Edgar Filing: HEMACARE CORP /CA/

May 15, 2008

HEMACARE CORPORATION
(Registrant)

/s/ JULIAN STEFFENHAGEN
Julian Steffenhagen, Chief Executive Officer

/s/ ROBERT S. CHILTON
Robert S. Chilton, Chief Financial Officer

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 0-15223

HEMACARE CORPORATION
(Exact name of registrant as specified in its charter)

California (State or other jurisdiction of incorporation or organization)	95-3280412 (I.R.S. Employer Identification No.)
15350 Sherman Way, Suite 350 Van Nuys, California (Address of principal executive offices)	91406 (Zip Code)
(818) 226-1968 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

As of May 2, 2008, 9,680,339 shares of Common Stock of the registrant were issued and outstanding.

HEMACARE CORPORATION AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE THREE MONTHS ENDED
MARCH 31, 2008

		Page Number
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007	1
	Condensed Consolidated Statements of Income (Operations) for the three months ended March 31, 2008 and 2007 (unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Submission of Matters to a Vote of Security Holders	38
Item 5.	Other Information	39
Item 6.	Exhibits	39
SIGNATURES		40

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HEMACARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

			March 31, 2008			December 31, 2007
			(Unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	570,000		$	420,000
	Accounts receivable, net of allowance for doubtful accounts of $279,000 in 2008 and $302,000 in 2007			4,989,000			4,942,000
	Product inventories and supplies			1,336,000			1,120,000
	Prepaid expenses			443,000			508,000
	Assets held for sale			521,000			482,000
	Other receivables			103,000			83,000

		Total current assets		7,962,000			7,555,000
Plant and equipment, net of accumulated depreciation and amortization of $4,927,000 in 2008 and $4,678,000 in 2007				4,701,000			4,847,000
Other assets				107,000			92,000

			$	12,770,000		$	12,494,000

Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable		$	2,834,000		$	2,728,000
	Accrued payroll and payroll taxes			896,000			1,115,000
	Other accrued expenses			202,000			202,000
	Liabilities related to assets held for sale			2,085,000			2,046,000
	Current obligations under notes payable			2,700,000			2,700,000

		Total current liabilities		8,717,000			8,791,000
Other long-term liabilities				631,000			631,000

Shareholders' equity:
	Common stock, no par value—20,000,000 shares authorized, 9,564,955 issued and outstanding in 2008 and 8,799,955 in 2007			15,980,000			15,717,000
	Accumulated deficit			(12,558,000	)		(12,645,000	)

		Total shareholders' equity		3,422,000			3,072,000

			$	12,770,000		$	12,494,000

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

HEMACARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (OPERATIONS)

For the Three Months Ended March 31,

			2008		Reclassified 2007
Revenues
	Blood products		$	6,672,000	$	6,487,000
	Blood services			1,936,000		1,867,000

		Total revenue		8,608,000		8,354,000
Operating costs and expenses
	Blood products			5,766,000		5,779,000
	Blood services			1,337,000		1,418,000

		Total operating costs and expenses		7,103,000		7,197,000
		Gross profit		1,505,000		1,157,000
General and administrative expenses				1,413,000		1,474,000

Income (loss) from continuing operations before income taxes				92,000		(317,000	)
Provision for income taxes				5,000		—

Income (loss) from continuing operations				87,000		(317,000	)
Discontinued Operations
Loss from discontinued operations				—		(30,000	)

Net income (loss)			$	87,000	$	(347,000	)

Income (loss) per share
Basic
	Continuing Operations		$	0.01	$	(0.04	)

	Discontinued Operations		$	—	$	—

	Total		$	0.01	$	(0.04	)

Diluted
	Continuing Operations		$	0.01	$	(0.04	)

	Discontinued Operations		$	—	$	—

	Total		$	0.01	$	(0.04	)

Weighted average shares outstanding—basic				8,909,000		8,496,000

Weighted average shares outstanding—diluted				9,053,000		8,496,000

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

HEMACARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31,

			2008			Reclassified 2007
Cash flows from operating activities:
	Net income (loss)		$	87,000		$	(347,000	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Loss from Discontinued Operations		—			30,000
		Provision for bad debts		(23,000	)		39,000
		Depreciation and amortization		253,000			234,000
		Loss on disposal of assets		3,000			—
		Share-based compensation		41,000			116,000
Changes in operating assets and liabilities:
	(Increase) decrease in accounts receivable			(24,000	)		1,078,000
	(Increase) decrease in inventories, supplies and prepaid expenses			(151,000	)		297,000
	(Increase) decrease in other receivables			(20,000	)		235,000
	Increase in other assets			(15,000	)		(11,000	)
	Decrease in accounts payable, accrued expenses and other liabilities			(113,000	)		(1,126,000	)

	Net cash provided by operating activities			38,000			545,000
Cash flows from investing activities:
	Investment in goodwill			—			(657,000	)
	Purchases of plant and equipment			(110,000	)		(289,000	)

	Net cash used in investing activities			(110,000	)		(946,000	)
Cash flows from financing activities:
	Proceeds from sale of common stock			222,000			—
	Principal payments on debt and capitalized leases			—			(7,000	)
	Proceeds from line of credit			—			(25,000	)

	Net cash provided by (used in) financing activities			222,000			(32,000	)

Net cash provided by (used in) Continuing Operations				150,000			(433,000	)
Cash Flows—Discontinued Operations
	Net cash provided by (used in) operating activities			278,000			(170,000	)
	Net cash used in investing activities			—			(36,000	)

Net cash provided by (used in) Discontinued Operations				278,000			(206,000	)

Increase (decrease) in cash and cash equivalents				428,000			(639,000	)
Cash and cash equivalents at beginning of period				556,000			1,136,000

Cash and cash equivalents at end of period			$	984,000		$	497,000

Supplemental disclosure:
	Interest paid		$	42,000		$	48,000

	Income taxes paid		$	5,000		$	85,000

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

HemaCare Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1—Basis of Presentation and General Information

BASIS OF PRESENTATION

In the opinion of management, the accompanying (a) consolidated balance sheet as of December 31, 2007, which has been derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements for the three months ended March 31, 2008 and 2007 include all adjustments (consisting of normal recurring accruals) which management considers necessary to present fairly the financial position of the Company as of March 31, 2008, the results of its operations for the three months ended March 31, 2008 and 2007, and its cash flows for the three months ended March 31, 2008 and 2007 in conformity with accounting principles generally accepted in the United States.

These financial statements have been prepared consistently with the accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on April 14, 2008 which should be read in conjunction with this Quarterly Report on Form 10-Q. The notes from the consolidated financial statements for 2007 are incorporated by reference from the Notes to Consolidated Financial Statements as of December 31, 2007 as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2007. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the consolidated results of operations to be expected for the full fiscal year ending December 31, 2008. The following unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

USE OF ESTIMATES

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

Revenues and Accounts Receivable: Revenues are recognized upon acceptance of the blood products or the performance of blood services. Occasionally the Company receives advance payment against future delivery of blood products or services. Until the related products or services are delivered, the Company records advance payments as deferred revenue, which appears as a current liability on the balance sheet. Blood services revenues consist primarily of mobile therapeutics sales, while blood products revenues consist primarily of sales of single donor platelets, whole blood components or other blood products that are manufactured or purchased and distributed by the Company. Accounts receivable are reviewed periodically for collectibility. The Company estimates an allowance for doubtful accounts based on balances owed that are 90 days or more past due from the invoice date, unless evidence exists, such as subsequent cash collections, that specific amounts are collectable. In addition, balances less than 90 days past due are reserved based on the Company's recent bad debt experience.

Inventories and Supplies: Inventories consist of Company-manufactured platelets, whole blood components and other blood products, as well as component blood products purchased for resale. Supplies consist primarily of medical supplies used to collect and manufacture products and to provide

therapeutic services. Inventories are stated at the lower of cost or market and are accounted for on a first-in, first-out basis. Management estimates the portion of inventory that might not have future value by analyzing historical sales history for the twelve months prior to any balance sheet date. For each inventory type, management establishes an obsolescence reserve equal to the value of inventory quantity in excess of twelve months of historical sales quantity, using the first-in, first-out inventory valuation methodology. The Company did not record any reserves for obsolete inventory for continuing operations in first quarter of 2008 or year ended December 31, 2007. The Company recorded reserves for obsolete inventory for discontinued operations of $1,302,000 as of both March 31, 2008 and December 31, 2007.

Share-Based Compensation: In accordance with Statement of Financial Accounting Standards ("SFAS") No. 123R, Share-based Payment: An Amendment of FASB Statements No. 123 and 95 ("SFAS 123R"), the Company recognizes compensation expense related to stock options granted to employees based on: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of the balance sheet date, based on the grant date fair value estimated in accordance with SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), and (b) compensation cost for all share-based payments granted subsequent to the balance sheet date, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

The Company's assessment of the estimated fair value of the stock options, restricted stock units and restricted stock grants are impacted by the price of the Company's stock, as well as assumptions regarding a number of complex and subjective variables and the related tax impact. Management utilized the Black-Scholes model to estimate the fair value of stock options granted. Generally, the calculation of the fair value for options granted under SFAS 123R is similar to the calculation of fair value under SFAS 123, with the exception of the treatment of forfeitures.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model also requires the input of highly subjective assumptions including:

(a): The expected volatility of the common stock price, which was determined based on historical volatility of the Company's common stock;
(b): Expected dividends, which are not anticipated;
(c): Expected life of the stock option, which is estimated based on the historical stock option exercise behavior of employees; and
(d): Expected forfeitures.

In the future, management may elect to use different assumptions under the Black-Scholes valuation model or a different valuation model, which could result in a significantly different impact on earnings.

The Company currently uses the 2006 Equity Incentive Plan approved by shareholders at the 2006 annual meeting to grant options, and other share-based awards, since the 1996 Stock Incentive Plan expired in 2006. At the March 19, 2008 meeting of the Board of Directors, the non-employee directors were awarded their 2008 annual options utilizing the closing stock price on March 19, 2008, the date of the meeting. Since this grant was intended as compensation for annual service, and since the vesting policy requires quarterly vesting of non-employee director options, the Company recorded $8,000 of share-based compensation for the first quarter of 2008 utilizing the Black-Scholes valuation model. In addition, the Board of Directors awarded stock options, restricted stock units and restricted stock grants during the first quarter of 2008 to members of senior management.

Income Taxes: The process of preparing the financial statements requires management estimates of income taxes in each of the jurisdictions that the Company operates. This process involves estimating current tax exposure together with assessing temporary differences resulting from differing treatment of

items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the balance sheet. Under the provisions of SFAS No. 109, Accounting for Income Taxes, the Company must utilize an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Management must assess the likelihood that the deferred tax assets or liabilities will be realized for future periods, and to the extent management believes that realization is not likely, must establish a valuation allowance. To the extent a valuation allowance is created or adjusted in a period, the Company must include an expense or benefit within the tax provision in the statements of operations.

