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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark one)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                    to


Commission file number: 0-15223

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

California(State or other jurisdiction of
incorporation or organization)

95-3280412(I.R.S. Employer Identification Number)15350 Sherman Way, Suite 350
Van Nuys, California(Address of principal executive offices)

91406(Zip Code)


Registrant's telephone number, including area code:(818) 226-1968Securities registered pursuant to Section 12(b) of the Act:

NoneSecurities 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. o YES    ý NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. o YES    ý NO

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. ý YES    o 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. o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company ý


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

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2008, 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 $1,900,000.

As
of March 10, 2009, 10,002,339 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 2008 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.



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TABLE OF CONTENTS



Page
NumberPART IItem 1.

Business

1General

1Recent Developments

1Business Segments

3Competition

5Sales to Major Customers

5Marketing

6Human Resources

6Suppliers

6Government Regulation

6Professional and Product Liability Insurance

7Additional Information

8Item 1A.

Risk Factors

8Item 1B.

Unresolved Staff Comments

16Item 2.

Properties

16Item 3.

Legal Proceedings

17Item 4.

Submission of Matters to a Vote of Security Holders

17PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities

18Item 6.

Selected Financial Data

18Item 7.

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

18Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

30Item 8.

Financial Statements and Supplementary Data

30Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

30Item 9A.

Controls and Procedures

31Item 9B.

Other Information

33PART IIIItem 10.

Directors, Executive Officers and Corporate
Governance

34Item 11.

Executive Compensation

34Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

34Item 13.

Certain Relationships and Related Transactions and Director
Independence

34Item 14.

Principal Accountant Fees and Services

34PART IVItem 15.

Exhibits and Financial Statement
Schedules

35Signatures

40Index to Consolidated Financial Statements and Schedules

F-1


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PART I

Item 1.Business

This 2008 Annual Report on Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and therefore may include statements regarding the intent,
belief or current expectations of the Company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements (See "Item 1A. Risk Factors"). The Company does not undertake to
update its forward-looking statements to reflect actual events and outcomes or later events.

General

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

The
Company has operated in Southern California since 1979. In 1998, the Company expanded operations to include portions of the eastern United States. In August 2006, the Company
acquired Florida based Teragenix Corporation, subsequently renamed HemaCare BioScience, Inc. ("HemaBio"), which sourced, processed and distributed human biological specimens, manufactured
quality control products and provided clinical trial management and support services. For a description of the terms of this acquisition, see the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on November 15, 2006. As a result of projected losses by HemaBio in the third and fourth quarters of 2007, and the
resignations of key members of HemaBio's management, the Board of Directors of HemaBio, in consultation with, and with the approval of, the Board of Directors of the Company, determined HemaBio's
business could not operate without senior management, and therefore closed all operations of HemaBio, effective November 5, 2007. See Note 3 of Notes to Consolidated Financial
Statements.

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

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

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

Recent Developments



The Company's blood products segment generated substantially higher profits in 2008 compared to 2007. Revenue for this operation
increased 10.8% as a result of an increase in the average selling price for red blood cell products and an increase in the sale of purchased blood products. Gross profit

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generated
by these operations increased 30.5% in 2008, primarily due to i) an increase in gross profit margins from 12.5% in 2007 to 14.7% in 2008, mostly due to the increase in red blood cell
pricing, ii) an improvement in mobile blood collection operation efficiency, and iii) an increase in the sales of purchased blood products.



As part of the consideration to acquire HemaBio, the Company issued a promissory note to both of the sellers. One note for $153,800 for
the benefit of Joseph Mauro required four equal annual installments of $38,450, plus accrued interest, commencing August 29, 2007 until paid. The second note for $46,200 for the benefit of
Valentin Adia, required four equal annual installments of $11,550, plus accrued interest, commencing August 29, 2007 until paid. The Company failed to pay the first installment due to
Mr. Mauro on August 29, 2007 of $46,000, which included $8,000 in accrued interest. The Company failed to pay the first installment due to Mr. Adia on August 29, 2007 of
$15,000, which included $3,000 in accrued interest. Disputes arose between the Company and Messrs. Mauro and Adia pertaining to the Company's acquisition of HemaBio, and their management of
HemaBio after the acquisition. The dispute led to the filing of a lawsuit against Mauro and Adia in the Los Angeles Superior Court (Case No. LC082173) (the "Lawsuit"). On August 29, 2008, the
Company entered into a Settlement Agreement and Mutual General Release (the "Mauro/Adia Agreement") with Mauro and Adia. The Mauro/Adia Agreement resolves the disputes, including those alleged in the
Lawsuit. The Mauro/Adia Agreement provides for the mutual general release of all claims between the Company and Mauro and Adia in exchange for (i) Mauro and Adia's cancellation of promissory
notes, and
accrued interest, received from the Company as part of the HemaBio acquisition consideration; (ii) return of 248,000 shares of the Company's common stock received by Mauro and Adia as part of
the HemaBio acquisition consideration; and (iii) payment by Mauro and Adia of $50,000 to the Company. The settlement resulted in a gain of $405,000 in 2008, which was recorded on the Company's
income statement in Other Income. See Note 6 of Notes to Consolidated Financial Statements.



On November 5, 2007, HemaBio ceased operations. See Note 3 of Notes to Consolidated Financial Statements. On
December 4, 2007, HemaBio executed and delivered 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. Under the terms of the Assignment, HemaBio transferred to the assignee, in trust for the benefit of each of HemaBio's creditors, all property, including (but
not limited to) the assets, accounts receivable, inventory, lists of creditors, books and records, etc. Under Florida State law, the assignee has the full power and authority to dispose of the
property, sue for and recover in his name everything belonging to HemaBio, compromise and settle all claims, disputes and litigations of, and review any transfers of HemaBio's property. During 2008,
the assignee successfully liquidated most of HemaBio's assets, including inventory, furniture and equipment, for $194,000 more than the net book value of these assets on HemaBio's books. In addition,
the assignee incurred closure related expenses of $64,000. Finally, HemaBio recognized $50,000 in interest expense related to notes payable to two of the former investors in HemaBio. For all of 2008,
these activities resulted in a net gain of $80,000, which is recorded under discontinued operations on the Company's financial statements. In addition, upon closing the new financing agreement with
Wells Fargo, the Company acquired $300,000 of secured debt of HemaBio previously owed to Comerica Bank. In 2008, the Company received full payment of this amount from the assignee as a full and
complete distribution. As of December 31, 2008, the assignee was still engaged to complete the liquidation and closure activities, although the remaining activities are not expected to result
in a material negative impact on the Company.

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On October 1, 2008, the Board of Directors of the Company appointed Mr. John Doumitt to the position of Chief Executive
Officer and as a member of the Board of
Directors. Mr. Doumitt, age 45, has served since October 2007 as the Company's Executive Vice President and General Manager, Blood Products. Previously Mr. Doumitt was Vice President,
Operations at Activus Healthcare Solutions from January 2007 to June 2007, Senior Director, Operations Finance, North America for Ingram Micro from 2005 to 2007 and Director, Field Services for
Cardinal Health, Nuclear Pharmacy Services, formerly Syncor International Corporation, from 1998 through the end of 2004. Mr. Doumitt received his Bachelor Degree in Industrial Engineering from
the University of Southern California, and his Masters Degree in Management from Purdue University, and is a registered Professional Engineer in Industrial Engineering.

Business Segments

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



This business segment collects, processes and distributes blood products primarily for transfusion in a hospital setting, but
occasionally produces human-derived blood products utilized by health research related organizations. The Company contracts with hospitals to provide transfusable blood products, but also to conduct
blood drives in the name of the hospital.

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 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 free standing donor centers 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. Recruiting and retaining donors is critical to the success of the Company's
blood products
operations. 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.

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

Blood
products revenue depends on a number of factors, including 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.

Product
safety is of paramount concern when dealing with blood products. The U.S. Food and Drug Administration ("FDA") is the agency principally responsible for the regulation of the
blood products industry in the U.S. The Company's blood products operations are either licensed or registered with the FDA and are regularly inspected by FDA personnel. Additionally, the Company's
operations are licensed or registered, regulated and inspected by various state agencies.

The
AABB is the blood industry sponsored organization responsible for maintaining and improving science, safety, quality and education relating to blood. The Company is an institutional
member, and the Company's blood collection operations are accredited by the AABB.

The
Company operates free standing blood collection centers and mobile blood collection operations in Southern California and Maine.



Therapeutic apheresis is a technique for removing harmful components from a patient's blood and is used in the treatment of autoimmune
diseases and other disorders. Therapeutic 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. 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 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 nurse
shortage 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.

Blood
services revenue 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 to alternative courses of treatment. The Company believes that physician education on the benefits of therapeutic apheresis results in an increase in the 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.

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Competition



The blood products and blood 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.

Approximately
50% of U. S. transfusable blood products are supplied by the American Red Cross ("ARC") through its national collection network, and approximately 40% are supplied by local
and regional blood centers, including the Company. The remainder is collected by hospitals directly.

The
Company competes in the marketplace through a strategy of offering blood product supply programs tailored to the requirements of individual customers. The Company consistently
reevaluates and revises its product supply programs 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.

The
competition in the therapeutic blood services business is primarily regional and 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 blood
services business also 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 provides education to the medical community on the benefits
of therapeutic apheresis as a treatment solution for various diseases.

Sales to Major Customers

The Company provides products and services to healthcare providers, hospitals and research related organizations, all of which are
referred to as "customers" for purposes of identifying concentration risk in this section. During 2008, three customers each represented more than 10% of the Company's total revenue from continuing
operations. One customer accounted for approximately 17.7% of total revenue, one customer for 16.5% of total revenue and the third customer accounted for 10.6%. The next largest customer accounted for
approximately 6.8% of total revenue. The Company's ten largest customers accounted for 70.4% of total revenue. Other than the lease of space for a donor center at a customer's facility, the Company's
only relationship with any of these customers is as a provider of blood products and services.

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Marketing

The Company's marketing programs include a combination of medical education, advertising and promotional programs,
in-person sales and other marketing programs directed to users of blood products and services. The Company markets its products and services in the form of customized programs that meet
the specific needs of individual customers. As a smaller company than the main competitors in the blood products marketplace, HemaCare offers more flexible supply arrangements and pricing structure.
This flexibility, a focus on customer service, and local expertise, are the main messages communicated to potential customers.

Human Resources

As of March 8, 2009, the Company had 254 employees, including 74 part-time 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 in 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
2008, the Company received goods and services from one major vendor that represented approximately 8.9% of the Company's total operating costs from continuing operations. This
vendor provides laboratory services. The next largest vendor represents approximately 7.0% of total operating costs from continuing operations. This vendor provides products that support the Company's
cell separation equipment used by both the blood products and blood services segments. The Company has no relationship with either vendor other than as a consumer of the goods and services provided by
each.

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 product suppliers are subject to extensive regulation and guidelines of the FDA, AABB, and various state licensing authorities.
FDA regulations are comprehensive, complex and extend to virtually all aspects of the blood products industry, including: recruiting; 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 blood 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.

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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 an
FDA registration.

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, Scarborough, Maine and
Bangor, Maine facilities to ship selected blood products across state lines.

During
the past year, the FDA conducted inspections at selected HemaCare facilities. At the conclusion of each inspection, the FDA provided the Company with a list of observations of
regulatory issues. 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. In
addition, the Company was informed that the 2006 warning letter would remain in effect. The Company believes it has either adequately addressed the issues raised by the FDA, or is in the process of
addressing these issues; however, the Company does not believe the response to these issues will result in a retraction of the 2006 warning letter. The Company believes that its response and actions
taken to address the FDA observations is sufficient and it is 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. At the conclusion of these audits, the Company is provided with a list of observations to address. The Company believes that it is in compliance with state
regulations governing the Company's operations.



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.

Professional and Product Liability Insurance

The blood product and service business is inherently subject to substantial potential liabilities for personal injury claims. The
Company maintains medical professional liability insurance in the amount of $3,000,000 for a single occurrence and $5,000,000 in the aggregate per year. Based on the

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

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.

Changes in demand for blood products could affect profitability

The Company's operations are structured to produce particular blood products based on customers' existing demand, and perceived
potential changes in demand, for these products. Sudden or unexpected changes in demand for these products could have an adverse impact on the Company's profitability. Increasing demand could harm
relationships with customers if the Company is unable to alter production capacity, or purchase products from other suppliers, adequately to fill orders. This

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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.

