UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



|(Mark one)                                                 
|-----------------------------------------------------------
|T                                                          
|For the fiscal year ended December 31, 2010                
|                                                           
|£                                                          
|For the transition period from ___________ to _____________



Commission file number: 0-15223



HEMACARE CORPORATION

(Exact name of registrant as specified in its
charter)



|California                                                      |  | 95-3280412                             
|--------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of  incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                                |  |                                        
|15350 Sherman Way, Suite 350                                    |  |                                        
|Van Nuys, California                                            |  | 91406                                  
|(Address of principal executive offices)                        |  | (Zip Code)                             



Registrant's telephone number, including area code: (818) 226-1968



|Securities registered pursuant to Section 12(b) of the Act: | None                              
|----------------------------------------------------------- | ----------------------------------
|                                                            |                                   
|Securities registered pursuant to Section 12(g) of the Act: | Common Stock (without par value)  
|                                                            | Rights to purchase Preferred Stock





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.£YESTNO



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.£YESTNO



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.TYES£NO



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).£YES£NO



Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.T









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



|Large accelerated filer£ | Accelerated filer£ | Non-accelerated filer£ | Smaller reporting companyT
|------------------------ | ------------------ | ---------------------- | --------------------------



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



The aggregate market value of the common stock
held by non-affiliates of the registrant as of June 30, 2010, the last business day of the registrant’s most recently completed
second fiscal quarter (based upon the last sale price of the common stock as reported by the OTC Bulletin Board), was approximately
$6,500,000.



As of March 18, 2011, 9,712,948 shares of common
stock of the registrant were issued and outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the registrant’s definitive
proxy statement relating to its 2011 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the close of the registrant’s last fiscal year, are incorporated by reference
into Part III of this Report.














TABLE
OF CONTENTS



|                                           |                                                                                                              |     | Page
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------ | --- | ----
|PART I                                    
|                                           |                                                                                                              |     |     
|Item 1.                                    | Business                                                                                                     |     | 1   
|Item  1A.                                  | Risk Factors                                                                                                 |     | 8   
|Item  1B.                                  | Unresolved Staff Comments                                                                                    |     | 17  
|Item 2.                                    | Properties                                                                                                   |     | 17  
|Item 3.                                    | Legal Proceedings                                                                                            |     | 17  
|Item 4.                                    | Reserved                                                                                                     |     | 17  
|                                           |                                                                                                              |     |     
|PART II                                   
|                                           |                                                                                                              |     |     
|Item 5.                                    | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |     | 18  
|Item 6.                                    | Selected Financial Data                                                                                      |     | 18  
|Item 7.                                    | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        |     | 18  
|Item 7A.                                   | Quantitative and Qualitative Disclosures about Market Risk                                                   |     | 27  
|Item 8.                                    | Financial Statements and Supplementary Data                                                                  |     | 27  
|Item 9.                                    | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |     | 28  
|Item  9A.                                  | Controls and Procedures                                                                                      |     | 28  
|Item  9B.                                  | Other Information                                                                                            |     | 29  
|                                           |                                                                                                              |     |     
|PART III                                  
|                                           |                                                                                                              |     |     
|Item 10.                                   | Directors, Executive Officers and Corporate Governance                                                       |     | 29  
|Item 11.                                   | Executive Compensation                                                                                       |     | 29  
|Item 12.                                   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |     | 29  
|Item 13.                                   | Certain Relationships and Related Transactions, and Director Independence                                    |     | 29  
|Item 14.                                   | Principal Accounting Fees and Services                                                                       |     | 30  
|                                           |                                                                                                              |     |     
|PART IV                                   
|                                           |                                                                                                              |     |     
|Item 15.                                   | Exhibits, Financial Statement Schedules                                                                      |     | 30  
|                                           |                                                                                                              |     |     
|Signatures                                 |                                                                                                              |     | 34  
|                                           |                                                                                                              |     |     
|Index to Consolidated Financial Statements |                                                                                                              | F-1



i





PART
I



Forward-Looking Statements

This report includes
“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts
are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues
or other financial items, any statement of the plans and objectives of management for future operations, any statements concerning
proposed new products or strategic arrangements, any statements regarding future economic conditions or performance, and any statement
of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology
such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,”
“potential,” “intends”, or “continue” or the negative thereof or other comparable terminology.
Although the Company and its management believe that the expectations reflected in the forward-looking statements contained herein
are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct,
and actual results could differ materially from those projected or assumed in the forward-looking statements. The Company’s
future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks
and uncertainties, including but not limited to the Risk Factors set forth under Item 1A, and for the reasons described elsewhere
in this report. All forward-looking statements and reasons why results may differ included in this report are made as of the date
hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

Item 1. 	Business



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.



The Company also 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.



In May 2010, HemaCare entered into an agreement
with Dendreon Corporation (NASDAQ: DNDN) to provide cellular collection services in Los Angeles and Maine for their new autologous
cellular immunotherapy, PROVENGE® (sipuleucel-T). This personalized medicine is Dendreon’s lead product and is the first
autologous cellular immunotherapy specifically designed to engage patients’ own immune systems to treat cancer. HemaCare
currently leverages its expertise in automated cell collection (apheresis) and processing of blood products to provide specialty
collection services to Dendreon and other organizations conducting cell therapy research and clinical trials.



The Company has operated in Southern California
since 1979. In 1998, the Company expanded operations to include portions of the eastern United States. 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. 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. See Note 3 of Notes to Consolidated Financial Statements.



1





The Company’s current strategy is to
expand efforts utilizing the Company’s exemplary customer service, expertise, and infrastructure to support developing cellular
therapy technologies and research organizations. This infrastructure and expertise enable the Company to collect various cellular
components for cellular therapy manufacturing and future personalized patient therapies. The Company already collects allogeneic,
whole-blood derived stem cells for hospital customers, research organizations and biotech companies to support their cellular therapy
research and manufacturing. In doing so, the Company directly leverages its equipment, facilities, licensure, current good manufacturing
protocols (cGMP), and hospital relationships. Ultimately, the Company believes these specialized collections will generate high
margin revenue through the support of advanced therapies and research activities.



The Company renamed its two business segments
at the beginning of 2010 to reflect its increased emphasis on customer service. The historically named blood products segment was
renamed the “blood services” segment, and the historically named blood services segment was renamed the “therapeutic
services” segment.



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.



Recent Developments



Weaknesses in the economy and blood utilization
reduction initiatives have severely impacted the blood banking industry.



Calendar year 2010 was an extremely challenging
year for the blood products industry. Weaknesses in the economy severely impacted the blood banking business, as hospitals and
healthcare providers made concerted efforts to reduce blood utilization by as much as 30%. Hospitals are educating themselves in
blood management to reduce usage as never before. Additionally the criteria justifying blood transfusions have changed. There is
a large movement towards bloodless surgeries and intraoperative blood transfusions, which involves recovering blood lost during
surgery and re-infusing the blood into the patient. Patients also continued to postpone elective and non-essential surgeries, which
further reduced the demand for blood products.



Management Changes



During the first quarter of 2010, John Doumitt
and Robert Chilton resigned as the Company’s Chief Executive Officer and Chief Financial Officer, respectively. Peter van
der Wal was promoted to President and Chief Executive Officer in February 2010, and was appointed Chief Financial Officer in March
2010. Subsequently, in August 2010, Lisa Bacerra was promoted to Chief Financial Officer. The Company also created the position
of Chief Operating Officer in August 2010, and appointed Anna Stock to serve in that capacity.



Business Segments



HemaCare operates in two primary business segments.
The first is the blood services segment, which supplies customers with red blood cells, apheresis platelets and other blood products.
Included in this segment are collections for research and cellular therapy customers. The second segment is the therapeutic services
segment, which includes therapeutic apheresis procedures, stem cell collection and other blood therapies provided to patients typically
in a hospital setting.



Blood Services Operations



This business segment collects, processes and
distributes blood products utilized by health research related organizations, or cellular therapy companies, as well as for transfusion
in a hospital setting,

2







In May 2010, HemaCare entered into an agreement with Dendreon Corporation
(NASDAQ: DNDN) to provide cellular collection services in Los Angeles and Maine for their new autologous cellular immunotherapy,
PROVENGE® (sipuleucel-T). PROVENGE ® is the first FDA-approved autologous cellular immunotherapy for the treatment of asymptomatic
or minimally symptomatic metastatic castrate resistant (hormone refractory) prostate cancer. PROVENGE® is made using cells
from a patient’s own immune system. It is designed to stimulate a patient’s immune system to target prostate cancer
cells. The process of making PROVENGE ® involves the introduction of a patient’s immune cells to a protein that functions
as a prostate cancer-associated antigen. An antigen is a substance that causes the body to react with an immune response. This
process activates the patient’s immune cells against prostate cancer cells to help the immune system better fight the disease.



HemaCare leverages its expertise in automated cell collection (apheresis)
and processing of blood products to provide specialty collection services to Dendreon and other organizations conducting cell therapy
research and clinical trials. Acting as one of Dendreon’s collection partners, the Company collects blood from the patients
and forwards the blood to Dendreon for processing. Each Dendreon patient requires three separate blood draws, each one week apart.



The Company contracts with hospitals to provide
transfusable blood products and conduct blood drives in the hospital’s name, which provides the hospital with a source of
locally collected blood products and markets the hospital to the community. The Company conducts whole blood collection drives
at sponsor organizations, such as employers, schools or churches. The Company’s recruitment staff works with the staff of
the sponsor organization to encourage individuals associated with the sponsor to donate blood at a blood drive. The Company utilizes
15 mobile blood collection vehicles, 12 in California and 3 in Maine, to transport equipment, supplies, and occasionally staff,
to blood drives. The actual collection process is safe and simple for the donor. Whole blood collected at blood drives is tested
and processed into blood products, principally red blood cells and plasma.



The Company operates four free standing donor
centers, three in California and one in Maine, where selected blood components are collected, principally platelets, utilizing
a cell separator. This process, known as apheresis, allows for the collection of only selected components of a donor’s blood,
returning the other components to the donor’s bloodstream. Apheresis platelet collection is more complex and expensive than
whole blood collection. Apheresis equipment is costly and requires longer donation times, which result in higher labor costs. Recruiting
donors for apheresis platelet donations is considerably more difficult than recruiting whole blood donors because of the complexity
of the donation process and longer donation times. Apheresis platelet donors are recruited from the most dedicated subset of the
whole blood donor population. The Company has demonstrated a consistent track record of donor recruitment for apheresis platelet
donors.



Platelet products are generally collected using
apheresis because a sufficient volume of platelets is collected from a single donation to produce a transfusable unit. These products
are known as Single Donor Platelets. Platelet products can be produced from whole blood donations as well; however, to produce
a transfusable unit, platelets from several whole blood donations are aggregated. These products are known as Random Platelets.
Random Platelets are considered less desirable for transfusion because the recipient is exposed to pathogen risk from multiple
donors, as opposed to only a single donor from Single Donor Platelets.



The Company also purchases blood products from
other blood suppliers to satisfy customer demand whenever the Company’s operations cannot produce sufficient quantity.



The Company generally uses its own vehicles
to deliver blood products directly to customers, but will occasionally use a common carrier as well. The Company utilizes 11 vehicles,
7 in California and 4 in Maine, for the delivery of blood products.

3





Blood services revenue depends on a number
of factors, including the success of the Company’s research and cellular therapy marketing, the success of the Company’s
recruitment efforts, the success of the Company’s marketing efforts to attract and retain new customers, and the ability
of the Company to properly process, store and transport blood products to customers.





Therapeutic Services
Operations



Therapeutic apheresis is a technique for removing
components from a patient's blood and is used in the treatment of autoimmune diseases and other disorders. These services are generally
provided upon the request of a hospital, which has received an order from a patient's physician. Therapeutic treatments are administered
using mobile equipment operated at the patient's bedside, a hospital outpatient setting or in a physician’s office. The mobile
therapeutic equipment includes a blood cell separator and the disposables needed to perform the procedure. The Company utilizes
four vehicles, two in California and two that are garaged in New York, for the delivery of equipment and supplies in support of
its therapeutic services operations. Treatments are primarily administered by trained nurse-specialists, under the supervision
of a physician, and acting in accordance with documented operating procedures and quality assurance protocols based on guidelines
developed by the American Association of Blood Banks, or AABB, and the Joint Commission on Accreditation of Healthcare Organizations.



Since requests for therapeutic apheresis treatments
are often sporadic and unpredictable, many hospitals choose not to equip, staff and maintain an apheresis unit. The existing shortage
of trained nurses in the U.S. has also hindered hospital efforts to adequately staff apheresis units. The Company’s services
enable hospitals to offer therapeutic apheresis services to their patients on an "as needed" basis without incurring
the costs associated with maintaining a full-time team of apheresis specialists. In addition, the Company’s services can
serve to supplement a hospital’s existing apheresis capability when demand exceeds capacity.



Therapeutic services utilization depends on
a number of factors, including the occurrence of disease states that are appropriately treated by these services, and the perceived
benefits of blood therapies compared with alternative courses of treatment. The Company believes that physician education on the
benefits of therapeutic apheresis results in increased application of such treatments in medically appropriate circumstances. The
Company’s affiliated medical directors conduct educational seminars for physicians to inform them of the benefits of therapeutic
apheresis relative to other modes of patient treatment.



The Company provides therapeutic services using
all currently recognized treatment methods: plasma exchange, red cell exchange, cell depletion, stem cell collection and photopheresis.
Patients suffering from diseases such as multiple myeloma, polyneuropathy, leukemia, systemic lupus erythematosus, scleroderma,
hyperviscosity syndrome, thrombocytosis, thrombotic thrombocytopenic purpura, myasthenia gravis and Guillain-Barre syndrome may
benefit from therapeutic apheresis treatments. The Company provides therapeutic apheresis services on a regional basis in several
states. Major operations are in Southern California and in several Mid-Atlantic states, including New York.



Competition



The blood services and therapeutic services
industries have many participants, from small limited service providers to large full service organizations. There is competition
for customers on the basis of many factors, including reputation for reliable customized quality performance, expertise and experience
in specific areas, scope of service offerings, price, and customer service. The Company believes it competes favorably in these
areas.



