ricardo D [[email protected] : Thursday, February 03, 2005 10:23 PMTo: Jerry Burdick - sbcglobal.netCc: Girao, Tiago M; Jess RoperSubject : 10-Q Inserts

Jerry,

I have faxed over some additional comments. Brad will be providing comments tomorrow, but

I wanted to get mine into you. We will let you know where we stand with John's comments as

.soon as we know.

Attached are some inserts that need to be included in the 10-Q.

1. At the point of the loss recognition, a new, lower-cost basis for that inventory isestablished, and subsequent changes in facts and circumstances do not result in the

restoration or increase in that newly established cost basis. (This needs to go in the

Inventory Critical Accounting Policies section as noted on the fax.) 2. Production

overhead and manufacturing and other related costs decreased in fiscal 2003, compared with

fiscal 2002, which resulted in an increase in product gross margin of 4.7%. Production

overhead in fiscal 2003 decreased by $104 million from $651 million in fiscal 2002 to $547

million related to lower labor, depreciation on equipment, and facilities chargesassociated with manufacturing activities. In addition, manufacturing and other relatedcosts in fiscal 2003 decreased by $652'million from $2.0 billion in fiscal2002 to $1.4 billion due to lower warranty, provision for inventory, and other nonstandard

costs. The provision for inventory in fiscal 2002 included an excess inventory benefit of$422 million. related to inventory previously written off and utilized in production or-old. (From Cisco System's 2003 Annual Report. This needs to go in the MD&A section.)

,4y

Ricardo D. Martinez

> KPMG LLP - San Diego Office

> Audit Manager

> 750 B Street, Suite 1500> San Diego, CA 92101> (619) 525-3207 (direct)> (619) 615-5199 (fax)

[email protected]

The information in this email is confidential and may be legally privileged.it is intended solely for the addressee. Access to this email . by anyone else isunauthorized.

If you atenot the intended recipient , any disclosure , copying, distribution or any actiontaken or omitted to be taken in reliance on it , is prohibited and may be unlawful. Whenaddressed to. our clients any opinions . or advice contained in this email are subject to the:terms and conditions expressed in:the governing KPMG . client : engagement letter..

49Exhibit` 13 .

Confidential Treatment Reciuested by SeraCare Life Sciences- Inr__ wi 4Z1=vi n9r,179


EXHIBIT 1.4


Interim AccountingDisclosure ChecklistWP-514Q (9/04)

Client Interim Period-End WP No.

Prepared by Date

PurposeThe Interim Accounting Disclosure Checklist (WP-514Q) is designed to serve as a "memory

jogger" and as a means to document consideration of the minimum disclosures in unaudited

condensed interim financial information, which includes interim financial statements and

summarized interim financial data of a public company, that is filed with the Securities and

Exchange Commission pursuant to Article 10 of Regulation S-X (e.g., Form 10-Q). A public

company, for the purpose of this checklist, is defined as an entity that is required to file

unaudited condensed interim financial information with the SEC or other regulatory body that

complies with the SEC Rules and Regulations for financial reporting. This checklist does not

address the minimum disclosures required for Small Business Users by Item 310 of Regulation

S-B.

As a memory jogger, WP-514Q does not replace professional judgment in determining necessary

disclosures. Refer to applicable firm and professional literature, including applicable AICPAAudit and Accounting Guides and SEC rules and regulations, for detailed disclosurerequirements.

ApplicabilityWP-514Q is completed for all review engagements of unaudited condensed interim financialinformation, which includes interim financial statements and summarized interim financial data,filed with the SEC.pursuant to Article 10 of Regulation S-X (e.g.,. on Form I0-Q) and prepared inconformity with generally accepted accounting principles (e.g., APB 28, Statement 3) and therules and regulations of the SEC.

Engagement teams should refer to the WP-514 Accounting Disclosure Checklist and recentlyreleased literature for required annual disclosures for those pronouncements being adopted "during an interim period.

The disclosures included in the checklist are intended to provide engagement teams with theminimum requirements for interim financial information pursuant to existing literature as'indicated in Section I. It does not address required disclosures for annual financial statements orprovide guidance in all areas in which material changes during an interim period may warrantadditional disclosure.

Rules pertaining solely, to regulated companies or specialized industries, such as hriancialinstitutions or oil and as, are included in this checklist only to the extent the a are specificincremental interim disclosure requirements. Separate interim disclosure checklists'have not beendeveloped for specialized mdustnes Engagement teams should refer to the applicable WP-514for those entities in specialized industries to ensure that relevant additional .disclosures areprovided in interim reporting, as appropriate.

50Exhibit 14-



Interim AccountingDisclosure ChecklistForm WP-514Q (9/04)Page 2 of 39

Preparation and ReviewThe Index to the Interim Accounting Disclosure Checklist (Section II) is completed prior to the

completion of the detailed checklist (Section III). Each category of disclosure considerations

listed in Section II of the index is indicated as either applicable (Y) to the client's financial

statements or not applicable (NA).

The detailed checklist (Section III) is completed after completion of the index. Only thosesections of the checklist that are applicable to the client' s unaudited condensed interim financialinformation as indicated in Section II of the index are completed.

The following symbols are used to complete the detailed checklist:

ApplicabilitySymbol Meaning

Y The item applies to the unaudited condensed interim. financial information and hasbeen disclosed.

X The item applies to the unaudited condensed interim financial information but hasnot been disclosed , as it is inunaterial.

NA The item does not apply to the unaudited condensed interim financial information.

Reasons for deviations from applicable disclosures included in the checklist (other than forimmaterial items) should be documented in the checklist by the specific disclosure requirementor on a separate work paper to be filed with the checklist . WP-514Q is reviewed by theengagement manager and engagement partner. The completed WP-514Q is filed in the generalbinder of the work papers.

The WP-514Q is completed in addition to the Review of Interim Financial Information Checklistand does not replace that workpaper.

:onfidential Treatment Requested by SeraCare Life Sciences,.Inc.

51SRLSEKL025136



Section I-Literature

The checklist includes coded references to certain firm and professional accounting literature.

All literature listed below is available electronically in Accounting Research Online. The Interim

Accounting Disclosure Checklist considers relevant information (as described in the "Purpose"

on page 1) through September 24, 2004.

Code Issuer Literature Considered in Checklist

AC FASB Current Text

EITF EITF EITF Abstracts through November 12-13, 2003; in addition,minutes of meetings through June 30-July 1, 2004

SOP AcSEC AICPA Statements of Position

AG AICPA Audit and Accounting Guides

PB AcSEC AICPA Practice Bulletins

KAM KPMG Audit Manual-U.S. (KAM)

RM KPMG Reports Manual

SECM KPMG SEC Manual

AU AICPA U.S. Auditing Standards , Volume I of AICPA Professional

AR

PPL

SFAS

FRR

FIN

FTB

FSP

SEC

Standards

AICPA Statements on. Standards for Accounting and ReviewServices, Volume II of AICPA Professional Standards

KPMG Professional Practice Letters

FASB Statement of Financial Accounting Standards

SEC Financial Reporting Codification , as contained in the 2004SEC Rules and Regulations handbook

FASB FAS-B Interpretations

FASB FASB Technical ;Bulletins

FASB FASB Staff Positions-

SEC Staff Training Manual; Speeches


52SRLSEKL025137



S-X SEC Regulation S-X, as contained in the 2004 SEC Rules andRegulations handbook

S-K SEC Regulation S-K, as contained in the 2004 SEC Rules andRegulations handbook

S-B SEC Regulation S-B, as contained in the 2004 SEC Rules andRegulations handbook

SAB SEC Staff Accounting Bulletins

Engagement teams should consider disclosure requirements contained in firm andprofessional literature issued subsequent to the most recent literature considered in thechecklist.

--onfidentiat Treatment Requested by SeraCare Life Sciences, Inc.

53SRLSEKL026138



Section II-Index to the Accounting Disclosure ChecklistRefer to the section entitled "Preparation and Review" on page 2 for instructions.

Page Section Category of Disclosure ConsiderationsRef.

7 1 General Financial Statement Considerations

8 2 Balance Sheet

10 3 Statement of Income

13 4 Statement of Cash Flows

14 5 Statement of Stockholders' Equity

14 6 Comprehensive Income

14 7 Earnings Per Share

14 8 Summary of Significant Accounting Policies

15 9 Changes in Accounting Principle, Estimate or ReportingEntity and Financial Statement Revisions and Restatements

21 10 Contingencies, Material Estimates and Other Uncertainties

26 11 Liquidity

26 12 Inventories

27 13 Long-Term Contracts or Programs

27 14 Long-Term Investments

27 15 Long-Lived Assets Held for Use or Held for Disposal

29 16 Discontinued Operations

30 17 Fair Value of Financial Instruments

30 18 Current Liabilities Other Than Income Taxes

30 19 Income Taxes

31 20 Long-Term Debt

31 21 Compensating Balance and Short-Term BorrowingArrangements

31 22 Guarantees

32 23 Stockholders' Equity

Applicable (Y) orNot Applicable (NA)for Consideration

Y

54Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKL025139


Interim AccountingDisclosure ChecklistForm WP-514Q (9/04)Page 6 of. 39

32 24 Stock-Based Compensation

33 25 Pension Plans and Other Postretirement Benefits

33 26 Medicare Prescription Drug, Improvement andModernization Act of 2003 (FSP FAS 106-2)

34 27 Business Combinations

34 28 Financial Reporting for Segments of a Business Enterprise

36 29 Development-Stage Enterprises

36 30 Leases

37 31 Liabilities: Exit or Disposal Costs

38 32 Long-Term Construction-Type Contracts

38 33 Long-Term Obligations

39 34 Participating Mortgage Loans (SOP 97-1)

55



Interim AccountingDisclosure ChecklistForm WP-514 Q (9/04 Rev.)Page 7 of 39

Section 111-Accounting Disclosure Checklist

Applicability

1. General Financial Statement Considerations

The disclosure checklist is designed to address current-year interim disclosurerequirements. In situations when new standards or other literature replaceprevious literature, prior-year interim disclosures made pursuant to prior-yearinterim requirements should not be changed or deleted unless explicitlyrequired in the new standard or literature.

(a) Interim financial statements need be provided only as to the reportingpublic company and its consolidated subsidiaries and may be unaudited.Separate statements of other entities may be omitted (S-X, Rule 10-01(a)(1)).

(b) Factors affecting comparability (AU 420.05; AC F43.103).(c) Material changes in classifications and reclassifications (AU 420.17).

(d) The interim financial information should be clearly marked as unaudited(AU 722.37).

(e) The SEC does not ordinarily require the issuance of a review report bythe independent auditor. However, if the entity specifically states in afiling that a review has been performed, the SEC requires the entity toinclude the AU 722 review report in the filing (SECM 53.3; RM 40.47).

(f) Disclose any additional financial information considered necessaryeither on the face of the financial statements or in accompanying notessufficient to prevent the interim information presented from beingmisleading (AC 173.148; FRR, Section 301.01, S-X, Rule 10-01(a)(5)).

(g) Disclosure is required to be provided when events having a materialimpact on the entity have occurred since the end of the most recent fiscalyear (AC 173.148; FRR, Section 301.01, S-X, Rule 10-01(a)(5)).

(h) Unaudited interim financial statements furnished should reflect alladjustments which are, in the opinion of management, necessary to a fairstatement of the results for the interim periods presented. A statement tothat effect should he included. If all such adjustments are of a normalrecurring nature, a statement to that effect should be made; otherwise,information describing in appropriate detail the nature and amount ofany adjustments other than normal recurring adjustments entering intothe determination of the results shown should be disclosed (S-X, Rule10-01(b)(8)).

(i) If adoption of a new standard occurs in an interim period, describe theaccounting change and its impact pursuant to APB 28, as amended bySFAS 3 (refer to section on Changes in Accounting Principle,Estimate or Reporting Entity and Financial Statement Revisionsand Restatements). In addition, the interim financial statements shouldinclude, to the extent applicable, all disclosures identified by theadopted standard as required to be included in annual financialstatements (SEC Staff Training Manual, VII(H)2).

56



Interim AccountingDisclosure ChecklistForm WP-514 Q (9/04)Page 8 of 39

Applicability

(j) For entities with oil and gas producing activities, include informationabout a major discovery or other favorable or adverse event that causes asignificant change from the information presented in the most recentannual financial report concerning oil and gas reserve quantities (ACI73.149A).

(k) For registered investment companies, if management of an investmentfund determines that a tax return of capital is likely to occur for thefund's fiscal year, although the exact amount may not be estimable, thatfact should be disclosed in a note to the interim financial statements(AG-INV 7.73).

(1) For all investment companies, total return is required to be disclosed(the disclosure should include whether total return is annualized) (AG-INV 7.68).

(m) Evaluate whether previously issued annual financial statements that areincluded in or incorporated by reference into a registration statementmust be revised once subsequent interim financial information isincluded in or incorporated by reference into a proxy or registrationstatement (see Appendix C of the SEC Staff Training Manual; PPL 02-059; PPL 04-056). Examples of those revisions may include thefollowing:n Consummation of a business combination accounted for in a manner

similar to a pooling of interests;n Stock splits;n Change in composition of operating segments under Statement 131;n Classification of a component of an entity as a discontinued

operation under Statement 144; or• Adoption of new accounting guidance that requires retroactive

restatement, e.g., EITF 03-6.

2. Balance Sheet

(a) Balance sheets as of the end of the most recent fiscal quarter and abalance sheet as of the end of the preceding fiscal year. The balancesheet as of the end of the preceding fiscal year may be condensed to thesame degree as the interim balance sheet. An interim balance sheet as ofthe end of the corresponding fiscal quarter of the preceding fiscal yearneed not be provided unless necessary for an understanding of theimpact of seasonal fluctuations on the public company's financialcondition (S-X; Rule 10-01(c)). Article 3 of Regulation S-X prescribesthe, periods for which interim financial statements are to be provided inregistration statements.

(b) Interim balance sheets need include only major captions (i.e., numberedcaptions in S-X, Rule 5-02 notedbelow), with the exception ofinventories. Data as to raw materials, work in process and finishedgoods inventories should be disclosed either on the face of the balancesheet or in the notes to the financial statements (S-X, Rule 10-01(a)(2)).

(c) Major captions in the balance sheetinclude the following, as applicable

57Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKLO25142


Interim AccountingDisclosure ChecklistForm WP-514 0 (9/04)Page 9 of 39

Applicability

Page 10 of 40

(S-X, Rule 5-02). (Note: The following types of entities have separaterule requirements for balance sheets: registered investment companies;employee stock purchase, savings and similar plans; insurancecompanies ; bank holding companies and banks ; and brokers and dealers(S-X, Rule 5-01))-

(1) Cash and cash items

(2) Marketable securities

(3) Accounts and notes receivable

(4) Allowances for doubtful accounts and notes receivable

(5) Unearned income

(6) Inventories, separately for raw materials , work in process, andfinished goods

(7) Prepaid expenses

(8) Other current assets

(9) Total current assets, when appropriate

(10) Securities of related parties

(11) Indebtedness of related parties - not current

(12) Other investments

(13) Property, plant and equipment

(14) Accumulated depreciation , depletion and amortization of property,plant and. equipment

(15) Intangible assets

(16) Accumulated depreciation , depletion and amortization ofintangible assets

(17) Other assets(18) Total assets

(19) Accounts and notes payable

(20) Other current liabilities(21) Total current liabilities, when appropriate

(22) Bonds, mortgages and other long-term debt , including capitalizedleases

(23) Indebtedness to related parties - noncurrent

(24) Other liabilities

(25) Commitments and contingent liabilities

(26). Deferred credits

(21) Minority interests in consolidated subsidiaries(28) Preferred stocks subject to mandatory re.tempt on requirements or

whose redemption is outside the.controt ofthe issuer'(29) Preferred stocks which arc,not redeeniable or are redeemable

solely at the option of the issuer(30) Common stocks


58SRLSEKL025143



Applicability

(31) Other stockholders' equity

(32) Total liabilities and stockholders' equity

(d). When any major balance sheet caption is less than 10% of total assets,

and the amount in the caption has not increased or decreased by more

than 25% since the end of the preceding fiscal year, the caption may becombined with others (S-X, Rule 10-01(a)(2)).

(1) If previously combined captions are required to be presentedseparately in the current interim period, the entity also shouldreclassify prior-period comparative information to conform to thecaptions presented for the current interim period (SAB Topic6.G.2).

3. Statement of Income

(a) Statements of income for the most recent fiscal quarter, for the periodbetween the end of the preceding fiscal year and the end of the mostrecent fiscal quarter, and for the corresponding periods of the precedingfiscal year. Such statements may also be presented for the cumulativetwelve-month period ended during the most recent fiscal quarter and forthe corresponding preceding period. Entities engaged in seasonalproduction and sale of a single-crop agriculture commodity may provideinterim statements of income for the twelve month period ended duringthe most recent fiscal quarter and for the corresponding preceding periodin lieu of year-to-date statements (AC 173.146; S-X, Rule 10-01(c)).Article 3 of Regulation S-X prescribes the periods for which interimfinancial statements are to be provided in registration statements.

(b) Costs and expenses other than product expenses (e.g., inventoryshrinkages, allowances for quantity discounts, see AC 173.150) shouldbe charged to income in interim periods as incurred, or allocated amonginterim periods based on an estimate of time expired, benefit received oractivity associated with the periods. Costs and expenses incurred in aninterim period that cannot be readily identified with the activities or.benefit's of other interim periods should be charged to the interim periodin which incurred, and disclosure should be made as to the nature andamount of such costs unless items of a comparable nature are included inboth the current interim period and in the corresponding interim periodof the preceding years (AC 173.108(b)).

(c) Revenues of certain enterprises are subject to material seasonalvariations. To avoid the:possibility that interim results with materialseasonal variation's may be taken as fairly indicative of the estimatedresults fora full fiscalyear, such entities should disclose the seasonalnature of their activities, and considersupplementing ;their i terimreports with information for 12-mouth periods ended at the interim datefor the current and preceding years (AC 173.110):

(d) hla or captions in the statement of income include the following. asapplicable (S-X,Rule 5-03). (Note: The following types of entities have



Applicability

Filed 06/11/2007 Page 12 of 40


separate rule requirements for statements of income : registeredinvestment companies ; employee stock purchase , savings and similarplans; insurance companies ; bank holding companies and banks; andbrokers and dealers (S-X, Rule 5-01)):

( 1) Net sales and gross revenues (S-X, Rule 5-03(b)(1)).

(2) Seasonal revenue, costs , or expenses (AC 173.146).(3) Costs and expenses applicable to sales and revenues (S-X, Rule 5-

03(b)(2)).(4) Other operating costs and expenses (S-X, Rule 5-03 (b)(3)).

(5) Selling, general and administrative expenses (S-X, Rule 5-03(b)(4)).

(6) Provision for doubtful accounts and notes (S-X, Rule 5-03(b)(5)).(7) Unusual or infrequently occurring items (pretax) - disclose

separately if material to the operating results of the interim period(AC 122, APB 28,121).

(8) Goodwill impairment loss (AC G40.142).

(9) Other general expenses (S-X, Rule 5-03 (b)(6)).

(10) Non-operating income (S-X, Rule 5-03(b)(7)).

(11) Interest and amortization of debt discount and expense (S-X, Rule5-03(b)(8)).

(12) Non-operating expenses (S-X, Rule 5-03 (b)(9)).

(13) Income or loss before income tax expense and other appropriateitems below (S-X, Rule 5-03(b)(10)).

( 14) Income tax expense (S-X, Rule 5-03(b)( 11)).

(15) Minority interest in income of consolidated subsidiaries (S-X,Rule 5-03(b)(12)).

(16) Equity in earnings of unconsolidated subsidiaries and 50 percentor less owned persons (S-X, Rule 5-03(b)(13)).

(17) Income or loss from continuing operations (S-X, Rule 5-03(b)(14)).

(18) Operating results from discontinued operations (disclosing incometaxes allocated) (AC 114.105-.108; S-X, Rule 5-03 (b)(15); S-X,Rule 10-01 (b)(4)).

(19) Gain or loss from the disposal of a component of an entity,disclosing separately adjustments of disposals previously reportedand income taxes allocated (AC 173.146(e), AC I14.105-.108; S-X, Rule 5-03(b)( 15); S-X, Rule 10-01(b)(5)).

(20) Income or loss before extraordinary items and cumulative effectsof changes in accounting principles (S-X, Rule 5-03(b)(16)).

(21) Extraordinary items, individually , net of tax (AC 117.102; ACI73.146(e)). In determining materiality, extraordinary items shouldbe compared to the estimated income for the full fiscal year (AC173.124 ; S-X, Rule 5-03(b)(17)).

a. Extraordinary items may include tax benefit of an operating

-- i 1 60



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(22)

(23)

(24)

(25)

(26)

Filed 06/11/2007 Page 13 of 40


loss carryforward (AC 127.172) and extraordinary items ofinvestees (AC 182.109(d)).

b. Disclose the nature of an extraordinary event or transactionand the principal items entering into the determination of anextraordinary gain or loss. The income taxes applicable toextraordinary items should be disclosed on the face of theincome statement or in the notes to financial statements (ACI17.102).

Cumulative effect of changes in accounting principles or practices(AC 173.146). In determining materiality for the purpose ofreporting the cumulative effect of an accounting change orcorrection of an error in an interim period, amounts should berelated to the estimated income for the full fiscal year and also tothe effect on the trend of earnings. Changes that are material withrespect to an interim period but not material with respect to theestimated income for the full fiscal year or to the trend of earningsshould be separately disclosed in the interim period (AC 173.138)

Net income or loss (AC 173.146; S-X, Rule 5-03(b)(19)).

Basic and diluted earnings per share data for each periodpresented (AC 173.146; S-X, Rule 5-03(b)(20); S-X, Rule 10-01(b)(2)).

In the interim period that a new accounting principle is adopted,disclosure should be made of the effect of the change on incomefrom continuing operations, net income, and related EPS for theinterim period in which the change is made. If the change is madein other than the first period, disclose the effect of the change onthe pre-change interim periods (AC 173.137(b)).

Pro forma net income from continuing operations, net income, andrelated per share amounts assuming retroactive application ofaccounting change for the interim period in which a cumulative-effect of a change in accounting principle is made and any interimperiods of prior fiscal years for which financial information isbeing presented (AC 173.137(c)).

(e) When any major income statement caption is less than 15% of averagenet income for the most recent three fiscal years and the amount in thecaption has not increased or decreased by more than 20% as comparedto the corresponding interim period of the preceding fiscal year, thecaption may be combined with others (S-X, Rule 10-01 (a)(3)).(1) If previously combined captions are required to be presented

separately in the current interim period, the entity also shouldreclassify prior-period comparative information to conform to thecaptions presented for the current interim period (SAB Topic6.G.2).

(f) Unusual or infrequently occurring items that will be separately disclosedin the financial statements for the fiscal year should be separately

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activities , and the net effect of those cash flows on cash and cash

equivalents during the period in a manner that reconciles beginning and

ending cash and cash equivalents (AC C25.124).

(d) The statement of cash flows may be abbreviated starting with a single

figure of net cash flows from operating activities and showing cash

changes from investing and financing activities individually only when

they exceed 10% of the average of net cash flows from operating

activities for the most recent three years. (S-X, Rule 10-01(a)(4)).

(1) If previously abbreviated cash flows are required to be presentedindividually in the current interim period , the entity also shouldreclassify prior-period comparative information to conform to thedetail presented for the current interim period (SAB Topic 6.G.2).

5. Statement of Stockholders ' Equity

if there are significant changes in stockholders' equity accounts subsequent tothe most recent fiscal year, that information should be disclosed either in thebalance sheet, a statement of changes in stockholders' equity, or in the notes tothe financial statements.

6. Comprehensive Income

Information regarding comprehensive income should be presented in either thefinancial statements or the :notes to the financial statements for each period anincome statement is presented (SEC Manual 14.15).

(a) Report total comprehensive income (presentation of its components is notrequired) (AC C49.121).

(b) Consider explaining the reasons for significant differences between netincome and comprehensive income by disclosing the components thatgive rise to the difference (SFAS 130 1125).

7. Earnings Per Share

(a) Basic and diluted earnings per share data for each period presented,determined in accordance with the provisions of Statement 128 (ACI73.146(b)).

(b) Unless the computation can be clearly determined from otherinformation, a. statement setting forth in reasonable detail thecomputation of per share earnings is required (S-K, Item 601(b)(11)).

8. Summary of Significant Accounting PoliciesArticle 10 of Regulation S-X requires that interim financial information includedisclosures either on the face of the financial statements or in accompanyingfootnotes sufficient to ensure that the interim information presented is notmisleading. Public companies may presume that users of the interim financialinformation have read or have.access to the audited financial statements for thepreceding fiscal year and that the adequacy of additional :disclosure needed for

63




Applicability

a fair presentation, except in regard to material contingencies, may be

determined in that context. Accordingly, disclosure in the notes to financial

statements that would substantially duplicate the disclosure contained in the

most recent annual report or latest audited financial statements, such as a

statement of significant accounting policies and practices, details of accounts

that have not changed significantly in amount or composition since the end of

the most recently completed fiscal year, and detailed disclosures prescribed byRule 4-08 of Regulation S-X, may be omitted. However, disclosure should beprovided when events subsequent.to the end of the most recent fiscal year haveoccurred that have a material impact on the public company. (S-X, Rule 10-01(a)(5); AC 173.148).

Disclosures should encompass, for example, significant changes since the endof the most recently completed fiscal year in such items as: accountingprinciples and practices; estimates inherent in the preparation of financialstatements; status of long-term contracts; capitalization including significantnew borrowings or modification of existing financing arrangements; andchanges in the reporting entity resulting from business combinations ordispositions.

(a) If a determination is made that a legal transfer of business ownershipshould not be recognized as a divestiture for accounting purposes, anaccounting treatment consistent with that determination is required. Thepublic company should recognize interim losses of that business even if itis projected that it will have a profit for the full year. However, forquarters for which the business has net income, such net income may berecognized to the extent of any cumulative quarterly losses within thesame fiscal year. Similarly, quarterly losses of the business need not berecognized except to the extent that they exceed any cumulative quarterlynet income within the same fiscal year. Disclosure of this accountingtreatment should be made in interim financial statements (SAB Topic5.E).