Declining blood donations could affect profitability

The Company's blood products business depends on the availability of donated blood. Only a small percentage of the population donates
blood, and regulations intended to reduce the risk of introducing infectious diseases in the blood supply, result in a decreased pool of potential donors. If the level of donor participation declines,
the Company may not be able to reduce costs sufficiently to maintain profitability in blood products.

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

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

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.

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

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

On
October 12, 2006, the AABB issued a timeline for gradual implementation of the United States Industry Consensus Standards for the Uniform Labeling of Blood and Blood Components
using ISBT 128. To maintain accreditation, blood facilities would need to develop a written implementation plan by November 1, 2006 and complete full implementation by May 2008. The
Company requested and received a variance from the AABB to delay the deadline for full implementation until December 31, 2008. The Company is attempting to obtain an extension of this variance,
but has not yet succeeded. The Company expects the AABB will approve the variance request, but cannot insure against the AABB declining the request. If the Company's AABB accreditation is withdrawn,
the Company's relationship with selected customers who require blood suppliers to be AABB accredited could be negatively impacted.

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

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

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

The Company's Florida-based research subsidiary recorded a decrease in revenue and a related increase in operating losses throughout
the first three quarters of 2007. On November 5, 2007, the Board of Directors of HemaBio closed this operation to avoid further losses. On December 4, 2007, HemaBio executed an
Assignment for Benefit of Creditors, under Florida Statutes Section 727.101 et seq., assigning all of its assets to an assignee, who is responsible for taking possession of, protecting,
preserving, and liquidating such assets and ultimately distributing the proceeds to creditors of HemaBio according to their priorities as established by Florida law. During 2008, the assignee
successfully

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liquidated
most of HemaBio's assets, including inventory, furniture and equipment. As of December 31, 2008, 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.

Decrease in reimbursement rates may affect profitability

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

Not-for-profit status gives advantages to competitors

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

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

The Company may not generate sufficient operating cash in the future to finance its operations for the next year. Currently the Company
is utilizing its credit facility with Wells Fargo to help finance its operations. The Company may need to raise additional capital in the debt or equity markets in order to finance future operations
and procure necessary equipment. There can be no assurance that the Company will be able to obtain such financing on reasonable terms or at all. Additionally, there is no assurance that the Company
will be able to obtain sufficient capital to finance future expansion.

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

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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 business

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

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

The Company currently maintains insurance coverage consistent with the industry; however, if the Company experiences losses or the
risks associated with the blood industry increase in the future, insurance may become more expensive or unavailable. The Company also cannot give assurance that as the business expands, or the Company
introduces new products and services, that additional liability insurance on acceptable terms will be available, or that the existing insurance will provide adequate coverage against any and all
potential claims. Also, the limitations on liability contained in various agreements and contracts may not be enforceable and may not otherwise protect the Company from liability for damages. The
successful assertion of one or more large claims against the Company that exceeds available insurance coverage, or changes in insurance policies, such as premium increases or the imposition of large
deductibles or co-insurance requirements, may materially and adversely impact the Company's business.

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

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

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

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

Targeted partner blood drives involve higher collection costs

Part of the Company's current operations involves conducting blood drives in partnership with hospitals. Some blood drives are
conducted under the name of the hospital partner and require that all

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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.

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

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

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

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

Business interruption due to earthquakes could adversely impact profitability

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

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

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

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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:



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

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

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

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

The Company's quarterly revenue and operating results have fluctuated significantly in the past, and are likely to continue to do so in
the future due to a number of factors, many of which are not within the Company's control. If quarterly revenue or operating results fall below the expectations of

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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:



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

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

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

Stock price could be volatile

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

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

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

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

The Company intends to retain any future earnings for use in its business, and therefore does not anticipate declaring or paying any
cash dividends in the foreseeable future. The declaration and payment of any cash dividends in the future will depend on the Company's earnings, financial

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condition,
capital needs and other factors deemed relevant by the Board of Directors. In addition, the Company's credit agreement prohibits the payment of dividends during the term of the agreement.

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

The regulations implementing Section 404 of the Sarbanes-Oxley Act of 2002 require management to perform an assessment of the
effectiveness of the Company's internal control over financial reporting beginning with its Annual Report on Form 10-K for the fiscal year ending December 31, 2007. The
Company's independent registered public accounting firm will be required to test and evaluate the design and effectiveness of such controls and publicly attest to such evaluation beginning with the
Annual Report on Form 10-K for the fiscal year ending December 31, 2009.

This
process will be expensive and time consuming, and will require significant attention of management. This process has revealed material weaknesses in internal controls that will
require remediation. See "Item 9A. Control and Procedures." The remediation process may also be expensive and time consuming, and management can give no assurance that the remediation effort
will be completed on time or be effective. In addition, management can give no assurance that additional material weaknesses in internal controls will not be discovered. Management also can give no
assurance that the process of evaluation and the auditor's attestation will be completed on time. The disclosure of a material weakness, even if quickly remedied, could reduce the market's confidence
in the Company's financial statements and harm the Company's stock price, especially if a restatement of financial statements for past periods is required.

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

Item 1BUnresolved 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
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 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 $38,800 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 7,200 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. The rent for this facility currently is approximately $13,800 per month. The Company invested approximately $2.1 million in tenant improvements in the new facility. As part of the lease
agreement, the Company received approximately $508,000 in tenant improvement allowance from the landlord.

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 $6,100, and the lease term expires October 31, 2012.

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The
Company also leases space for a donor center in a 1,300 square foot facility in Scarborough, Maine. The monthly rent is approximately $1,900. The lease term expires
October 21, 2010, and the Company has the option to extend the lease for an additional two-year term at an escalated rental rate that adjusts 3.5% annually.

The
Company also leases space for a donor center in a 2,500 square foot facility in Bangor, Maine. The monthly rent is approximately $4,600. The lease term expires December 31,
2011, and the Company has the option to extend the lease for one additional five-year term at rates adjusted for changes in the Consumer Price Index.

The
Company leases a 600 square foot office space in White Plains, New York for a monthly amount of approximately $1,400. The lease expires July 31, 2009.

Finally,
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.

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

Item 3Legal Proceedings

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

Item 4Submission of Matters to a Vote of Security Holders

None.

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Table of Contents

PART II

Item 5Market 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.
Shareholders are urged to obtain current market quotations for the Company's common stock. Prices for the quarter ended March 31, 2009 are through March 10, 2009.

2009

2008

2007Quarter ended

High

Low

High

Low

High

LowMarch 31

$
0.35

$
0.20

$
0.45

$
0.21

$
3.25

$
2.53June 30







$
0.51

$
0.37

$
2.95

$
1.70September 30







$
0.53

$
0.30

$
1.75

$
1.05December 31







$
0.53

$
0.16

$
1.30

$
0.18


On
March 10, 2009, the closing bid price of the Company's common stock was $0.33. Shareholders are urged to obtain current market quotations for 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.
Additionally, the Company's line of credit prohibits the payment of dividends during the term of the credit agreement. 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 3, 2009, the approximate number of shareholders of record was 255 (excluding individual participants in nominee security position listings).

Item 6Selected Financial Data

Intentionally omitted.

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

General

HemaCare operates in two primary business segments. The first is the blood products 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. Additionally, the Company operates a blood services segment, wherein the Company performs therapeutic apheresis procedures, stem cell
collection and other blood treatments on patients with a variety of disorders. Blood services are usually provided under contract with hospitals as an outside purchased service.

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. Management considered the operations of HemaBio to be similar to the Company's blood
products

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business
segment and previously reported the financial information for HemaBio as part of the Company's blood products business segment. With the closure of HemaBio, the Company will report the
financial results for 2007 and 2008 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, the percentage that certain items in the statement of (operations) income
were of net revenue and the percentage dollar increase (decrease) of such items from period to period.

Percent of Total Revenue

Percentage
Increase (Decrease)Years Ended December 31,

Years Ended December 31,2008

2007

2007 to 2008Continuing OperationsRevenue


100.0
%

100.0
%

10.1
%Operating costs


82.7
%

84.9
%

7.3
%Gross profit


17.3
%

15.1
%

26.1
%General and administrative expenses


15.7
%

18.6
%

(7.1
)%Income (loss) from operations before other income


1.6
%

(3.5
)%

151.5
%Other income


0.9
%

0.0
%

100.0
%Income (loss) before income taxes


2.5
%

(3.5
)%

179.5
%Provision for income taxes


0.1
%

1.9
%

(93.7
)%Income (loss)


2.4
%

(5.4
)%

149.2
%Discontinued OperationsIncome (loss) from discontinued operations


0.2
%

(17.4
)%

101.3
%ConsolidatedNet income (loss)


2.6
%

(22.8
)%

112.6
%


Year ended December 31, 2008 compared to the year ended December 31, 2007



The Company generated net income in 2008 of $979,000, or $.10 basic and fully diluted earnings per share, compared to a net loss in
2007 of $7,788,000, or $.90 basic and fully diluted loss per share.

For
continuing operations, revenue increased $3,452,000, or 10.1%, to $37,618,000 in 2008 from $34,166,000 for 2007. The increase is attributable to an increase in blood products and
blood services revenue of 10.8%, and 7.7%, respectively.

Gross
profit from continuing operations increased 26.0% to $6,502,000 in 2008 from $5,158,000 in 2007 due primarily to a 9.3% increase in the units sold of red blood cells, and a 6.2%
increase in the average selling price for red blood cell products.

General
and administrative expenses decreased $447,000, or 7.1%, in 2008 to $5,893,000 from $6,340,000 in 2007. The majority of this is due to the $326,000 non-recurring
severance expense in 2007 for the Company's former Chief Executive Officer. As a percent of total revenue, general and administrative expenses decreased from 18.6% in 2007 to 15.7% in 2008.

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Table of Contents

Discontinued
operations produced income of $80,000 in 2008 compared to a loss of $5,960,000 for 2007. The income in 2008 pertains to the sale of inventory previously written off, netted
against closure costs and asset write offs. Most of the loss in 2007 was related to a $4,259,000 charge for goodwill impairment as a result of the closure of HemaBio in November 2007.

In
2007, the Company increased the valuation allowance for the deferred tax asset to 100%, resulting in an increase in the tax provision in 2007 of $622,000. The Company did not
recognize any deferred tax asset in 2008.



For this business segment, the following table summarizes the revenue and gross profit for continuing operations for 2007 and 2008:

Blood ProductsContinuing Operations

2008

2007

Variance $

Variance %Revenue

$
29,633,000

$
26,752,000

$
2,881,000


10.8
%Gross Profit

$
4,369,000

$
3,349,000

$
1,020,000


30.5
%Gross Profit %


14.7
%

12.5
%

n/a


n/a


The
10.8% increase in revenue is due primarily to i) a 13.5% increase in the number of red blood cell units sold in the Company's California-based blood product operations,
ii) a 12.5% increase in the number of red blood cell units sold the Company's Maine-based blood product operation, and iii) a 6.2% increase in the average selling price for red blood
cell products. Mobile drive collections increased 3.5% in California, while sales of purchased products increased 32.1% compared to 2007.

Blood
products gross profit increased 30.5% in 2008 due primarily to i) an increase in the average sales price of red cell products ii) improvement in mobile blood
collection operation efficiency, and iii) an increase in the sales of purchased blood products.



For this business segment, the following table summarizes the revenue and gross profit for continuing operations for 2007 and 2008:

Blood Services

2008

2007

Variance $

Variance %Revenue

$
7,985,000

$
7,414,000

$
571,000


7.7
%Gross Profit


2,133,000


1,809,000

$
324,000


17.9
%Gross Profit %


26.7
%

24.4
%

n/a


n/a


The
7.7% increase in blood services revenue is primarily attributable to a 4.6% increase in the number of procedures performed, primarily in the Company's Mid-Atlantic
service area. The 17.9% increase in gross profit is primarily the result of the increase in the number of procedures performed. The increase in the gross profit percentage to 26.7% is primarily the
result of improved operational efficiency from better staff utilization.