Most U.S. transfusable blood products suppliers
are organized as not-for-profit, tax-exempt entities. However, all blood suppliers charge fees for the products utilized. These
fees are generally set at levels based on the supply and demand for specific products, and are influenced by the competition among
blood products suppliers and federal reimbursement rates to hospital customers. Many suppliers have greater financial, technical
and personnel resources than the Company. In addition, since many of the Company’s competitors are tax-exempt, they do not
bear the tax burden the Company faces, and they have access to lower cost tax-exempt debt financing. Their status as charitable
institutions may also give them an advantage in recruiting volunteer donors.

4





Approximately 40% of U. S. transfusable blood
products are supplied by the American Red Cross, or ARC, through its national collection network, and approximately 60% are supplied
by local and regional blood centers, including the Company.



The Company competes in the blood product marketplace
through a strategy of offering blood supply services tailored to the requirements of individual customers. The Company consistently
reevaluates and revises its blood supply services to respond to marketplace factors. Some competitors have advantages over the
Company as a result of established positions and relationships within the communities they serve. In addition, the ARC’s
size and market dominance provides them with greater resources to sustain periods of unprofitable sales, or to adopt aggressive
pricing strategies for the purpose of defending or increasing market share.



Competition in the therapeutic blood services
business is primarily regional where we compete with community blood banks, dialysis companies that also provide therapeutic blood
services, and a wide range of small blood services companies. In addition, since some diseases treatable with therapeutic apheresis
are also treatable by other medical therapies, the competition for the Company’s therapeutic blood services business includes
companies that market or provide many of these competing medical therapies. The Company believes that it competes in this market
by offering customized quality performance, expertise and experience in specific areas, scope of service offerings, price, and
customer service. In addition, the Company educates the medical community on the benefits of therapeutic apheresis as a treatment
solution for various diseases by offering speakers at meetings with the cooperation of hospital customers or at meetings of professional
organizations, conducting dinner lectures where clinical information is provided.



Sales to Major Customers



The Company provides products and services
to healthcare providers, hospitals, and cellular therapy and research related organizations, all of which are referred to as “customers”
for purposes of identifying concentration risk. During 2010, one customer represented approximately 18.1% of total revenue. The
next two largest customers accounted for approximately 7.3% and 4.6% of total revenue respectively. The Company’s ten largest
customers accounted for 54.7% of total revenue. Other than lease of space for donor centers at customers’ facilities, the
Company’s only relationship with any of these customers is as a provider of blood products and services.



Human Resources



As of March 8, 2011, the Company had 214 employees,
including 55 part-time and temporary employees. Most of the Company's professional and management personnel possess prior experience
in hospitals, medical service companies or blood banks. None of the Company's employees is represented by a labor union. The Company
considers its relations with its employees to be good.



Suppliers



The Company maintains relationships with numerous
suppliers who provide cell separator equipment, disposable supplies, replacement fluids, testing services and blood products. Generally,
the Company has no difficulty obtaining most of its equipment and supplies; however, if there were material adverse changes affecting
the sources of its supplies, the Company's operations could be adversely affected. In particular, in the event of a war or other
international conflict or natural disaster, the availability of critical supplies could be negatively affected and the cost of
procuring these supplies could increase.



During 2010, the Company received goods and services from two major
vendors, the first of which is CaridianBCT, which represented approximately 12.9% of the Company’s total operating costs
from continuing operations. This vendor provided products that support the Company’s cell separation equipment used by both
the blood services and therapeutic services segments. The second largest vendor is Creative Testing Solutions, which represented
approximately 9.7% of total operating costs from continuing operations. This vendor provided laboratory services. The Company has
no relationship with either vendor other than as a consumer of the goods and services provided by each.

5





The Company’s blood products consist of those produced from
donated platelets and whole blood, and blood products purchased from other suppliers. The Company competes with the ARC and other
blood suppliers in recruiting its donors. The growth of the Company's manufactured blood products business is dependent on the
Company's ability to attract, screen and retain qualified donors, or purchase blood products from other suppliers.



Government Regulation



Blood Services Operations



Blood products suppliers are subject to extensive
regulation and guidelines of the Food and Drug Administration, or FDA, the AABB, and various state licensing authorities. FDA regulations
are comprehensive, complex and extend to virtually all aspects of the blood products industry, including recruiting and screening
blood donors; processing, testing, labeling, storing and shipping blood products; recordkeeping; and communications with hospital
customers and donors. FDA regulations also extend to the manufacturers of all critical supplies and equipment used in the blood
supply industry.



The Company views product safety and compliance
with governmental regulations as paramount concerns at all times. The Company has developed extensive procedures and internal quality
control programs to increase compliance with all governmental regulations and industry standards. Employees routinely participate
in training classes. Employees are evaluated at the conclusion of training to insure that the desired level of understanding of
the Company’s compliance and safety procedures is achieved. Finally, HemaCare’s Regulatory Affairs and Quality Assurance
Department conducts periodic audits of each operating unit to identify the level of compliance with regulatory procedures.



Organizations within the blood supply industry
are registered by the FDA to operate blood collection and/or blood processing facilities. All of the Company’s facilities
operate under FDA registrations.



The FDA also issues licenses to organizations
within the blood supply industry to ship blood products across state lines if the qualifying organization can demonstrate adequate
employee training programs, procedure documentation and quality control systems to insure the quality of the products shipped.
HemaCare holds a license for its Van Nuys, California and Scarborough, Maine facilities to ship selected blood products across
state lines.



On May 5, 2006, the Company received a warning
letter from the FDA pertaining to specific observations from an inspection of the Company’s California operations. In August
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 and was informed that the 2006 warning letter would remain in effect.
During 2009, the FDA conducted an inspection at the Company’s Van Nuys, California facility. At the conclusion of this inspection,
the FDA provided the Company with a list of observations of regulatory issues; however, the FDA did not document any repeat observations
of previous compliance issues. In 2010, the FDA inspected our remote locations and did not identify any observations. The Company
believes it has adequately addressed the issues raised by the FDA, and believes the operations are in compliance with current FDA
regulations.



Periodically, the health departments of the
states in which the Company operates conduct audits of the Company’s facilities and operations. These audits focus on compliance
with specific state laws that cover HemaCare’s operations. In 2010, there was one California state inspection with no documented
compliance issues. The Company believes that it is in compliance with state regulations governing the Company’s operations.

6







Therapeutic Services
Operations



Therapeutic services are generally provided
under contract and upon the request of a hospital, which has received an order from a patient's physician, and therefore is considered
an outsourced function of the hospital’s treatment of the patient. Treatments are primarily administered by Company trained
nurse-specialists, under the supervision of a physician, and acting in accordance with documented standard operating procedures
and quality assurance protocols.



Although such procedures are generally considered
medical treatment, and therefore not directly regulated by the FDA and other regulatory agencies, the protocols used are based
on guidelines developed by the AABB, the Foundation for the Accreditation of Cellular Therapy, or FACT, and the Joint Commission
on Accreditation of Healthcare Organizations, or Joint Commission. As such, the Company is obligated to adhere to these guidelines
in order to maintain its accreditation with the AABB, and to assist hospital customers to comply with their Joint Commission and
FACT accreditation.



In addition, the equipment and supplies used
during the performance of therapeutic procedures are generally approved by the FDA for the specific treatment performed by the
Company’s staff; however, physicians can request that the Company use its equipment and supplies to perform treatments not
approved by the FDA, which is authorized as long as it is at the direction of the patient’s physician.



Blood Management
Software Project



Federal and State regulations require that
all donors and donations be tracked from donation though processing and storage to final disposition. Regulations also require
that transfusing facilities, donors and patients receive information regarding donors who test positive for a variety of disease
markers in years subsequent to original donation.



HemaCare will begin the implementation of Haemonetics
Corporation’s ElDorado Donor software in the second quarter of 2011. The implementation of the ElDorado Donor software system
is critical to the effective and efficient management of donor and product information to meet business and regulatory requirements
for blood center operations.



The ElDorado Donor software represents Haemonetics
next generation software intended as a comprehensive blood management software application providing for the information system
needs of blood banks and donor centers. The software is designed to manage, automate, and control activities associated with donors,
donor collections, testing, manufacturing, inventory, and distribution.



On February 18, 2011, the Company entered into
an agreement with Haemonetics to purchase the El Dorado Donor software system license. The Company also signed a hosting agreement
for Haemonetics to host the El Dorado software system for a period of three years, with annual renewal options.



Other Matters



State and federal laws set forth anti-kickback
and self-referral prohibitions, and otherwise regulate financial and referral relationships between blood suppliers, hospitals,
physicians and others in the blood supply industry. The Company believes its present operations comply with all currently applicable
regulations in this area.



New health care regulations are continuously
under consideration by lawmakers at the federal level, and in many of the individual states in which the Company operates. New
regulations could have a direct impact on the Company and its operations. The Company is not aware of any specific proposed regulation
that would have a material adverse impact on the Company; however, the Company is uncertain what changes may be made in the future
regarding health care policies, especially those regarding hospital reimbursements, health insurance coverage, product testing,
record keeping and managed care that may materially impact the Company's operations.

7





Professional and Product Liability Insurance



The blood service and therapeutic service business
is inherently subject to substantial potential liabilities for personal injury claims. The Company maintains medical professional
liability insurance in the amount of $4,000,000 for a single occurrence and $5,000,000 in the aggregate per year. Based on the
Company’s recent history of claims filed for personal injury and the related monetary damages paid, the Company believes
it has adequate insurance; however, there can be no assurance that potential insurance claims will not exceed present coverage
or that continued or additional insurance coverage would be available and affordable. If such insurance were ineffective or inadequate
for any reason, the Company could be exposed to significant liabilities.



Additional Information



The Company makes available free of charge
through its website, www.hemacare.com, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as soon
as practical after those reports are filed with the SEC. The Company’s filings may also be read and copied at the SEC’s
Public Reference Room at 100 F Street, N.E., Room 1580, Washington D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 800-SEC-0330. The SEC also maintains an Internet site, www.sec.gov, that contains reports,
proxy and information statements, and other information regarding issuers that file electronically with the SEC.



Item
1ARisk Factors



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 Company’s
business could be harmed by any of these risks. The trading price of the Company’s common stock could decline due to any
of these risks, and investors may lose all or part of their investment.



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, to fill orders adequately. This could result in a decrease in overall revenue 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. Additionally, an increase in the supply of blood
products in the marketplace could result in declining revenue and profits for the Company due to a market driven decrease in prices.



Costs increasing more rapidly than market
prices 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. Costs increasing more rapidly than market prices, may reduce profitability and may have a material
adverse impact on the Company’s business and results of operations.

8





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



Competition in the blood services and therapeutic
services industries is primarily based on fees charged to customers. The Company’s primary competition in the blood products
market is the 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.



Changing economic conditions could impact
the ability of customers to pay the Company’s invoices



The Company’s principal customers are
hospitals that depend on payments from private insurance companies and governments to fund operations, and to pay the Company’s
invoices for products and services. Deteriorating economic conditions can result in higher unemployment and a related loss of medical
insurance coverage for hospital patients. Reduced reimbursement for medical services can strain the financial health of the Company’s
hospital customers, which could impact the ability of these customers to pay the Company’s invoices. The Company does not
have sufficient resources to sustain operations for an extended period of time if any significant customer, or several smaller
customers, failed to pay the Company’s invoices as expected.



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. In addition, the donor population is aging, resulting in fewer donors as those donors develop health issues that make
them ineligible. There is an effort within the blood banking community to attract younger and more diverse donors.



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. In California there is an additional state licensure
requirement for some licensed staff, especially medical technologists. This additional requirement within the state of California
further limits the pool of certain professional staff.



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, quality, identity, purity
and potency of products, condition of facilities, medical waste disposal 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. In 2006, the FDA inspected
the Company’s California blood product operations and determined that deficiencies existed to require the FDA issue a “Warning
Letter” to notify the Company that significant improvements were required or further regulatory action was likely. Subsequent
to the issuance of this letter, the Company invested considerable time and money to address each of the issues raised by the FDA.
During 2009, the Company’s California blood product operations were inspected again by the FDA, and at the conclusion of
this inspection, the

9





FDA provided the Company with a list of observations;
however, the FDA did not document any repeat observations of previous compliance issues. The Company responded to the FDA in September
2009. The FDA responded with a request for more clarification on some points in November 2009. The Company responded in January
2010. The FDA accepted the Company’s response in February 2010. Although future inspections could result in additional regulatory
action, the Company’s focus on addressing the specific issues raised in the FDA Warning Letter, resulted in a vastly improved
outcome compared to previous inspections.



The Company believes that its response and
actions taken to address the FDA observations are sufficient and 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.



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 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.



Pandemic or epidemic outbreak of disease could significantly
impact blood donations and have a material adverse impact on profitability



If H1N1 flu, avian flu, or other disease, were
to develop into a worldwide pandemic or epidemic in one or more regions in which the Company operates, the portion of the public
that typically donates blood to the Company may be unable, or unwilling to donate, thereby significantly reducing the availability
of blood that the Company relies upon to manufacture blood products. In addition, even if suspected diseases prove to be no more
virulent than other more common disease, the heightened fear among the public resulting from widespread media coverage may result
in dramatic decline in donations. Moreover, if a significant portion of the Company’s workforce becomes ill, is required
to stay home to care for ill family members, or is required to stay home in connection with social distancing programs intended
to minimize disease transmission, the Company’s operations could be significantly disrupted, which could have a material
adverse impact on the Company’s profitability.



Healthcare Reform Bill may have a material effect on the Company



The Patient Protection and Affordable Care
Act was signed into law on March 23, 2010 and was shortly thereafter amended by the Health Care and Education Reconciliation Act
of 2010 which became law on March 30, 2010. Healthcare reform will change health care insurance coverage, cost containment and
payments. It is not possible at this time to evaluate whether there will be a material impact on the Company's operations or profitability
from any legislative enactments in this area, nor from any regulatory actions pursuant to this legislation.



Leadership changes within our customers
and competitors could affect revenue



Changes in leadership within our customers
and competitors could impact the environment in which we compete based on changes in their strategic direction. Leadership changes
within our customer base could result in changes to contract, thus impacting revenue. Changes in leadership within our competitors
could also impact our current customer base and thus revenue.

10





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.



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. The Company may not utilize its credit facility with Wells Fargo
to help finance its operations due to the amendment to the credit agreement which changes the borrowing base from accounts receivable
to cash. This in effect takes away the ability to draw on the line of credit. 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.



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.



Future technological developments or
alternative treatments could jeopardize the 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, and collecting blood for the cellular therapy and research markets. 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.