9. Changes in Accounting Principle, Estimate or Reporting Entity.andFinancial Statement Revisions and Restatements

(a) The SEC staff has historically interpreted Article 10 of Regulation S-X tomean that if adoption of a new accounting standard occurs in an interimperiod, then those interim financial statements should include, to theextent applicable, all disclosuresidentifiedbytime adopted standard. asrequired to.beincluded in annual financial statements. Those lisclosuresshould continue to be made on an interim basis until the first Form 10-kafter adoption is fled {SEC Staff Speech)..It is recoiiunended thatentities adopt any accounting change 's during the first interim period of a.fiscal year (AC 173.134).If adoption of a new standard occurs in an interim period, describe theaccounting change and its impact pursuant to Al'$ $, as amende byStatement 3. In addit on, the interim financial statements should include,

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Applicability

to the extent applicable, all disclosures identified by the adopted standard

as required to be included in annual financial statements. If the change in

accounting principle is made in a period other than the first quarter of the

year, no amendment of prior filings is required; however, a restatement of

each of the prior quarter's results should be included in the filing for the

quarter in which the new accounting principle is adopted pursuant to

Statement 3. If the new accounting principle is applied retroactively to

prior years, the prior comparable interim quarters also should bepresented on a restated basis (SEC Staff Training Manual).

(b) Disclosure of the following regarding the impact of a recently issuedaccounting standard on the financial statements when the standard will beadopted in a future period, for example, FIN 46R and Statement 150(SAB 74; Topic I1-M):(1) a brief description of the standard and its anticipated adoption date,

and the method by which the standard will be adopted,(2) the impact that the standard will have on the financial statements to

the extent reasonably estimable or a statement that the impact is notknown, and

(3) any other effects that are reasonably likely to occur (e.g., changesin business practices, changes in availability or cost of capital,violations of debt covenants, etc.).

(These disclosures alternatively may be included in the ManagementDiscussion and Analysis section.)

(c) Interim statements should include the effects of business combinations,discontinued operations, changes in accounting principles, etc., inaccordance with generally accepted accounting principles. When theseevents occur in an interim period other than the first quarter, the interimperiod report should disclose the effects of the new principle onpreviously reported interim periods. Previously filed interim reportswhich were correct when filed need not be amended for retroactiveeffects of these changes (SEC Staff Training Manual).

(d) A change in accounting principle generally will be recognized througha cumulative effect-type adjustment during the period in which thechange is made; there are a few specific changes in accounting principlesthat require restatement of prior periods (AC A06.114).Disclosure should be made for any change in accounting principles orpractices during the period from those . applied in:

the comparable interim periodof the prior annual period;the preceding interim periods in. the current annual period; orthe prior annual report. (AC I73 .131).

:Note: In determining material ty for reporting the effect of an accountingchange for an interim period, ,amounts should be related to the estirriatedincome for the full fiscal year and also`to:the -effect on the trend ofearnings. Changes that are material with respect to an interim period but

65Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKLO25150


Interim Accounting.Disclosure ChecklistForm WP-514 Q (9/04)Page 17 of 39

Applicability

not material with respect to the estimated income for the full fiscal yearor to the trend of earnings should be separately disclosed in the interimperiod (AC 173.138).

(1) Cumulative effect accounting changes:The related income tax effect of a cumulative effect-type changeshould be computed as though the new accounting principle hadbeen applied retroactively for all prior periods that would havebeen affected (AC 173.139).a. Nature of and justification for the change (AC 173.137(a); S-

X, Rule 10-01(b)(6)).A preferability letter is required to be filed as an exhibit (inaccordance with the provisions of Item 601 of S-K) in thefirst Form 10-Q (Form 10-K if the accounting change ismade in the fourth quarter) subsequent to the date of anaccounting change indicating whether or not the change is toan alternative principle that is preferable under thecircumstances. No letter need be filed when the change ismade in response to a standard adopted by the FinancialAccounting Standards Board or other appropriate standardsetter, which requires the change (S-X, Rule 10-01 (b)(6)).

b. Effect of the change on income from continuing operations,net income, and related per share amounts for the interimperiod in which the change is made (AC I73.137(b)). Includesuch disclosure in year-to-date and, if presented, last-I2-months-to-date financial reports that include the interimperiod in which the new accounting principle is adopted (AC173.137(d)).Note: If the change is made in other than the first interimperiod of a fiscal year, disclose:i. Effect of the change on income from continuing

operations, net income, and related per share amountsfor each pre-change interim period of that fiscal year;and

ii. Income from continuing operations, net income, andrelated per share amounts for each pre-change interimperiod restated (A-.C 173.137(b)).

c. Net income from continuing operations, net income, andrelated per share amounts computed on a pro forma basis for:i. I he interim period in which the change is made; andii. Any interim periods of priorfiscal years for which

financial info mat on is being presented (ACI73137(c)} ...

Include such disclosure in year-to-date . and, if presented. last-12 onth^-to-date financial reports,that include,the interim:period in which the new accounting,principle is adopted (AC

_ 66Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKL025151



Applicability

I73.137(d)).

d. In financial reports for a subsequent (postchange) interimperiod of the fiscal year in which the new accountingprinciple is adopted, disclose the effect of the change onincome from continuing operations, net income, and relatedper share amounts for that post-change interim period (AC173.137(e)).

e. If an entity makes a cumulative effect-type accountingchange (other than a change to LIFO) during the first interimperiod of the fiscal year, disclose the cumulative effect of thechange on retained earnings at the beginning of that fiscalyear and include the adjustment in net income of the firstinterim period and in last-12-months-to-date financial reportsthat include that first interim period (AC 173.135).

f. If a cumulative effect-type accounting change is made inother than the first interim period of an entity's fiscal year,no cumulative effect of the change should be included in netincome of the period of change. Financial information for thepre-change interim periods of the fiscal year in which thechange is made should be restated by applying the newlyadopted accounting principle to those pre-change interimperiods.The cumulative effect of the change on retained earnings atthe beginning of that fiscal year should be included inrestated net income of the first interim period of the fiscalyear in which the change is made (and in any year-to-date orlast-12-months-to-date financial reports that include the firstinterim period). If financial information that includes thosepre-change interim periods is presented, it should bepresented on the restated basis (AC 173.136).

g. In the rare situations (e.g., change to the LIFO method ofinventory pricing) when neither the cumulative effect of thechange on retained earnings at the beginning of the fiscalyear in which the change is made nor the pro forma amountscan be computed, disclose the reasons for the omission. If achange of this type is made in the first interim period of anentity's fiscal year, the disclosures specified in (1)a.-d. ofthis section should be made (AC 173.140). (In makingdisclosures about changes involving the LIFO method, IRShas certain requirements that should be considered (AC173.140 f/n 16).)If the change is made in other than the first interim period ofan entity's fiscal year, in addition to above disclosures, pre-change interim periods of that fiscal year should be restatedby applying the newly adopted accounting principle to thosepre-change interim periods. If financial information that

6(




Applicability

includes those pre-change interim periods is presented, itshould be presented on the restated basis (AC A06.123-124;AC 173.141).

(2) Retrospective restatement for accounting changes:a. For a change in accounting principle that requires

retrospective restatement of an interim and/or annual periodor presentation of a prior period adjustment (such as achange from LIFO to FIFO, change in accounting for long-term construction contracts and change to or from the full-cost method of accounting used in extractive industries) ofpreviously issued financial statements in accordance withAC A06, disclose (SX, Rule 10-01(b)(7)):i. Nature of and justification for the changeii. Effect of the change on income before extraordinary

items, net income, and the related per share amountsand upon the balance of retained earnings on the faceof the income statement or in the notes.

b. If an .entity does not restate prior periods when adopting anaccounting principle that requires retroactive restatement dueto immateriality, the cumulative effect of the change shouldbe included in the statement of income for the period inwhich the change is made, and may not be reported as acumulative-effect type adjustment (SAB Topic 5F).

(e) A change in accounting estimate is accounted for in the period in whichthe change is made. Therefore , there is no retrospective restatement ofpreviously reported interim information (AC 173.133; A06.I30). Disclosethe following for a change in estimate (AC A06.132):(1) Effects on income before extraordinary items, net income and

related per share amounts of the period of the change

(2) Effect on earnings of a change in estimate made in a currentinterim period should be reported in the current and subsequentinterim periods , if material in relation to any period presented

(3) Effect should continue to be reported in the interim financialinformation of the subsequent year for as many periods asnecessary to avoid misleading comparisons.

(f) A change in the reporting entity. Accounting changes that result infinancial statements of a different reporting entity should be reported byrestating the financial statements of all prior periods lresented 'in order toshow financial information for the new reporting entity for all periods(AC A35.112-.113). Disclose the following for a change in the reportingentity:

( 1) Nature of and reason for the change.(2) Effects on income"before extraordinary items, net income and

68Confidential Treatment Requested by SeraCare- Life Sciences, Inc. SRLSEKL025153



Applicability

related per share amounts for all periods presented.

(g) A correction of an error is reported as a prior period adjustment.Entities should disclose the following relating to the correction of anerror (AC A35.105; 173.142; S-X, Rule 10-01(b)(7)):(1) Nature of error.

(2) Effects of adjustment and applicable taxes on income beforeextraordinary items, net income and related per share amounts inthe period discovered and corrected and for all periods (includinginterim periods) presented and affected.

Note: In determining materiality for reporting the correction of an errorfor an interim period, amounts should be related to the estimated incomefor the full fiscal year and also to the effect on the trend of earnings.Changes that are material with respect to an interim period but notmaterial with respect to the estimated income for thefull fiscal year or tothe trend of earnings should be separately disclosed in the interim period(AC 173.138).

(h) Certain adjustments related to prior interim periods of the currentfiscal year require specific presentations and disclosures on an interimbasis. Such adjustments relate to an adjustment or settlement of litigationor similar claims, income taxes (except for retroactive tax legislation),renegotiation proceedings, or of utility revenue under rate-makingprocesses provided that the adjustment or settlement meets each of thefollowing criteria:n The effect of the adjustment or settlement is material in relation to

income from continuing operations of the current fiscal year or inrelation to the trend of income from continuing operations or ismaterial by other appropriate criteria;

n All or part of the adjustment or settlement can be specificallyidentified with and is directly related to business activities of specificprior interim periods of the current fiscal year; and

n The amount of the adjustment or settlement could not be reasonablyestimated prior to the current interim period but becomes reasonablyestimable in the current interim period (AC I73.143).

(1) If an . item of profit or loss occurs in other than thefirst interimperiod of the year and all or part of the item .relates to prior interimperiods of the current year, the item should be reported as follows(AC.173.144):a. the portion directly, related to business activities during. the

current interim period should be included -in net income forthat period;

b. prior nterim periods of the current year should be restated toinclude the portion of the item directly.related to tiusmessactivities duffing each prior interim period in not income for.that period;

6.9Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKL025154


Applicability


c. the portion of the item directly related to business activities

in prior fiscal years, if any, is included in net income of the

first interim period of the current fiscal year.

(2) For an adjustment related to prior interim periods of the current

fiscal year as defined in AC A35.1 10-1 11, disclose in the interim

period in which the adjustment occurs (AC 173.145):

a. Effect on income from continuing operations , net income,

and related per share amounts for each prior interim period

of the current fiscal yearb. Income from continuing operations , net income, and related

per share amounts for each prior interim period restated to

reflect : the portion of the item that is directly related tobusiness activities of the enterprise during the current andeach prior interim period in the determination of net income

for that period (the portion of the item that is directly related

to prior fiscal years, if any , should be included in thedetermination of net income of the first interim period of thecurrent fiscal year).

10. Contingencies, Material Estimates and Other Uncertainties

Contingencies, material estimates and other uncertainties that affect the fairnessof presentation of financial data at an interim date should be disclosed ininterim reports in the same manner required for annual reports. The

' significance of contingencies; material estimates and other uncertainties shouldbe judged in relation to annual financial statements. Disclosures of such itemsshould include, but not be limited to, those matters that form the basis of aqualification of an independent auditor's report. These disclosures should berepeated in interim and annual reports until the contingencies have beenremoved, resolved, or have become immaterial (AC 173.125, S-X, Rule 10-01(a)(5).

Certain Significant Risks and Uncertainties (SOP 94-6)

(a) Nature of operations, including a description of major products orservices, principal markets and their location, relative importance of eachbusiness in which it operates, and basis for determination(SOP 94-6, y[10).

(b) A statement that the preparation of financial statements requires use ofinanagen ent estimates (SOP 94-6, 9(11).

(c) With regard to accounting estimates, if it is at least reasonably: possiblethat an existing set of .circumstances ;will change in the near term and to echange would be material if a ;different estimate were used in preparingthe financial statements (SOP 94-6, 9113),. then. disclose the following(SOP 94-b,1! 14):

(1) Nature of uncertainty.

(2) Indication that it is at least reasonably possible that a change in

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Applicability

estimate will occur in the near term.

(3) For estimates of Statement 5 loss contingencies, estimate a range of

loss, or state that an estimate cannot be made.

(4) The factors that cause the estimate to be sensitive to changes

(encouraged but not required).

See next section for specific requirements for environmental remediation

liabilities.

(d) If a concentration exists and such concentration makes the entity

vulnerable to risk of near-term severe impact , and it is at least reasonably

possible that events could cause severe impact in the near term, disclose

information that is adequate to inform users of the general risk associated

with the concentration of the following (SOP 94-6, ¶21-22):

(1) Concentrations in the volume of business transacted with a

particular customer, supplier , lender, grantor, or contributor (e.g.,

total or partial loss of the business relationship). It is alwaysconsidered at, least reasonably possible that any of these

relationships will be lost in the near term.

(2) Concentrations in revenue from particular products , services, orfund-raising events (e.g., volume or price changes or loss of patentprotection).

(3) Concentrations in the available sources of supply of materials,labor, or services , or of licenses or other rights used (e.g., changesin availability of a resource).

(4) Concentrations in the market or geographic area.

(e) For those concentrations of labor subject to collective bargainingagreements, disclose the percentage of labor covered by collectivebargaining agreement overall, and the percentage that will expire withinone year (SOP 94-6,1[24).

(f) For concentrations of operations located outside the entity's homecountry, disclose amount of net assets and geographic area in which theyare located (SOP 94-6,124).

(g) Disclosure requirements of SOP 94-6 are. also applicable for all entitiessubject to guarantee fund and other insurance-related assessments underSOP 97-3. In addition, disclose the following (SOP 97-3, y[27).(1) If amounts have been discounted:

a. Undiscounted amount of the liability and any related assetfor.premium tax offsets or policy.surcharges

b. Discount rate used(2) If amounts;iave not been discounted:

a. Amount of time liability and any related asset for premium taxoffsets or policy surcharges

71.- Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKL025156.



Applicability

b. Periods over which the assessments are expected to be paidc. Period over which the recorded premium tax offsets or policy

surcharges are expected to be realized.

Environmental Remediation Liabilities. (SOP 96-1)

(a) With respect to recorded accruals for environmental remediation losscontingencies and assets for third-party recoveries related toenvironmental remediation obligations, disclose the following:(1) The nature of the accruals and the total amount accrued for the

remediation obligation, if such disclosures are necessary for thefinancial statements not to be misleading (SOP 96-1,1161).

(2) If any portion of the accrued obligation is discounted, theundiscounted amount of the obligation and the discount rate usedin the present-value determinations (SAB Topic 5Y).

a. Expected aggregate undiscounted amount of the liability andrelated recovery (SOP 96-1,11.61)

b. Discount rate used (SOP 96-1,1161)c. Expected payments for each of the five succeeding years and

the aggregate amount thereafter..d. Reconciliation of the expected aggregate undiscounted

amount to amounts recognized in the balance sheets.(3) If the criteria of SOP 94-6 (see preceding section) are met with

respect to the accrued obligation or to any recognized asset forthird-party recoveries, an indication that it is at least reasonablypossible that a change in the estimate of the obligation or of theasset will occur in the near term (SOP 96-1,1161, SAB Topic 5Y).

(b) With respect to reasonably possible loss contingencies, includingreasonably possible loss exposures in excess of the amount accrued,disclose the following (SOP 96-1, ¶162):(1) A description of the reasonably possible remediation obligation,

and an estimate of the possible loss exposure or the fact that suchan estimate cannot be made.

(2) If the criteria of SOP 94-6 are met with respect to estimated loss(or gain) contingencies, an indication that it is at least reasonablypossible that a change in the estimate will occur in the near .term.

(c) Entities also are encouraged, but not required, to disclose the, following(SOP 96-1, 9[163):(1) the estimated<time frame of disbursements for recorded

expenditures are expected to continue over the long term.(2) The estimated time frame for realization 0! recognized probable

recoveries, if realization is not ejected in the near term.(3) If the criteria of SOP 94-6 are met` with respect to the accrued



Applicability

(4)

(5)

Filed 06/11/2007 Page 25 of 40


obligation, to any recognized asset for third-party recoveries, or toreasonably possible loss exposures or disclosed gain contingencies,the factors that cause the estimate to be sensitive to change.

If an estimate of the probable or reasonably possible loss or rangeof loss cannot be made, the reasons why it cannot be made.

If information about the reasonably possible loss or the recognizedand additional reasonably possible loss for an environmentalremediation obligation related to an individual site is relevant to anunderstanding of the financial position, cash flows, or results ofoperations of the entity, the following with respect to the site:

a. The total amount accrued for the site.

b. The nature of any reasonably possible loss contingency oradditional loss, and an estimate of the possible loss or thefact that an estimate cannot be made and the reasons why itcannot be made.

c. Whether other potentially responsible parties are involvedand the entity's estimated share of the obligation.

d. The status of regulatory proceedings.

e. The estimated time frame for resolution of the contingency.

Commitments and Contingencies

( a) Obligations related to product warranties and defects (AC C59.131).Also see the section on Guarantees below.

(b) Loss contingencies (AC C59) (including product and environmentalcontingent liabilities covered in SAB 92):

(1) If accrued, the nature and, in some cases, the amount of accrualmay be necessary for the financial statements not to be misleading(AC C59.108).

(2) If not accrued, nature and estimate of possible loss or range of loss,providing there is a reasonable possibility a loss may have beenincurred, or statement that an estimate cannot be made(AC C59.109-.110).

(3) If arising after balance sheet date but before financial statementsare issued, nature and estimate of amount or range of loss orpossible loss, or statement that an estimate cannot be made. Thisdisclosure may be supplemented with pro forma financial data orstatements (AC C59.112; AU 560.05).

(c) Consider the need to disclose the following related to product andenvironmental contingent liabilities (SAB Topic 5Y):

(1) Circumstances affecting the reliability and precision of lossestimates.

- 1 73



Interim AccountingDisclosure Checklist _Form WP-514 Q (9/04)Page 25 of 39

Applicability

(2) Extent to which unasserted claims are reflected in an accrual or

may affect the magnitude of the contingency.

(3) Uncertainties with respect to joint and several liabilities that may

affect the magnitude of the contingency, including disclosure of theaggregate expected cost to remediate particular sites that areindividually material for which the likelihood of contribution byother responsible parties have not been established.

(4) The nature and terms of cost-sharing agreements.

(5) Extent to which disclosed but unrecognized contingent losses areexpected to be recoverable through insurance, indemnificationarrangements , or other sources , and any material limitations of thatrecovery.

(6) Uncertainties regarding the legal sufficiency of insurance claims orthe solvency of carriers.

(7) Time period over which accrued or presently unrecognizedamounts may be paid out.

(8) Material components of the accrual and significant assumptionsunderlying the estimate.

(9) If there is at least a reasonable possibility that a loss exceedingamounts already recognized may have been incurred and theamount of that additional loss would be material , disclose theestimated additional loss, or range of loss, that is reasonablypossible, or state that such an . estimate . cannot be made (ACC59.109).

(d) Disclose material liabilities for site restoration, post-closure, andmonitoring commitments , or other exit costs that may occur on the sale,disposal , or abandonment of a property. Disclosures should include (SABTopic 5Y):

( 1) Types of cost involved.

(2) Total anticipated cost.

(3) Total cost accrued to date.

(4) Balance sheet classification of accrued amounts.

(5) Range or amount of reasonably possible additional losses.

(e) For . assets held for sale or development, disclose how necessaryreinediaton expenditures are considered in the assessment of the assets'net realizable value (SAB Topic 5Y).

(f) The exposure for reined ation of environmental damage relating. to assetsor businesses previously disposed (SA.RTopic 5Y).

(g).. ....... .... Presentation of,a loss contingency as "appropriated" retained earningswithin stockholders ' equity is permitted (A'CC59.117: R70.40).* ,

(h) Description of gain contingencies (AC C59.118).

- 74Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSEKL025159



Applicability

(i) Nature of litigation and amounts involved, with opinion of counsel as to

outcome of litigation if deemed appropriate (KAM 2498A;

AC C59.139-.145).

11. Liquidity

_ Public companies are required to disclose any additional financial information

considered necessary either on the face of the financial statements or inaccompanying notes sufficient to prevent the interim information presented

from being misleading (AC 173.148; FRR, Section 301.01, S-X, Rule 10-

01 (a)(5)). As a result , to the extent that factors indicate , during the interimperiod , that there is substantial doubt about the entity's ability to continue as a

going concern , consider inclusion of the following disclosures (AU 341.10):

(a) Pertinent conditions and events giving rise to the assessment ofsubstantial doubt about the entity's ability to continue as a going concern

for a reasonable period of time, such as:

(1) Whether operations for the current or prior years did not generatesufficient cash to cover current obligations.

(2) Whether waivers were obtained from creditors relating to theentity's default under the provisions of debt agreements.

(b) Possible effects of such conditions and events, such as:

(1) Whether there is a possible need to obtain additional financing(debt or equity) or to liquidate certain holdings to offset future cashflow deficiencies.

(2) Approximate amount, if determinable, of future, fixed annualobligations not expected to be repaid from operations.

(3) Appropriate parent company information when parent is dependentupon remittances from subsidiaries to satisfy its obligations.

(c) Management's evaluation of the significance of those conditions andevents and any mitigating factors.

(d) Possible discontinuance of operations.

(e) Management's plans (including relevant prospective financialinformation) and whether resolution of the situation is dependent. onrealization of management's plans.

(f) Information about the recoverability or classification of recorded assetamounts or the amounts or classification of liabilities.

12. Inventories

a) Amounts of ma: or classes of inventory. Raw materials, workin.processand finished goods inventories should be included either on :the face-ofthe balance sheet or in the notes to the financial statements, if applicable.

75




Applicability

(S-X, Rule 10-01(a)(2); S-X, Rule 5-02.6(a)).

(b) An entity generally should use the same inventory pricing methods and

make provisions for write-downs to market at interim dates on the same

basis as used at annual inventory dates. Some entities use estimated gross

profit rates to determine the costs of goods sold during interim periods or

use other methods different from those used at annual inventory dates.

Those entities should disclose the method used at the interim date and

any significant adjustments that result from reconciliations with the

annual physical inventory (AC 173.107(a).

13. Long-Term Contracts or Programs

Any change in status of long-term contracts should be disclosed (S-X, Rule 10-

01(a)(5)).

14. Long-Term Investments

(a) Separate, summarized income statement information for each subsidiary

not consolidated or fifty percent or less owned persons or as to each

group of such subsidiaries or fifty percent or less owned persons for

which separate individual or group statements would otherwise berequired for annual periods should be disclosed. Such summarized

information, however, need not be furnished for any such unconsolidated

subsidiary or person that would not be required pursuant to Rule l 3a-13or I5d-13 to file quarterly financial information with the SEC if it were aregistrant (S-X, Rule 10-01(b)(1))-

(b) Disclosures regarding interim results of other investees operations may

be necessary to prevent the interim information presented from beingmisleading (AC 182.110).

(c) For an existing limited partnership without any kick-out rights in thehands of the limited partners or any other important right (that isconsistent with the specific examples in SOP 78-9), the general partnershould consider disclosing in the interim and annual financial statementsthe impact of consolidating the partnership(s), or if the limitedpartnership interests have not been consolidated, the steps being taken toamend partnership agreements in order to comply with. the SEC'sinterpretative guidance on important rights (SOP 78-9; PPL 04=027;SEC staff speech December 2003).

15. Long-Li'.cd Assets Held. for Use or Held.-for DisposalEffects of disposals of a component of an entity that are considered materialwith respect to the operating results of the interim period; should be reportedseparately in the interim statements: trains or losses from disposal of a-component of an entity should-not be prorated over the balance of the fiscalyear. (APB 281211'AC I73.124).




Applicability

(a) Long-lived assets to be held and used:

(1) The impairment is included in income from continuing operationsbefore income taxes in the income statement. If a subtotal such as"income from operations" is presented, it should include theamount of that loss (AC 108.160).

(2) The following information should be disclosed in the notes to the

financial statements that include the period in which an impairment

loss is recognized (AC 108.161):

a. A description of the impaired long-lived asset (asset group)

and the facts and circumstances leading to the impairment.

b. If not separately presented on the face of the incomestatement, the amount of the impairment loss and the captionin the income statement that includes that loss.

c. The method or methods for determining fair value (whetherbased on a quoted market price, prices for similar assets, oranother valuation technique).

d. If applicable, the segment in which the impaired long-livedasset (asset group) is reported under Statement 131.

(b) Long-lived assets and disposal groups to be disposed of:

(1) A gain or loss recognized for a long-lived asset (disposal group)classified as held for sale that is not a component of an entity (i.e.,not a qualifying.discontinued operation) should be included inincome from continuing operations before income taxes in theincome statement. If a subtotal such as "income from operations" ispresented, it should include the amounts of those gains or losses(AC D60.118).

(2) The following information should be disclosed in the notes to thefinancial statements that cover the period in which a long-livedasset (disposal group) either has been sold or is classified as heldfor sale (AC D60.120; AC 114.105):

a. A description of the facts and circumstances leading to theexpected disposal, the expected manner and timing of thatdisposal and, if not separately presented on the face of thestatement of financial position , the carrying amount(s)_ of themajor classes of assets and liabilities included as part of adisposal group;

b. The gain or loss recognized in accordance with paragraph 37of Statement 144 anal , if not separately presented on the faceof the income stateriment,ahe caption in the income statementthat includes that^gain orloss.

P. Ifapplicable , the segment in which the long-lived asset

I !^




Applicability

(disposal group) is reported under Statement 131.

(3) If circumstances arise that previously were considered unlikelyand, as a result, an entity decides not to sell a long-lived asset(disposal group) previously classified as held for sale, or if anentity removes an individual asset or liability from a disposal grouppreviously classified as held for sale, a description of the facts andcircumstances leading to the decision to change the plan to sell thelong-lived asset (disposal group), and its effect on the results ofoperations for the periods and any prior periods presented, shouldbe disclosed in the notes to the financial statements that include theperiod of that decision (AC D60.121).

(4) A long-lived asset classified as held for sale should be presentedseparately in the statement of financial position. The assets andliabilities of a disposal group classified as held for sale should bepresented separately in the asset and liability sections, respectively,of the statement of financial position. Those assets and liabilitiesshould not be offset and presented as a single amount. The majorclasses of assets and liabilities classified as held for sale should beseparately disclosed either on the face of the statement of financialposition or in the notes to the financial statements (AC D60.119).