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The following table summarizes general and administrative expenses for 2007 and 2008:

General and Administrative Expense

2008

2007

Variance $

Variance %Total

$
5,893,000

$
6,340,000

($
447,000
)

(7.1
)%Percent of Revenue


15.7
%

18.6
%

n/a


n/a


General
and administrative expenses decreased 7.1% primarily as a result of i) a decrease in severance expense of $326,000, ii) a decrease in the cost of professional and
temporary personnel of $239,000, and iii) a decrease in share-based compensation of $173,000. These decreases were partially offset by i) an increase in staff compensation of $165,000
and ii) an increase in 401(k) match of $109,000. The decrease in severance expense is related to the resignation of the Company's former President and Chief Executive Officer in 2007 without
any similar such expense in 2008 . The decrease in professional and temporary personnel costs was primarily due to the Company filling open staff positions in 2008 that were filled by temporary
personnel in 2007. The decrease in share-based compensation was due in part to a decrease in the common stock price in 2008 compared to 2007 which is one of the components used by the Black-Scholes
valuation model to calculate share-based compensation. This was offset in part by an increase in the number of options, restricted shares and restricted share units, granted to officers in 2008
compared to 2007. The increase in staff compensation was related to the Company filling open staff positions previously filled by consultants and temporary employees. Due to the Company's improved
earnings performance, the Company's Board of Directors decided to match $0.35 for every eligible dollar of compensation contributed into the Company's 401(k) plan in 2008. The Company did not match
any 401(k) contributions in 2007 due to the Company's poor financial results that year.

General
and administrative expenses as a percent of revenue decreased to 15.7% in 2008 due to a 7.1% decrease in these expenses while revenue increased 10.1%.



The Company recognized $331,000 in net other income in 2008, which was primarily the result of the Company entering into a settlement
of litigation with the former owners of HemaBio.

As
part of the consideration to acquire HemaBio, the Company issued a promissory note to both of the sellers. One note for $153,800 for the benefit of Joseph Mauro required four equal
annual installments of $38,450, plus accrued interest, commencing August 29, 2007 until paid. The second note for $46,200 for the benefit of Valentin Adia, required four equal annual
installments of $11,550, plus accrued interest, commencing August 29, 2007 until paid.

The
Company failed to pay the first installment due to Mr. Mauro on August 29, 2007 of $46,000, which included $8,000 in accrued interest. The Company failed to pay the
first installment due to Mr. Adia on August 29, 2007 of $15,000, which included $3,000 in accrued interest.

Disputes
arose between the Company and Messrs. Mauro and Adia pertaining to the Company's acquisition of HemaBio, and their management of HemaBio after the acquisition. The
dispute led to the filing of a lawsuit against Mauro and Adia in the Los Angeles Superior Court (Case No. LC082173) (the "Lawsuit").

On
August 29, 2008, the Company entered into a Settlement Agreement and Mutual General Release (the "Mauro/Adia Agreement") with Mauro and Adia. The Mauro/Adia Agreement resolves
the disputes, including those alleged in the Lawsuit. The Mauro/Adia Agreement provides for the

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mutual
general release of all claims between the Company and Mauro and Adia in exchange for i) Mauro and Adia's cancellation of the promissory notes, and accrued interest, received from the
Company as part of the HemaBio acquisition consideration; ii) return of 248,000 shares of the Company's common stock received by Mauro and Adia as part of the HemaBio acquisition consideration;
and iii) payment by Mauro and Adia of $50,000 to the Company. The settlement resulted in a gain of $405,000 in 2008, which was recorded on the Company's income statement in Other Income.

Partially
offsetting this income, the Company incurred $65,000 in other expense related to an over-billing of revenue recognized prior to 2008.



For continuing operations, the Company recorded a $41,000 provision for income taxes for 2008 compared with $646,000 for 2007. The
Company utilized operating loss carryforwards for 2008 to avoid any federal income taxes. State and local taxes comprised all of the tax provision for 2008. For 2007, the provision for income taxes
included $622,000 from the increase in the
valuation allowance for the deferred tax asset to 100%, and state and local taxes of $24,000 for continuing operations. Please see "Note 9Income Taxes" in the Notes to Consolidated
Financial Statements.



In the first six months of 2007, HemaBio, the Company's wholly owned Florida-based subsidiary 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 of approximately $300,000, and projected a net loss of
$125,000 in the month of October 2007. On November 2, 2007, HemaBio received letters of resignation from Mr. Joseph Mauro, HemaBio's President, and Mr. Valentin Adia, HemaBio's
Vice President of Business Development. Mr. Mauro and Mr. Adia both stated that their resignations were submitted under the "good reason" provisions of their employment agreements. The
Board of Directors of HemaBio, in consultation with, and with the approval of, the Board of Directors of the Company, determined that HemaBio's business could not operate successfully because
i) HemaBio was always operated as a separate and independent business from the Company, ii) HemaBio's employees, principally Mr. Mauro and Mr. Adia, possessed all knowledge
of HemaBio's suppliers, markets and customers, iii) without senior management there were no other individuals at HemaBio who could run the business and find a pathway to future profitability,
iv) none of the Company's management were available, nor possessed the knowledge, to take over the responsibility to run HemaBio, and v) the projected operating losses at HemaBio were
growing, and HemaBio did not have sufficient financial resources to operate for the time period required to recruit, hire and train new management. Therefore, the Board of Directors of HemaBio decided
that it was in the best interest of HemaBio's creditors to close all operations of HemaBio, effective November 5, 2007.

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

Net
income for discontinued operations was $80,000 in 2008 compared to a net loss of $5,960,000 in 2007. Income in 2008 was primarily the result of $194,000 in gains recognized on
liquidation of inventory previously written-off offset in part by $64,000 in closure related expenses and $50,000 in

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interest
expense related to notes payable to two of the former investors in HemaBio. The loss in 2007 was primarily the result of i) goodwill impairment of $4,259,000, ii) operating
losses of $272,000, iii) asset
valuation write downs of $424,000, iv) severance expenses of $604,000, and v) closure related expenses of $401,000. The $4,259,000 charge for goodwill impairment occurred as a result of
an evaluation of the value of goodwill based on future profitability of HemaBio's business. As a result of the decision to close this business, no future profits were considered possible and goodwill
was therefore fully impaired. The $272,000 in operating losses occurred as a result of a decline in revenue, without a corresponding decrease in expenses. The $424,000 write down in asset valuation
was the result of the decision to close HemaBio and file an assignment for benefit of creditors action in Florida. In consultation with the Florida assignee, HemaBio determined the net recoverable
asset value for the inventory, receivables and fixed assets. This process revealed that book value exceeded the net recoverable value, which resulted in the write down charge in 2007. The $604,000
severance expense occurred as a result of the resignations of the two senior HemaBio managers under the "good reason" provisions of their respective employment agreements. Under the "good reason"
provision, each manager is entitled to receive severance equivalent to their full salary, plus benefits, for one year or the balance of the remaining term under their agreements, whichever is larger.
Finally, the $401,000 in closure related expenses is the result of the decision to close HemaBio and file the assignment for benefit of creditors action, and included, among other things, the rent
obligation for the balance of the lease term for HemaBio's facilities in Fort Lauderdale, Florida, fees to the assignee and legal expenses.

The
provision for income taxes associated with discontinued operations was $0 and $4,000 for 2008 and 2007, respectively.

2008 and 2007 Quarterly Financial Data

The following table presents unaudited statement of (operations) income data for each of the eight quarters ended December 31,
2008. 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.

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Table of Contents

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

2007
Quarter Ended

2008
Quarter EndedMarch 31

June 30

Sept. 30

Dec. 31

March 31

June 30

Sept. 30

Dec. 31Continuing OperationsRevenue

$
8,354

$
8,418

$
8,433

$
8,961

$
8,608

$
9,562

$
9,474

$
9,974Gross profit


1,157


1,118


1,199


1,684


1,505


1,785


1,511


1,701(Loss) income before other expense


(317
)

(615
)

(403
)

153


92


270


59


188Other expense (income)

















65


(396
)

(Loss) income before income taxes


(317
)

(615
)

(403
)

153


92


205


455


188Income tax provision (benefit)








623


23


5


40





(4
)Net (loss) income from continuing operations

$
(317
)
$
(615
)
$
(1,026
)
$
130

$
87

$
165

$
455

$
192(Loss) earnings per shareBasic

$
(0.04
)
$
(0.07
)
$
(0.12
)
$
0.01

$
0.01

$
0.02

$
0.05

$
0.02Diluted

$
(0.04
)
$
(0.07
)
$
(0.12
)
$
0.01

$
0.01

$
0.02

$
0.05

$
0.02Discontinued OperationsRevenue

$
1,002

$
1,228

$
1,128

$
275

$


$


$


$
(Loss) income before income taxes


(30
)

208


(4,566
)

(1,568
)




263


(170
)

(13
)Income tax provision (benefit)





7


4


(7
)










Net (loss) income from discontinued operations

$
(30
)
$
201

$
(4,570
)
$
(1,561
)
$


$
263

$
(170
)
$
(13
)(Loss) earnings per shareBasic

$
(0.00
)
$
0.02

$
(0.52
)
$
(0.18
)
$


$
0.02

$
(0.02
)
$
(0.00
)Diluted

$
(0.00
)
$
0.02

$
(0.52
)
$
(0.18
)
$


$
0.02

$
(0.02
)
$
(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:



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.

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Critical Accounting Policies and Estimates



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.



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

The
Company's assessment of the estimated fair value of the stock options granted is impacted by the price of the Company's common 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. Generally, the calculation of fair
value for share-based payments under SFAS 123R is similar to the calculation of fair value under SFAS 123, with the exception of the treatment of forfeitures.

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



Starting
in the third quarter of 2008, the Company no longer assumes a forfeiture rate when assessing value for options held by independent members of the Board of Directors. Since
options issued to independent board members are not forfeited upon separation from the Company, management has determined it is inappropriate to assign a forfeiture rate to these options.

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 net income or loss.

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The Company makes ongoing estimates on the collectibility of accounts receivable and maintains a reserve for estimated losses resulting
from the inability of customers to meet their financial obligations to the Company. In determining the amount of the reserve, management considers the historical level of credit losses and makes
judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Since management cannot predict future changes in the financial stability of customers, actual 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.



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.



The Company periodically evaluates the fair value of any goodwill recognized as a result of prior acquisition activity. Goodwill is the
portion of the total consideration paid to acquire a business that exceeds the fair market value of the assets acquired, less the value of the liabilities acquired. Any subsequent valuation of
goodwill requires substantial estimation by management of the future profitability of any respective business unit, and an assessment of the fair value of the business. The Company uses the income
approach, along with other standard analytical approaches, to estimate the fair value of goodwill. The income approach involves estimating the present value of future cash flows by using projections
of the cash flows that the business is expected to generate, and discounting these cash flows at a given rate of return. This requires the use of management estimates and assumptions, such as
assumptions on growth rates for revenue, expenses, earnings before interest, income taxes, depreciation and amortization, returns on working capital, returns on other assets and capital expenditures,
among others. Assumptions on discount rates and terminal growth rates are also used to determine fair value. Given the subjectivity involved in deriving these estimates in the analyses, it is possible
that a different valuation model and the selection of different input variables could produce a materially different estimate of the fair value of goodwill. In 2007, the Company recognized a goodwill
impairment charge of $4,259,000 related to HemaCare BioScience, Inc., representing 100% of the goodwill book value.



The process of preparing the financial statements requires management estimates of income taxes in each of the jurisdictions in which
the Company operates. This process involves estimating current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are included in the balance sheet. Under the provisions of SFAS No. 109,Accounting for Income
Taxes, the

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Company
must utilize an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized
in the Company's financial statements or tax returns. Management must assess the likelihood that the deferred tax assets or liabilities will be realized for future periods, and to the extent
management believes that realization is not likely, must establish a valuation allowance. To the extent a valuation allowance is created or adjusted in a period, the Company must include an expense or
benefit, within the tax provision in the statements of operations. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and
any valuation allowance recorded against net deferred tax assets. It is possible that different tax models, and the selection of different input variables, could produce a materially different
estimate of the provision, asset, liability and valuation allowance. As a result of the net loss recognized by the Company in 2007,
the Company increased the valuation allowance in 2007 to 100%, resulting in the elimination of the deferred tax asset from the Company's balance sheet as of December 31, 2007, and a related
charge to the provision for income taxes in 2007. No deferred tax asset was recognized in 2008. Please see "Note 9Income Taxes" in the Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

On December 31, 2008, the Company, including discontinued operations, had cash and cash equivalents of $1,215,000 and working
capital of $688,000.