11





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 as the business expands,
or as 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 services and therapeutic services 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.



Targeted partner blood drives involve
higher collection costs



Part of the Company’s current operations
involves conducting blood drives in partnership with hospitals. These 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.



Bio-Hazard risks could cause the Company
to incur substantial costs



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.

12





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 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 customers 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.
|- |  | ------------------------------------------------------------------

13





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 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 the Company’s 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.



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 trades on the
OTC Bulletin Board, an electronic, screen-based trading system operated by the Financial Industry Regulatory Authority. 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.

14





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. The market price of the Company’s common stock could decline as
a result of sales by, or the perceived possibility of sales by, existing stockholders. Most of the Company’s outstanding
shares are eligible for public resale pursuant to Rule 144 under the Securities Act of 1933, as amended. Future sales of common
stock by significant stockholders, including affiliates, or the perception that such sales may occur, could depress the price of
the Company’s common stock.



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.



Ability to utilize net operating loss
carryforwards may be limited, resulting in income taxes sooner than currently anticipated



As of December 31, 2010, the Company had net
operating loss carryforwards (“NOL”) of approximately $7.0 million for federal income tax purposes that will begin
to expire in 2011, and $16.6 million for state income tax purposes that will begin to expire in 2017. These NOLs may be used to
offset future taxable income, to the extent the Company generates any taxable income, and thereby reduces or eliminates future
federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes limitations on a corporation's ability
to utilize NOLs if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result
from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percent over a
three-year period. In the event that an ownership change has occurred, or were to occur, utilization of the Company’s NOLs
would be subject to an annual limitation under Section 382 determined by multiplying the value of the Company’s stock at
the time of the ownership change by the applicable long-term tax-exempt rate as defined in the Internal Revenue Code. Any unused
annual limitation may be carried over to later years. The Company could experience an ownership change under Section 382 as a result
of events in the past in combination with events in the future. If so, the use of the Company’s NOLs, or a portion thereof,
against future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion
of the NOLs before utilization. Therefore, the Company could be liable for income taxes sooner than otherwise would be true if
the Company were not subject to Section 382 limitations.

15





Use and disclosure of patient or donor
information is subject to privacy and security regulations, which may result in increased costs



While collecting blood from donors, or while
performing therapeutic procedures for patients, the Company may collect, use, disclose, maintain and transmit patient information
in ways that will be subject to many of the numerous state, federal and international laws and regulations governing the collection,
use, disclosure, storage, transmission and/or confidentiality of patient-identifiable health information, including the administrative
simplification requirements of the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations
(“HIPAA”). The HIPAA Privacy Rule restricts the use and disclosure of patient information, and requires safeguarding
that information. The HIPAA Security Rule establishes elaborate requirements for safeguarding patient information transmitted or
stored electronically. HIPAA applies to covered entities, which may include healthcare facilities and does include hospitals that
will contract for the use of the Company’s services. The HIPAA rules require covered entities to bind contractors like the
Company to comply with certain burdensome HIPAA rule requirements known as business associate requirements. The Company may be
required to make costly system purchases or system modifications, and make significant and burdensome changes to the Company’s
policies and procedures in order to comply with the HIPAA rule requirements. Inappropriate disclosure of protected information
may result in significant liability to the Company and adversely affect the Company’s profitability.



In addition, other federal and state consumer
protection laws may also apply to the Company’s collection, use, storage, and disclosure of other personal information of
donors or patients. The Company’s efforts to adhere to these laws, or any failure to abide by these laws, may result in significant
liability for the Company or increase the Company’s cost of doing business.



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.



This process is expensive and time consuming,
and requires significant attention of management. This process can reveal material weaknesses in internal controls that will require
remediation. (See “Item 9A. Controls and Procedures” elsewhere in this report.) 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 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.



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



The Company’sFlorida-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. During
2008, the assignee successfully liquidated most of HemaBio’s assets, including inventory, furniture and equipment. As of
December 31, 2010, the assignee was still engaged to complete the liquidation and closure activities. These activities could temporarily
increase costs, utilize scarce financial resources, 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.

16





Item
1B	Unresolved Staff Comments



None.



Item
2Properties



On February 24, 2006, the Company entered
into a lease for approximately 19,600 square feet located in Van Nuys, California to house corporate offices, mobile blood drive
operations, a blood component manufacturing lab and a blood products distribution operation. The Company occupied this facility
in November 2006. The rent for this facility started at approximately $36,000 per month; however, the lease provides for 3% rent
escalation upon the annual anniversary of the beginning of the lease term, and for increases in the cost of common area maintenance.
The rent for this facility currently is approximately $41,000 per month. The lease on this space expires July 31, 2017; however,
the Company has one five-year option to extend this lease at the then current market price. On April 11, 2007, the Company entered
into an amendment to add approximately 5,735 square feet to this lease to house a donor center and supply warehouse. This amendment
added $13,250 per month in rent expense, which adjusts annually by 3.9% on the anniversary of the lease commencement date. The
rent for this facility currently is approximately $14,800 per month. As part of the lease agreement, the Company received approximately
$508,000 in tenant improvement allowance from the landlord.



As security for lease obligations associated
with this lease, the Company is required to maintain a Letter of Credit. The Letter of Credit was initially in the amount of $815,000,
with 10% decreases each year on August 14, 2009, 2010, 2011 and 2012. The decreases become 20% each year on August 14, 2013 and
2014. This Letter of Credit was reduced to $660,000 on December 7, 2010, in accordance with the 10% decrease per year for 2009
and 2010.



The Company leases space for offices, a laboratory,
a manufacturing facility for blood components and a distribution center in a 3,600 square foot facility in Scarborough, Maine.
The monthly rent is approximately $4,500, and the lease term expires October 31, 2012.



The Company also leases space for a donor center
in a 1,300 square foot facility in Scarborough, Maine. The monthly rent is approximately $1,500. The initial lease term expired
October 21, 2010 and was renewed for an additional two years bringing the expiration date to October 21, 2012. The rental rate
adjusts 3.5% annually.



The Company entered into a lease agreement
on June 1, 2009 for a 1,625 square foot office space in White Plains, New York. This lease expires on May 14, 2014, and the current
rent is $3,000 with annual adjustments of 2%.



The Company leases a 1,500 square foot donor
center on the campus of one of its client hospitals for a monthly amount of $3,700. The lease expires June 30, 2011. The Company
entered into a second lease agreement with this client on August 1, 2009 for an additional 1,631 foot donor center. This lease
expired on December 31, 2010 and the monthly rent is $2,400. The Company rents the facility on a month to month basis since December
31, 2010.



We believe that our facilities are suitable,
in good condition, and adequate to meet our current and foreseeable needs.



Item
3 	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. The Company is not currently involved in any litigation that requires disclosure in this report.



Item
4 	Reserved



17







PART II



Item
5	Market for Registrant's Common Equity, Related Stockholder Matters and issuer purchases of equity securities



The Company's common stock is quoted on the
OTC Bulletin Board under the symbol HEMA.OB.



The following table sets forth the range of
high and low closing bid prices of the common stock, as reported by the OTC Bulletin Board, for the periods indicated. These prices
reflect inter-dealer quotations, without retail markups,

markdowns, or commissions, and do not necessarily
represent actual transactions. The prices appearing below were obtained from the National Quotation Bureau.



|                  |  | 2010  |  | 2009 
|----------------- |  | ----- |  | -----
|Quarter
    ended |  | High  |  | Low  
|March 31          |  | $0.70 |  | $0.50
|June 30           |  | $0.70 |  | $0.46
|September 30      |  | $0.70 |  | $0.40
|December 31       |  | $0.67 |  | $0.42



On March 14, 2011, the closing bid price of
the Company’s common stock was $0.36 Shareholders are urged to obtain current market quotations for the Company’s common
stock.



The Company has never paid any cash dividends
on its 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 upon the Company’s earnings, financial condition, capital needs, line of credit requirements and other factors
deemed relevant by the Board of Directors.



On March 14, 2011, the Company had approximately
247 shareholders of record of its common stock.



Item
6	Selected Financial Data



Intentionally omitted.



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



General



HemaCare operates in two primary business segments.
The first is the blood services segment which supplies hospitals and health research related organizations with red blood cells,
apheresis platelets, and other blood products. The Company operates and manages donor centers and mobile donor vehicles to collect
blood products from donors, and purchases blood products from other suppliers. We include revenues from research projects and cellular
therapy collections in the blood services segment. Additionally, the Company operates a therapeutic services segment, wherein the
Company performs therapeutic apheresis procedures, stem cell collection and other blood treatments on patients with a variety of
disorders. Therapeutic services are usually provided under contract with hospitals as an outside purchased service.

18





In November 2007, the Board of Directors of
HemaBio closed the Company’s Florida-based research blood products subsidiary that sourced, processed and distributed human
biological specimens, manufactured quality control products and provided clinical trial management and support services. With the
closure of HemaBio, the Company reports the financial results for 2010 and 2009 of HemaBio, as well as the impact of the closure
activities, as “Discontinued Operations” on the income statement.





Results of Operations



The following table sets forth, for the periods
indicated, statement of income data as a percentage of net revenue and the percentage dollar (decrease) increase of such data from
period to period.



Percent
of Total Revenue



|                                    |  |                          |        |              |  | Percentage 
(Decrease) Increase
|----------------------------------- |  | ------------------------ | ------ | ------------ |  | -------------------------------
|                                    |  |                          |        |              |  | Years Ended                    
|                                    |  | Years Ended December 31, |        | December 31,
|                                    |  | 2010                     |        | 2009         |  | 2010 to 2009                   
|Continuing Operations               |  |                          |        |              |  |                                
|                                    |  |                          |        |              |  |                                
|Revenue                             |  |                          | 100.0% |              |  |                                
|                                    |  |                          |        |              |  |                                
|Operating costs                     |  |                          | 85.5%  |              |  |                                
|                                    |  |                          |        |              |  |                                
|Gross profit                        |  |                          | 14.5%  |              |  |                                
|                                    |  |                          |        |              |  |                                
|General and administrative expenses |  |                          | 17.1%  |              |  |                                
|                                    |  |                          |        |              |  |                                
|(Loss) income before income taxes   |  |                          | (2.7%  | )            |  |                                
|                                    |  |                          |        |              |  |                                
|Benefit of income taxes             |  |                          | (0.2%  | )            |  |                                
|                                    |  |                          |        |              |  |                                
|Income                              |  |                          | (2.5%  | )            |  |                                
|                                    |  |                          |        |              |  |                                
|                                    |  |                          |        |              |  |                                
|Discontinued Operations             |  |                          |        |              |  |                                
|                                    |  |                          |        |              |  |                                
|Loss from discontinued operations   |  |                          | (0.2%  | )            |  |                                
|                                    |  |                          |        |              |  |                                
|Consolidated                        |  |                          |        |              |  |                                
|                                    |  |                          |        |              |  |                                
|Net (loss) income                   |  |                          | (2.6%  | )            |  |                                







19





Year ended December 31, 2010 compared to the year ended
December 31, 2009



Overview



Calendar year 2010 was an extremely challenging
year for the blood services industry. Weaknesses in the economy severely impacted the blood banking business all through 2010.
As the national economy began to see a recovery in many areas, healthcare reform was signed into law placing additional pressure
on our customers to cut their operating costs. The blood products industry throughout the country has been dealing with intensely
competitive pricing pressures. There was an unprecedented industry wide surplus of blood products as blood suppliers were generally
slow to reduce production. In order to sell excess inventory, blood suppliers lowered prices to levels not seen in recent years.
In the portion of Southern California the Company services, four additional competitors emerged in 2010, further increasing competition
and driving down prices.



Concurrently, hospitals and healthcare providers
have experienced lower reimbursement rates. Health care reform and ever increasing health costs have forced far reaching cost containment
initiatives which have had a major impact on the blood industry. This environment has made price an overriding concern to hospital
products and services vendors. In an effort to address these issues, hospitals are educating themselves in blood management to
reduce usage. Additionally, the criteria justifying blood transfusions have changed. There is a large movement towards bloodless
surgeries and intraoperative autologous transfusions, which involves recovering blood lost during surgery and re-infusing the blood
into the patient. Patients also continued to postpone elective and non-essential surgeries, which further reduced the demand for
blood products.



We have been reevaluating the blood business
and determining how we can change our business model in response to these mounting changes. In August, 2010, we closed our Bangor,
Maine facility as a result of the decreased volume in California. Our Bangor facility was producing platelets and sending them
to our California facility, where demand for these products had dropped. We decided against selling blood products from our New
York facility, which is currently offering only therapeutic services. We are focusing on using our existing infrastructure and
expertise to increase our position in growing industries with higher margins, such as cellular therapy and research where we are
beginning to provide our services. We plan to continue our efforts in growing this part of our business.



By developing relationships with biotech companies
and research organizations, both nationally and globally, management is positioning the Company to better access global markets.
We are positioning to become the supplier of choice with these customers because of our increasing reputation for compassionate
patient care, and excellent service and products.



In the future, the Company intends to leverage
its core-business infrastructure to enable collection of various cellular components for biotech and pharmaceutical research, commercialization,
manufacturing, cellular therapy protocols, and personalized patient therapies. The Company already collects allogeneic, whole-blood
derived stem cells for hospital customers, research organizations and other biotech companies to support their cellular therapy
research and manufacturing. In doing so, the Company directly leverages its expertise, equipment, facilities, licensure, current
good manufacturing protocols, and hospital relationships. Ultimately, the Company believes these specialized collections will generate
high margin revenue through the support of advanced therapies and research activities.



The Company reported a net loss of $796,000
in 2010, or $0.08 basic and diluted loss per share, compared to net income in 2009 of $855,000, or $0.09 basic and $0.08 diluted
earnings per share.



The drop in revenue between 2010 and 2009 of
just over $6,000,000, or 17%, was primarily due to decreased revenue in the blood services segment for the reasons described above.
The Company lost market share in 2010 due to increased competition. Gross profit also suffered in 2010, down 32% as compared to
2009, despite an increase in gross profit from therapeutics business. This resulted from the decrease in capacity utilization arising
from the decreased volume. The decrease in revenue and the decrease in average selling price were both principally the result of
an overall decrease in sales volume and a relative increase in sales to more price-sensitive customers during 2010.

20





The Company instituted comprehensive expense
reduction initiatives both in operating costs and in general and administrative costs throughout 2010.