Significant management judgment is required in determining the provision for income taxes, deferred tax asset and liabilities and any valuation allowance recorded against net deferred tax assets. It is possible that different tax models, and the selection of different input variables, could produce a materially different estimate of the provision, asset, liability and valuation allowance. As of the end of 2006, management determined that $622,000 of deferred tax asset was likely to be realized, and therefore reduced the valuation reserve for deferred tax assets, along with the corresponding benefit from income taxes in the accompanying period. Due to a net loss recorded for 2007 the Company increased the valuation allowance to 100%, resulting in the elimination of the deferred tax asset from the Company's balance sheet as of December 31, 2007, and a related charge to the provision for income taxes. Management evaluated the deferred tax asset valuation as of March 31, 2008 and determined not to change the valuation reserve.

Reclassification: Certain prior year amounts have been reclassified to conform to the current year presentation. In November 2007, the Board of Directors of HemaCare BioScience, Inc. ("HemaBio") closed its Florida-based research blood products operation. Accordingly, the financial results for this operation have been reported as discontinued operations, and this subsidiary's assets and liabilities as held for sale, in the consolidated financial statements as of March 31, 2008 and as of December 31, 2007. Since the consolidated financial statements for the quarter ended March 31, 2007 previously reported HemaBio as part of continuing operations, the financial results and cash flow statement have been reclassified to reflect the change in the status of HemaBio as a discontinued operation in accordance with Statement of Financial Accounting Standards No. 144, Accounting for Impairment and Disposal of Long-Lived Assets. The following reconciles the financial statements for the three months

ended March 31, 2007 as originally reported, with those reclassified financial statements presented along with the 2008 financial statements:

HEMACARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Reclassification for the Three Months Ended March 31, 2007

			As Reported			Discontinued Operations			Reclassified
Revenues
	Blood products		$	7,489,000		$	1,002,000		$	6,487,000
	Blood services			1,867,000						1,867,000

		Total revenue		9,356,000			1,002,000			8,354,000
Operating costs and expenses
	Blood products			6,811,000			1,032,000			5,779,000
	Blood services			1,418,000						1,418,000

		Total operating costs and expenses		8,229,000			1,032,000			7,197,000
		Gross profit		1,127,000			(30,000	)		1,157,000
General and administrative expenses				1,474,000			—			1,474,000

Loss before income taxes				(347,000	)		(30,000	)		(317,000	)
Provision for income taxes				—			—			—

Net loss			$	(347,000	)	$	(30,000	)	$	(317,000	)

CONCENTRATION OF CREDIT RISK

The Company maintains cash balances at various financial institutions. Deposits not exceeding $100,000 for each institution are insured by the Federal Deposit Insurance Corporation. At March 31, 2008 and December 31, 2007, the Company had uninsured cash and cash equivalents of $781,000 and $337,000, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board ("FASB") issued FAS No. 157, Fair Value Measurements ("FAS 157"). FAS 157 establishes a common definition for fair value under GAAP, establishes a framework for measuring fair value and expands disclosure requirements about such fair value measurements. FAS 157 was effective for fiscal years beginning after November 15, 2007. In December 2007, the FASB also issued Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS No. 157 to fiscal years and interim periods within those fiscal years beginning after November 15, 2008, for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company is evaluating the impact, if any, that the adoption of SFAS No. 157 will have on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations ("SFAS 141R"), which replaces SFAS No. 141, Business Combinations ("SFAS 141") . SFAS 141R establishes principles and requirements for how an acquiring entity in a business combination would recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; recognizes and measures any goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R retains certain fundamental requirements of SFAS 141, but also clarifies the definition of

an acquirer in a business combination, and expands its scope to apply to all transactions and events in which one entity obtains control over one or more other businesses. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect that the issuance of SFAS 141R will have an impact on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 ("SFAS 160"), which establishes accounting and reporting for noncontrolling interests, referred to in current GAAP as minority interests, in a subsidiary and for the deconsolidation of a subsidiary. Under SFAS 160, noncontrolling interests shall be reported as equity in the consolidated financial statements. On the statement of operations, SFAS 160 requires disclosure of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest, thereby eliminating diversity in practice and providing transparency in disclosure. SFAS 160 also simplifies accounting standards by establishing a single method of accounting for changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation; and requires that, when a subsidiary is deconsolidated, a parent will recognize gain or loss in net income. SFAS 160 further requires expanded disclosures surrounding the interests of the parent's owners and the interests of the noncontrolling owners of a subsidiary. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. This Statement shall be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The Company does not expect that the issuance of SFAS 160 will have an impact on its consolidated financial statements.

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, our management believes that the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

Note 2—Inventory

Inventories are comprised of the following as of:

	March 31, 2008		December 31, 2007
Continuing Operations
Supplies	$	769,000	$	839,000
Blood products		567,000		281,000

Total continuing operations	$	1,336,000	$	1,120,000
Discontinued Operations
Blood products		—		90,000

Total discontinued operations	$	—	$	90,000

Total	$	1,336,000	$	1,210,000

Note 3—Discontinued Operations

On November 5, 2007, the Board of Directors of the Company's Florida subsidiary, HemaCare BioScience, Inc. ("HemaBio") closed this operation to avoid further losses. On December 4, 2007, HemaBio executed an Assignment for Benefit of Creditors, under Florida Statutes Section 727.101 et

seq., assigning all of its assets to an assignee, who is responsible for taking possession of, protecting, preserving, and liquidating such assets and ultimately distributing the proceeds to creditors of HemaBio according to their priorities as established by Florida law. The assignee continues to fulfill his obligations under the Assignment, but has not concluded his efforts to liquidate all of the assets or distribute any proceeds to HemaBio's creditors.

Per Statement of Financial Accounting Standards No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the results of operations of HemaBio, along with all closure related costs are reflected in the December 31, 2007 financial statements. The following is the breakdown of the assets held for sale and the liabilities related to the assets held for sale for the discontinued operation:

HEMACARE CORPORATION

Discontinued Operations

		March 31, 2008		December 31, 2007
Assets held for sale
Cash and cash equivalents		$	414,000	$	136,000
Accounts receivable, net of allowance for
	doubtful accounts of $133,000 in both 2008 and 2007		61,000		210,000
Product inventories and supplies			—		90,000
Other receivables			7,000		7,000
Plant and equipment, net of accumulated depreciation and amortization of $133,000 in both 2008 and 2007			39,000		39,000

	Total assets held for sale	$	521,000	$	482,000

Liabilities related to assets held for sale
Accounts payable		$	832,000	$	832,000
Accrued payroll and payroll taxes			603,000		603,000
Other accrued expenses			150,000		111,000
Current obligations under notes payable			500,000		500,000

	Total liabilities related to assets held for sale	$	2,085,000	$	2,046,000

Per the American Institute of Certified Public Accountants Statements of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code ("SOP 90-7"), an entity in some form of reorganization, such as the assignment for benefit of creditors action filed for HemaBio in Florida, an entity shall not recognize any gain from the relief of any obligation until relief is ordered by the courts, or a settlement of creditors is finalized. Since no conveyance of assets, settlement with creditors or court action granting HemaBio relief from any creditors' claims has been obtained, HemaBio's liabilities remain, and will remain, recorded at full value on the financial statements of the Company as "liabilities related to assets held for sale" until such conveyance, settlement or court action is complete.

Note 4—Line of Credit and Notes Payable

On September 26, 2006, the Company, together with the Company's subsidiaries Coral Blood Services, Inc. and HemaBio, entered into an Amended and Restated Loan and Security Agreement ("Comerica Agreement") with Comerica Bank ("Comerica") to provide a working capital line of credit. The Comerica Agreement restated the terms of the prior credit agreement with Comerica, with the following revisions: i) the limits on the amount the Company may borrow were changed to the lesser of 75% of eligible accounts receivable or $3 million, ii) HemaBio was added as an additional borrower, iii) Comerica was given a security interest in all of the assets of HemaBio, and vi) the term of the Comerica Agreement was extended one year to June 30, 2008. On March 26, 2007, the Comerica

Agreement was amended by the First Modification which increased the line of credit from $3 million to $4 million. The Comerica Agreement provided that interest is payable monthly at a rate of prime minus 0.25%. As of March 31, 2008, the rate associated with this credit facility was 5.00%. In addition, the Company had the option to draw against this facility for thirty, sixty or ninety days using LIBOR as the relevant rate of interest. As of March 31, 2008, the Company had borrowed $2,500,000 on this line of credit. The Comerica Agreement was collateralized by substantially all of the Company's assets and required the maintenance of certain covenants that, among other things, required minimum levels of profitability and prohibited the payment of dividends.

The Comerica Agreement provided, among other things, that in the event the Company failed to observe any covenants in the Agreement, or permitted a default in any material agreement to which the Company was a party with third parties that results in an acceleration of any indebtedness, then an event of default shall have occurred under the Comerica Agreement, and Comerica may, among other things, declare the Company's indebtedness to Comerica immediately due and payable. As of September 30, 2007, the Company was not in compliance with certain financial covenants in the Comerica Agreement, and Comerica did not provide a waiver of this violation as provided in the past. As of March 31, 2008, the Company's covenant violations remained, and Comerica had not provided a waiver. In addition, as September 19, 2007, the Company was in default on notes to the sellers and other related parties in an aggregate principal amount of $700,000, as described more fully below, in connection with the Company's acquisition of 100% of the capital stock of HemaBio. Each of the notes requires the Company to pay four annual installments representing 25% of the principal balance, plus accrued interest. The first such installment payment was due on August 29, 2007. The Company did not make the first payment under any of the notes, which, in the aggregate, represented a principal amount of $175,000, together with accrued interest of $46,000.

On April 10, 2008, the Company, together with the Company's subsidiary Coral Blood Services, Inc., entered into a Credit and Security Agreement ("Wells Agreement") with Wells Fargo Bank ("Wells Fargo") to provide a $4.75 million revolving line of credit for working capital purposes, and a $250,000 capital expenditure line of credit. The Wells Agreement provides that the Company may borrow the lesser of 85% of eligible accounts receivables or $4.75 million with respect to the revolving line of credit. The term of the Wells Agreement is three years. Interest on the working capital line of credit is payable monthly at a rate of the Wells Fargo prime rate minus 0.25%, and interest on the capital expenditures line of credit is payable monthly at the Wells Fargo prime rate. As of April 10, 2008, the Wells Fargo prime rate was 5.25%. The Wells Agreement is collateralized by substantially all of the Company's assets and requires the maintenance of certain covenants that, among other things, require minimum levels of profitability and prohibit the payment of dividends.

Upon closing of the Wells Agreement, the Company used the available proceeds to payoff the outstanding debt obligation to Comerica in full. In exchange, the Company and Comerica terminated the Comerica Agreement, and Comerica released the security interest in the Company's assets. Therefore, the Company's previous default on the Comerica Agreement is resolved, and the Company is no longer in default on its largest debt obligation.

