10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark one)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                    to

Commission file number: 0-15223

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

California (State or other jurisdiction of incorporation or organization)	95-3280412 (I.R.S. Employer Identification 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) 226-1968
Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	Common Stock (without par value) Rights to purchase Preferred Stock

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 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
(Do not check if a smaller reporting company) Smaller reporting company ý

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

         The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2007, the last business day of the registrant's most recently completed second fiscal quarter (based upon the last sale price of the common stock as reported by the OTC Bulletin Board), was approximately $6,466,000.

         As of March 3, 2008, 8,799,955 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.

TABLE OF CONTENTS

PART I

		Page Number
	PART I
Item 1.	Business	1
	General	1
	Recent Developments	2
	Business Segments	3
	Competition	5
	Sales to Major Customers	6
	Marketing	6
	Human Resources	6
	Suppliers	6
	Government Regulation	7
	Professional and Product Liability Insurance	8
	Additional Information	8
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
	PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	19
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 8.	Financial Statements and Supplementary Data	31
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	31
Item 9A.	Controls and Procedures	31
Item 9B.	Other Information	33
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	34
Item 11.	Executive Compensation	34
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34
Item 13.	Certain Relationships and Related Transactions and Director Independence	34
Item 14.	Principal Accountant Fees and Services	34
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	35
	Signatures	39
	Index to Consolidated Financial Statements and Schedules	F-1

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PART I

ITEM 1.    BUSINESS

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

        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.

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Recent Developments

Closure of HemaCare BioScience, Inc.

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

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

Declining Profitability at California Blood Products

        The Company's blood products operation located in California generated lower profits in 2007 compared to 2006. Revenue for this operation decreased 4% primarily as a result of a decrease in whole blood collections from mobile blood drives due to turnover in donor recruitment positions and competition from other blood product suppliers for blood drive sponsors. Gross profit generated by these operations declined 30% in 2007 compared to 2006 primarily due to i) decreased capacity utilization from a decline in whole blood collection volumes, ii) competition in the California market which restricted the Company's ability to pass along cost increases for staff, supplies, fuel, newly mandated blood tests, and regulatory costs, and iii) a decrease in the supply of purchased blood products, resulting in an increase in the cost of these products.

Execution of New Financing Agreement with Wells Fargo

        On April 10, 2008, the Company, together with the Company's subsidiary Coral Blood Services, Inc., entered into a Credit and Security Agreement ("Wells Agreement") with Wells Fargo Bank ("Wells Fargo") to provide a $4.75 million revolving line of credit for working capital purposes, and a $250,000 capital expenditure line of credit. The Wells Agreement provides that the Company may borrow the lesser of 85% of eligible accounts receivables or $4.75 million with respect to the revolving line of credit. The term of the Wells Agreement is three years. Interest on the working capital line of credit is payable monthly at a rate of the Wells Fargo prime rate minus 0.25%, and interest on the capital expenditures line of credit is payable monthly at the Wells Fargo prime rate. As of April 10,

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2008, the Wells Fargo prime rate was 5.25%. The Wells Agreement is collateralized by substantially all of the Company's assets and requires the maintenance of certain covenants that, among other things, require minimum levels of profitability and prohibit the payment of dividends.

Default on Comerica Debt Agreement

        On September 26, 2006, the Company, together with the Company's subsidiaries Coral Blood Services, Inc. and HemaCare BioScience, Inc., entered into an Amended and Restated Loan and Security Agreement ("Comerica Agreement") with Comerica Bank ("Comerica") to provide a working capital line of credit. This agreement provided, among other things, that in the event the Company failed to observe any covenant, or permitted a default in any material agreement to which the Company is a party with third parties that resulted in an acceleration of any indebtedness, then an event of default shall have occurred under the Comerica Agreement, and Comerica may, among other things, declare the Company's indebtedness to Comerica immediately due and payable. As of September 30, 2007, the Company was not in compliance with certain financial covenants in the Comerica Agreement, and Comerica did not provide a waiver of this violation as provided in the past. As of December 31, 2007, the Company's covenant violations remained, and Comerica did not provided a waiver. In addition, as of September 19, 2007, the Company, along with HemaBio, was in default on notes to the sellers and other related parties in an aggregate principal amount of $700,000 in connection with the Company's acquisition of 100% of the capital stock of Teragenix Corporation. Each of the notes requires the Company to pay four annual installments representing 25% of the principal balance, plus accrued interest. The first such installment payment was due on August 29, 2007. The Company, and HemaBio, did not make the first payment under any of the notes, which, in the aggregate, represented a principal amount of $175,000, together with accrued interest of $46,000. The Company's indebtedness to Comerica was secured by substantially all of the Company's assets. Upon closing of the Wells Agreement, the Company used the available proceeds to payoff the outstanding debt obligation to Comerica in full. In exchange, the Company and Comerica terminated the Comerica Agreement, and Comerica released the security interest in the Company's assets. Therefore, the Company's previous default on the Comerica Agreement is resolved, and the Company is no longer in default on its largest debt obligation. See "Note 6—Line of Credit and Notes Payable."

Resignation of Chief Executive Officer

        On June 28, 2007, Judi Irving resigned as the Company's President and Chief Executive Officer, and as a member of the Company's Board of Directors. Based on the terms of Ms. Irving's employment letter of November 26, 2002, and in exchange for a release of any employment related claims Ms. Irving could assert against the Company, the Company agreed to pay Ms. Irving one year of her salary as of the date of her separation, payable in 26 equal bi-weekly installments. In addition, the Company agreed to pay Ms. Irving's health and dental coverage for 18 months on the same terms that existed just prior to Ms. Irving's separation from the Company. On June 28, 2007, the Company's Board of Directors appointed Julian Steffenhagen, Chairman of the Board of Directors, as interim Chief Executive Officer effective upon the departure of Ms. Irving. Mr. Steffenhagen has served, and will continue to serve, in this capacity while the Company searches for a replacement. Mr. Steffenhagen was not selected pursuant to any arrangement or understanding between Mr. Steffenhagen or any other person.

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.

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Blood Products Operations

        This business segment collects, processes and distributes blood products for transfusion in a hospital setting, and human-derived blood products utilized by health research related organizations. The Company contracts with hospitals to provide transfusable blood products.

        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 simple and safe for the donor. Whole blood collected at blood drives is tested and processed into blood products, principally red blood cells and plasma.

        The Company also performs collections of blood components, principally platelets, utilizing a cell separator. This process, known as apheresis, allows for the collection of only the desired 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.

        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. As of April 1, 2008, the Company no longer operates a hospital-based collection center at Mt. Auburn Hospital in Cambridge, Massachusetts.

Blood Services Operations

        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 physician 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 specially trained 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

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

Competition

General

        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

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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 2007, three customers each represented more than 10% of the Company's total revenue from continuing operations. Two customers each accounted for approximately 14% of total revenue. The third customer accounted for 11%. The next largest customer accounted for approximately 6% of total revenue. The Company's ten largest customers accounted for 65% of total revenues. The Company has no relationship with any of these customers other than as a provider of blood products and services.

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 flexibility in supply arrangements and pricing structure. This flexibility, a focus on customer service, and expertise, are the main messages communicated to potential customers.

Human Resources

        As of February 29, 2008, the Company had 239 employees, including 70 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 2007, the Company received goods and services from one major vendor that represented approximately 11% of the Company's 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 next largest vendor represented approximately 9% of total operating costs from continuing operations and provides laboratory services. 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.

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Government Regulation

Blood Product Operations

        Blood products 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. 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 pertaining to an inspection of the Company's California operations earlier that year. In August of 2007, the FDA performed another inspection of the Company's California operations. As a result of this inspection, the Company was provided with a list of observations of regulatory issues. The Company believes it has either adequately addressed the issues raised by the FDA, or is in the process of addressing these issues; however, the Company does not believe the response to these issues will result in a retraction of the 2006 warning letter. The Company believes that its response and actions taken to address the FDA observations is sufficient that it is in compliance with current FDA regulations.

        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.

Other Matters

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

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        Joshua Levy, M.D., the national medical director of the Company and a shareholder, through his private practice in Sherman Oaks, California, treats patients who require therapeutic services. Sales by the Company to hospital customers for therapeutic services provided to Dr. Levy's patients amounted to approximately 1%, or less, of the Company's total revenues in each of the two years ended December 31, 2006 and 2007. There are no agreements between Dr. Levy and the Company's hospital customers that require the hospitals to select HemaCare to provide therapeutic services to Dr. Levy's patients.

        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. 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 1A    RISK 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.

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Company has reported losses for four consecutive quarters and may not return to profitability

        The Company reported losses in each quarter of 2007. Management can not be certain when or if the Company will return to profitability. Continued losses could result in a drain of cash, and threaten the ability of the Company to continue to operate.

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

        The Company's Florida-based research subsidiary recorded a decrease in revenue and a related increase in operating losses throughout the first three quarters of 2007. On November 5, 2007, the Board of Directors of HemaBio closed this operation to avoid further losses. On December 4, 2007, HemaBio executed an Assignment for Benefit of Creditors, under Florida Statutes Section 727.101 et seq., assigning all of its assets to an assignee, who is responsible for taking possession of, protecting, preserving, and liquidating such assets and ultimately distributing the proceeds to creditors of HemaBio according to their priorities as established by Florida law. These actions could temporarily increase costs, utilize scarce financial resources, and distract management and have a material adverse impact on the Company and its results of operations.

Steady or declining market prices and increased costs could reduce profitability

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

Changes in demand for blood products could affect profitability

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

Declining blood donations could affect profitability

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

9

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.

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

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

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

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

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

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

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        In July 2007, the AABB performed an inspection of the Company's California operations. On July 31, 2007, the Company received a list of observations based on this inspection. The observations covered blood product operations and stem cell standard operating procedure deficiencies. The AABB has placed the Company's stem cell collection accreditation on hold pending a re-inspection in early 2008. The Company is implementing an action plan to address each of the observations in preparation for the re-inspection; however, the Company cannot insure against future AABB actions, including de-certification of the Company's stem cell collection activities.

        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 1, 2008. The Company has determined that it is unlikely to complete the implementation of ISBT 128 by the May 2008 deadline. The Company has submitted a variance to the AABB requesting a delay in the deadline for full implementation. The Company expects the AABB to approve the variance request, but cannot insure against the AABB declining the request. If the AABB declines the variance, the Company's failure to complete the implementation could endanger the Company's AABB accreditation, which could negatively impact the Company's relationship with selected customers who require blood suppliers to be AABB accredited.

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

        On December 14, 2006, the AABB provided recommendations to reduce the risk to patients for contracting Chagas' disease as a result of receiving a transfusion of donated blood products. The recommendations include the implementation of new blood tests to detect the presence of the protozoan known to cause Chagas' disease. The new test is costly and the Company has not been able to raise prices to cover the cost of this new test, and therefore has negatively impacted the Company's profitability.

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

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

Decrease in reimbursement rates may affect profitability

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

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Not-for-profit status gives advantages to competitors

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

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

        The Company may not generate sufficient operating cash in the future to finance its operations for the next year. Currently the Company is utilizing its credit facility with Wells Fargo to help finance its operations. The Company may need to raise additional capital in the debt or equity markets in order to finance future operations and procure necessary equipment. There can be no assurance that the Company will be able to obtain such financing on reasonable terms or at all. Additionally, there is no assurance that the Company will be able to obtain sufficient capital to finance future expansion. Finally, the Company is in default on notes related to the HemaBio acquisition. The Company may not have sufficient liquidity to pay any or all of these outstanding obligations if required to do so. Failure to do so could result in the seizure of some of the Company's assets to satisfy the outstanding obligations, which could severely and negatively impact the Company's ability to operate.

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

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

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

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

Targeted partner blood drives involve higher collection costs

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

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Future technological developments or alternative treatments could jeopardize business

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

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

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

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

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

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

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

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

        HemaCare's operations involve the controlled use of bio-hazardous materials and chemicals. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result, and any such liability could

13

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 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.

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

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

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

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

•

unexpected losses of key employees or customer of the acquired company;



•

difficulties integrating the acquired company's standards, processes, procedures and controls;



•

difficulties coordinating new product and process development;

14

•

difficulties hiring additional management and other critical personnel;



•

difficulties increasing the scope, geographic diversity and complexity of the Company's operations;



•

difficulties consolidating facilities, transferring processes and know-how;



•

difficulties reducing costs of the acquired company's business;



•

diversion of management's attention from the management of the Company; and



•

adverse impacts on existing business relationships with customers.

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

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

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

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

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

•

changes in demand for the Company's products and services, and the ability to obtain the required resources to satisfy customer demand;



•

ability to develop, introduce, market and gain market acceptance of new products or services in a timely manner;



•

ability to manage inventories, accounts receivable and cash flows;



•

ability to control costs; and



•

ability to attract qualified blood donors.

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

15

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

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

Stock price could be volatile

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

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

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

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

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

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

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

        This process will be expensive and time consuming, and will require significant attention of management. The portion of this process completed thus far has revealed material weaknesses in internal controls that will require remediation. See "Item 9A(T). 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,

16

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 1B    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2    PROPERTIES

        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, 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 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 $5,700, and the lease term expires October 31, 2012.

        The Company also leases space for a donor center in a 1,300 square foot facility in Scarborough, Maine. The monthly rent is approximately $1,800. The lease term expires October 21, 2008, and the Company has the option to extend the lease for two additional two-year terms at escalated rental rates that adjust 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 $4,300. 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 occupies space on the campus of one of its client hospitals. The Company is granted the right to utilize space and facilities on the hospital premises during the term of a blood supply agreement between the Company and the hospital customer.

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

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ITEM 3    LEGAL PROCEEDINGS

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

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

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PART II

ITEM 5    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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

        The following table sets forth the range of high and low closing bid prices of the common stock, as reported by the OTC Bulletin Board, for the periods indicated. These prices reflect inter-dealer quotations, without retail markups, markdowns, or commissions, and do not necessarily represent actual transactions. The prices appearing below were obtained from the National Quotation Bureau. Shareholders are urged to obtain current market quotations for the Company's common stock.

	2007				2006
Quarter ended
	High		Low		High		Low
March 31	$	3.25	$	2.53	$	2.74	$	1.50
June 30	$	2.95	$	1.70	$	3.53	$	2.15
September 30	$	1.75	$	1.05	$	2.40	$	1.90
December 31	$	1.30	$	.18	$	2.90	$	2.05

        On March 4, 2008, the closing bid price of the Company's common stock was $0.24. 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, 2008, the approximate number of shareholders of record was 258 (excluding individual participants in nominee security position listings).

ITEM 6    SELECTED FINANCIAL DATA

        Intentionally omitted.

ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

        HemaCare operates in two primary business segments. The first is the blood 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 to 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 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 business segment

19

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 2006 and 2007, 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 Net Sales				Percentage (Decrease)
	Years Ended December 31,				Years Ended December 31,
	2007		2006		2006 to 2007
Continuing Operations
Revenues	100.0	%	100.0	%	(1.6	)%
Operating costs	84.9	%	81.8	%	2.1	%
Gross profit	15.1	%	18.2	%	(18.4	)%
General and administrative expenses	18.6	%	15.5	%	17.5	%
(Loss) income from continuing operations	(3.5	)%	2.7	%	(227.8	)%
Provision (benefit) for income taxes	1.9	%	(1.6	)%	218.3	%
(Loss) income from continuing operations	(5.4	)%	4.3	%	(224.3	)%
Discontinued Operations
(Loss) income from discontinued operations	(17.4	)%	1.2	%	(1556.2	)%
Provision for income taxes	0.0	%	0.1	%	(86.2	)%
(Loss) income from discontinued operations	(17.4	)%	1.1	%	(1668.4	)%
Net (loss) income	(22.8	)%	5.4	%	(520.7	)%

Year ended December 31, 2007 compared to the year ended December 31, 2006

Overview

        Including discontinued operations, the Company generated a net loss in 2007 of $7,788,000, or $.90 basic and fully diluted loss per share, compared to a net profit in 2006 of $1,851,000, or $.22 basic and $.20 fully diluted earnings per share.

        For continuing operations, revenues decreased $554,000, or 1.6%, to $34,166,000 in 2007 from $34,720,000 for all of 2006. The decrease is attributable to a decrease in blood products and blood services revenue of 1.8%, and 0.8%, respectively.

        Gross profit from continuing operations decreased 18.4% to $5,158,000 in 2007 from $6,319,000 in 2006 due primarily to a decline in whole blood collections at the Company's California-based mobile operations and cost increases for product testing, facilities and fuel.

        General and administrative expenses increased $946,000, or 17.5%, in 2007 to $6,340,000 from $5,394,000 in 2006, partially as a result of the recognition of $326,000 in severance expenses related to the resignation of the Company's former Chief Executive Officer. As a percent of total revenues, general and administrative expense increased from 15.5% in 2006 to 18.6% in 2007.

        Discontinued operations, the Company's HemaBio subsidiary, produced a loss of $5,960,000 in 2007 compared to a net profit of $380,000 for 2006. 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.

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        The Company recognized a $622,000 benefit for income taxes in 2006 from the recognition of a deferred tax asset in 2006. In 2007, the Company determined it was unlikely to benefit from this asset in future periods and increased the valuation allowance for the deferred tax asset to 100%, resulting in an increase in the tax provision in 2007 of $622,000.

Blood Products—Continuing Operations

        For this business segment, the following table summarizes the revenues and gross profit for all of 2007 associated with continuing transfusable blood product operations and the discontinued research blood product operations:

	For the twelve month period ended December 31, (Revenues and Gross Profit in Thousands)
	Transfusable Products (Continuing Operations)						Research Products (Discontinued Operations)						Total Blood Products Segment
	2007			2006			2007			2006			2007			2006
Revenues	$	26,752		$	27,245		$	3,633		$	1,764		$	30,385		$	29,006
Gross Profit		3,349			4,498			(1,685	)		410			1,664			4,908
Gross Profit %		12.5	%		16.5	%		(46.4	)%		23.2	%		5.5	%		16.9	%

        Blood products revenue from continuing operations for 2007 decreased 1.8%, or $493,000, to $26,752,000 from $27,245,000 in 2006 primarily due to a 4% decrease in revenue from the Company's California-based blood product operations. This decrease is primarily attributable to i) a decrease in whole blood collections from mobile blood drives, ii) turnover in donor recruitment positions, and iii) competition from other blood product suppliers for blood drive sponsors. The Company's Maine-based blood product operations reported a 12.1% increase in revenue in 2007 compared to 2006.

        Gross profit from this segment decreased $1,149,000, or 25.5%, in 2007 to $3,349,000 from $4,498,000 in 2006 primarily due to a decrease in gross profit from the Company's California-based operations as a result of i) a decrease in capacity utilization from a decline in whole blood collection volumes, ii) competition in the California market which restricted the Company's ability to pass along cost increases for staff, supplies, fuel, newly mandated blood tests, and regulatory costs, and iii) a decrease in the supply of purchased blood products, resulting in an increase in the cost of these products. The Company's Maine-based blood product operations generated substantially higher gross profit in 2007 compared to 2006. The gross profit percentage for this segment declined to 12.5% in 2007 compared with 16.5% for all of 2006, primarily from the decrease in gross profit from California-based operations.

Blood Services

        Blood services revenue decreased 0.8% in 2007 from 7,475,000 in 2006 to 7,414,000 in 2007. Blood services revenue fluctuates based on the number and type of procedures performed. The Company as a whole performed 1% fewer procedures in 2007, compared to 2006, primarily as the result of a decrease in the number of procedures performed in the Company's California region. The decrease in procedure volumes is a result of competition from other providers and a decrease in hospital utilization of therapeutic apheresis as a treatment option due to unfavorable Medicare reimbursement. Gross profit for this segment decreased 0.7% from $1,821,000 in 2006 to $1,809,000 in 2007. The gross profit percentage of this segment remained unchanged at 24.4% for 2007, compared to 2006.