16. Discontinued Operations

For additional required disclosures, refer to the following sections of thischecklist:

15. Long-Lived Assets Held for Use or Held for Disposal31. Liabilities: Exit or Disposal Activities

If the conditions specified in AC 114.102 are met, the results of operations of acomponent of an entity that either has been disposed of or is classified as heldfor sale should be reported in discontinued operations.

(a) The following information should be disclosed in the notes to thefinancial statements that cover the period in which a long-lived asset(disposal group) either has been sold or is classified as held for sale andmeets the conditions for a discontinued operation (AC D60.120; AC114.102,.105):(1) If applicable, amounts of revenue andI5ietax profit or loss reported

in discontinued Operations.(2) If an :entityhas disposed of a discontinued operation during any of

the periods covered by the interim financial statements, disclosethe:.effect thereof on revenues and net income, total and per share,forallperiods (SX, Rule10-01(b)(S)).

The results of operations of a`component classified as held for saleshould be reported in discontinued operations in the period(s) in which


- / O

SRLSEKL025163


Applicability

(c)

(d)

(e)

(f)

Filed 06/11/2007 Page 31 of 40


they occur. The results of discontinued operations, less applicable incometaxes (benefit), should be reported as a separate component of incomebefore extraordinary items and the cumulative effect of accountingchanges (if applicable). Any gain or loss recognized on the disposalshould be disclosed either on the face of the income statement or in thenotes to the financial statements (AC 114.103).Adjustments to amounts previously reported in discontinued operationsthat are directly related to the disposal of a component of an entity in aprior period should be classified separately in the current period indiscontinued operations. The nature and amount of such adjustmentsshould be disclosed (AC 114.104).Material contingent liabilities, such as product or environmentalliabilities or litigation, that remain with an entity notwithstandingdisposal of the underlying business should be disclosed along with thedisclosure requirements of Statement 5 (SAB Topic 5Z).Changes in the carrying value of assets received as consideration in thedisposal or of residual interests in the business disposed should beclassified within continuing operations (SAB Topic 5Z).Interest expense on debt assumed by the buyer and debt required to berepaid as a result of the sale should be allocated to discontinuedoperations. Allocation to discontinued operations of the consolidatedinterest that is not directly attributable to or related to other operations ofthe entity is permitted but not required (EITF 87-24).

17. Fair Value of Financial Instruments

Disclose significant changes in the fair value of financial instruments from thatdisclosed in the annual financial statements for the preceding year if material.(S-X, Rule 10-01(a)(5); 1993 SEC Conference).

18. Current Liabilities Other Than Income Taxes

Disclose significant changes in capitalization including significant newborrowings or modification of existing financing arrangements (S-X, Rule 10-01(a)(5)).

19. Income Taxes

(a) Disclose significant changes in estimates or provisions for income taxes inaddition to the reasons for any significant variations in the customaryrelationship between income tax expense and pretax accounting income, ifthey are not otherwise apparent from the financial statements or from thenature of the entity's business (AC 173.112).

(b) Report changes in interim periods related to other tax accounts for changesin judgments or settlements related to tax exposure items that arerecognized in income tax expense in years subsequent to the year of the taxexposure transaction as discrete items in the interim period ofchange (PPL

-- (9




Applicability

04-016; SEC staff speech December 2003).

20 Long-Term Debt

Disclose significant changes in capitalization including significant newborrowings or modification of existing financing arrangements (S-X, Rule 10-01 (a)(5); S-X, Rule 4-08(f)).

21. Compensating Balance and Short-Term Borrowing Arrangements

Disclose any material changes in compensating balance and short-termborrowing arrangements since year end (FRR 203; SAB Topic 6.4.a).

22. Guarantees

(See PPL 03-015 for implementation guidance and example disclosures for FINNo. 45, Guarantor's Accounting and Disclosure Requirementsfor Guarantees,Including Indirect Guarantees ofIndebtedness of Others.).

(a) An intellectual property infringement arrangement indemnificationconstitutes a guarantee that is subject to the disclosure requirements inthis section (FSP FIN 45-1).

(b) A guarantor should disclose the following information about eachguarantee, or each group of similar. guarantees, even if the likelihood ofthe guarantor's having to make any payments under the guarantee isremote (AC G80.112):.

(1) The nature and term of the guarantee, how the guarantee arose, andevents or circumstances that would require the guarantor toperform under the guarantee.

(2) The maximum potential amount of undiscounted future paymentsthe guarantor could be required to make, which should not bereduced for any amounts that may possibly be recovered. If theterms of the guarantee provided for no limitation to the maximumpotential future payments under the guarantee, that fact should bedisclosed. If an estimate cannot be developed, that fact and thereasons should be disclosed. For product warranties and otherguarantees that are excluded from the initial recognition and initialmeasurement requirements of FIN 45, this disclosure is notrequired; however, the disclosures in paragraph (b) below arerequired.

(3) The current.carrying amount. of the liability, if any, for theguarantor's obligations under the guarantee (including the amount,if any, recognized under paragraph 8 of Statement 5), regardless ofwhether the guarantee is freestanding or embedded in anothercontract.

(4) The nature of, (i) any recourse provisions that would enable the




Applicability

guarantor to recover from thirdparties any of the amounts paidunder the guarantee, and (ii) any assets held either as collateral orby third-parties that, upon the occurrence of any triggering event orcondition under the guarantee, the guarantor can liquidate torecover amounts paid under the guarantee. The approximate extentthe proceeds from liquidation would be expected to cover themaximum potential amount of future payments under the guaranteeshould be indicated if estimable.

(c) For product warranties and other guarantee contracts for which theunderlying is related to the performance (regarding function, not price) ofnonfinancial assets owned by the guaranteed party, provide a tabularreconciliation of the changes in the guarantor's aggregate productwarranty liability for the reporting period,.including the beginningbalance of the liability, payments made under the warranty, changes inthe liability for product warranties issued during the period, changes inthe liability for preexisting warranties, and the ending balance of theliability (AC 680.113).

23. Stockholders' Equity

Disclose significant changes in capitalization (S-X, Rule 10-01(a)(5)).

24. Stock-Based Compensation

(a) If awards of stock-based employee compensation were outstanding andaccounted for under the intrinsic value method of Opinion 25 for anyperiod for which an income statement is presented, a tabular presentationof the following information (AC I73.146(j)):

(1) Net income and basic and diluted earnings per share as reported.

(2) The stock-based employee compensation cost, net of related taxeffects, included in the determination of net income as reported.

(3) The stock-based employee compensation cost, net of related taxeffects, that would have been included in the determination of netincome if the fair value based method had been applied to allawards. (All awards refers to awards granted, modified, or settledin fiscal periods beginning after Decerriber 15, 1994.)

(4) Pro forma net income as if the fair value based method had beenapplied to all awards.

(5) Pro forma basic and diluted earnings per share as if the fair valuebased method had been applied to all awards.

(b) If sunirnarized fi i'anual (lit a ale .regularly reportedon a quarterly basis,the forge ing..information with respect to the current quarter anti :thecurrent year to d"ate or the last 12 months to date should be famishedtogether with comparable data for the preceding year (AC 473.146(j)).

Confidential Treatment Requested by SeraCare Life Sciences, Inc.81

SRLSEKL025166


Applicability


25. Pension Plans and Other Postretirement Benefits

(a) An entity (a) whose debt or equity securities trade in a public marketeither on a stock exchange (domestic or foreign) or in the over-the-counter market, including securities quoted only locally or regionally, (b)that makes a filing with a regulatory agency in preparation for the sale ofany class of debt or equity securities in a public market, or (c) that iscontrolled by an entity covered by (a) or (b) should disclose the followinginformation for its interim financial statements that include a statement ofincome (SFAS 132 (revised 2003), ¶9):

(1) The amount of net periodic benefit cost recognized, for each periodfor which a statement of income is presented, showing separatelythe service cost component, the interest cost component, theexpected return on plan assets for the period, the amortization ofthe unrecognized transition obligation or transition asset, theamount of recognized gains or losses, the amount of prior servicecost recognized, and the amount of gain or loss recognized due to asettlement or curtailment.

(2) The total amount of the employer's contributions paid, andexpected to be paid, during the current fiscal year, if significantlydifferent from amounts previously disclosed pursuant to paragraph5(g) of Statement 132. Estimated contributions may be presented inthe aggregate combining (1) contributions required by fundingregulations or laws, (2) discretionary contributions, and (3)noncash contributions.

26. Medicare Prescription Drug, Improvement and Modernization Act of 2003(FSP FAS 106-2)

FSP FAS 106-2 (issued May 2004) becomes effective for the first periodbeginning after June 15, 2004, except for certain nonpublic entities . This. FSPrequires the following disclosures for employers that sponsor postretirementhealthcare plans that provide prescription drug benefits.

(a) Until an employer is able to determine whether benefits provided by itsplan are actuarially equivalent (as described in the Act), it shoulddisclose the following:in interim and annual financial statements:(1) The existence of the Act

(2) The fact that measures of the accumulated postre.tirement benefitobligation (AP$O). or.net periodic postretiremeiit benefit cost donot reflect any amount associated with the subsidy because theemployer is unable to conclude whether the heiiefits provided:bythe plan are actuarially equivalent to Medicare Part ID under theAct.

In interim and annual financial statements for the first period in which an.employer includes the effects of the subsidy in measuring the



Applicability


accumulated plan benefit obligation (APBO) and the first period in whichan employer includes the effects of the subsidy in measuring net periodicpostretirement benefit cost, it should disclose the following:(1) Reduction in the APBO for the subsidy related to benefits

attributed to past service.

(2) Effect of the subsidy on measurement of net periodicpostretirement benefit cost for the current period.

(3) An explanation of any significant change in the benefit obligationor plan assets not otherwise apparent in the other disclosuresrequired by Statement 132(revised 2003). (SFAS 132(R) ¶5(r)).

27. Business Combinations

A public company should disclose the following information if a materialbusiness combination is completed during the current year up to the date of themost recent interim statement of financial position presented (AC B51.171):

(a) The name and a brief description of the acquired entity and thepercentage of voting equity interests acquired.

(b) The primary reason for the acquisition, including a description of thefactors that contributed to a purchase price that results in recognition ofgoodwill.

(c) The period for which the results of operations of the acquired entity areincluded in the income statement of the combined entity.

(d) The cost of the acquired entity and, if applicable, the number of shares ofequity interests (such as common shares, preferred shares, or partnershipinterests) issued or issuable, the value assigned to those interests, and thebasis for determining that value.

(e) Supplemental pro forma information that discloses the results ofoperations for the current year up to the date of the most recent interimbalance sheet presented (and for the corresponding period in thepreceding year) as though the entities had combined at the beginning ofthe period being reported on. That pro forma information should display,at a minimum, revenue, income before extraordinary items and thecumulative effect of accounting changes, including such income on a pershare basis, and net income and net income per share (S-X, Rule 10-01(b)(4); .AC B51.171(b)).

(f) The nature and amount of any material, nonrecurring items included inthe reported pro forma results of operations.

28. Financial Reporting for Segments of a Business enterprise(a) Iaterirnint'ormation is-in Mded to be an update of the information:that

was presented in the most recent annual financial,statements.'1fierefore,in the absence of a change in the structure of an entity's internalorganization during an interim .period that would cause the composition



Applicability

(b)

(c)

(d)

(e)

Filed 06/11/2007 Page 36 of 40


of its reportable segments to change, generally an entity need not applythe quantitative tests in Statement 131 in each interim period. However,if facts and circumstances change that would suggest that application ofthe quantitative tests in an interim period would reveal a reportablesegment that was previously not reportable, and management expectsthat the segment will continue to be of significance, the segment shouldbe disclosed as a new, separate reportable segment (AC S30.818).

Enterprise-wide disclosures are required only for annual reporting (ACS30.819). The foregoing information with respect to the current quarterand the current year-to-date or the last 12 months to date should befurnished together with comparable data for the preceding year (AC173.146(i); AC S30.132):

(1) Revenues from external customers

(2) Intersegment revenues

(3) A measure of segment profit or loss

(4) Total assets for which there has been a material change from theamount disclosed in the last annual report

(5) A description of differences from the last annual report in the basisof segmentation or in the measurement of segment profit or loss

(6) A reconciliation of the total of the reportable segments' measures ofprofit or loss to the entity's consolidated income before incometaxes, extraordinary items, discontinued operations, and thecumulative effect of changes in accounting principles. However, if,for example, an entity allocates items such as income taxes andextraordinary items to segments, the entity may choose to reconcilethe total of the segments' measures of profit or loss to consolidatedincome after those items. Significant reconciling items should beseparately identified and described in that reconciliation.

If an entity changes the structure of its internal organization in a mannerthat causes the composition of its reportable segments to change, thecurrent quarter, the year-to-date period, and the correspondinginformation for earlier periods, should be restated unless it isimpracticable to do so (AC S30.133; 2001 SEC Conference).

If an entity has changed the structure of its internal organization in amanner that causes the composition of its reportable segments to changeand if segment information for earlier periods, including interim periods,is not restated to reflect the change, the entity should disclose in the yearin which the change occurs segment information for the current periodunder both the old basis and the new basis of segmentation unless it isimpracticable to do so (AC S30.133).

Prior years' segment information does not need to be restated to reflect achange in measurement of segment profit or loss. Although not required,the FASB staff believes it would be preferable to show all segmentinformation on a comparable basis to the extent it is practicable to do so.

84



Applicability

Filed 06/11/2007 Page 37 of 40


If prior years' information is not restated, disclosure of the nature of anychanges from prior periods in the measurement methods used todetermine reported segment profit or loss and the effect , if any, of thosechanges on the measure of segment profit or loss is required (FASBImplementation Guide Q&A 131 #19A).

29. Development-Stage Enterprises

Interim financial statements for development stage enterprises may becondensed to the same degree as the information in sections on GeneralFinancial Statement Considerations , Balance Sheet, Statement of Incomeand Statement of Cash Flows (S-X, Rule 10-01(a)(7)).

(a) Additional information on the face of the financial statements (ACDe4.107):(1) Cumulative net losses with a descriptive caption such as "deficit

accumulated during the development stage" in the stockholders'equity section.

(2) Cumulative amounts of revenues and expenses from inception ofdevelopment stage.

(3) Cumulative amounts of cash inflows and outflows from inception.

(4) A statement of stockholders' equity showing from inception foreach issuance:

a. The date and number of equity securities issued for cash andother consideration.

b. The dollar amount (per share and in total) assigned to theconsideration received for equity securities (whether cash ornot).

c. For noncash issuances, the nature of the consideration andthe basis for assigning the amounts.

(b) Indication that financial statements are those of a development stageenterprise (AC De4.108).

(c) Description of the nature of development stage activities (AC De4.108).

(d) In the first fiscal year that the enterprise is no longer in developmentstage, indication that enterprise was in development stage in prior years(AC De4.109).

30. Leases

(a) Disclose significant changes in capitalization including significant newborrowings or modification of existing financing arrangements (S-X,Rule 10-01(a)(5); S-X, Rule 4-08(f)).

(b) If an accounting change is required in order to comply with the

85



Applicability

Filed 06/11/2007 Page 38 of 40


requirements of SEC Staff Announcement D-107, Lessor Consideration ofThird-Party Residual Value Guarantees, public companies should restateall prior-period financial statements not later than the beginning of the firstfiscal quarter beginning after December 15, 2003.

31. Liabilities: Exit or Disposal Costs

(a) Disclose in the notes to the financial statements in the period in which anexit or disposal activity is initiated, including interim periods, and anysubsequent period until the activity is completed (AC L32.120; SABTopic 5P):(1) A description of the exit or disposal activity, including the facts

and circumstances leading to the expected activity and the expectedcompletion date.

(2) For each major type of cost associated with the activity (forexample, one-time termination benefits, contract termination costs,and other associated costs):a. The total amount expected to be incurred in connection with

the activity, the amount incurred in the period, and thecumulative amount incurred to date.

b. A reconciliation of the beginning and ending liabilitybalances showing separately the changes during the periodattributable to costs incurred and charged to expense, costspaid or otherwise settled, and any adjustments to the liability,with an explanation of the reason(s) therefor.(i) The SEC staff often finds that it is necessary for a

public company to present in the notes to the financialstatements involuntary termination charges and exitcharges in tabular form, with the related liabilitybalances and activity (e.g., beginning balance, newcharges, cash payments, other adjustments withexplanations, and ending balances) from balance sheetdate to balance sheet date in order to explain fully thecomponents and effects of significant restructuringcharges (SAS Topic 5P).

(3) The line item(s) in the income statement in which the costs in (2)above are aggregated.

Note: PPL 03-098 states that the firm believes it is not appropriateto classify the following costs as "restructuring" in an entity'sincome statement: (a) termination benefits under Statement 112that meet the Statement 43 criteria and are accrued over the serviceperiod, (b) inventory write-downs (EITF 96-9) and (c) impairmentcharges (SFAS 144) should be reported as separate line items inthe income statement, or if reported in a single "special charge"

86


Case 3 : 05-cv-02335-JLS-CAB Document 147-15 Filed 06/11/2007 Page 39 of 40


Applicability

line item, clearly disclosed in the notes to the financial statements.

(4) For each reportable segment, the total amount of costs expected to

be incurred in connection with the activity, the amount incurred inthe period , and the cumulative amount incurred to date, net of anyadjustments to the liability , with an explanation of the reason(s)therefor.

(5) If a liability for a cost associated with the activity is not recognizedbecause fair value cannot be reasonably estimated, that fact and thereasons therefor.

r'

(b) Costs associated with an exit or disposal activity that does not involve adiscontinued operation should be recorded in income from continuingoperations before income taxes in the income statement. If a subtotalsuch as "income from operations" is presented, it should include theamounts of those costs (AC L32.118).

(c) Costs associated with an exit or disposal activity that involves adiscontinued operation should be included in the results of discontinuedoperations (AC L32.118).

(d) If an event or circumstance occurs that discharges or removes the entity'sresponsibility to settle a liability for a cost associated with an exit ordisposal activity recognized in a prior period, the liability should bereversed. The related costs should be reversed through the same line.item(s) in the income statement used when the costs were recognizedinitially (AC L32.119).

(e) If multiple exit plans have been implemented in the period, presentseparate information for each individual exit plan that has a materialeffect on the balance sheet, results of operations, or cash flows (SABTopic 5P).

(f) Disclose the nature and amounts of additional types of exit costs andother types of restructuring charges (e.g., long-term asset disposals,employee terminations, leasehold termination payments, changes invaluation of current assets such as inventory write-downs, andadjustments for warranties and product returns) that appear quantitativelyor qualitatively material (SAB Topic 5P).

32. Long-Term Construction-Type Contracts

The status ofIongterm construction-type contracts should be disclosed (S-X,Rule 10-O1(a)(5)).

33. Long-Terrrt Obligations

The states of Iong=terrn obligations should be disclosed (S-X, Rule 10-01-(a)(5)).




Applicability

34. Participating Mortgage Loans (SOP 97-1)

The following should be disclosed in the borrower' s interim and annualfinancial statements (SOP 97-1117):

(a) The aggregate amount of participating mortgage obligations at the date ofthe balance sheet, with separate disclosure of the aggregate participationliabilities and related debt discounts.

(b) Terms of the participations by the lender in either the appreciation inmarket value of the mortgaged real estate project or the results ofoperations of the mortgaged real estate project, or both.


88SRLSEKL025173


EXHIBIT 15


MINUTES of MEETINGof the

AUDIT COMMITTEEof the

BOARD OF DIRECTORSof

SeraCare Life Sciences, Inc.a California Corporation

Filed 06/11/2007 Page 2 of 5

On Monday, December 13, 2004, at 10:00 AM (PDT), a telephonic meeting of the Audit Committee of the Boardof Directors of SeraCare Life Sciences, Inc., a California corporation, was held pursuant to notice duly made.

Present for the meeting:Robert Cresci - ChairmanDr. Nelson TengEzzat Jallad

Guests present:Mr. Tim Hart (Chief Financial Officer)Jerry L. Burdick (Secretary)Mr. Bradley Monahan (Engagement Partner KPMG LLP)Mr. John Davis (Concurring Partner KPMG LLP)Mr. Ricardo Martinez (Audit Manager KPMG LLP)

During the meeting, all members of the Audit Committee and the Guests confirmed they could hear one another.Mr. Robert Cresci acted as Chairman and Secretary of the meeting and called the meeting to order at 10:00 AM(PDT).

CALL TO ORDER

Mr. Cresci in his capacity as Chairman declared that a quorum was present and the meeting was commenced.

General SessionAt the request of Mr. Cresci, Mr. Monahan reviewed the audit process and results relating to the financialstatements for the year ended September 30, 2004. Mr. Monahan discussed. in length: the nature and extent oftheir review; any significant issues that were discussed and the resolution thereof; any Proposed Journal Entries(PJE's) not booked by the Company; and, new FASB's such as 123R relating to stock options, 141 and 142relating to acquisition accounting and allocation of acquisition costs, and 151 relating to cost accounting andoverhead absorption. During the course of his presentation, Mr. Monahan responded to various questions fromAudit Committee members and did not proceed until questions had been thoroughly responded to. After allquestions had been satisfied and Mr. Monahan had completed his presentation, Mr. Cresci requested that Mr.Hart and Mr. Burdick drop off the call so that the Executive Session could begin.

Executive SessionDuring the Executive Session, Mr. Cresci asked Mr. Monahan his opinion on: Company staffing and whether hereceived.full cooperation from the financial staff: any areas which KPMG felt could potentially develop intoproblem areas; the strength and cooperation received from the CFO; any perceived internal control issues; and,detailed questions as to inventory valuations. After all questions had been responded.to, Mr. Cresci asked theaudit committee members if they had any other questions, to which the response was negative.

With no further business-a motion was made and seconded to adjourn. This motion was unanimously approvedand the meeting.adjourned at 10:45 AM (PDT).

Mr., Robert CresciAudit Committee Chairman

89Exhibit 15

Confidential Treatment Requested by SeraCare Life Sciences, inc. SRLSEJB098128


MINUTES ofMEETINGof the

i AUDIT COMMITTEEof the


SeraCare Life Sciences, Inc-a California Corporation

Page 3 of 5

On Tuesday, February 8, 2005, at 10:00 AM (PDT), a telephonic meeting ofthe Audit Committee ofthe Board of-•--• Directors of SeraCare Life Sciences, Inc., a California corporation, was held pursuant to notice duly made.

Present for the meeting:Robert Cresci - ChairmanEzzat Jallad .

Not present: Dr. Nelson Tong V

Guests present:Jerry L. Burdick (Acting ChiefFinancial Officer)Mr. Bradley Monahan (Engagement Partner KPMG LLP)Mr. John Davis (Concurring Partner KPMG LLP)Mr. Ricardo Martinez (Audit ManagerKPMG LLP)

During the meeting, all members of the Audit Committee and the Guests confirmed they could hear one another.Mr. Robert Cresei acted as Chairman and Secretary of the meeting and called the meeting to order at 10:00 AM(PD1).

CAlL TO ORDER


General SessionAt the request ofW. Cresci, Mr. Monahan reviewed the review process and results relating to the financialstatements for the quarter ended December 31, 2004. Mr. Monahan discussed in length: the nature and extent oftheir review; any significant issues that were discussed and the resolution thereof any Proposed Journal Entries(PJE's) not booked by the Company; and, new FASB's such as 151 relating to cost accounting and overheadabsorption. During the course ofhis presentation, Mr. Monahan responded to various questions from AuditCommittee members and did not proceed until questions had been thoroughly responded to. After all questionshad been satisfied and Mr. Monahan had completed his presentation, Mr. Cresci requested that Mr. Burdick dropoffthe call so that the Executive Session could begin.

Executive SessionDuring the Executive Session, Mr. Cresci asked Mr. Monahan i€he had any concerns over the-departure ofMr.Tim Hart as ChiefFinancial Officer. Mr. Monahan replied that he did not. Next, Mr. Cresci requested Mr..Monahan's opinion on: Company staffing and whether he received full cooperation from the financial staff; anyareas whichKPMG felt could potentially develop into problem areas; the strength and cooperation receivedfromthe CFO; any perceivednit control issues; and, detailed -questions as to inventory valuations. After allquestions had been responded to, Mr. Cresc asked the audit committee members if they had any other questions,to which the response was negative.

with no further business, a motion:was made and seconded to.adjourn.This -motion was unanimously approved-and hhejrce ngadjotuned at l0:45 M-(PD`l'

tMr. dbidO.OdAudit Committee Chairman

90anfdential Treatment Requested By SeraCare Life SRLSEXX002824;iences, Inc.

Case 3:05-cv-02335-JLS-CAB Document 147-16 Filed..06/1112007 Page.4.of 5

MUIINUTES of MEETINGof the

AUDIT COMMTtTEEof the


SeraCare Life Sciences, Inc.a California Corporation

On Monday, May 2, 2005, at 10:00 AM (PDT), a telephonic meeting ofthe Audit Committee ofthe Board of--.•-Directors of SeiaCare Life Sciences, Inc., a California corporation, was held pursuant to notice duly made.

Present for the meeting:Robert Cresci - ChairmanEzzat Jallad

Not present Dr. Nelson Teng

Guests present:Jerry L. Burdick (Acting ChiefFinancial Officer)Mr. Bradley Monahan (Engagement PartnerKPMG LLF)Mr. John Davis (Concurring Partner KPMG LLP).W. Ricardo Martinez (Audit Manager KPMG LLP)

During the meeting, all members of the Audit Committee and the Guests confirmed they could hear one another.Mr. Robert Cresci acted as Chairman and Secretary ofthe meeting and called the meeting to order at 10:00 AM(PDT).

CALL TO ORDER

Mr. Cresci in his capacity as Chairman declared that a quorum was present and the meeting was commenced-

General SessionAt the request ofMr. Cresei, Mr. Monahan reviewed the review process and results relating to the financialstatements for the quarter ended March 31, 2005. Mr. Monahan discussed in length: the nature and extent of theirreview; any significant issues that were discussed and the resolution thereof any Proposed Journal Entries(PJFs) not booked by the Company., and, some observations relating to Sorbanes-Oxly. During the course ofhis presentation, lvir.Monahan responded to various questions from Audit Committee members and did notproceed until questions had been thoroughly responded to. After all questions had been satisfied and Mr.Monahan had completed his presentation, W. Cresei requested that Mr. Burdick drop offthe call so that theExecutive Session could begin.