As part of the consideration to acquire HemaBio, the Company issued a promissory note to both of the sellers. One note for $153,800 for the benefit of Joseph Mauro requires four equal annual installments of $38,450, plus accrued interest, commencing August 29, 2007 until paid. This note pays interest at 5% annually, and is secured through a security agreement, by all of the assets of HemaBio, and was subordinate to Comerica. The second note for $46,200 for the benefit of Valentin Adia, requires four equal annual installments of $11,550, plus accrued interest, commencing August 29, 2007 until paid. This note pays interest at 5% annually is also secured by all of the assets of HemaBio, and was subordinate to Comerica.

The Company failed to pay the first installment due to Mr. Mauro on August 29, 2007 of $46,000, which included $8,000 in accrued interest. Under the terms of the promissory note between the

Company and Mr. Mauro, if an event of default occurs, the interest rate on the outstanding obligation increases to 12%. The Company's failure to pay the first installment is an event of default that triggers an increase in the interest rate. Therefore, since August 29, 2007, the Company has accrued interest expense on the outstanding balance of this note at an interest rate of 12%. In addition, in the event of a default, Mr. Mauro has the option to declare all unpaid balances, including unpaid interest, immediately due and payable. The Company has not received any such declaration from Mr. Mauro.

The Company failed to pay the first installment due to Mr. Adia on August 29, 2007 of $15,000, which included $3,000 in accrued interest. Under the terms of the promissory note between the Company and Mr. Adia, if an event of default occurs, Mr. Adia has the option to declare all unpaid balances, including unpaid interest, immediately due and payable. The Company's failure to pay the first installment is an event of default that would entitle Mr. Adia to make such a declaration. The Company has not received any such declaration from Mr. Adia.

When the Company acquired HemaBio, two former HemaBio investors, Dr. Lawrence Feldman and Dr. Karen Raben, each held a $250,000 note from HemaBio. Both of these notes require four equal annual installments of $62,500, plus accrued interest, commencing August 29, 2007, until paid and pay interest at 7% annually, and are secured by all of the assets of HemaBio, and were subordinate to Comerica.

HemaBio failed to pay the first installments due to Drs. Feldman and Raben on August 29, 2007 of $160,000, which included $35,000 in accrued interest. Under the terms of the promissory notes between HemaBio and Drs. Feldman and Raben, failure to pay any of the scheduled payments when due causes the entire unpaid balance, including unpaid interest, to become immediately due and payable, and causes the stated interest rate on both notes to increase to 10% per annum. Therefore, since August 29, 2007, HemaBio recognized accrued interest expense on the outstanding balance on both notes at an interest rate of 10%.

The foregoing descriptions of the notes and the Comerica Agreement are qualified in their entirety by the copies of those agreements filed as exhibits to the Company's Current Reports on Form 8-K filed with the SEC on September 5, 2006, September 29, 2006 and March 28, 2007.

Note 5—Severance to Chief Executive Officer

On June 28, 2007, Judi Irving resigned as the Company's President and Chief Executive Officer, and as a member of the Company's Board of Directors. Based on the terms of Ms. Irving's employment letter of November 26, 2002, and in exchange for a release of any employment related claims Ms. Irving could assert against the Company, the Company agreed to pay Ms. Irving one year of her salary as of the date of her separation, payable in 26 equal bi-weekly installments. In addition, the Company agreed to pay Ms. Irving's health and dental coverage for 18 months on the same terms that existed just prior to Ms. Irving's separation from the Company. The Company recognized a charge to general and administrative expenses in 2007 of $326,000 as the total cost of the separation obligation to Ms. Irving. As of March 31, 2008, $112,000 of this obligation remained unpaid and is included on the balance sheet in accrued payroll and payroll taxes.

Note 6—Shareholders' Equity

The Company recognizes share-based compensation expense per SFAS 123R. This statement requires that the cost resulting from all share-based payment transactions be recognized in the Company's consolidated financial statements. In addition, in March 2005 the SEC released SEC Staff Accounting Bulletin No. 107, Share-Based Payment ("SAB 107"). SAB 107 provides the SEC's staff's position regarding the application of SFAS 123R and certain SEC rules and regulations, and also provides the staff's views regarding the valuation of share-based payment arrangements for public companies. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123.

However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values.

Per SFAS 123R, the Company recognizes share-based compensation expense as: (a) the cost for all share-based payments granted prior to, but not yet vested as of the beginning of the reporting period, based on the grant date fair value estimated in accordance with SFAS 123R, and (b) cost for all share-based payments granted and vested during the reporting period, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

For the three months ended March 31, 2008, the Company recognized non-cash share-based compensation costs of $41,000 per SFAS 123R, including $8,000 of estimated share-based compensation for non-employee director options. (see Note 1)

The following summarizes the activity of the Company's stock options for the three months ended March 31, 2008:

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Number of shares under option:
Outstanding at January 1, 2008	1,829,000	$	1.32
Granted	180,000		0.26
Exercised	—		—
Canceled or expired

Outstanding at March 31, 2008	2,009,000	$	1.22	4.9

Exercisable at March 31, 2008	1,638,250	$	1.28	4.4

The following summarizes the activity of the Company's stock options that have not vested for the three months ended March 31, 2008:

	Shares		Weighted Average Fair Value
Nonvested at January 1, 2008	284,000		$	0.93
Granted	180,000			0.24
Vested	(93,250	)		0.88
Canceled	—			—

Nonvested at March 31, 2008	370,750		$	0.87

The following summarizes the activity of the Company's restricted stock units for the three months ended March 31, 2008:

	Shares	Weighted Average Exercise Price
Restricted Stock Units:
Outstanding at January 1, 2008	—		—
Granted	47,200	$	0.25
Exercised	—		—
Canceled or expired	—		—

Outstanding at March 31, 2008	47,200	$	0.25

Exercisable at March 31, 2008	—		—

The following summarizes the activity of the Company's restricted stock units that have not vested for the three months ended March 31, 2008:

	Shares	Weighted Average Fair Value
Nonvested at January 1, 2008	—	$	—
Granted	47,200		0.24
Vested	—		—
Canceled	—		—

Nonvested at March 31, 2008	47,200	$	0.24

The following summarizes the activity of the Company's restricted stock for the three months ended March 31, 2008:

	Shares	Weighted Average Exercise Price
Restricted Stock:
Outstanding at January 1, 2008	—		—
Granted	115,385	$	0.26
Exercised	—		—
Canceled or expired	—		—

Outstanding at March 31, 2008	115,385	$	0.26

Exercisable at March 31, 2008	—		—

The following summarizes the activity of the Company's restricted stock that have not vested for the three months ended March 31, 2008.

	Shares	Weighted Average Fair Value
Nonvested at January 1, 2008	—		—
Granted	115,385	$	0.24
Vested	—		—
Canceled	—		—

Nonvested at March 31, 2008	115,385	$	0.24

As of March 31, 2008, there was $281,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under existing share-based awards. This cost is expected to be recognized over a weighted-average period of 2.3 years. The total measurement fair value of shares vested during the three-months ended March 31, 2008 was $82,000.

The Black-Scholes option pricing model is used by the Company to determine the weighted average fair value of share-based awards. The fair value at date of grant and the assumptions utilized to determine such values are indicated in the following table:

	Three Months Ended March 31,
	2008			2007
Weighted average fair value at date of grant awarded during the period	$	0 .24		$	—
Weighted average fair value at date of grant vested during the period	$	0.88		$	1.30
Risk-free interest rates		4.0	%		5.0	%
Expected stock price volatility		160.0	%		85.4	%
Expected dividend yield		0	%		0	%
Expected forfeitures		6.10	%		0.00	%

At the Company's annual meeting of shareholders held on May 24, 2006, the shareholders approved the 2006 Equity Incentive Plan ("2006 Plan"). The purpose of the 2006 Plan is to encourage ownership in the Company by key personnel whose long-term service is considered essential to the Company's continued progress, thereby linking these employees directly to stockholder interests through increased stock ownership. A total of 1,200,000 shares of the Company's common stock have been reserved for issuance under the 2006 Plan. As of March 31, 2008, the Company had utilized 607,585 of the shares reserved under the 2006 Plan, and 592,415 shares remain available. Awards may be granted to any employee, director or consultant, or those of the Company's affiliates.

Note 7—Earnings per Share

The following table provides the calculation methodology for the numerator and denominator for diluted earnings per share:

	Three Months Ended March 31,
	2008		2007
Continuing Operations
Net income (loss)	$	87,000	$	(317,000	)

Weighted average shares outstanding		8,909,000		8,496,000
Net effect of dilutive options and warrants		144,000		—

Diluted shares outstanding		9,053,000		8,496,000

	Three Months Ended March 31,
	2008		2007
Discontinued Operations
Net loss	$	—	$	(30,000	)

Weighted average shares outstanding		8,909,000		8,496,000
Net effect of dilutive options and warrants		144,000		—

Diluted shares outstanding		9,053,000		8,496,000

Options outstanding of 1,467,000 and 990,000 shares of common stock for the three months ended March 31, 2008 and March 31, 2007, respectively, have been excluded from the above calculation because their effect would have been anti-dilutive.

Note 8—Provision for Income Taxes

The process of preparing the financial statements includes estimating income taxes in each of the jurisdictions that the Company operates. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the balance sheet. Under the provisions of SFAS No. 109, Accounting for Income Taxes, the Company must utilize an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Management must assess the likelihood that the deferred tax assets or liabilities will be realized for future periods, and to the extent management believes that realization is not likely, must establish a valuation allowance. To the extent a valuation allowance is created or adjusted in a period, the Company must include an expense, or benefit, within the tax provision in the statements of operations. Significant management judgment is required in determining the provision for income taxes, deferred tax asset and liabilities and any valuation allowance recorded against net deferred tax assets.

In the first quarter of 2006, the Company adopted the fair value recognition provisions of SFAS 123R pertaining to share-based compensation transactions. This adoption creates temporary differences between GAAP based net income and tax based net income because the compensation deduction permitted under SFAS 123R is not deductible for taxes. When option holders exercise their rights to purchase the Company's shares, the Company is entitled to take a tax deduction, eliminating the temporary difference created when the option rights vested. The Company recognized $41,000 in compensation expense related to SFAS 123R in the first quarter of 2007. As a result of the temporary difference created, the Company's deferred tax asset balance increased $10,000. The Company recalculated the valuation reserve to include the addition to the deferred tax asset which resulted in no net change in the deferred tax asset reported on the balance sheet.

As of the end of 2007, management determined that the Company was not likely to benefit from $622,000 in tax savings from available net operating losses to be realized in future periods, and therefore increased the deferred tax asset valuation to 100%. The Company will continue to evaluate the deferred tax asset valuation reserve each quarter based on the reportable income for each quarter. As of March 31, 2008, the Company recalculated the valuation reserve to include the results of operations in the quarter which resulted in no net change in the deferred tax asset reported on the balance sheet. The Company may choose to change this reserve in future periods.