General and Administrative Expenses

        General and administrative expenses increased $946,000, or 17.5%, to $6,340,000 in 2007 from $5,394,000 in 2006 primarily due to i) $435,000 for professional fees and temporary personnel costs,

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ii) $402,000 in officer's salaries, iii) $161,000 in depreciation, iv) $151,000 in interest expense, and v) a $127129,000 in bad debt. These increases were partially offset by a $121,000 reduction in share-based compensation expense, $128,000 reduction in bonuses, and an $82,000 reduction in 401(k) matching expense. The increase in professional fees and temporary personnel costs is related to legal fees associated with the Company's application to the California Department of Corporations for a permit to issue stock options under the Company's 2006 Equity Incentive Plan, increases in audit related services, Sarbanes-Oxley compliance consulting services, and the cost of temporary personnel to fill various open positions. The increase in officer's salaries is primarily the result of $326,000 in severance related expenses as the result of the resignation of Judi Irving, the Company's former President and Chief Executive Officer, on June 28, 2007. Based on the terms of Ms. Irving's employment letter of November 26, 2002, and in exchange for a release of any employment related claims Ms. Irving could assert against the Company, the Company agreed to pay Ms. Irving one year of her salary as of the date of her separation, payable in 26 equal bi-weekly installments. In addition, the Company agreed to pay Ms. Irving's health and dental coverage for 18 months on the same terms that existed just prior to Ms. Irving's separation from the Company. The increase in depreciation expense is a result of depreciation of tenant improvements for the Company's new facility in Van Nuys, California, which the Company occupied in November of 2006. The increase in interest expense is the result of outstanding debt incurred to finance the acquisition of HemaBio in August 2006. The increase in bad debt expense is due to an increase in the age of selective California customer invoices. A delay in the approval of the California State budget resulted in slow payments from customers with a high concentration of Medi-Cal patients in 2007. Additionally, turnover in the Company's credit and collections staff hindered the collection effort during the second half of 2007. The decrease in share-based compensation expense is due to the revaluing of the fair value of stock options to include the expected forfeiture rates and the reduced fair value of options granted in 2007 due to the decline in the price of the Company's common stock. The decrease in bonus expense is the result of a decrease in management bonus accrual as a result of the decreased profits generated by the Company. A significant component of the management bonus plan requires greater than budgeted net income, which the Company did not achieve in 2007. Finally, the decrease in 401(k) matching expense is a result of the decision by the Board of Directors not to match any employee deferrals due to the decline in profits generated during the year.

Income Taxes—Continuing Operations

        The Company recorded a $646,000 provision for income taxes for 2007 compared with a $546,000 benefit from income taxes for 2006. 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.

        A valuation allowance for deferred taxes 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 performs 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 in medical technology that could alter the utilization patterns for the Company's products and services.

        In 2006, based on this analysis, management estimated that it was more likely than not that $622,000 of the available net operating loss carryforwards of $2.6 million would be utilized in future periods. Therefore management reduced the deferred tax asset valuation reserve accordingly, which resulted in an income tax benefit for 2006. At the end of 2007, the Company determined that based on recent operating results, it was unlikely the Company would realize any future benefit from the

22

deferred tax asset. Therefore, the Company recorded a 100% valuation reserve against all of the deferred tax assets.

        The Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109" ("FIN 48"), on January 1, 2007. The Company did not have any unrecognized tax benefits that would impact its effective tax rate and there was no material effect on the Company's financial condition or results of operations as a result of implementing FIN 48.

Discontinued Operations

        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 any proceeds to HemaBio's creditors. See "Note 3—Discontinued Operations."

        Revenue generated by this operation increased to $3,633,000 in 2007 from $1,764,000 in 2006, primarily due to the fact that 2006 results included only four months of operations, since the Company acquired this subsidiary in late August 2006, whereas this subsidiary operated for slightly more than ten months before closing in early November 2007.

        Operating income declined by $6,340,000 to a loss of $5,960,000 in 2007 from a profit of $380,000 in 2006. This 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, v) severance expenses of $604,000, and iv) 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

23

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. At the time of their termination, the remaining term of both employment agreements was one year and 18 months, which was used to calculate the severance expense in 2007. 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 decreased $25,000 in 2007 to $4,000 from $29,000 in 2006, and is principally the result of the losses sustained during 2007.

2007 and 2006 Quarterly Financial Data

        The following table presents unaudited statement of (operations) income data for each of the eight quarters ended December 31, 2007. Management believes that all necessary adjustments have been included to fairly present the quarterly information when read in conjunction with the consolidated financial statements. The operating results for any quarter are not necessarily indicative of the results for any subsequent quarter.

UNAUDITED
(In Thousands, Except Per Share Data)

			2006 Quarter Ended									2007 Quarter Ended
			March 31		June 30		Sept. 30		Dec. 31			March 31			June 30			Sept. 30			Dec. 31
Continuing Operations
Revenues			$	8,187	$	8,432	$	8,560	$	9,544		$	8,354		$	8,418		$	8,433		$	8,961
Gross profit				1,648		1,490		1,552		1,629			1,157			1,118			1,199			1,684
Income (loss) before income taxes				101		369		276		178			(317	)		(615	)		(403	)		153
Income tax provision (benefit)				16		9		7		(579	)		—			—			623			23
		Net income (loss) from continuing operations	$	85	$	360	$	269	$	757		$	(317	)	$	(615	)	$	(1,026	)	$	130
Earnings (loss) per share
	Basic		$	0.01	$	0.05	$	0.03	$	0.09		$	(0.04	)	$	(0.07	)	$	(0.12	)	$	0.01
	Diluted		$	0.01	$	0.04	$	0.03	$	0.08		$	(0.04	)	$	(0.07	)	$	(0.12	)	$	0.01
Discontinued Operations
Revenues			$	—	$	—	$	617	$	1,147		$	1,002		$	1,228		$	1,128		$	275
Income (loss) before income taxes				—		—		179		230			(30	)		208			(4,566	)		(1,568	)
Income tax provision (benefit)				—		—		—		29			—			7			4			(7	)
		Net income (loss) from discontinued operations	$	—	$	—	$	179	$	201		$	(30	)	$	201		$	(4,570	)	$	(1,561	)
Earnings (loss) per share
	Basic						$	0.02	$	0.02		$	(0.00	)	$	0.02		$	(0.52	)	$	(0.18	)
	Diluted						$	0.02	$	0.02		$	(0.00	)	$	0.02		$	(0.52	)	$	(0.18	)

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

•

changes in demand for the Company's products and services, and the ability to obtain the required resources to satisfy customer demand;



•

ability to develop, introduce, market and gain market acceptance of new products or services in a timely manner;



•

ability to manage inventories, accounts receivable and cash flows;



•

ability to control costs; and



•

ability to attract qualified blood donors.

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

Critical Accounting Policies and Estimates

General

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

Accounting for Share-Based Incentive Programs

        In accordance with SFAS 123R, the Company recognized compensation expense in 2007 related to stock options granted to employees based on: a) compensation cost for all share-based payments granted prior to, but not yet vested as of, December 31, 2006, based on the grant date fair value estimated in accordance with SFAS 123, adjusted for an estimated future forfeiture rate, and b) compensation cost for all share-based payments granted subsequent to December 31, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.

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

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

(a)

expected volatility of the common stock price, which was determined based on historical volatility of the Company's common stock;



(b)

expected dividends, which are not anticipated;



(c)

expected life of the stock option, which is estimated based on the historical stock option exercise behavior of employees; and



(d)

expected forfeitures.

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

Allowance for Doubtful Accounts

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

Inventory 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. 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.

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,

26

such as assumptions on growth rates for revenues, 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.

Income Taxes

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

Liquidity and Capital Resources

        At December 31, 2007, the Company, including discontinued operations, had cash and cash equivalents of $556,000 and negative working capital of $1,236,000.

        On September 26, 2006, the Company, together with the Company's subsidiaries Coral Blood Services, Inc. and HemaBio, entered into an Amended and Restated Loan and Security Agreement ("Comerica Agreement") with Comerica to provide a working capital line of credit. The Comerica Agreement restated the terms of the prior credit agreement with Comerica, with the following revisions: i) the limits on the amount the Company may borrow were changed to the lesser of 75% of eligible accounts receivable or $3 million, ii) HemaBio was added as an additional borrower, iii) Comerica was given a security interest in all of the assets of HemaBio, and vi) the term of the Comerica Agreement was extended one year to June 30, 2008. On March 26, 2007, the Comerica Agreement was amended by the First Modification which increased the line of credit from $3 million to $4 million. The Comerica Agreement provided that interest is payable monthly at a rate of prime minus 0.25%. As of December 31, 2007, the rate associated with this credit facility was 7.00%. In addition, the Company had the option to draw against this facility for thirty, sixty or ninety days using LIBOR as the relevant rate of interest. As of December 31, 2007, the Company had borrowed $2,500,000 on this line of credit. The Comerica Agreement was collateralized by substantially all of the Company's assets and required the maintenance of certain covenants that, among other things, required minimum levels of profitability and prohibit the payment of dividends.

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

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

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

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

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

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        The Company failed to pay the first installment due to Mr. Adia on August 29, 2007 of $15,000, which included $3,000 in accrued interest. Under the terms of the promissory note between the Company and Mr. Adia, if an event of default occurs, Mr. Adia has the option to declare all unpaid balances, including unpaid interest, immediately due and payable. The Company's failure to pay the first installment is an event of default that would entitle Mr. Adia to make such a declaration. The Company has not received any such declaration from Mr. Adia. When the Company acquired HemaBio, two former HemaBio investors, Dr. Lawrence Feldman and Dr. Karen Raben, each held a $250,000 note from HemaBio. Both of these notes require four equal annual installments of $62,500, plus accrued interest, commencing August 29, 2007, until paid and pay interest at 7% annually, and are secured by all of the assets of HemaBio, and were subordinate to Comerica.

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

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

        Finally, the Company also had a capital equipment lease with GE Capital used to finance the acquisition of vehicles. As of December 31, 2006, the balance outstanding on this lease was $7,000, all of which was included in current obligations. This lease was fully paid and terminated in January 2007, and had a fixed interest rate of 8.0%.

        Net cash used in operating activities from continuing operations was $143,000 for 2007, compared with net cash provided by of $2,925,000 for 2006, representing a decrease of $3,068,000. The decrease was due to a $1,828,000 loss from continuing operations in 2007 compared to net income of $1,471,000 for 2006, a $1,629,000 decrease in accounts payable, accrued expenses and deferred rent in 2007 compared to a $2,533,000 increase in 2006 and an $88,000 increase in inventories, supplies and prepaid expenses in 2007 compared to a $629,000 decrease in 2006. Partially offsetting these changes was a $1,082,000 decrease in accounts receivable in 2007 compared to a $2,335,000 increase in 2006, and a $622,000 decrease in deferred income taxes in 2007 compared to a $622,000 increase in 2006. The loss from continuing operations was primarily due to i) decreased capacity utilization in California from a decline in whole blood collection volumes, ii) competition in the California market which restricted the Company's ability to pass along cost increases for staff, supplies, fuel, newly mandated blood tests, and regulatory costs, and iii) a decrease in the supply of purchased blood products, resulting in an increase in the cost of these products. The decrease in accounts payable, accrued expenses and deferred rent was partially due to a substantial reduction in year-end accrued bonuses for management and the elimination of a 401(k) match at the end of 2007 as a result of the decline in the Company's performance. In addition, the corporate office move at the end of 2006 caused some delay in some vendor payments, which did not occur in 2007. The increase in inventories, supplies and prepaid expenses was primarily the result of an increase in supply inventory compared to the end of 2006. The decrease in accounts receivable was also the result of the corporate office move at the end of 2006, which delayed the receipt of customer payments due to the change of address. HemaCare's DSO for continuing operations stood at 53 days as of December 31, 2007. The decrease in the valuation of deferred tax assets was the result of the net loss recognized by the Company in 2007 causing management to re-evaluate the future benefit from the Company's net operating loss forwards, which were realized in 2006.

29

        Cash used for investing activities from continuing operations decreased $1,219,000 in 2007 compared with $2,757,000 for 2006, and is primarily due to a decrease in investment for leasehold improvements in the Company's Van Nuys facility in 2007 compared to 2006.

        Cash provided by financing activities from continuing operations in 2007 was $502,000 compared with $1,957,000 for 2006. In 2007, the Company utilized $475,000 of the Comerica line of credit to supplement operating cash as needed because of the operating losses during the year. The Company utilized $1,944,000 of the Comerica line of credit in 2006 to finance the acquisition of HemaBio and for other asset investments.

        Net cash provided by operating activities from discontinued operations was $292,000 compared with $848,000 used in 2006. Net cash used in investing activities from discontinued operations decreased to $12,000 in 2007 from $3,253,000 used in 2006. The 2006 amount primarily was related to the original acquisition of HemaBio. Finally, net cash provided by financing activities from discontinued operations decreased to zero in 2007 from $500,000 in 2006.

        In December 2006, the Company signed a contract with IDM, a subsidiary of Haemonetics, 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 costs a total of $2 million, and portions of this project are scheduled for completion in early 2008 with full implementation in 2009. The Company incurred $593,000 in 2007 associated with this project, of which $456,000 is included in plant and equipment on the balance sheet as of December 31, 2007, and $137,000 is included in prepaid expenses on the balance sheet as of December 31, 2007.

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

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

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 Securities and Exchange Commission (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

30

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.

ITEM 7A    QUANTITATIVE 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, 2007, the Company had $3,200,000 of debt, of which $700,000 is from notes payable with fixed interest rates, and $2,500,000 on the Company's Comerica working capital line of credit. The interest rate payable on this line of credit is based upon the prime interest rate, as is the interest rate payable under the Wells Agreement. 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.

        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 8    FINANCIAL 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-25.

ITEM 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

ITEM 9A(T)    CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures

        The Chief Executive Officer and the Chief Financial Officer of the Company, with the participation of the Company's management, carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this report, the Company's disclosure controls and procedures may not bebe effective at the reasonable assurance level described below in making known to them material information relating to the Company (including its consolidated subsidiaries) required to be included in this report. 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.

(b)

Management's Annual Report on Internal Control Over Financial Reporting

        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

31

statements for external purposes in accordance with generally accepted accounting principals in the United States of America ("GAAP").

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

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

32

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

(c)

Remediation of Material Weakness in Internal Control Over Financial Reporting

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

        The Company has:

•

developed a list of identified control weaknesses;



•

developed action plans to correct each identified weakness;



•

held meetings to discuss the allocation of resources and timelines to complete each action plan;



•

instituted other mitigating controls over revenue recognition and over the use of spreadsheets to enhance the control environment pertaining to these areas of material weakness; and



•

evaluated and standardized SOX testing and controls.

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

•

evaluate accounting and control systems to identify opportunities for enhanced controls;



•

recruit and hire additional staff to provide greater segregation of duty;



•

evaluate the need for other employee changes;



•

expand executive management's ongoing communications regarding the importance of adherence to internal controls and company policies;



•

implement an internal auditing function at HemaCare and its subsidiaries; and



•

evaluate such other actions as the Company's advisors may recommend.

        There was no change in the Company's internal control over financial reporting known to the Chief Executive Officer or the Chief Financial Officer, that occurred during the Company's fiscal quarter ended December 31, 2007 that has materially impacted, or is reasonably likely to materially impact, the Company's internal control over financial reporting.

ITEM 9B    OTHER INFORMATION

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

33

PART III

ITEM 10    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

ITEM 11    EXECUTIVE COMPENSATION

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

ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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

ITEM 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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

ITEM 14    PRINCIPAL 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.

34

PART IV

ITEM 15    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

        The following are filed as part of this Report:

1.    Financial Statements
	An index to Financial Statements and Schedules appears on page F-1.
2.    Financial Statement Schedules
	The schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under related instructions or are inapplicable, and therefore have been omitted.
3.    Exhibits
	The following exhibits listed are filed or incorporated by reference as part of this Report.
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, 2007.
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.
10.2*	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.
10.3*	2004 Stock Purchase Plan of the Registrant, incorporated by reference to Exhibit 10.2 to Form 10-K of the Registrant for the year ended December 31, 2004.
10.4	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.

35

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, 2007, incorporated by reference to Exhibit 99.1 to Form 8-K of the Registrant filed on March 28, 2007.
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 June 6, 2005, incorporated by reference to Exhibit 10.2 to Form 8-K of the Registrant filed on June 10, 2005.
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 October 3, 2003, incorporated by reference to Exhibit 10.1 to Form 10-Q of the Registrant for the quarter ended September 30, 2003.
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.

36

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, 2007.
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, 2007.
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, 2007.
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, 2007.
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, 2007.
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, 2007.

37

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, 2007.
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, 2007.
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, 2007.
10.35	First Amendment to Lease between HemaCare Corporation as tenant and ECI Sherman Plaza, Inc. as landlord, dated August 17, 2006.
10.36	Second Amendment to Lease between HemaCare Corporation as tenant and ECI Sherman Plaza, Inc. as landlord, dated April 11, 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.
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.

*

Management contracts and compensatory plans and arrangements.

38

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:    April 14, 2008	HEMACARE CORPORATION
	By:	/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 Jay Steffenhagen, 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 fourteenth day of April, 2008.

Signature	Title
/s/  JULIAN L. STEFFENHAGEN Julian L. Steffenhagen	Chairman of the Board and 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/  STEVEN GERBER Steven Gerber	Director
/s/  TERESA SLIGH Teresa Sligh	Director
/s/  TERRY VAN DER TUUK Terry Van Der Tuuk	Director

39

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

	Page Number
Report of Stonefield Josephson, Inc., Independent Registered Public Accounting Firm	F-2
Consolidated balance sheets	F-3
Consolidated statements of (operations) income	F-4
Consolidated statements of shareholders' equity	F-5
Consolidated statements of cash flows	F-6
Notes to consolidated financial statements	F-7

        All schedules are not submitted because either they are not applicable, not required or because the information required is included in the Consolidated Financial Statements, including the notes thereto.

F-1

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, 2007 and 2006, 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, 2007. 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, 2007 and 2006, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

/s/ Stonefield Josephson, Inc.