Executive SessionDuring the, Executive Session, Mr. Cresci asked Mr. Monahan ifhe had any concerns over the departure ofthenCorporate Controller and the Accounting Manager .ho resigned during the period. W. Monahan replied he didhave concerns about the workload and for the future, but that the work seemed to get done during the quarterclose andhe had been advised byW. Bu dick that replacements had biz hired and would start within thirtydays. Next, Mr. sc i requested Mr. Monahan's on. Company stagandwhether, he received fullcoopera'tton from the financial stain any areas whet P1V G felt^couldpotentially develop into problem areas;the strength and cooperation received from the Acting CFO; any perceived internal control issues other than. helack ofa Controller, and Accounting Manager; and, dcttaile i questions as to inventory valuations, including somediscussion of the increases in inventory. After all questions had been responded •to Mr. Cresci asked the audit

With no further business, a motion was made and seconded to adjourn. This mention was unanimously approvedand the m edt ng adjourned at M45, AM. (PDT}.

Mr. Robert Cresci.•. Audit Committee Chairman

91onfidential Treatment Requested By SeraCare Life SRLSEX:0027.63ciences, Inc.


AUNUTES ofMEETINGof the

AUDIT COMMITTEEof the


Se.a'l'aie Life Sciences, Inc.

a California Corporation

Filed 06/1.1/2007 . Page 5 of 5 -

OnTuesday, August 9, 2005, at 10:00 AM (PDT), a telephonic meeting ofthe Audit Committee ofthe Board of

-" Directors of SeraCare Life Sciences, Inc., a California corporation, was held pursuant to notice duly made.

Present for the meeting.

Robert Cresci - Chairman

Dr. Nelson Teng

Not present: Ezzat 7allad

Guests present:Craig Hooson (Chief Financial Officer)Mr. Bradley Monahan (Engagement PartnerKPMG LLP)

Mr. John Davis (Concurring Partner KPMG LLP)

Mr. Ricardo Martinez (Audit Manager KPMG LLP)

During the meeting, all members of the Audit Committee and the Guests confirmed they could hear one another.

Mr. Robert Cresci acted as Chairman and Secretary of the meeting and called the meeting to order at 10:00 AM

(DT)'.

CALL TO ORDER


-General Sessioni^ At the request ofW. Cresci, Mr. Monahan reviewed the review process and results relating to the financial

statements for the quarter ended June 30, 2005. Mr. Monahan discussed in length: the nature and extent oftheir

review; any significant issues that were discussed and the resolution thereof any Proposed Journal Entries

(PJE's) not booked by the Company, and, some observations relating to Sorbanes-Oxly. During the course of

his presentation, Mr. Monahan responded to various questions from Audit Committee members and did not

proceed until questions had been thoroughly responded to.. After all questions had been satisfied and Mr.

Monahan had completed his presentation , Mr. Cresci requested that Mr. Hooson drop offthe call so that the

Executive Session could begin.

Executive SessionDuring the Executive Session, Mr.Cresei asked Mr. Monahan his impressions of the new ChiefFinancial

Officer, Mr. Craig Hooson. Mr. Monahan replied that his interaction with Mr. Hooson had not been , extensive,

but that Jerry Burdick was still heavily involved during the Tune 30, 2005 quarter close. Mr. Monahan then

expressed that the new Controller Kai Loedel was verywell organized and had puttogether audit review

packages which were verycomplete and timely and seemed to have a very good grasp oftl a consolidation and

preparation for audits and reviews. lie thenindicated that the staffwhich had been'hired was a - signiiicant

improvement over the prior staff and.had been responsive in every way. Next Mr. Cresci and Mr. Monahan todiscuss any areas which } 1'MG felt could potentially develop into problem areas; and, detailed questions about

inventory, receivables collections issues. After all questions had been responded to, Mr. Cresci asked theaudit• ..,,.::,.... m...^^-o...- ^'4.,1-a. l.nr7 0.,. r4^,^.:,.«.: a,. ...F:-:^^^t._: .,.....,,.zs:e....a,.. r.n.^.:^..:e

With no further business, a motion was made and seconded to adjourn. This . mo tionvas unanimously approved. and the meeting adjourned at 10:45 AM (PDT)

. Robert Cresci` Audit Committee Chairman

.onfrdentiai Treatment Requested By SeraCare Lifesciences, Inc.

92SRLSEXX002691

Case 3:05-cv-02335 -JLS-CAB Document 147-17 Filed 06/11 /2007 Page 1 of 2

EXHIBIT 16


From : Martinez, Ricardo D [ricardomartinez [email protected]]

Sent : Monday, August 08, 2005 1:30 AM

To: Craig Hooson - BBI

Cc: Jerry Burdick - sbcglobaf.net

Subject : FW: SeraCare Q3 '05 AC Presentation

Attachments : Q3 '05 AC Presentation.ppt

<<Q3 '05 AC Presentation.ppt>> Here is the audit committee presentation for Monday. Please call my.cell with. any

questions at (858)220-0731. Thank you.

-----Original Message-----

From: Martinez, Ricardo D

Sent: Sun Aug 07 03:14:33 2005

To: Martinez, Ricardo DSubject: SeraCare Q3'05 AC Presentation

<<Q3'05 AC Presentation.ppt>

Ricardo D. MartinezKPMG LLP - San Diego Office.Audit Manager

750 B Street, Suite 1500

San Diego, CA 92101

(619) 525-3207 (direct)(619)1615-5199 (fax)(619) 393-0250 (e-fax)

[email protected]

The information in this email is confidential and may be legally privileged. It is intended solely for the addressee. Access to this email byanyone else is unauthorized.If you are not the intended recipient, any disclosure, copying, distribution or any action taken or omitted to be taken in reliance on it, isprohibited and may be unlawful. When addressed to our clients any opinions or advice contained in this email are subject to the terms andcondifions, expressed in the governing KPMG client engagement letter.

Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSECH003708


EXHIBIT 173

FormL8Ae 3: 05-cv-02335-JLS-CAB

8-K 1 d8k.htm FORM 8-K

Document 147-18 Filed 06/11 /2007 Pagd 2 f11f 7

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported) March 13, 2006

SERACARE LIFE SCIENCES, INC.(Exact Name of Registrant as Specified in Charter)

California 0-33045 33-0056054(State or Other Jurisdiction of Incorporation ) (Commission File Number) (IRS Employer

Identification No.)

1935 Avenida del Oro , Suite FOceanside , CA 92056

(Address of principal executive offices) (Zip Code)

(760) 806-8922Registrant's telephone number, including area code

Not Applicable(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of theregistrant under any of the following provisions (see General Instruction A.2, below):

q Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

q Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

q Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

q Pre-commencement communications pursuant to Rule 13-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

E3h{ 17 94

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FormdAe 3: 05-cv-02335-JLS-CAB Document 147-18 Filed 06/11 /2007 Pagd f21f7

Item 1 . 02. Termination of Material Definitive Agreement.

In connection with the personnel actions described in Item 5.02(b) below, the Board of Directors of SeraCare Life Sciences,Inc. (the "Company") terminated, effective March 13, 2006, each of the following agreements:

• Employment Agreement, effective as of October 1, 2005, by and between the Company and Barry D. Plost (adescription of the terms and conditions of this agreement that are material to the Company is set forth in theCompany's Form 8-K as filed with the United States Securities and Exchange Commission ("SEC") onSeptember 26, 2005, which description is incorporated herein by reference);

• Employment Agreement, dated November 1, 2000, by and between SeraCare, Inc. and Michael F. Crowley II (asamended to date) (a description of the terms and conditions of this agreement that are material to the Company is setforth in (i) the Company's definitive proxy statement on Schedule 14A as filed with the SEC on January 10, 2005,and (ii) the Company's Form 8-K as filed with the SEC on September 26, 2005, which descriptions are incorporatedherein by reference);

• Consulting Agreement, dated August 19, 2004, by and between the Company and Burdick Management, Inc. (asamended to date) (a description of the terms and conditions of this agreement that are material to the Company is setforth in (i) the Company's definitive proxy statement on Schedule 14A as filed with the SEC on January 10, 2005,and (ii) the Company's Form 8-K as filed with the SEC on September 26, 2005, which descriptions are incorporatedherein by reference); and

• Offer Letter, dated April 20, 2005, from the Company to Craig A. Hooson (a description of the terms and conditionsof this agreement that are material to the Company is set forth in the Company's Form 8-K as filed with the SEC onMay 3, 2005, which description is incorporated herein by reference).

Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed InterimReview.

(a) The Audit Committee of the Board of Directors of the Company is continuing its previously announced internal review ofthe concerns raised by the Company's independent auditors. The Board of Directors of the Company, upon therecommendation of the Audit Committee, concluded on March 13, 2006 that the Company's previously issued financialstatements contained in its quarterly reports on Form 10-Q for the quarters ended December 31, 2004, March 31, 2005 andJune 30, 2005 should no longer be relied upon. While the internal review of the Audit Committee is not complete, theCompany expects to restate one or more of its financial statements for the first three quarters of fiscal 2005. The restatedfinancial statements will be filed as soon as practicable.

Also as a result of the internal review, the Company believes that there are material weaknesses in its internal control overfinancial reporting. The Company also retracts its previously issued guidance for fiscal 2005.

Although the Audit Committee has preliminarily reported the matters described above to the Company's auditors, MayerHoffman McCann P.C. ("MHM"), they have not yet been the subject of review by MHM. It is also possible that the AuditCommittee will, as a result of its continuing review, determine that previously issued financial statements for other periodsmay require corrections.

-2-

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Forme 3:05-cv-02335 -JLS-CAB Document 147-18 Filed 06/11 /2007 Page 4asf31of 7

Item 5.02. Departure of Directors or Principal Officers ; Election of Directors ; Appointment of Principal Officers.

(b) On March 13, 2006, in connection with the internal review, the Audit Committee of the Board of Directors of theCompany recommended to the Board of Directors certain personnel actions. The Board of Directors, acting upon suchrecommendations, took the following actions on March 13, 2006:

• Barry D. Plost's employment agreement with the Company was terminated, Mr. Plost's status as the Chairman ofthe Board of Directors of the Company was terminated and Mr. Plost was asked to resign from the Board ofDirectors of the Company;

• Michael F. Crowley, Jr.'s employment agreement with the Company was terminated, Mr. Crowley's status as thePresident and Chief Executive Officer of the Company was terminated and Mr. Crowley was asked to resign fromthe Board of Directors of the Company;

• Jerry L. Burdick's consulting agreement with the Company was terminated, Mr. Burdick' s status as the Secretary ofthe Company was terminated and Mr. Burdick was asked to resign from the Board of Directors of the Company; and

• Craig A. Hooson's employment agreement with the Company was terminated and Mr. Hooson's status as the ChiefFinancial Officer was terminated.

None of Messrs. Plost, Crowley and Burdick had tendered his resignation as a member of the Board of Directors as ofMarch 13, 2006.

(c) Thomas Lawlor (age 48), the current Chief Operating Officer of the Company has assumed the additional responsibilitiesof the President and Chief Executive Officer on an interim basis while the Board of Directors is conducting an internal andexternal search for a Chief Executive Officer as well as a Chief Financial Officer. An Executive Committee of the Board ofDirectors of the Company, chaired by Mr. Robert Cresci, has been appointed to oversee management of the Company duringthis interim period.

Mr. Lawlor was appointed as the Company's Chief Operating Officer on December 13, 2004. Prior to joining the Company,Mr. Lawlor worked for eighteen years at Haemonetics Corporation, most recently as Vice President of Blood Bank and FieldServices Operations. The Company is party to an Employment Agreement, dated December 13, 2004, with Mr. Lawlor. Adescription of the terms and conditions of this agreement that are material to the Company is set forth in the Company'sForm 8-K as filed with the SEC on December 13, 2004, which description is incorporated herein by reference.

Item 8.01. Other Events.

Pending the completion of the Audit Committee's review, the audit of the Company's financial statements for its fiscal yearended September 30, 2005 has not been completed and the Company's annual report on Form 10-K for its fiscal year endedSeptember 30, 2005 has not been filed with the SEC. As a result of this filing delinquency, the Company has previouslyreceived a Staff Determination Letter from The NASDAQ Stock Market, Inc. ("NASDAQ") citing this failure as a basis fordelisting the Company's securities from NASDAQ.

-3-

_. 9 6

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Fon"&Ae 3:05-cv-02335-JLS-CAB Document 147-18 Filed 06/11/2007 Pagd5 f419 7

In addition to this filing delinquency, the Company's quarterly report on Form 10-Q for the fiscal quarter endedDecember 31, 2005 has not been completed or filed. The Company's failure to file this quarterly report, which was due onFebruary 9, 2006, is viewed by NASDAQ as an additional violation of Marketplace Rule 4310(c)(14). As a result, onFebruary 13, 2006, the Company received an Additional Staff Determination Letter from NASDAQ indicating that theCompany's failure to timely file its quarterly report on Form 10-Q for the fiscal quarter ended December 31, 2005 serves asan additional basis for delisting the Company's securities from NASDAQ. The Company is continuing to work withNASDAQ to seek an exception to delisting, but has not received any assurances from NASDAQ that it will be granted anysuch exception. Because the Audit Committee review is still ongoing, the Company does not expect that it will be able to fileits Form 10-Q for its fiscal quarter ending March 31, 2006 on a timely basis, which failure will serve as an additional basisfor delisting the Company's securities from NASDAQ.

In connection with the matters raised by the Audit Committee's internal review, the Company and certain of the individualslisted in Item 5.02(b) have received grand jury subpoenas from the United States Attorney's Office for the Southern Districtof California requesting production of certain documents. The Company has also received a request from the SEC for avoluntary production of certain documents. The Company is cooperating fully with the requests of these agencies.

The Company and certain of its officers and directors have been named in a number of federal securities class action lawsuitsas well as federal and state derivative class action lawsuits. Each of these cases is in the early stages and the Companyexpects to vigorously defend itself in these actions.

Under the terms of the Company's subordinated note agreement with its subordinated lenders, the termination of Mr. Plostand Mr. Crowley without a replacement reasonably acceptable to the subordinated lenders within ninety days of suchtermination, will trigger an acceleration of the principal amount of the subordinated debt, along with a one percentprepayment penalty. As described in Item 5.02(c) above, the Board of Directors is engaged in a search for a new ChiefExecutive Officer, but cannot make any assurances that it will be successful in filling this position within ninety days or thatany such appointment will be reasonably acceptable to the subordinated lenders. If the subordinated debt is accelerated, suchaction will trigger an additional default under the Company's senior credit facility. In addition, as previously reported, theCompany's failure to timely file its periodic reports is a covenant violation under the Company's senior credit facility. TheCompany is engaged in discussions with the lenders under its senior credit facility with respect to these matters and expectsto seek a waiver of these covenant violations. There can be no assurances that the Company will be successful in obtaining awaiver of these or other covenant violations.

The principal amount outstanding of the Company's subordinated debt as of February 28, 2006 was $4.0 million. Theprincipal amount outstanding of the Company's senior credit facility as of February 28, 2006 was approximately $20.6million. The principal amount outstanding of the promissory note related to the Company's mortgage on its WestBridgewater facility was approximately $2.2 million.

-4-

97


Fon e 3:05-cv-02335 -JLS-CAB Document 147-18 Filed 06/11 /2007 Pagi P1@f 7

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits.

The exhibit to this Current Report on Form 8-K is listed in the Exhibit Index set forth elsewhere herein.

-5-

98http://www.sec.gov/Archives/ edgar/data/1156295/000119312506054384/d8k.htm 6/8/2007

Formdaybe 3:05-cv-02335-JLS-CAB Document 147-18 Filed 06/11/2007 Page',7g6f69Cf 7

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned hereunto duly authorized.

Dated: March 15, 2006 SERACARE LIFE SCIENCES, INC.

/s/ Tom Lawlor

Tom Lawlor,Chief Operating Officer

-6-

- I i 99

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Form&6 3: 05-cv-02335 -JLS-CAB Document 147-18 Filed 06/11 /2007 PageP896f71of 7

EXHIBIT INDEX

Exhibit No . Description

99.1 Press release dated March 15, 2006.

100


Press SdL^06AB Document 147-18 Filed 06/11 /2007 Pagd9g f11Of2

EX-99.1 2 dex991.htm PRESS RELEASE DATED MARCH 15, 2006Exhibit 99.1

SeraCare Provides Update of Audit Committee Internal Review

Oceanside, CA - March 15, 2006 -SeraCare Life Sciences, Inc. (NASDAQ - SRLSE, SRLS), today announced that, inconnection with the Audit Committee's previously announced internal review of the concerns raised by the Company'sindependent auditors, the Audit Committee has made certain recommendations to the Board of Directors of the Companybased upon its findings to date.

The Board of Directors of the Company, acting upon the recommendations of the Audit Committee, concluded that theCompany's previously issued financial statements contained in its quarterly reports on Form 10-Q for the quarters endedDecember 31, 2004, March 31, 2005 and June 30, 2005 should no longer be relied upon. While the internal review of theAudit Committee is still ongoing, the Company expects to restate one or more of the financial statements for the first threequarters of fiscal 2005. The restated financial statements will be filed as soon as practicable. Also as a result of the internalreview, the Company believes that there are material weaknesses in its internal control over financial reporting and hasretracted its previously issued guidance for fiscal 2005.

In addition and acting upon the recommendation of the Audit Committee, the Board of Directors terminated the Company'semployment/consulting agreements with Barry D. Plost, Chairman of the Board of Directors; Michael F. Crowley, Jr.,President and Chief Executive Officer; Jerry L. Burdick, Secretary; and Craig A. Hooson, Chief Financial Officer. Messrs.Plost, Crowley and Burdick have also been asked to resign from the Board of Directors of the Company.

Thomas Lawlor, the current Chief Operating Officer of the Company, has assumed the additional responsibilities of thePresident and Chief Executive Officer on an interim basis while the Board of Directors conducts an internal and externalsearch for a Chief Executive Officer, as well as for a Chief Financial Officer. An Executive Committee of the Board ofDirectors of the Company, chaired by Mr. Robert Cresci, has been appointed to oversee the management of the Companyduring this interim period.

As previously reported, the Company ' s failure to timely file its periodic reports is a covenant violation under the Company'ssenior credit facility. In addition , because the Audit Committee review is still ongoing, the Company does not expect that itwill be able to file its Form 10-Q for its fiscal quarter ending March 31, 2006 on a timely basis. The Company is engaged indiscussions with the lenders under its senior credit facility with respect to these matters and expects to seek a waiver of thesecovenant violations. There

_ 101

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PresUa s3.d 262 LJb dAg Document 147-18 Filed 06/11/2007 Page bf,fi62

can be no assurances that the Company will be successful in obtaining a waiver of these or other covenant violations.

About SeraCare Life Sciences

SeraCare Life Sciences Inc. is a manufacturer and provider of biological products and services to diagnostic, therapeutic,drug discovery, and research organizations. The Company's offerings include plasma-based therapeutic products, diagnosticproducts and reagents, cell culture products, specialty plasmas, in vitro stabilizers, and the SeraCare BioBank(TM), aproprietary database of medical information and associated blood, plasma, DNA and RNA samples. Headquartered inOceanside, CA, SeraCare conducts business throughout the world, and is traded on the NASDAQ national stock marketunder the symbol SRLSE. For additional information about SeraCare Life Sciences Inc., please visit the Company's web siteat www.seracare.com.

Safe Harbor Forward Looking Statements

Certain statements contained in this press release may be deemed to be forward looking statements under federal securitieslaws, and the Company intends that such forward looking statements be subject to the safe harbor created thereby. TheCompany cautions that these statements are qualified by important factors that could cause actual results to differ materiallyfrom those reflected by the forward looking statements. Information on factors that could affect the Company and itsfinancial results is included in the Company's report on Form 10-K for the year ended September 30, 2004 filed with theSecurities and Exchange Commission (SEC) as well as the Company's other public filings with the SEC. The Companyundertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information,future events or otherwise.

Contact:

The Trout GroupTim Ryan , [email protected]

Source: SeraCare Life Sciences, Inc.

102

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EXHIBIT 18

Case 3 : 05-cv-02335 -JLS-CAB Document 147-19 Filed 06/11 /2007 Page 2 of 8SERACARE LIFE SCIENCES INC - 8-K Filing Date: 12/14105

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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


FORM 8-K/A

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE


Date. of report (Date of earliest event reported) December 14, 2005

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

SERACARE LIFE SCIENCES, INC.

(Exact Name of Registrant as Specified in Charter)

California 0-33045 33-0056054(State or Other Jurisdiction of Incorporation) (Commission File Number) (IRS Employer

Identification No.)1935 Avenida del Oro, Suite F 92056

Oceanside, CA(Address of principal executive offices). (Zip

(760) 806-8922

Exhibit 18103

Page 3

Case 3 : 05-cv-02335 -JLS-CAB Document 147-19 Filed 06/11 /2007 Page 3 of 8.SERACARE LIFESCIENCESINC- 8-K Filing Date: 2114/05

Registrant's telephone number, including area code

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to

simultaneously satisfy the filing obligation of the registrant under any of the

following provisions ( see General Instruction A.2. below):

" Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a - 12 under the Exchange Act (17 CFR 240.14a-12)

"Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

" Pre-commencement communications pursuant to Rule 13e- 4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.-91 OTHER EVENTS.

On December 14, 2005, SeraCare Life Sciences, Inc. (the "Company").filed .a Form8-K to report that the Company was unable, without unreasonable effort and

sense, to file its annual report on Form 10-K for its fiscal year ended

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epteerru:er 30, 2005 within the prescribed time period , but that the Company

-netted to file its Form 10-K by December 29, 2005. On December 15, 2005, the

rnttn of the Company ' s audit committee received a letter from Mayer Hoffman

.:.; F.C. ("MHM "), the Company ' s independent auditors , in which MHM raised

or,__cErns with respect to the Company ' s financial statements , accounting

doc-unt ntation and the ability of MHM to rely-on representations of the

pary' s management . Specifically , the letter sets forth concerns by MHM with

to:

u certain of the company ' s revenue recognition accounting policies and practices,

u the accounting for and valuation of the Company ' s inventory,

u MHM's perception that certain board members were exerting undue influence on the

Company's financial reporting process and on the audit process, and

the timeliness, quality and completeness of the Company's implementation and testing of

its internal control over financial reporting.

The audit committee has reviewed this letter and has determined to conduct an

internal review of the concerns raised by MHM in the letter. The audit

committee has retained independent legal counsel and accountants to assist it

in this review. As the review is in its preliminary stages, the Company is

unable at this point to estimate when the audit of its financial statements for

fiscal 2005 will be completed or when the corresponding Form 10-K will be

filed. The Company expects to release its earnings for its fiscal fourth

quarter and year ended September 30, 2005 after the audit committee completes

its internal review and the Company's auditors complete their audit of the

Company's financial statements.

In contemplation of the delay in filing its Form 10-K, the Company:

1 has initiated discussions with'the lenders under its Credit Facility toobtain a waiver of the requirement that it provide the lenders with auditedfinancial statements within 90 days after the completion of its fiscal year,

105Page 3

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<,xs sent a notice to its transfer agent and the persons listed as selling

security holders under its Registration Statement on Form S-3 , alerting such

persons that the Company will not be able to timely file its Form 10-K and

that accordingly, sales may not be made under the Form S-3 until the Form

10-K has been filed, and

u expects to postpone its annual shareholders meeting, previously scheduled for February 9, 2006.

In addition, the Company understands that because the Company no longer expects

to file its Form 10-K by December 29, 2005, Nasdaq may, in accordance with its

rules, initiate delisting proceedings. In such event, an "E" will be appended

to the Company's trading symbol during the pendency of delisting proceedings.

The Company intends to work with Nasdaq to seek to maintain its status as a

Nasdaq National Market company.

A copy of a press release with respect to the matters set forth above is

attached hereto as Exhibit 99.1.

Item 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(c) Exhibits.

The exhibits to this Current Report are listed in the Exhibit Index set forth

:elsewhere herein.

-2-

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

106

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Case 3:05-cv-02335-JLS-CAB Document 147-19 Filed 06/11/2007 Page 6 of 8SERACARE LIFE SCIENCES INC - 8-K Filing Date : 12/14/05

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the

Registrant has duly caused this report to be signed on its behalf by the

undersigned hereunto duly authorized.

Dated: December 20, 2005 SERACARE LIFE SCIENCES, INC.

/s/ Craig A. Hooson

Craig A. Hooson,

Chief Financial Officer

-3-

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EXHIBIT INDEX

Exhibit No. Description

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

99.1 Press release dated December 20, 2005.

Exhibit 99.1

SeraCare Announces Internal Review by Audit Committee

Oceanside, Ca - December 20, 2005 -SeraCare Life Sciences, Inc. (NASDAQ -

SRLS), today announced that the chairman of the Company's audit committee has

received a letter from Mayer Hoffman McCann P.C. (MBM), the Company's

independent auditors, in which MHM raised concerns with respect to the

Company's financial statements, accounting documentation and the ability of MHM

to rely on representations of the Company's management. Specifically, the

letter. sets forth concerns by MHM with respect to:

u certain of the Company's revenue recognition accounting policies and practices,

n the accounting for and valuation of the Company's inventory,

it MHM's perception that certain board members were exerting undue influence on theCompany's financial reporting process and on the audit process, and

u the timeliness, quality and completeness of the Company's implementation and testing ofits internal control over financial reporting.

`The audit committee has reviewed this letter and has determined to conduct aninternal review of .the concerns raised by MHM.in the letter. The auditcommittee has retained independent legal counsel and accountants ' to assist itin this review. As the review is in its preliminary stages, the Company isunable at thispoint to estimate when the audit d€ its financial statements forfiscal 2005 will be completed or when the corresponding.Forh 10-K will befiled . The Company expects- to release its earnings for - its fiseal fourthquarter an year ended September 30, 2005 , after the audit . committee completesits internal review and the Company ' s auditors complete their audit of theCompany's financial statements.

In contemplation of the delay in filing its Form 10-K, the Company:

108

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s initiated discussions with the lenders under its Credit Facility to

obtain a waiver of the requirement that it provide the lenders with audited

financial, statements within 90 days after the completion of its fiscal year,

il has sent a notice to its transfer agent and the persons listed as selling

security holders under its Registration Statement on Form S-3, alerting such

persons that the Company will not be able to timely file its Form 10-K and

that accordingly, sales may not be made under the Form S-3 until the Form

20-K has been filed, and

i expects to postpone its annual shareholders meeting, previously scheduled for February 9, 2006.

In addition, the Company understands that because the Company no longer expects

to file its Form 10-K by December 29, 2005. Nasdaq may, in accordance with its

rules, initiate delisting proceedings. In such event, an "E• will be appended

to the Company's trading symbol during the pendency of delisting proceedings.

The Company intends to work with Nasdaq to seek to maintain its status as a

Nasdaq National Market company.