Note 9—Business Segments

HemaCare operates two business segments as follows:

•: Blood Products—Collection, processing and distribution of blood products and donor testing.

•: Blood Services—Therapeutic apheresis, stem cell collection procedures and other therapeutic services to patients.

There were no intersegment revenues for either the three month periods ended March 31, 2008, and March 31, 2007.

Note 10—Commitments and Contingencies

State and federal laws set forth anti-kickback and self-referral prohibitions and otherwise regulate financial relationships between blood banks and hospitals, physicians and other persons who refer business to them. While the Company believes its present operations comply with applicable regulations, there can be no assurance that future legislation or rule making, or the interpretation of existing laws and regulations, will not prohibit or adversely impact the delivery by HemaCare of its services and products.

Healthcare reform is continuously under consideration by lawmakers, and it is not certain as to what changes may be made in the future regarding health care policies. However, policies regarding reimbursement, universal health insurance and managed competition may materially impact the Company's operations.

The Company is party to various claims, actions and proceedings incidental to its normal business operations. The Company believes the outcome of such claims, actions and proceedings, individually and in the aggregate, will not have a material adverse effect on the business and financial condition of the Company.

Note 11—Subsequent Events

On April 10, 2008, the Company, together with the Company's subsidiary Coral Blood Services, Inc., entered into a Credit and Security Agreement ("Wells Agreement") with Wells Fargo Bank ("Wells Fargo") to provide a $4.75 million revolving line of credit for working capital purposes, and a $250,000 capital expenditure line of credit. The Wells Agreement provides that the Company may borrow the lesser of 85% of eligible accounts receivables or $4.75 million, with respect to the revolving line of credit. The term of the Wells Agreement is three years. Interest on the working capital line of credit is payable monthly at a rate of the Wells Fargo prime rate minus 0.25%, and interest on the capital expenditures line of credit is payable monthly at the Wells Fargo prime rate. As of April 10 2008, the Wells Fargo prime rate was 5.25%. The Wells Agreement is collateralized by substantially all of the Company's assets and requires the maintenance of certain covenants that, among other things, require minimum levels of profitability and prohibit the payment of dividends.

Upon closing of the Wells Agreement, the Company used the available proceeds to pay off the outstanding debt obligation to Comerica in full. In exchange, the Company and Comerica terminated the Comerica Agreement, and Comerica released the security interest in the Company's assets. Therefore, the Company's previous default on the Comerica Agreement was resolved, and the Company was no longer in default on its largest debt obligation. The Company's default on the notes to Messrs. Mauro and Adia remain unresolved, and HemaBio's default on notes to Drs. Feldman and Raben also remain unresolved.

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

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's financial statements and the related notes provided under "Item 1-Financial Statements" above.

The matters discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements. These statements may also be identified by the use of words such as "anticipate," "believe," "continue," "estimate," "expect," "intend," "may," "project," "will" and similar expressions, as they relate to the Company, its management and its industry. Investors and prospective investors are cautioned that these forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results could differ materially from those described in this report because of numerous factors, many of which are beyond the Company's control. These factors include, without limitation, those described below under the heading "Risk Factors Affecting the Company." The Company does not undertake to update its forward-looking statements to reflect later events and circumstances or actual outcomes.

General

HemaCare Corporation ("HemaCare" or the "Company") provides the customized delivery of blood products and services. The Company collects, processes and distributes blood products to hospitals and research related organizations. The Company operates and manages donor centers and mobile donor vehicles to collect transfusable blood products from donors. Additionally, the Company provides blood related services, principally therapeutic apheresis procedures, stem cell collection and other blood treatments to patients with a variety of disorders. Blood related therapeutic services are usually provided to hospitals under contract as an outside purchased service.

The Company has operated in Southern California since 1979. In 1998, the Company expanded operations to include portions of the eastern United States. In 2003, the Company reduced the number of geographic regions served as part of a restructuring plan to return the Company to profitability. From 2003 through 2006, the Company's earnings improved as a result of the successful implementation of this plan. In August 2006, the Company acquired Florida based Teragenix Corporation, subsequently renamed HemaCare BioScience, Inc. ("HemaBio"), which sourced, processed and distributed human biological specimens, manufactured quality control products and provided clinical trial management and support services. For a description of the terms of this acquisition, see the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 15, 2006. As a result of projected losses by HemaBio in the third and fourth quarters of 2007 and the resignations of key members of HemaBio's management, the Board of Directors of HemaBio, in consultation with, and with the approval of, the Board of Directors of the Company, determined HemaBio's business could not operate without senior management, and therefore closed all operations of HemaBio, effective November 5, 2007.

The Company's current strategy is to focus on increasing the utilization of existing blood products capacity in those markets currently served through investment in new marketing campaigns and expanded and enhanced donor recruitment programs, and to expand the market potential for therapeutic apheresis services through physician education and other marketing efforts.

Although most suppliers of transfusable blood products are organized as not-for-profit, tax-exempt organizations, all suppliers charge fees for blood products to cover their cost of operations. The Company believes that it is the only investor-owned and taxable organization operating as a transfusable blood supplier with significant operations in the U.S.

The Company was incorporated in the state of California in 1978.

Results of Operations

Three months ended March 31, 2008 compared to the three months ended March 31, 2007

Overview

The Company's continuing operations generated revenue for the first quarter of 2008 of $8,608,000, an increase of $254,000, or 3%, compared to the same period of 2007. Blood products revenue increased $185,000, or 3%, while blood services revenue increased $69,000, or 4%.

Gross profit in the first quarter of 2008 increased $348,000, or 30%, compared to the first quarter of 2007 and is attributable to a $198,000, or 28% increase in gross profit for the Company's blood products business segment, and a $150,000, or 33%, increase in gross profit for the Company's blood services business segment. The gross profit percentage increased to 17.5% in the quarter compared to 13.8% for the same period of 2007.

The Company generated net income from continuing operations of $87,000 for the first quarter of 2008, compared with a net loss of $317,000 in 2007. This increase is attributable to the improvement in gross profit from both of the Company's business segments.

Blood Products—Continuing Operations

For the three months ended March 31, 2008, blood products revenue increased $185,000, or 3%, to $6,672,000 from $6,487,000 for the same quarter of 2007. This increase is mainly attributable to i) an almost 16% increase in revenue at the Company's Maine operations attributable to enhanced recruitment capability, ii) selected product price increases, and iii) a 38% increase in revenue from the sales of products purchased from other suppliers.

For the three months ended March 31, 2008, blood products gross profit increased $198,000, or 28%, to $906,000 from $708,000 in first quarter of 2007. The increase is a result of improvement in the gross profit generated by the Company's Maine operations, mostly due to higher collection volumes and lower staff and overhead related costs. The Company's California blood products operations generated approximately the same level of gross profit in the first quarter of 2008 as in the same period in 2007.

Blood Services

Blood services revenue increased $69,000, or 4%, to $1,936,000 in the first quarter of 2008 from $1,867,000 generated in the same period of 2007. This business segment performed approximately 3% fewer procedures in the first quarter of 2008 compared to the same period in 2007. The increase in revenue is attributable to an increase in the average sales price charged for full service procedures performed in the Company's Mid-Atlantic region. Full service procedures include the use of Company owned equipment, as well as providing clinical staff to perform the procedure.

Blood services gross profit increased $150,000, or 33%, from $449,000 in the first quarter of 2007 to $599,000 during the same period of 2008, resulting in an increase in the gross profit percentage to 31% from 24%. This improvement is mostly from more efficient staff utilization that resulted in a decrease in staff related costs.

General and Administrative Expenses

General and administrative expenses decreased by $61,000, or 4%, to $1,413,000 in the first quarter of 2008 from $1,474,000 in the same period of 2007. The reduction is the result of a $72,000 decrease in share-based compensation due to the lower market value of the Company's common stock, and a $45,000 decrease in outside services as a result of an effort to reduce the utilization of temporary help and outside consultants. Partially offsetting these decreases were increases of $23,000 in insurance

expense and $16,000 in interest expense. The cost of insurance increased as a result of higher insurance premiums upon renewal of the Company's liability insurance policy in the second quarter of 2007, mostly attributable to the addition of HemaBio. The increase in interest expense is a result of the increased use of the Company's line of credit and the increase in interest rate on the Joseph Mauro note due to the Company's default on this obligation. For the first quarter of 2008, general and administrative expenses represented 16.4% of revenue from continuing operations, compared to 17.6% for the same quarter of 2007.

Income Taxes

The Company recorded $5,000 to the income tax provision in the first quarter of 2008 as a result of the net income recognized in the quarter.

In the first quarter of 2006, the Company adopted the fair value recognition provisions of SFAS 123R pertaining to share-based compensation transactions. This adoption creates temporary differences between GAAP based net income and tax based net income because the compensation deduction permitted under SFAS 123R is not deductible for taxes. When option holders exercise their rights to purchase the Company's shares, the Company is entitled to take a tax deduction, eliminating the temporary difference created when the option rights vested. The Company recognized $41,000 in compensation expense related to SFAS 123R in the first quarter of 2008. As a result of the temporary difference created, the Company's deferred tax asset balance increased $10,000. The Company recalculated the valuation reserve to include the addition to the deferred tax asset which resulted in no net change in the deferred tax asset reported on the balance sheet.

Discontinued Operations

In the first six months of 2007, HemaBio, produced significantly lower earnings than anticipated by the Company and HemaBio's management team. In the third quarter of 2007, HemaBio's management team projected a net loss from operations of approximately $300,000, and projected further losses for the fourth quarter of 2007 as well. On November 2, 2007, HemaBio received letters of resignation from Mr. Joseph Mauro, HemaBio's President, and Mr. Valentin Adia, HemaBio's Vice President of Business Development. Mr. Mauro and Mr. Adia both stated that their resignations were submitted under the "good reason" provisions of their employment agreements. The Board of Directors of HemaBio, in consultation with, and with the approval of, the Board of Directors of the Company, determined that HemaBio's business could not operate successfully because i) HemaBio was always operated as a separate and independent business from the Company, ii) HemaBio's employees, principally Mr. Mauro and Mr. Adia, possessed all knowledge of HemaBio's suppliers, markets and customers, iii) without senior management there were no other individuals at HemaBio who could run the business and find a pathway to future profitability, iv) none of the Company's management were available, nor possessed the knowledge, to take over the responsibility to run HemaBio, and v) the projected operating losses at HemaBio were growing, and HemaBio did not have sufficient financial resources to operate for the time period required to recruit, hire and train new management. Therefore, the Board of Directors of HemaBio decided that it was in the best interest of HemaBio's creditors to close all operations of HemaBio, effective November 5, 2007.