The $50,000 loss from discontinued operations
was the same as it was for 2009. The loss was attributable to interest expense accrual for the two outstanding notes payable, more
fully described in the discontinued operations note in the notes to financial statements.



In 2010, the Company recorded a $60,000 benefit
for income taxes related to a federal filing for a net operating loss carry back refund. The Company had recorded a benefit in
2009 of $28,000 primarily as a result of a federal refundable research and development tax credit.



Blood Services



For this business segment, the following table
summarizes the revenue and gross profit for 2010 and 2009:



|Blood Services                  
|--------------------------------
|                                
|For the Years Ended December 31,
|                                
|                                
|Revenues                        
|                                
|Gross Profit                    
|                                
|Gross Profit %                  



Sales of whole blood units collected through our California mobile
blood collections department in 2010 decreased by 21% as compared to 2009 and imported whole blood unit sales decreased by 45%.
Imported unit sales of platelets in 2010 decreased significantly as compared to 2009. Units sold that had been collected in the
Company’s Van Nuys facility decreased 14%. In addition to the overall lower demand for blood products, our revenues were
adversely affected by the loss in June 2009 of a large customer that decided to move its business to a lower priced provider.



In our Maine facility, unit sales of whole blood decreased by 38%
in 2010 as compared to 2009, while platelet unit sales decreased by 15%. This was primarily due to the lack of demand for blood
products in California, which was the market served by our Maine facility.



Therapeutic Services



For this business segment, the following table
summarizes the revenue and gross profit for 2010 and 2009:



|Therapeutic Services            
|--------------------------------
|                                
|For the Years Ended December 31,
|                                
|                                
|Revenue                         
|                                
|Gross Profit                    
|                                
|Gross Profit %                  



The increase in revenue in therapeutic services
in 2010 as compared to 2009 was due to an increase of over 25% in the number of procedures performed in the California region,
though the mix of procedures and the price of procedures declined offsetting this increase. Additionally procedure volume in the
Mid-Atlantic region dropped by 9%, due to increased competition in the market.

21







General and Administrative
Expenses



The following table summarizes general and
administrative expenses for 2010 and 2009:



|General and Administrative Expenses
|-----------------------------------
|                                   
|For the Years Ended December 31,   
|2010                               
|                                   
|$5,183,000                         



During the last three quarters of 2010, management
instituted major cost reduction initiatives which brought costs down significantly in many areas. In particular, by absorbing the
vast majority of the work that in the past had been fulfilled by outside consultants, temporary labor and outside professionals,
the Company saved $352,000, or 35%, in 2010 as compared to 2009. Investor relations and public company compliance costs decreased
by 16%, or $7,000, in 2010 as compared to 2009, and repairs, maintenance, supplies, postage and small tools expense decreased by
$26,000 in 2010 as compared to 2009.



By amending the line of credit arrangement
with Wells Fargo Bank in December 2009, bank charges decreased by $139,000 in 2010 as compared to 2009, and since the Company did
not draw from the line of credit during 2010, interest expense decreased to $0 in 2010 from $160,000 in 2009. Travel and entertainment
expenses decreased by $17,000 in 2010 as compared to 2009.



Offsetting these decreases were increases in
personnel programs of $74,000, of which $65,000 was for an employer 401(k) matching contribution in 2010 as compared to no such
matching contribution in 2009; an increase in officer salaries of $116,000; and an increase in office salaries of $74,000. Officer
salaries increased as a result of the $184,000 of severance related expenses paid to the former Chief Executive Officer and former
Chief Financial Officer early in 2010. Additionally, our Vice President of Operations was promoted to Chief Operating Officer in
August 2010, which resulted in an increase in officer salaries relating to this position and a corresponding decrease in blood
management salaries which is included in operating costs and expenses. The increase in office salaries also is due to an increase
in personnel hired to replace temporary workers, the cost of which had been included in outside services.



Income Taxes



In 2010, the Company recorded a $60,000 benefit
for income taxes related to a federal filing for a net operating loss carry back refund. The Company had recorded a benefit in
2009 of $28,000 primarily as a result of a federal refundable research and development tax credit.



Discontinued Operations



On November 5, 2007, the Board of Directors
of the Company’s wholly owned subsidiary, HemaCare BioScience, Inc. (“HemaBio”), in consultation with, and with
the approval of, the Board of Directors of the Company, decided that it was in the best interest of HemaBio’s creditors to
close all operations of HemaBio. 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 complete a final distribution of all proceeds to HemaBio’s
creditors. All of the costs incurred in 2010 associated with the Assignment were estimated and accrued in prior periods, with the
exception of $50,000 in interest expense that HemaBio continues to accrue on two notes payable to former investors of HemaBio.

22





2010 and 2009 Quarterly Financial Data



The following table presents unaudited statement
of income data for each of the eight quarters ended December 31, 2010. Management believes that all necessary adjustments have
been included to fairly present the quarterly information when read in conjunction with the consolidated financial statements.
The operating results for any quarter are not necessarily indicative of the results for any subsequent quarter.



|UNAUDITED                                      
|-----------------------------------------------
|(In Thousands, Except Share and Per Share Data)



|                                             |  | 2009          |       | 2010         
|-------------------------------------------- |  | ------------- | ----- | -------------
|                                             |  | Quarter Ended |       | Quarter Ended
|                                             |  | March 31      |       | June 30      
|                                             |  |               |       |              
|Continuing Operations                        |  |               |       |              
|Revenue                                      |  | $             | 9,711 |              
|Gross profit                                 |  |               | 1,535 |              
|Income (loss) before other income taxes      |  |               | 84    |              
|Income tax provision (benefit)               |  |               | 3     |              
|                                             |  |               |       |              
|Net income (loss) from continuing operations |  | $             | 81    |              
|                                             |  |               |       |              
|Earnings (loss) per share                    |  |               |       |              
|Basic                                        |  | $             | 0.01  |              
|Diluted                                      |  | $             | 0.01  |              
|                                             |  |               |       |              
|Discontinued Operations                      |  |               |       |              
|                                             |  |               |       |              
|Loss from discontinued operations            |  | $             | (12   | )            
|                                             |  |               |       |              
|Loss per share                               |  |               |       |              
|Basic                                        |  | $             | (0.00 | )            
|Diluted                                      |  | $             | (0.00 | )            



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.

23





Critical Accounting Policies and Estimates



General



Management’s discussion and analysis
of the Company’s 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 impact the reported amounts of assets, liabilities,
revenue 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



Pursuant to Financial
Accounting Standards Board, Accounting Standards Codification (“ASC”) Topics 505, Equity and 718, Stock Compensation,
an entity shall account for share-based compensation transactions with employees in accordance with the fair-value-based method,
that is, the cost of services received from employees in exchange for awards of share-based compensation generally shall be measured
based on the grant-date fair value of the equity instruments issued or on the fair value of the liabilities incurred. The Company’s
assessment of the estimated fair value of share-based payments is 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 calculates fair value
based on fair value of the stock at the date of issuance for restricted stock and restricted stock units. Management utilized the
Black-Scholes model to estimate the fair value of share-based payments granted. Valuation techniques used for employee share options
and similar instruments estimate the fair value of those instruments at a single point in time (for example, at the grant date).
The assumptions used in a fair value measurement are based on expectations at the time the measurement is made, and those expectations
reflect the information that is available at the time of measurement.

The Black-Scholes
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:

|· |  | The
expected volatility of the common stock price, which was determined based on historical volatility of
the Company’s common stock;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------

|· |  | expected
dividends, which are not anticipated;
|- |  | ----------------------------------------------

|· |  | expected
life, which is estimated based on the historical exercise behavior of employees; and
|- |  | ---------------------------------------------------------------------------------------------

|· |  | 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.

During 2010, the Company
used the 2006 Equity Incentive Plan (“2006 Plan”) to issue stock option grants totaling 290,000 shares of the Company’s
Common Stock to directors and senior management, which Company determined, utilizing the Black-Scholes valuation model, that the
fair value of these options was $154,000. During 2009, the Company used the 2006 Equity Incentive Plan (“2006 Plan”)
to issue stock option grants totaling 260,000 shares of the Company’s Common Stock to directors and senior management, which
Company determined, utilizing the Black-Scholes valuation model, that the fair value of these options was $109,000.

24





Allowance for Doubtful
Accounts



The Company makes
ongoing estimates on the collectability 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 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
is appropriate, the Company would record a credit or a charge to general and administrative expenses in the period in which such
a determination is made.

Inventory
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 the 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. Therefore, the Company periodically
adjusts the inventory reserve based on recent sales and inventory data, which can cause the net value of inventory to fluctuate
dramatically from period to period.



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. Pursuant to
ASC Topic 740, Income Taxes, the Company utilizes 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 assets and liabilities and any valuation allowance recorded against
net deferred tax assets. It is possible that a selection of different input variables could produce a materially different estimate
of the provision, asset, liability and valuation allowance.



Based on management’s analysis of the
Company’s recent performance, management determined that there was insufficient evidence of guaranteed future profitability
to ensure that the Company would realize any benefit from the deferred tax assets. Therefore, as of December 31, 2010, the Company
continued to record a 100% valuation reserve against all of the deferred tax assets.



ASC Topic 740-10 prescribes a two-step process
for the financial statement measurement and recognition of a tax position. The first step involves the determination of whether
it is more likely than not (greater than 50 percent likelihood) that a tax position will be sustained upon examination, based on
the technical merits of the position. The second step requires that any tax position that meets the more-likely-than-not recognition
threshold be measured and recognized in the financial statements at the largest amount of benefit that is greater than 50 percent
likelihood of being realized upon ultimate settlement. ASC Topic 740-10 also provides guidance on the accounting for related interest
and penalties, financial statement classification and disclosure. Interest and penalties related to uncertain tax positions will
be recognized in income tax expense when incurred. As of December 31, 2010, the Company did not incur any interest or penalties
related to uncertain tax positions. The oldest tax year that remains open to possible evaluation and interpretation of the Company’s
tax position is 2006.

25







In September 2009, the State of California
suspended the use of net operating loss carryforwards when calculating income taxes for 2009 and 2010; however, due to other timing
differences, this suspension did not materially impact the Company’s 2010 tax provision to the State of California.



Liquidity and Capital Resources



The Company’s primary sources of liquidity
include cash on hand, 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.



For continuing operations, the Company, on
December 31, 2010, had cash, cash equivalents and restricted cash of $2,298,000 and working capital of $3,928,000.



Management anticipates that cash on hand 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 and operating lease commitments.



Line
of Credit



On December 9, 2009, the Company, together
with the Company’s subsidiary, Coral Blood Services, Inc., entered into a new Credit Agreement (the “New Wells Agreement”),
and related security agreements, with Wells Fargo to replace the Wells Fargo Agreement entered into on April 10, 2008. The New
Wells Agreement provided that the Company could borrow the lesser of 80% of eligible accounts receivable or $5 million, and had
a maturity date of December 1, 2011. Most of the terms in the New Wells Agreement were similar to those in the former Wells Fargo
Agreement; however, the New Wells Agreement provided that the Company pay interest on a monthly basis on any outstanding balance
at 0.25% above the bank’s prime rate, but eliminated any minimum monthly interest requirement. The New Wells Agreement also
granted the bank a first priority security interest in all of the assets of the Company and Coral Blood Services, Inc.



The Company had no outstanding borrowings under
the New Wells Agreement as of December 31, 2010, except for a letter of credit issued by Wells Fargo as security for lease obligations
associated with the Company’s Van Nuys facility. The Company is required to maintain a letter of credit under the lease,
initially in the amount of $815,000 and reducing by 10% each year on August 14, 2009, 2010, 2011 and 2012, and 20% each year on
August 14, 2013 and 2014. At December 31, 2010, the letter of credit was for $660,000. No amounts have been drawn against the letter
of credit.



The New Wells Agreement also required that
the Company maintain certain financial covenants, including minimum tangible net worth, maximum total liabilities and minimum net
income over a rolling two quarter basis. As of December 31, 2010, the Company was out of compliance with the financial covenants
in the New Wells Agreement.



Effective as of January 15, 2011, in consideration
of Wells Fargo waiving the Company’s existing defaults under the Credit Agreement, the Company agreed to amend the New Wells
Agreement to provide that outstanding borrowings, including outstanding advances and letters of credit, shall not at any time exceed
the amount of cash collateral in a segregated, blocked deposit account maintained by the Company with Wells Fargo and with respect
to which Wells Fargo has been granted a first priority security interest to secure all present and future indebtedness of the Company
to Wells Fargo. Pursuant to this arrangement, the Company has pledged $660,000 in cash to Wells Fargo, and the Company has outstanding
letters of credit for an aggregate of $660,000 under the New Wells Agreement.



Notes Payable of
HemaBio



When the Company acquired HemaBio, two former
HemaBio investors, Dr. Lawrence Feldman and Dr. Karen Raben, each held a $250,000 note from HemaBio. 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 and these notes remain unpaid.

26





Since August 29, 2007, HemaBio, now shown as
discontinued operations, recognized accrued interest expense on the outstanding balance on both notes at an interest rate of 10%,
which totaled $50,000 for the year ended December 31, 2010.



As of December 31,
2010, HemaBio’s default on the notes to Drs. Feldman and Raben remains unresolved. Both of these notes are included in the
Company’s December 31, 2010 balance sheet as part of Liabilities related to Assets Held for Sale.

Cash Flows



Net cash provided by operating activities from
continuing operations was $1,057,000 for 2010, compared with $3,249,000 for 2009, representing an decrease of $2,192,000. The decrease
was due primarily to the $796,000 of net loss realized in 2010 as compared to the $855,000 of net income realized in 2009. The
Company pledged $660,000 cash to collateralize a letter of credit in association with the Company’s Van Nuys facility lease.
Additionally, 2010 cash flows from operating activities were affected by a smaller decrease in accounts receivable in 2010 of $877,000
as compared to a decrease in accounts receivable in 2009 of $2,453,000, due in part to improvements in collections and an overall
decrease in accounts receivable stemming from reduced sales. In 2010 the Company experienced a $27,000 decrease in accounts payable,
as compared to a $1,583,000 decrease in 2009, as the Company reduced payables with the proceeds it received from improved collections
of accounts receivable. The Company calculates days sales outstanding utilizing the average sales for the three months preceding
the date of the calculation. The Company’s days sales outstanding for continuing operations stood at 36 days as of December
31, 2010, compared with 41 days as of December 31, 2009.