About SeraCare Life Sciences

SeraCare Life Sciences Inc. is a manufacturer and provider of biological

---,ducts and services to diagnostic , therapeutic , drug discovery , and research

`nizations . The company ' s offerings include plasma -based therapeutic

ucts , diagnostic products and reagents , cell culture products , specialty

.smas, in vitro stabilizers , and the SeraCare aiosank(TM), a proprietary

ltabase of medical information and associated blood , plasma, DNA and RNA

samples . Headquartered in Oceanside , CA, SeraCare conducts business throughout

the world , and is traded on the NASDAQ national stock market under the symbol

SRLS. ' For additional information about SeraCare Life Sciences Inc., please

visit the Company's web site at www.seracare.com.

Safe Harbor Forward Looking Statements

Certain statements contained in this press release may be deemed to be forward

looking statements under federal securities laws, and- the Company intends that

such forward looking statements be subject to the safe harbor created thereby.The Company cautions that these statements are qualified by important factors

that could cause actual results to differ materially from those reflected bythe forward looking statements. Information on factors that could affect theCompany and its financial results is included in- the Company's report on Form

10-K for the year ended September 30, 2004 filed with the Securities and

Exchange commission (SEC) as well as the company's other .public filings with

the SEC. The Company undertakes no obligation to publicly update or revise any

forward looking statements, whether as a result of new information, futureevents :or otherwise.

Contact:

.The trout 'Group

Tim Ryan, 212-477-9007x24

[email protected]

Source- SeraCare Life Sciences, Inc.

1.09Page 7


EXHIBIT 19


RACARE LIFE SCIENCES INC

Filing Type: 8-KDescription: A00Filing Date: 03/13/06

Ticker: SRLSCusip: 81747TState: CA

Country: USPrimary SIC: 2836

Primary Exchange: 0THBilling Cross Reference:

Date Printed: 05/30/07

Case 3 05c 02335-JLS-CAB Document 147-20 Filed 06/111200Olingc^.qirid9 f 10

Table of Contents

Tojump to section, click on hypertextedpage number

Filing Sections

1:.:iusL :.......... ......................................................................................................................................................1t_ .._._ ........................................................ ...............................................................................

...........................................................................................................................................1

<::;;.< _,_., ........,. ............................... .................................................................................................4

^%,^..<.k. .. ^..

.. .. ........................................................................... . 3

a txi bits. ........................................... I ....................................................................... ................ 6

6...... .......... ............................................................ ....................................................................

Exhibits

^,:> ........... . ........... .................. ...............................................................................................................

..:::......................................................................... ........................................................................6

illProvided by Thomson Financial

Case 3 : 05-cv-02335 -JLS-CAB Document 147-20 Filed 06/11/2007 Paq, 4 of 10SERACARE LIFE SCIENCES INC - 8-K Filing Date. 113106

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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


FORM 8-K/A

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE


Date of report (Date of earliest event reported): March 13, 2006

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

SERACARE LIFE SCIENCES, INC.

(Exact Name of Registrant as specified in Charter)

California 0-33045

(State or Other Jurisdiction of Incorporation) (Commission File Number)

1935 Avenida del Oro, Suite F Oceanside, CA 92056

(Address of principal executive offices) (zip Code)

(760) 806-8922

Registrant's telephone number, including area code

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

33-0056054

(IRS Employer

Identification No.)

112Page 1

Case 3 : 05-cv-02335-JLS-CAB Document 147-20 Filed 06/11/2007 Page 5 of 10SERACARE LIFE SCIENCES INC - 8-K Filing Date: 3/13/0

eck the appropriate box below if the Form 8-K filing is intended to

simultaneously satisfy the filing obligation of the registrant under any of the

following provisions (see General Instruction A.2. below):

It Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

" Soliciting material pursuant to Rule l4a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

On March 15, 2006, SeraCare Life Sciences, Inc. (the "Company") filed a current

Report on Form 8-K (the "Initial Current Report") with the Securities and

Exchange Commission (the "SEC") reporting, among other matters, that certain of

the Company's previously issued financial statements should no longer be relied

upon. This Current Report amends and restates the first paragraph of Item

4.02(a) of the Initial Current Report to clarify the nature of the issues that

have led to the conclusion that the previously issued financial statements

should no longer be relied upon. The remainder of the Initial Current Report

has not been modified.

Item 1.02. Termination of.Material Definitive Agreement.

In connection with the persorynel actions described in Item 5.02(b) below, the

Board of Directors of Sera-are Life Sciences, Inc. (the "Company") terminated,effective March 33, 2006, each of the following agreements:

u Employment Agreement, effective as of October 1,.2005, by and between theCompany and Barry D. Plost (a.description of the terms and conditions of this

113

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Case 3 : 05-cv-02335-JLS-CAB Document 147-20 Filed 06/11 /2007 Page 6 of 10SERACARE LIFE SCIENCES INC - 8-K Filing Date: /3/06

agreement that are material to the Company is set forth in the Company's Form

.'-K as filed with'the United States Securities and Exchange Commission

"SEC") on September 26, 2005, which description is incorporated herein by

reference);

u Employment Agreement, dated November 1, 2000, by and between SeraCare, Inc.

and Michael F. Crowley II (as amended to date) (a description of the terms

and conditions of this agreement that are material to the Company is set

forth in (i) the Company's definitive proxy statement on Schedule 14A as

filed with the SEC on January 10, 2005, and (ii) the company's Form 8-K as

filed with the SEC on September 26, 2005, which descriptions are incorporated

herein by reference);

u Consulting Agreement, dated August 19, 2004, by and between the Company and

Burdick Management, Inc. (as amended to date) (a description of the terms and

conditions of this agreement that are material to the Company is set forth in

(i) the Company's definitive proxy statement on Schedule 14A as filed with

the SEC on January 10, 2005, and (ii) the Company's Form 8-K as filed with

the SEC on September 26, 2005, which descriptions are incorporated herein by

reference); and

)Offer Letter, dated April 2.0, 2005, from the Company to Craig A. Hooson (a

, 'description of the terms and conditions of this agreement that are material

to the Company is set forth in the Company's.Form 8-K as filed with the SEC

on May 3, 2005, which description is incorporated herein by reference).

Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report

or Completed Interim Review.

(a) The Audit Committee of the Board of Directors of the Company is continuing

.its previously announced internal review of the concerns raised.by.the

Company's independent . auditors . The Board of Directors of the Company , upon the

recommendation of'.the Audit Committee , concluded on. March 13., 2006 that the

`.company's previously issued financial statements contained in its quarterly

reports on Form 10-0 for tYe.quarters ended December 31,._.2004, March 31, 2005and June 30E 2005 should no longer be relied upon . The Audit Committee =basedits recommendation primarily on its discovery , during the course of the,internal review, of inventory accounting and revenue recognition errors,including errors with respect to inventory reserves , inventory.valuation and.the.capitalization of overhead to inventory. While the internal review of. theAudit . Committee . is not complete, the Company . expects to restate one or more ofits € nancialstatements for the first three quarters of fiscal 2005. Therestated financial statements will be filed as soon as practicable.

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

Also as a result of the internal review, the Company believes that there are

114Page 3


SERACARE LIFE SCIENCES INC - 8-K

material weaknesses in its internal control over financial reporting. The

?any also retracts its previously issued guidance for fiscal 2005.

Although the Audit Committee has preliminarily reported the matters described

above to the Company's auditors, Mayer Hoffman McCann P.C. ("MHM"), they have

not yet been the subject of review by MHM. It is also possible that the Audit

Committee will, as a result of its continuing review, determine that previously

issued financial statements for other periods may require corrections.

Page 7 of 10Date: 03113106

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of

Principal officers.

(b) On March 13, 2006, in connection with the internal review, the Audit

Committee of the Board of Directors of the Company recommended to the Board of

Directors certain personnel actions. The Board of Directors, acting upon such

recommendations, took the following actions on March 13, 2006:

u Barry D. Plost's employment agreement with the Company was terminated, Mr.

Plost's status as the Chairman of the Board of Directors of the Company was

terminated and Mr. Plost was asked to resign from the Board of Directors of

the Company;

u Michael F. Crowley, Jr.'s employment agreement with the Company was

terminated, Mr. Crowley's status as the President and Chief Executive Officer

of the Company was terminated and Mr. Crowley was asked to resign from the

Board of Directors of the Company;

u Jerry L. Burdick's consulting agreement with the Company was terminated, Mr.

Burdick's status as the Secretary of the Company was terminated and Mr.

Burdick was asked to resign from the Board of Directors of the Company;. and

u Craig A..Hooson's employment agreement with the Company was terminated and Mr.Hoosrn's status as the Chief Financial officer was terminated.

None of Messrs. Plost., Crowley and Burdick had tendered his resignation as amember of the Board of Directors as of March 13, 2006.

-:) Thomas Lawlor (age 48),. the current Chief Operating Officer of the Companyas. assumed the additional responsibilities of the President and Chief

jExecutive Officer on an interim basis while the Board of Directors isconducting an internal and external search for a chief Executive Officer as

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well as a Chief Financial Officer. An Executive Committee of the Board of

=ctors of the Company, chaired by Mr. Robert Cresci, has been appointed to

rsee management of the Company during this interim period.

Mr. Lawlor was appointed as the Company's Chief Operating Officer on December

13, 2004. Prior to joining the Company, Mr. Lawlor worked for eighteen years at

Haemonetics Corporation, most recently as vice President of Blood Bank and

Field Services Operations. The company is party to an Employment Agreement,

dated December 13, 2004, with Mr. Lawlor. A description of the terms and

conditions of this agreement that are material to the Company is set forth in

the Company's Form 8-K as filed with the SEC on December 13, 2004, which

description is incorporated herein by reference.

Item 8.01. Other Events.

Pending the completion of the Audit Committee's review, the audit of the

Company's financial statements for its fiscal year ended September 30, 2005 has

not been completed and the Company's annual report on Form 10-K for its fiscal

year ended September 30, 2005 has not been filed with the SEC. As.a result of

this filing delinquency, the Company has previously received a Staff

Determination Letter from The NASDAQ Stock Market, Inc. ("NASDAQ") citing this

failure as a basis for delisting the Company's securities from NASDAQ.

addition to this filing delinquency, the Company's quarterly report on Form

_j-Qfor the fiscal quarter ended December 31, 2005 has not been completed or

filed. The Company's failure to file this quarterly report, which was due on

February 9, 2006, is viewed by NASDAQ as.an additional violation of Marketplace

Rule 4310(c)(14). As a result, on February 13, 2006, the Company received an

Additional Staff Determination Letter from NASDAQ indicating that the Company'sfailure to timely file its quarterly report on Form 10-Q for the fiscal quarterended December 31, 2005 serves as an additional basis for delisting theCompany's securities from NASDAQ. The company is continuing to work with NASDAQto seek an exception to delisting, but has not received any assurances fromNASDAQ that it will be granted any such exception. Because the Audit Committeereview is still ongoing, the Company does not expect that it will be able tofile its Form 10-Q for its fiscal quarter ending March 31, 2006 on a timelybasis, which failure will serve as an additional basis for delisting theCompany's securities from NASDAQ.

in connection with the matters raised by the Audit Committee's internal. review,the company and certain of the individuals listed in Item 5.02(b) have received,grand jury subpoenas from the United States Attorney's O fice.for the SouthernDistrict of California requesting production of certain documents. The Companyfiat also received a request from; theSEC for a voluntary:production of certaindocuments. The Company is cooperating fully with he requests of theseagencies.

The Company and certain of its officers and directors have been named in anumber of federal securities class action lawsuits as well as federal. and statederivative class action lawsuits.-Each of these cases is in the early stagesand the Company expects to vigorously defend itself in these actions.

;Under the terms of the Company's subordinated note agreement with itssubordinated lenders, the termination of Mr. Plost and Mr. Crowley without a

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Case 3:05-cv-02335 -JLS-CAB Document 147-20 Filed 06/11 /2007 Page 9 of 10SERACARE LIFE SCIENCES INC - 8-K Filing Date: 03/13/06

replacement reasonably acceptable to the subordinated lenders within ninety3 of such termination, will trigger an acceleration of the principal amount

the subordinated debt, along with a one percent prepayment penalty. Asascribed in item 5.02(c) above, the Board of Directors is engaged in a search

for a new Chief Executive officer, but cannot make any assurances that it will

be successful in filling this position within ninety days or that any such

appointment will be reasonably acceptable to the subordinated lenders. If the

subordinated debt is accelerated, such action will trigger an additional

default under the Company's senior credit facility. In addition, as previously

reported, the Company's failure to timely file its periodic reports is a

covenant violation under the Company's senior credit facility. The Company is

engaged in discussions with the lenders under its senior credit facility with

respect to these matters and expects to seek a waiver of these covenant

violations. There can be no assurances that the Company will be successful inobtaining a waiver of these or other covenant violations.

The principal amount outstanding of the Company's subordinated debt as of

February 28, 2006 was $4.0 million. The principal amount outstanding of the

Company's senior credit facility as of February 28, 2006 was approximately

$20.6 million. The principal amount outstanding of the promissory note related

to the Company's mortgage on its West Bridgewater facility was approximately

$2.2 million.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits.

The exhibit to this Current Report on Form 8-K is listed in the Exhibit Indexset forth elsewhere herein.

SIGNATURE

Pursuant to the requirements, of the Securities Exchange Act of 1934, theRegistrant has. duly caused this report to be. signed on its behalf by theundersigned hereunto duly authorized.

Dated: March 27; 2006 SFRACARE LIFE SCIENCES, INC./s/ Tom Lawlor

Tom Lawlor,Chief Operating Officer

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

EXHIBIT INDEX

117

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Exhibit No. Description

99.1* Press release dated March 15, 2006.

* Incorporated by reference to Exhibit 99.1 of the Form 8-K filed with the Securities and

Exchange Commission on March 15, 2006.

118Page 7


} EXHIBIT 20


From : Mike Crowley, Jr.

To: Jerry Burdick

CC:

BCC:

Sent Date : 2005-08-26 13:17:43.000 PST (GMT -08:00)

Received Date: 2005-08-26 13:17:43.000 PST (GMT -08:00)

Subject : FW: SG & A Expenses for Q3 and July

Attachments : SG&A cost centers Q3 & July.XLS.

-Original Message--From: Bill Kenealy - BBISent: Friday, August 26, 2005 12:42 PMTo: Mike Crowley, Jr.Cc: Craig Hooson - BBI; Tom Lawlor - BBISubject: SG & A Expenses for Q3 and July

Mike,

The attached Excel spreadsheet shows the account level detail ofSales and General and Administrative expenses . Each month is a spreadsheetTab.

The Department account level spending is higher than the netamount reported as SG&A on the financial statements because a credit isbooked to transfer the expense in Departments 400=Administration; 420-IT and430-HR to sales and Inventory based on the worksheet established in. Januarywith Jerry. The actual net General and Administrative expense for WestBridgewater is primarily Tom and. now Craig. These corporate officers and notpart of the expense 6tloeation to Saes and_Inventory.

SG&A activity for BM-R' on the books of West Bridgewater for the 4months ended July 2005 was-only 5,000 and I have not detailed those expensesdue to the lack of materiality-

Let me %know if you need any additional information.

Exhibit 20119

3onfidential Treatment Requested By SeraCare Life Sciences, Inc. - SRLSEMC046938


EXHIBIT 213


Kenealy, Bill 0

From: Kenealy, Bill

Sent: Friday, May 06, 2005 9:03 AM

To: Lawlor, Tom

Subject: FW: FY2005 Gross Margin IREN system report

E_;_

Tom,. I sent this to Jerry and wanted to discuss it with him before presenting it to you. Jerry and I finally had our

discussion yesterday and he stated he had already talked to you and Mike on this Issue and the need to raiseprice as a means to support the Gross Margin in 03 and 04.

I understand you may be at Oceanside next week. C12 and 03 profitability may be discussed and the needto establish and manage Gross Margin expectations is critical. The 02 conference call made numerousreferences to the reported Gross Profit/Margin without any comment on future reproducibility.

Call to discuss.

--=-Original Message--From: Kenealy, SiftSent. Tuesday, April 26, 2005.11:55 AMTo: [email protected]'Subject: FY2005 Gross Margin IREN system report ' ' .

Jerry,Attached are the Q1, 02 and FY2005 YTD Gross Profit Margin reports for West Bridgewater.

You will note that the total Product GPM % has remained reasonably constant:01 64.4% Revenue 3,376,2410264.0% 3,094.483FY2005YTD .64.2% 6,563,704

The reported Gross Margin has been correctly supported by the liquidation of Inventory reservesestablished at purchase.

The ability of West Bridgewater to continue to report product margins consistent with 01 and 021s to bedetermined by the relative impacts of two opposing product cost events.

Product Cost event 1: Inventory Reserves of $4,000,000 are pushed down to the lot level In Inventory.This having been accomplished, the ability to consume/sell these cost reduced Inventory assets will have afavorable Impact on Gross Margin

Product Cost event 2: In Mid 02, in order to absorb a restated inventory Overhead Cost Pool structure,the Overhead absorption rates were Increased 100%. Products purchased/ested/manufactured under thesehigher OH absorption rates will be carried in Inventory at a higher carrying cost. All other variables, price/mbc, thesome this will have an unfavorable impact on Gross Margin as these higher cost Inventory lots are consumed/sold..out of Inventory.

I would estimate, at best. a break even effect of these events. There Is a strong downside .risk that theImpact of unfavorable event 2 will be greater than the effect of event 1.

Prospective 03 GPM":

Revenue:. 4,000,000GPM 64%Gross Profit (Product) 2,560,000Other Costs:

. 5/6/2005

120

Confidential Treatment Requested BySeraCare Life Sciences, Inc.

SRLSEXX008847


Shipping Dept 150,000Scrap/inv Adj 100,000

Net Gross Profit 2 ,310,000Net GM • 57.75%

Please call so we can discuss this concept and the audit discussion it will drive.

0

005/6/2005

Confidential Treatment Requested BySeraCare Life Sciences, Inc.

121

SRLSEXX008848


EXHIBIT 22

SeraCare I ffe Sciences, IncProject . S,tatus Report SOX 40'4 ProjectAs of^ 12112/20.05 . .To be .emailed weekly to Jerry Burdick, Craig Hooson , Kai Loedel , Michael Crowley, Bob Cresci and Barry Plost of SeraCare Life Sciences,D:\ceruleanTmploff1ceTmp\[SeraCar e Audit Project Status Report #11 as of 12.12-0S.xlsjStatus Report

Maie r issues re-' li to be.addressed

1. See timeline updated with the dates. that requested information was received and what remains open from SeraCare to provide to MHM. See detal ed open items listing sent on a regular basisfor Itemized list of requested items not.yet received from. SLS. Additionally see separate open items list for inventory items remaining open for all Company locations. Excluding inventory, themajority of requested items for tfta FS a id)t have been received and are in progress. Certain completed sections are in the process of being reviewed, please note that additional informationrequests will-result from some of the infgimation now being processed.

X 2. Requests for information to test the valuation assertion of inventory have not been forthcoming in a timely manner, nor does the information provided thus far completely support the assertions

of management. These circumstances raise questions regarding the inventory balances at 9/30/05, as well as the controls in place surrounding the accounting for inventory. Refer to inventory

Cr only open items list for requested information not yet received, SLS provided information on most, but not all of the original requested price (cost) test selections. MHM Is evaluating the

iriformation provided. On Friday, December 9th we received information from SLS regarding obsolete/excess inventory and are currently evaluating what was provided.. Please see inventory only

PBC list for remaining hems forwhich support was not received. MHM examined the inventory open items listing and updated on 12/12/05.

3. It appears that some 2005 overhead: costs were capitalized into inventory using a method that dtsproportionably increased the cost basis of inventory that either existed prior to 2005 and/or

were the subject of relatively little of the work performed during 2005 and allocated too little expense to items processed and sold during 2005, thus potentially inflating the balance sheet and

overstating income by a materialamount. We have discussed our concerns with management and we are awaiting further information as requested on the inventory only open items list

distributed to,SLS. We continueto evaluate the scope and the materiality of the issue,

4. It appears that Jerry changed the , cost of an inventory item (DS-667 ) from $0 . 20 to $2 . 20 at year end 9/30/05. It appears that change , coupled with some errors in the physical quantities of DS

667 that mOagemenf Is still tty t gto conclude on , has caused inventory to be inflated by approximately $500,000 and income to be overstated by approximately the same amount. Discussions

with management have cdne(udOd and we.await a journal entry,. accompanied by the appropriate support, from management to correct inventory as of 9130105.

5. We are wgrkmg to;cbtah the proper documentation surrounding the $1,000,000 drop shipment sale from Instituto Grifols S.A, to Biovitrum AB on the last day of the year , Once we can

confirm thatthe revenue Is recognizable: under the guidance in SAS 104, we will need the Company to provide evidence of delivery in accordance with the terms. There are also a number ofother salesrCrded on 9/30/05 for which shipping documents from a third party that clearly show the goods were shipped out on 9/30/05 are lacking . We continue to follow up with Kai for this

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6. Initial testing of ttYe-oalculatiort supporting the Company's research and development credit commenced last week. We have requested but not yet received supporting documentation from theCompany to bomplBYe fhe remaining: audit procedures.

7. Management.revised its original memos related to FAS 131 and FAS 142. We have reviewed such memos and concur with the conclusions documented therein,

Serabare Audit PrrJedtS.tatus Report #11 as of 12-12-05.xls Status Report

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8', We have provided questions from cur valuation " speciallst to Jerry Burdick regarding ` the Company's goodwill impairment analysis as reflected in the Duff & Phelps report . We expect toperform audit procedures related to the assumptions underlying the goodwill Impairment analysis this week. We have not yet received responses to the questions posed by our valuationspecialist related the Company's finalization of the BBI purchase price allocation.

9. We met wiih management and a .representative of Jefferson Wells to discuss our comments related to the review of the Company's testing of entity wide controls . The company has agreedto consider certain of our suggestions to clarify the documentation and revise the approach related to the testing of entity wide controls, We expect to continue working with management tocomplete the testing of entity wide controls as soon as possible.

10. MHM prot!ides SLS Management with the open items.detail listing on regular basis. See most recent open items lists sent to SLS Management. Please note that going forward there arethree detailed:open itemfjs listings sent on a regular basis ; SOX 404. open items, FS audit open items and FS audit Inventory only open items list.

On.tare^ttonteet Auditors' Report & Consent delivery date of 12114/05?

annual 10K filingis. due;on December 14,.2005. This deadline, of course, will not be met, We remain committed to doing everything possible to be able to express an opinion on the financial atahdent"on the Company timely completing its FS closeand ICFR testing and reporting processes, As more and more Items were delivered late and remain undelivered the likelihood increased ttipsnys completing work by December 2:9, the extended due date given the number and scope of items still not provided by management and the pace at which some of the major issues that hayavaluate progress made thrqugh the engagement, We urge the Company to devote resources as necessary to complete its work prior to the extended due date of 12/29/05.

Scheduled 14Leetitrs

Weekly Monday Status Update.via Conference Call between MHM and Seracare Management

MHM and.SLS to discuss a meeting . to analyze the results of all SOX 404 testing performed,

SeraCare AuditProtect Status Report #11 as of 12.12 05.xls Status Report

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statements as well as managements assessment of its ICFR as soon as possible . Meeting this deadline wasI that an automatic extension would need to be utilized .' At this point we grow increasingly skeptical of thelave arisen are adds essed by management . We will continue to keep you informed of the status of the project and

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$ $ -800 $ 140,000 $ 140,000

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396 $ 112,860 $ 112,860263 $ 74,955 $ 74,955

1,445 $ 252,875 $ 252,875

734 $ 128,450 $ 128,450

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Invoice #42952-305ACn Invoice #43412-305A

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invoice #42868-3051C.

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Invoice # 43326- 305 IC

Invoice #.43334- 305 IC

Invoice # 43411- 305.IC

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Amount

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8/31/2005 $ 20,0009/19/2005 $ 12,0009/30/2005 $ 40,00010/7/2005 $ 40,000

10/18/2005 $ 28,00011/16/2005 $ 30,00011/21/2005 $ 45,00011/28/2005 $ 40,00012/2/2005 $ 40,000

$ 295,000

9/30/2005 $ 19,00010/7/2005 $ 40,000

10/19/2005 $ 40,00010/24/2005 $ 100,000

10/31/2005 $ 135,00011/7/2005 $ 100,000

11/16/2005 $ 75,000

SeraCare Audit Project Status Report #11 as of 12-12-05.xls Status Report

263 1,445 734 205 426


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As Trsrrshr of Asks

The sellermust, subject to the provisions of 85, bear all Asks of Loss of or damage to the goodsuntil such time as they have been delivered in accordance with A4.

Comments All incoterms are based on the same principle that the risk of loss of or damage to thegoods is transferred from the seller to the buyer when the seller has fulfilled his deliveryobligation according to A4.

All Incoterms, In conformity with the general principle of the 1980 CISG (Convention onContracts for the International Sale of Goods), connect the transfer of the risk with thedelivery of the goods and not with other cinnunstances, such as the passing of ownershipor the time of the conclusion of the contract. Neither Incoterms nor CISG deal withtransfer of title to the goods or other property rights with respect to the goods.

The passing of risk of loss of or damage to the goods concerns the risk of fortuitousevents (acciden(s) and does not include loss or damage caused by the seller or the buyer,for example through Inadequate packing or marking of the goods. Therefore, even ifdamage occurs subsequent to the transfer of the risk, the seller may still be responsibleif the damage could be attributed to the fact that the goods were not delivered inconformity with the contract (see Al and the comments to A9).

AS of all incoterms contain the phrase "subject to the provisions of W. This means thatthere are exceptions to the main rule In the circumstances described in B5 which mayresult in a premature passing of the risk because of the buyer's failure properly to fulfilhis obligations (see the comments to 85).

AS DIHNon of costs

The seller must, subject to the provisions of 86. pay all costa relating to the goods until suchtime as they have been delivered in accordance with A4.

Conmteats As is d>e case with the transfer of the risk of loss of or damage to the goods, all Inc otermsfollow the same rule, that the division of costs occurs at the delivery point. All marsoccurring before the seller has hMUed his obligation to deliver a=rftg to A4 are forhis account, while further costs are for the account of the buyer (see the comments to86). This rule is made subject to the provisions of g6, which indicates that the buyermay have to bear additional costs incurred by his failure to give appropriate notice tothe seller.

Since under EXW the sellers obligation is limited to placing the goods at the disposalof the buyer, all further costs have to be borne by the buyer once the goods have beenplaced at his disposal. The seller has no duty to bear any costs Incurred for exportclearance, since under 82 this is the buyer's obligation.