For all of 2007, and through April 10, 2008, the Company's senior secured credit facility was with Comerica Bank ("Comerica").
As of December 31, 2007, the Company had borrowed $2,500,000 from Comerica. The Comerica credit facility was collateralized by substantially all of the Company's assets and required the
maintenance of certain covenants. This facility provided that, in the event the Company failed to observe any such covenants, or permitted a default in any material agreement to which the Company was
a party with third parties that results in an acceleration of any indebtedness, then an event of default would have occurred under the Comerica facility, and Comerica may, among other things, declare
the Company's indebtedness to Comerica immediately due and payable. As of December 31, 2007, the Company was not in compliance with certain financial covenants in the Comerica facility, and
Comerica did not provide a waiver of this violation as provided in the past.

On
April 10, 2008, the Company, together with the Company's subsidiary Coral Blood Services, Inc., entered into a Credit and Security Agreement ("Wells Agreement") with
Wells Fargo Bank ("Wells Fargo") to provide a $4.75 million, revolving line of credit for working capital purposes, and a $250,000 capital expenditure line of credit. The Wells Agreement
provides that the Company may borrow the lesser of 85% of eligible accounts receivables, or $4.75 million with respect to the revolving line of credit. The term of the Wells Agreement is three
years. Interest on the working capital line of credit is payable monthly at a rate of the Wells Fargo prime rate minus 0.25%, and interest on the capital expenditure line of credit is payable monthly
at the Wells Fargo prime rate. As of December 31, 2008, the Wells Fargo prime rate was 3.25%. In addition, as of December 31, 2008, the Company had utilized $2,471,000 of the Wells Fargo
line of credit. The Wells Agreement is collateralized by substantially all of the Company's assets and requires the maintenance of certain covenants that, among other things, require minimum levels of
profitability and prohibit the payment of dividends. As of December 31, 2008, the Company was in compliance with all of the covenants in the Wells Agreement.

Upon
closing of the Wells Agreement, the Company used the available proceeds to payoff the outstanding debt obligation to Comerica in full. In exchange, the Company and Comerica
terminated the Comerica credit facility, and Comerica released the security interest in the Company's assets. In addition, upon closing the Wells Agreement, the Company acquired $300,000 of secured
debt of

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HemaBio
previously owed to Comerica. In 2008, the Company received $300,000 from the Florida assignee in complete satisfaction of this debt.

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

The
Company failed to pay the first installment due to Mr. Mauro on August 29, 2007 of $46,000, which included $8,000 in accrued interest. Under the terms of the promissory
note between the Company and Mr. Mauro, if an event of default occurred, the interest rate on the outstanding obligation increased to 12%. The Company's failure to pay the first installment was
an event of default that triggered an increase in the interest rate. Therefore, since August 29, 2007, and until the note was cancelled, the Company accrued interest expense on the outstanding
balance of this note at an interest rate of 12%.

The
Company failed to pay the first installment due to Mr. Adia on August 29, 2007 of $15,000, which included $3,000 in accrued interest. As of December 31, 2007,
the Company had accrued $4,000 in interest due to Mr. Adia.

Disputes
arose between the Company and Messrs. Mauro and Adia pertaining to the Company's acquisition of HemaBio, and their management of HemaBio after the acquisition. The
dispute led to the filing of a lawsuit against Mauro and Adia in the Los Angeles Superior Court (Case No. LC082173) (the "Lawsuit").

On
August 26, 2008, the Company entered into a Settlement Agreement and Mutual General Release (the "Mauro/Adia Agreement") with Mauro and Adia. The Mauro/Adia Agreement resolves
the disputes, including those alleged in the Lawsuit. The Mauro/Adia Agreement provides for the mutual general release of all claims between the Company and Mauro and Adia in exchange for
i) Mauro and Adia's cancellation of promissory notes, and accrued interest, received from the Company as part of the HemaBio acquisition consideration; ii) return of 248,000 shares of
the Company's common stock
received by Mauro and Adia as part of the HemaBio acquisition consideration; and iii) payment by Mauro and Adia of $50,000 to the Company. See Note 3 of Notes to Consolidated Financial
Statements.

As
a result of the cancellation of the promissory notes, and other consideration received by the Company from the Mauro/Adia Agreement, the Company recognized a gain of $405,000, which
is reported on the Company's income statement as a component of other income.

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

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

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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%.

The
foregoing descriptions of the notes, the Comerica credit facility and the Mauro/Adia Agreement are qualified in their entirety by the copies of those agreements filed as exhibits to
the Company's Current Reports on Form 8-K filed with the SEC on September 5, 2006, September 29, 2006, March 28, 2007 and September 5, 2008.

As
of December 31, 2008, HemaBio's default on the notes to Drs. Feldman and Raben remain unresolved.

Net
cash provided by operating activities from continuing operations was $599,000 for 2008, compared with net cash used of $143,000 for 2007, representing an increase of $742,000. The
increase was due to net income for continuing operations in 2008 of $899,000 compared to a loss of $1,828,000 from continuing operations in 2007, and a $250,000 increase in accounts payable, accrued
expenses and deferred rent in 2008 compared to a $1,629,000 decrease in 2007. Partially offsetting these changes was a $1,126,000 increase in accounts receivable in 2008 compared to a $1,082,000
decrease in 2007, and no change in deferred taxes in 2008 compared to a $622,000 increase in 2007. The increase in accounts
payable, accrued expenses and deferred rent was partially due to an accrual for 401(k) match in 2008, which was not recognized in 2007 due to operating losses that year. The increase in accounts
receivable was partially due to the increase in revenue in 2008. HemaCare's DSO for continuing operations stood at 56 days as of December 31, 2008, compared to 53 as of
December 31, 2007. Management established a 100% reserve against the deferred tax asset of $622,000 on December 31, 2007 due to the operating loss recorded in 2007. There was no change
in the deferred tax asset valuation reserve in 2008.

Cash
used in investing activities from continuing operations was $564,000 in 2008 compared with $1,219,000 for 2007, and is primarily due to a decrease in investment in capital
expenditures in 2008 compared to 2007.

Cash
provided by financing activities from continuing operations in 2008 was $448,000 compared with $502,000 for 2007. In 2008, the Company received $433,000 from the sale of common
stock through the 2004 Employee Stock Purchase Plan. In 2007, the Company utilized $475,000 of the Comerica credit facility to provide operating cash needed as a result of operating losses during the
year.

Net
cash provided by operating activities from discontinued operations in 2008 was $176,000 compared with $292,000 in 2007. No net cash was used in investing activities from discontinued
operations in 2008 compared with $12,000 in 2007. The majority of the cash generated from discontinued operations in 2008 was a result of the sale of inventory previously written-off.

In
December 2006, the Company signed a contract with Haemonetics Corporation, Software Solutions Division, for a license agreement, support and implementation services associated with a
new information technology project to enhance the automation of the Company's blood product operations. This project is expected to take approximately three years to complete, and will involve
considerable financial and managerial resources. Management expects the project to cost a total of $2 million, and portions of this project are scheduled for completion in mid-2009
..The Company incurred $276,000 in 2008 associated with this project, which is included in plant and equipment on the balance sheet as of December 31, 2008.

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

29

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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. Liquidity also depends on maintaining compliance with the various loan covenants. Presently, HemaBio is in
default on the two notes related to the acquisition.

Factors Affecting Forward-Looking Information

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" from liability for forward-looking statements. Certain
information included in this Form 10-K and other materials filed or to be filed by the Company with the SEC (as well as information included in oral statements or other written
statements made or to be made by or on behalf of the Company) are forward-looking, such as statements relating to operational and financing plans, competition, the impact of future price increases for
blood products and demand for the Company's products and services. These statements may also be identified by the use of words such as "anticipate," "believe," "continue," "estimate," "expect,"
"intend," "may," "project," "will" and similar expressions, as they relate to the Company, its management and its industry. Investors and prospective investors are cautioned that these forward-looking
statements are not guarantees of future performance and involve risks and uncertainties, many of which will be beyond the control of the Company. Actual results could differ materially from those
anticipated in these forward-looking statements as a result of various risks and uncertainties, including those above in "Item 1ARisk Factors" or in other filings by the Company
with the SEC. The Company does not undertake to update its forward-looking statements to reflect later events and circumstances or actual outcomes.

Item 7AQuantitative And Qualitative Disclosures About Market Risk

In the normal course of business, the Company's operations are exposed to risks associated with fluctuations in interest rates. The
Company manages its risks based on management's judgment of the appropriate trade-off between risk, opportunity and costs. Management does not believe that interest rate risks are material
to the results of operations or cash flows of the Company, and, accordingly, does not generally enter into interest rate hedge instruments.

At
December 31, 2008, for continuing operations, the Company had $2,471,000 of debt all of which is from the Wells Fargo working capital line of credit. The interest rate payable
on this line of credit is based upon the prime interest rate. Accordingly, interest rate expense will fluctuate with rate changes in the U.S. If interest rates were to increase or decrease by 1% for
the year, the Company's interest
expense would increase or decrease by approximately $25,000. As of December 31, 2008, HemaBio had $500,000 of debt from notes payable with a fixed interest rate.

In
the normal course of business, the Company also faces risks that are either non-financial or not quantifiable, including those risks described above in
"Item 1ARisk Factors."

Item 8Financial Statements and Supplementary Data

The Index to Financial Statements and Schedules appears on page F-1. The Report of Independent Public Accountants
appears on F-2, and the Consolidated Financial Statements and Notes to Consolidated Financial Statements appear on pages F-3 to F-27.

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

None.

30

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Table of Contents

Item 9A(T)Controls and Procedures



The
Chief Executive Officer and the Chief Financial Officer of the Company, with the participation of the Company's management, carried out an evaluation of the effectiveness of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). At the conclusion of this evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are ineffective to provide reasonable assurance that information required
to be disclosed in this report is:



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



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

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Table of Contents

goals
under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may
deteriorate.

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

Management
of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company's internal control over
financial reporting for 2008. 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. The evaluation began with the identification and review of its company-level controls including the control environment, risk assessment process, monitoring results of operations
and period-end financial reporting processes. Additionally, the evaluation included a
complete risk assessment of all the Company's business processes and financial statement account categories based on the following weighted risk categories:



Each
financial statement account category was assigned a risk score of 1, 2 or 3, based on if an error might have no material impact on either the balance sheet or income statement,
might have a material impact on either the balance sheet or income statement, or might have a material impact on both the balance sheet and income statement. A calculation was then performed for each
financial statement account category to weight the score for each risk category. At the conclusion of this analysis, management identified those financial statement account categories that were
perceived to be either high risk, medium risk or low risk for material error. Those categorized as high risk were selected for further evaluation of the related internal control structure.

The
Company's management, with the assistance of outside consultants, performed an evaluation of all of the internal controls related to the high and medium risk account categories
including a review of the related business processes, review of related Company policies, interviews with key personnel and, where applicable, an assessment of related information technology controls.
Management then designed and executed a testing plan to determine if any of these significant controls were effective or ineffective. In addition, management evaluated the Company's information
technology general controls and automated application controls, including the design and execution of a testing plan to determine if these controls were effective.

As
a result of this evaluation, the Company identified the following material internal control weaknesses over financial reporting: (a) the Company failed to institute all
elements of an effective program to help prevent and detect fraud by Company employees; (b) the Company did not maintain adequate segregation of duties for staff members responsible for
recording revenue; and (c) the Company failed to provide adequate controls over the use of spreadsheets used to record certain accounting entries and used to produce the Company's financial
statements.

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Table of Contents

Therefore,
the Chief Executive Officer and the Chief Financial Officer of the Company concluded that, as of the end of the period covered by this report, the Company's internal control
over financial reporting was ineffective.

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

This
Annual Report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's
report was not subject to attestation by the Company's independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management's report
in this annual report.



Once
management identified the specific internal controls that were deficient, management engaged in, and will continue to engage in, remediation efforts to address the material weakness
in its internal control over financial reporting. Specific actions which have been or will be taken are outlined below:

The
Company has:



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



Other
than the remedial actions discussed in the preceding section (c), there was no change in the Company's internal control over financial reporting known to the Chief Executive
Officer or the Chief Financial Officer, that occurred during the Company's fiscal quarter ended December 31, 2008 that has materially impacted, or is reasonably likely to materially impact, the
Company's internal control over financial reporting.

Item 9BOther Information

None.

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Table of Contents

PART III

Item 10Directors, 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 last fiscal year (the "Proxy Statement").

Item 11Executive 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 12Security 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 13Certain 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.

Item 14Principal Accountant 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.

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Table of Contents

PART IV

Item 15Exhibits and Financial Statement Schedules

The following are filed as part of this Report:

1.


Financial StatementsAn index to Financial Statements and Schedules appears on page F-1.2.