On December 4, 2007, HemaBio executed an Assignment for Benefit of Creditors, under Florida Statutes Section 727.101 et seq. ("Assignment"), assigning all of its assets to an assignee, who is responsible for taking possession of, protecting, preserving, and liquidating such assets and ultimately distributing the proceeds to creditors of HemaBio according to their priorities as established by Florida law. The assignee continues to fulfill his obligations under the Assignment, but has not concluded his efforts to liquidate all of the assets or distribute any proceeds to HemaBio's creditors. See "Note 3—Discontinued Operations." In the first quarter of 2007, HemaBio recorded $30,000 in net loss.

Critical Accounting Policies and Estimates

Use of Estimates

The Company's discussion and analysis of its financial condition and results of operations are based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to valuation reserves, income taxes and intangibles. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Accounting for Share-Based Incentive Programs

In the first quarter of 2008 the Company recognized compensation expense related to stock options, restricted stock units and restricted stock granted to employees based on: (a) the cost for all share-based payments granted prior to, but not yet vested as of December 31, 2007, based on the grant date fair value estimated in accordance with SFAS 123R, adjusted for an estimated future forfeiture rate, and (b) the cost for all share-based payments granted and vested subsequent to December 31, 2007, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.

The Company's assessment of the estimated fair value of stock options, restricted stock units and restricted shares is affected by the price of the Company's stock, as well as assumptions regarding a number of complex and subjective variables and the related tax impact. Management utilized the Black-Scholes model to estimate the fair value of share-based awards. Generally, the calculation of fair value for options granted under SFAS 123R is similar to the calculation of fair value under SFAS 123, with the exception of the treatment of forfeitures.

(a): The expected volatility of the common stock price, which was determined based on historical volatility of the Company's common stock;
(b): Expected dividends, which are not anticipated;
(c): Expected life of the stock option, which is estimated based on the historical stock option exercise behavior of employees; and
(d): Expected forfeitures.

Allowance for Doubtful Accounts

The Company makes ongoing estimates relating to the collectibility of accounts receivable and maintains a reserve for estimated losses resulting from the inability of customers to meet their financial obligations to the Company. In determining the amount of the reserve, management considers the historical level of credit losses and makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Since management cannot predict future changes in the financial stability of customers, actual future losses from uncollectible accounts may differ from the estimates. If the financial condition of customers were to deteriorate, resulting in their inability to make payments, a larger reserve may be required. In the event it is determined that a smaller or larger reserve was appropriate, the Company would record a credit or a charge to general and administrative expense in the period in which such a determination is made.

Inventory

Inventories consist of Company-manufactured platelets, whole blood components and other blood products, as well as component blood products purchased for resale. Supplies consist primarily of medical supplies used to collect and manufacture products and to provide therapeutic services. Inventories are stated at the lower of cost or market and are accounted for on a first-in, first-out basis. Management estimates the portion of inventory that might not have future value by analyzing historical sales history for the twelve months prior to any balance sheet date. For each inventory type, management establishes an obsolescence reserve equal to the value of inventory quantity in excess of twelve months of historical sales quantity, using the first-in, first-out inventory valuation methodology.

Income Taxes

As part of the process of preparing the financial statements, the Company is required to estimate income taxes in each of the jurisdictions that the Company operates. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the balance sheet. Management must then assess the likelihood that the deferred tax assets will be recovered from future taxable income, and to the extent management believes that recovery is not likely, must establish a valuation allowance. To the extent a valuation allowance is created or adjusted in a period, the Company must include an expense, or benefit, within the tax provision in the statements of income.

Significant management judgment is required in determining the provision for income taxes, deferred tax asset and liabilities and any valuation allowance recorded against net deferred tax assets. Management continually evaluates if the deferred tax asset is likely to be realized. If management determines that the deferred tax asset is not likely to be realized, a write-down of that asset would be required and would be reflected in the provision for taxes in the accompanying period.

Liquidity and Capital Resources

As of March 31, 2008, the Company's cash and cash equivalents for continuing operations were $570,000, and the Company had working capital of $809,000.

The Comerica Agreement restated the terms of the prior credit agreement with Comerica, with the following revisions: i) the limits on the amount the Company may borrow were changed to the lesser of 75% of eligible accounts receivable or $3 million, ii) HemaBio was added as an additional borrower, iii) Comerica was given a security interest in all of the assets of HemaBio, and vi) the term of the Comerica Agreement was extended one year to June 30, 2008. On March 26, 2007, the Comerica Agreement was amended by the First Modification which increased the line of credit from $3 million to $4 million. The Comerica Agreement provided that interest is payable monthly at a rate of prime minus 0.25%. As of March 31, 2008, the rate associated with this credit facility was 5.00%. In addition, the Company had the option to draw against this facility for thirty, sixty or ninety days using LIBOR as the relevant rate of interest. As of March 31, 2008, the Company had borrowed $2,500,000 on this line of credit. The Comerica Agreement was collateralized by substantially all of the Company's assets and required the maintenance of certain covenants that, among other things, required minimum levels of profitability and prohibited the payment of dividends.

The Comerica Agreement provided, among other things, that in the event the Company failed to observe any covenants in the Agreement, or permitted a default in any material agreement to which the Company was a party with third parties that results in an acceleration of any indebtedness, then an event of default shall have occurred under the Comerica Agreement, and Comerica may, among other things, declare the Company's indebtedness to Comerica immediately due and payable. As of September 30, 2007, the Company was not in compliance with certain financial covenants in the Comerica Agreement, and Comerica did not provide a waiver of this violation as provided in the past. As of March 31, 2008, the Company's covenant violations remained, and Comerica had not provided a waiver. In addition, as of September 19, 2007, the Company was in default on notes to the sellers and other related parties in an aggregate principal amount of $700,000, as described more fully below, in connection with the Company's acquisition of 100% of the capital stock of HemaBio. Each of the notes requires the Company to pay four annual installments representing 25% of the principal balance, plus accrued interest. The first such installment payment was due on August 29, 2007. The Company did not make the first payment under any of the notes, which, in the aggregate, represented a principal amount of $175,000, together with accrued interest of $46,000.

requires four equal annual installments of $11,550, plus accrued interest, commencing August 29, 2007 until paid. This note pays interest at 5% annually is also secured by all of the assets of HemaBio, and was subordinate to Comerica.

The Company failed to pay the first installment due to Mr. Mauro on August 29, 2007 of $46,000, which included $8,000 in accrued interest. Under the terms of the promissory note between the Company and Mr. Mauro, if an event of default occurs, the interest rate on the outstanding obligation increases to 12%. The Company's failure to pay the first installment is an event of default that triggers an increase in the interest rate. Therefore, since August 29, 2007, the Company has accrued interest expense on the outstanding balance of this note at an interest rate of 12%. In addition, in the event of a default, Mr. Mauro has the option to declare all unpaid balances, including unpaid interest, immediately due and payable. The Company has not received any such declaration from Mr. Mauro.

Future minimum payments under operating leases and notes payable are as follows:

	Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		More than 5 Years
Operating leases	$	5,967,000	$	526,000	$	1,506,000	$	1,404,000	$	2,531,000
Notes payable		3,200,000		3,200,000		—		—		—

Totals	$	9,167,000	$	3,726,000	$	1,506,000	$	1,404,000	$	2,531,000

For continuing operations, for the three months ended on March 31, 2008, net cash provided by operating activities was $38,000, compared to $545,000 for the three months ended March 31, 2007. The decrease of $507,000 in cash provided between the two periods is primarily due to a $24,000 increase in net accounts receivable, compared to a $1,078,000 decrease in this category in the first quarter of 2007. The decrease in 2007 was partially due to the update of customers' files to reflect the Company's address change that slowed collections in the fourth quarter of 2006. HemaCare's DSO stood at 53 days as of March 31, 2008, compared to 53 days as of December 31, 2007. Additionally, increases in inventory, supplies, and prepaid expenses of $151,000 in the first quarter of 2008 compared

to decreases of $297,000 in this category in the first quarter of 2007 contributed to a reduction in cash provided by operations in the quarter. These decreases in cash provided were offset by a $1,013,000 net increase in cash provided as a result of a $113,000 decrease in accounts payable, accrued expenses and other liabilities in 2008, compared with a decrease of $1,126,000 for this purpose in the first three months of 2007.

For the three months ended on March 31, 2008, net cash used in investing activities was $110,000, compared to $946,000 for the same period in 2007. In 2007 the Company invested in goodwill as part of the terms of the purchase of HemaBio, and invested in a new blood bank information system.

For the three months ended March 31, 2008, net cash provided by financing activities was $222,000, compared to net cash used in financing activities of $32,000 for the three months ended March 31, 2007. The difference is due to the purchase of stock from the Company's stock purchase plan by members of the Board of Directors in the first quarter of 2008.

For discontinued operations, cash provided by operating activities in 2008 was $278,000 compared with cash used in operating activities of $170,000 in the first three months of 2007. The cash provided in 2008 was from sales of inventory left over after the close of HemaBio. No cash was used in investing activities during the first quarter of 2008 compared to $36,000 used in the first quarter of 2007.

Management anticipates that cash on hand, availability on the Wells Fargo bank line of credit and cash generated by operations will be sufficient to provide funding for the Company's needs during the next year, including working capital requirements, equipment purchases, operating lease commitments and to fund the new information technology project.

The Company's primary sources of liquidity include cash on hand, available borrowing under the bank line of credit, and cash generated from operations. Liquidity depends, in part, on timely collections of accounts receivable. Any significant delays in customer payments could adversely affect the Company's liquidity. Liquidity also depends on maintaining compliance with the various loan covenants. Presently, the Company, or HemaBio, are in default on the four notes related to the HemaBio acquisition. The Company may not have sufficient liquidity to pay any or all of these outstanding obligations if required to do so.

Risk Factors Affecting the Company

The Company's short and long-term success is subject to many factors that are beyond management's control. Shareholders and prospective shareholders of the Company should consider carefully the following risk factors, in addition to other information contained in this report. The matters discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report on Form 10-K that are not historical are forward-looking statements. These statements may also be identified by the use of words such as "anticipate," "believe," "continue," "estimate," "expect," "intend," "may," "project," "will" and similar expressions, as they relate to the Company, its management and its industry. Investors and prospective investors are cautioned that these forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which will be beyond the control of the Company. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various risks and uncertainties, including those discussed below or in other filings by the Company with the Securities and Exchange Commission. The Company does not undertake to update its forward-looking statements to reflect later events and circumstances or actual outcomes.

Company reported losses for all of 2007 and may not return to profitability

The Company reported losses in each quarter of 2007. Although the Company reported net income in the first quarter of 2008, management can not be certain if the Company will continue to be profitable. Continued losses could result in a drain of cash, and threaten the ability of the Company to continue to operate.