A7 Notice to the buyer

The seller mustglve the buyer sufficient notice as to when and where the goods will be piecedat his disposal.

em The seller must give the buyer sufficient notice as to when the goods will be availableat the agreed or chosen delivery point, so that the buyer can make preparations in timeto take delivery according to a theme is no stipulation in Incoterms spelling out theconsequences of the seller's failure to give such notice. But it follows from btootennsthat the seUer's failure constitutes a breads of contract. This means that the seller couldbe held responsible for such a breach, according to the law applicable to the contractof sale.

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AO Trondor of risks

The seller must, subject to the provisions of 85, bear all risks of loss of or damage to the goodsuntil such time as they have been delivered in accordance with A4.

Comments All Ineoterms are based on the same principle that the risk of loss of or damage to thegoods is transferred from the seller to the buyer when the seller has fulfilled his deliveryobligation according to A4,

All lncoterms, in conformity with the general principle of the 1980 CISG (Convention on ^ rContracts for the International Sale of Goods), connect the transfer of the risk with thedelivery of the goods and not with other circumstances, such as the passing of ownershipor the time of the conclusion of the contract "fvelt er litcdterms nor Cj$G deal witty'

hsfa of tll a to the goods or otitcr lirope ty;r#gha withrespetr to;.ti a goods.

The passing of risk of loss of or damage to the goods concerns the risk of fortuitousevents (accidents) and does not include loss or damage caused by the seller or the buyer,for example through inadequate packing or marking of the goods. Therefore, even Ifdamage occurs subsequent to the transfer of the rlslS the seller may still be responsibleIf the damage could be attributed to the faa that the goods were not delivered Inconformity with the contract (see Al and the comments to A9).

or the time of the conclusion of the contract. Veittransfer of title to the ^ oc s or other prop rights with "resp

IThe seller must. subject to the provisions of 86, pay all costs relating to the goods until suchtime as they have been delivered In accordance with M.

Comments As is the case with the transfer of the risk of loss of or damage to the goods, all Incotermsfollow the same rule, that the division of costs occurs at the delivery point. All coatsoccurring before the seller has fulfilled his obligation to deliver according to A4 are forhis account, while further costs are for the account of the buyer (see the comments toB6). This rule is made subject to the provisions of 136, which Indicates that the buyermay have to bear additional costs incurred by his failure to give appropriate notice tothe seller.

Since under EKW the sellers obligation is limited to placing the goods at the disposalof the buyer, all further costs have to be borne by the buyer once the goods have beenplaced at his disposal. The seller has no duty to bear any costs incurred for exportclearance, since under B2 this Is the buyer's obligation.

A7 tactic, to the buyer

The setter must gNe the buyer sufficient notice as to when and where the goods will be placedat his disposal,

CO'Ittlen>s The seller must give the buyer sufFclent notice as to when the goods will be availableat the agreed or chosen delivery point, so that the buyer can make preparations in timeto take delivery according to B4. There is no stipulation in Incoterms spelling out theconsequences of the seller's failure to give such notice. But it follows from Incotermsthat the sellers failure constitutes a breach of contract This means that the seller could •:be held responsible for such a breach, according to the law applicable to the contractof sale.

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'rorn: Nur Ferrer Diego fdlego.nunez®gsfois:coinj.ent: Thursday, September22, 200516 PM

To: Duane PinkertonCc: Shinji Wads; Martin Rodrigo Raquel; Vero Ouch Sussane; Buehdle Zamora teabeh SO .'

Mu ioZ Sandra; Saiz M JoseSubject: RE: Wyeth /8IoVttrurn

Dear Duane,

Please , find as follows the requested information:

Lot: IN+BSTK001....,.. 8'39 vials

Lot W+: B5TJ0'O1......,423 vial:Lot: rX%HSTJ00'2....... :411 vials

I will ask Grifols staff from 1'ogiatics department for you further help request for.shipmeht.

,Beat regards,

Diego NuSez

De: Duane PinkertonBLviado a1: jueves, 22 de septiembre de 2005 17:54

Para, atuEes Ferrer Diego

CC: Shinji Wade ; Martin Rodrigo Raquel; Varo Lluch SO'ssana ; Buendia Zamora Isabel; Barre

afio2 Sandra£ImtOt K9f

Dear Diego,

Thank you for the notice that the Wyeth / BioVitrum matefial is ready. Couldyou send me the lot-numbers and number of bottles associated with each lot? I will b'aitepacking lists and commercial invoices forwrded to, you for abippment. We need to ship thisproduct out by the end of this month; any help you could provide would be greatlyappreciated. can you met up this trucking for this product? Would you teoceeend a-'refrigerated truck (2-a C)7 1 look forward to hearing from you.

Duane Pinkerton

Director of Operations

SeraCare Life Sciences, Inc.

Phone 760 -806-8922

Pax 760-806-8933

B-snail, pinkertoneseracare'.corn

-----Original Message-----:oat Taffies Ferrer Diego (mailto:diego.auneaagrifole:com]ant: Thursday , September 22 , 2005 5:05 1,M

Toe Casey CookerCc: Shinji Wads'; Duane Pinkerton; Nellie8harp; Martin Rodrigo Raquel; warn Lluch Sure=w)Buendia Zamora Isabelt Sarre MtSoz Sandra

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'rom: 'Nunez Ferrer OIepo [diego.nunez@grth s.oom1ent Thursday, September 22,20051:26 PM

To: Duane PinkertonCc: ShinJi Wade; Martin Rodrigo Raquoi; Vero Uudh Sussane; Buendia Zamora Isabey Serro

Munoz Sandra; Satz M JoseSubject RE: Wyeth ( 9ioVltrum

Deer Duane,

Please, find, as follows the requested inforeation:

IAt, IAIBST1f0'0'1....... 839 vialsLose XAh1STJO01........ 423 vialsLot: IAAHS'r 002........411 vials

I will ask Grifols staff from logistics department for you further help request fo'rshipment.

y, Y

Diego Autiea .:''r•',Y ' '^5,^ r^ 9^ t4 ^' :9a

De: Duane Pinkerton (mailto inkartcneseracare.cam]Eavia'do el, juevee, •:yle^=edpC!'emtire ^Sm T S1:17t54Pains Nudes Ferrer DiegoCC: Shinji Wade; Martin Rodrigo Raquel; Varo Lluch Bussana; Buendia Zamora Isabel; 9artoinns Sandra

ti .. •y ^1s'tct':€d.:ndtdce :Ei L" G$it::•-t7ye adjr:.th.:j .8181xiC=oia ik'atiiiM:IrI'^'1:A•,:sa"' i• Couldyou mend me the lot numbers and number of bottles aeeoaiated with each lot? I grill bavopacking lists and commercial invoices forwarded to you for abippment. We need to ship thisproduct out by the and of this month; any help ycu could provide would be greatlyappreciated. O. is ; our a b4t... acktdf 41F ai it.ly^od0ict.4: Wm014 yea Ire Thh4 .^

amudk,t3Y94C^1:?' 'Y:X.S§k.: Ebirti:iz-aoir3iig -41 dao-. you::

Phone 760-806-8922

Fax 760-806-8933

B-mail : pinkertoneaeracare.con

-----Original Message-----Mm: Nudes Ferrer Diego [mailto:diegb.nunazegrifols.com]hate Tburaday, September 22, 2005 5:05 AM

To: Casey CookeCc, Shinji Wade; Duane Pinkerton; Nellie Sharp, Martin Rodrigo Raquel; Vero Much SussarA;Buendia senora Isabel; Sarro MuSoz Sandra

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Page 16f 13

Casey Cooke

From: Nellie Sharp

Sent:- Friday, Septetnber23, 2005 3:26 PM

To: 'Mattln Rodrigo Raquel; Duane Pinkerton

Cc: Nuffez Ferrer Diego; Carreras Cturahs Jautne; SalzJtmenez Maria Jose; Casey Cooke

Subject; RE Wyeth /B1oVittum

Dear Ra'Quel,

I reviewed all of Our paperwork for this shipment and realized that when BloVItrum asked us t0 have the tt terlel Shippedto Fresenius Kebl AB we did not update the Purchase Order we issued to Gr fots; the upilatedp'urdtase 64011s;attached, I have contacted BloVitrumto get the 1Mormalion for that forwarding agent and will-revise the cwnltfle :leiInvole6 orke this Information Is available.

Aft, In discussions with Duane Pinkerton we would very much like this materiel shipped Na truck to Sweden. Pweseooordin'ate the logistics With him. I do understand that this . cannot. be completed until we•have sub' t tted thb fwordthgagent information and I will send that as soon as possible.

Best,Nellie Sharp

---Orlghfal Message--From: Martin Rodrigo Rarrued(matitb:raquel.rtiartln(rgdfols.oxnjSent: Friday, September 23, 2005 4:21 AMTo. Duane PlnkettonCG Nellie Sharp; Nun¢ Ferrer Diego; Carnerss Oumns 3eume; Satz Jimenez Maria 3o56Subjeeo RV: Wyeth / BloVttnim

Dear Duane,

I contact you just to clarify some points we need to proceed with the shipment of the product

1: Lost June wetecetved your P.O.# 0006790 (that you can find attached) Indicating,• Ship the product to: BioNarum AB /Sweden• Ship via:OROPSHIP

Incotenns: F.O.B. OriginAs per the attached documents (Invoice .+ Packing list) that you have just send us, we can see that:

The product should be shipped to. Fresenhu Kabi AB I Sweden• Consignee: Blovttrum AS / Sweden

tncoterma: FOB OriginWe would appreciate if you could contirm where and who we have to ship this, product.

2.-Since the Incoterms are FOB Barcelona, we need you indicate the forwarder agent in order we ceh coftectwith them to organim the shipment. Please, note that DROPSHIP (as Indicated in your P.O.) doeshl attstinSpain.We need the name of de agency, telephone numberend contact person.

3.. Finally, and a'n'swering to your request, we can inform you that this kind of product fives previously eetlt'tb yourcustomer In the USA by air.Temperature lhdfcated Is: From +2 ^C to +25'CWe don't work with Sweden as usual and therefore we should also organize this shlprnent as a new one. Wecould suggest to serif It by air as you normallydo with the customer In the US.We will follow your h:sWctions as per your best convenience.

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Casey Cooke

From. Nellie Sharp

Sent: Friday, September 23, 2005 3:26 PM

To, 'Martin Rodrigo Raquel'; Duane . Pinkerton

Cc: Nurte2 Farrar Diego; Cameras Ciurans Jaume; Satz Jimenez Maria Jose ; Casey Cooke

Subject: RE: Wyeth / BIoVRrum

Dear Raquel,

I revl wed all of oui roro for

« .:J ....^::ww:e. 'it.i.':,tai,t4E-, r sa• is Qfr ^f^rfe e^+S kYA1 AX/ I?fr7. 1F l: tt 'k1 t\^R' els m e ^ 1'

uo,=h ldlsa;satoYta 't .t iarie l?iiik #Q^l ! !71 ! ! . ^ h l ^pf4' ;4tt : ti l4,8iyekllkl; Plowscoordinate the fogtstjes with him." do unddratand that this cannot be completed' until we-have aubirieted tha fotvra ti ngagent lntonnadon and I will send that as soon as possible,

Best,Nellie Sharp

---Origina l message--From. Martin Rodrigo Raquel (mblltn:raquel . rttattin^grifots.mnlSena Friday, September 23, 2005 4:21 AMTo. Duane PinkertonCc Nellie Sharp; Nuflec Ferrer Diego; Carreras Clurans Jaume; Satz.Jmenez MariOJoseSubjects RV: Wyeth I elovrovm

beer Duane,

I contact you just to clarify some points we need to proceed with the shipment of the product.

1,. Last June we received your P.O.# 0006790 (that you can find attached) Indlcatlhg:• Ship the product to: BlovUtum AS !Sweden• Ship via: DROP-SHIP• Incoterrris : F.O.B. Origin

As per the attached documents (Invoice •+ Packing list) that you have just send us , we can see that• The product should be shipped to: Freaenius Kebi AB / Sweden• Consignee : Biovttn m AS I Sweden• Incotemm: FO8 Origin

We would appreciate It you could confirm Where and who we have to ship tho product

2.• Since the incoterms are FOB Barcelona we need you indicate the forwardera g'rk'In order we:ean' ": "

^ s glWe don't work with Sweden as usual and therefore we should also or anizea ^^y rp}! x Y J,k. ,^ a U 61'i 1' IHI Si ^H i

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From: (bsey Ccoke [sroIft C'ooke@Se nCsre oom)Senb den 24 sepbember 260514:52To: Wikn ConnyCc CaseyCookeSubfect: Grffnls Human Serum Albumin SWpments

Good morning.

1 am Contacting you regarding the fotwatding agent you would prefer we use for shipment of your P0#216939.. b tfce;htpmeut. y4p :bqui t but need the folowing lzfdnti fiou (tornYpfi't^tiit$YSEga:hweE erfthi~f!'b'Ode'^}n;l!!'oVeYC'bt^u,°_`;1'tavq;.

you as soon as pores le:

I am contacting you regarding the forwarding agent you would prefer we use for shipment of your I

y "' uv a but reed the fo11

Maw saw Mu oawma

Also. pleuere *w the e-mail below oriyiaally teat to you wbileyou were ow cn vas 1 Ou. l svlll need yooto fa thFsepwchse orders for the next 6 months of product and tspdite your 12 month rolling to ^'ttghteway ae we do not 'have ansafety stock on hand as we do nothave thereq d cd ordre for it and we need toplan WO Idadvlnea to delh* tbeee oxdecaon time.

Bank you Coany.

Cray Cooke

Vice President ofSales , SerCare HioProeestmg

&Mcam Life ScI es, Inc.

Cooks®aeeacare.nct

Offi4e- 760.506.8922403

Mobile-760-310-$770

Fuc•760.806.8933

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from: Nunez Ferrer Diego (dlego. n [email protected] Monday, October 03, 2005 4:43 AMTo. Duane PinkertonCc: Martin Rodrigo Raquel; Sarro Murloz Sandra; Satz Jimenez Maria Jose; Casey CookeSubject. RE: Fresenlus AS

M*Wyem/87oVirum

Dear Duane,

Please, be informed that your attached document can not be signed byus.. The document isIncluding reference numbers from SeraCare (product and orders) that are. unknown for'arifola and further,.stated shipping date of September 30th in not right.

we can confirm that the Packing List. is referring to the right product description,quantities and lot'nuaebera as per my attached mail from September 22nd. As per Raquel•s

mail from last Friday, and since at least Monday 26th, specific Biovitrum/Wyeth.albumin inready for shipping. This. means , that Fresenious-Sabi shipping agent',.- which we believe to :be Geobogistics, shall.contact Grifols logistics department as to agree on the shipping. a°ha per former mails, our logistics department has contacted Geoi:ogistice, but these-do nothave any information from Freeenius-Kabi. we need the right agent to: contact our logictice:department as to know what transportation system is going to be used: truck or air fright.'as to preparg the 'pallets accordingly. Further, we have to be advised of picking dat., am .to arrange and pass the mandatory pharmacy inspection that has to be applied for any:exportation of human' derivatives. This last issue does take one day.

lease, inform the final customer of Grifols having the product ready. 6rifols logisticsdepartment will be waiting for the.above mentioned information.

Hest regards,

Diego NunezGrifola InternationalEuropean Business DevelopmentDirector

-----Medsaje . original-----Do: Duane Pinkerton (ailto:pinkertoneaeracare . com) 6nviado el: viernes ,.30 de aeptiembrede 2005 19:03pars : Martin-Rodrigo RaquelAsunto , PW, Freseniue AS

Raquel,Thank you for the clarification. would you please print out the form that is

attached, sign it and fax it'.back to me at 760 - 806-8933. This will inform. Bresenius AS of.the Lot numbers with volumes and assure them' that the material. is ready to be picked up.

Duane PinkertonDirector of OperationsSeraCare Life Sciences, Inc.Phone 760-806-8922Fax 760-806-8933

mail: pinkertoneseracare.com


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'From: Nunez Ferrer Diego (dfego.nunez@grifolscomjbent Monday, October 03, 2005 4:43 AMTo: Duane PinkertonCc: Martin Rodrigo Raquel; Sarro MuI oz Sandra; Satz Jimenez Marta Jose; Casey CookeSubject RE: Fresenius AS .

Please be ldftioFcied tbat..yqur attachad dooumeut dais not 1 signed by,:us , The document isincluding 7e once nriintiers frohl9ara&ie ' (pz&Yvet aid oidera) that are, unknown tor6rtfola and 'further , .stated shipping date of September 30th is not right.

We can confirm that the Packing List is referring to the right product description,' quantities and lot: numbers as per my attached mail-from September 22nd . As per sequel •amail from last Friday, and since at least Monday 26th, specific BiovitrusiJWyeth . albumin is,ready for chipping . This. means , that Fresenioue -Rabi shipping agent,. which we believe to ,:be Geologietiee , ehall .coatact Grifola logistics department as to agree on the shipping. •4As per former mails, our logistics department has contacted GeoLogistice , but theee.do nothave any information from Freoenius -lrabi. We need the right agdat to: contact our logictica:department as to know *hat transportation system is going to be used; truck or air fright,,.as to prepare the-pallets accordingly . Further , we have to be advised of picking data, asto arrange and pass the mandatory pharmacy inspection that has to be applied for any'.exportation of human - derivatives . This last issue does take one day.

, Tease , inform the final customer of Grifols having the product ready . Grifols logisticsdepartment vii-11 be waiting for the. above mentioned information.

Beat regards,

Diego NudesGrifols internationalEuropean Business Development

Thank. you for the clarification. Wou c you please print out the form thatisatta Yree ^ sign it and fajt': it back to. me at 760.805=,8933.. This

Will3ia^toFresenius ALB of

the Lot' numbers with volumes acid assure- them that 'the, material', its ready to be picket up.

Aannto , FW, Freseniua AB

Raquel,

Thank you for the clarification wools you,pYeaoe pr.1aC out the Form that, X..attach'ed sign it"and fax it.hack to ee.at 76Q: B0'6 aa33, This will inform P ea4nipi ARof..the lot:numbere with voliim s and assure them that the material, is ready to be picked up.

Duane PinkertonDirector of OperationsSeracare Life Sciences,. Inc.Phone 760-806,-8922

GFax 760-806-8933mail : pinkerton®seracare.com

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b. How does a party ensure that the other party has met that standant of cendud?C. ftm party must =WY Imt h regdo z tosses and govenane Imposed ronnatoes?

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From Casey CookeSent Tuesday, October 0,4,2005 16:13 AMTo: 'Conny.Wien@bb lbijm.com'Co: CaseyCookeSubmit P04216936

oodN;kntvdf (a9

Dear sonny,

The above listed BO is ready for pickup and I wanted to alert you- so you can c mimai'estayour request for pickup with your agents . Ne are about 30 days ahead of schedule, anplease let as know if you would like me to extend terms as a courtesy to 30 days beyondthe date you pick up the product.

Please see the attached letter with the specific infotmation.

Also, I still have not received purchase orders for the next 6 roodths and the updated 12eaoath rolling forecast as per the terms of our agreement , please mend them ASAP so pie cancontinue to delivery the product on time.

Thank you very much for your continued business.

Beat Regards;

Casey Cooke

Vice President of BioProcessing, Beracare Life Sciences, Inc.

Cookeaseraoare -net

Office- 760-806-8922x303

Mobile-76'0-310-5770

FaX-76O-806-8933

L66king for a reliable source for recombinant human In'eulin2 9eraCate Life Sciences nowoffers high quality rhinaulin structurally identical to RSO standard and free'Of anyresidual animal components . Please contact we directly for more inforastionon thisexciting new product from 8eradare Life Sciences.

-----original Message-----Promi seracareeseraeare . con (eailto , soraeareseeraoare.coolSent: NoneTo: Casey cooks.AjbieOt-.

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From : Casey CookeSent Tuesday, October 04, 200510:13 AM

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The .ab•(.ue:.3 ^; s t'ec't P4' • mss'. to'. ,^•^^; .. ,^ ^ ^ .. ^ `^ ^ ^' „tk i,... .v. ^.: .; .. ... 51 '. I

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: picku ' : 3+ yot:a e i :. tsario io da' sahebY!auC; s!^9RYt;^^?Y pickulsy>^'!.li. êehzr^ ^^t^ `g^':,Aîi4••

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th'e. date lyou p i '':up,,.Etia' product.

P,2ease 8:ree.attsched ":Setter :with .:t3espCcitie 'ti`S CZfna 'Cn.

Also, 1 still have not received purchase orders for the next 6 months and theupdated'12

Best Regards;

Casey Cooke

Vice President of Bi6Processing, seracare Life Sciences, Inc.

Cookemeeracare.net

office- 760-806-8922x303

Mobile-760-310-5770

FaX-760-806=8933

Looking for a reliable source for recombinant human Insulin? sera'Care Life.9ciences Od

offers high quality rhInsuliti structurally identical to M standard and fret of any

residual animal couponentC. Please contact me directly for more infoitaation on thisexciting now product from 8eraeere Life Sciences.

-----Original Message-----Froms aeracare®seracare.eom (mailto:seracareeseracare. corm

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LLGot This already; ft will fly to Zurich on November 15th and to Stockholm on the 16th.

Regards,

Diego NuRez

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Enviado eE: viernes, 11 de noviembre de 2005 9:35Para : 'Casey Cooke'Asunto: RE: Grifols Human Serum Albumin Shipments

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Diego NuPSez

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13131 DiagnosticsA Division of SeraCare life Sciences375 West StreetWest Bridgewater, MA 02379

ti To Whom It May Concern.OO Thin letter is to vecify, per Ruche's Purchase Order No. 7950222246/P61, the purebave of the following products as

N indicated in the P0.HIV Panels HCV Panels HBV PanNs

24 panels of each 24 panels of each Z4 panels of each

PR3957.1 . 0 PHV901-1 . 0 PII1,1910-1,5

CO PR0958 -1.0 P15V917.1.0 PHM917-1.5

C PR0937-1.0 PHV920 • t.0 t'HM920-1.5

PR0941.1.0 PHV912 . 1.0 PHM925-1.5

1111a942.1.0 PHV918.1.0 i•l•IM926-1.5PR0943.1 . 0 F1.1119011-11 . 0 1-HM928.I.5

1'138950-c.0 PHV910.1 . 0 111-11,4929. 1.5

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PR0931 -1.0 PHV907-1 , 0 PIIM935A•1.5^F .r.ry „ Aar Mnr a a ^e

'fine material listed and as reflected on PO No. 7950222246IP6I will be invoiced at a total price of $454 ,080.011 LISt).

This includes product and storage. Shipping and handling fees are additional,

We request that BDI Diagnostics hold Ulese produces at their facility due to lack of starago space at the Rudsr

C Diagnostics facility. We ask that B81 drop ship these panels upon Roche's request to the designated facility , These

Q) shipmates are to occur January 1, 200S through December 31, 2006 . If ponela remain in storage at BBI Diagnoslika

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provided

Q It is hereby agreed that Roche Diugnostic& owns the Product detailed heroin end obtains title at the time of invoice and

Q thereafter, but said Product shall be stored by 88) Diagnostics, A Division of SeraCarc Life Sciences, until the time of

shipment. Roche Diagnostics acknowledges that The price charged includes storage fees and insurance costs related to

to s and damage while maintained on 901 Diagnostics premise and prior to shipment.

CO We understand that our normal payment terms of Net 30 days still apply and that the fact you arc holding these ixoduetsQ on our behalf does not affect our commitment to accept and pay for these products.

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6131 DiagnosticsA Division of ScraCare375 West StreetWest Bridgewater, MA 02379

To Wham It May Concern,

This letter is to verify, per Ruche's Purchase Order No. 7950222246/P61, the purchase ol'the following products as

indicated in the P0.HIV Panels HCV Panels HBV Panels

24 panels of each 24 panels of euh 24 panels of ouchPRB957-1.0 PHV9011•1.0 PHM910.1.5 -PR0958 -1.0 P14V917.1.0 PHM917.1.5PRB937-1.0 PHV920-1.0 t'H M920-1.5PRO941.1.0 P54V912.1.11 PHM925-1.5t'58942.1.0 Pt-IV958.1.0 I'1•1M926.1.5

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'the material lisped mad as reflected on PO No. 79502222461'61 will be invoiced at o total price ofsoA;os0:O1k 1l 0);;

This includes product and storage. Shipping and handling teen are additional.

n seh{urRt,tk at 13U1 Diagnoatica boli]'tli a product -ut thdr fRerfi.ty doe to, lagk of atortl .oupaee dt A.Rochet)i gnusi^ca,4c.4tlty We ash that BBl drop ship these panels upon Roches request to the designated facility. Thornshipments are to occur January 1, 2005 through December 31, 2006 , If penels remain in stomge at BB! Diagnosticsfacility beyond the December 31, 2006, a now storage contract will be negotiated and anew Purchase.Order will hepruvidcd

y We ask that BBC drop ship these panels upon Roche's

on our behalf does rot affect our commitment to accept and pay for these products.

to the designated facility. The

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Roche Diagnostics Title Date

Seel a O1.9nas io On,lH IWdre t+Lnccido Oinanwtlee Site der Ceset, nisit neusalisttnurx.0Work PSiYbM. Mwnh I,i, 0, JAryen 5r.bwwam. Vurn,a BierW.--d 7 14aMnraurlNn MannhdM 0, "Wnta tin r, 3rn0nu r1.O.01177 Paabor0 HRB 3952 pt, Mere t 6mindi •Total" H9. ttuti•4aa Aut.nditeral , Oc Valk", gN11en.taMna et. nsa0 a0lann a, rrnu 8. K.W. M-ItIoakr On Mhos d. P.jw.

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Confidential Treatment Requested By SeraCare Life Sciences, Inc. SRLSEXX000127.

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Kenealy, Bill

From Rubetla2000Gaol.com

Sant: Tuesday, February 08 , 2005 11:46 AM

To., tlawterOserecare . corn: CrowleyJR®SeraCare .cotn [email protected]: BKenealyabb8.com

Cc: VMaeKeenabbri.eom

Subject : Roche Order, Credit

Mello:

Just got off the phone with Roche Germany and corporate accounting at Roche has rejected the contract weset up for the bill and hold of the panels and that is why we have not been paid. I

They can only set up this deal as a pUrehase order with call off dates. We need to Issue a credit for the salethat happened In December and they will reissue anew purchase order that contains call oft ship dates overthe next 8 months by 9130105.

They are stilt taking all the material but will only do according to these condition. We still gat the revenue inthis year, but we are going to have to take a hit this quarter on the sale. (11

Mark S . FerreiraSeraCare L1fe SciencesVice President, Diagnostic SalesP-508.984-5881F.508.084.5881

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From Rubeta2000 eol.com

Sent: Tuesday, February 08, 2006 11:48 AM.