Los Angeles, California
April 11, 2008

F-2

HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

			December 31, 2007			Reclassified December 31, 2006
Assets
Current assets:
	Cash and cash equivalents		$	420,000		$	623,000
	Accounts receivable, net of allowance for doubtful accounts of $302,000 in 2007 and $131,000 in 2006			4,942,000			6,208,000
	Product inventories and supplies			1,120,000			1,057,000
	Prepaid expenses			508,000			481,000
	Assets held for sale			482,000			5,054,000
	Deferred income taxes—current			—			560,000
	Other receivables			83,000			282,000
		Total current assets		7,555,000			14,265,000
Plant and equipment, net of accumulated depreciation and amortization of $4,678,000 in 2007 and $4,359,000 in 2006				4,847,000			4,635,000
Deferred income taxes—long-term				—			62,000
Other assets				92,000			85,000
			$	12,494,000		$	19,047,000
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable		$	2,728,000		$	3,124,000
	Accrued payroll and payroll taxes			1,115,000			1,503,000
	Other accrued expenses			202,000			1,017,000
	Liabilities related to assets held for sale			2,046,000			929,000
	Current obligation under capital leases			—			7,000
	Current obligations under notes payable			2,700,000			2,200,000
		Total current liabilities		8,791,000			8,780,000
Obligations under notes payabe, net of current portion				—			25,000
Deferred rent				631,000			389,000
Shareholders' equity:
	Common stock, no par value—20,000,000 shares authorized, 8,799,955 issued and outstanding in 2007 and 8,495,955 in 2006			15,717,000			14,710,000
	Accumulated deficit			(12,645,000	)		(4,857,000	)
		Total shareholders' equity		3,072,000			9,853,000
			$	12,494,000		$	19,047,000

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

F-3

HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF (OPERATIONS) INCOME

For the Two Years Ended December 31,

			2007			Reclassified 2006
Revenues
	Blood products		$	26,752,000		$	27,245,000
	Blood services			7,414,000			7,475,000
		Total revenue		34,166,000			34,720,000
Operating costs and expenses
	Blood products			23,403,000			22,747,000
	Blood services			5,605,000			5,654,000
		Total operating costs and expenses		29,008,000			28,401,000
		Gross profit		5,158,000			6,319,000
General and administrative expenses				6,340,000			5,394,000
(Loss) income from continuing operations before income taxes				(1,182,000	)		925,000
Provision (benefit) for income taxes				646,000			(546,000	)
(Loss) income from continuing operations				(1,828,000	)		1,471,000
Discontinued Operations
(Loss) income from discontinued operations before income taxes				(5,956,000	)		409,000
Provision for income taxes				4,000			29,000
(Loss) income on discontinued operations including loss on disposal of $5,688,000				(5,960,000	)		380,000
Net (loss) income			$	(7,788,000	)	$	1,851,000
(Loss) income per share
	Basic
		Continuing Operations	$	(0.21	)	$	0.18
		Discontinued Operations	$	(0.69	)	$	0.04
		Total	$	(0.90	)	$	0.22
	Diluted
		Continuing Operations	$	(0.21	)	$	0.16
		Discontinued Operations	$	(0.69	)	$	0.04
		Total	$	(0.90	)	$	0.20
Weighted average shares outstanding—basic				8,687,000			8,265,000
Weighted average shares outstanding—diluted				8,687,000			9,095,000

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

F-4

HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the Years Ended December 31, 2007 and 2006

	Common Stock
				Accumulated Deficit
	Shares	Amount					Total
Balance as of December 31, 2005	8,196,000	$	13,696,000	$	(6,708,000	)	$	6,987,000
Stock options exercised	14,000		13,000		—			13,000
Issuance of common stock for HemaCare BioScience, Inc. aquisition	286,000		543,000		—			543,000
Share-based compensation expense	—		458,000		—			458,000
Net income	—		—		1,851,000			1,851,000
Balance as of December 31, 2006	8,496,000	$	14,710,000	$	(4,857,000	)	$	9,853,000
Stock options exercised	56,000		34,000					34,000
Issuance of common stock for HemaCare BioScience, Inc. acquisition	248,000		657,000					657,000
Share-based compensation expense			316,000					316,000
Net loss					(7,788,000	)		(7,788,000	)
Balance as of December 31, 2007	8,800,000	$	15,717,000	$	(12,645,000	)	$	3,072,000

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

F-5

HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

			2007			Reclassified 2006
Cash flows from operating activities:
	Net (loss) income		$	(7,788,000	)	$	1,851,000
	Adjustments to reconcile net (loss) income to net cash provided by operating activities:
		Loss (income) from discontinued operations		5,960,000			(380,000	)
		Provision for bad debts		184,000			63,000
		Change in valuation of deferred tax assets		622,000			(622,000	)
		Depreciation and amortization		1,004,000			798,000
		Gain or loss on disposal of assets		2,000			28,000
		Share-based compensation		316,000			459,000
Changes in operating assets and liabilities:
	Decrease (increase) in accounts receivable			1,082,000			(2,335,000	)
	(Increase) decrease in inventories, supplies and prepaid expenses			(88,000	)		629,000
	Decrease (increase) in other receivables			199,000			(99,000	)
	Increase in other assets			(7,000	)		—
	(Decrease) increase in accounts payable, accrued expenses and deferred rent			(1,629,000	)		2,533,000
		Net cash (used in) provided by operating activities		(143,000	)		2,925,000
Cash flows from investing activities:
	Proceeds from sale of plant and equipment			10,000			9,000
	Purchases of plant and equipment			(1,229,000	)		(2,766,000	)
		Net cash used in investing activities		(1,219,000	)		(2,757,000	)
Cash flows from financing activities:
	Proceeds from the exercise of stock options			34,000			13,000
	Principal payments on capitalized leases			(7,000	)		(81,000	)
	Proceeds from line of credit			475,000			2,025,000
		Net cash provided by financing activities		502,000			1,957,000
		Net cash (used in) provided by ongoing operations		(860,000	)		2,125,000
Cash Flows—Discontinued Operations
	Net cash provided by (used in) operating activities			292,000			(848,000	)
	Net cash used in investing activities			(12,000	)		(3,253,000	)
	Net cash provided by financing activities			—			500,000
		Net cash provided by (used in) discontinued operations		280,000			(3,601,000	)
Decrease in cash and cash equivalents				(580,000	)		(1,476,000	)
Cash and cash equivalents at beginning of period				1,136,000			2,612,000
Cash and cash equivalents at end of period			$	556,000		$	1,136,000
Supplemental disclosure:
	Interest paid		$	173,000		$	32,000
	Income taxes paid		$	165,000		$	58,000
Items not affecting cash flow:
	Teragenix Acquisition
	Common stock issued to sellers		$	657,000		$	—
	Notes issued to sellers		$	—		$	200,000

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

F-6

HEMACARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

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, 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.

        Revenues and Accounts Receivable:    Revenues are recognized upon acceptance of the blood products or the performance of blood services. Occasionally the Company receives advance payment against future delivery of blood products or services. Until the related products or services are delivered, the Company records advance payments as deferred revenue, which appears as current liability on the balance sheet. Blood services revenues consist primarily of mobile therapeutics sales, while blood products revenues consist primarily of sales of single donor platelets, whole blood components or other blood products that are manufactured or purchased and distributed by the Company. Accounts receivable are reviewed periodically for collectibility.

        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 both 2007 and 2006. The Company recorded reserves for obsolete inventory for discontinued operations of $1,341,000 and $736,000, as of December 31, 2007 and 2006, respectively.

F-7

        Inventories are comprised of the following as of December 31,

	2007		As Reclassified 2006
Continuing Operations
Supplies	$	839,000	$	772,000
Blood products		281,000		285,000
Total continuing operations		1,120,000		1,057,000
Discontinued Operations
Blood products		90,000		204,000
Total discontinued operations		90,000		204,000
Total	$	1,210,000	$	1,261,000

        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.

        Income Taxes:    The process of preparing the financial statements requires management estimates of income taxes in each of the jurisdictions that the Company operates. This process involves estimating current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the balance sheet. Under the provisions of SFAS No. 109, Accounting for Income Taxes, the Company must utilize an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Management must assess the likelihood that the deferred tax assets or liabilities will be realized for future periods, and to the extent management believes that realization is not likely, must establish a valuation allowance. To the extent a valuation allowance is created or adjusted in a period, the Company must include an expense or benefit, within the tax provision in the statements of operations. Significant management judgment is required in determining the provision for income taxes, deferred tax asset and liabilities and any valuation allowance recorded against net deferred tax assets. It is possible that different tax models, and the selection of different input variables, could produce a materially different estimate of the provision, asset, liability and valuation allowance. As of the end of 2006, management determined that $622,000 of deferred tax asset was likely to be realized, and therefore reduced the valuation reserve for deferred tax assets, along with the corresponding benefit from income taxes in the accompanying period. 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.

        On January 1, 2007, the Company adopted Financial Accounting Standards Board ("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

F-8

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 and warrants.

        Interest Expense:    During the years ended December 31, 2007 and 2006, the Company incurred interest expense of $197,000 and $50,000, for continuing operations and $55,000 and $9,000 for discontinued operations, respectively.

        Reclassification:    Certain prior year amounts have been reclassified to conform to the current year presentation. In November 2007, the Board of Directors of HemaBio closed its Florida-based research blood products operation. Accordingly, the financial results for this operation have been reported as discontinued operations, and this subsidiary's assets and liabilities as held for sale, in the consolidated financial statements as of December 31, 2007. Since the consolidated financial statements for the year ended December 31, 2006 previously reported the assets and liabilities of HemaBio as part of continuing operations, the financial results, assets and liabilities for HemaBio have been reclassified to reflect the change in the status of HemaBio as a discontinued operation in accordance with Statement of Financial Accounting Standards No. 144, Accounting for Impairment and Disposal of Long-Lived Assets. The following reconciles the originally reported 2006 financial statements, with those presented along with the 2007 financial statements:

F-9

HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME COMPARISON
Reclassification 2006

		As Reported			Discontinued Operations		As Reclassified
Revenues:
	Blood products	$	29,009,000		$	1,764,000	$	27,245,000
	Blood services		7,475,000			—		7,475,000
			36,484,000			1,764,000		34,720,000
Operating costs and expenses:
	Blood products		24,101,000			1,354,000		22,747,000
	Blood services		5,654,000			—		5,654,000
			29,755,000			1,354,000		28,401,000
Gross Profit			6,729,000			410,000		6,319,000
General and administrative expenses			5,395,000			1,000		5,394,000
Income from continuing operations before income taxes			1,334,000			409,000		925,000
(Benefit) provision for income taxes			(517,000	)		29,000		(546,000	)
	Income from continuing operations	$	1,851,000		$	380,000	$	1,471,000
Discontinued Operations
	Income from discontinued operations before income taxes		—					409,000
	Provision for income taxes		—					29,000
	Income on discontinued operations		—					380,000
	Net Income	$	1,851,000				$	1,851,000
Net income per share
Basic
	Continuing Operations	$	.22				$	.18
	Discontinued Operations	$	—				$	.04
	Total	$	.22				$	.22
Diluted
	Continuing Operations	$	.20				$	.16
	Discontinued Operations	$	—				$	.04
	Total	$	.20				$	.20
Weighted average shares outstanding—basic			8,265,000					8,265,000
Weighted average shares outstanding—diluted			9,095,000					9,095,000

F-10

HEMACARE CORPORATION
CONSOLIDATED BALANCE SHEET
Reclassification 2006

			As Reported			Discontinued Operations			As Reclassified
Assets
Current assets:
	Cash and cash equivalents		$	1,136,000		$	(513,000	)	$	623,000
	Accounts receivable, net of allowance for doubtful accounts of $141,000 as reported, $10,000 discontinued operations, and $131,000 as reclassifiied			6,766,000			(558,000	)		6,208,000
	Product inventories and supplies			1,261,000			(204,000	)		1,057,000
	Prepaid expenses			512,000			(31,000	)		481,000
	Assets held for sale			—			5,054,000			5,054,000
	Deferred income taxes			560,000			—			560,000
	Other receivables			293,000			(11,000	)		282,000
		Total current assets		10,528,000			3,737,000			14,265,000
Plant and equipment, net of accumulated depreciation and amortization of $4,376,000 as reported, $17,000 discontinued operations, and $4,359,000 as reclassified				4,778,000			(143,000	)		4,635,000
Deferred income taxes—long term				62,000			—			62,000
Goodwill				3,578,000			(3,578,000	)		—
Other assets				101,000			(16,000	)		85,000
		Total Assets	$	19,047,000		$	—		$	19,047,000
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable			3,414,000			(290,000	)		3,124,000
	Accrued payroll and payroll taxes			1,572,000			(69,000	)		1,503,000
	Other accrued expenses			587,000			(70,000	)		517,000
	Obligation under acquisition agreement			500,000			—			500,000
	Liabilities related to assets held for sale			—			929,000			929,000
	Current obligations under capital leases			7,000			—			7,000
	Current obligations under line of credit			2,025,000			—			2,025,000
	Current obligations under notes payable			175,000			—			175,000
		Total current liabilities		8,280,000			500,000			8,780,000
Notes payable, net of current portion				525,000			(500,000	)		25,000
Deferred Rent				389,000			—			389,000
Shareholders' equity:
	Common stock, no par value—20,000,000 shares authorized, 8,495,955 issued and outstanding in 2006			14,710,000			—			14,710,000
	Accumulated deficit			(4,857,000	)		—			(4,857,000	)
		Total shareholders' equity		9,853,000			—			9,853,000
		Total Liabilities and Equity	$	19,047,000		$	—		$	19,047,000

F-11

        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 started in 2006 to recognize compensation expense related to stock options granted to employees. For 2007, the Company recognized share-based compensation expense on: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2006, based on the grant date fair value estimated in accordance with SFAS No 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), and (b) compensation cost for all share-based payments granted subsequent to December 31, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

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

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

(a)

expected volatility of the common stock price, which was determined based on historical volatility of the Company's common stock;



(b)

expected dividends, which are not anticipated;



(c)

expected life of the stock option, which is estimated based on the historical stock option exercise behavior of employees; and



(d)

expected forfeitures.

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

        Going Concern:    As a result of the significant losses the Company recognized over the past twelve months, and the prospects for an improvement in profits over the next twelve months, the Company has carefully assessed its anticipated cash needs for the next twelve months. The Company has adopted an operating plan to manage the costs of its capital expenditures and operating activities along with its revenues in order to meet its working capital needs. The Company recently entered into a new credit agreement with Wells Fargo which should provide additional resources to finance future obligations. Although the Company believes that it has sufficient working capital and sufficient availability under the new credit agreement to conduct its operations and meet its current obligations for the next twelve months, it makes no assurance that it will be able to do so. Accordingly, the accompanying consolidated financial statements are presented on the basis that the Company is a going concern.

Recent Accounting Pronouncements:

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

F-12

recurring basis (at least annually). The Company is evaluating the impact, if any, that the adoption of SFAS No. 157 will have on its consolidated financial statements.

        In February 2007, FASB issued FAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115" ("FAS 159"). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective for fiscal years beginning after November 15, 2007. The issuance of FAS 159 did not impact the Company's consolidated financial statements for fiscal 2007.

        In December 2007, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 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. 123(R), Share-Based Payment. 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 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 are 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.

        In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which replaces SFAS No. 141, Business Combinations. 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, 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

F-13

loss in net income. SFAS No. 160 further requires expanded disclosures surrounding the interests of the parent's owners and the interests of the noncontrolling owners of a subsidiary. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. This Statement shall be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The Company does not expect that the issuance of SFAS No. 160 will have an impact on its consolidated financial statements.

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. The assignee continues to fulfill his obligations under the Assignment, but has not concluded his efforts to liquidate all of the assets or distribute any proceeds to HemaBio's creditors.

        Per Statement of Financial Accounting Standards No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the results of operations of HemaBio, along with all closure related costs have been recorded in the current period. The following is the

F-14

breakdown of the assets held for sale and the liabilities related to the assets held for sale for the discontinued operations:

		2007 December 31,		2006 December 31,
Assets Held for Sale
Cash and cash equivalents		$	136,000	$	513,000
Accounts receivable, net of allowance for doubtful accounts of $133,000 in 2007 and $10,000 in 2006			210,000		558,000
Product inventories and supplies			90,000		204,000
Prepaid expenses			—		31,000
Other receivables			7,000		11,000
Plant and equipment, net of accumulated depreciation and amortization of $133,000 in 2007 and $17,000 in 2006			39,000		143,000
Goodwill			—		3,578,000
Other assets			—		16,000
	Total assets held for sale	$	482,000	$	5,054,000
Liabilities related to assets held for sale
Accounts payable		$	832,000	$	290,000
Accrued payroll and payroll taxes			603,000		69,000
Other accrued expenses			111,000		70,000
Current obligations under notes payable			500,000		—
Notes payable, net of current portion			—		500,000
	Total liabilities related to assets held for sale	$	2,046,000	$	929,000

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

Note 4—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.

        Increases of $184,000 and $56,000 were reflected in the allowance for doubtful accounts for continuing operations for 2007 and 2006, respectively. In 2007 this increase was as a result of a combination of events. A delay in the approval of the California State budget resulted in slow payments from customers with a high concentration of Medi-Cal patients. Additionally, turnover in the credit and collections staff of the Company slowed down collections during the second half of the year. In addition, the majority of the additional allowance in 2007 was related to one customer. For 2006, the increase was mostly as a result of delays in cash collections associated with the move of the corporate offices in November 2006. Write-offs against the allowance for doubtful accounts totaled $13,000 and

F-15

$7,000 for the years ended December 31, 2007 and 2006, 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, 2007			Reclassified December 31, 2006
Continuing Operations:
Furniture, fixtures and equipment	$	7,347,000		$	7,006,000
Leasehold improvements		2,178,000			1,988,000
		9,525,000			8,994,000
Less accumulated depreciation and amortization		(4,678,000	)		(4,359,000	)
Total continuing operations:	$	4,847,000		$	4,635,000
Discontinued Operations:
Furniture, fixtures and equipment		172,000			160,000
Leasehold improvements		—			—
Less accumulated depreciation and amortization		(133,000	)		(17,000	)
Total discontinued operations	$	39,000		$	143,000
Total plant and equipment:	$	4,886,000		$	4,778,000

        Depreciation expense for continuing operations for 2007 and 2006 was $1,004,000 and 798,000 respectively, and for discontinued operations, $116,000 and $17,000 for 2007 and 2006 respectively.

Note 6—Line of Credit and Notes Payable

        On September 26, 2006, the Company, together with the Company's subsidiaries Coral Blood Services, Inc. and HemaBio, entered into an Amended and Restated Loan and Security Agreement ("Comerica Agreement") with Comerica to provide a working capital line of credit. The Comerica Agreement restated the terms of the prior credit agreement with Comerica, with the following revisions: i) the limits on the amount the Company may borrow were changed to the lesser of 75% of eligible accounts receivable or $3 million, ii) HemaBio was added as an additional borrower, iii) Comerica was given a security interest in all of the assets of HemaBio, and vi) the term of the Comerica Agreement was extended one year to June 30, 2008. On March 26, 2007, the Comerica Agreement was amended by the First Modification which increased the line of credit from $3 million to $4 million. The Comerica Agreement provided that interest is payable monthly at a rate of prime minus 0.25%. As of December 31, 2007, the rate associated with this credit facility was 7.00%. In addition, the Company had the option to draw against this facility for thirty, sixty or ninety days using LIBOR as the relevant rate of interest. As of December 31, 2007, the Company had borrowed $2,500,000 on this line of credit. The Comerica Agreement was collateralized by substantially all of the Company's assets and required the maintenance of certain covenants that, among other things, required minimum levels of profitability and prohibited the payment of dividends.

        The Comerica Agreement provides, among other things, that in the event the Company failed to observe any covenants in the Agreement, or permitted a default in any material agreement to which the Company is a party with third parties that results in an acceleration of any indebtedness, then an event of default shall have occurred under the Comerica Agreement, and Comerica may, among other things, declare the Company's indebtedness to Comerica immediately due and payable. As of

F-16

September 30, 2007, the Company was not in compliance with certain financial covenants in the Comerica Agreement, and Comerica did not provide a waiver of this violation as provided in the past. As of December 31, 2007, the Company's covenant violations remained, and Comerica had not provided a waiver. In addition, as September 19, 2007, the Company was in default on notes to the sellers and other related parties in an aggregate principal amount of $700,000, as described more fully below, in connection with the Company's acquisition of 100% of the capital stock of HemaBio. Each of the notes requires the Company to pay four annual installments representing 25% of the principal balance, plus accrued interest. The first such installment payment was due on August 29, 2007. The Company did not make the first payment under any of the notes, which, in the aggregate, represented a principal amount of $175,000, together with accrued interest of $46,000.

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

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

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

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

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

F-17

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

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

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

        Finally, the Company also had a capital equipment lease with GE Capital used to finance the acquisition of vehicles. As of December 31, 2006, the balance outstanding on this lease was $7,000, all of which was included in current obligations. This lease was fully paid and terminated in January 2007, and had a fixed interest rate of 8.0%.

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

Year ending	Continuing Operations		Discontinued Operations		Total
December 31, 2008	$	2,700,000	$	500,000	$	3,200,000

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 are as follows:

Years ending December 31,	Operating
2008		712,000
2009		748,000
2010		757,000
2011		773,000
2012		631,000
Thereafter		2,531,000
Total:	$	6,152,000

        For continuing operations total rent expense under all operating leases was $893,000 and $701,000 for the years ended December 31, 2007 and 2006, respectively. For discontinued operations, total rent expense was $493,000, including disposal costs of $327,000, for the year ended December 31, 2007 and $32,000 for the year ended December 31, 2006.

        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

F-18

blood component manufacturing lab and a blood products distribution operation. The Company occupied this facility in November 2006. The rent for this facility starts 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, 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 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, 2007, the Company recognized $5,000 in deferred rent associated with this lease to be utilized over the twelve month period ended December 31, 2008. This amount is included in other accrued expenses on the balance sheet. As of December 31, 2007, the Company recognized $631,000 representing the balance of the deferred rent associated with this lease, included in other long-term liabilities on the balance sheet.