Discontinuation of the operations of the Company's Florida-based research subsidiary may hinder the Company's ability to generate profits

The Company's Florida-based research subsidiary recorded a decrease in revenue and a related increase in operating losses throughout the first three quarters of 2007. On November 5, 2007, the Board of Directors of HemaBio closed this operation to avoid further losses. On December 4, 2007, HemaBio executed an Assignment for Benefit of Creditors, under Florida Statutes Section 727.101 et seq., assigning all of its assets to an assignee, who is responsible for taking possession of, protecting, preserving, and liquidating such assets and ultimately distributing the proceeds to creditors of HemaBio according to their priorities as established by Florida law. These actions could temporarily increase costs, utilize scarce financial resources, and distract management and have a material adverse impact on the Company and its results of operations. In addition, HemaBio creditors could attempt to pursue HemaCare for recovery of unpaid claims if they are not satisfied with the results of the Assignment for Benefit of Creditors process. If HemaBio's creditors are successful, HemaCare may not have sufficient liquidity to satisfy these obligations.

Steady or declining market prices and increased costs could reduce profitability

The cost of collecting, processing and testing blood products has risen significantly in recent years and will likely continue to increase. These cost increases are related to new and improved testing procedures, increased regulatory requirements related to blood safety, and higher staff and supply costs related to collecting and processing blood products. Competition and fixed price contracts may limit the Company's ability to maintain existing operating margins. Some competitors have greater resources than the Company to sustain periods of marginally profitable or unprofitable sales. Steady or declining market prices, and increased costs, may reduce profitability and may have a material adverse impact on the Company's business and results of operations.

Changes in demand for blood products could affect profitability

The Company's operations are structured to produce particular blood products based on customers' existing demand, and perceived potential changes in demand, for these products. Sudden or unexpected changes in demand for these products could have an adverse impact on the Company's profitability. Increasing demand could harm relationships with customers if the Company is unable to alter production capacity, or purchase products from other suppliers, adequately to fill orders. This could result in a decrease in overall revenues and profits. Decreases in demand may require the Company to make sizeable investments to restructure operations away from declining products to the production of new products. Lack of access to sufficient capital, or lack of adequate time to properly respond to such a change in demand, could result in declining revenue and profits as customers transfer to other suppliers.

Declining blood donations could affect profitability

The Company's blood products business depends on the availability of donated blood. Only a small percentage of the population donates blood, and regulations intended to reduce the risk of introducing infectious diseases in the blood supply, result in a decreased pool of potential donors. If the level of

donor participation declines, the Company may not be able to reduce costs sufficiently to maintain profitability in blood products.

Competition may cause a loss of customers and an inability to pass on increases in costs thereby impacting profitability

Competition in the blood products and blood services industries is primarily based on fees charged to customers. The Company's primary competition in the blood products market is the American Red Cross ("ARC"), which owns a significant market share advantage over the Company in the regions the Company operates. As a result, the ARC possesses significant market power to influence prices, which can prevent the Company from passing along increases in costs to customers. In addition, hospital consolidations and affiliations allow certain customers to negotiate as a group, exerting greater price pressure on the Company. These changes may have a negative impact on the Company's future revenue, and may negatively impact future profitability.

The Company is in default on notes to former owners of HemaBio which could result in acceleration of note obligations which the Company may not have sufficient resources to satisfy

The Company is in default on notes to the former owners of HemaBio as a result of the Company's failure to pay the first required installment on August 29, 2007. As a result, the note holders may accelerate the payment of the entire obligation of $200,000, plus accrued interest. The Company may not possess the resources to repay the amounts outstanding when required to do so. Although these notes are only secured by the assets of HemaBio, the note holders could initiate legal action to force payment or seize Company assets in an attempt to satisfy the outstanding obligation. Defending such action could be costly and likely distract management from efforts to grow the Company and improve future profitability, which may negatively impact future profitability.

Operations depend on services of qualified professionals and competition for their services is strong

The Company is highly dependent upon obtaining the services of qualified professionals. In particular, the Company's operations depend on the services of registered nurses, medical technologists, regulatory and quality assurance professionals, and others with knowledge of the blood industry. Nationwide, the demand for these professionals exceeds the supply and competition for their services is strong. The Company incurs significant costs to hire and retain staff. If the Company is unable to attract and retain a staff of qualified professionals, operations may be adversely affected which, in turn, may adversely impact profitability.

Industry regulations and standards could increase operating costs or result in closure of operations

The business of collecting, processing and distributing blood products is subject to extensive and complex regulation by the state and federal governments. The Company is required to obtain and maintain numerous licenses in different legal jurisdictions regarding the safety, purity and quality of products, condition of facilities and that appropriate procedures are utilized. Periodically the Food and Drug Administration ("FDA") conducts inspections of HemaCare's facilities and operations. At the conclusion of each inspection, the FDA provides the Company with a list, if any, of observations of regulatory issues discovered during the inspection. On May 5, 2006, the Company received a warning letter from the FDA pertaining to specific observations pertaining to an inspection of the Company's California operations earlier that year. In August of 2007, the FDA performed another inspection of the Company's California operations. As a result of this inspection, the Company was provided with a list of observations of regulatory issues. The Company believes it has either adequately addressed the issues raised by the FDA, or is in the process of addressing these issues; however, the Company does not believe the response to these issues will result in a retraction of the 2006 warning letter. The Company believes that its response and actions taken to address the FDA observations is sufficient that

it is in compliance with current FDA regulations; however, the Company cannot insure against future FDA actions, including possible sanctions or closure of selected Company operations.

On October 12, 2006, the AABB issued a timeline for gradual implementation of the United States Industry Consensus Standards for the Uniform Labeling of Blood and Blood Components using ISBT 128. To maintain accreditation, blood facilities would need to develop a written implementation plan by November 1, 2006 and complete full implementation by May 2008. The Company has determined that it is unlikely to complete the implementation of ISBT 128 by the May 2008 deadline. The Company has submitted a variance to the AABB requesting a delay in the deadline for full implementation. The Company expects the AABB to approve the variance request, but cannot insure against the AABB declining the request. If the AABB declines the variance, the Company's failure to complete the implementation could endanger the Company's AABB accreditation, which could negatively impact the Company's relationship with selected customers who require blood suppliers to be AABB accredited.

On November 3, 2006, the AABB provided recommendations to reduce the risk of transfusion-related acute lung injury. The recommendations, to be fully implemented for high-plasma volume blood products and platelets by November 2007 and 2008, respectively, may reduce the volume of products available to customers, which may negatively impact the Company's operations and profitability.

State and federal laws include anti-kickback and self-referral prohibitions and other regulations that affect the shipment of blood products and the relationships between blood banks, hospitals, physicians and other persons who refer business to each other. Health insurers and government payers, such as Medicare and Medicaid, also limit reimbursement for products and services, and require compliance with certain regulations before reimbursement will be made.

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

Decrease in reimbursement rates may affect profitability

Reimbursement rates for blood products and services provided to Medicaid, Medicare and commercial patients, impact the fees that the Company is able to negotiate with customers. In addition, to the degree that the Company's hospital customers receive lower reimbursement for the products and services provided by the Company, these customers may reduce their demand for these goods and services, and adversely affect the Company's revenue. If the Company is unable to increase prices for goods and services, the Company's profitability may be adversely impacted.

Not-for-profit status gives advantages to competitors

HemaCare is the only significant blood products supplier to hospitals in the U.S. that is operated for profit and investor owned. The not-for-profit competition is exempt from federal and state taxes, and has substantial community support and access to tax-exempt financing. The Company may not be able to continue to compete successfully with not-for-profit organizations and the business and results of operations may suffer material adverse harm.

Potential inability to meet future capital needs could impact ability to operate

The Company may not generate sufficient operating cash in the future to finance its operations for the next year. Currently the Company is utilizing its credit facility with Wells Fargo to help finance its operations. The Company may need to raise additional capital in the debt or equity markets in order to

finance future operations and procure necessary equipment. There can be no assurance that the Company will be able to obtain such financing on reasonable terms or at all. Additionally, there is no assurance that the Company will be able to obtain sufficient capital to finance future expansion. Finally, the Company is in default on notes related to the HemaBio acquisition. The Company may not have sufficient liquidity to pay any or all of these outstanding obligations if required to do so. Failure to do so could result in the seizure of some of the Company's assets to satisfy the outstanding obligations, which could severely and negatively impact the Company's ability to operate.

Reliance on relatively few vendors for significant supplies and services could affect the Company's ability to operate

The Company currently relies on a relatively small number of vendors to supply important supplies and services. Significant price increases, or disruptions in the ability to obtain products and services from existing vendors, may force the Company to find alternative vendors. Alternative vendors may not be available, or may not provide their products and services at favorable prices. If the Company cannot obtain the products and services it currently uses, or alternatives at reasonable prices, the Company's ability to produce products and provide services may be severely impacted, resulting in a reduction of revenue and profitability.

Potential adverse effect from changes in the healthcare industry, including consolidations, could affect access to customers

Competition to gain patients on the basis of price, quality and service is intensifying among healthcare providers who are under pressure to decrease the costs of healthcare delivery. There has been significant consolidation among healthcare providers seeking to enhance efficiencies, and this consolidation is expected to continue. As a result of these trends, the Company may be limited in its ability to increase prices for products in the future, even if costs increase. Further, customer attrition as a result of consolidation or closure of hospital facilities may adversely impact the Company.

Targeted partner blood drives involve higher collection costs

Part of the Company's current operations involves conducting blood drives in partnership with hospitals. Some blood drives are conducted under the name of the hospital partner and require that all promotional materials and other printed material include the name of the hospital partner. This strategy lacks the efficiencies associated with blood drives that are not targeted to benefit particular hospital partners. As a result, collection costs might be higher than those experienced by the Company's competition and may impact profitability and growth plans.

Future technological developments or alternative treatments could jeopardize business

As a result of the risks posed by blood-borne diseases, many companies and healthcare providers are currently seeking to develop alternative treatments for blood product transfusions. HemaCare's business consists of collecting, processing and distributing human blood products and providing blood related therapeutic services. The introduction and acceptance in the market of alternative treatments may cause material adverse harm to the future profitability for these products and to the Company's business.

Limited access to insurance could affect ability to defend against possible claims

The Company currently maintains insurance coverage consistent with the industry; however, if the Company experiences losses or the risks associated with the blood industry increase in the future, insurance may become more expensive or unavailable. The Company also cannot give assurance that as the business expands, or the Company introduces new products and services, that additional liability

insurance on acceptable terms will be available, or that the existing insurance will provide adequate coverage against any and all potential claims. Also, the limitations on liability contained in various agreements and contracts may not be enforceable and may not otherwise protect the Company from liability for damages. The successful assertion of one or more large claims against the Company that exceeds available insurance coverage, or changes in insurance policies, such as premium increases or the imposition of large deductibles or co-insurance requirements, may materially and adversely impact the Company's business.