To: bawtorQseracare.com; C [email protected]; kquinlari@bbiLcom; SKeneailyabbli.com

Cc: VMacKeen biLCOm

the Germany and corporate accounting at Ri1c has reject tl< < ercact3'a

I

;panels n s C a ;is wt y We tiav ' ,AaJ

Jutst got offff the phone with. Roche Germany andcaprpomorstte aocaciWtiny ei a`^ ., t4atfi'a^i.^tefectBGlhti'.c6n4'act vim'

aet gotthe

T:fh heGefa andthat s..acco -u.r ed p8 tl,:

They can only setup this deal as a purchase order with cal off dates. We need to issue a credit ford salethat happened In December and they will reissue a new purdhase order that contains cell off ship dates'dverthe next 6 rnonths by 9(30/05.

pisiyeare^rQcd{iHlftsldi+Q„pl6tttie:ri+rlteAn4.6^'t<wtsogf^rd.4 ats, ji1j'g:iR°:Il^gejtC'ettifdise'r 'e^tfNlf;pd'8'sq;i!t1YeYt'e4th't1i btIt'wEate::Qo$ig;9i havd:to takea'h1 tttis:ptt^rti ati' rats:,.,.:.. ,.: ; , :; " `

Mark'S. FerreiraSeraCare Ufe SciencesVice President Diagnostic SalesP•508-9845881

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Kanealy, Bill

From; Kenealy, Bill

Sent: Tuesday , February 08, 2005 12:22 PM

To: 'Jerry Burdick; Crowley, Jr„ WOW

Cc: Minton , Kevin: Lawlor. Tom

Subject: ROCHE Bill and Hold December2l, 2004

Gentlemen.Mark has committed to issuing a credll for $454,080.00 , This amounts to over 10'% of the ' revenue

reported by 881-Ox In 01 FY2005. The Grose profit effect was $328 ,808 or 72%. These are not Ihetgntttdantnumbers and may warrant a discuaslon on timing of release of this Information.

Please advise on 01 and C2 presentation,

Attached are:

Invoice 128117 page 5 of 5Roche duty executed Bill and Hold Agreement881-Ox Gross Profit Margin reportMark Ferreira E.Mall announcing the Credit Memo arrangement

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Invoice 128117 page 5 of $Roche. duty executed BHl end Hold AgreementBBI•Ox Gri Profit Marpin reportMath Perreka E-Mail anrauneing the Cret9t Memo anangemetlt

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Kenealy. Bill

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From : Mike [mlcha'elorowleytdnob1&ekbeny.net3Sent Tuesday, February 09 , 200512A8 PMTo: Kevin W. Ouin!an: Mirk Fareirs -AOLcom; Tom Lawlor - 13131; Mike Crowley, W8 em E.

KenealyCc: Ginty MacKeen • 081Subject: Re: Rothe Order. Credit

They will honor the contract. It will not change. If payment terms change so be it but Iwill approve.

Mike----=Original Message-----From: Kevin Quinlan - 88I <kquinlan$bbii.com>Oate: Tue, 8 Feb 2005 12:08:24To:"Mark Ferreira - AOL.com" <rubeIIa20008aol.com>, Tom Lawlor - 881<tlawl6r8seracare,com>, "Mike Crowley, Jr." <CrewleyJRBSeraCare.com>, BillKenealy - Bel <bkenealyibbii.com>Cc:Ginny MacKeen - BBI <vaackeenibbii.com>Subject: RE: Roche Order, Credit

Mark,

This is unbelievable! I have never heard of a large, sophisticated customer coming backone-and-i-half months down the road and changing a contract like this, It is a standardBill and Hold arrangement used many times with Roche US. My understanding was that theyneeded to spend the money in calendar 2004.

Is part of the issue that the person who signed for Roche on 12/21/2004 wasn't authorized!with our earnings announcement due out tomorrow, the timing couldn't be worse.

Kevin

-----Original Message-----Fr om: [email protected] (mail to:Rubella2000itaol.com)Sent: Tuesday, February 08, 2005 11:46 AMTo: clawlor@seracare .com; CrowleyJRSSeraCare.coe; kquinlan6bbii. coin; BKenealyebbii.comCc: VMacKeenitbbii.comSubject: Roche Order, Credit

Hello:

I just got off the phone with Roche Germany and corporate accounting at Roche has rejectedthe contract we set up for the bill and hold of the panels and that is why we have notbeen paid.

They can only set up this deal as a purchase order with call off dates. We need to issuea credit for the sale that happened in December and they will reissue a new purchase orderthat contains call off ship dates over the next 6 months by 9/30/05.

They are still taking all the material, but will only do according to these conditions.We still get the revenue in this year; but we are going to have to take a hit this quarteron the sale.

Mark S. FerreiraSeraCare Life SciencesVice President, Diagnostic SalesP-508-984-5981F-508-984-5861

1

Confide, itiat Treatment Requested BV SeraCare Life Sciences, Inc.

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Kenealy , Bill ^...I'

From: Mike tmk aelcrowley6trno.blackbeny.nat3Sent Tuesday, February 08, 2005 1248 PMTo: Kevin W. Oulnlon; Mark Fene&a -AOLoom; Tom Lawlor - 891; Mike drowley, WRiam E.

Kaneety,Cc: Ginffy MacKeen - BENSubject : Re: Roche Order, Credk }

They will honorthe contiacec...Tt!:wi12 n'd'p;;o atigs.;; Tf paymaht terms.chahge: a O'tie,•it;flas•: :will . approv 'a. .. .. .° • . . .

Mike

-----ori g inal Message -----

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a MWOMMInny ac een hb^L vmac e 'en u,com> ... ....ub d

.. _ _..^S ject: RE: Roche Or er, Credit

Mark,

This is unbelievable: I have never heard of a large , sophisticated customer coning backone-and -a-half months down the road and changing a contract like this . It is a standard8111 and Hold arrangement used many times with Roche US. My understanding was that theyneeded to spend the money in calendar 2004.

Is part of the issue that the person who signed for Roche on 12 / 21/2004 wasn 't authorized?Wi'.th ur.; eaanim9 g: atthoua.°eea,ent.. 2lur ^cS'C^'Yp orr.E"O2fq:C1Sa'^:t Clogs>cou'tia ir ilrt vx

Kevin

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e- o ow ey era ara.com; quip an .comt enea y bi .com - { -10; -Cc: [email protected] k1Subject: Roche Order, Credit

He 110:

I just got off the phone with Roche Germany and corporate accounting at Roche has rejectedthe contract we-set up for the bill and hold of the panels and that is why we have notbeen paid.

They can only aet up this deal as a purchase order with call off dates , We need to issuea credit for the sale that happened in December and they will reissue a new purchase orderthat Contains call off ship dates over the next 6 months by 9/30/05.

They are still taking all the material , but will onlydo

according to these conditions,We still get the revenue in this year, but we are going to have to take a hit this quarteron the sale,

Mark S . FerreiraSeraCare Life SciencesVice President, Diagnostic Sales0-508-584-5891

F-508-981-5861

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Confidential Treatment Requested By SeraCare Life Sciences, I,nc. sit i

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SeraCare Life Sciences, Inc.Balance SheetAs of September 14,20N

Raw Materials WIP , Finished. Goods TotalBalance Gross ^""• 3,525,337. 1,746,041 2,738,166 8,007,544Reserve (1;216,094) (662,428) (1,256,221) (3,158,743)

2,307,243 10063,813 1,479,945 4,850,801Additional Reserves (1) (546158) (3 44 !t6'ft (1,385x413)

Balance 1,460;557 722,610 1,282,122 3,466,388

Adj for HIV infectivity panels (3) (143,203) (143,203) ---'Fair Value Adjustment (2) 87.83843-. 0 0 (876,394)

Inventory After Adjustments 564,262 722,610 1,138,919 2,445,791

(1,722,981) (341,003) (341,026) (2;405,010)

(1) Represents any product with no movement January 1 through October $1, 2004 andwhich was recelved/processed April 2004 or earlier. Is was over six months old.

(2) Represents elimination of the 150% overhead allocation to raw materials upon receipt.

(3) tntectivity panels were received In about 2000. Nothing done on them until June 2004 when they

were transferred into 47 different finished goods product codes. Marketing effort hyas begunbut prospects are not known at this time. (Tentative Adjustment . May be revised)

(4) Material rejected, by Ortho Diagnostics. Being reworked, but as of now has no customer.

Conflaential Treatment Requested By SeraCare Life Sciences, Inc. SRLSLXX000135

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SeraCare Life Sciences, Inc.Balance SheetAs of September 14, 2004

Raw Materials WIP Finished Gloods TotalBalance Gross -^"3,525,337. 1 ,746,041 2,738,166Reserve (1,218,094) (682,428) (1,258,221).

Z307,243 1.083;813 1 ,479,943 4 850,801Acidtllt riat Fie4^er ias {1 : (5401565) (41 O! 97;82

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Balance 1,460,867 722,610 1 ,282,122 3,465,388

Adj for HtY ir,al9#tV1Lyl jirlry4i -^}

,(143,203) g1;^{

' Fat. V*140 l(tijt^ W 1 X878;884) °: 0 0 E)7 8 d

Inventory After Adjustments 584,262 722,610 1,138.919 2445,791

(1,722,981) (341 ,003) (341 , 026) (2 , 405,010)

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(4) Material rejoote°d by Ortho Diagnostics. Being reworked, but as of now has no custotner.

Configt, aiat Treatment Requested BV SeraCare Life Sciences. Inc. QP1 c^.Y^rnnn^^^

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---Original Message-----From: Kai Loedel (mailto:kloedel@seracare .comlSent: Monday, July 18, 2005 11:49 A!To: Bill kenealy - BSISubject: Scott will call'you in a few minutes

Hi Bill,

He's got the commissions info.

Jerry said to formally bock the inventory reserve adjustment of $459L FYI.

Kai Loedel 02Director of FinanceSeraCare Lite Sciences, Inc.'1935 Avenida del Oro, Suite FOceanside, CA 92056Office: 760-806-8922Fax: 760-806-8933Mobile: 760-212-6781


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Page Iof I

Rodilguez, Johanna

From: BtI Keneely - SSI

Sent: Friday. December 02.20051150.AM

To, Craig Hooson - 851

Subject: Inventory spreadsheets

Craig ,My spreadsheet and the column consolidated spreadsheet deny presented to KPMG as of 9/31/05,

Cell and we can discuss.

2/171206

Confidential Treatment Reauested By SeraCare Life Sciences. Inc.

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Rodriguez, Johanna

From: 8111 Kenealy - 881

Sent Friday, December 02, 2005120 PM

To: Craig Hoonon - 881

Subject RE : Inv Reserve YTD Change 3-31-05(1).4s

Spreadaheet adjusted for Q3 reearve liquidation of 459,000 and Q4 FY200S proviaian of 126,000.

have little backup for col. L and no backup for cot M to support liquidation to P&L

-Original Message-From : Craig Hooaon-SBI (^pilt4311 fttA G.9tID)Sent Friday , December 02, 200512:01 PM

To: 801 Kanuly- BB(

Subjeee lay Reserve YTD Change 3-31-03 (l).xla

Hi<QnvReserve YTD Change 3-31-03( 1).xla>>

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12100400.01-00-000 AM NON 81.00012101.000-01-00-000 AM BLOOD PRODUCTS12103-000-01-00400 RU USC0.12296-00.0140400 AM RESERVES. SPECIFK12290000.01-00-000 AM RESERVES

172110040041-00-000 Wills LABOR12301-00041-00-000 WIP MATERIAL12302-000-01-00000 WIP OVERHEAD123044004140000 WIP 11141ERME01ATE12300-000.01400004PIp COMPONENTS12310400.0140.000 WIP LABOR ACCRUAL12312.00001-00000 MP OVERHEAD ACCRUA1240640-014704001NfP RESERVES •SPECIFI12497-000.0140.000 MP SUSPENSE12499400-0140-000 WIP RESERVES12S00d00. I-00.000 00 ACCURI N MM CONTR12601-000-0140500 CC ACCURUN SA CCNCR12502-o00 01-Q0- ac ACCURUN NEGATIVE!12551400-01.00.0000CACCURUN MOL CCF1T12304-000-0140000 OC ACCUCIIART12500.000-01,00000 CC OEM CONTROLS1250640-0t-0"00 00TOSPANELS11607-00001-00-000 00 PERFORMANCE PANE12508.000.01.00400 CC 10ER000NVERSION P.12607-00001.00000 FG RESERVES • SPECIFIC12869000-0140-000 FG RESERVESToia1 Mvemory. rtel

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988,211.16(1,539,247,00) (43,000)W) 43,000.00 42,52050 879.794.00

(28:000 .00) 0.002.664,117.19 0.00 283. 198.00 4A78,48S.00

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Total IMon0ry Resanq: (3,427.1*6,00) (126.000.00)

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Page I of I

Rodriguez, Johanna

From: Bill Kenealy - BBl

Sant: Monday, December 05, 2005 8:41 PM

To: Craig Hooson - 881

Craig,Yellow Items I have sport for.

Call and loin discuss.

2J17/2006

Confidential Treatment Reauested By SeraCare Life Sciences, Inc. SRL-XX000.146

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Opening Balance of Inventory Reserves

Allocated reserves to line Item Inventory

details

Obsolete Inventory and write off due to

expiration

Product Sold Qtr I and Cktt 2

Testing and qualification of aged

materials

Abnormal Yield and shrinkage waste

related to new processes. new

formulations and the use of aged

materials

Total Reserve of Inventory

1

(5 $27,136 00j

4,070,48$.00

198,000,00

439;471.0D

900,OC0.00

513,200.00

4,078,465:00

192,414;00

283,1 .60'; .54,03&00 102234,00

300;000,00

513,200:00

4,5$2;67''1.00 8409.0U 915.434.00

Confidential Treatment Requested By SeraCare Life Sciences, Inc. SRL.._XX000147

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From Craig Hooson , B5ISent: Monday, December 05, 2005 8:36 PMTo: Jerry BurdickCc: B81 Keneaty - SDI; Craig Hopson - 8131; Kai LoodelSubject: Inv Reserve YID Change 9.30.2006 6811 Audit 000As

lily Reaave STDChange 9-30-20..This is the document that should be sent to the auditors , Jerry please forward after yourreview

Craig


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Opening Balance of Inventory Reserves(5,527,136)

Allocated reserves to line Item inventorydetails 4076465

Obsolete inventory and write off due toexpiration 196000

Product Sold Qtr 1 and Ott 2 43gq71

Testing and qualification of agedmaterials 300000

Aonormai Tieia and snnnKage wasterelated to new processes, new

formulations and the use of agedmaror3a $13200

Total Reserve of inventory 0

I

Confidential Treatment Recuested:Bv SeraCare Life Sciences. Inc. SRL^r-XX00`01-49

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LO From : Craig Hooson • BBI

0)Sent: Tuesday, December 00, 200311:11 PM

CUTo: Jerry BurdickSubject Inv Reserve Yfo Change 8,90.20058811 Audi! DOC.xJs

ti EliC)C

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Change 9.30.20...

Please have a look at this need to pass over

This is ALL the coats that people will admit toCOC)

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8& Inventory Reserve Movement for year ending 2005

Opening Balance of Inventory Reserves (5,527,136)

Allocated reserves to tine item inventorydetails 4076465

Obsolete Inventory and write off due toexpiration 198000

Product Sold Qtr 1 and Qrt 2 439471

Testing and qualification of aged300000materials

Abnormal Yield and shrinkage wasterelated to new processes, new

513200formulations and the use of agedmaterials

Total Reserve of Inventory 0

1

Inv sold In QTR I and Qtr 2 with reserve applied

testing samples sent atzero cost the report total $ :169 K plus $ 6 K for shipping . This is the carrying

cost of the inventory shipppod or consumedinternally , ( raw rnaris plus tecetving overhoad,

finished products • material and overhead ) this Isrelated to the re validation of product on'.customersequipment due to a changein the manufacturingprocess , to the Oceanside ehott cycle process

Yield costs $ 25 K , this takes into account a smallvolume level of inventory produced, the validationInventory was sold and the reserve release was tobring the product Costs down to the normal historicmargin level (oma quarterly basis). inaddkion theallowance for using low.yielding aged material that

Ia more diffiicult to filter etc. was released.

Lot

Confiaential Treatment Reauested By SeraCare Life Sciences, Inc. SRI -,,-Yynnni tit

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N From : Craig Hooaon • 881C) Sent: Monday. September 12, 2005 4:11 PMCD To: Tom Lawlor - 881; Mike Crowley, Jr,

Subject: FW: BMR Inventory 8130105 Restatement

The adjustments requested for the BHR inventory will affect the 2006 margins for theI^ current inventory held and to be sold in 2006 1 the adjustment is $ 405 K and $ 600 ifO this has help make the margins in 2005 and must be considered a 2005 one off benefitQ that still has to vase the examination of the auditors

My main point is to ensure that your expectations of margins on 0t85 product sold aremodified from this years achievements

Craig

O

-----Original Message-----From: Hill xenealy - 801sent: Monday, September 12, 2005 2:42 PMTos Jerry Burdick - abcglobal.net

Cc: Craig Ronson - 88I; Kai medalSubject: 8t4t inventory 6/30/05 Restatement

Jerry,

tiOriginal Pile Totaled, 3,223,160

New File Totals : 3,629,019

Cd)E Difference, ,405,859

West Bridgewater Lot Value ( Including Purchase Cost, OH andTesting)

U00

Original rile was to replace carrying cost of transferred units and maintained

cothe historical Nest Bridgewater value added - by Testing and Cost plus OH on WestBridgewater purchased units.

The new file atzipa away any cost seructure and averages the lot carrying coatfor all WH20 assets without regard to transferred or purchased and whether purchase cost,overhead coat or testing cost as of June 30, 200S.

L

When I load these values into inventory on 9/13 / OS I will loose the coat basisN identity for these assets . Will this stand up under audit as it will be a mixture. of

actual costing (Warehouse 01) and Average costing(WH20 ) which will then be adjusted as actual value is added , not average?

L() What about the 600,000 Rest Bridgewater overhead which is still hung up'infQ inventory and was intended to be'spread'over the 6097 of total Blot inventory assets

(Oceanside and WI) not just the 3Y)M WB inventory assets?

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actual coating (Warehouse 01) and Average costing

(Y i20) which will then be adjusted as actual value is added, not average?

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From: Craig Howson - BBISent Friday, September 30, 200611:40 AMTo: B6 Kenealy-B81Cc Tom t,a 4or- Bet 7 [email protected] : RE 8MR Valuation Update

!' understanding is that the inventory will nave a total value of S 4.2 Sr t as discussedlast Friday

This value was to be-allocated based on the .SP for the product codes and the units to petthe extended *aloe value.

Then allocate the S 4.2 M over*the extended sales value on a pro rata basis , then divideby the units to get to the-yalue of the inventory at the product code level

Th'e result will. be to have all the inventory In the I R6N system at the same Oros'a Marginwhen sold, all now prAot !{nventory will be at the actual for the lot purchased.

Sill, please call with any questions

Thanks

Craig

"-original kecoage------ _From: Hill ltenealy -. ' DalSent : Friday, September 30,'2005 11:09 AMTo: Jerry Burdick - sbcglthal.nat$ Craig Hooaon - 88I

Cc: Tom Lawlor - SaxSubject: PM Valuation Update

Gentleman,

Original Me J. Burdick Pile value:

3,223165

Vploadedas of !1/30/05:2,540,.790

COGS Recognized. in Aug for Jul-Aug 170,150

Unallocated duplicate Lots513,235

Second J. Burdick Valuation:


'3,223,165 Oceanside 6/30

405,654 nx rat20 as of 6/30

3,629 ,019 Total J. Burdick File 2

1

SRLS. XX000155

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3,223,165 Oceanside 6/30

405,854 Dx W D as of 6/30

rnnfidential Treatment Reauested By SeraCare Life Sciences. Inc. SRL,--Y00000156

3.223, 165

Up16aded as of 8/30/0512,540,790

COOS Recognized in Aug for Jul-Aug 170,150

IIn=allocated dupiicri'te ZOGe•

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Overhead aawuat to be allocated to Ma inventory: 618,686

Total Value that has to be allocated to BHR Inventory by Lot:On-Allocated 512,235

Overhead 618,686

Total 1,130,921

Current 8MR inventory detail valued at3,390,272

f Adjustment 33.354

How do we Want to proceed.

option 1:. Take 1,130.921 and allocate toinventory at the lot level based on ASP and constant Gross margin % desired.Note : this will NOT expense any portion of the 1 , 1)00 for Q4 activity.

Option 2: Take It of 1,1)08 to Expense andallocate balance to lots based on QH% Calc. If desired , how do you want the i expensed tobe calculated)

Chip is working on calculating the combined Oceanside and NestBridgewater ASP file by part code.

Your thoughts, on application options required.

x


ry

pi Sr=XXlf{l157.

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overhead arnount to be allocated to 0 inventory : 618,686

total v4ue' thdt ha&, to CSe: alYdreted ¢d.' ?$ia driro yr try: Lott• tm lii^ocatdd 511.23k5.' ` . ..... •.: :. •:

618, 686"

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How do we want to pr

option it Take 1,130 , 921 and allocate toinventory at the lot level based on ASP and constant Gross margin % desired.Note.. this will NOT ..... .: .: .... .... .:. :..

allocate balance to

be calculated?

Chip is working on calculating the combined Oceanside and WestBridgewater a&Y file by part code.

Your thoughts on application options required.

2


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SRL,,"XX000158


EXHIBIT 24

Case 3:05-cv,02335-JLS-CAB Document 147-25 . Filed 06/11/2007 Page 2 of 3

[3p BROWN• [3© RUDNICK

BERLACK .

L

ISRAELSup

Steven R. London, Esq.:

dims dwl: 6174564313

[email protected]

November 15,2004!

VIA FACSIMILE AND OVERNIGHT MAIL

SeraCare Life Sciences, Inc.1935 Avenida del Oio, Suite FOceanside, CA 92056 -Attention: Michael Crowley, President and ChiefExecutive Officer..

copy to:

Q'Melveny & Myers LLP114 Pacifica, Suite-100Irvine, CA 92618-3318Attention: Andor D. Terner, Esq.

RE: Closine Balance Sheet

Gentlemen:

Reference is made to that certain Asset Purchase Agreement (the "Agreement") dated April16, 2004, by and.among SeraCare Life Sciences, Inc. ("SeraCare"), Boston Biomedica, Inc. (now.known as Pressure BioSciences, Inc., "PBI') and BBI Biotech Research Laboratories, Inc. ("BBIBiotech" and collectively with FBI, the "Sellers") .

We received Andy Terrier's letter dated November 12, 2004, enclosing the Closing BalanceSheet (as defined in the Agreement) tobe delivered by SeraCare,pursuant to Section 2.5 of theAgreement. As you know, the Closing Balance Sheet was prepared exclusively by SeraCare. PBI wasnot offered an opportunity to be present or observe any aspect of the preparation of the Closing . .-Balance Sheet.(despitethe agreement contained in Section 2.5 of the Agreement). Needless to say, Jwhen "PBI received the Closing Balance Sheet, PBI was extremely perplexed at SeraCare's calculationofthe AdjustmentAmount (as defined in the Agreement), which shows a deficiency of approximately$3.1 million. One item of significant concern is SeraCare's valuation ofthe inventory, despite thepatties agreement on the valuation methodology during the negotiations ofthe:Agreement. Otheritems ofconcern include, but are not imitedto,the level offixed assets, the add back for incremental

- accumulated depreciation, and the accounts receivable reserve he fact that the Adjustment Amountis such a significant amount suggests to us that there is a either a mistake in the calculation or there is afundamental misunderstanding of the agreement between the parties or worse, there is something moregoing on than can be distilled from the Closing Balance Sheet. Without further information, we canonly-generally object-to the Closing Balance Sheet and the Adjustment Amount.

One Financial Center

Boston , Massachusetts 02111

617.856.8200

fox 617 . 856.6201

www.brdwnrvdnick.com Exhibit 2420 .3

,onfidential Treatment Requested By SRLSEXXX0088493eraCare Life Sciences, Inc.

Case 3:05-cv-02335-JLS-CAB Document 147-25 Filed 06/11/2007Page 3 of 3

November 15, 2004Page 2

:After we receive required, additional information, we expect that any objections will bemorespecifically identified.

We are hopeful that this is just a misunderstanding that can be resolved with. furthercommunications between the parties. We need to schedule a conference call with all parties and theirattorneys present as soon as possible to discuss where to go from here and try to resolve these mattersamicably. We will call Andy this afternoon to schedule this call. .

Very truly yours,

BROWN D., CK BERLACK ISRAELS LLP

By:ven R. Lon on

SRLfebEnclosurecc: Richard T. Schumacher, President and ChiefExecutive Officer

-Matthew S. Gilman, Esq.

n0312472 Al gilmenms s4pkOlLdocD 1]563/33 K R

204

;onfidential Treatment Requested By SR.LSEXX008850ieraCare Life Sciences, Inc.


EXHIBIT 25


NOV-22-04 06:44PM FROM BOSTONBIO SALES 5085802202 T-119 P•02/07 F-609

.i..ETTER AGREEMENT REGARIMNG CLOSING BALANCE SHEET MATTERS

Referencc is made to that certain Asset Purchasc.Agreetnent (the "Agreement") datedApril 16, 2004, by and among Boston Biotnedica, Inc. (now known as pressure BioSeiences, Inc.("FBI")), BBI Biotech Research Laboratories, Inc. ("BBI Biotech") and SeraCare Life Sciences,Inc. ("ScraCare"), as amended by that certain Amendment No. I to Asset Purchase Agreement,dated July 20, 2004. Capitalized terms used but not defined herein shall have the meaning givensuch terms in the Agreement.

Reference is also made to the Closing Balance Sheet delivered by SeraCare to FBI onNovember 12, 2004, a copy of which is attached hereto as Flxh:ibit A.

FBI has advised SeraCare that, in accordance with Section 2.5(d) of the Agreement, itobjects to the Closing Balance Sheet. FBI has requested that (i) SeraCare defer until December15, 2004, its right under Section 2.5(d) of the Agreement to submit the dispute .over the ClosingBalance Sheet to the Independent Accountant, (ii) SeraCare treat the dispute over accountsreceivable separately from the rest of the Closing Balance Sheet and (iii) SeraCarc agree that itwill first look to the Escrowed Amount for recovery of the amount, if any, by which the TargetNet Asset Value exceeds the Closing Net Asset Value.