        The Company had a capital equipment lease with GE Capital Healthcare Financial Services used to finance the acquisition of vehicles. The outstanding balance on this lease as of December 31, 2006 was $7,000, which was paid during 2007.

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 revenues, 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

Note 9—Income Taxes

        The provision for income taxes for the years ended December 31, 2007 and 2006 are as follows:

		2007		2006
Current taxes:
	Federal	$	—	$	44,000
	State		24,000		32,000
			24,000		76,000
Deferred taxes:
	Federal		622,000		(622,000	)
	State		—		—
			622,000		(622,000	)
Provision for income taxes—continuing operations		$	646,000	$	(546,000	)
Provision (benefit) for income taxes—discontinued operations			4,000		29,000
		$	650,000	$	(517,000	)

        Differences between the provision for income taxes and income taxes at statutory federal income tax rate for the years ended December 31, 2007 and 2006 are as follows:

	2007			2006
Income tax expense at federal statutory rate	$	(2,443,000	)	$	436,000
State income taxes, net of federal benefit		24,000			67,000
Change in valuation allowance		2,822,000			(1,039,000	)
Permanent differences		34,000			19,000
Change in deferred tax asset and other		213,000			—
Income tax expense (benefit):	$	650,000		$	(517,000	)

        The Company recognized no net deferred tax asset at December 31, 2007 and a $622,000 deferred tax asset as of December 31, 2006. The components of the net deferred tax asset at December 31, 2007 and 2006 are as follows:

	2007			2006
Current:
Accounts receivable reserve	$	151,000		$	62,000
Accrued expenses and other		424,000			498,000
Total deferred tax asset		575,000			560,000
Noncurrent:
Net operating loss carryforward		2,905,000			952,000
Depreciation and amortization		243,000			275,000
Contribution carryover		—			—
Tax credit carryforward		531,000			596,000
Other		346,000			(71,000	)
Valuation allowance		(4,600,000	)		(1,690,000	)
		(575,000	)		62,000
	$	0		$	622,000

F-20

        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.

        In 2006, based on this analysis, management estimated that it was more likely than not that only $622,000 of the available net operating loss carryforwards of $2.6 million would be utilized in future periods. Therefore management reduced the deferred tax asset valuation reserve accordingly, which resulted in an income tax benefit for 2006.

        The Company determined at the end of 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, 2007, the value of the Company's federal and state net operating loss carryforwards were $8.4 million and $6.7 million, respectively. The ability for the Company to utilize the available federal net operating loss is scheduled to expire over time starting in 2010 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 2008 and ending 2027.

        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.

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 are 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 provides 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 is 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 our company by key personnel whose long-term service is considered essential to our continued progress, thereby linking these employees directly to stockholder interests through increased stock ownership.

F-21

        Eligible Participants.    Awards may be granted under the 2006 Plan to any of our 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 us 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 through the exercise of incentive stock options 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 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.

        The table below summarizes stock option transactions for 2006 and 2007:

	2007					2006
	Shares		Price			Shares		Price
Outstanding at beginning of year	1,836,000		$	1.27		1,501,000		$	0.99
Granted	275,000		$	1.79		365,000		$	2.41
Exercised	(56,000	)	$	(.61	)	(14,000	)	$	(0.90	)
Forfeited	(175,000	)	$	(1.66	)	0		$	0
Expired	(49,000	)	$	(1.94	)	(16,000	)	$	(0.80	)
Outstanding at end of year	1,831,000		$	1.32		1,836,000		$	1.27
Exercisable at end of year	1,547,000		$	1.29		1,392,000		$	1.14

        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, 2007:

	Options Outstanding				Options Exercisable
Range of Exercise Price
	Shares	Life	Price		Shares	Price
$0.18 to $0.75	582,000	1.9 years	$	0.50	582,000	$	0.50
$0.76 to $1.50	739,000	6.0 years	$	1.17	543,000	$	1.21
$1.51 to $2.50	360,000	5.0 years	$	2.35	272,000	$	2.36
$2.51 to $2.71	150,000	9.2 years	$	2.68	150,000	$	2.68
	1,831,000	4.7 years	$	1.32	1,547,000	$	1.29

        As of December 31, 2007, the total aggregate intrinsic value of all fully vested stock options, and of all stock options outstanding, is $10,220 and $10,220, respectively.

        In December 2004, the Financial Accounting Standards Board ("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 Securities and Exchange Commission ("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

F-22

share-based payments to employees, including grants of employee stock options, to be recognized in the statement of income based on their fair values.

        In 2007, the Company's share-based compensation expense under the provisions of SFAS 123R during the twelve months ended December 31, 2007 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2006, based on the grant date fair value estimated in accordance with SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.

        The Black-Scholes option pricing model is used by the Company to determine the weighted average fair value of options. 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,
	2007			2006
Weighted average fair value at date of grant for options granted during the period	$	1.41		$	2.15
Weighted average fair value for options exercised during the period	$	0.16		$	0.85
Weighted average fair value for options vested during the period	$	1.28		$	1.36
Risk-free interest rates		5.0	%		5.0	%
Expected stock price volatility		133.2	%		95.3	%
Expected dividend yield		0.0	%		0.0	%
Expected forfeitures		6.1	%		0.0	%
Expected Option Term		6 years			10 years

        For the twelve months ended December 31, 2007, the Company recognized non-cash share-based compensation costs of $316,000, as a result of the adoption of SFAS 123R, increasing the loss before taxes and net loss by this amount.

        The following summarizes the activity of the Company's stock options that have not vested for the year ended December 31, 2007:

	Shares		Weighted Average Fair Value
Nonvested at January 1, 2007	444,000		$	0.14
Granted	275,000			1.41
Vested	(260,000	)		1.28
Canceled	(175,000	)		0.31
Nonvested at December 31, 2007	284,000		$	0.93

        As of December 31, 2007, the unrecognized compensation cost related to nonvested awards is $200,000 with a weighted-average period over which such unrecognized compensation is expected to be recognized of 2.8 years.

        As of December 31, 2007, there are 1,547,000 fully vested stock options outstanding with a weighted average fair value of $1.29 and an average contractual term of 4.4 years.

F-23

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,
	2007			2006
Net (loss) income from continuing operations	$	(1,828,000	)	$	1,471,000
Weighted average shares outstanding		8,687,000			8,265,000
Net effect of diluted options and warrants		—			830,000
Weighted average dilutive shares outstanding		8,687,000			9,095,000
(Loss) earnings per share from continuing operations—diluted	$	(0.21	)	$	0.16
Net (loss) income from discontinued operations	$	(5,960,000	)	$	380,000
Earnings (loss) per share from discontinued operations—diluted	$	(0.69	)	$	0.04
Net (loss) income:	$	(7,788,000	)	$	1,851,000
(Loss) earnings per share—diluted	$	(0.90	)	$	0.20

Note 12—Concentration of Credit Risk

        The Company maintains cash balances at various financial institutions. Deposits not exceeding $100,000 for each institution are insured by the Federal Deposit Insurance Corporation. At December 31, 2007 and December 31, 2006, the Company had uninsured cash and cash equivalents of $337,000 and $832,000, respectively.

Note 13—401(k) Profit Sharing Plan

        The HemaCare Corporation 401(k) Profit Sharing Plan (the "401(k) Plan") qualifies, in form, under Section 401(k) of the Internal Revenue Code. The Company contributed $145,000 in 2007 in matching contributions for the 2006 plan year. Due to the losses sustained during 2007, the Company decided not to make a matching contribution for the 2007 plan year.

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.

        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.

F-24

Note 15—Concentration Risk

        The Company provides products and services to healthcare providers, hospitals and other organizations, all of which are referred to as "customers" for purposes of identifying concentration risk in this section. During 2007, three customers represented more than 10% of the Company's total revenue from continuing operations. Two customers accounted for approximately 14% of total revenue each. Their accounts receivable balances on December 31, 2007 were $758,000 and $838,000 respectively. The third customer accounted for 11%. This customer's accounts receivable balance was $548,000 on December 31, 2007. The next largest customer accounted for approximately 6% of total revenue. The Company's ten largest customers accounted for 65% of total revenues. The Company has no relationship with any of these customers other than 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 2007, the Company received goods and services from one major vendor that represented approximately 10% of the Company's total costs from continuing operations. This vendor, who had an accounts payable balance with the Company of $609,000 on December 31, 2007, provides products that support the Company's cell separation equipment used by both the blood products and blood services segments. The next largest vendor, who represents approximately 9% of total costs, provides laboratory services. The Company has no relationship with either vendor other than as a consumer of the goods and services provided by each.

Note 16—Subsequent Events

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

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

F-25

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TABLE OF CONTENTS
PART I
PART I

ITEM 1. BUSINESS

ITEM 1A RISK FACTORS
ITEM 1B UNRESOLVED STAFF COMMENTS
ITEM 2 PROPERTIES
ITEM 3 LEGAL PROCEEDINGS
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6 SELECTED FINANCIAL DATA
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED (In Thousands, Except Per Share Data)

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A(T) CONTROLS AND PROCEDURES
ITEM 9B OTHER INFORMATION

PART III

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11 EXECUTIVE COMPENSATION
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
HEMACARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
HEMACARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF (OPERATIONS) INCOME For the Two Years Ended December 31,
HEMACARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 2007 and 2006
HEMACARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31,
HEMACARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007
HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF INCOME COMPARISON Reclassification 2006
HEMACARE CORPORATION CONSOLIDATED BALANCE SHEET Reclassification 2006

EX-10.35

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Exhibit 10.35

FIRST AMENDMENT TO LEASE

        THIS FIRST AMENDMENT TO LEASE (this "Amendment") is executed as of August 17, 2006, by and between ECI SHERMAN PLAZA LLC, a Delaware limited liability company ("Landlord"), and HEMACARE CORPORATION., a California corporation ("Tenant").

Recitals

        A.    Landlord and Tenant entered into a Lease Agreement dated February 10, 2006 (the "Lease"). Under the terms of the Lease Tenant leases from Landlord the following three (3) spaces in the building located at 15400 Sherman Way, Van Nuys, California (the "Building"):

          (i)  the Initial Ground Floor Premises containing 7,178 rentable square feet on the first (1^st) floor of the Building, and the Initial Third Floor Premises containing 4,455 rentable square feet on the third (3^rd) floor of the Building (together, the "Initial Premises"), and

         (ii)  the "Additional Premises" containing 8,011 rentable square feet third (3^rd) floor of the Building.

        B.    The anticipated delivery date of the Initial Premises to Tenant was May 1, 2006.

        C.    Landlord and Tenant desire to stipulate that Landlord delivered the Initial Premises to Tenant on August 14, 2006.

        D.    Landlord and Tenant desire to change the Delivery Deadline for the Additional Premises from August 1, 2006 to September 1, 2006 (the "Revised Delivery Deadline").

        E.    By letter dated May 5, 2006 Landlord relocated (i) the Initial Third Floor Premises from Suite 320 to Suite 330, and (ii) the Additional Premises from Suite 360 to Suite 350. The approximate configuration and location of Suites 330 and 350 are shown on Exhibit A attached hereto. Suites 330 and 350 are together herein called the "Relocation Space".

        NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as that the Lease is amended as follows:

        1.    Definitions.    Except as otherwise expressly provided herein to the contrary, all capitalized terms used in this Amendment shall have the same meaning given such terms in the Lease.

        2.    Delivery of Initial Premises.    Landlord and Tenant stipulate that for the purposes of the Lease Landlord delivered the Initial Premises to Tenant on August 14, 2006 in the condition required under the Lease.

        3.    Amendment of the Delivery Deadline for the Additional Premises.    The Delivery Deadline for the Additional Premises is hereby changed to Revised Delivery Deadline. If Landlord has not delivered the Additional Premises to Tenant by the Revised Delivery Deadline, as such date may be extended by Force Majeure delays, then for each day during the period commencing on the first day following the Revised Delivery Deadline and ending on the date immediately preceding the date Landlord delivers the Additional Premises to Tenant in the condition required under the Lease, Tenant shall receive a rent credit equal to one (1) day's monthly Base Rent otherwise payable for the Additional Premises. Tenant shall receive such credit commencing in the month immediately following the month in which Base Rent is otherwise first due under this Lease.

        4.    Substitution of Relocation Space.    Landlord and Tenant hereby agree that the Relocation Space is substituted for the Initial Third Floor Premises and the Additional Premises, as such are identified in the Lease.

        5.    Full Force and Effect; No Other Amendment.    Except as amended by this Amendment, the Lease has not been amended or modified; and all of the terms and provisions of the Lease, as modified by this Amendment, remain unmodified and in full force and effect. Landlord and Tenant hereby ratify the Lease, as amended herein. This Amendment contains the entire agreement between Landlord and Tenant regarding the subject matters contained herein, and except for the Lease supersedes all prior of contemporaneous agreements, understandings, proposals and other representations by or between Landlord and Tenant, whether written or oral, all of which are merged herein. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Amendment is hereby executed and delivered in multiple counterparts, each of which shall have the force and effect of an original.

        IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written.

LANDLORD:			TENANT:
ECI SHERMAN PLAZA LLC, a Delaware limited liability company			HEMACARE CORPORATION, a California corporation
by:	Embarcadero Capital Investors LP,		By:	/s/ Judi Irving
	its sole member
				Name: Judi Irving
				Title: President & CEO
by	Embarcadero Capital Partners LLC,		By:	/s/ Robert S. Chilton
	a Delaware limited liability company,
	its sole general partner			Name: Robert S. Chilton
				Title: EVP & CFO
	by:	Hamilton Partners, LP
		Manager
	by:	Hamilton Ventures, Inc.,
		general partner
	by:	/s/ John Hamilton John Hamilton, President

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EXHIBIT A

ATTACHED TO AND FORMING A PART OF
FIRST AMENDMENT
DATED AS OF AUGUST 17, 2006
BETWEEN
ECI SHERMAN PLAZA LLC, AS LANDLORD,
AND
HEMACARE CORPORATION, AS TENANT ("LEASE")

RELOCATION SPACE

[Floor plan showing location
and configuration of Relocation Space
to be inserted.]

INITIALS:
Landlord	/s/ JH
Tenant	/s/ JI

Exhibit A, Page 1

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Exhibit 10.35

FIRST AMENDMENT TO LEASE
Recitals

EX-10.36

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Exhibit 10.36

SECOND AMENDMENT TO LEASE

        THIS SECOND AMENDMENT TO LEASE (this "Amendment") is executed as of April 11, 2007, by and between ECI SHERMAN PLAZA LLC, a Delaware limited liability company ("Landlord"), and HEMACARE CORPORATION, a California corporation ("Tenant").

Recitals

        A.    Landlord and Tenant entered into a Lease Agreement dated February 10, 2006 (the "Original Lease"). Under the terms of the Original Lease Tenant leases from Landlord the following three (3) spaces in the building located at 15350 Sherman Way, Van Nuys, California (the "Building"):

          (i)  the Initial Ground Floor Premises containing 7,178 rentable square feet on the first (1^st) floor of the Building, and the Initial Third Floor Premises containing 4,455 rentable square feet on the third (3^rd) floor of the Building (together, the "Initial Premises"), and

         (ii)  the "Additional Premises" containing 8,011 rentable square feet third (3^rd) floor of the Building.

        B.    Landlord and Tenant entered into a First Amendment to Lease dated as of August 17, 2006 (the "First Amendment"). Under the First Amendment, Landlord and Tenant (i) agreed on the delivery date for the Initial Premises, (ii) changed the Delivery Deadline for the Additional Premises, and (iii) relocated the Initial Third Floor Premises and the Additional Premises, all as more particularly contained therein. The Original Lease, as amended by the First Amendment, is herein called the "Lease".

        C.    The Term of the Lease is scheduled to expire on July 31, 2017 (the "Expiration Date").

        D.    By letter dated January 5, 2007 (the "Office Notice Letter") Landlord delivered an "Offer Notice" in accordance with the provisions of Article 38 of the Original Lease. The Offer Notice offered to lease to Tenant Suite 380 containing approximately 5,735 rentable square feet, and 4,977 usable square feet (the "Expansion Premises") in accordance with the terms contained in such Offer Notice.

        E.    Tenant has agreed to lease the Expansion Premises, and the parties desire to memorialize the terms of the parties' agreement.

        NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Lease is amended as follows:

        1.    Definitions.    Except as otherwise expressly provided herein to the contrary, all capitalized terms used in this Amendment shall have the same meaning given such terms in the Lease.

        2.    Leasing of Expansion Premises.    Commencing on June 1, 2007 (the "Expansion Premises Commencement Date") and continuing through the entire Term, Landlord leases to Tenant and Tenant leases from Landlord, the Expansion Premises. The Term of the Lease for the Expansion Premises shall expire on the Expiration Date. The parties agree that for all purposes under this Amendment, the Expansion Premises contains 5,735 rentable square feet and 4,977 usable square feet.

        3.    Base Rent.    Tenant shall pay the following Base Rent for the Expansion Premises in accordance with the provisions of the Original Lease:

Months	Monthly Base Rent
June 1, 2007 - May 31, 2008:	$	13,247.85/mo.
June 1, 2008 - May 31, 2009:	$	13,764.00/mo.
June 1, 2009 - May 31, 2010:	$	14,280.15/mo.
June 1, 2010 - May 31, 2011:	$	14,796.30/mo.
June 1, 2011 - May 31, 2012:	$	15,369.80/mo.

        During the remainder of the Term after May 31, 2012 the Base Rent for the Expansion Premises shall be Fair Market Base Rental (as defined in Article 43—Extension Option, in Exhibit D to the Original Lease), subject to the following: Base Rent shall be determined as if the Term expired on May 31, 2012, and the sixty-two (62) month period beginning June 1, 2012 would be an Extension Period, except that (a) for the purposes of this paragraph, Tenant shall be deemed to have given written notice of the exercise of the Extension Option on March 1, 2012 (rather than 9 to 12 months prior to the expiration of the initial Term), (b) the Base Rent for the Expansion Premises shall not be less than $15,369.80 per month, (c) Landlord shall not be obligated to contribute funds toward the cost of any remodeling, renovation, alteration or improvement work in the Expansion Premises, and (d) for the purposes of the Expansion Premises the Term is sixty-two (62) months, rather than five (5) years contained in Article 43. As soon as is reasonably possible after March 1, 2012, Landlord and Tenant shall, if requested by either party, execute and acknowledge an instrument confirming the Base Rent payable for the Expansion Premises during the remainder of the initial Term beginning June 1, 2012. The use of the provisions of the Extension Option to determine Base Rent for the Expansion Premises after May 31, 2012 in accordance with the provisions of this paragraph shall not affect Tenant's right to exercise the Extension Option for the entire Premises at the expiration of the initial Term.

        4.    Base Year.    The Base Year for the Expansion Premises shall be calendar year 2007.

        5.    Tenant's Share.    Effective on the Expansion Premises Commencement Date, Tenant's Share is hereby changed to be 20.97%.

        6.    Tenant's Services.    Tenant shall provide its own janitorial and waste disposal service for the Expansion Premises in accordance with the provisions of Section 9.3 of the Original Lease.

        7.    Condition of Expansion Premises.    Tenant has inspected the Expansion Premises and has agreed to take the Expansion Premises in its current "AS IS" condition, provided that Tenant Improvements in the Expansion Premises shall be constructed in accordance with the provisions of the Construction Rider attached as Exhibit B to this Amendment.

        8.    Parking.    On the Expansion Premises Commencement Date, in addition to the number of parking spaces provided by Landlord under the provisions contained in Article 37 Parking in Exhibit D to the Original Lease, Landlord shall provide Tenant (a) eight (8) reserved tandem parking spaces within four (4) rows of tandem parking adjacent to Tenant's existing tandem parking, and (b) seventeen (17) unassigned and non-exclusive parking spaces in the Parking Facility.

        9.    Security Deposit.    Concurrent with Tenant's execution of this Amendment, Tenant shall deliver to Landlord (a) $15,369.80 to be added to the Security Deposit and held by Landlord in accordance with the provisions of Article 4 of the Original Lease, and (b) an amendment to the Letter of Credit, increasing the Face Amount by $90,000.00 to be held by Landlord in accordance with the provisions of Article 39 of the Original Lease, subject to the L/C Burnoff contained in Section 39(b) of the Original Lease.