Ability to attract, retain and motivate management and other skilled employees

The Company's success depends significantly on the continued services of key management and skilled personnel. Competition for qualified personnel is intense and there are a limited number of people with knowledge of, and experience in, the blood product and blood service industries. The Company does not have employment agreements with most key employees, nor maintain life insurance policies on them. The loss of key personnel, especially without advance notice, or the Company's inability to hire or retain qualified personnel, could have a material adverse impact on revenue and on the Company's ability to maintain a competitive advantage. The Company cannot guarantee that it can retain key management and skilled personnel, or that it will be able to attract, assimilate and retain other highly qualified personnel in the future.

Product safety and product liability could provide exposure to claims and litigation

Blood products carry the risk of transmitting infectious diseases, including, but not limited to, hepatitis, HIV and Creutzfeldt-Jakob disease. HemaCare screens donors, uses highly qualified testing service providers, and conducts selective blood testing, to test blood products for known pathogens in accordance with industry standards, and complies with all applicable safety regulations. Nevertheless, the risk that screening and testing processes might fail, or that new pathogens may be undetected by them, cannot be completely eliminated. There is currently no test to detect the pathogen responsible for Creutzfeldt-Jakob disease. If patients are infected by known or unknown pathogens, claims may exceed insurance coverage and materially and adversely impact the Company's financial condition.

Environmental risks could cause the Company to incur substantial costs to maintain compliance

HemaCare's operations involve the controlled use of bio-hazardous materials and chemicals. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result, and any such liability could exceed the resources of the Company and its insurance coverage. The Company may incur substantial costs to maintain compliance with environmental regulations as it develops and expands its business.

Business interruption due to terrorism and increased security measures in response to terrorism could adversely impact profitability

HemaCare's business depends on the free flow of products and services through the channels of commerce and freedom of movement for patients and donors. Delays or stoppages in the transportation of perishable blood products and interruptions of mail, financial or other services could have a material adverse impact on the Company's results of operations and financial condition. Furthermore, the Company may experience an increase in operating costs, such as costs for transportation, insurance and security, as a result of terrorist activities and potential activities, which may target health care facilities or medical products. The Company may also experience delays in receiving payments from payers that have been impacted by terrorist activities and potential activities. The U.S. economy in general is adversely impacted by terrorist activities, and potential activities, and

any economic downturn may adversely impact the Company's results of operations, impair its ability to raise capital or otherwise adversely impact its ability to grow its business.

Business interruption due to earthquakes could adversely impact profitability

HemaCare's principal blood products and blood services operations, as well as the Company's corporate headquarters, are located in Southern California, which is an area known for potentially destructive earthquakes. A severe event in this location could have a substantial negative impact on the ability of the Company to continue to operate. Any significant delay in resuming operations following such an event could cause a material adverse impact on the profitability of the Company. In addition, the Company's insurance policies do not provide any coverage for damages as a result of an earthquake. Therefore, the Company would bear all of the costs incurred to resume operations after an earthquake and the Company may not have sufficient resources to do so.

Evaluation and consideration of strategic alternatives, and other significant projects, may distract management from reacting appropriately to business challenges and lead to reduced profitability

As a publicly traded Company, management must constantly evaluate and consider new strategic alternatives, and other significant projects, in an attempt to maximize shareholder value. The Company does not possess a large management team that can both consider strategic alternatives and manage daily operations. Therefore, management distractions associated with the evaluation and consideration of strategic alternatives could prevent management from dedicating appropriate time to immediate business challenges or other significant business decisions. This may cause a material adverse impact on the future profitability of the Company.

Strategy to acquire companies may result in unsuitable acquisitions or failure to successfully integrate acquired companies, which could lead to reduced profitability

The Company may embark on a growth strategy through acquisitions of companies or operations that complement existing product lines, customers or other capabilities. The Company may be unsuccessful in identifying suitable acquisition candidates, or may be unable to consummate a desired acquisition. To the extent any future acquisitions are completed, the Company may be unsuccessful in integrating acquired companies or their operations, or if integration is more difficult than anticipated, the Company may experience disruptions that could have a material adverse impact on future profitability. Some of the risks that may affect the Company's ability to integrate, or realize any anticipated benefits from, acquisitions include:

•: unexpected losses of key employees or customer of the acquired company;
•: difficulties integrating the acquired company's standards, processes, procedures and controls;
•: difficulties coordinating new product and process development;
•: difficulties hiring additional management and other critical personnel;
•: difficulties increasing the scope, geographic diversity and complexity of the Company's operations;
•: difficulties consolidating facilities, transferring processes and know-how;
•: difficulties reducing costs of the acquired company's business;
•: diversion of management's attention from the management of the Company; and
•: adverse impacts on existing business relationships with customers.

Articles of Incorporation and Rights Plan could delay or prevent an acquisition or sale of HemaCare

HemaCare's Articles of Incorporation empower the Board of Directors to establish and issue a class of preferred stock, and to determine the rights, preferences and privileges of the preferred stock. This gives the Board of Directors the ability to deter, discourage or make more difficult for a change in control of HemaCare, even if such a change in control would be in the interest of a significant number of shareholders or if such a change in control would provide shareholders with a substantial premium for their shares over the then-prevailing market price for the Company's common stock.

In addition, the Board of Directors has adopted a Shareholder's Rights Plan designed to require a person or group interested in acquiring a significant or controlling interest in HemaCare to negotiate with the Board. Under the terms of our Shareholders' Rights Plan, in general, if a person or group acquires more than 15% of the outstanding shares of common stock, all of the other shareholders would have the right to purchase securities from the Company at a discount to the fair market value of the common stock, causing substantial dilution to the acquiring person or group. The Shareholders' Rights Plan may inhibit a change in control and, therefore, may materially adversely impact the shareholders' ability to realize a premium over the then-prevailing market price for the common stock in connection with such a transaction. For a description of the Shareholders' Rights Plan see the Company's Current Report on Form 8-K filed with the SEC on March 20, 2008.

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

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

•: changes in demand for the Company's products and services, and the ability to obtain the required resources to satisfy customer demand;
•: ability to develop, introduce, market and gain market acceptance of new products or services in a timely manner;
•: ability to manage inventories, accounts receivable and cash flows;
•: ability to control costs; and
•: ability to attract qualified blood donors.

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

Stocks traded on the OTC Bulletin Board are subject to greater market risks than those of exchange-traded stocks since they are less liquid

HemaCare's common stock was delisted from the Nasdaq Small Cap Market on October 29, 1998 because of the failure to maintain Nasdaq's requirement of a minimum bid price of $1.00. Since November 2, 1998, the common stock has traded on the OTC Bulletin Board, an electronic, screen-based trading system operated by the National Association of Securities Dealers, Inc. Securities traded on the OTC Bulletin Board are, for the most part, thinly traded and generally are not subject to the level of regulation imposed on securities listed or traded on the Nasdaq Stock Market or on another national securities exchange. As a result, an investor may find it difficult to dispose of the Company's common stock or to obtain accurate price quotations.

Stock price could be volatile

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

Future sales of equity securities could dilute the Company's common stock

The Company may seek new financing in the future through the sale of its securities. Future sales of common stock or securities convertible into common stock could result in dilution of the common stock currently outstanding. In addition, the perceived risk of dilution may cause some shareholders to sell their shares, which may further reduce the market price of the common stock.

Lack of dividend payments could impact the price of the Company's common stock

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

Evaluation of internal control and remediation of potential problems will be costly and time consuming and could expose weaknesses in financial reporting

The regulations implementing Section 404 of the Sarbanes-Oxley Act of 2002 require management to perform an assessment of the effectiveness of the Company's internal control over financial reporting beginning with its Annual Report on Form 10-K for the fiscal year ending December 31, 2007. The Company's independent registered public accounting firm will be required to test and evaluate the design and effectiveness of such controls and publicly attest to such evaluation beginning with the Annual Report on Form 10-K for the fiscal year ending December 31, 2008.

This process will be expensive and time consuming, and will require significant attention of management. The portion of this process completed thus far has revealed material weaknesses in internal controls that will require remediation. See "Item 4. Control and Procedures." The remediation process may also be expensive and time consuming, and management can give no assurance that the remediation effort will be completed on time or be effective. In addition, management can give no assurance that additional material weaknesses in internal controls will not be discovered. Management also can give no assurance that the process of evaluation and the auditor's attestation will be completed on time. The disclosure of a material weakness, even if quickly remedied, could reduce the market's confidence in the Company's financial statements and harm the Company's stock price, especially if a restatement of financial statements for past periods is required.

If the Company is unable to adequately design its internal control systems, or prepare an "internal control report" to the satisfaction of the Company's auditors, the Company's auditors may issue a qualified opinion on the Company's financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2008, the Company has $700,000 of debt in the form of notes payable with fixed interest rates. As of March 31, 2008, the Company has $2,500,000 outstanding on the line of credit with Comerica that is based on a variable interest rate linked to the prime interest rate, or at the election of the Company, LIBOR. Accordingly, the Company's interest rate expense will fluctuate with changes in either of these rates. If interest rates increase or decrease by 1% for the year, the Company's interest expense would increase or decrease by approximately $20,000.

Item 4. Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Company, with the participation of the Company's management, carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were not effective at the reasonable assurance level as a result of material weaknesses described below, to ensure that information required to be disclosed is:

•: Recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms; and
•: Accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management is not aware any specific control weakness that resulted in a material misstatement in the Company's financial statements, and management does not believe any of its financial statements contain any material error as a result of any material weakness in internal control.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Company's Chief Executive Officer and the Chief Financial Officer and implemented by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals in the United States of America ("GAAP").

The Company's internal control over financial reporting includes those policies and procedures that: i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are made only in accordance with authorizations of management and directors of the Company; and iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material impact on the financial statements.

As discussed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007, the Company's management, including the Chief Executive Officer and the Chief Financial Officer, do not expect that the Company's disclosure controls and procedures, or the Company's internal controls over financial reporting, will necessarily prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, the Company's internal control system can provide only reasonable assurance of

achieving its objectives and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and can provide only reasonable, not absolute, assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.

A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Company's ability to initiate, authorize, record, process, or report external financial data reliably in accordance with GAAP such that there is more than a remote likelihood that a misstatement of the Company's annual or interim financial statements that is more than inconsequential will not be prevented or detected. An internal control material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Management of the Company, including the Chief Executive Officer and Chief Financial Officer, commenced an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2007 based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management did not complete a comprehensive test of material high risk internal controls to confirm these controls were effective. Based on this limited evaluation, management could not conclude that as of December 31, 2007 the Company's internal control over financial reporting were effective because of the following: (a) the Company failed to institute all elements of an effective program to help prevent and detect fraud by Company employees; (b) the Company did not maintain adequate segregation of duties for staff members responsible for recording revenue; (c) the Company failed to provide adequate controls over the use of spreadsheets used to record certain accounting entries and used to produce the Company's financial statements, and (d) the Company has not completed a comprehensive test of material high risk internal controls to confirm these controls are effective.

Management does not believe any of its financial statements contain a material error as a result of any material weakness in internal controls.