Cash used in investing activities from continuing
operations decreased to $234,000 in 2010 from $674,000 for 2009. This was primarily due to a decrease in investment in capital
expenditures as well as the write off of impaired assets in 2010 of $126,000, related to assets purchased for the Company’s
software project which were no longer needed as management decided to utilize a hosting solution offered by the software vendor.



Cash used in financing activities from continuing
operations in 2010 was $192,000 compared with $2,471,000 in 2009. In 2010, the Company repurchased its common stock in the amount
of $281,000 offset by proceeds from the sale of common stock of $83,000. In 2009, the Company paid off all indebtedness to Wells
Fargo with the exception of an outstanding letter of credit, accounting for the entire use of investment activity cash for 2009.



Cash was used in discontinued operations was
$5,000 in 2010 compared with $97,000 in 2009. The cash used in 2009 was for fees and other expenses associated with the HemaBio
Assignment.



Off-Balance Sheet Arrangements

At December 31, 2010, the
Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred
to as structured finance, variable interest or special purpose entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited purposes. As such, the Company is not exposed to any financing,
liquidity, market or credit risk that could arise if it had engaged in such relationships.



Item
7a	Quantitative And Qualitative Disclosures About Market Risk



Intentionally Omitted



Item
8 	Financial Statements and Supplementary Data

27







The Index to Financial Statements and Schedules
appears on page F-1. The Report of Independent Registered Public Accounting Firm appears on page F-2, and the Consolidated Financial
Statements and Notes to Consolidated Financial Statements appear beginning on page F-4



Item
9 	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



None.



Item
9A	Controls And Procedures



Evaluation of Disclosure 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 (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act
of 1934) as of December 31, 2010, the end of the period covered by this report. Based upon that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as
of December 31, 2010.

Changes in Internal Control Over
Financial Reporting

There were no changes in
the Company's internal control over financial reporting during the quarter ended December 31, 2010 that have materially impacted,
or are reasonably likely to materially impact, the Company’s internal control over financial reporting.



Management's Annual Report on Internal
Control Over Financial Reporting

Management is responsible for establishing
and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934). 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 principles 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.



The Company’s management, including the
Chief Executive Officer and the Chief Financial Officer, does 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.

28





Management of the Company, including the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company's internal control over
financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth in the Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
the Company’s management concluded that as of December 31, 2010, the Company’s internal control over financial reporting
was effective.



This annual report does not include an attestation
report by our registered public accounting firm regarding internal control over financial reporting. Management’s report
was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission
that permit us to provide only our management report in this annual report.



Item
9B 	Other Information



None.



PART
III



Item
10 	Directors, Executive Officers and corporate governance



The information concerning the directors and
executive officers of the Company and corporate governance is incorporated herein by reference from the section entitled “Proposal
1 - Election of Directors” contained in the definitive proxy statement of the Company to be filed pursuant to Regulation
14A within 120 days after the end of the Company’s fiscal year (the “Proxy Statement”).



Item
11 	Executive Compensation



The information concerning executive compensation
is incorporated herein by reference from the section entitled “Proposal 1 - Election of Directors” contained in the
Proxy Statement.



Item 12 	Security
Ownership of Certain Beneficial Owners and Management and related stockholder matters



The information concerning the security ownership
of certain beneficial owners and management and related stockholder matters is incorporated herein by reference from the section
entitled “General Information - Security Ownership of Principal Stockholders and Management” and “Proposal 1
- Election of Directors” contained in the Proxy Statement.





Item
13	Certain Relationships And Related Transactions, and director independence



The information concerning certain relationships
and related transactions and director independence is incorporated herein by reference from the section entitled “Proposal
1 – Election of Directors – Certain Relationships and Related Transactions” contained in the Proxy Statement.

29







Item
14	Principal Accounting Fees and Services

The information concerning the Company’s
principal accountant’s fees and services is incorporated herein by reference from the section entitled “Proposal 2
– Ratification of the Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.



PART
IV



Item
15	Exhibits and Financial Statement Schedules



The following are filed as part of this Report:



1.	Financial
Statements



An index to Financial Statements
and Schedules appears on page F-1.



2.	Financial
Statement Schedules



The schedules for which provision
is made in the applicable accounting regulations of the SEC are not required under related instructions or are inapplicable, and
therefore have been omitted.



3.	Exhibits



The following exhibits listed are
filed or incorporated by reference as part of this Report.



|Exhibit |                                                                                                                                                                                                                                                         
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                         
|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, 2008.                                                                                              
|4.1     | Rights Agreement between the Registrant and U.S. Stock Transfer Corporation dated March 3, 1998, incorporated by reference to Exhibit 4 to Form 8-K of the Registrant dated March 5, 1998.                                                              
|4.1.1   | 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.
|4.2     | Form of Common Stock Certificate, incorporated by reference to Exhibit 4.4 to Form S-8 of the Registrant dated July 10, 2006.                                                                                                                           
|10.1*   | Amended and Restated HemaCare Corporation 1996 Stock Incentive Plan, dated December 31, 2008, incorporated by reference to Exhibit 99.6 to Form 8-K of the Registrant filed on January 8, 2009.                                                         



30







|10.2* | Amended and Restated HemaCare Corporation 2006 Equity Incentive Plan, dated May 11, 2010, incorporated by reference to Exhibit 10.1 to Form 8-K of the Registrant filed on May 14, 2010.                                                                                                      
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3* | 2004 Stock Purchase Plan of the Registrant, incorporated by reference to Exhibit 10.2 to Form 10-K of the Registrant for the year ended December 31, 2004.                                                                                                                                    
|10.4  | Lease agreement between HemaCare Corporation, as tenant, and ECI Sherman Plaza LLC, as landlord for approximately 20,000 square feet located in Van Nuys, California, dated February 10, 2006, incorporated by reference to Exhibit 99.1 of Form 8-K of the Registrant filed on March 1, 2006.
|10.5  | Promissory Note dated August 29, 2006, in the principal amount of $250,000, of Teragenix Corporation, payable to Dr. Lawrence Feldman, incorporated by reference to Exhibit 99.7 to Registrant’s Current Report on Form 8-K filed on September 5, 2006.                                       
|10.6  | Promissory Note dated August 29, 2006, in the principal amount of $250,000, of Teragenix Corporation, payable to Dr. Karen Raben, incorporated by reference to Exhibit 99.8 to Registrant’s Current Report on Form 8-K filed on September 5, 2006.                                            
|10.7  | Assignment for the Benefit of Creditors made as of December 4, 2007, incorporated by reference to Exhibit 99.1 to Registrants Current Report on Form 8-K filed on December 14, 2008.                                                                                                          
|10.8  | First Amendment to Lease between HemaCare Corporation as tenant and ECI Sherman Plaza, Inc. as landlord, dated August 17, 2006, incorporated by reference to Exhibit 10.35 to Form 10-K of the Registrant for the year ended December 31, 2007.                                               
|10.9  | Second Amendment to Lease between HemaCare Corporation as tenant and ECI Sherman Plaza, Inc. as landlord, dated April 11, 2008, incorporated by reference to Exhibit. 10.36 to Form 10-K of the Registrant for the year ended December 31, 2007.                                              
|10.10 | Indemnification Agreement between HemaCare Corporation and Julian Steffenhagen, executed March 11, 2008, incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed on March 17, 2008.                                                                        
|10.11 | Credit Agreement among HemaCare Corporation, Coral Blood Services, Inc. and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.1 to Form 8-K of the Registrant filed on December 15, 2009.                                                                     
|10.12 | Revolving Line of Credit Note by HemaCare Corporation and Coral Blood Services, Inc. to the benefit of Wells Fargo Bank, dated December 4, 2010, incorporated by reference to Exhibit 10.2 to Form 8-K of the Registrant filed on December 15, 2009.                                          
|10.13 | Third Party Security Agreement: Rights to Payment and Inventory between Coral Blood Services, Inc. and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.3 to Form 8-K of the Registrant filed on December 15, 2009.                                          
|10.14 | Third Party Security Agreement: Rights to Payment and Inventory between HemaCare Corporation, and Wells Fargo Bank, dated December 4, 2009 incorporated by reference to Exhibit 10.4 to Form 8-K of the Registrant filed on December 15, 2009.                                                
|10.15 | Continuing Security Agreement: Rights to Payment and Inventory among HemaCare Corporation, Coral Blood Services, Inc. and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.5 to Form 8-K of the Registrant filed on December 15, 2009.                       



31







|10.16   | Third Party Security Agreement: Equipment between Coral Blood Services, Inc. and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.6 to Form 8-K of the Registrant filed on December 15, 2009.                        
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.17   | Third Party Security Agreement: Equipment between HemaCare Corporation, and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.7 to Form 8-K of the Registrant filed on December 15, 2009.                             
|10.18   | Security Agreement among HemaCare Corporation, Coral Blood Services, Inc. and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.8 to Form 8-K of the Registrant filed on December 15, 2009.                           
|10.19   | Amendment to Credit Agreement, dated as of January 15, 2011, among Wells Fargo Bank, HemaCare Corporation and Coral Blood Services, Inc., incorporated by reference to Exhibit 10.6 to Form 8-K of the Registrant filed on January 15, 2011.          
|10.20   | First Modification to Promissory Note, dated as of January 15, 2011, between HemaCare Corporation, Coral Blood Services, Inc. and Wells Fargo Bank, incorporated by reference to Exhibit 10.7 to Form 8-K of the Registrant filed on January 15, 2011.
|10.21   | Security Agreement Specific Rights to Payment, dated January 15, 2011, between HemaCare Corporation and Wells Fargo Bank, with addendum, incorporated by reference to Exhibit 10.8 to Form 8-K of the Registrant filed on January 15, 2011.           
|10.22*  | Separation Agreement between HemaCare Corporation and John Doumitt, dated February 26, 2010, incorporated by reference to Exhibit 10.2 to Form 8-K of the Registrant filed on March 16, 2010.                                                         
|10.23*  | Employment Agreement between HemaCare Corporation and Pete van der Wal, President and Chief Executive Officer dated March 2, 2010, incorporated by reference to Exhibit 10.1 to Form 8-K of the Registrant filed on March 16, 2010.                   
|10.24*  | Separation Agreement between HemaCare Corporation and Robert Chilton, dated March 11, 2010, incorporated by reference to Exhibit 10.3 to Form 8-K of the Registrant filed on March 16, 2010.                                                          
|10.25 † | Blood Donor Center Management Community Mobile Blood Collections Services Agreement, USC Blood Donor Center, USC University Hospital, between USC University Hospital, Inc. and HemaCare Corporation.                                                 
|10.26 † | First Amendment to the Blood Donor Center Management Community Mobile Blood Collections Services Agreement, entered into as of March 7, 2006, between USC University Hospital, Inc. and HemaCare Corporation.                                         
|10.27 † | Second Amendment to the Blood Donor Center Management Community Mobile Blood Collections Services Agreement, entered into as of April 10, 2007, between USC University Hospital, Inc. and HemaCare Corporation.                                       
|10.28 † | Third Amendment to the Blood Donor Center Management Community Mobile Blood Collections Services Agreement, entered into as of May 1, 2009, between University of Southern California, on behalf of USC University Hospital, and HemaCare Corporation.



32







|10.29 † | Therapeutic Apheresis Services Agreement, entered into as of January 30, 2003, between Kenneth Norris Jr. Cancer Hospital and HemaCare Corporation.                                      
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.30   | First Amendment to Services Agreement, entered into as of August 18, 2006, between Tenet Healthsystem Norris, Inc. and HemaCare Corporation.                                             
|10.31   | Second Amended and Restated Services Agreement, entered into as of April 1, 2008, between Tenet Healthsystem Norris, Inc. and HemaCare Corporation.                                      
|10.32   | Third Amendment to Services Agreement, entered into as of November 1, 2009, between University of Southern California, on behalf of USC Norris Cancer Hospital, and HemaCare Corporation.
|10.33   | Software License and Support Services Agreement, dated as of February 14, 2011, between Haemonetics Corporation and HemaCare Corporation.                                                
|14.     | Code of Ethics – incorporated by reference to Exhibit 14 to Form 10-K of the Registrant for the year ended December 31, 2004.                                                            
|21.     | Subsidiaries of the Registrant, incorporated by reference to Exhibit 21 to Form 10-K of the Registrant for the year ended December 31, 2009.                                             
|23.1    | Consent of Stonefield Josephson, Inc., Independent Registered Public Accounting Firm.                                                                                                    
|23.2    | Consent of Marcum LLP, Independent Registered Public Accounting Firm.                                                                                                                    
|24.     | Power of attorney (see signature page).                                                                                                                                                  
|31.1    | Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                      
|31.2    | Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                      
|32.1    | Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                             








|* |  | Management contracts
and compensatory plans and arrangements.
|- |  | -------------------------------------------------------------

|† |  | Certain portions
of this agreement have been omitted and filed separately with the Securities and Exchange Commission
pursuant to a request for an order granting confidential treatment pursuant to Rule 24b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



33





SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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.



|Dated: | March 21, 2011 |  | HEMACARE CORPORATION
|------ | -------------- |  | --------------------
|       |                |  |                     
|       |                |  | By:                 
|       |                |  |                     



POWER OF ATTORNEY



KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below hereby constitutes and appoints Pete van der Wal and Lisa Bacerra, and each of them, his or
her true and lawful attorneys-in-fact and agents, with full power of substitution, to sign and execute on behalf of the undersigned
any and all amendments to this report, and to perform any acts necessary in order to file the same, with all exhibits thereto and
other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing requested and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their or his or her substitutes, shall do or cause to be done by virtue hereof.



Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities
indicated on the 21st day of March, 2011.



|Signature               |  | Title                                             
|----------------------- |  | --------------------------------------------------
|                        |  |                                                   
|/s/ Pete van der Wal    |  | President and Chief Executive Officer and Director
|Pete van der Wal        |  | (Principal Executive Officer)                     
|                        |  |                                                   
|/s/ Lisa Bacerra        |  | Chief Financial Officer                           
|Lisa Bacerra            |  | (Principal Financial and Accounting Officer)      
|                        |  |                                                   
|/s/ Steven Gerber       |  |                                                   
|Steven Gerber           |  | Chairman of the Board, Director                   
|                        |  |                                                   
|/s/ Julian Steffenhagen |  |                                                   
|Julian Steffenhagen     |  | Director                                          
|                        |  |                                                   
|/s/ Teresa Sligh        |  |                                                   
|Teresa Sligh            |  | Director                                          
|                        |  |                                                   
|/s/ Terry Van Der Tuuk  |  |                                                   
|Terry Van Der Tuuk      |  | Director                                          



34









Index
to Consolidated Financial Statements



|                                                                              | Page  
|----------------------------------------------------------------------------- | ------
|                                                                              | Number
|                                                                              |       
|Report of Stonefield Josephson, Independent Registered Public Accounting Firm | F-2   
|                                                                              |       
|Report of Marcum LLP, Independent Registered Public Accounting Firm           | F-3   
|                                                                              |       
|Consolidated balance sheets                                                   | F-4   
|                                                                              |       
|Consolidated statements of operations                                         | F-5   
|                                                                              |       
|Consolidated statements of shareholders' equity                               | F-6   
|                                                                              |       
|Consolidated statements of cash flows                                         | F-7   
|                                                                              |       
|Notes to consolidated financial statements                                    | F-8   







F-1





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM













To the Audit Committee of the

Board of Directors and Shareholders

of HemaCare Corporation and Subsidiaries:



We have audited the accompanying consolidated
balance sheet of HemaCare Corporation and subsidiaries (the “Company”) as of December 31, 2010 and the related consolidated
statements of operations, shareholders’ equity and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.



We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of HemaCare Corporation and subsidiaries
as of December 31, 2010, and the consolidated results of their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.





/s/ Marcum LLP



Irvine, California

March 21, 2011





F-2







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM







To the Board of Directors and Shareholders of

HemaCare Corporation and Subsidiaries:





We have audited the accompanying consolidated
balance sheet of HemaCare Corporation and subsidiaries (the “Company”), as of December 31, 2009, and the related consolidated
statements of income, shareholders' equity and cash flows for the year then ended. The Company’s management is responsible
for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of HemaCare Corporation and subsidiaries
as of December 31, 2009, and the results of their operations and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.



/s/ Stonefield Josephson, Inc.



Irvine, California

March 23, 2010



F-3







HEMACARE CORPORATION

CONSOLIDATED BALANCE SHEETS



|                                                                |  | December 31, |             | December 31,
|--------------------------------------------------------------- |  | ------------ | ----------- | ------------
|                                                                |  | 2010         |             | 2009        
|                                                                |  |              |             |             
|Assets                                                          |  |              |             |             
|Current assets:                                                 |  |              |             |             
|Cash and cash equivalents                                       |  | $            | 1,638,000   |             
|Restricted cash                                                 |  |              | 660,000     |             
|Accounts receivable, net of allowance for                       |  |              |             |             
|doubtful accounts of $91,000 in 2010 and $87,000 in 2009        |  |              | 2,780,000   |             
|Product inventories and supplies                                |  |              | 617,000     |             
|Prepaid expenses                                                |  |              | 522,000     |             
|Assets held for sale                                            |  |              | 210,000     |             
|Other receivables                                               |  |              | 168,000     |             
|Total current assets                                            |  |              | 6,595,000   |             
|Plant and equipment, net of accumulated                         |  |              |             |             
|depreciation and amortization of $7,704,000 in 2010 and         |  |              |             |             
|$6,654,000 in 2009                                              |  |              | 3,100,000   |             
|Other assets                                                    |  |              | 148,000     |             
|Total assets                                                    |  | $            | 9,843,000   |             
|                                                                |  |              |             |             
|Liabilities and Shareholders' Equity                            |  |              |             |             
|Current liabilities:                                            |  |              |             |             
|Accounts payable                                                |  | $            | 1,486,000   |             
|Accrued payroll and payroll taxes                               |  |              | 636,000     |             
|Other accrued expenses                                          |  |              | 319,000     |             
|Current portion of capital lease                                |  |              | 16,000      |             
|Liabilities related to assets held for sale                     |  |              | 2,094,000   |             
|Total current liabilities                                       |  |              | 4,551,000   |             
|Deferred rent                                                   |  |              | 533,000     |             
|Long term portion of capital lease                              |  |              | 77,000      |             
|                                                                |  |              |             |             
|Shareholders' equity:                                           |  |              |             |             
|Common stock, no par value - 20,000,000 shares authorized,      |  |              |             |             
|9,712,948 issued and outstanding in 2010 and 10,049,539 in 2009 |  |              | 16,289,000  |             
|Accumulated deficit                                             |  |              | (11,607,000 | )           
|Total shareholders' equity                                      |  |              | 4,682,000   |             
|Total liabilities and shareholders' equity                      |  | $            | 9,843,000   |             





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



F-4







HEMACARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended Decmber 31,



|                                            |  | Twelve Months Ended
|------------------------------------------- |  | -------------------
|                                            |  | December 31,       
|                                            |  | 2010               
|Revenue                                     |  |                    
|Blood services                              |  | $                  
|Therapeutic services                        |  |                    
|Total revenue                               |  |                    
|                                            |  |                    
|Operating costs and expenses                |  |                    
|Blood services                              |  |                    
|Therapeutic services                        |  |                    
|Total operating costs and expenses          |  |                    
|                                            |  |                    
|Gross profit                                |  |                    
|                                            |  |                    
|General and administrative expenses         |  |                    
|                                            |  |                    
|(Loss) income from operations               |  |                    
|                                            |  |                    
|Benefit from income taxes                   |  |                    
|                                            |  |                    
|(Loss) income from continuing operations    |  |                    
|                                            |  |                    
|Loss from discontinued operations           |  |                    
|                                            |  |                    
|Net (loss) income                           |  | $                  
|                                            |  |                    
|(Loss) income per share                     |  |                    
|Basic                                       |  |                    
|Continuing operations                       |  | $                  
|Discontinued operations                     |  | $                  
|Total                                       |  | $                  
|Diluted                                     |  |                    
|Continuing operations                       |  | $                  
|Discontinued operations                     |  | $                  
|Total                                       |  | $                  
|                                            |  |                    
|Weighted average shares outstanding-basic   |  |                    
|                                            |  |                    
|Weighted average shares outstanding-diluted |  |                    





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





F-5





HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY

For the Years Ended December 31, 2010 and
2009



|                                       |  |  | Common Stock |   |  |   | Accumulated |   |  |   |             |  
|-------------------------------------- |  |  | ------------ | - |  | - | ----------- | - |  | - | ----------- | -
|                                       |  |  | Shares       |   |  |   | Amount      |   |  |   | Deficit     |  
|Balance as of December 31, 2008        |  |  | 9,886,955    |   |  | $ | 16,204,000  |   |  | $ | (11,666,000 | )
|                                       |  |  |              |   |  |   |             |   |  |   |             |  
|Conversion of restricted stock and     |  |  |              |   |  |   |             |   |  |   |             |  
|restricted stock units to common stock |  |  | 162,585      |   |  |   |             |   |  |   |             |  
|                                       |  |  |              |   |  |   |             |   |  |   |             |  
|Share-based compensation expense       |  |  |              |   |  |   | 132,000     |   |  |   | —           |  
|Net income                             |  |  |              |   |  |   |             |   |  |   | 855,000     |  
|Balance as of December 31, 2009        |  |  | 10,049,540   |   |  |   | 16,336,000  |   |  |   | (10,811,000 | )
|                                       |  |  |              |   |  |   |             |   |  |   |             |  
|Issuance of common stock through       |  |  |              |   |  |   |             |   |  |   |             |  
|Employee Stock Purchase Plan           |  |  | 150,908      |   |  |   | 83,000      |   |  |   |             |  
|                                       |  |  |              |   |  |   |             |   |  |   |             |  
|Stock options exercised                |  |  | 22,500       |   |  |   | 11,000      |   |  |   |             |  
|                                       |  |  |              |   |  |   |             |   |  |   |             |  
|Stock repurchased                      |  |  | (510,000     | ) |  |   | (281,000    | ) |  |   |             |  
|                                       |  |  |              |   |  |   |             |   |  |   |             |  
|Share-based compensation expense       |  |  |              |   |  |   | 140,000     |   |  |   |             |  
|Net loss                               |  |  |              |   |  |   | —           |   |  |   | (796,000    | )
|Balance as of December 31, 2010        |  |  | 9,712,948    |   |  | $ | 16,289,000  |   |  | $ | (11,607,000 | )





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



F-6





HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,



|                                                                                  |  | 2010 |           | 2009
|--------------------------------------------------------------------------------- |  | ---- | --------- | ----
|Cash flows from operating activities:                                             |  |      |           |     
|Net (loss) income                                                                 |  | $    | (796,000  | )   
|Adjustments to reconcile net (loss) income to                                     |  |      |           |     
|net cash provided by operating activities:                                        |  |      |           |     
|Loss from discontinued operations                                                 |  |      | 50,000    |     
|Provision for (recovery of) bad debts                                             |  |      | 12,000    |     
|Depreciation and amortization                                                     |  |      | 1,134,000 |     
|Loss on disposal of assets                                                        |  |      | 7,000     |     
|Share-based compensation                                                          |  |      | 140,000   |     
|Impairment of capitalized asset in progress                                       |  |      | 126,000   |     
|                                                                                  |  |      |           |     
|Changes in operating assets and liabilities:                                      |  |      |           |     
|(Increase) in restricted cash                                                     |  |      | (660,000  | )   
|Decrease in accounts receivable                                                   |  |      | 877,000   |     
|Decrease in inventories, supplies and prepaid expenses                            |  |      | 289,000   |     
|(Increase) decrease in other receivables                                          |  |      | (112,000  | )   
|Decrease in other assets                                                          |  |      | 17,000    |     
|Decrease in accounts payable, accrued payroll, accrued expenses and deferred rent |  |      | (27,000   | )   
|Net cash provided by operating activities                                         |  |      | 1,057,000 |     
|                                                                                  |  |      |           |     
|Cash flows from investing activities:                                             |  |      |           |     
|Proceeds from the sale of plant and equipment                                     |  |      | 6,000     |     
|Purchases of plant and equipment                                                  |  |      | (240,000  | )   
|Net cash used in investing activities                                             |  |      | (234,000  | )   
|                                                                                  |  |      |           |     
|Cash flows from financing activities:                                             |  |      |           |     
|Proceeds from sale of common stock                                                |  |      | 83,000    |     
|Proceeds from the exercise of stock options                                       |  |      | 11,000    |     
|Repurchases of common stock                                                       |  |      | (281,000  | )   
|Principal payments on capital leases                                              |  |      | (5,000    | )   
|Principal payments on notes payable                                               |  |      | —         |     
|Net cash used in financing activities                                             |  |      | (192,000  | )   
|                                                                                  |  |      |           |     
|Net cash provided by continuing operations                                        |  |      | 631,000   |     
|                                                                                  |  |      |           |     
|Cash Flows - Discontinued Operations                                              |  |      |           |     
|Net cash used in operating activities                                             |  |      | (5,000    | )   
|Net cash used in discontinued operations                                          |  |      | (5,000    | )   
|                                                                                  |  |      |           |     
|Increase in cash and cash equivalents                                             |  |      | 626,000   |     
|Cash and cash equivalents at beginning of period                                  |  |      | 1,222,000 |     
|Cash and cash equivalents at end of period                                        |  |      | 1,848,000 |     
|                                                                                  |  |      |           |     
|Cash, cash equivalents - Continuing operations                                    |  |      | 1,638,000 |     
|Cash and cash equivalents - Assets held for sale                                  |  |      | 210,000   |     
|Total cash and cash equivalents                                                   |  | $    | 1,848,000 |     
|                                                                                  |  |      |           |     
|Supplemental disclosure:                                                          |  |      |           |     
|Interest paid                                                                     |  | $    | 3,000     |     
|Income taxes refunded                                                             |  | $    | (18,000   | )   
|Capital lease addition for capital equipment                                      |  | $    | 98,000    |     



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



F-7





HemaCare
Corporation

Notes
to Consolidated Financial Statements

December
31, 2010





Note 1 - Organization



HemaCare Corporation (“HemaCare or the
“Company”), along with its wholly-owned subsidiary Coral Blood Services, Inc., collects, processes and distributes
blood products to hospitals and research related organizations in the United States, and has operations in Southern California,
Maine and Mid-Atlantic United States. In 2006, HemaCare acquired 100% of the capital stock of Teragenix Corporation, subsequently
renamed HemaCare BioScience, Inc. (“HemaBio”). On November 5, 2007, the Board of Directors of HemaBio decided to close
all operations of HemaBio.



Note 2 - Summary of Accounting
Policies



Principles of Consolidation: The accompanying
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.



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 impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements. Estimates also impact the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates include, but are not limited to, accruals, stock
based compensation, estimates used in the determination of fair value of stock options and the provision for doubtful accounts.



Cash and Cash Equivalents: The Company
considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains
cash balances at various financial institutions. Deposits not exceeding $250,000 for each institution are insured by the Federal
Deposit Insurance Corporation Section 343 of the Dodd-Frank Act amends the Federal Deposit Insurance Act to include noninterest-bearing
transaction accounts as a new temporary deposit insurance account category. All funds held in noninterest-bearing transaction accounts
will be fully insured, without limit, from December 31, 2010, through December 31, 2012. At December 31, 2010, the Company had
uninsured restricted cash of $410,000, and on December 31, 2009, the Company had $754,000 of unrestricted, uninsured cash and cash
equivalents, The Company had $660,000 of cash restricted to Wells Fargo Bank at December 31, 2010, as security for a Letter of
Credit as required as part of the lease obligation at the Company’s Van Nuys facility. The Company had no restricted cash
at December 31, 2009.



Fair Value Disclosure of Financial Instruments:
The Company has estimated the fair value amounts of its financial instruments using the available market information and valuation
methodologies considered to be appropriate and has determined that the book value of the Company’s cash and cash equivalents,
restricted cash, accounts receivable, inventories, prepaid expenses, accounts payable, accrued expenses, and income tax payable
as of December 31, 2010 and 2009 approximate fair value. The interest rate applied to capital leases is based upon the Company's
borrowing rate, and therefore their carrying value approximates fair value.



Revenue and Accounts Receivable:The
Company recognizes revenue upon shipment of its products to its customers, provided that the Company either has a contract with
the customer, received a purchase order or the price is fixed, collection of the resulting receivable is reasonably assured and
transfer of title and risk of loss has occurred. Revenue is 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. Therapeutic services revenue consists primarily of mobile therapeutics sales, while blood services
revenue consists 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 collectability.