. For good and valuable consideration, the receipt and sufficiency of which is herebyacknowledged, PBI, BBI Biotech and SeraCare agree as follows:

1. With the exception of disputes over accounts receivable on the Closing Balance Sheet, whichdisputes will be resolved as provided in Section 2 below, all disputes over the Closing BalanceSheet will be resolved in accordance with the dispute resolution provisions specified in Section2.5 of the Agreement, provided, however, that the parties shall have until December 15, 2004 Toresolve such disputes, after which time either SeraCare or FBI may submit the disputes to theIndependent Accountant as provided in Section 2.5 of the Agreement. The parties agree that.anyAdjustment Amount duo SeraCare will first be paid out of the Escrowed Amount, with anybalance in excess of the Escrowed Amount to be paid by'PBI directly to Sera.Care within fivebusiness days of a written request from SeraCare. PBI and_BBI Biotech each agrees to sign anddeliver to the Escrow Agent any and all joint written instructions reasonably requested bySeraCare to be delivered to the Escrow Agent (as such term is defined in the Escrow Agreement)under the 'Escrow Agreement in order to effect the foregoing payments. The parties further agreethat any Adjustment Amount due PBI shall be payable by ScraCare to PBI within five businessdays of the later of (i) The-date on which the parties reach agreement on the Adjustment Amountor (ii) the final determination made by the Independent Accountant-

2. Attached hereto as F ibit A is a detailed listing Of all of the accounts receivable (the"Accounts Receivable List") on the estimated Closing Balance Sheet delivered by FBI .-toSerraCare pursuarnt to Section 2.5(e) of the Agreement. The Accounts Receivable List specifiesfor each account receivable on the list: (i) the name ofthe customer owing such amount, (ii) theinvoice number and date with respecrto the account receivable of a balance relates to more ftnone invoice, then the account receivable is detailed by invoice number for such customer),, (iii)

IM 1059&47.4

Exhibit 2 5

!__ 1 ^401

205

CONFIDENTIAL TREATMENT REQUESTED SRLSEXX008596BY SERACARE LIFE SCIENCES, INC.


NOV-22- 04 .06 :44PM FROM-60STONBIO SALES 6095602202 T-119 P.03/07 F-609

the amount of such account receivable, and (iv) whether such account receivable is a domestic(i.e. the customer has its principal place of business in the United States of America) orinternational (i.e. the customer has its principal place of business outside of the United States ofAmerica) receivable. In lieu of the dispute resolution mechanists contemplated by Section2.5(d) of the Agreement, the parties hereby agree that SeruCarr will be entitled to recoverdirectly against the Escrowed Amount the amount Of any account receivable on the AccountsReceivable List that has not been collected within 90 days of the invoice date for domesticreceivables and 180 days of the invoice date for international receivables. In the event that thebalance of the Escrowed Amount is insufficient to satisfy a claim by ScraCare under this Section2, then SeraCare shall be entitled to proceed directly against PBI for such payment, suchpayment to be made by P13I directly to Seracare within. five business days of a written requestfrom SeraCare. P13I and 138I Biotech each agrees to sign and deliver to the Escrow Agent anyand all joint written instructions reasonably requested by SeraCare to be. delivered to the EscrowAgent under the Escrow Agreement in order to effect the foregoing payments. In the event thatSeraCare recovers the full amount of a receivable on the Accounts Receivable List from theEscrowed Amount or from PBI under this Section 2, then SeraCare shall be deemed to havetransferred, to the extent of the amount actually recovered by ScraCare under this Section 2, allof its right, title and interest in the corresponding account receivable on the Accounts ReceivableList to P131 and shall remit to.PBI (within live days ofreceipt by SeraCare) any payment on suchaccount receivable by or on behalf of the underlying customer. Consistent with the foregoing,PB1 shall be entitled to pursue the collection of any accounts receivable that SeraCare is deemedto have transferred to P131 pursuant to this Section 2. SeraCare shall, at times and locationsreasonably convenient to PI3I and SeraCare, make available to PB1, promptly upon its reasonablerequest, information with respect to the invoice(s) underlying any account receivable transferredby SeraCare to P131 hereunder, including payment history ofsuch customers. PBI agrees that fora request to be reasonable pursuant to the foregoing sentence, the, sole purpose of the requestmust be for PBI to collect on the applicable account receivable for which it is seekinginformation and in no event shall FBI use. any such information for any other purpose.

3. Concurrently with the execution of this Agreement, P131 and SeraCare are executing each of(i) that cenain engagement letter, dated November 16, 2004 from Weinberg & Company P.A.('`Weisberg") to the Audit Committees of each of SeraCare and PB1(the "Engagement Letter"),and (ii) that certain letter agreement (regarding the sharing of costs and cooperation with requestsfrom Weinberg udder the Engagement Letter) dated as of the date hereof between PBI andSeraCare (the "Side Letter"). In the event that FBI does not, within two business days of theexecution of this Letter Agreement, sign each of the Engagement Letter and the Side Letter, thenthis Letter Agreement shall automatically terminate and be ofno further force and effect,,;ad theparties will instead continue to negotiate over the Closing Balance Sheet as provided in Section2.5 of the Agreement as if this Letter Agreement was never executed.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

1!191,1059V474

CONFIDENTIAL TREATMENT REQUESTED

BY SERACARE LIFE SCIENCES, INC.

206SRLSEXX008597


NOV-22-04 06 : 44PM FROM-60S10N810 SALES 5085802202 T-119 P.04/07 F-809

Each of the parties hereto has caused This Letter Agreement to be executed by its dulyauthorized officers as of this7z day ofNovember, 2004.

SER.A.CARE LIFE SCIENCES, INC.

Naame: _ t!_ur`Its: r t1

PRESSUR.F BIOSCIENCES, INC.

By:Name: .etfl tfY^2^ T. qcfLs ^r,a r 2Its: g Plm4,jor71'

BBI 8TOTI CH RESEARCH LABORATORIES,INC_

Ry:Name: rum 7 C tl^na eiZIts: P/tes,a^•rr--

IRI:10S9&47.4

CONFIDENTIAL TREATMENT REQUESTED3Y SERACARE LIFE SCIENCES, INC.

207

SRLSEXX008598


EXHIBIT ASernCare Life Sciences, inc.Balance SheetA q of September 14. 2004

Diagnostics Biotech TotalAdjusted Adjusted Combined

Assets

Current Assets

Cash

Accounts receivable - Trade

Allowance for doubtful accounts

Unbilled Costs

Inventory - Raw Materials

Inventory - Raw Materials - Reserve

Inventory - WIP

Inventory - WIIP - Reserve

Inventory - PG

Inventory - FG - ReservePrepaid expensesTotal Current Assets

0 662 6621,860,999 1,835,714 3,696,713(568,289) (192,855) (761,144)

319,710 319,7103,525,337 3,525,337(2,981,989) (2,981,989)1,746,041 29,214 1,775;255(1,023,431) (1,023,431)2,736,166 2,736,166(1,556,333) (1,556,333)

'52,177 49,854 102,0313,790,678 2,042,299 5,832,977

Property and equipment-act

Other assets:Deposits - rent

GoodwillPatents and Licenses

Total Assets

Liabilities and Net Worth

Current liabilities.

Accounts payable

cerued Material receipts not yet invoicedacrued other expenses

Accrued vacation payAccrued CommissionsShort Term Notes:Auto loanCurrent portion of mortgage

Deferred testing revenueDeferred rent

Total current liabilities

Mortgage .payable

Net Worth Acquired

Total Liabilities and Net Worth Acquired

2,513,152 1,339,451 3,852,6030

0 57,008 57,0080 0 00 0 0

6,303,830 3,438,758 9,742,588

434,415 731,305 1,165,72021,515 0 21,515

276,552 263,821 540,373148,685 131 ,934 280,61996,326 0 96,326

011,479 0 11,47957,660 0 57,660

0 65,253 65,2530 229,918 229,918

1,046,632 1,422,231 2,468,863

2,222,039 - 0 2,222,039

3,035 ,159 2,016,527 5,051,6863,035,159 2,016.1527 5,051;688

6,303,830 3,430,758 9,742,58$

Page 5 of 5

208

CONFIDENTIAL TREATMENT REQUESTED SRLSEXX008599BY SERACARE LIFE SCIENCES, INC.


EXHIBIT 26

Case 3 : 05-cv-02335-JLS-CAB Document 147-27 Filed 06/11 /2007 Page 2 of 2Page I of 1

From: Mike Crowley, Jr.

Sent: Monday, March 07, 2005 9:16 AM

To: Bill Kenealy - BBI; Jess Roper; Jerry Burdick; Tom Lawlor . BBI

Bill,

WBW has been running at capacity and can not accept new orders until April 15th or so. I assume the OH is beingabsorbed for Feb and March and let us know how we are doing on a weekly basis, if possible.

Also, need the push down completed for the inventory and a list of all raw materials at Zero on-the books. Weneed to get this to Sales ASAP to create some revenue.

Thanks,

Mike .

1/9/2007 Exhibit 2 1o 209

;onfidential Treatment Requested By SRLSEXX00891 2'eraCare Life Sciences, Inc.


EXHIBIT 27


From : Craig Hooson - BBI

Sent : Monday, October 10, 2005 3:43 PM

To: [email protected]

Subject : Seracare Ethics Policy 2005

Attachments : Code of Ethics reply from Bill Kenealy 09 30 2005.txt

Hi Bob,

I have forwarded a copy of an e mail from Bill Kenealy,.our Director of Finance at BBI Dx, concerning the signingof the SeraCare Ethics Policy.

The two areas that he is concerned about as indicated in his a mail ( attached), and I spoke to him about were:-

Revenue Recognition: this related to the Bill and Hold Revenue Recognition transaction which occurred inthe 1st Quarter FY 2005 (Dec 2004), a contract was signed for $ 400K and subsequently it was rescindedby the customer, as the person didn't have the authority to commit the Company (Roche Germany), it wasand remained recorded as revenue, currently this inventory has now all shipped during September 2005,with an outstanding associated AR balance of $140 K.

• Inventory valuation, this related to the treatment of the over / under absorption of expenditures to inventoryand the allocation of material handling charges to the BMR inventory which was transferred fromPhiladelphia to West Bridgewater during the year, which attracted $ 600 K of overhead, and the selling ofpreviously written off (at time of acquisition through Goodwill ) inventory, which went through the Profit andLoss at 100 % gross margin, rather than an adjustment to the Goodwill created by the inventory reserveadjustment.

I have spoken to Bill at length and I have made the following changes in the accounting treatments:-

At year end there is no "Bill and Hold" Revenue that has not been paid for, except for the $ 140 Kfrom Roche Germany (which is now due).

• The BMR inventory is now included within the I Ren computer system in West Bridgewater, whichrecords the cost of the inventory at the product lot level, no further changes to the inventoryvaluation are possible, except by a manual over-ride and with a breakdown in the policies andcontrols that are in place for Sarbanes Oxley.The allocation of the over / under absorption created in the month is being allocated to theinventory produced in the month, this reflects the most accurate method of inventory costing andmoves towards actual costing, which would be the most accurate valuation method.

• The selling of inventory previously written off, at BBI Dx acquisition, is at an end, all inventory /product that was able to be sold has been sold.

I felt that as the Audit -Committee Chairman, you should be aware of the only case that I have knowledge of inwhich we had a rider to the Ethics Policy acceptance. I have spoken with Mike Crowley on this matter and KathiBenjamin VP HR is knowledgeable on the emails received from Bill Kenealy.

Obviously, if you need further information, please do not hesitate to contact me.

Craig.. cell 240-994 3021

Exhibit 27 210Confidentail Treatment Requested by SeraCare Life Sciences, Inc. SRLSECH021427


EXHIBIT 28


OceansideInventory Open Items2/8/2006

1

23

4

5

6

7

8

9

10

11

12

13

14

Exhibit 2 $ .^ , 211Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSECH008048


Cheat sheet for codes found on transaction history reports (MAS.200)

Support for Receiving overhead rates used to assign OH value for all quarters of fiscal 2005.

10/1/04 OH push down schedule for DS product category, we have product category AP only.

Support for inventory test count discrepancies (see "Count Discrep - OC" and"Count Discrep OC - Miramar" tabs).Detail listing of Bill and Hold shipments as of 9/30/2005. You have represented that this is not material for all locations, is there a listing forus to conclude on that based upon data.MHM, has selected sample of Oceanside inventory for price testing. MHM, discussed with Jerry and Kai. MHM provided listing of selectionson 11/7. MHM discussed transaction history for selections with Kai and Jerry on 11/10/05. MHM provided requests for additional support forOceanside on 11/10/05, these requests are outlined on the "Price Discrep - OC" tab. MHM has not received a response regarding theproblems we summarized with identifying our selected items on the FY 2004 inventory detail listing. Please refer to emails sent by MHM on11/21, 11/23 and 11/28.

MHM discussed the cost adjustment and quantity adjustment made to DS 667 with Jerry Burdick on 11/23/05. To assist us to test thequantity, please provide with a schedule that shows us how much of this item is now on hand (we will count it this week), how much of thisitem was shipped between 9/30/05 and the present (we will view shipping documents that support the quantities as you suggested) and anyother reconciling information needed to reconcile the amount now on hand to the amount included on the 9/30/05 inventory listing. Provide uswith the schedule and then we will test as we deem necessary.

To assist us to test the cost basis of DS 667 at 9/30/05, please provide supporting cost data of costs incurred by SLS totaling the averagecost of $2.20/unit which was used to value the units on hand of this product category as of 9/30/05. For example, material cost, labor cost,OH, etc. to support the ending unit cost. Provide us with the cost buildup and then we will select items to test as we deem necessary.Material. receipts register, or other comparable receiving log, for the last week of September 2005 and the first week of October 2005 (on diskin Excel format). Item requested to perform cutoff testing at Year End.Referring to the Q4:05 Oceanside Inventory Reserve memo, there is discussion that the CFO analyzes NRV of inventory quarterly- pleaseprovide documentation to support these conclusions - such as data tested by item that resulted in the conclusion documented in the memo.Please provide a calculation showing how much of the approximate $1.8M of under-absorbed OH capitalized into inventory during the yearshould have been left as COGS, based upon the calculation of the relationship of items produced during that period that remain in inventoryto total items produced during the period. Once you have arrived at the estimated amount, please conclude whether a journal entry needs tobe posted based on your calculation or whether the amount is not materialPlease provide a calculation showing how much of the approximate $1.8M of under-absorbed OH capitalized into inventory during the yearwas added to the carrying values of items that were produced prior to 10/1/04 and the effect on COGS during 2005, assuming that amount ofOH should have been applied only to items produced during 2005 and would have been expensed to COGS during 2005 as those itemswere sold.For all locations, by each location if possible, provide a calculation of inventory on hand at 9/30/05 that is reasonably expected to be soldduring the 12 months ended 9/30/06. Please note, we are not requesting an estimate of COGS for 2006, rather what inventory items thatexist as of 9/30/05 are expected to be sold in the coming 12 months.

212Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSECH008049


Date Date

Originally Requested Re-requested/Requested Received

No 11/2212005No 11/2212005No 11/15/2005

No 11/10/2005

Yes 10/11/2005

No 11/15/2005

No 11/1612005

No 11/15/2005

Yes Original PBC List sent.

No 11/23/2005

No 11/23/2005

No 11/23/2005

No 11/23/2005

11/23/2005


213SRLSECH008050


GCIInventory Open Items2/8/2006

- 214Confidential Treatment Requested by SeraCare Life Sciences, Inc. SRLSECH008051


Explanation for why the amount of quarterly OH allocated per the BioBank Inventory Cost Allocation and the amount of per the TB does not tie. For

example, there is $842k of OH being applied at 9/30/05 per the cost allocation excel spreadsheet and $986k per the TB when we examine the

credit account for 04:2005.Material receipts register, or other comparable receiving log, for the last week of September 2005 and the first week of October 2005 (on disk in

Excel format). Item requested to perform cutoff testing at YE.

$470,000 difference on GCI/BioBank excel inventory schedule for value of inventory as of 6/30/05 per 100 filing and value as of 6/30/05 per the

detail schedule excel spreadsheet for valuing GCI/BioBank inventory..

Please provide us with a brief explanation of what, if anything, changed in the operations of GCI after the acquisition to explain why GCI used to

expense all of its operating costs as R&D and we capitalize all the costs into inventory. If essentially nothing is different in the operations, please

discuss briefly the reasons for the disparity in treatment. Please note, we are not challenging this treatment, we simply need the Company's

documentation for the treatment.

215



Date Date


No 11/18/2005

Yes Original PBC List Request

No 11/23/2005

No 11/2312005

216


Case 3:05-cv-02335-JLS-CAB Document 147-29 - Filed 06/11/2007 Page 8 of 23

BBI DXInventory Open Items2/8/2006

23

4

5

6

7


217SRLSECH008054


Shipping logs covering the last 10 days of fiscal 2005 and the first 10 days of fiscal 2006_

Support for inventory test count descrepancies (see the "Count Discrepancy - DX" tab).

Need explanation for $700k variance between the TB and the inventory listing for totals as of 9/30/04.

'Support for DX selections provided by MHM on 11/10/05 and discussed with Bill Keanely on 11/11/05.

Material receipts register, or other comparable receiving log, for the last week of September 2005 and the first week of October 2005(on disk in Excel format).Lower of Market or Cost Analysis performed on BMR Inventory and corresponding "Client Memo for Inventory Impairment" . - Kai toprovide memo. MHM noted that management provided KPMG with this analysis during FY 04 audit. DX has three inventoryaccounts on the GL with a reserve estimate, but we do not have a memo or supporting analysis prepared by management to supportthese reserve balances. The information provided should include a description of the methodology used by management to calculatethe reserve and the related calculation.

218



Date Date


Yes Original PBC Request List

No 11/15/2005

Yes 11/10/2005

Yes 10/11/2005 MHM to evaluate what SLS provided.

No 11 /10/2005 MHM to evaluate what SLS provided.



219



Cell: C9

Comment: JP:

Mike Lou of MHM is evaluating on 11/28, we might have the detail reports requested, he will update JP.

Page 11 of 23

220


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FROM CLIENT INVENT(

Sel# Warehouse OPEN Items with selection Item Number Category Item Description

1 MIR Memo to be provided by Jerry DS-667 DS Parvo

2 001 Memo to be provided by Jerry DS-656-R DS IgE - R5 ZZ History to be provided DS-700 DS ABS Plasma6 MIR History to be provided DS-680 DS Syphilis (RPR)8 MIR History to be provided DS-680 DS Syphilis (RPR)

13 000 PO provided however , large discrepancy HS-440-R HS Human Serum Albumin Liquid-25%14 MIR History to be provided TSI-670-L-R TS Tetanus Toxoid, Low Titer, Sou16 002 History to be provided HSP-591 HSP Alpha Globulin Fraction IV17 TSI Need PO/Invoice G07887 TSI-125 TS Human Albumin 20% Solution - 518 000. PO provided however, large discrepancy HS-430-R HS Human Serum Albumin Liquid-20%

Above the Mean Selections

Incorrect Transaction History Provided discussed with Kai on20 MIR 11 /16. Incorrect report povided on 11 122 by Jerry. HS-200-R HS Defibrinated Human Serum21 MIR History to be provided HS-210 HS Defibrinated and Delipidized H22 MIR History to be provided HS-200 HS Defibrinated Human Serum23 000 History to be provided DS-626 DS Cytomegalovirus (CMV)25 MIR History to be provided DS-650 DS Indirect Coombs28 MIR History to be provided HS-210 HS Defibrinated and Delipidized H33 MIR History to be provided ( transferred wharhouse ?) HS-300 HS Off the Clot Human Serum39 TSI Need PO/Invoice G007659 TSI-165.4 TS Human Albumin 25% Solution - 140 MIR Need PO/Invoice G008452 HB-166-R HB Human Platelet Rich Plasma, Po42 MIR History to be provided HS-300-P-R HS Off the Clot Human Serum, Pool43 000 History to be provided APA-2540 APA Goat anti-Human

47 000 History to be provided AP-4500 AP Bovine Serum Albumin--StandardBelow the Mean Selections

51 000 History to be provided CC-5560 CC Epidermal Growth Factor (rhEGFDiscrepancy between MAS Transaction History and 9/30/04

5$001 listing HSP-575-R HSP Patient Samples-R54 000 History to be provided HS-200 HS Defibrinated Human Serum56 001 PO provided however, large discrepancy CC-5010-R CC Fetal Bovine Serum

Discrepancy between 9/30/04 MAS TRNS History and 9/30/0457 000 Listing HB-160 HB Human Recovered Liquid Plasma

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Physical ExtendedLotSerialNumber StdUM Count Unit Cost Value

M 2842 DS-6672842 ML 358,617 2.20 788,957.40

8571 DS-656-R8571 ML 2,002 375.00 750,562,500. P-146 DS-700P-146 ML 693,942 0.66 457,307.78t7 P-93 DS-680P-93 ML 475,803 0.87 414,424.41

P-132 DS-680P-132 ML 392,700 0.87 342,041.7026N15V1 HS-440-R26N15V1 L 990 202.03 199,928.89P-119 TSI-670-L-RP-119 L 1,217 159.50 194,057.91362-05-001 HSP-591362-05-001 KG 21 8,181.61 168,132.09

A) IBA84HP001 TSI-1251BA64HP001 BOTT 3,944 41.80 164,859,2026N34W2 HS-430-R26N34W2 L 960 161.61 155,149.44

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5124 HS-200-R5124 L 720 130.00 93,600.00156-05-004 HS-210156-05-004 L 510 104.06 53,068.76155-05-002 HS-200155-05-002 L 877 60.10 52,706.82

tD P-152 DS-626P-152 ML 75,200 0.54 40,608.00y P-106 DS-650P-106 ML 100,305 0.23 22,869.54

156-04-006 HS-210156-04-006 L 306 60.27 18,442.93165-02-067 HS-300165-02-067 L 30 378.79 11,401.46IBAK4G9001 TSI-165.41BAK4G9001 BOTT 193 45.45 8,771.858452 HB-166-R8452 L 425 19.55 8,308.758435 HS-300-P-R8435 L 49 150.00 7,357.50297-05-002 APA-2540297-05-002 L 6 1,200,00 7,200.00013-05-001 AP-4500013-05-001 KG 20 274,67 5,498.81

7845 CC-55607845 MG 7 102.85 750.81

907 HSP-575-R907 SAMP 25 11.00 275.00155-04-032 HS-200155-04-032 L 3 67.76 203.29

cn 5187 CC-5010-R5187 L 1 333.30 166.65rCl) 1001501 HB-1601001501 L 3 5.50 16.50Mno The item combined with lot number was not found in 9/30/04 inventory listingCO here is no transaction history as of 9/30/04.

to

9/30/2004 InventoryListing

Unit Price as of

9/30/2004

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Unit Price as of Unit price as of Material Unit O9/30/2004 Variance 9/30/2005 Variance VENDOR DATE Invoice# QUANTITY Units Cost

#N/A #N/A 0.200 2.0 Waiting for DS 667 Memo from kai U1

N/A #N/A 250. 00 125 .0 Golden West Biological 9/29/2005 16280 2,001.50 $ 250.00rN/A 0.66 (0.0) Cl)

#N/A #N/A 0.87 0.0 '-^0#N/A #N/A 0.87 0.0

#N/A #N/A 202.03 - Golden West Biological 3/17/2005 15449 521.6 Kg $ 520.00 03#N/A #N/A 145.00 14.5#N/A #N/A 0.53 8,181.1#N/A #N/A 38. 00 3.8 0#N/A #N/A 161.61 0.0 Golden West Biological 3/17/2005 15449 521.6 Kg $ 520.00 n

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#N/A #N/A 130.0#N/A #N/A 56.39 47.7#N/A #N/A 60.10 (0.0) 4#N/A #N/A 0.5 N#N/A #N/A 0. 23 (0.0) O#N/A #N/A 60.27 0.0

38.50 38.50 340.3#N/A #N/A 45.00 0.5#N/A #N/A 19.55 -#N/A #N/A 150,00 Q

#N/A #N/A 1,200.01 (0.0) O

#N/A #N/A 274.67 (0.0)

N#N/A #N/A 102.85 - O

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~10.00 1.0 25,67 (14.7) Tennessee Blood Services 6/18/2002 29400 25.00 $ 5.00#N/A #N/A 67.76 0.0

- - 333.3 Tissue Culture Biological 6/1/2004 11644 1.00 $ 160.00 D0)

5.00 0 .5 35.09 (29.6) CD

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225



Item # Description Lot # stdUM Physical Count MHM.Count

HS-200 Defibrinated human serum P-144 255 NA

DS-680 Syphilis (RPR) P-93 ML 444,000 444,000

HS-200 Defibrinated Human Serum 155-05-002 L 837 837


226

SRLSECH008063


CommentThe final inventory listing lists a qty. of 975, while

the physical count lists a qty. of 255. Please

explain variance.MHM noted 475,803 ML as the amount on the final

inventory listing. This leaves a variance of 31,803

ML from MHM count to'the final inventory listing.

Please explain variance.mnm counleo mis nem ano agrees to count sneer

with an amt. of 837. MHM notes the count sheet

was later overwritten with a count of 877. The

flan) inventory listing as of 9/30/2005 has 877.

MHM, noted this is not on the list of items

selected for recount. Why was the amount

overwritten after the physical count observation

took place. (as mentioned above this is not on

the recount sheets). Also note physical

observation took place after all counts had been

completed.

227


Case 3:05-cv-02335-JLS=CAB Document 147-29 Filed 06/11/2007 Page 19 of 23

ITEM LOT WIP UNIT OF PRELIM. INVENTORY MHM FROM FROMNO. NUMBER NUMBER WAREHOUSE DESCRIPTION FG MEASURE LISTING COUNT DIFF FLOOR INV LIST1

HS-300-HN 165-03-031 QCR Off the Clot Human Serum Hep N WIP L 8.503L 8.503L 0 X2

CC-5550 1673 001 Insulin, Human , Recombinant RAW G 97,7G 97.7G 0 X



COMMENTS

Amount on final inventory listing (48) does not match the amount counted during the

obsevation(8.503). Why does amount per the final listing vary from the amount

counted during the observation?

Item #/Lot # is not on the final inventory listing, but was counted during the

observation. The item was also Included on the count sheets. Why is item not

inclulded on final inventory listing?

229



Status Final SystemPart Code Lot Number Unit Cost Code Qty. Extended Price Warehouse

100108 9174835 0.0143 EA QOH 16,740 239.38 20

DS-682-M BM119994 3.9928 ML QOH 474 1,892.59 1



CommentsThe count sheet stated that this product was not found. However,

MHM noted that a quantity of 16,740 was input in the final

inventory listing for this item. Please explain.The count sheet stated that this product was not found. However,

MHM noted that a quantity of 474 was input in the final inventory

listing for this item. Please explain.



Cell: F2Comment: JP:

Removed due to total value extended cost immaterial.

_ 232


seracare life sciences, inc. securities litigation 05-cv-02335-first amended consolidated

Documents