Financial Statement SchedulesThe 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.


ExhibitsThe following exhibits listed are filed or incorporated by reference as part of this Report.2.1

Stock Purchase Agreement dated August 29, 2006, among HemaCare Corporation, Joseph Mauro, Valentin Adia and Teragenix Corporation, incorporated by reference to Exhibit 99.1 to Form 8-K of the Registrant
filed on September 5, 2006.2.2

Amendment to Stock Purchase Agreement, dated as of November 14, 2006, among HemaCare Corporation, Joseph Mauro, Valentin Adia and Teragenix Corporation, incorporated by reference to Exhibit 99.12 to
Amendment No. 1 to Form 8-K of the Registrant filed on November 15, 2006.3.1

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,
1998.4.2

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
*
1996 Stock Incentive Plan, as amended, of the Registrant, incorporated by reference to Appendix to the Proxy Statement of the Registrant filed on April 14, 2005.10.1.1
*
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,
2009.10.2
*
2006 Equity Incentive Plan of the Registrant, incorporated by reference to Annex A to the Proxy Statement of the Registrant filed on April 21, 2006.10.2.1
*
Amended and Restated HemaCare Corporation 2006 Equity Incentive Plan, dated December 31, 2008, incorporated by reference to Exhibit 99.5 to Form 8-K of the Registrant filed on January 8,
2009.10.3
*
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.


35

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Table of Contents

10.4

Loan and Security Agreement between the Registrant, Coral Blood Services, Inc. and Comerica Bank dated November 19, 2002, incorporated by reference to Exhibit 10.2 to Form 10-K of the Registrant for
the year ended December 31, 2002.10.5

First Modification to Loan and Security Agreement between the Registrant, Coral Blood Services, Inc. and Comerica Bank dated March 22, 2004, incorporated by reference to Exhibit 10.1 of Form 10-Q
of the Registrant for the quarter-ended March 31, 2004.10.6

Second Modification to Loan and Security Agreement between the Registrant, Coral Blood Services, Inc. and Comerica Bank dated July 1, 2005, incorporated by reference to Exhibit 10.1 of Form 8-K of
the Registrant dated July 1, 2005.10.7

Third Modification to Loan and Security Agreement between the Registrant, Coral Blood Services, Inc. and Comerica Bank dated January 31, 2006, incorporated by reference to Exhibit 99.1 of Form 8-K
of the Registrant filed on February 3, 2006.10.8

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, 2006.10.9

Amended and Restated Loan and Security Agreement among HemaCare Corporation, Coral Blood Services, Inc. and HemaCare BioScience, Inc. and Comerica Bank dated September 26, 2006, incorporated by
reference to Exhibit 99.1 to Form 8-K of the Registrant filed on September 29, 2006.10.9.1

First Modification to Amended and Restated Loan and Security Agreement among HemaCare Corporation, Coral Blood Services, Inc., HemaCare BioScience, Inc. and Comerica Bank, dated March 26, 2008,
incorporated by reference to Exhibit 99.1 to Form 8-K of the Registrant filed on March 28, 2008.10.10
*
Employment Agreement between the Registrant and Joshua Levy dated March 22, 2000, incorporated by reference to Exhibit 10.12 of Form 10-K of the Registrant for the year ended December 31,
2000.10.11
*
Employment letter between the Registrant and Judi Irving, dated December 6, 2002, incorporated by reference to Exhibit 10.8 to Form 10-K of the Registrant for the year ended December 31,
2002.10.12
*
Change of Control Agreement between HemaCare Corporation and Judi Irving, President and Chief Executive Officer dated June 6, 2005, incorporated by reference to Exhibit 10.1 to Form 8-K of the
Registrant filed on June 10, 2005.10.13
*
Change of Control Agreement between HemaCare Corporation and Robert Chilton, Executive Vice President and Chief Financial Officer, dated December 31, 2008, incorporated by reference to Exhibit 99.4 to
Form 8-K of the Registrant filed on January 8, 2009.10.14

Master Security Lease Agreement between the Registrant and GE Capital Healthcare Financial Services dated December 26, 2002, incorporated by reference to Exhibit 10.10 to Form 10-K of the Registrant for
the year ended December 31, 2002.10.15
*
Employment letter between the Registrant and Robert S. Chilton, dated December 31, 2008, incorporated by reference to Exhibit 99.2 to Form 8-K of the Registrant filed on January 8,
2009.


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10.16
*
Indemnification Agreement between HemaCare Corporation and Judi Irving, President and Chief Executive Officer dated July 5, 2006, incorporated by reference to Exhibit 99.1 to Form 8-K of the Registrant
filed on July 6, 2006.10.17
*
Indemnification Agreement between HemaCare Corporation and Robert Chilton, Executive Vice President and Chief Financial Officer dated July 5, 2006, incorporated by reference to Exhibit 99.1 to Form 8-K
of the Registrant filed on July 6, 2006.10.18

Escrow Agreement dated as of August 29, 2006, among HemaCare Corporation, Joseph Mauro, Valentin Adia and U.S. Bank, National Association, incorporated by reference to Exhibit 99.2 to Registrant's Current
Report on Form 8-K filed on September 5, 2006.10.19

Promissory Note dated August 29, 2006, in the principal amount of $153,800, of HemaCare Corporation payable to Joseph Mauro, incorporated by reference to Exhibit 99.3 to Registrant's Current Report on
Form 8-K filed on September 5, 2006.10.20

Promissory Note dated August 29, 2006, in the principal amount of $46,200, of HemaCare Corporation payable to Valentin Adia, incorporated by reference to Exhibit 99.4 to Registrant's Current Report on
Form 8-K filed on September 5, 2006.10.21
*
Employment Agreement dated August 29, 2006, between HemaCare Corporation and Joseph Mauro, incorporated by reference to Exhibit 99.5 to Registrant's Current Report on Form 8-K filed on September 5,
2006.10.22
*
Employment Agreement dated August 29, 2006, between HemaCare Corporation and Valentin Adia, incorporated by reference to Exhibit 99.6 to Registrant's Current Report on Form 8-K filed on September 5,
 2006.10.23

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, 2006.10.24

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, 2006.10.25

Letter agreement dated August 29, 2006, among HemaCare Corporation, Teragenix Corporation, Dr. Lawrence Feldman and Dr. Karen Raben, incorporated by reference to Exhibit 99.9 to Registrant's
Current Report on Form 8-K filed on September 5, 2006.10.26

Select Series License Agreement with Prelude Exhibit dated December 29, 2006, between Information Data Management, Inc. and HemaCare Corporation, incorporated by reference to Exhibit 99.1 to
Registrant's Current Report on Form 8-K filed on January 5, 2008.10.27
*
First Amendment to Employment Agreement between HemaCare Corporation and Joshua Levy, M.D. dated March 31, 2005 incorporated by reference to Exhibit 10.27 to Form 10-K of the Registrant for the year
ended December 31, 2006 filed April 2, 2008.10.28

Employee Proprietary Information and Inventions Agreement between Teragenix Corporation and Joseph Mauro dated August 29, 2006, incorporated by reference to Exhibit 99.1 to Form 8-K of the Registrant
filed on November 7, 2008.


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Table of Contents

10.29

Employee Proprietary Information and Inventions Agreement between Teragenix Corporation and Valentin Adia dated August 29, 2006, incorporated by reference to Exhibit 99.2 to Form 8-K of the Registrant filed
on November 7, 2008.10.30

Noncompetition Agreement between Teragenix Corporation and Joseph Mauro dated August 29, 2006, incorporated by reference to Exhibit 99.3 to Form 8-K of the Registrant filed on November 7,
2008.10.31

Noncompetition Agreement between Teragenix Corporation and Valentin Adia dated August 29, 2006, incorporated by reference to Exhibit 99.4 to Form 8-K of the Registrant filed on November 7,
2008.10.32

Security Agreement between Teragenix Corporation and Joseph Mauro dated August 29, 2006, incorporated by reference to Exhibit 99.5 to Form 8-K of the Registrant filed on November 7,
2008.10.33

Security Agreement between Teragenix Corporation and Valentin Adia dated August 29, 2006, incorporated by reference to Exhibit 99.6 to Form 8-K of the Registrant filed on November 7,
2008.10.34

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, 2008.10.35

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, 2007.10.36

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, 2007.10.37

Amendment and Extension of Rights Agreement dated as of March 3, 1998, between HemaCare Corporation and Computershare Trust Company, N.A., incorporated by reference to Exhibit 99.1 to Registrant's Current
Report on Form 8-K filed on March 24. 2008.10.38

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, 2008.10.39

Credit and Security Agreement between HemaCare Corporation, Coral Blood Services, Inc., and Wells Fargo Bank, National Association, dated April 10, 2008, incorporated by reference to Exhibit 10.39 to
Form 10-K of the Registrant for the year ended December 31, 2007.10.40
*
Employment letter between the Registrant and John Doumitt, dated December 31, 2008, incorporated by reference to Exhibit 99.1 to Form 8-K of the Registrant filed on January 8, 2009.10.41
*
Change of Control Agreement between HemaCare Corporation and John Doumitt, Chief Executive Officer, dated December 31, 2008, incorporated by reference to Exhibit 99.3 to Form 8-K of the Registrant filed
on January 8, 2009.


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Table of Contents

10.42

Settlement Agreement and Mutual General Release entered into as of August 26, 2008, between HemaCare Corporation and Joseph Mauro and Valentin Adia, incorporated by reference to Exhibit 99.1 to Form 8-K of
the Registrant filed on September 5, 2008.10.43
*
Indemnification Agreement between HemaCare Corporation and John Doumitt, Chief Executive Officer dated March 24, 2009.11.

Computation of earnings (loss) per common equivalent share.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.23.1

Consent of Stonefield Josephson, Inc., 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.


---

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Table of Contents

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 26, 2009

HEMACARE CORPORATIONBy:

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


KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John Doumitt, Chief Executive Officer, and Robert S. Chilton, Executive
Vice President, Chief Financial Officer and Corporate Secretary, his 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 twenty-sixth day of March, 2009.

Signature

Title/s/ JOHN DOUMITT John Doumitt

Chief Executive Officer
(Principal Executive Officer)/s/ ROBERT S. CHILTON Robert S. Chilton

Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)/s/ JULIAN STEFFENHAGEN Julian Steffenhagen

Chairman of the Board, Director/s/ STEVEN GERBER Steven Gerber

Director/s/ TERESA SLIGH Teresa Sligh

Director/s/ TERRY VAN DER TUUK Terry Van Der Tuuk

Director


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Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES



Page
NumberReport of Stonefield Josephson, Inc., Independent Registered Public Accounting Firm

F-2Consolidated balance sheets

F-3Consolidated statements of income (operations)

F-4Consolidated statements of shareholders' equity

F-5Consolidated statements of cash flows

F-6Notes to consolidated financial statements

F-7


F-1

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Stockholders of HemaCare Corporation:

We
have audited the accompanying consolidated balance sheets of HemaCare Corporation and subsidiaries, as of December 31, 2008 and 2007, and the related consolidated statements of
(operations) income, shareholders' equity and cash flows for each of the two years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with 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. We were not engaged to perform an audit of the Company's 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 audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HemaCare Corporation and subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2008 in conformity with accounting
principles generally accepted in the United States of America.

/s/ STONEFIELD
JOSEPHSON, INC.