F-8





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 in either 2010 or 2009.



Inventories are comprised of the following
as of December 31,



|               |  | 2010 |         | 2009
|-------------- |  | ---- | ------- | ----
|               |  |      |         |     
|Supplies       |  | $    | 461,000 |     
|Blood products |  |      | 156,000 |     
|Total          |  | $    | 617,000 |     



Plant and Equipment: Plant and equipment
are stated at original cost less accumulated depreciation and amortization and impairment charges. Furniture, fixtures, equipment
and vehicles are depreciated using the straight-line method over five to ten years. Leasehold improvements are amortized over the
lesser of their useful life or the length of the lease, ranging from three to ten years. The cost of normal repairs and maintenance
are expensed as incurred.



Long-lived Assets:All long-lived assets
are reviewed for impairment in value when changes in circumstances dictate, based upon undiscounted future operating cash flows.
Appropriate losses are recognized and reflected in current earnings, to the extent the carrying amount of an asset exceeds its
estimated fair value determined by the use of appraisals, discounted cash flow analyses or comparable fair values of similar assets.



Income Taxes: Under the provisions of
ASC Topic 740,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. The Company determined that it was unlikely to realize any future benefit from
the deferred tax asset in 2010 and 2009 and therefore booked a 100% valuation allowance as of both December 31, 2010 and December
31, 2009.



On January 1,
2007, the Company adopted ASC Topic 740-10, Income Taxes, which clarifies the accounting for uncertainty in income taxes
by prescribing rules for recognition, measurement and classification in financial statements of tax positions taken or expected
to be taken in a tax return.

Per Share Data: Earnings per share-basic
is computed by dividing net income by the weighted average shares outstanding. Earnings per share-diluted is computed by dividing
net income by the weighted average number of shares outstanding including the diluted effect of options, restricted stock, restricted
stock units and warrants.



Interest Expense: During the years ended
December 31, 2010 and 2009, the Company incurred interest expense of $4,000 and $160,000, for continuing operations and $50,000
and $50,000 for discontinued operations, respectively.



F-9







Share-Based Compensation:As per the
ASC Topics 505, Equityand 718, Stock Compensation, an entity shall account for share-based compensation transactions
with employees in accordance with the fair-value-based method, that is, the cost of services received from employees in exchange
for awards of share-based compensation generally shall be measured based on the grant-date fair value of the equity instruments
issued or on the fair value of the liabilities incurred. The Company’s assessment of the estimated fair value of share-based
payments is 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 share-based payments
granted. Valuation techniques used for employee share options and similar instruments estimate the fair value of those instruments
at a single point in time (for example, at the grant date). The assumptions used in a fair value measurement are based on expectations
at the time the measurement is made, and those expectations reflect the information that is available at the time of measurement.



The Black-Scholes 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, which is estimated based on the historical 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.



Note 3 – 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.



Per ASC Topic 205-20, Discontinued Operations and ASC Topic 360-10, Impairment or Disposal of Long-Lived Assets, the results of operations of HemaBio, along with
an estimate of all closure related costs, were recorded in 2007. The following is the breakdown of the assets held for sale and
the liabilities related to the assets held for sale for the discontinued operations as of December 31, 2010 and December 31, 2009:



F-10







HEMACARE BIOSCIENCE, INC

Discontinued Operations



|                                                  |  | December 31, |           | December 31,
|------------------------------------------------- |  | ------------ | --------- | ------------
|                                                  |  | 2010         |           | 2009        
|                                                  |  |              |           |             
|Assets held for Sale                              |  |              |           |             
|Cash and cash equivalents                         |  | $            | 210,000   |             
|Total assets held for sale                        |  | $            | 210,000   |             
|                                                  |  |              |           |             
|Liabilities related to assets held for sale       |  |              |           |             
|Accounts payable                                  |  | $            | 774,000   |             
|Accrued payroll and payroll taxes                 |  |              | 603,000   |             
|Accrued interest                                  |  |              | 217,000   |             
|Notes payable                                     |  |              | 500,000   |             
|Total liabilities related to assets held for sale |  | $            | 2,094,000 |             



When the Board of Directors of HemaBio authorized
the execution of the Assignment of Benefit of Creditors, HemaBio conveyed all of its assets, defined as “all real property,
fixtures, goods, stock inventory, equipment, furniture, furnishings, accounts receivable, bank deposits, cash, promissory notes,
cash value and proceeds of insurance policies, claims and demands”, to the Assignee. The Assignee is then responsible for
liquidating any non-monetary assets, for the purpose of eventually satisfying any and all creditor claims against HemaBio. Unlike
a federal bankruptcy proceeding, the Florida ABC process does not stay any legal action the creditors might choose to force HemaBio
to pay claims.



Therefore, management concluded that given
liabilities remained outstanding throughout the ABC, it was appropriate to keep these liabilities on the books of HemaBio as outstanding
until such time as the Assignee pays these claims, the claims are dismissed by a court, or the claimants rights to pursue claims
expires per the Florida Statute of Limitations.



Management analyzed all of the claims submitted
to the Assignee, and after reviewing the applicable Florida Statute of Limitations, management determined that the claimant’s
rights to pursue claims would not expire for at least three years. Therefore, management concluded that
none of the claims against HemaBio can be removed as of December 31, 2010.



Note 4 - Allowance for Doubtful Accounts



The Company periodically reviews the outstanding
balances owed by its customers. Generally, the Company recognizes an allowance for doubtful accounts for any balances owed that
are 90 days or more past due based on the invoice date, unless substantial evidence exists that the receivable is collectable,
such as subsequent cash collection. In addition, balances less than 90 days past due are reserved based on the Company’s
recent bad debt experience.



For 2010, the Company recorded an increase
to the allowance for doubtful accounts of $12,000 for continuing operations as a result of management’s review of outstanding
receivables, whereas for 2009 the Company recorded a decrease of $71,000. In 2009, the decrease was due to collection of customer
balances previously included in the allowance. The Company’s policy is to write-off a receivable when collection efforts
are terminated and the probability of collection is very low.



F-11





Note 5 - Plant and Equipment



Plant and equipment consists of the following:



|                                               |  | December 31, |            | December 31,
|---------------------------------------------- |  | ------------ | ---------- | ------------
|                                               |  | 2010         |            | 2009        
|                                               |  |              |            |             
|Furniture, fixtures and equipment              |  | $            | 8,511,000  |             
|Leasehold improvements                         |  |              | 2,293,000  |             
|                                               |  |              |            |             
|Less accumulated depreciation and amortization |  |              | (7,704,000 | )           
|                                               |  | $            | 3,100,000  |             



Depreciation and amortization expense for 2010
and 2009 was $1,134,000 and $1,054,000, respectively.



The Company wrote off impaired assets in 2010
totaling $126,000, related to assets purchased for the Company’s software project which were no longer needed as management
decided to utilize a hosting solution offered by the software vendor.



Note 6 - Line of Credit and Notes Payable



On December 9, 2009, the Company, together
with the Company’s subsidiary, Coral Blood Services, Inc., entered into a new Credit Agreement (the “New Wells Agreement”),
and related security agreements, with Wells Fargo to replace the Wells Fargo Agreement entered into on April 10, 2008. The New
Wells Agreement provided that the Company could borrow the lesser of 80% of eligible accounts receivable or $5 million, and had
a maturity date of December 1, 2011. Most of the terms in the New Wells Agreement were similar to those in the former Wells Fargo
Agreement; however, the New Wells Agreement provided that the Company pay interest on a monthly basis on any outstanding balance
at 0.25% above the bank’s prime rate, but eliminated any minimum monthly interest requirement. The New Wells Agreement also
granted the bank a first priority security interest in all of the assets of the Company and Coral Blood Services, Inc.



The Company had no outstanding borrowings under
the New Wells Agreement as of December 31, 2010, except for a letter of credit issued by Wells Fargo as security for lease obligations
associated with the Company’s Van Nuys facility. The Company is required to maintain a letter of credit under the lease,
initially in the amount of $815,000 and reducing by 10% each year on August 14, 2009, 2010, 2011 and 2012, and 20% each year on
August 14, 2013 and 2014. At December 31, 2010, the letter of credit was for $660,000. No amounts have been drawn against the letter
of credit.



The New Wells Agreement also required that
the Company maintain certain financial covenants, including minimum tangible net worth, maximum total liabilities and minimum net
income over a rolling two quarter basis. As of December 31, 2010, the Company was out of compliance with the financial covenants
in the New Wells Agreement.



Effective as of January 15, 2011, in consideration
of Wells Fargo waiving the Company’s existing defaults under the Credit Agreement, the Company agreed to amend the New Wells
Agreement to provide that outstanding borrowings, including outstanding advances and letters of credit, shall not at any time exceed
the amount of cash collateral in a segregated, blocked deposit account maintained by the Company with Wells Fargo and with respect
to which Wells Fargo has been granted a first priority security interest to secure all present and future indebtedness of the Company
to Wells Fargo. Pursuant to this arrangement, the Company has pledged $660,000 in cash to Wells Fargo, and the Company has outstanding
letters of credit for an aggregate of $660,000 under the New Wells Agreement.



F-12





Note 7 - Leases



The Company leases its facilities and certain equipment under operating
leases that expire through the year 2017.



Future minimum rentals under operating and capital leases for continuing
operations are as follows:



|Years ending December 31, |  | Operating |           | Capital
|------------------------- |  | --------- | --------- | -------
|2011                      |  | $         | 813,000   |        
|2012                      |  |           | 793,000   |        
|2013                      |  |           | 747,000   |        
|2014                      |  |           | 744,000   |        
|2015                      |  |           | 740,000   |        
|Thereafter                |  |           | 1,202,000 |        
|Total                     |  | $         | 5,039,000 |        



For continuing operations total rent expense
under all operating leases was $977,000 and $893,000 for the years ended December 31, 2010 and 2009, respectively.



Most of the operating leases for facilities
include options to renew the lease at the then current fair market value for periods of one to five years. In most cases, management
expects that in the normal course of business, leases will be renewed or replaced by other leases.



On February 24, 2006, the Company entered
into a lease for approximately 19,600 square feet located in Van Nuys, California intended to house corporate offices, mobile blood
drive operations, a blood component manufacturing lab and a blood products distribution operation. The Company occupied this facility
in November 2006. The rent for this facility started at approximately $36,000 per month; however, the lease provides for an annual
3% rent escalation upon the annual anniversary of the beginning of the lease term and for increases in the cost of common area
maintenance. The lease on this space expires July 31, 2017; however, the Company has one five-year option to extend this lease
at the then current market price. On April 11, 2007, the Company entered into an amendment to add approximately 5,735 square feet
to this lease intended to house a donor center and supply warehouse. This amendment added $13,250 per month in rent expense, which
adjusts annually by 3.9% on the anniversary of the lease commencement date. As part of the lease agreement, the Company received
approximately $508,000 in tenant improvement allowance from the landlord.



The Company recognizes the total rent obligation
for this facility, net of the tenant improvement allowance, as rent expense on a straight line basis over the term of the lease.
The Company allocates on a straight-line basis the total lease payments, including rent escalation, abated rent, and tenant improvement
reimbursement, over the term of the lease. As a result, the Company recognizes approximately $41,000 in monthly rent expense over
the term of the lease. As of December 31, 2010, the Company recorded $66,000 in deferred rent included in accrued expenses associated
with this lease to be utilized over the next twelve months. As of December 31, 2010, the Company has remaining $533,000 deferred
rent associated with this lease, included in other long-term liabilities on the balance sheet.



On August 18, 2010, the Company entered into
a capital lease with Horiba Financial Services for the lease of equipment used in processing in the Company’s Van Nuys laboratory
facility. The total value of the lease is $98,000 at 10.5% interest which is payable monthly in the amount of $2,100 and expires
in July 2015.



F-13





Note 8 - Income Taxes



The provision for income taxes for the years
ended December 31, 2010 and 2009 is as follows:



|                                                     |  | 2010 |         | 2009
|---------------------------------------------------- |  | ---- | ------- | ----
|                                                     |  |      |         |     
|Federal – Net operating loss carryback               |  | $    | (63,000 | )   
|                                                     |  |      |         |     
|Federal – Refundable research and development credit |  |      | —       |     
|                                                     |  |      |         |     
|State – current year provision                       |  |      | 3,000   |     
|                                                     |  |      |         |     
|State – prior year amendments and refunds            |  |      | —       |     
|Income tax (benefit) provision                       |  | $    | (60,000 | )   



For continuing operations, the Company recorded
a $60,000 benefit from income taxes for 2010 compared with a $28,000 benefit from income taxes for 2009.



ASC Topic 740-10 prescribes a two-step process
for the financial statement measurement and recognition of a tax position. The first step involves the determination of whether
it is more likely than not (greater than 50 percent likelihood) that a tax position will be sustained upon examination, based on
the technical merits of the position. The second step requires that any tax position that meets the more-likely-than-not recognition
threshold be measured and recognized in the financial statements at the largest amount of benefit that is greater than 50 percent
likelihood of being realized upon ultimate settlement. ASC Topic 740-10 also provides guidance on the accounting for related interest
and penalties, financial statement classification and disclosure. Interest and penalties related to uncertain tax positions will
be recognized in income tax expense when incurred. As of December 31, 2010, the Company did not incur any interest or penalties
related to uncertain tax positions. The oldest tax year that remains open to possible evaluation and interpretation of the Company’s
tax position is 2006.