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        10.    Full Force and Effect; No Other Amendment.    The submission of this Amendment for examination does not constitute an offer or an option for Tenant to lease or use the Expansion Premises. This Amendment shall become effective as a binding agreement only upon execution and delivery of a fully executed copy by Landlord to Tenant. Except as amended by this Amendment, the Lease has not been amended or modified; and all of the terms and provisions of the Lease, as modified by this Amendment, remain unmodified and in full force and effect. Landlord and Tenant hereby ratify the Lease, as amended herein. This Amendment contains the entire agreement between Landlord and Tenant regarding the subject matters contained herein, and except for the Lease supersedes all prior of contemporaneous agreements, understandings, proposals and other representations by or between Landlord and Tenant, whether written or oral, all of which are merged herein. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Amendment is hereby executed and delivered in multiple counterparts, each of which shall have the force and effect of an original.

        IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written.

LANDLORD:			TENANT:
ECI SHERMAN PLAZA LLC, a Delaware limited liability company			HEMACARE CORPORATION, a California corporation
by:	Embarcadero Capital Investors LP,		By:	/s/ Judi Irving
	a Delaware limited partnership,
	sole member			Name: Judi Irving
				Title: President & CEO
by	Embarcadero Capital Partners LLC,		By:	/s/ Robert S. Chilton
	a Delaware limited liability company,
	its sole general partner			Name: Robert S. Chilton
				Title: EVP & CFO
	by:	Hamilton Partners, LP
		Manager
	by:	Hamilton Ventures, Inc.,
		general partner
	by:	/s/ John Hamilton John Hamilton, President

(For corporate entities, signature by TWO corporate officers is required: one by (x) the chairman of the board, the president, or any vice president; and the other by (y) the secretary, any assistant secretary, the chief financial officer, or any assistant treasurer.)

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EXHIBIT A

ATTACHED TO AND FORMING A PART OF
SECOND AMENDMENT
DATED AS OF APRIL 11, 2007
BETWEEN
ECI SHERMAN PLAZA LLC, AS LANDLORD,
AND
HEMACARE CORPORATION, AS TENANT ("AMENDMENT")

EXPANSION PREMISES

[Floor plan showing location
and configuration of Expansion Premises
to be inserted.]

INITIALS:
Landlord	/s/ JH
Tenant	/s/ JI

Exhibit A, Page 1

EXHIBIT B

ATTACHED TO AND FORMING A PART OF
SECOND AMENDMENT
DATED AS OF APRIL 11, 2007
BETWEEN
ECI SHERMAN PLAZA LLC, AS LANDLORD,
AND
HEMACARE CORPORATION, AS TENANT ("AMENDMENT")

CONSTRUCTION RIDER

        1.    Tenant Improvements.    Tenant shall, with reasonable diligence through a contractor (the "Contractor") approved by Landlord pursuant to the provisions of this Section 1, construct and install in the Expansion Premises the improvements and fixtures provided for in this Construction Rider ("Tenant Improvements"). Tenant hereby designates Bob Chilton as the individual authorized to act as Tenant's representative with respect to all approvals, directions and authorizations pursuant to this Tenant Work Letter.

        Prior to the contract for the Tenant Improvements being put out to bid, Landlord and Tenant may each add the names of two (2) contractors to the bid list for construction of the Tenant Improvements. Landlord shall have the reasonable right to review and approve each contractor on the bid list based upon such contractor's qualifications, including (a) quality of work, (b) creditworthiness, (c) experience, and (d) references. Landlord approves Warner Constructors, Inc. as the Contractor.

        1.1.    Plans.    The Tenant Improvements shall be constructed substantially as shown on a conceptual space plan for the Expansion Premises to be approved in writing by Landlord and prepared by Wolcott Architecture Interiors ("Space Planner") as the space planner for the Expansion Premises ("Space Plan"). Landlord shall approve or disapprove the Space Plan by written notice given to Tenant within ten (10) days after receipt of the Space Plan. If Landlord disapproves a Space Plan, Landlord shall return the Space Plan to Tenant with a statement of Landlord's reasons for disapproval, or specifying any required corrections and/or revisions. Landlord shall approve or disapprove of any revisions to the Space Plan by written notice given to Tenant within five (5) business days after receipt of such revisions. This procedure shall be repeated until Landlord approves the Space Plan.

        After approval of the Space Plan, the Space Planner will prepare and deliver to Landlord and Tenant detailed plans and specifications sufficient to permit the construction of the Tenant Improvements by Tenant's Contractor in accordance with the Space Plan and the cost agreed upon by Landlord and Tenant for the total cost of the Tenant Improvements ("Construction Documents"). The Tenant Improvements, as shown in the Construction Documents shall include Building standard entry doors and hardware. Landlord shall respond to the Construction Documents within ten (10) days after receipt thereof, specifying any changes or modifications Landlord requires in the Construction Documents. Landlord shall not unreasonably require changes or modifications or withhold its approval of the Construction Documents; provided, however, Landlord may, in its sole and absolute discretion, require changes or modifications or withhold its approval of the Construction Documents if (1) the Tenant Improvements will affect the Base Building or the Building Systems, (2) the Tenant Improvements will alter or be visible from the exterior of the Expansion Premises, (3) any elements of the Tenant Improvements are inconsistent with Landlord's standard protocols or rules for construction in the Building, (4) any element of the Tenant Improvements fails to comply with any applicable Law, or (5) the cost of removing the Tenant Improvements at the end of the Term would be excessive in Landlord's reasonable estimation. Following Landlord's required changes or modifications, the Space Planner will then revise the Construction Documents and resubmit them to Landlord for its approval.

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Landlord shall approve or disapprove the same within ten (10) days after receipt. The revised Construction Documents, as finally approved by Tenant and Landlord, are hereinafter referred to as the "Final Construction Documents".

        1.2.    Construction.    Following approval by Landlord and Tenant of the Final Construction Documents, Tenant shall cause the Contractor to promptly commence and diligently proceed to cause the Tenant Improvements to be constructed in accordance with Landlord's standard protocols and rules for construction in the Building, and Article 6 of the Original Lease. Prior to commencement of construction, Tenant shall provide evidence satisfactory to Landlord that Tenant has obtained the insurance required to be maintained by Tenant pursuant to the Original Lease. Tenant shall provide Landlord with at least fifteen (15) days' prior written notice of the date for its commencement of construction of the Tenant Improvements in the Expansion Premisees, in order to permit Landlord to post, file, and record such Notices of Nonresponsibility and other instruments as may be necessary to protect Landlord and its property from claims by contractors for construction costs that are to be paid by Tenant. Tenant will obtain, comply with and keep in effect all consents, permits and approvals required by any governmental authorities (collectively, "Permits") that relate to or are necessary for the lawful construction of the Tenant Improvements. At the time Final Construction Documents are ready for submission to any governmental authorities for review in connection with the Permits, Landlord shall be notified in writing by Tenant. Prior to applying for any of the Permits or submitting documentation in connection therewith, Tenant shall provide Landlord with the opportunity to review and approve any Permit applications Tenant intends to file. Tenant shall further provide Landlord with any comments to any submitted plan documents made by any governmental authority immediately upon Tenant's receipt of same (all of which comments shall be subject to the provisions of Section 1.4 below), and copies of all Permits required for construction of the Tenant Improvements upon issuance. Tenant shall comply with all applicable Laws and with all recorded restrictions affecting the Property. Landlord shall have the right to suspend any construction activity by Tenant that detracts from harmonious labor relations at the Property.

        1.3.    Cost of Tenant Improvements.

        1.3.1.    Expansion Improvement Allowance; Supervision Fee.    Landlord shall contribute up to Seventy-Four Thousand Six Hundred Fifty-Five and 00/100 Dollars ($74,655.00) (the "Expansion Improvement Allowance") toward the actual costs of the design (including preparation of the Space Plan and Construction Documents), construction and installation of the Tenant Improvements in the Expansion Premises incurred and paid by Tenant to third parties (including a project manager) and the payment of Landlord's supervision fee in the total amount of $7,500.00 ("Supervision Fee") for constructing the Tenant Improvements. The balance, if any, of the cost of the Tenant Improvements shall be paid by Tenant directly to applicable third parties. Landlord's Supervision Fee shall be paid out of the Expansion Improvement Allowance prior to commencement of construction of the Tenant Improvements. Neither Tenant nor Tenant's contractors shall be required to pay for elevator use, freight elevator use, loading access, or utilities during planning and construction of the Tenant Improvements.

        1.3.2.    Disbursement of Expansion Improvement Allowance.    Landlord shall disburse the Expansion Improvement Allowance to Tenant as the construction of the Tenant Improvements progresses in the Expansion Premises, as follows: On or before the tenth (10th) day of each month, Tenant shall deliver to Landlord an application for reimbursement, accompanied by documentary evidence as reasonably required by Landlord (including, at a minimum, copies of the paid invoices and unconditional mechanics' lien waivers reasonably required by Landlord and signed by the applicable party) of the costs incurred by Tenant for the design and construction of the Tenant Improvements since the last application for reimbursement. Within

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thirty (30) days after Landlord's receipt of such an application for reimbursement, Landlord shall pay to Tenant a pro rata share of such application determined by multiplying the amount of such application by a fraction, the numerator of which is the Expansion Improvement Allowance and the denominator of which is the greater of (1) the total estimated cost of the Tenant Improvements, including all professional fees and services, and all licensing and permit fees, or (2) the Expansion Improvement Allowance; provided, however that after making the foregoing calculation Landlord shall retain an amount equal to ten percent (10%) of Landlord's pro rata share of each application (the "Landlord Retention"), which Landlord Retention shall be released pursuant to the provisions of Section 1.3.3 below.

        1.3.3.    Evidence of Completion.    Within thirty (30) days following substantial completion of the Tenant Improvements in the Expansion Premises (which shall mean completion of the Tenant Improvements and receipt of permit sign-offs sufficient to permit legal occupancy of the Expansion Premises, subject only to correction of punch-list items that do not affect safe occupancy of the Expansion Premises), Tenant shall submit to Landlord:

        (a)   A statement of Tenant's final construction costs, together with receipted evidence showing payment thereof, reasonably satisfactory to Landlord, and, to the extent not previously delivered, fully executed and notarized unconditional lien releases in the form prescribed by law from Tenant's contractors, copies of all detailed, final invoices from Tenant's contractors related to the Tenant Improvements.

        (b)   All Permits and other documents issued by any governmental authority in connection with the approval and completion of the Tenant Improvements, and all evidence reasonably available showing compliance with all applicable Laws of any and all governmental authorities having jurisdiction over the Expansion Premises, including, without limitation, a certificate of occupancy or its equivalent such as duly signed-off job cards, building permit sign-offs, and/or other appropriate authorization for physical occupancy of the Expansion Premises.

        (c)   A valid certificate of substantial completion executed by Tenant's architect confirming that the Tenant Improvements have been substantially completed in accordance with the Final Construction Documents, subject to punch-list items to be completed by Tenant's contractors after the Expansion Premises Commencement Date.

        (d)   A written certificate, subscribed and sworn before a Notary Public, from Tenant's general Contractor as follows: "There are no known mechanics' or materialmen's liens outstanding, all due and payable bills with respect to the Tenant Improvements have been paid, and there is no known basis for the filing of any mechanics' or materialmen's liens against the Expansion Premises, the Building or the Property, and, to the best of our knowledge, waivers from all subcontractors and materialmen are valid and constitute an effective waiver of lien under applicable law."

        (e)   Copies of all of Tenant's contractors' warranties.

        (f)    A reproducible copy of the "as built" drawings of the Tenant Improvements.

        (g)   Any other items reasonably requested by Landlord.

Within thirty (30) days after receipt of all of the above, Landlord shall make its disbursement of the final ten percent (10%) of the Expansion Improvement Allowance (or so much of the Expansion Improvement Allowance that has not yet been paid by Landlord, but in no event to exceed, in the aggregate, the actual cost of the design and construction of the Tenant Improvements) to Tenant or Tenant's contractors, as applicable, as required above.

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Any portion of the Expansion Improvement Allowance not used in the design, construction and installation of the Tenant Improvements shall be retained by Landlord, and Tenant shall have no right to receive or apply toward Tenant's rental obligations any portion of the Expansion Improvement Allowance not actually used. Further, Landlord shall only be obligated to pay the Expansion Improvement Allowance (or portions thereof) to the extent Tenant has incurred the costs of the design, construction and installation of the Tenant Improvements within the first twelve (12) months after the Expansion Premises Commencement Date.

        1.4.    Governmentally-Required Changes.    Tenant acknowledges that, pursuant to all applicable Laws and regulations (including, without limitation, Title III of the Americans with Disabilities Act of 1990 and the Building Code of the City of Los Angeles, California), the construction of the Tenant Improvements in the Expansion Premises may result in additional governmentally-required alterations or improvements to the Expansion Premises or the Building. If the proposed design and construction of the Tenant Improvements results in any such governmentally-required alterations or improvements being imposed as a condition to the issuance of applicable permits or approvals, then Tenant shall be solely responsible for all costs and expenses relating to such additional governmentally-required alterations and improvements (which shall be constructed by Landlord); provided, however, that if the performance of such governmentally-required alterations or improvements can be avoided by modifying the cost, design or manner of construction of the Tenant Improvements, then Tenant may elect to modify the Tenant Improvements in accordance with the provisions of this Tenant Work Letter (including, without limitation, Section 1.5 below). Landlord shall notify Tenant of any such required alterations or improvements promptly after Landlord is notified of the same.

        Landlord shall be responsible for the costs required in the Expansion Premises or the common areas by any applicable governmental agency to comply with the Americans with Disabilities Act as it is applied and interpreted as of the date of this Amendment, including repairs or alterations required to comply with Laws generally applicable to the use of the Expansion Premises as office space and not required or caused by Tenant's particular use or activities, except to the extent the cost of complying is due to the acts or omissions of Tenant, and except any costs of complying with Laws not in effect as of the date of this Amendment or as any Laws in effect as of the date of this Amendment may be amended, changed, added to, interpreted or re-interpreted by applicable governmental authority or court decision, or administrative ruling subsequent to the date of this Amendment. Tenant shall be responsible for the costs required in the Expansion Premises and the common areas by any applicable governmental agency to comply with the Americans with Disabilities Act, and which are required or caused by Tenant's particular use or activities.

        1.5.    Changes.    If Tenant desires any change, addition or alteration in or to the Space Plan or any Construction Documents ("Changes"), Tenant shall cause additional Construction Documents implementing such Changes to be prepared. All Changes shall be subject to Landlord's approval as set forth in Section 1.1 of this Tenant Work Letter. Tenant shall be solely responsible for all costs resulting from any Changes.

        1.6    Notice of Completion.    Upon completion of the Tenant Improvements, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of Los Angeles in accordance with Section 3093 of the Civil Code of the State of California or any successor statute.

        2.    Ownership of Tenant Improvements.    All Tenant Improvements shall become a part of the Expansion Premises, shall be the property of Landlord and, subject to the provisions of the Lease, shall be surrendered by Tenant with the Expansion Premises, without any compensation to Tenant, at the expiration or termination of the Lease in accordance with the provisions of the Lease.

INITIALS:
Landlord	/s/ JH
Tenant	/s/ JI

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Exhibit 10.36

SECOND AMENDMENT TO LEASE
Recitals

EX-10.39

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Exhibit 10.39

WELLS FARGO BUSINESS CREDIT
CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT (the "Agreement") is dated April 10, 2008, and is entered into between HemaCare Corporation, a California corporation, and Coral Blood Services, Inc., a California corporation (jointly and severally, the "Company"), and Wells Fargo Bank, National Association (as more fully defined in Exhibit A, "Wells Fargo"), acting through its Wells Fargo Business Credit operating division.

RECITALS

Company has asked Wells Fargo to provide it with a $4,750,000 revolving line of credit (the "Line of Credit") for working capital purposes and to facilitate the issuance of letters of credit. Company has also requested a $250,000 capital expenditure line (the "Cap Ex Line"). Wells Fargo is agreeable to meeting Company's requests, provided that Company agrees to the terms and conditions of this Agreement.

For purposes of this Agreement, capitalized terms not otherwise defined in the Agreement shall have the meaning given them in Exhibit A.

AGREEMENT

1.     AMOUNT AND TERMS OF THE LINE OF CREDIT

1.1   Line of Credit; Limitations on Borrowings; Termination Date; Use of Proceeds.

(a)

Line of Credit and Limitations on Borrowing.    Wells Fargo shall make advances (each an "Advance", and collectively the "Advances") to Company under the Line of Credit that, together with the L/C Amount, shall not at any time exceed in the aggregate the lesser of (i) $4,750,000 (the "Maximum Line Amount"), or (ii) the Borrowing Base limitations described in Section 1.2. Within these limits, Company may periodically borrow, prepay in whole or in part, and reborrow. Wells Fargo has no obligation to make an Advance during a Default Period or at any time Wells Fargo believes that an Advance would result in an Event of Default.

(b)

Maturity and Termination Dates.    Company may request Advances from the date that the conditions set forth in Section 3 of this Agreement are satisfied until the earlier of: (i) April     , 2011 (the "Maturity Date"), (ii) the date Company terminates the Line of Credit, or (iii) the date Wells Fargo terminates the Line of Credit following an Event of Default. (The earliest of these dates is the "Termination Date.")

(c)

Use of Line of Credit Proceeds.    Company shall use the proceeds of each Line of Credit Advance and each Letter of Credit for ordinary working capital purposes, provided, however, notwithstanding anything herein to the contrary, up to $300,000 of the proceeds of the initial Line of Credit Advance may be used to purchase from Comerica Bank outstanding indebtedness of HemaCare Bioscience, Inc. ("HemaBio") to Comerica Bank (the "HemaBio Loan"). Documentation relating to the purchase of the HemaBio Loan shall be reasonably acceptable to Wells Fargo, and the Collateral shall include without limitation the HemaBio Loan and all rights and remedies relating thereto and all collateral and security therefor. All proceeds received by Company from the payment or enforcement of the HemaBio Loan or otherwise arising out of the HemaBio Loan shall be remitted to Wells Fargo in the same form received, and shall be applied by Wells Fargo to the Indebtedness in such manner as Wells Fargo shall determine in its discretion. Notwithstanding the foregoing, Company shall cause the assignee of that certain HemaBio Assignment for the Benefit of Creditors executed on or about December 4, 2007 to pay all proceeds thereof that would otherwise be paid to Comerica Bank or the Company to instead be paid directly to Wells

Fargo, and Company shall execute all documentation that Wells Fargo deems necessary in order to effect the same.

(d)

Revolving Note.    Company's obligation to repay Advances on the Line of Credit, regardless of how the Advances were initiated under Section 1.3 of this Agreement, shall be evidenced by a revolving promissory note (as periodically renewed, amended or replaced, the "Revolving Note").

1.2   Borrowing Base; Mandatory Prepayment.

(a)

Borrowing Base.    Aggregate unreimbursed Advances, plus the L/C Amount, shall not at any time exceed the borrowing base (the "Borrowing Base"), which is an amount equal to: (i) 85% of Eligible Accounts (or such lesser rate as Wells Fargo in its good faith business judgment may deem appropriate from time to time with written notice to Company, provided that, as of any date of determination, said advance rate shall be reduced by one (1) percentage point for each percentage by which Dilution is in excess of five percent (5.0%)) less (ii) the Borrowing Base Reserve, less (iii) Indebtedness that Company owes Wells Fargo that has not been advanced on the Revolving Note (exclusive of the Cap Ex Loans), less (iv) Indebtedness that Wells Fargo in its sole discretion finds on the date of determination to be equal to Wells Fargo's net credit exposure with respect to any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar product or transaction extended to Company by Wells Fargo that is not otherwise described in Section 1 of this Agreement and any Indebtedness owed by Company to Wells Fargo Merchant Services, L.L.C.