Los
Angeles, California March 25, 2009

F-2

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Table of Contents

HEMACARE CORPORATION AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS

December 31,
2008

December 31,
2007AssetsCurrent assets:Cash and cash equivalents

$
903,000

$
420,000Accounts receivable, net of allowance for doubtful accounts of $226,000 in 2008 and $302,000 in 2007


6,051,000


4,942,000Product inventories and supplies


1,166,000


1,120,000Prepaid expenses


704,000


508,000Assets held for sale


319,000


482,000Other receivables


58,000


83,000Total current assets


9,201,000


7,555,000Plant and equipment, net of accumulated depreciation and amortization of $5,650,000 in 2008 and $4,678,000 in 2007


4,417,000


4,847,000Other assets


78,000


92,000$
13,696,000

$
12,494,000Liabilities and Shareholders' EquityCurrent liabilities:Accounts payable

$
2,823,000

$
2,728,000Accrued payroll and payroll taxes


784,000


1,115,000Other accrued expenses


333,000


202,000Liabilities related to assets held for sale


2,102,000


2,046,000Current obligation under notes payable


2,471,000


2,700,000Total current liabilities


8,513,000


8,791,000Deferred rent


645,000


631,000Shareholders' equity:Common stock, no par value20,000,000 shares authorized, 9,886,955 issued and outstanding in 2008 and 8,799,955 in 2007


16,204,000


15,717,000Accumulated deficit


(11,666,000
)

(12,645,000
)Total shareholders' equity


4,538,000


3,072,000$
13,696,000

$
12,494,000


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

F-3

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Table of Contents

HEMACARE CORPORATION AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF INCOME (OPERATIONS)        For the Two Years Ended December 31,

2008

2007RevenueBlood products

$
29,633,000

$
26,752,000Blood services


7,985,000


7,414,000Total revenue


37,618,000


34,166,000Operating costs and expensesBlood products


25,264,000


23,403,000Blood services


5,852,000


5,605,000Total operating costs and expenses


31,116,000


29,008,000Gross profit


6,502,000


5,158,000General and administrative expenses


5,893,000


6,340,000Income (loss) from continuing operations before other income


609,000


(1,182,000
)Other income


331,000


Income (loss) from continuing operations before income taxes


940,000


(1,182,000
)Provision for income taxes


41,000


646,000Income (loss) from continuing operations


899,000


(1,828,000
)Discontinued Operations:Income (loss) from discontinued operations before income taxes


80,000


(5,956,000
)Provision for income taxes





4,000Income (loss) from discontinued operations


80,000


(5,960,000
)Net income (loss)

$
979,000

$
(7,788,000
)Income (loss) per shareBasicContinuing operations

$
0.09

$
(0.21
)Discontinued operations

$
0.01

$
(0.69
)Total

$
0.10

$
(0.90
)DilutedContinuing operations

$
0.09

$
(0.21
)Discontinued operations

$
0.01

$
(0.69
)Total

$
0.10

$
(0.90
)Weighted average shares outstandingbasic


9,533,000


8,687,000Weighted average shares outstandingdiluted


9,706,000


8,687,000


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

F-4

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Table of Contents

HEMACARE CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY        For the Years Ended December 31, 2008 and 2007

Common StockShares
(Rounded)

Amount

Accumulated
Deficit

TotalBalance as of December 31, 2006


8,496,000

$
14,710,000

$
(4,857,000
)
$
9,853,000Stock options exercised


56,000


34,000





34,000Issuance of common stock for HemaCare BioScience, Inc. acquisition


248,000


657,000





657,000Share-based compensation expense





316,000





316,000Net loss








(7,788,000
)

(7,788,000
)Balance as of December 31, 2007


8,800,000

$
15,717,000

$
(12,645,000
)
$
3,072,000Stock options exercised


140,000


44,000





44,000Issuance of common stock through Employee Stock Purchase Plan


1,195,000


433,000





433,000Transfer of common stock from settlement


(248,000
)

(126,000
)




(126,000
)Share-based compensation expense





136,000





136,000Net income








979,000


979,000Balance as of December 31, 2008


9,887,000

$
16,204,000

$
(11,666,000
)
$
4,538,000


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

F-5

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Table of Contents

HEMACARE CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        For the Years Ended Decmber 31,

2008

2007Cash flows from operating activities:Net income (loss)

$
979,000

$
(7,788,000
)Adjustments to reconcile net income (loss) to net cash provided by operating activities:(Income) loss from discontinued operations


(80,000
)

5,960,000Provision for bad debts


17,000


184,000Change in valuation of deferred tax assets





622,000Depreciation and amortization


1,002,000


1,004,000(Gain) loss on disposal of assets


(8,000
)

2,000Share-based compensation


136,000


316,000Gain on transfer of common stock


(126,000
)

Discharge of debt and related accrued interest


(242,000
)

Changes in operating assets and liabilities:(Increase) decrease in accounts receivable


(1,126,000
)

1,082,000Increase in inventories, supplies and prepaid expenses


(242,000
)

(88,000
)Decrease in other receivables


25,000


199,000Decrease (increase) in other assets


14,000


(7,000
)Increase (decrease) in accounts payable, accrued expenses and deferred rent


250,000


(1,629,000
)Net cash provided by (used in) operating activities


599,000


(143,000
)Cash flows from investing activities:Proceeds from sale of plant and equipment


13,000


10,000Purchases of plant and equipment


(577,000
)

(1,229,000
)Net cash used in investing activities


(564,000
)

(1,219,000
)Cash flows from financing activities:Proceeds from sale of common stock


433,000


Proceeds from the exercise of stock options


44,000


34,000Principal payments on debt and capitalized leases





(7,000
)(Payments on) proceeds from line of credit


(29,000
)

475,000Net cash provided by financing activities


448,000


502,000Net cash provided by (used in) continuing operations


483,000


(860,000
)Cash FlowsDiscontinued OperationsNet cash provided by operating activities


176,000


292,000Net cash used in investing activities





(12,000
)Net cash provided by discontinued operations


176,000


280,000Increase (decrease) in cash and cash equivalents


659,000


(580,000
)Cash and cash equivalents at beginning of period


556,000


1,136,000Cash and cash equivalents at end of periodContinuing Operations


903,000


420,000Cash and cash equivalents at end of periodDiscontinued Operations


312,000


136,000Total cash and cash equivalents at end of period


1,215,000


556,000Supplemental disclosure:Interest paid

$
205,000

$
173,000Income taxes paid

$
22,000

$
165,000Supplemental disclosure of non-cash activitiesTransfer of common stock due to settlement of litigation

$
(126,000
)

Reduction in notes payable and related accrued interest due to settlement of litigation

$
(242,000
)




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

F-6

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Table of Contents

HEMACARE CORPORATION        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        DECEMBER 31, 2008

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.

Cash and Cash Equivalents:The Company considers all highly liquid investments with an original maturity of three months or less to be
cash
equivalents.

Financial Instruments:Cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which approximates 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.

On
January 1, 2008, the Company adopted certain provisions of SFAS 157,Fair Value Measurements("SFAS 157") which
provides guidance on how to measure assets and liabilities that use fair value. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the Financial Accounting Standards Board ("FASB") issued Staff Position No 157-2
which delays the effective date of SFAS 157 one year for all nonfinancial assets and nonfinancial liabilities, except those recognized or disclosed at fair value in the financial statements on
a recurring basis. The partial adoption of SFAS 157 did not have a material impact on our financial statements. The Company adopted the provisions of SFAS 157 as it relates to
nonfinancial assets and liabilities that are not recognized or disclosed at fair value on a recurring basis on January 1, 2009, and the Company is evaluating the impact, if any, the full
adoption will have on its financial statements.

On
January 1, 2008, the Company adopted SFAS No. 159,The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an
Amendment of FASB Statement No. 115("SFAS 159"). SFAS 159 permits entities to choose, at specified election dates, to measure many financial instruments
and certain other items at fair value. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. As the Company did not elect fair
value treatment for qualifying instruments that existed as of January 1, 2008, the adoption of SFAS 159 did not have an impact on its financial statements. The Company may elect to
measure qualifying instruments at fair value in the future.

F-7

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 2Summary of Accounting Policies (Continued)

Revenue and Accounts Receivable: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. Blood services revenue consists primarily of mobile therapeutics sales, while blood products 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.

Inventories and Supplies:Inventories consist of Company-manufactured platelets, whole blood components and other blood products, as
well as
component blood products purchased for resale. Supplies consist primarily of medical supplies used to collect and manufacture products and to provide therapeutic services. Inventories are stated at
the lower of cost or market and are accounted for on a first-in, first-out basis. Management estimates the portion of inventory that might not have future value by analyzing
historical sales history for the twelve months prior to any balance sheet date. For each inventory type, management establishes an obsolescence reserve equal to
the value of inventory quantity in excess of twelve months of historical sales quantity, using the first-in, first-out inventory valuation methodology. The Company did not
record any reserves for obsolete inventory for continuing operations in either 2008 or 2007. The Company recorded reserves for obsolete inventory for discontinued operations of $1,341,000 as of
December 31, 2007.

Inventories
are comprised of the following as of December 31,

2008

2007Continuing OperationsSupplies

$
761,000

$
839,000Blood products


405,000


281,000Total continuing operations


1,166,000


1,120,000Discontinued OperationsBlood products





90,000Total discontinued operations





90,000Total

$
1,166,000

$
1,210,000


Plant and Equipment:Plant and equipment are stated at original cost. 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, and 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.

F-8

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 2Summary of Accounting Policies (Continued)

Income Taxes:The process of preparing the financial statements requires management estimates of income taxes in each of the
jurisdictions that the
Company operates. This process involves estimating current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included in the balance sheet. Under the provisions of SFAS No. 109,Accounting for Income
Taxes, the Company must utilize an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax returns. Management must assess the likelihood that the deferred tax assets or liabilities will be realized for future
periods, and to the extent management believes that realization is not likely, must establish a valuation allowance. To the extent a valuation allowance is created or adjusted in a period, the Company
must include an expense or benefit, within the tax provision in the statements of operations. Significant management judgment is required in determining the provision for income taxes, deferred tax
asset and liabilities and any valuation allowance recorded against net deferred tax assets. It is possible that different tax models, and the selection of different input variables, could produce a
materially different estimate of the provision, asset, liability and valuation allowance. The Company determined that it was unlikely to realize any future benefit from the deferred tax asset in 2008
and 2007 and therefore booked a 100% valuation allowance both years resulting in the elimination of the deferred tax asset from the Company's balance sheet as of December 31, 2008 and
December 31, 2007, and in 2007 a related charge to the provision for income taxes.

On
January 1, 2007, the Company adopted FASB Interpretation ("FIN") No. 48,Accounting for Uncertainty in Income Taxesan Interpretation
of FASB Statement 109("FIN No. 48"). FIN No. 48 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. FIN No. 48 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. FIN No. 48 also provides guidance on the accounting for related interest and penalties, financial statement classification and disclosure. The Company has determined that there is
no material impact on the consolidated financial position, results of operations or cash flows from the adoption of FIN No. 48. The oldest tax year that remains open to possible evaluation and
interpretation of the Company's tax position is 1995.

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, 2008 and 2007, the Company incurred interest expense of $164,000 and
$197,000, for
continuing operations and $50,000 and $55,000 for discontinued operations, respectively.

F-9

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 2Summary of Accounting Policies (Continued)

Share-Based Compensation:In accordance with SFAS No. 123R,Share-based Payment: An amendment of FASB
Statements
No. 123 and 95("SFAS 123R"), the Company records compensation expense related to share-based compensation awards granted to employees. For 2008, the Company
recognized compensation expense related to stock options, restricted stock units and restricted stock, granted to employees prior to December 31, 2008, based on the grant date fair value
estimated in accordance with SFAS No. 123,Accounting for Stock-Based Compensation("SFAS 123").

The
Company's assessment of the estimated fair value of the stock options granted is affected by the price of the Company's common 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. Generally, the calculation of fair
value under SFAS 123R is similar to the calculation of fair value under SFAS 123, with the exception of the treatment of forfeitures.

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



Starting
in the third quarter of 2008, the Company no longer assumes a forfeiture rate when assessing value for options held by independent members of the Board of Directors. Since
options issued to independent board members are not forfeited upon separation from the Company, management has determined it is inappropriate to assign a forfeiture rate to these options.

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 net income or loss.



In December 2007, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 110
("SAB 110"), which expresses the views of the SEC staff regarding the use of a simplified method, as discussed in the previously issued SAB 107, in developing an estimate of expected
term of "plain vanilla" share options in accordance with SFAS No. 123R. In particular, the SEC staff indicated in SAB 107 that it will accept a company's election to use the simplified
method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the SEC staff believed that more detailed
external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to
companies. Therefore, the

F-10

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 2Summary of Accounting Policies (Continued)

SEC
staff stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The SEC staff understands that such detailed
information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the SEC
staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. Upon our adoption of SFAS No. 123R, the Company elected to use, and
is currently using, the simplified method to estimate the expected term. The Company is evaluating whether or not to continue to use the simplified method, which will depend upon whether or not
sufficient exercise history exists upon which to base an estimate, in addition to how easily peer group information may be obtained. The issuance of SAB 110 did not impact the Company's
consolidated financial statements for fiscal 2007 and 2008.