Differences between the provision for income taxes and income taxes
at the statutory federal income tax rate for the years ended December 31, 2010 and 2009 are as follows:



|                                              |  | 2010 |          | 2009
|--------------------------------------------- |  | ---- | -------- | ----
|Income tax expense at federal statutory rate  |  | $    | (297,000 | )   
|Refundable research and development credit    |  |      | —        |     
|State income taxes, net of federal benefit    |  |      | (6,000   | )   
|Change in valuation allowance                 |  |      | 348,000  |     
|Permanent differences                         |  |      | 30,000   |     
|Change in deferred tax asset and other        |  |      | —        |     
|Expiration of federal credit                  |  |      | (72,000  | )   
|Income tax expense                            |  |      | 3,000    |     
|State prior period tax amendments and refunds |  |      | —        |     
|Federal NOL carryback                         |  |      | (63,000  | )   
|Income tax benefit                            |  | $    | (60,000  | )   





F-14





The Company recognized no net deferred tax asset as of December
31, 2010 and 2009. The components of the net deferred tax asset at December 31, 2010 and 2009 are as follows:



|                                 |  | 2010 |            | 2009
|-------------------------------- |  | ---- | ---------- | ----
|Current:                         |  |      |            |     
|Accounts receivable reserve      |  | $    | 33,000     |     
|Accrued expenses and other       |  |      | 562,000    |     
|Total current deferred tax asset |  | $    | 595,000    |     
|                                 |  |      |            |     
|Noncurrent:                      |  |      |            |     
|Net operating loss carryforward  |  | $    | 2,801,000  |     
|Depreciation and amortization    |  |      | 34,000     |     
|Tax credit carryforward          |  |      | 54,000     |     
|Stock compensation               |  |      | 211,000    |     
|Other                            |  |      | (180,000   | )   
|Valuation allowance              |  |      | (3,515,000 | )   
|Total non-current deferred tax   |  |      | (595,000   | )   
|Total deferred tax asset         |  | $    | —          |     



A valuation allowance is recorded if the weight
of available evidence suggests it is more likely than not that some portion or the entire deferred tax asset will not be recognized.



The Company determined at the end of 2010 and
2009 that, based on recent operating results, it was unlikely that the Company would realize any of the deferred tax assets. Therefore,
the Company recorded a 100% valuation reserve against all of the net deferred tax assets as of December 31, 2010 and December 31,
2009.



As of December 31, 2010, the value of the Company’s
federal and state net operating loss carryforwards were $7.0 million and $16.6 million, respectively. The difference in the net
operating loss carryovers for Federal and State purposes relate to the filing of combined versus stand alone income tax returns.
The ability of the Company to utilize the available federal net operating loss carryforward is scheduled to expire over time starting
in 2011 and ending in 2030. The ability for the Company to utilize the available state net operating loss is scheduled to expire
over time starting in 2017 and ending 2030.



Utilization of our net operating loss may be
subject to substantial annual limitation as a result of a change in ownership as provided by the Internal Revenue Code and similar
state provisions. Such a limitation could result in the expiration of the net operating loss before utilization.



Note 9 - Shareholders' Equity



Stock Options



On May 24, 2006, the shareholders approved
the 2006 Equity Incentive Plan (“2006 Plan”) since the 1996 Plan expired in July 2006. The following is a summary of
the 2006 Plan:



Background and
Purpose.   The primary 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.

F-15





Eligible Participants.  
Awards may be granted under the 2006 Plan to any of the Company’s officers, directors, or consultants or Company affiliates.
An incentive stock option may be granted under the 2006 Plan only to a person who, at the time of the grant, is an employee of
the Company or a related corporation.

Number of Shares of Common
Stock Available.   A total of 1,200,000 shares of common stock had been reserved for issuance under the 2006 Plan
upon inception, and an amendment to the 2006 Equity Incentive Plan, to increase the maximum number of shares of common stock that
may be issued pursuant to all types of awards granted under the Plan from 1,200,000 to 2,200,000 shares, was approved at the May
21, 2010 annual shareholder’s meeting. If an award is cancelled, terminates, expires, or lapses for any reason without having
been fully exercised or vested, or is settled for less than the full number of shares of common stock represented by such award
actually being issued, the unvested, cancelled, or unissued shares of common stock generally will be returned to the available
pool of shares reserved for issuance under the 2006 Plan. In addition, if the Company experiences a stock dividend, reorganization,
or other change in capital structure, the administrator may, in its discretion, adjust the number of shares available for issuance
under the 2006 Plan and any outstanding awards as appropriate to reflect the stock dividend or other change. The share number limitations
included in the 2006 Plan will also adjust appropriately upon such event.



As of December 31, 2010,
the Company had utilized 1,137,835 of the shares reserved under the 2006 Plan, and 1,062,165 shares remain available. Awards may
be granted to any employee, director or consultant of the Company or its subsidiaries, or those of the Company’s affiliates.



At the March 11, 2010 meeting
of the Board of Directors, the non-employee directors were awarded, pursuant to the Company’s director compensation policy,
their 2010 annual stock option grants utilizing the closing stock price on March 11, 2010 the date of the meeting, and the Black-Scholes
valuation model. Since this grant was intended as compensation for annual service, the Company recorded $64,000 of share-based
compensation for the year ended December 31, 2010.The recorded share based-compensation for the annual stock option grants awarded
to non-employee directors as compensation for annual service for the year ended December 31, 2009 was $37,000.



Total share-based compensation
expense for award grants issued to employees for the years ended December 31, 2010 and 2009 was $76,000 and $95,000 respectively.



The table below summarizes stock option activity
for 2010 and 2009:



|                                 |  | 2010   |           | 2009                             
|-------------------------------- |  | ------ | --------- | ---------------------------------
|                                 |  | Shares |           | Weighted  Average  Exercise Price
|Outstanding at beginning of year |  |        | 1,815,000 |                                  
|Granted                          |  |        | 290,000   |                                  
|Exercised                        |  |        | (22,500   | )                                
|Forfeited                        |  |        | (155,750  | )                                
|Expired                          |  |        | (357,750  | )                                
|Outstanding at end of year       |  |        | 1,569,000 |                                  
|Vested at end of year            |  |        | 1,252,000 |                                  



As of December 31, 2010, the total aggregate
intrinsic value of all fully vested stock options, and of all stock options outstanding, was $149,000 and $200,000, respectively.



F-16





The following table summarizes the range of
exercise price, weighted average remaining contractual life (“Life”) and weighted average exercise price (“Price”)
for all stock options outstanding as of December 31, 2010:



|                        |  | Options Outstanding |           | Options Exercisable
|----------------------- |  | ------------------- | --------- | -------------------
|Range of Exercise Price |  | Shares              |           | Life               
|$0.18 to $0.75          |  |                     | 892,000   |                    
|$0.76 to $1.50          |  |                     | 370,000   |                    
|$1.51 to $2.50          |  |                     | 157,000   |                    
|$2.51 to $2.71          |  |                     | 150,000   |                    
|                        |  |                     | 1,569,000 |                    



The table below summarizes restricted stock
activity for 2010 and 2009:



|                                 |  | 2010   |   | 2009 
|-------------------------------- |  | ------ | - | -----
|                                 |  | Shares |   | Price
|Outstanding at beginning of year |  |        | — |      
|Granted                          |  |        | — |      
|Exercised                        |  |        | — |      
|Forfeited                        |  |        | — |      
|Expired                          |  |        | — |      
|Outstanding at end of year       |  |        | — |      
|Exercisable at end of year       |  |        | — |      



The table below summarizes restricted stock
unit activity for 2010 and 2009:



|                                 |  | 2010   |   | 2009 
|-------------------------------- |  | ------ | - | -----
|                                 |  | Shares |   | Price
|Outstanding at beginning of year |  |        | — |      
|Granted                          |  |        | — |      
|Exercised                        |  |        | — |      
|Forfeited                        |  |        | — |      
|Expired                          |  |        | — |      
|Outstanding at end of year       |  |        | — |      
|Exercisable at end of year       |  |        | — |      



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



|                                                                                   | Years Ended December 31,
|---------------------------------------------------------------------------------- | ------------------------
|                                                                                   | 2010                    
|Weighted average fair value at date of grant for options granted during the period | $     0.53              
|Weighted average fair value for options exercised during the period                | $    0.45               
|Weighted average fair value for options vested during the period                   | $    0.67               
|Risk-free interest rates                                                           | 2.8%                    
|Expected stock price volatility                                                    | 157.0%                  
|Expected dividend yield                                                            | 0.0%                    
|Expected forfeitures                                                               | 29.5%                   
|Expected Option Term                                                               | 6.5 years               



F-17





For the year ended December 31, 2010, the Company
recognized non-cash share-based compensation costs of $140,000, in accordance with ASC Topics 505 and 718, reducing the income
before taxes and net income by this amount.



The following summarizes the activity of the Company’s stock
options that have not vested for the year ended December 31, 2010:



|                               |  | Shares |          | Weighted  average  fair value
|------------------------------ |  | ------ | -------- | -----------------------------
|Nonvested at January 1, 2010   |  |        | 361,750  |                              
|Granted                        |  |        | 290,000  |                              
|Vested                         |  |        | (179,000 | )                            
|Cancelled                      |  |        | (155,750 | )                            
|Nonvested at December 31, 2010 |  |        | 317,000  |                              



As of December 31, 2010, the unrecognized compensation
cost related to nonvested awards is $99,000 with a weighted-average period over which such unrecognized compensation is expected
to be recognized of 3.7 years.



As of December 31, 2010, there were 1,252,000 fully vested stock
options outstanding with a weighted average fair value of $0.40 and an average contractual term of 5.0 years.



Stock Repurchase Plan



The Board of Directors of the Company approved a plan on February
26, 2010 to purchase and retire up to 1,000,000 shares of the Company's common stock, or approximately 10% of current shares outstanding,
over a twelve month period. Subsequently, on November 10, 2010, the Board of Directors approved the expansion of the plan to 2,000,000
shares and extension of the plan for an additional twelve months ending December 31, 2011.The Company anticipates that these stock
repurchases will be made from time to time, depending on market prices, from cash on hand.



Pursuant to the stock repurchase program, the Company purchased
5,000 shares of common stock during the second quarter of 2010, and purchased 505,000 shares of common stock during the third quarter
of 2010, for aggregate purchases of 510,000 shares for the year ended December 31, 2010. These shares have all been retired.



Employee Stock Purchase Plan



On May 25, 2004, the
Board of Directors of the Company approved the Company’s 2004 Stock Purchase Plan, (the “ESPP”), which initially
provided for the issuance of up to 1,000,000 shares of the Company's Common Stock (subject to adjustment). The Company registered
1,000,000 such shares on a Registration Statement on Form S-8 (File No. 333-116405) filed with the Commission on June 10, 2004.
On August 6, 2009, the Board of Directors of the Company increased the number of shares which may be issued and sold under
the ESPP from 1,000,000 to 2,000,000 (subject to adjustment). On August 19, 2009, the Company filed a Registration Statement on
Form S-8 with the SEC to register 1,000,000 additional shares of the Company's Common Stock for issuance pursuant to the ESPP,
and such indeterminate number of additional shares as may become available under the ESPP as a result of the adjustment provisions
thereof.

F-18





Three purchases were
made from the Employee Stock Purchase Plan (“ESPP”) during 2010. On August 23, 2010, Pete van der Wal made two purchases
totaling 90,909 shares from the plan at $.55 each for a total of $50,000, and on the same date, Steven Gerber purchased 60,000
shares from the plan at $.55 each for a total of $33,000.

As of December 31,
2010, there were 419,191 remaining shares in the ESPP.

Note 10 – Earnings per Share



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



|                                                               |  | Years Ended December 31,
|-------------------------------------------------------------- |  | ------------------------
|                                                               |  | 2010                    
|Net (loss) income from continuing operations                   |  | $                       
|                                                               |  |                         
|Weighted average shares outstanding                            |  |                         
|Net effect of diluted options and warrants                     |  |                         
|Weighted average dilutive shares outstanding                   |  |                         
|                                                               |  |                         
|(Loss) earnings per share from continuing operations - diluted |  | $                       
|                                                               |  |                         
|Net loss from discontinued operations                          |  | $                       
|                                                               |  |                         
|Loss per share from discontinued operations - diluted          |  | $                       
|                                                               |  |                         
|Net (loss) income                                              |  | $                       
|                                                               |  |                         
|(Loss) earnings per share - diluted                            |  | $                       



Options outstanding representing 1,569,000
and 1,450,000 shares of common stock for the years ended December 31, 2010 and 2009, have been excluded from the above calculation
because their effect would have been anti-dilutive.



Note 11– 401(k) Profit Sharing
Plan



The HemaCare Corporation 401(k) Profit Sharing
Plan qualifies, in form, under Section 401(k) of the Code. The Company accrued a matching contribution to be paid in 2011 for the
2010 plan year of $65,000. The Company did not match any 401(k) contribution in 2010 for the 2009 plan year.



Note 12 - 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.



F-19





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 13 – Concentration Risk



The Company provides products and services
to healthcare providers, hospitals and research and cellular therapy related organizations, all of which are referred to as “customers”
for purposes of identifying concentration risk in this note. During 2010, one customer represented 18.1% of the Company’s
total revenue from continuing operations. The next two largest customers accounted for approximately 7.3% and 4.6% of total revenue
respectively. The Company’s ten largest customers accounted for 54.7% of total revenue. Other than the lease of space for
two donor centers at a customer’s facility, the Company’s only relationship with any of these customers is as a provider
of blood products and services.



In addition, consolidations and affiliations
within the hospital industry have changed the environment for the blood services segment. The newly consolidated or affiliated
hospitals have started to negotiate with the Company as a group, and therefore exert greater pressure on the Company for price
discounts. This may force the Company to offer price discounts to retain sales volume that previously would not have been granted
if the hospitals were not negotiating as a group.



During 2010, the Company received goods and
services from two major vendors; the first of which is CaridianBCT, which represented approximately 12.9% of the Company’s
total operating costs from continuing operations. This vendor provided products that support the Company’s cell separation
equipment used by both the blood services and therapeutic services segments. The second largest vendor is Creative Testing Solutions,
which represented approximately 9.7% of total operating costs from continuing operations. This vendor provided laboratory services.
The Company has no relationship with either vendor other than as a consumer of the goods and services provided by each.



Note 14 – Subsequent Events



Amendment to New Wells Agreement

Effective as of January 15, 2011, the Company
entered into a letter agreement (the “Amendment”) with Wells Fargo Bank (the “Bank’), pursuant to which
the parties amended the New Wells Agreement, by and among the Company, the Bank and Coral Blood Services, Inc. and the Bank waived
the Company’s existing defaults under the Credit Agreement.

In connection with
the Amendment, the Company also entered into a First Modification To Promissory Note, and a Security Agreement Specific Rights
to Payment, as modified by the Addendum attached thereto, each dated as of January 15, 2011

Blood Management Software Project

On February 18, 2011, the Company entered into
an agreement with Haemonetics, Inc. to purchase the license to the El Dorado Donor software system. The Company also signed a hosting
agreement for Haemonetics to host the El Dorado software system for a period of three years, with annual renewal options.



F-20