(b)

Mandatory Prepayment; Overadvances.    If unreimbursed Advances evidenced by the Revolving Note plus the L/C Amount exceed the Borrowing Base at any time, then Company shall immediately prepay the Revolving Note in an amount sufficient to eliminate the excess, and if payment in full of the Revolving Note is insufficient to eliminate this excess and the L/C Amount continues to exceed the Borrowing Base, then Company shall deliver cash to Wells Fargo in an amount equal to the remaining excess for deposit to the Special Account, unless in each case, Wells Fargo has delivered to Company an Authenticated Record consenting to the resulting Overadvance prior to its occurrence, in which event the Overadvance shall be temporarily permitted on such terms and conditions as Wells Fargo in its sole discretion may deem appropriate, including the payment of additional fees or interest, or both.

1.3   Procedures for Advances.

(a)

Line of Credit Advances to Operating Account.    Line of Credit Advances to HemaCare Corporation shall be credited to HemaCare Corporation's operating account # 4121672778 maintained with Wells Fargo (the "HemaCare Operating Account"), unless Wells Fargo and Company agree in a Record Authenticated by both parties to disburse to another account. Line of Credit Advances to Coral Blood Services, Inc. shall be credited to Coral Blood Services, Inc.'s operating account # 4121672794 maintained with Wells Fargo (the "Coral Blood Operating Account" which together with the HemaCare Operating Account is referred to herein as the "Operating Account"), unless Wells Fargo and Company agree in a Record Authenticated by both parties to disburse to another account.

          (i)  Advances upon Company's Request.    Each Advance will be funded as a Floating Rate Advance upon Company's request, which must be communicated to Wells Fargo no later than 9:30 a.m. Pacific Time on the Business Day on which Company wants the Advance to be funded, and no request will be deemed received until Wells Fargo acknowledges receipt, and Company, if requested by Wells Fargo, confirms the request in an Authenticated Record. Company shall repay all Advances, even if the Person requesting the Advance on behalf of Company lacked authorization.

         (ii)  [Intentionally Omitted].

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(b)

Protective Advances; Advances to Pay Indebtedness Due.    Wells Fargo may initiate a Floating Rate Advance on the Line of Credit in its sole discretion for any reason at any time, without Company's compliance with any of the conditions set forth in this Agreement, and (i) disburse the proceeds directly to third Persons in order to protect Wells Fargo's interest in Collateral or to perform any of Company's obligations under this Agreement, or (ii) apply the proceeds to the amount of any Indebtedness then due and payable to Wells Fargo.

1.4   Collection of Accounts and Application to Revolving Note.

(a)

Wells Fargo's Collection Account.    Company has granted a security interest to Wells Fargo in the Collateral, including all Accounts. Except as otherwise agreed by both parties in an Authenticated Record, all Proceeds of Accounts and other Collateral of HemaCare Corporation, upon receipt or collection, shall be deposited each Business Day into a non interest bearing demand deposit account owned by and maintained with Wells Fargo (the "HemaCare Collection Account"). Except as otherwise agreed by both parties in an Authenticated Record, all Proceeds of Accounts and other Collateral of Coral Blood Services, Inc., upon receipt or collection, shall be deposited each Business Day into a non interest bearing demand deposit account owned by and maintained with Wells Fargo (the "Coral Blood Collection Account" which together with the HemaCare Corporation Collection Account is referred to herein as the "Collection Account")). Funds so deposited ("Account Funds") are the property of Wells Fargo, and may only be withdrawn from the Collection Account by Wells Fargo.

(b)

Payment of Accounts by Company's Account Debtors.    Company shall instruct all account debtors to pay Accounts owed to Company as follows:

          (i)  Payments by Check.    If account debtors are making payments by check, Company will instruct that all such payments be sent directly to Company's post office box (the "Lockbox"), to which Wells Fargo has been given exclusive access by separate agreement, and Wells Fargo shall deposit all such payments received into the Lockbox directly to the Collection Account.

         (ii)  Wire Transfers through Ready Remit^SM Service.    If Company has separately contracted with Wells Fargo to use the Wells Fargo Ready Remit^SM service ("Ready Remit"), Company may instruct account debtors to make payments by wire transfer that conform to the requirements of Ready Remit, and all conforming payments shall be wire transferred directly to Wells Fargo's general account.

        (iii)  All Other Forms of Payment.    If account debtors are making payment by any means other than by check, or by check for delivery to Wells Fargo without initial delivery to the Lockbox, Company will instruct that all such payments be sent directly to Wells Fargo for deposit to the Collection Account pursuant to such other product or service agreed to by the parties in a service description to the Master Agreement for Treasury Management Services.

If Company receives a payment or the Proceeds of Collateral directly, Company will promptly deposit the payment or Proceeds into the Collection Account. Until deposited, Company shall hold all such payments and Proceeds in trust for Wells Fargo as its property without commingling with other funds or property. All deposits held in the Collection Account shall constitute Proceeds of Collateral and shall not constitute the payment of Indebtedness.

(c)

Application of Payments to Revolving Note.

          (i)  Payments Received into the Collection Account.    Account Funds deposited to the Collection Account will be processed in accordance with the terms of the Collection Account service description to the Master Agreement for Treasury Management Services. Wells Fargo will withdraw Account Funds deposited to the Collection Account and pay down borrowings on the

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Line of Credit by applying them to the Revolving Note on the first Business Day following the Business Day of deposit to the Collection Account.

         (ii)  Payments Received via Ready Remit.    If Company uses Ready Remit, conforming wire transfers received directly by Wells Fargo shall be applied to the Revolving Note on the Business Day of receipt, if received no later than 12:30 p.m. Central Time, or the next Business Day if received after 12:30 p.m. Central Time.

1.4A Cap Ex Loans.

(a)

Cap Ex Loans.    Subject to the terms and conditions of this Agreement, Wells Fargo, shall, from time to time, make available Advances to Company (each, a "Cap Ex Loan" and collectively, the "Cap Ex Loans") to finance Company's purchase of new Eligible Equipment acquired after the date hereof (the "Cap Ex Equipment") for use in Company's business. All such Cap Ex Loans shall be in such amounts as are requested by Company, but in no event shall any Cap Ex Loan exceed eighty percent (80%) percent of the net invoice cost (excluding taxes, shipping, delivery, handling, installation, labor, overhead and other so-called "soft" costs) of the Cap Ex Equipment then to be purchased by Company and the total amount of all Cap Ex Loans outstanding hereunder shall not exceed, in the aggregate, the sum of Two Hundred Fifty Thousand Dollars ($250,000). Once repaid Cap Ex Loans may not be reborrowed.

(b)

Cap Ex Note.    Company's obligation to repay each Cap Ex Loan shall be evidenced by an installment promissory note (as renewed, amended, or replaced from time to time, the "Cap Ex Note").

(c)

Cap Ex Loan Period; Disbursements.    Cap Ex Loans may only be requested and made during the period from the date hereof to the first anniversary of the date hereof (the "Cap Ex Loan Period"). A total of not more than five disbursements of Cap Ex Loans shall be made, and each disbursement shall be in the amount of not less than $50,000. Subject to the satisfaction of the conditions set forth herein, in the event Company desires an Cap Ex Loan, Company shall give Wells Fargo at least three (3) Business Days' prior written notice, which notice shall be accompanied by the invoice with respect to the Cap Ex Equipment being financed with the Cap Ex Loan, evidence of delivery of the same to Company and such other information with respect thereto as Wells Fargo shall request. Wells Fargo shall deposit the proceeds of each Cap Ex Loan to Company's Operating Account. Upon request, Company shall confirm its request for a Cap Ex Loan in an Authenticated Record, and agrees that it shall repay the Cap Ex Loan even if the Person requesting any Cap Ex Loan on behalf of Company lacked authorization.

(d)

Condition.    Without limiting the other provisions of this Agreement, the disbursement of each Cap Ex Loan is conditioned on Company meeting the following requirement: Company shall have a Debt Service Coverage Ratio for the 12 month period ending with the date of the most recent financial statements of Company of not less than 1.20 to 1.00, assuming for purposes of calculating such Debt Service Coverage Ratio that the Cap Ex Loan to be disbursed was outstanding throughout said 12-month period and was repayable in 36 equal monthly installments throughout said 12-month period.

(e)

Repayment.    Each disbursement of a Cap Ex Loan shall accrue interest only at the rate provided for herein for the first three months after such Cap Ex Loan disbursement; provided, however, on each of the third, sixth, ninth and twelfth month anniversary date of this Agreement, the principal amount of all outstanding Cap Ex Loan disbursements made during such three month period (months 1 through 3, months 4 through 6, months 7 through 9 and months 10 through 12) shall be aggregated into a single Cap Ex Loan disbursement and shall be repaid in 36 equal monthly installments, plus interest, commencing on the first day of the month on or immediately following the three month (or, as applicable, six month, nine month or twelve month) anniversary date of

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this Agreement and continuing on the same day of each month thereafter until the Termination Date, on which date the entire unpaid balance of all Cap Ex Loans and all accrued and unpaid interest shall be due and payable.

As an example, assuming this Agreement is dated March 31, 2008, and assuming a Cap Ex Loan disbursement is made in the amount of $50,000 on each of April 1, May 1, and June1, then the Company will pay interest only on such disbursements as follows: (i) on the April 1 disbursement, interest only payments for April, May and June, (ii) on the May 1 disbursement, interest only payments for May and June and (iii) on the June 1 disbursement, an interest only payment for June. On July 1 (the first of the month on or immediately following the three month anniversary of the date of this Agreement), the outstanding principal balance of the April 1, May 1 and June 1 disbursements will be aggregated into a single Cap Ex Loan disbursement of $150,000 and shall be repaid in 36 equal monthly installments of principal (commencing on July 1), as provided for above, plus interest as provided for herein. The same procedure would apply for any Cap Ex Loan disbursements made from July 2008 through September 2008, from October 2008 through December 2008 and from January 2009 through March 2009.

(f)

[intentionally omitted]

(g)

Event of Loss.    Company shall bear the risk of any loss, theft, destruction, or damage of or to the Cap Ex Equipment. If, during the term of this Agreement, any item of Cap Ex Equipment becomes obsolete or is lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or seized by a governmental authority for any reason (an "Event of Loss"), then, within ten (10) days following such Event of Loss, Company shall (i) pay to Wells Fargo on account of the Indebtedness all accrued interest to the date of the prepayment, plus all outstanding principal owing with respect to the Cap Ex Equipment subject to the Event of Loss; or (ii) if no Event of Default has occurred and is continuing, at Company's option, repair or replace any Cap Ex Equipment subject to an Event of Loss, provided the repaired or replaced Cap Ex Equipment is of equal or like value to the Cap Ex Equipment subject to an Event of Loss, and provided further that Wells Fargo has a first priority perfected security interest in such repaired or replaced Cap Ex Equipment. Any partial prepayment of an Equipment Advance paid by Company on account of an Event of Loss shall be applied to prepay amounts owing for such Equipment Advance in the inverse order of maturity.

(h)

Application of Prepayments; Cap Ex Loan Payable on Termination Date.    All prepayments of principal with respect to the Cap Ex Note, including those required under the terms of this Agreement, shall be accompanied by any prepayment and contracted funds breakage fees payable under this Agreement, and shall be applied to the most remote principal installment or installments then unpaid. On the Termination Date of the Line of Credit, the entire unpaid principal amount of the Cap Ex Note and any accrued and unpaid interest, prepayment, and contracted funds breakage fees shall also be fully due and payable.

1.5

Liability Records.    Wells Fargo shall maintain accounting and bookkeeping records of all Advances and payments under the Line of Credit and all other Indebtedness due to Wells Fargo in such form and content as Wells Fargo in its sole discretion deems appropriate. Wells Fargo's calculation of current Indebtedness shall be presumed correct unless proven otherwise by Company. Upon Wells Fargo's request, Company will admit and certify in a Record the exact principal balance of the Indebtedness that Company then believes to be outstanding. Any billing statement or accounting provided by Wells Fargo shall be conclusive and binding unless Company notifies Wells Fargo in a detailed Record of its intention to dispute the billing statement or accounting within 30 days of receipt.

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1.6   Interest and Interest Related Matters; Application of Payments.

(a)

Interest Rates Applicable to Line of Credit and Cap Ex Loans.

          (i)  Except as otherwise provided in this Agreement, the unpaid principal amount of each Advance evidenced by the Revolving Note shall accrue interest at an annual interest rate equal to the sum of the Prime Rate minus one-quarter of one percent (0.25%), which interest rate shall change whenever the Prime Rate changes.

         (ii)  Except as otherwise provided in this Agreement, the unpaid principal amount of each Advance evidenced by the Cap Ex Note shall accrue interest at an annual interest rate equal to the sum of the Prime Rate plus zero percent (0.0%), which interest rate shall change whenever the Prime Rate changes.

(b)

Minimum Interest Charge.    Notwithstanding the other terms of Section 1.6 of this Agreement to the contrary, and except as limited by the usury savings provision set forth in Section 1.6(e), Company shall pay Wells Fargo at least $14,000 of interest each calendar month with respect to the Line of Credit (the "Minimum Interest Charge") during the term of this Agreement, and Company shall pay any deficiency between the Minimum Interest Charge and the amount of interest otherwise payable on the first day of each month and on the Termination Date. When calculating this deficiency, the Default Rate set forth in Section 1.6(c) of this Agreement, if applicable, shall be disregarded.

(c)

Default Interest Rate.    Commencing on the day an Event of Default occurs, through and including the date identified by Wells Fargo in a Record as the date that the Event of Default has been cured or waived (each such period a "Default Period"), or during a time period specified in Section 1.9 of this Agreement, or at any time following the Termination Date, in Wells Fargo's sole discretion and without waiving any of its other rights or remedies, the principal amount of each of the Revolving Note and Cap Ex Note shall bear interest at a rate that is three percent (3.0%) above the contractual rate set forth in Section 1.6(a) of this Agreement (the "Default Rate"), or any lesser rate that Wells Fargo may deem appropriate, starting on the first day of the month in which the Default Period begins through the last day of that Default Period, or any shorter time period to which Wells Fargo may agree in an Authenticated Record.

(d)

Interest Accrual on Payments Applied to Revolving Note.    Payments received by Wells Fargo other than by wire transfer shall be applied to the Revolving Note as provided in Section 1.4(c)(i) of this Agreement, but the principal amount paid down shall continue to accrue interest through the end of the third Business Day following the Business Day that the payment was applied to the Revolving Note. If Company uses Ready Remit, then payments received by Wells Fargo shall be applied to Indebtedness advanced on the Revolving Note as provided in Section 1.4(c)(ii) of this Agreement, but the amount of principal paid shall continue to accrue interest through the end of the third Business Day following the Business Day that the payment was applied to the Revolving Note.

(e)

Usury.    No interest rate shall be effective which would result in a rate greater than the highest rate permitted by law. Payments in the nature of interest and other charges made under any Loan Documents that are later determined to be in excess of the limits imposed by applicable usury law will be deemed to be a payment of principal, and the Indebtedness shall be reduced by that amount so that such payments will not be deemed usurious.

1.7   Fees.

(a)

Origination Fee.    Company shall pay Wells Fargo a one time origination fee of $100,000, which shall be fully earned upon the execution of this Agreement and payable as follows: (i) $50,000

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payable upon the execution of this Agreement, (ii) $25,000 payable on the earlier of (a) the first anniversary of the date of this Agreement or (b) the Termination Date and (iii) $25,000 payable on the earlier of (a) the second anniversary of the date of this Agreement or (b) the Termination Date.

(b)

Unused Line Fee.    Company shall pay Wells Fargo an annual unused line fee of one-half of one percent (0.50%) of the daily average of the Maximum Line Amount reduced by outstanding Advances (the "Unused Amount"), from the date of this Agreement to and including the Termination Date, which unused line fee shall be payable monthly in arrears on the first day of each month and on the Termination Date.

(c)

Facility Fee.    [None].

(d)

Collateral Exam Fees.    Company shall pay Wells Fargo fees in connection with any collateral exams, audits or inspections conducted by or on behalf of Wells Fargo at the current rates established from time to time by Wells Fargo as its collateral exam fees (which fees are currently $105 per hour per collateral examiner), together with all actual out-of-pocket costs and expenses incurred in conducting any collateral examination or inspection.

(e)

Collateral Monitoring Fees.    Company shall pay Wells Fargo a fee at the rates established from time to time by Wells Fargo as its Collateral monitoring fees (which fees are currently $400 per month), due and payable monthly in arrears on the first day of the month and on the Termination Date. In addition, Company shall pay Wells Fargo a one-time set-up fee $750, due and payable on the date hereof.

(f)

Termination and Line Reduction Fees.    If (i) Wells Fargo terminates the Line of Credit during a Default Period, or if (ii) Company terminates the Line of Credit on a date prior to the Maturity Date, or if (iii) Company and Wells Fargo agree to reduce the Maximum Line Amount, then Company shall pay Wells Fargo as liquidated damages a termination or reduction fee in an amount equal to a percentage of the Maximum Line Amount (or the reduction of the Maximum Line Amount, as the case may be) calculated as follows:

        (A)  three percent (3.00%) if the termination occurs on or before the first anniversary of the date of this Agreement;

        (B)  two percent (2.00%) if the termination or reduction occurs after the first anniversary of the date of this Agreement, but on or before the second anniversary of the date of this Agreement; and

        (C)  one percent (1.00%) if the termination or reduction occurs after the second anniversary of the date of this Agreement;

provided that the foregoing termination fees shall not be charged if, more than 18 months after the date hereof the credit facilities provided by this Agreement are refinanced by the Beverly Hills Regional Corporate Banking office of Wells Fargo Bank.

(g)

Overadvance Fees.    Except in instances in which an Overadvance results due to a Wells Fargo calculation error (in which instance no Overadvance fee will apply), Company shall pay a $500 Overadvance fee for each day that an Overadvance exists which was not agreed to by Wells Fargo in an Authenticated Record prior to its occurrence; provided that Wells Fargo's acceptance of the payment of such fees shall not constitute either consent to the Overadvance or waiver of the resulting Event of Default. Company shall pay additional Overadvance fees and interest in such amounts and on such terms as Wells Fargo in its sole discretion may consider appropriate for any Overadvance to which Wells Fargo has specifically consented in an Authenticated Record prior to its occurrence.

7

(h)

Letter of Credit Fees.    Company shall pay a fee with respect to each Letter of Credit issued by Wells Fargo of one-half of one percent (0.5%) of the aggregate undrawn amount of the Letter of Credit (the "Aggregate Face Amount") accruing daily from and including the date the Letter of Credit is issued until the date that it either expires or is returned, which shall be payable monthly in arrears on the first day of each month and on the date that the Letter of Credit either expires or is returned; and following an Event of Default, this fee shall increase to three percent (3.0%) of the Aggregate Face Amount, commencing on the first day of the month in which the Default Period begins and continuing through the last day of such Default Period, or any shorter time period that Wells Fargo in its sole discretion may deem appropriate, without waiving any of its other rights and remedies.

(i)

Letter of Credit Administrative Fees.    Company shall pay all administrative fees charged by Wells Fargo in connection with the honoring of drafts under any Letter of Credit, and any amendments to or transfers of any Letter of Credit, and any other activity with respect to the Letters of Credit at the current rates published by Wells Fargo for such services rendered on behalf of its customers generally.

(j)

Treasury Management Fees.    Company will pay service fees to Wells Fargo for treasury management services pursuant to the Master Agreement for Treasury Management Services or any other agreement entered into by the parties, in the amount prescribed in Wells Fargo's current service fee schedule.

(k)

Other Fees and Charges.    Wells Fargo may impose additional fees and charges during a Default Period for (i) waiving an Event of Default, or for (ii) the administration of Collateral by Wells Fargo. All such fees and charges shall be imposed at Wells Fargo's sole discretion following oral notice to Company on either an hourly, periodic, or flat fee basis, and in lieu of or in addition to imposing interest at the Default Rate, and Company's request for an Advance following such notice shall constitute Company's agreement to pay such fees and charges.