In
December 2007, the FASB issued SFAS No. 141R,Business Combinations("SFAS No. 141R"), which replaces SFAS
No. 141,Business Combinations("SFAS No. 141"). SFAS No. 141R establishes principles and requirements for how an acquiring entity
in a business combination would recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; recognizes
and measures any goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS No. 141R retains certain fundamental requirements of SFAS No. 141, but also clarifies the definition of an acquirer in
a business combination, and expands its scope to apply to all transactions and events in which one entity obtains control over one or more other businesses. SFAS No. 141R applies prospectively
to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect
that the issuance of SFAS No. 141R will have an impact on its consolidated financial statements.

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

F-11

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 2Summary of Accounting Policies (Continued)

In
June 2008, the FASB issued FSP EITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities("FSP EITF"), which will be effective beginning with the Company's first quarter 2009 financial reporting. The FSP EITF provides that unvested
share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and should be included in the
computation of earnings per share pursuant to the two-class method. Upon adoption, retrospective adjustment to earnings per share data (including any amounts related to interim periods,
summaries of earnings, and selected financial data) is required to conform to the provisions of the FSP EITF. The Company does not expect the adoption of the FSP EITF will have a material impact on
the results or operations, financial position or cash flows.

In
May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles("SFAS No. 162"), which
identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements for nongovernmental entities that are presented in
conformity with GAAP. SFAS 162 will be effective 60 days following the SEC's approval. The Company does not expect the adoption of SFAS No. 162 will have a material impact on the
results or operations, financial position or cash flows.

In
March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities("SFAS
No. 161"), an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about a company's derivative and hedging activities. These enhanced disclosures will
discuss (a) how and why a company uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and its
related interpretations and (c) how derivative instruments and related hedged items affect a company's financial position, results of operations and cash flows. SFAS No. 161 is effective
for fiscal years beginning on or after November 15, 2008, with earlier adoption allowed. The Company does not expect the adoption of SFAS No. 161 will have a material impact on the
results or operations, financial position or cash flows.

In
September 2006, the FASB issued SFAS No. 158,Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans("SFAS No.158"), which requires employers to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare and other postretirement plans in their
financial statements. The Company does not expect the adoption of SFAS No. 158 will have a material impact on the results or operations, financial position or cash flows.

In
April 2008, the FASB issued Staff Position No. 142-3,Determination of the Useful Life of Intangible Assets("SFAS
No. 142-3"), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142,Goodwill and Other Intangible Asset,("SFAS No. 142"). The intent of SFAS 142-3 is to
improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB
Statement No. 141 (revised 2007),Business Combinationsand other U.S. GAAP. SFAS 142-3 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company does not expect the adoption of
SFAS 142-3 will have a material impact on the results or operations, financial position or cash flows.

F-12

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 2Summary of Accounting Policies (Continued)

In
May 2008, the FASB issued FSP No. APB 14-1,Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) ("FSP APB 14-1"). FSP APB 14-1 addresses instruments commonly referred to as Instrument C from
Emerging Issues Task Force No. 90-19, which requires the issuer to settle the principal amount in cash and the conversion spread in cash or net shares at the issuer's option. FSP
APB 14-1 requires that issuers of these instruments account for their liability and equity components separately by bifurcating the conversion option from the debt instrument,
classifying the conversion option in equity, and then accreting the resulting discount on the debt as additional interest expense over the expected life of the debt. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years, and requires retrospective application to all periods presented. Early application is
not prohibited. The Company does not expect the adoption of FSP APB 14-1 will have a material impact on the results or operations, financial position or cash flows.

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.

During
2008, the assignee successfully liquidated HemaBio's assets, including inventory, furniture and equipment, for $194,000 more than the net book value of these assets on HemaBio's
books. In addition, the assignee incurred closure related expenses of $64,000. Finally, HemaBio recognized $50,000 in interest expense related to notes payable to two of the former investors in
HemaBio. For all of 2008, these activities resulted in a net gain of $80,000, which is recorded under discontinued

F-13

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 3Discontinued Operations (Continued)

operations
on the Company's financial statements. In addition, upon closing the new financing agreement with Wells Fargo, the Company acquired $300,000 of secured debt of HemaBio previously owed to
Comerica Bank. In 2008, the Company received full payment of this amount from the assignee as a full and complete distribution. 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.

Per
Statement of Financial Accounting Standards No. 144,Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, the results of operations of HemaBio, along with 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, 2007 and December 31, 2008:

HEMACARE CORPORATION  Discontinued Operations

December 31,
2008

December 31,
2007Assets Held for SaleCash and cash equivalents

$
312,000

$
136,000Accounts receivable, net of allowance for doubtful accounts of $133,000 in 2007





210,000Product inventories and supplies





90,000Other receivables


7,000


7,000Plant and equipment, net of accumulated depreciation and amortization of $133,000 in 2007





39,000Total assets held for sale

$
319,000

$
482,000Liabilities related to assets held for saleAccounts payable

$
838,000

$
832,000Accrued payroll and payroll taxes


603,000


603,000Other accrued expenses


161,000


111,000Current obligations under notes payable


500,000


500,000Total liabilities related to assets held for sale

$
2,102,000

$
2,046,000


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

F-14

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

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.

A
decrease of $93,000, and an increase of $184,000, were recorded to the allowance for doubtful accounts for continuing operations for 2008 and 2007, respectively. In 2008, the decrease
was due to collection of customer balances previously included in the allowance. In 2007 the increase was as a result of i) a delay in the approval of the California State budget, which
resulted in slow payments from customers with a high concentration of Medi-Cal patients, and ii) turnover in the credit and collections staff of the Company which slowed collections
during the second half of the 2007. Write-offs against the allowance for doubtful accounts totaled $93,000 and $13,000 for the years ended December 31, 2008 and 2007, respectively.
The Company will write-off a receivable when collection efforts are terminated and the probability of collection is very low.

Note 5Plant and Equipment

Plant and equipment consists of the following:

December 31,
2008

December 31,
2007Continuing Operations:Furniture, fixtures and equipment

$
7,782,000

$
7,347,000Leasehold improvements


2,285,000


2,178,000Total continuing operations


10,067,000


9,525,000Less accumulated depreciation and amortization


(5,650,000
)

(4,678,000
)Net continuing operations:

$
4,417,000

$
4,847,000Discontinued Operations:Furniture, fixtures and equipment





172,000Leasehold improvements





Total discontinued operations





172,000Less accumulated depreciation and amortization





(133,000
)Net discontinued operations

$


$
39,000Total plant and equipment, net of accumulated depreciation and amortization

$
4,417,000

$
4,886,000


Depreciation
expense for continuing operations for 2008 and 2007 was $1,002,000 and $1,004,000 respectively, and for discontinued operations, $0 and $116,000 respectively.

F-15

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 6Line of Credit and Notes Payable

On March 26, 2007, the Company's agreement with Comerica Bank ("Comerica"), an Amended and Restated Loan and Security Agreement ("Comerica Agreement"), originally entered into on
September 26, 2006, was amended by the First Modification which increased the line of credit from $3 million to $4 million. The Comerica Agreement provided that interest was
payable monthly at a rate of prime minus 0.25%. In addition, the Company had the option to draw against this facility for thirty, sixty or ninety days using LIBOR as the relevant rate of interest. The
Comerica Agreement was collateralized by substantially all of the Company's assets and required the maintenance of certain covenants that, among other things, required minimum levels of profitability
and prohibited the payment of dividends.

The
Comerica Agreement provided, among other things, that in the event the Company failed to observe any covenants, or permitted a default in any material agreement to which the Company
was a party with third parties that results in an acceleration of any indebtedness, then an event of default could have occurred under the Comerica Agreement, and Comerica could, among other things,
declare the Company's indebtedness to Comerica immediately due and payable. As of December 31, 2007, the Company was not in compliance with certain financial covenants in the Comerica
Agreement, and Comerica did not provide a waiver of this violation as they had provided in the past.

On
April 10, 2008, the Company, together with the Company's subsidiary Coral Blood Services, Inc., entered into a Credit and Security Agreement ("Wells Agreement") with
Wells Fargo Bank ("Wells Fargo") to provide a $4.75 million, revolving line of credit for working capital purposes, and a $250,000 capital expenditure line of credit. The Wells Agreement
provides that the Company may borrow the lesser of 85% of eligible accounts receivables, or $4.75 million with respect to the revolving line of credit. The term of the Wells Agreement is three
years. Interest on the working capital line of credit is
payable monthly at a rate of the Wells Fargo prime rate minus 0.25%, and interest on the capital expenditure line of credit is payable monthly at the Wells Fargo prime rate. As of December 31,
2008, the Wells Fargo prime rate was 3.25%. In addition, as of December 31, 2008, the Company utilized $2,471,000 of the Wells Fargo line of credit. The Wells Agreement is collateralized by
substantially all of the Company's assets and requires the maintenance of certain covenants that, among other things, require minimum levels of profitability and prohibit the payment of dividends. As
of December 31, 2008, the Company was in compliance with all of the covenants in the Wells Agreement.

Upon
closing of the Wells Agreement, the Company used the available proceeds to payoff the outstanding debt obligation to Comerica in full. In exchange, the Company and Comerica
terminated the Comerica Agreement, and Comerica released the security interest in the Company's assets. In addition, upon closing the Wells Agreement, the Company acquired $300,000 of secured debt of
HemaBio previously owed to Comerica. Subsequently the Company received $300,000 from the Florida assignee as a complete and final distribution.

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

F-16

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 6Line of Credit and Notes Payable (Continued)

2007
until paid. This note paid interest at 5% annually, was also secured by all of the assets of HemaBio, and was subordinate to Comerica.

The
Company failed to pay the first installment due to Mr. Mauro on August 29, 2007 of $46,000, which included $8,000 in accrued interest. Under the terms of the promissory
note between the Company and Mr. Mauro, if an event of default occurred, the interest rate on the outstanding obligation increased to 12%. The Company's failure to pay the first installment was
an event of default that triggered an increase in the interest rate. Therefore, since August 29, 2007, and until the note was cancelled, the Company accrued interest expense on the outstanding
balance of this note at an interest rate of 12%.

The
Company failed to pay the first installment due to Mr. Adia on August 29, 2007 of $15,000, which included $3,000 in accrued interest.

Disputes
arose between the Company and Messrs. Mauro and Adia pertaining to the Company's acquisition of HemaBio, and their management of HemaBio after the acquisition. The
dispute led to the filing of a lawsuit against Mauro and Adia in the Los Angeles Superior Court (Case No. LC082173) (the "Lawsuit").

On
August 26, 2008, the Company entered into a Settlement Agreement and Mutual General Release (the "Mauro/Adia Agreement") with Mauro and Adia. The Mauro/Adia Agreement resolves
the disputes, including those alleged in the Lawsuit. The Mauro/Adia Agreement provides for the mutual general release of all claims between the Company and Mauro and Adia in exchange for
(i) Mauro and Adia's cancellation of promissory notes, and accrued interest, received from the Company as part of the HemaBio acquisition consideration; (ii) return of 248,000 shares of
the Company's common stock received by Mauro and Adia as part of the HemaBio acquisition consideration; and (iii) payment by Mauro and Adia of $50,000 to the Company.

As
a result of the cancellation of the promissory notes, and other consideration received by the Company from the Mauro/Adia Agreement, the Company recognized a gain of $405,000, which
is reported on the Company's income statement as a component of other income.

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

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

The
foregoing descriptions of the notes, the Comerica Agreement and the Mauro/Adia Agreement are qualified in their entirety by the copies of those agreements filed as exhibits to the
Company's

F-17

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 6Line of Credit and Notes Payable (Continued)

Current
Reports on Form 8-K filed with the SEC on September 5, 2006, September 29, 2006, March 28, 2007 and September 5, 2008.

As
of December 31, 2008, HemaBio's default on the notes to Drs. Feldman and Raben remain unresolved.

Future
minimum payments under the line of credit and notes payable are as follows:

Year ending

Continuing
Operations

Discontinued
Operations

TotalDecember 31, 2009

$
2,471,000

$
500,000

$
2,971,000


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 leases for continuing operations are as follows:

Years ending December 31,

Operating2009

$
767,0002010


774,0002011


775,0002012


631,0002013


525,000Thereafter


2,006,000Total:

$
5,478,000


For
continuing operations total rent expense under all operating leases was $685,000 and $893,000 for the years ended December 31, 2008 and 2007, respectively. For discontinued
operations, total rent expense was $0 for the year ended December 31, 2008, and $493,000, including disposal costs of $327,000, for the year ended December 31, 2007.

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 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, 2008, the Company
entered into an amendment to add approximately 7,200 square feet to this lease intended to house a donor center and supply warehouse.