The Company has engaged in, and will continue to engage in remediation efforts to address the material weakness in its internal control over financial reporting. Specific actions which have been or will be taken are outlined below:

The Company has:

•: developed a list of identified control weaknesses;
•: developed action plans to correct each identified weakness;
•: held meetings to discuss the allocation of resources and timelines to complete each action plan;
•: instituted other mitigating controls over revenue recognition and over the use of spreadsheets to enhance the control environment pertaining to these areas of material weakness; and
•: evaluated and standardized SOX testing and controls.

The Company will assess the need to take additional actions including, but not limited, to the following:

•: evaluate accounting and control systems to identify opportunities for enhanced controls;
•: recruit and hire additional staff to provide greater segregation of duty;
•: evaluate the need for other employee changes;
•: expand executive management's ongoing communications regarding the importance of adherence to internal controls and company policies;
•: implement an internal auditing function at HemaCare and its subsidiaries; and
•: evaluate such other actions as the Company's advisors may recommend.

There was no change in the Company's internal control over financial reporting known to the Chief Executive Officer or the Chief Financial Officer, that occurred during the Company's fiscal quarter ended March 31, 2008 that has materially impacted, or is reasonably likely to materially impact, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company is involved in various routine legal proceedings incidental to the conduct of its business. Management does not believe that any of these legal proceedings will have a material adverse impact on the business, financial condition or results of operations of the Company, either due to the nature of the claims, or because management believes that such claims should not exceed the limits of the Company's insurance coverage.

Item 1A. Risk Factors

The risk factors disclosed in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2007 have not materially changed other than as set forth below:

Company reported losses for all of 2007 and may not return to profitability

Discontinuation of the operations of the Company's Florida-based research subsidiary may hinder the Company's ability to generate profits

Industry regulations and standards could increase operating costs or result in closure of operations

The business of collecting, processing and distributing blood products is subject to extensive and complex regulation by the state and federal governments. The Company is required to obtain and maintain numerous licenses in different legal jurisdictions regarding the safety, purity and quality of products, condition of facilities and that appropriate procedures are utilized. Periodically the FDA conducts inspections of HemaCare's facilities and operations. At the conclusion of each inspection, the FDA provides the Company with a list, if any, of observations of regulatory issues discovered during the inspection. On May 5, 2006, the Company received a warning letter from the FDA pertaining to specific observations pertaining to an inspection of the Company's California operations earlier that year. In August of 2007, the FDA performed another inspection of the Company's California operations. As a result of this inspection, the Company was provided with a list of observations of regulatory issues. The Company believes it has either adequately addressed the issues raised by the FDA, or is in the process of addressing these issues; however, the Company does not believe the response to these issues will result in a retraction of the 2006 warning letter. The Company believes

that its response and actions taken to address the FDA observations is sufficient that it is in compliance with current FDA regulations; however, the Company cannot insure against future FDA actions, including possible sanctions or closure of selected Company operations.

Business interruption due to earthquakes could adversely impact profitability

HemaCare's principal blood products and blood services operations, as well as the Company's corporate headquarters, are located in Southern California, which is an area known for potentially destructive earthquakes. A severe event in this location could have substantial negative impact on the ability of the Company to continue to operate. Any significant delay in resuming operations following such an event could cause a material adverse impact on the profitability of the Company. In addition, the Company's insurance policies do not provide any coverage for damages as a result of an earthquake. Therefore, the Company would bear all of the costs incurred to resume operations after an earthquake and the Company may not have sufficient resources to do so.

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

None.

Item 3. Defaults Upon Senior Securities

revisions: i) the limits on the amount the Company may borrow were changed to the lesser of 75% of eligible accounts receivable or $3 million, ii) HemaBio was added as an additional borrower, iii) Comerica was given a security interest in all of the assets of HemaBio, and vi) the term of the Comerica Agreement was extended one year to June 30, 2008. On March 26, 2007, the Comerica Agreement was amended by the First Modification which increased the line of credit from $3 million to $4 million. The Comerica Agreement provided that interest is payable monthly at a rate of prime minus 0.25%. As of March 31, 2008, the rate associated with this credit facility was 5.00%. In addition, the Company had the option to draw against this facility for thirty, sixty or ninety days using LIBOR as the relevant rate of interest. As of March 31, 2008, the Company had borrowed $2,500,000 on this line of credit. The Comerica Agreement was collateralized by substantially all of the Company's assets and required the maintenance of certain covenants that, among other things, required minimum levels of profitability and prohibited the payment of dividends.

The Comerica Agreement provided, among other things, that in the event the Company failed to observe any covenants in the Agreement, or permitted a default in any material agreement to which the Company is a party with third parties that results in an acceleration of any indebtedness, then an event of default shall have occurred under the Comerica Agreement, and Comerica may, among other things, declare the Company's indebtedness to Comerica immediately due and payable. As of September 30, 2007, the Company was not in compliance with certain financial covenants in the Comerica Agreement, and Comerica did not provide a waiver of this violation as provided in the past. As of March 31, 2008, the Company's covenant violations remained, and Comerica had not provided a waiver. In addition, as of September 19, 2007, the Company was in default on notes to the sellers and other related parties in an aggregate principal amount of $700,000, as described more fully in Item 2—Liquidity and Capital Resources, in connection with the Company's acquisition of 100% of the capital stock of HemaBio. Each of the notes requires the Company to pay four annual installments representing 25% of the principal balance, plus accrued interest. The first such installment payment was due on August 29, 2007. The Company did not make the first payment under any of the notes, which, in the aggregate, represented a principal amount of $175,000, together with accrued interest of $46,000.

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

None.

Item 5. Other Information

The proxy materials for the 2008 annual meeting of shareholders to be held on May 21, 2008 were mailed to shareholders of the Company on April 21, 2008. Under certain circumstances, shareholders are entitled to present proposals at stockholder meetings. Any such proposal to be included in the proxy statement for the 2009 annual meeting of shareholders must be received at the Company's executive offices at 15350 Sherman Way, Suite 350, Van Nuys, CA, 91406, addressed to the attention of the Corporate Secretary by December 21, 2008 in a form that complies with applicable regulations. If the date of the 2009 annual meeting of shareholders is advanced or delayed more than 30 days from the date of the 2008 annual meeting, stockholder proposals intended to be included in the proxy statement for the 2009 annual meeting must be received by the Company within a reasonable time before the Company begins to print and mail the proxy statement for the 2009 annual meeting. Upon any determination that the date of the 2009 annual meeting will be advanced or delayed by more than 30 days from the date of the 2008 annual meeting, the Company will disclose the change in the earliest practicable Quarterly Report on Form 10-Q.

The Securities and Exchange Commission's rules provide that, in the event a stockholder proposal is not submitted to the Company prior to March 6, 2009, the proxies solicited by the Board for the 2009 annual meeting of shareholders will confer authority on the holders of the proxy to vote the shares in accordance with their best judgment and discretion if the proposal is presented at the 2009 annual meeting of stockholder without any discussion of the proposal in the proxy statement for such meeting. If the date of the 2009 annual meeting is advanced or delayed by more than 30 days from the date of the 2008 annual meeting, then the shareholder proposal must not have been submitted to the Company within a reasonable time before the Company mails the proxy statement for the 2009 annual meeting.

Item 6. Exhibits

a.: Exhibits

		3.1		Restated Articles of Incorporation of the Registrant incorporated by reference to Exhibit 3.1 to Form 10-K of the Registrant for the year ended December 31, 2002.
		3.2		Amended and Restated Bylaws of the Registrant, as amended, incorporated by reference to Exhibit 3.1 to Form 8-K of the Registrant filed on March 28, 2007.
		10.1		First Modification to Amended and Restated Loan and Security Agreement among HemaCare Corporation, Coral Blood Services, Inc., HemaCare BioScience, Inc. and Comerica Bank, dated March 26, 2007 (incorporated by reference to Exhibit 99.1 to Form 8-K of the Registrant filed on March 28, 2007).
		10.2		Amendment and Extension of Rights Agreement dated as of March 3, 1998, between HemaCare Corporation and Computershare Trust Company, N.A., incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K filed on March 24. 2008.
		10.3		Credit and Security Agreement between HemaCare Corporation, Coral Blood Services, Inc., and Wells Fargo Bank, National Association, dated April 10, 2008, incorporated by reference to Exhibit 10.39 to Registrant's Form 10-K filed on April 14, 2008.
		11		Net Income per Common and Common Equivalent Share
		31.1		Certification Pursuant to Rule 13a-14(a) Under the Securities Exchange Act
		31.2		Certification Pursuant to Rule 13a-14(a) Under the Securities Exchange Act
		32.1		Certification Pursuant to 18 U.S.C. 1350 and Rule 13a-14(b) Under the Securities Exchange Act of 1934

SIGNATURES

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

EXHIBIT INDEX


3.1		Restated Articles of Incorporation of the Registrant incorporated by reference to Exhibit 3.1 to Form 10-K of the Registrant for the year ended December 31, 2002.
3.2		Amended and Restated Bylaws of the Registrant, as amended, incorporated by reference to Exhibit 3.1 to Form 8-K of the Registrant filed on March 28, 2007.
10.1		First Modification to Amended and Restated Loan and Security Agreement among HemaCare Corporation, Coral Blood Services, Inc., HemaCare BioScience, Inc. and Comerica Bank, dated March 26, 2007 (incorporated by reference to Exhibit 99.1 to Form 8-K of the Registrant filed on March 28, 2007).
10.2		Amendment and Extension of Rights Agreement dated as of March 3, 1998, between HemaCare Corporation and Computershare Trust Company, N.A., incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K filed on March 24, 2008.
10.3		Credit and Security Agreement between HemaCare Corporation, Coral Blood Services, Inc., and Wells Fargo Bank, National Association, dated April 10, 2008, incorporated by reference to Exhibit 10.39 to Registrant's Form 10-K filed on April 14, 2008.
11		Net Income per Common and Common Equivalent Share
31.1		Certification Pursuant to Rule 13a-14(a) Under the Securities Exchange Act
31.2		Certification Pursuant to Rule 13a-14(a) Under the Securities Exchange Act
32.1		Certification Pursuant to 18 U.S.C. 1350 and Rule 13a-14(b) Under the Securities Exchange Act of 1934

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HEMACARE CORPORATION AND SUBSIDIARIES INDEX TO FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2008

Item 1. Financial Statements

HEMACARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
HEMACARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (OPERATIONS) For the Three Months Ended March 31,
HEMACARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31,
HemaCare Corporation Notes to Unaudited Condensed Consolidated Financial Statements
HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Reclassification for the Three Months Ended March 31, 2007
HEMACARE CORPORATION Discontinued Operations

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

Item 1. Legal Proceedings

Item 1A. Risk Factors

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

Item 3. Defaults Upon Senior Securities

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

Item 5. Other Information

Item 6. Exhibits

SIGNATURES
EXHIBIT INDEX