(l)

[Intentionally Omitted]

(m)

Contracted Funds Breakage Fees; Cap Ex Note.    Company may prepay the principal amount of the Cap Ex Note at any time in any amount, whether voluntarily or by acceleration, subject to the payment of all of the following fees, provided that the prepayment fee set forth below shall not be charged if, more than 18 months after the date hereof the credit facilities provided by this Agreement are refinanced by the Beverly Hills Regional Corporate Banking office of Wells Fargo Bank:

If the Cap Ex Note is prepaid for any reason and the Line of Credit is terminated by Company within thirty (30) days of such prepayment, the Company shall pay to the Lender a prepayment fee with regard to the Cap Ex Note in an amount equal to (i) three percent (3.00%) of the amount of the Cap Ex Loan prepaid, if prepayment occurs on or before the first anniversary of the funding date of such Cap Ex Loan; (ii) two percent (2.00%) of the amount of the Cap Ex Loan prepaid, if prepayment occurs after the first anniversary of the funding date of such Cap Ex Loan but on or before the second anniversary of the funding date of such Cap Ex Loan; and (iii) one percent (1.00%) of the amount of the Cap Ex Loan prepaid, if prepayment occurs after the second anniversary of the funding date of such Cap Ex Loan.

Company acknowledges that prepayment of the Cap Ex Note may result in Wells Fargo incurring additional costs, expenses or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses or liabilities. Company therefore agrees to pay the above-described contracted funds breakage fee and agrees that said amount represents a reasonable estimate of the contracted funds breakage costs, expenses and/or liabilities of Wells Fargo.

8

1.8   Interest Accrual; Principal and Interest Payments; Computation.

(a)

Interest Payments and Interest Accrual.    Accrued and unpaid interest shall be due and payable on the first day of each month (each an "Interest Payment Date") and on the Termination Date. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of Advance to the Interest Payment Date.

(b)

Payment of Revolving Note Principal.    The principal amount of the Revolving Note shall be paid from time to time as provided in Section 1.2(b), and shall be fully due and payable on the Termination Date.

(c)

Payments Due on Non-Business Days.    If an Interest Payment Date or the Termination Date falls on a day which is not a Business Day, payment shall be made on the next Business Day, and interest shall continue to accrue during that time period.

(d)

Computation of Interest and Fees.    Interest accruing on the outstanding principal balance of the Revolving Note and fees payable under this Agreement shall be computed on the basis of the actual number of days elapsed in a year of 360 days.

1.9   Termination, Reduction or Non-Renewal of Line of Credit by Company; Notice.

(a)

Termination by Company after Advance Notice.    Company may terminate or reduce the Line of Credit at any time prior to the Maturity Date, if it (i) delivers an Authenticated Record notifying Wells Fargo of its intentions at least 30 days prior to the proposed Termination Date, (ii) pays Wells Fargo the termination fee set forth in Section 1.7(f) of this Agreement, and (iii) pays the Indebtedness in full or down to the reduced Maximum Line Amount.

(b)

Termination by Company without Advance Notice.    If Company fails to deliver Wells Fargo timely notice of its intention to terminate the Line of Credit or reduce the Maximum Line Amount as provided in Section 1.9(a) of this Agreement, Company may nevertheless terminate the Line of Credit or reduce the Maximum Line Amount and pay the Indebtedness in full or down to the reduced Maximum Line Amount if it (i) pays the termination fee set forth in Section 1.7(f) of this Agreement, (ii) pays the Default Rate on the Revolving Note commencing on the 30^th day prior to the proposed Termination Date and continuing through the date that Wells Fargo receives delivery of an Authenticated Record giving it actual notice of Company's intention to terminate.

(c)

Non-Renewal by Company; Notice.    If Company does not wish Wells Fargo to consider renewal of the Line of Credit on the next Maturity Date, Company shall deliver an Authenticated Record to Wells Fargo at least 30 days prior to the Maturity Date notifying Wells Fargo of its intention not to renew. If Company fails to deliver to Wells Fargo such timely notice, then the Revolving Note shall accrue interest at the Default Rate commencing on the 30th day prior to the Maturity Date and continuing through the date that Wells Fargo receives delivery of an Authenticated Record giving it actual notice of Company's intention not to renew.

1.10 Letters of Credit

(a)

Issuance of Letters of Credit; Amount.    Wells Fargo, subject to the terms and conditions of this Agreement, shall issue, on or after the date that Wells Fargo is obligated to make its first Advance under this Agreement and prior to six months before the Termination Date, one or more irrevocable standby or documentary letters of credit (each, a "Letter of Credit", and collectively, "Letters of Credit") for Company's account. Wells Fargo will not issue any Letter of Credit if the face amount of the Letter of Credit would exceed the lesser of: (i) $900,000 less the L/C Amount, or (ii) the Borrowing Base.

9

(b)

Additional Letter of Credit Documentation.    Prior to requesting issuance of a Letter of Credit, Company shall first execute and deliver to Wells Fargo a Standby Letter of Credit Agreement or Commercial Letter of Credit Agreement, an L/C Application, and any other documents that Wells Fargo may request, which shall govern the issuance of the Letter of Credit and Company's obligation to reimburse Wells Fargo for any related Letter of Credit draws (the "Obligation of Reimbursement").

(c)

Expiration.    No Letter of Credit shall be issued that has an expiry date that is later than one (1) year from the date of issuance, or the Maturity Date in effect on the date of issuance, whichever is earlier.

(d)

Obligation of Reimbursement During Default Periods.    If Company is unable, due to the existence of a Default Period or for any other reason, to obtain an Advance to pay any Obligation of Reimbursement, Company shall pay Wells Fargo on demand and in immediately available funds, the amount of the Obligation of Reimbursement together with interest, accrued from the date presentment of the underlying draft until reimbursement in full at the Default Rate. Wells Fargo is authorized, alternatively and in its sole discretion, to make an Advance in an amount sufficient to discharge the Obligation of Reimbursement and pay all accrued but unpaid interest and fees with respect to the Obligation of Reimbursement.

1.11

Special Account.    If the Line of Credit is terminated for any reason while a Letter of Credit is outstanding, or if after prepayment of the Revolving Note the L/C Amount continues to exceed the Borrowing Base, then Company shall promptly pay Wells Fargo in immediately available funds for deposit to the Special Account, an amount equal, as the case may be, to either (a) the L/C Amount plus any anticipated fees and costs, or (b) the amount by which the L/C Amount exceeds the Borrowing Base. If Company fails to pay these amounts promptly, then Wells Fargo may in its sole discretion make an Advance to pay these amounts and deposit the proceeds to the Special Account. The Special Account shall be an interest bearing account maintained with Wells Fargo or any other financial institution acceptable to Wells Fargo. Wells Fargo may in its sole discretion apply amounts on deposit in the Special Account to the Indebtedness. Company may not withdraw amounts deposited to the Special Account until the Line of Credit has been terminated and all outstanding Letters of Credit have either been returned to Wells Fargo or have expired and the Indebtedness has been fully paid.

2.     SECURITY INTEREST AND OCCUPANCY OF COMPANY'S PREMISES

2.1

Grant of Security Interest.    Company hereby pledges, assigns and grants to Wells Fargo, for the benefit of Wells Fargo and as agent for Wells Fargo Merchant Services, L.L.C. a Lien and security interest (collectively referred to as the "Security Interest") in the Collateral, as security for the payment and performance of the Indebtedness. Company shall notify Wells Fargo in writing of, and hereby grants Wells Fargo for the benefit of Wells Fargo and as agent for Wells Fargo Merchant Services, L.L.C. a Lien and security interest in, all commercial tort claims that it may have against any Person.

2.2

Notifying Account Debtors and Other Obligors; Collection of Collateral.    Wells Fargo may at any time (during a Default Period) deliver a Record giving an account debtor or other Person obligated to pay an Account, a General Intangible, or other amount due, notice that the Account, General Intangible, or other amount due has been assigned to Wells Fargo for security and must be paid directly to Wells Fargo. Company shall join in giving such notice and shall Authenticate any Record giving such notice upon Wells Fargo's request. After Company or Wells Fargo gives such notice, Wells Fargo may, but need not, in Wells Fargo's or in Company's name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, such Account, General Intangible, or other amount due, or grant any extension to, make

10

any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any account debtor or other obligor. After Company or Wells Fargo gives such notice, Wells Fargo may, in Wells Fargo's name or in Company's name, as Company's agent and attorney-in-fact, notify the United States Postal Service to change the address for delivery of Company's mail to any address designated by Wells Fargo, otherwise intercept Company's mail, and receive, open and dispose of Company's mail, applying all Collateral as permitted under this Agreement and holding all other mail for Company's account or forwarding such mail to Company's last known address.

2.3

Assignment of Insurance.    As additional security for the Indebtedness, Company hereby assigns to Wells Fargo and to Wells Fargo Merchant Services, L.L.C. all rights of Company under every policy of insurance covering the Collateral and all business records and other documents relating to it, as well as every policy pertaining to Directors and Officers insurance and all monies (including proceeds and refunds) that may be payable under any policy, and Company hereby directs the issuer of each policy to pay all such monies directly to Wells Fargo. At any time, whether or not a Default Period then exists, Wells Fargo may (but need not), in Wells Fargo's or Company's name, execute and deliver proofs of claim, receive payment of proceeds and endorse checks and other instruments representing payment of the policy of insurance, and adjust, litigate, compromise or release claims against the issuer of any policy. Any monies received under any insurance policy assigned to Wells Fargo, or received as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid to Wells Fargo and, as determined by Wells Fargo in its sole discretion, either be applied to prepayment of the Indebtedness or disbursed to Company under staged payment terms reasonably satisfactory to Wells Fargo for application to the cost of repairs, replacements, or restorations which shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed.

2.4   Company's Premises

(a)

Wells Fargo's Right to Occupy Company's Premises.    Company hereby grants to Wells Fargo the right, at any time during a Default Period and without notice or consent, to take exclusive possession of all locations where Company conducts its business or has any rights of possession, including the locations described on Exhibit B (the "Premises"), until the earlier of (i) payment in full and discharge of all Indebtedness and termination of the Line of Credit, or (ii) final sale or disposition of all items constituting Collateral and delivery of those items to purchasers.

(b)

Wells Fargo's Use of Company's Premises.    Wells Fargo may use the Premises to store, process, manufacture, sell, use, and liquidate or otherwise dispose of items that are Collateral, and for any other incidental purposes deemed appropriate by Wells Fargo in good faith.

(c)

Company's Obligation to Reimburse Wells Fargo.    Wells Fargo shall not be obligated to pay rent or other compensation for the possession or use of any Premises, but if Wells Fargo elects to pay rent or other compensation to the owner of any Premises in order to have access to the Premises, then Company shall promptly reimburse Wells Fargo all such amounts, as well as all taxes, fees, charges and other expenses at any time payable by Wells Fargo with respect to the Premises by reason of the execution, delivery, recordation, performance or enforcement of any terms of this Agreement.

2.5

License.    Without limiting the generality of any other Security Document, Company hereby grants to Wells Fargo a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all Intellectual Property Rights of Company for the purpose of: (a) completing the manufacture of any in-process materials during any Default Period so that such materials become saleable Inventory, all in accordance with the same quality standards previously adopted by Company for its

11

own manufacturing and subject to Company's reasonable exercise of quality control; and (b) selling, leasing or otherwise disposing of any or all Collateral during any Default Period.

2.6

Financing Statements.    Company authorizes Wells Fargo to file financing statements describing Collateral to perfect Wells Fargo's Security Interest in the Collateral, and Wells Fargo may describe the Collateral as "all personal property" or "all assets" or describe specific items of Collateral including commercial tort claims as Wells Fargo may consider necessary or useful to perfect the Security Interest. All financing statements filed before the date of this Agreement to perfect the Security Interest were authorized by Company and are hereby re-authorized. Following the termination of the Line of Credit and payment of all Indebtedness, Wells Fargo shall, at Company's expense and within the time periods required under applicable law, release or terminate any filings or other agreements that perfect the Security Interest.

2.7

Setoff.    Wells Fargo may at any time, in its sole discretion and without demand or notice to anyone, setoff any liability owed to Company by Wells Fargo against any Indebtedness, whether or not due.

2.8

Collateral.    This Agreement does not contemplate a sale of Accounts or chattel paper, and, as provided by law, Company is entitled to any surplus and shall remain liable for any deficiency. Wells Fargo's duty of care with respect to Collateral in its possession (as imposed by law) will be deemed fulfilled if it exercises reasonable care in physically keeping such Collateral, or in the case of Collateral in the custody or possession of a bailee or other third Person, exercises reasonable care in the selection of the bailee or third Person, and Wells Fargo need not otherwise preserve, protect, insure or care for such Collateral. Wells Fargo shall not be obligated to preserve rights Company may have against prior parties, to liquidate the Collateral at all or in any particular manner or order or apply the Proceeds of the Collateral in any particular order of application. Wells Fargo has no obligation to clean-up or prepare Collateral for sale. Company waives any right it may have to require Wells Fargo to pursue any third Person for any of the Indebtedness.

2.9

Notices Regarding Disposition of Collateral.    If notice to Company of any intended disposition of Collateral or any other intended action is required by applicable law in a particular situation, such notice will be deemed commercially reasonable if given in the manner specified in Section 7.4 at least ten calendar days before the date of intended disposition or other action.

3.     CONDITIONS PRECEDENT

3.1

Conditions Precedent to Initial Advance and Issuance of Initial Letter of Credit.    Wells Fargo's obligation to make the initial Advance or issue the first Letter of Credit shall be subject to the condition that Wells Fargo shall have received this Agreement and each of the Loan Documents, fees, and other documents and information described in Exhibit C, duly executed and in form and content satisfactory to Wells Fargo. Company agrees to comply with all covenants set forth in Exhibit C.

3.2

Additional Conditions Precedent to All Advances and Letters of Credit.    Wells Fargo's obligation to make any Advance (including the initial Advance) or issue any Letter of Credit shall be subject to the further additional conditions: (a) that the representations and warranties described in Exhibit D are correct on the date of the Advance or the issuance of the Letter of Credit, except to the extent that such representations and warranties relate solely to an earlier date; and (b) that no event has occurred and is continuing, or would result from the requested Advance or issuance of the Letter of Credit that would result in an Event of Default.

12

4.     REPRESENTATIONS AND WARRANTIES

To induce Wells Fargo to enter into this Agreement, Company makes the representations and warranties described in Exhibit D. Any request for an Advance will be deemed a representation by Company that all representations and warranties described in Exhibit D are true and correct as of the time of the request, unless they relate exclusively to an earlier date. Company shall promptly deliver a Record notifying Wells Fargo of any change in circumstance that would affect the accuracy of any representation or warranty, unless the representation and warranty specifically relates to an earlier date.

5.     COVENANTS

So long as the Indebtedness remains unpaid, or the Line of Credit has not been terminated, Company shall comply with each of the following covenants, unless Wells Fargo shall consent otherwise in an Authenticated Record delivered to Company.

5.1

Reporting Requirements.    Company shall deliver to Wells Fargo the following information, compiled where applicable using GAAP consistently applied, in form and content acceptable to Wells Fargo:

(a)

Annual Financial Statements.    As soon as available and in any event within 90 days after Company's fiscal year end, Company's (i) Form 10-K filed with the Securities and Exchange Commission, and (ii) audited financial statements prepared by an independent certified public accountant acceptable to Wells Fargo, which shall include Company's balance sheet, income statement, and statement of retained earnings and cash flows prepared, if requested by Wells Fargo, on a consolidated and consolidating basis to include Company's Affiliates. The annual financial statements shall be accompanied by a Compliance Certificate in the form of Exhibit E that is signed by Company's chief financial officer.

Each Compliance Certificate that accompanies an annual financial statement shall also be accompanied by (i) copies of all management letters prepared by Company's accountants; and (ii) a report signed by the accountant stating that in making the investigations necessary to render the opinion, the accountant obtained no knowledge, except as specifically stated, of any Event of Default under the Agreement, and a detailed statement, including computations, demonstrating whether or not Company is in compliance with the financial covenants set forth in this Agreement.

(b)

Monthly Financial Statements; Form 10-Q.    As soon as available and in any event within 25 days after the end of each month, a Company prepared balance sheet, income statement, and statement of retained earnings prepared for that month and for the year-to-date period then ended, prepared, if requested by Wells Fargo, on a consolidated and consolidating basis to include Company's Affiliates, and stating in comparative form the figures for the corresponding date and periods in the prior fiscal year, subject to year-end adjustments. The financial statements shall be accompanied by a Compliance Certificate in the form of Exhibit E that is signed by Company's chief financial officer. Additionally, within 45 days after the end of each fiscal quarter, Company shall provided to Wells Fargo, Company's Form 10-Q filed with the Securities and Exchange Commission.

(c)

Collateral Reports.    No later than 15 days after each month end (or more frequently if Wells Fargo shall request it), detailed agings of Company's accounts receivable and accounts payable and a calculation of Company's Accounts, Eligible Accounts as of the end of that month or shorter time period requested by Wells Fargo.

(d)

Projections.    No later than 30 days prior to each fiscal year end, Company's projected balance sheet and income statement and statement of retained earnings and cash flows for each month of

13

the next fiscal year, certified as accurate by Company's chief financial officer and accompanied by a statement of assumptions and supporting schedules and information.

(e)

Supplemental Reports.    Weekly, or more frequently if Wells Fargo requests, Company's standard form of "daily collateral report", together with receivables schedules, collection reports, and copies of invoices, shipment documents and delivery receipts for goods sold to account debtors.

(f)

Litigation.    No later than three days after discovery, a Record notifying Wells Fargo of any litigation or other proceeding before any court or governmental agency which seeks a monetary recovery against Company in excess of $50,000.

(g)

Intellectual Property. (i) No later than 30 days before it acquires material Intellectual Property Rights, a Record notifying Wells Fargo of Company's intention to acquire such rights; (ii) except for transfers permitted under Section 5.18, no later than 30 days before it disposes of material Intellectual Property Rights, a Record notifying Wells Fargo of Company's intention to dispose of such rights, along with copies of all proposed documents and agreements concerning the disposal of such rights as requested by Wells Fargo; (iii) promptly upon knowledge thereof, a Record notifying Wells Fargo of (A) any Infringement of Company's Intellectual Property Rights by any Person, (B) claims that Company is Infringing another Person's Intellectual Property Rights and (C) any threatened cancellation, termination or material limitation of Company's Intellectual Property Rights; and (iv) promptly upon receipt, copies of all registrations and filings with respect to Company's Intellectual Property Rights.

(h)

Defaults.    No later than three days after learning of the probable occurrence of any Event of Default, a Record describing in detail the Event of Default and the steps being taken by Company to cure the Event of Default.

(i)

Disputes.    Promptly upon discovery, a Record notifying Wells Fargo of (i) any disputes or claims by Company's customers exceeding $25,000 individually or $50,000 in the aggregate during any fiscal year; (ii) credit memos not previously reported in Section 5.1(e); and (iii) any goods returned to or recovered by Company outside of the ordinary course of business or in the ordinary course of business but with a value in an amount in excess of $25,000.

(j)

Changes in Officers and Directors.    Promptly following occurrence, a Record notifying Wells Fargo of any change in the persons constituting Company's Officers and Directors.

(k)

Collateral.    Promptly upon discovery, a Record notifying Wells Fargo of any loss of or material damage to any Collateral or of any substantial adverse change in any Collateral or the prospect of its payment.

(l)

Commercial Tort Claims.    Promptly upon discovery, a Record notifying Wells Fargo of any commercial tort claims brought by Company against any Person, including the name and address of each defendant, a summary of the facts, an estimate of Company's damages, copies of any complaint or demand letter submitted by Company, and such other information as Wells Fargo may request.

(m)

Reports to Owners.    Promptly upon distribution, copies of all financial statements, reports and proxy statements which Company shall have sent to its Owners.

(n)

Tax Returns of Company.    No later than 30 days after they are required to be filed (inclusive of any applicable extension periods), copies of Company's signed and dated state and federal income tax returns and all related schedules, and copies of any extension requests.

(o)

[Intentionally Omitted].

14

(p)

Violations of Law.    No later than three days after discovery of any violation, a Record notifying Wells Fargo of Company's violation of any law, rule or regulation, the non-compliance with which could have a Material Adverse Effect on Company.