F-18

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 7Leases (Continued)

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 Company invested approximately $2.1 million in
tenant improvements in the new facility. 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 will recognize approximately $41,000 in monthly rent expense over the term of the lease. As of December 31, 2008, the Company recognized $25,000 in deferred rent associated with
this lease to be utilized over the twelve month period ended December 31, 2009. This amount is included in other accrued expenses on the balance sheet. As of December 31, 2008, the
Company recognized $645,000
representing the balance of the deferred rent associated with this lease, included in other long-term liabilities on the balance sheet.

Note 8Goodwill

The Company periodically evaluates the fair value of any goodwill recognized as a result of prior acquisition activity. Goodwill is the portion of the total consideration paid to acquire
a business that exceeds the fair market value of the assets acquired, less the value of the liabilities acquired. Any subsequent valuation of goodwill requires substantial estimation by management of
the future profitability of any respective business unit, and an assessment of the fair value of the business. The Company uses the income approach, along with other standard analytical approaches, to
estimate the fair value of goodwill. The income approach involves estimating the present value of future cash flows by using projections of the cash flows that the business is expected to generate,
and discounting these cash flows at a given rate of return. This requires the use of management estimates and assumptions, such as assumptions on growth rates for revenue, expenses, earnings before
interest, income taxes, depreciation and amortization, returns on working capital, returns on other assets and capital expenditures, among others. Assumptions on discount rates and terminal growth
rates are also used to determine fair value. Given the subjectivity involved in deriving these estimates in the analyses, it is possible that a different valuation model and the selection of different
input variables could produce a materially different estimate of the fair value of goodwill. In 2007, the Company recognized a goodwill impairment charge of $4,259,000 related to the closure of
HemaBio, representing 100% of the goodwill book value.

F-19

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 9Income Taxes

The provision for income taxes for the years ended December 31, 2008 and 2007 are as follows:

2008

2007Current taxes:Federal

$


$
State


41,000


24,00041,000


24,000Deferred taxes:Federal





622,000State








622,000Provision for income taxescontinuing operations

$
41,000

$
646,000Provision for income taxesdiscontinued operations





4,000$
41,000

$
650,000


For
continuing operations, the Company recorded a $41,000 provision for income taxes for 2008 compared with a $646,000 provision for income taxes for 2007. In 2008, state taxes
represented the entire tax provision. In 2007, the provision for income taxes included $622,000 from the increase in the valuation allowance for the deferred tax asset to 100%, and state taxes of
$24,000 for continuing operations.

Differences
between the provision for income taxes and income taxes at statutory federal income tax rate for the years ended December 31, 2008 and 2007 are as follows:

2008

2007Income tax expense at federal statutory rate

$
347,000

$
(2,443,000
)State income taxes, net of federal benefit

$
42,000

$
24,000Change in valuation allowance

$
(919,000
)
$
2,822,000Permanent differences

$
44,000

$
34,000Change in deferred tax asset and other

$
239,000

$
213,000Expiration of federal credit

$
288,000Income tax expense

$
41,000

$
650,000


F-20

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 9Income Taxes (Continued)

The
Company recognized no net deferred tax asset as of December 31, 2008 and 2007. The components of the net deferred tax asset at December 31, 2008 and 2007 are as
follows:

2008

2007Current:Accounts receivable reserve

$
82,000

$
151,000Accrued expenses and other


666,000


424,000Total current deferred tax asset


748,000


575,000Noncurrent:Net operating loss carryforward


1,399,000


2,905,000Depreciation and amortization


1,151,000


243,000Tax credit carryforward


243,000


531,000Other


140,000


346,000Valuation allowance


(3,681,000
)

(4,600,000
)Total non-current deferred tax


(748,000
)

(575,000
)Total deferred tax asset

$
0

$
0


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.
Management performed an extensive analysis of the future trends, risks and uncertainties associated with the business. Some of the factors considered included: i) possible changes in government
regulation, ii) possible changes in Medicare reimbursement for the blood products or services provided by the Company, iii) changes in strategies employed by the Company's competition,
and iv) changes is medical technology that could alter the utilization patterns for the Company's products and services.

The
Company determined at the end of 2008 and 2007 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 deferred tax assets as of December 31, 2008 and December 31, 2007.

As
of December 31, 2008, the value of the Company's federal and state net operating loss carryforwards were $3.8 million and $4.1 million, respectively. The ability
for the Company to utilize the available federal net operating loss is scheduled to expire over time starting in 2011 and ending in 2027. The ability for the Company to utilize the available state net
operating loss is scheduled to expire over time starting in 2017 and ending 2028.

Utilization
of our net operating loss may be subject to substantial annual limitation as a result from 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.

F-21

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 10Shareholders' Equity

Stock Options

In 1996, the Board of Directors, with shareholder approval, adopted the Company's 1996 Stock Incentive Plan (the "1996 Plan"). The
purposes of the 1996 Plan were to i) enable the Company to attract, motivate and retain top-quality directors, officers, employees, consultants and advisors, ii) provide
substantial incentives for such persons to act in the best
interests of the shareholders of the Company, and iii) reward extraordinary effort by such persons on behalf of the Company. The 1996 Plan provided for awards in the form of stock options,
which may be either "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options, or
restricted stock. The total number of shares of common stock available for distribution under the 1996 Plan was 2,500,000; provided, however, that no award may be made at any time if, after giving
effect to such award, the total number of shares of common stock issuable upon exercise of all outstanding options and warrants of the Company (whether or not under the 1996 Plan) plus the total
number of shares of common stock called for under any stock bonus or similar plan of the Company (including shares of common stock underlying awards under the 1996 Plan) would exceed 30% of the total
number of shares of common stock outstanding at the time of such award.

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.

Eligible Participants.Awards may be granted under the 2006 Plan to any of the Company's employees, 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 have been reserved for issuance under the 2006
Plan. The
maximum aggregate number of shares that may be issued under the 2006 Plan is 1,200,000. 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.

F-22

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 10Shareholders' Equity (Continued)

The table below summarizes stock option activity for 2008 and 2007:

2008

2007Shares

Price

Shares

PriceOutstanding at beginning of year


1,829,000

$
1.32


1,836,000

$
1.27Granted


345,000

$
0.37


275,000

$
1.79Exercised


(140,000
)
$
0.32


(56,000
)
$
0.61Forfeited


(39,000
)
$
1.05


(177,000
)
$
1.64Expired


(354,000
)
$
1.22


(49,000
)
$
1.94Outstanding at end of year


1,641,000

$
1.23


1,829,000

$
1.32Vested at end of year


1,313,000

$
1.32


1,545,000

$
1.29


As
of December 31, 2008, the total aggregate intrinsic value of all fully vested stock options, and of all stock options outstanding, is $11,000 and $16,000, respectively.

The
table below summarizes restricted stock activity for 2008 and 2007:

2008

2007Shares

Price

Shares

PriceOutstanding at beginning of year




$





$
Granted


115,385


0.00





Exercised











Forfeited











Expired











Outstanding at end of year


115,385

$
0.00





Exercisable at end of year














The
table below summarizes restricted stock unit activity for 2007 and 2008:

2008

2007Shares

Price

Shares

PriceOutstanding at beginning of year




$





$
Granted


47,200


0.00





Exercised











Forfeited











Expired











Outstanding at end of year


47,200

$
0.00





Exercisable at end of year














F-23

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 10Shareholders' Equity (Continued)

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, 2008:

Options Outstanding

Options ExercisableRange of Exercise Price

Shares

Life

Price

Shares

Price$0.18 to $0.75


580,000

6.7 years

$
0.46


380,000

$
0.46$0.76 to $1.50


650,000

5.4 years

$
1.14


577,000

$
1.16$1.51 to $2.50


261,000

6.0 years

$
2.34


206,000

$
2.34$2.51 to $2.71


150,000

8.1 years

$
2.68


150,000

$
2.681,641,000

6.2 years

$
1.23


1,313,000

$
1.32


In
December 2004, the FASB issued SFAS 123R. This statement requires that the cost resulting from all share-based payment transactions be recognized in the Company's consolidated
financial statements. In addition, in March 2005 the SEC released SEC Staff Accounting Bulletin No. 107,Share-Based Payment("SAB 107").
SAB 107 provides the SEC's staff's position regarding the application of SFAS 123R and certain SEC rules and regulations, and also provides the staff's views regarding the valuation of
share-based payment arrangements for public companies. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all
share-based payments to
employees, including grants of employee stock options, to be recognized in the statement of income based on their fair values.

For
2008, the Company recognizes compensation expense related to stock options, restricted stock units and restricted stock, granted to employees based on compensation cost for all
share-based payments granted prior to December 31, 2008, based on the grant date fair value estimated in accordance with SFAS No. 123.

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 31,2008

2007Weighted average fair value at date of grant for options granted during the period

$
0.35

$
1.41Weighted average fair value for options exercised during the period

$
0.00

$
0.16Weighted average fair value for options vested during the period

$
0.72

$
1.28Risk-free interest rates


3.6
%

5.0
%Expected stock price volatility


158.0
%

133.2
%Expected dividend yield


0.0
%

0.0
%Expected forfeitures


29.5
%

6.1
%Expected Option Term


5.8 years


6 years


F-24

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 10Shareholders' Equity (Continued)

For
the twelve months ended December 31, 2008, the Company recognized non-cash share-based compensation costs of $136,000, as a result of the adoption of
SFAS 123R, 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, 2008:

Shares

Weighted Average
Fair ValueNonvested at January 1, 2008


284,000

$
1.24Granted


345,000


0.35Vested


(262,000
)

0.72Canceled


(39,000
)

0.88Nonvested at December 31, 2008


328,000

$
0.77


As
of December 31, 2008, the unrecognized compensation cost related to nonvested awards is $166,000 with a weighted-average period over which such unrecognized compensation is
expected to be recognized of 2.9 years.

As
of December 31, 2008, there are 1,313,000 fully vested stock options outstanding with a weighted average fair value of $.46 and an average contractual term of 5.5 years.

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, 2008, 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, 2008, 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.

During
2008, the Company issued 1,195,000 shares under the ESPP to Directors and Officers for $433,000. As of December 31, 2008, there are 570,000 remaining shares in the ESPP.

F-25

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 11Earnings per Share

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

Years Ended
December 31,2008

2007Net income (loss) from continuing operations

$
899,000

$
(1,828,000
)Weighted average shares outstanding


9,533,000


8,687,000Net effect of diluted options and warrants


173,000


Weighted average dilutive shares outstanding


9,706,000


8,687,000Earnings (loss) per share from continuing operationsdiluted

$
0.09

$
(0.21
)Net income (loss) from discontinued operations

$
80,000

$
(5,960,000
)Earnings (loss) per share from discontinued operationsdiluted

$
0.01

$
(0.69
)Net income (loss):

$
979,000

$
(7,788,000
)Earnings (loss) per sharediluted

$
0.10

$
(0.90
)


Note 12Concentration of Credit Risk

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 at
December 31, 2008, and deposits not exceeding $100,000 for each institution were insured by the Federal Deposit Insurance Corporation at December 31, 2007. At December 31, 2008
and December 31, 2007, the Company had uninsured cash and cash equivalents of $712,000 and $337,000, respectively.

Note 13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 did not pay a matching contribution in 2008 for the 2007 plan
year due to the losses sustained in 2007. Due to the improved earnings performance in 2008, the Company accrued $109,000 in 2008 for a matching contribution to be paid in 2009.

Note 14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-26

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Table of Contents

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2008

Note 14Commitments and Contingencies (Continued)

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 15Concentration Risk

The Company provides products and services to healthcare providers, hospitals and research related organizations, all of which are referred to as "customers" for purposes of identifying
concentration risk in this section. During 2008, three customers each represented more than 10% of the Company's total revenue from continuing operations. One customer accounted for approximately
17.7% of total revenue, one customer for 16.5% of total revenue and the third customer accounted for 10.6%. The next largest customer accounted for approximately 6.8% of total revenue. The Company's
ten largest customers accounted for 70.4% of total revenue. Other than the lease of space for a donor center 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 products 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
2008, the Company received goods and services from one major vendor that represented approximately 8.9% of the Company's total operating costs from continuing operations. This
vendor provides laboratory services. The next largest vendor represents approximately 7.0% of total operating costs from continuing operations. This vendor provides products that support the Company's
cell separation equipment used by both the blood products and blood services segments. The Company has no relationship with either vendor other than as a consumer of the goods and services provided by
each.

F-27

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