(q)

Other Reports.    From time to time, with reasonable promptness, all receivables schedules, collection reports, deposit records, equipment schedules, invoices to account debtors, shipment documents and delivery receipts for goods sold, and such other materials, reports, records or information as Wells Fargo may request.

(r)

Customer Listings.    Semi-annually, or more frequently if Wells Fargo request, an updated listing of Company's customers together with contact names and addresses for each customer.

5.2

Financial Covenants.    Company agrees to comply with the financial covenants described below, which shall be calculated using GAAP consistently applied, except as they may be otherwise modified by the following capitalized definitions:

(a)

Minimum Book Net Worth.    Company shall maintain, during each period described below, its Book Net Worth (excluding intercompany receivables owed from Hemacare Bioscience, Inc.), determined as of the end of each month, in an amount not less than the amount set forth for each such period (numbers appearing between "< >" are negative):

Period	Minimum Book Net Worth
Month Ending February 29, 2008	$	4,550,000
Month Ending March 31, 2008	$	4,550,000
Month Ending April 30, 2008	$	4,525,000
Month Ending May 31, 2008	$	4,525,000
Month Ending June 30, 2008	$	4,525,000
Month Ending July 31, 2008	$	4,600,000
Month Ending August 31, 2008	$	4,600,000
Month Ending September 30, 2008	$	4,600,000
Month Ending October 31, 2008	$	4,675,000
Month Ending November 30, 2008	$	4,675,000
Month Ending December 31, 2008 and each month ending thereafter	$	4,675,000

(b)

Minimum Net Income.    Company shall achieve, for each period described below, Net Income of not less than the amount set forth for each such period (numbers appearing between "< >" are negative).

Period	Minimum Net Income
Fiscal Quarter Ending March 31, 2008	$	<75,000	>
Fiscal Quarter Ending June 30, 2008	$	<25,000	>
Fiscal Quarter Ending September 30, 2008	$	75,000
Fiscal Quarter Ending December 31, 2008	$	75,000
Fiscal Year Ending December 31, 2008	$	270,000

(c)

[Intentionally Omitted]

15

(d)

Minimum Debt Service Coverage Ratio.    Company shall maintain during each period described below, a Debt Service Coverage Ratio, determined as at the end of each month, of not less than the ratio set forth for each such period:

Period	Minimum Debt Service Coverage Ratio
Nine months ended September 30, 2008	1.10 to 1.00; provided, however, if a Cap Ex Loan is requested and made, then 1.20 to 1.0
Twelve months ended December 31, 2008	1.10 to 1.00; provided, however, if a Cap Ex Loan is requested and made, then 1.20 to 1.0
Each calendar quarter ending after December 31	1.10 to 1.00; provided, however, if a Cap Ex Loan is requested and made, then 1.20 to 1.0

(e)

Capital Expenditures.    Company shall not incur or contract to incur Capital Expenditures of more than $1,000,000 in the aggregate during any fiscal year.

5.3   Other Liens and Permitted Liens.

(a)

Other Liens; Permitted Liens.    Company shall not create, incur or suffer to exist any Lien upon any of its assets, now owned or later acquired, as security for any indebtedness, with the exception of the following (each a "Permitted Lien"; collectively, "Permitted Liens"): (i) In the case of real property, covenants, restrictions, rights, easements and minor irregularities in title which do not materially interfere with Company's business or operations as presently conducted; (ii) Liens in existence on the date of this Agreement that are described in Exhibit F and secure indebtedness for borrowed money permitted under Section 5.4; (iii) The Security Interest and Liens created by the Security Documents; and (iv) Purchase money Liens relating to the acquisition of Equipment not exceeding the lesser of cost or fair market value not exceeding $50,000 for any one purchase or $100,000 in the aggregate during any fiscal year, and so long as no Default Period is then in existence and none would exist immediately after such acquisition.

(b)

Financing Statements.    Company shall not authorize the filing of any financing statement by any Person as Secured Party with respect to any of Company's assets, other than Wells Fargo. Company shall not amend any financing statement filed by Wells Fargo as Secured Party except as permitted by law.

5.4

Indebtedness.    Company shall not incur, create, assume or permit to exist any indebtedness or liability on account of deposits or letters of credit issued on Company's behalf, or advances or any indebtedness for borrowed money of any kind, whether or not evidenced by an instrument, except: (a) Indebtedness arising under this Agreement; (b) indebtedness of Company described in Exhibit F; and (c) indebtedness secured by Permitted Liens.

5.5

Guaranties.    Company shall not assume, guarantee, endorse or otherwise become directly or contingently liable for the obligations of any Person, except: (a) the endorsement of negotiable instruments by Company for deposit or collection or similar transactions in the ordinary course of business; and (b) guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons in existence on the date of this Agreement and described in Exhibit F.

5.6

Investments and Subsidiaries.    Company shall not make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any Person or Affiliate, including

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any partnership or joint venture, nor purchase or hold beneficially any stock or other securities or evidence of indebtedness of any Person or Affiliate, except:

(a)

Investments in direct obligations of the United States of America or any of its political subdivisions whose obligations constitute the full faith and credit obligations of the United States of America and have a maturity of one year or less, commercial paper issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poor's Ratings Services or "P-1" or "P-2" by Moody's Investors Service or certificates of deposit or bankers' acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 (which certificates of deposit or bankers' acceptances are fully insured by the Federal Deposit Insurance Corporation);

(b)

Travel advances or loans to Company's Officers and employees not exceeding at any one time an aggregate of $10,000; or $5,000 for any single advance or loan;

(c)

Prepaid rent not exceeding one month or security deposits; and

(d)

Current investments in those Subsidiaries in existence on the date of this Agreement which are identified on Exhibit D.

5.7

Dividends and Distributions.    Company shall not declare or pay any dividends (other than dividends payable solely in stock of Company) on any class of its stock, or make any payment on account of the purchase, redemption or retirement of any shares of its stock, or other securities or evidence of its indebtedness or make any distribution regarding its stock, either directly or indirectly.

5.8

Salaries.    Company shall not pay excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation; or increase the salary, commissions, consultant fees or other compensation of any Director, Officer or consultant, or any member of their families, by more than 15% in any one year, either individually or for all such Persons in the aggregate, or pay such an increase from any source other than profits earned in the year of payment; or pay bonuses to any such aforementioned Persons in excess of $100,000 per individual not to exceed $250,000 for all such aforementioned Persons in the aggregate.

5.9   [Intentionally Omitted].

5.10 Books and Records; Collateral Examination; Inspection and Appraisals

(a)

Books and Records; Inspection.    Company shall keep complete and accurate books and records with respect to the Collateral and Company's business and financial condition and any other matters that Wells Fargo may request, in accordance with GAAP. Company shall permit any employee, attorney, accountant or other agent of Wells Fargo to audit, review, make extracts from and copy any of its books and records at any time during ordinary business hours, and to discuss Company's affairs with any of its Directors, Officers, employees, Owners or agents.

(b)

Authorization to Company's Agents to Make Disclosures to Wells Fargo.    Company authorizes all accountants and other Persons acting as its agent to disclose and deliver to Wells Fargo's employees, accountants, attorneys and other Persons acting as its agent, at Company's expense, all financial information, books and records, work papers, management reports and other information in their possession regarding Company.

(c)

Collateral Exams and Inspections.    Company shall permit Wells Fargo's employees, accountants, attorneys or other Persons acting as its agent, to examine and inspect any Collateral or any other property of Company at any time during ordinary business hours.

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(d)

Collateral Appraisals.    Wells Fargo may also obtain, from time to time, at Company's expense, an appraisal of Company's Collateral, by an appraiser acceptable to Wells Fargo in its sole discretion.

5.11 Account Verification; Payment of Permitted Liens

(a)

Account Verification.    Wells Fargo or its agents may (i) contact account debtors and other obligors at any time to verify Company's Accounts; and (ii) require Company to send requests for verification of Accounts or send notices of assignment of Accounts to account debtors and other obligors.

(b)

Covenant to Pay Permitted Liens.    Company shall pay when due each account payable due to any Person holding a Permitted Lien (as a result of such payable) on any Collateral.

5.12 Compliance with Laws

(a)

General Compliance with Applicable Law; Use of Collateral.    Company shall (i) comply, and cause each Subsidiary to comply, with the requirements of applicable laws and regulations, the non-compliance with which would have a Material Adverse Effect on its business or its financial condition and (ii) use and keep the Collateral, and require that others use and keep the Collateral, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance.

(b)

Compliance with Federal Regulatory Laws.    Company shall (i) prohibit, and cause each Subsidiary to prohibit, any Person that is an Owner or Officer from being listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control ("OFAC"), the Department of the Treasury or included in any Executive Orders, (ii) not permit the proceeds of the Line of Credit or any other financial accommodation extended by Wells Fargo to be used in any way that violates any foreign asset control regulations of OFAC or other applicable law, (iii) comply, and cause each Subsidiary to comply, with all applicable Bank Secrecy Act laws and regulations, as amended from time to time, and otherwise comply with the USA Patriot Act and Wells Fargo's related policies and procedures.

(c)

FDA and Governmental Communications.    The Company shall provide Wells Fargo with copies of any communications Borrower receives from the Food and Drug Administration ("FDA") or any other federal, state or local governmental agency concerning any potential regulatory issues. The Company shall also provide Wells Fargo with copies of the results of any inspections or audits conducted by any federal or state agency, and the Company shall keep in good standing all federal and state licenses needed in its business.

5.13

Payment of Taxes and Other Claims.    Company shall pay or discharge, when due, and cause each Subsidiary to pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including the Collateral) or upon or against the creation, perfection or continuance of the Security Interest, prior to the date on which penalties attach, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon any properties of Company, although Company shall not be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which proper reserves have been made.

5.14 Maintenance of Collateral and Properties.

(a)

Company shall keep and maintain the Collateral and all of its other properties necessary or useful in its business in good condition, repair and working order (normal wear and tear excepted) and

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will from time to time replace or repair any worn, defective or broken parts, although Company may discontinue the operation and maintenance of any properties if Company believes that such discontinuance is desirable to the conduct of its business and not disadvantageous in any material respect to Wells Fargo. Company shall take all commercially reasonable steps necessary to protect and maintain its Intellectual Property.

(b)

Company shall defend the Collateral against all Liens, claims and demands of all third Persons claiming any interest in the Collateral. Company shall keep all Collateral free and clear of all Liens except permitted Liens. Company shall take all commercially reasonable steps necessary to prosecute any Person Infringing its Intellectual Property Rights and to defend itself against any Person accusing it of Infringing any Person's Intellectual Property Rights.

5.15

Insurance.    Company shall at all times maintain insurance with insurers acceptable to Wells Fargo, in such amounts, on such terms (including any deductibles) and against such risks as Wells Fargo may require, in such amounts and against such risks as is usually carried by companies engaged in similar business and owning similar properties in the same geographical areas in which Company operates. Company shall also, at all times and without limitation maintain business interruption insurance (including force majeure coverage) and keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (for Collateral consisting of motor vehicles) and such other risks and in such amounts as Wells Fargo may reasonably request (including, without limitation, liability insurance and medical professional liability insurance), with any loss payable to Wells Fargo to the extent of its interest, and all policies of such insurance shall contain a lender's loss payable endorsement for Wells Fargo's benefit. Notwithstanding the foregoing, Company and Wells Fargo agree that Company's product liability and directors and officers insurance coverage will each at all times be equal to, or greater than, the amount equal to the sum of (i) all outstanding Advances and (ii) all outstanding Cap Ex Loans.

5.16

Preservation of Existence.    Company shall preserve and maintain its existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business and shall conduct its business in an orderly, efficient and regular manner.

5.17

Delivery of Instruments, etc.    Upon request by Wells Fargo, Company shall promptly deliver to Wells Fargo in pledge all instruments, documents and chattel paper constituting Collateral, duly endorsed or assigned by Company.

5.18

Sale or Transfer of Assets; Suspension of Business Operations.    Company shall not sell, lease, assign, transfer or otherwise dispose of (a) the stock of any Subsidiary, (b) all or a substantial part of its assets, or (c) any Collateral or any interest in Collateral (whether in one transaction or in a series of transactions) to any other Person other than the sale of Inventory in the ordinary course of business and shall not liquidate, dissolve or suspend business operations. Company shall not transfer any part of its ownership interest in any Intellectual Property Rights and shall not permit its rights as licensee of Licensed Intellectual Property to lapse, except that Company may transfer such rights or permit them to lapse if it has reasonably determined that such Intellectual Property Rights are no longer useful in its business. If Company transfers any Intellectual Property Rights for value, Company shall pay the Proceeds to Wells Fargo for application to the Indebtedness. Company shall not license any other Person to use any of Company's Intellectual Property Rights, except that Company may grant licenses in the ordinary course of its business in connection with sales of Inventory or the provision of services to its customers.

5.19

Consolidation and Merger; Asset Acquisitions.    Company shall not consolidate with or merge into any other entity, or permit any other entity to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all of the assets of any other entity.

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5.20

Sale and Leaseback.    Company shall not enter into any arrangement, directly or indirectly, with any other Person or entity whereby Company shall sell or transfer any real or personal property, whether owned now or acquired in the future, and then rent or lease all or part of such property or any other property which Company intends to use for substantially the same purpose or purposes as the property being sold or transferred.

5.21

Restrictions on Nature of Business.    Company will not engage in any line of business materially different from that presently engaged in by Company, and will not purchase, lease or otherwise acquire assets not related to its business.

5.22

Accounting.    Company will not adopt any material change in accounting principles except as required by GAAP, consistently applied. Company will not change its fiscal year.

5.23

Discounts, etc.    After notice from Wells Fargo, Company will not grant any discount, credit or allowance to any customer of Company or accept any return of goods sold. Company will not at any time modify, amend, subordinate, cancel or terminate any Account.

5.24

Place of Business; Name.    Company will not transfer its chief executive office or principal place of business, or move, relocate, close or sell any business Premises. Company will not permit any tangible Collateral or any records relating to the Collateral to be located in any state or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest. Company will not change its name or jurisdiction of organization.

5.25

Constituent Documents; S Corporation Status.    Company will not amend its Constituent Documents. Company will not become an S Corporation.

5.26

Performance by Wells Fargo.    If Company fails to perform or observe any of its obligations under this Agreement at any time, Wells Fargo may, but need not, perform or observe them on behalf of Company and may, but need not, take any other actions which Wells Fargo may reasonably deem necessary to cure or correct this failure; and Company shall pay Wells Fargo upon demand the amount of all costs and expenses (including reasonable attorneys' fees and legal expense) incurred by Wells Fargo in performing these obligations, together with interest on these amounts at the Default Rate.

5.27

Wells Fargo Appointed as Company's Attorney in Fact.    To facilitate Wells Fargo's performance or observance of Company's obligations under this Agreement, Company hereby irrevocably appoints Wells Fargo and Wells Fargo's agents, as Company's attorney in fact (which appointment is coupled with an interest) with the right (but not the duty) to create, prepare, complete, execute, deliver, endorse or file on behalf of Company any instruments, documents, assignments, security agreements, financing statements, applications for insurance and any other agreements required to be obtained, executed, delivered or endorsed by Company in accordance with the terms of this Agreement.

6.     EVENTS OF DEFAULT AND REMEDIES

6.1

Events of Default.    An "Event of Default" means any of the following:

(a)

Company fails to pay any Indebtedness within five (5) calendar days of the date that it becomes due and payable;

(b)

Company fails to observe or perform any covenant or agreement of Company set forth in this Agreement or in any Loan Document, or any covenant in Section 5.2 becomes inapplicable due to the lapse of time, and Wells Fargo and Company fail to come to an agreement acceptable to Wells Fargo in Wells Fargo's sole discretion to amend the covenant to apply to future periods;

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(c)

An Overadvance arises (and is not paid down within five (5) calendar days thereof) as the result of any reduction in the Borrowing Base, or arises in any manner or on terms not otherwise approved of in advance by Wells Fargo in a Record that it has Authenticated;

(d)

A Change of Control shall occur, without the prior written consent of Wells Fargo (which consent shall be a matter of its sole discretion);

(e)

Company or any Guarantor becomes insolvent or admits in a Record an inability to pay debts as they mature, or Company or any Guarantor makes an assignment for the benefit of creditors; or Company or any Guarantor applies for or consents to the appointment of any receiver, trustee, or similar officer for the benefit of Company or any Guarantor, or for any of their properties; or any receiver, trustee or similar officer is appointed without the application or consent of Company or such Guarantor; or any judgment, writ, warrant of attachment or execution or similar process is issued or levied against a substantial part of the property of Company or any Guarantor;

(f)

Company or any Guarantor files a petition under any chapter of the United States Bankruptcy Code or under the laws of any other jurisdiction naming Company or such Guarantor as debtor; or any such petition is instituted against Company or any such Guarantor; or Company or any Guarantor institutes (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, debt arrangement, dissolution, liquidation or similar proceeding under the laws of any jurisdiction; or any such proceeding is instituted (by petition, application or otherwise) against Company or any such Guarantor.

(g)

[Intentionally Omitted];

(h)

Any representation or warranty made by Company in this Agreement or by any Guarantor in any Guaranty, or by Company (or any of its Officers) or any Guarantor in any agreement, certificate, instrument or financial statement or other statement delivered to Wells Fargo in connection with this Agreement or pursuant to such Guaranty is untrue or misleading in any material respect when delivered to Wells Fargo;

(i)

A final, non-appealable arbitration award, judgment, or decree or order for the payment of money in an amount in excess of $50,000 which is not insured or subject to indemnity, is entered against Company which is not immediately stayed or appealed;

(j)

Company is in default with respect to any bond, debenture, note or other evidence of material indebtedness issued by Company that is held by any third Person other than Wells Fargo, or under any instrument under which any such evidence of indebtedness has been issued or by which it is governed, or under any material lease or other contract, and the applicable grace period, if any, has expired, regardless of whether such default has been waived by the holder of such indebtedness;

(k)

Company liquidates, dissolves, terminates or suspends its business operations or otherwise fails to operate its business in the ordinary course, or merges with another Person; or sells or attempts to sell all or substantially all of its assets;

(l)

Company fails to pay any indebtedness or obligation owed to Wells Fargo which is unrelated to the Line of Credit or this Agreement within five (5) calendar days of the date that it becomes due and payable;

(m)

Any Guarantor repudiates or purports to revokes the Guarantor's Guaranty, or fails to perform any obligation under such Guaranty, or any individual Guarantor dies or becomes incapacitated, or any other Guarantor ceases to exist for any reason;

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(n)

Company engages in any act prohibited by any Subordination Agreement, or makes any payment on Subordinated Indebtedness (as defined in the Subordination Agreement) that the Subordinated Creditor was not contractually entitled to receive;

(o)

Any event or circumstance occurs that Wells Fargo in good faith believes may impair the prospect of payment of all or part of the Indebtedness, or Company's ability to perform material obligations under any of the Loan Documents, or there occurs any material adverse change in the business or financial condition of Company.

(p)

Any Director, Officer, Guarantor, or Owner of at least 20% of the issued and outstanding common stock of Company is indicted for a felony offence under state or federal law, or Company hires an Officer or appoints a Director who has been convicted of any such felony offense, or a Person becomes an Owner of at least 20% of the issued and outstanding common stock of Company who has been convicted of any such felony offense.

6.2

Rights and Remedies.    During any Default Period, Wells Fargo may exercise any or all of the following rights and remedies:

(a)

Wells Fargo may terminate the Line of Credit;

(b)

Wells Fargo may declare the Indebtedness to be immediately due and payable and accelerate payment of the Revolving Note, and all Indebtedness shall immediately become due and payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which Company hereby expressly waives;

(c)

Wells Fargo may, without notice to Company, apply any money owing by Wells Fargo to Company to payment of the Indebtedness;

(d)

Wells Fargo may exercise and enforce any rights and remedies available upon default to a secured party under the UCC, including the right to take possession of Collateral, proceeding with or without judicial process (without a prior hearing or notice of hearing, which Company hereby expressly waives) and sell, lease or otherwise dispose of Collateral (with or without giving any warranties as to the Collateral, title to the Collateral or similar warranties), and Company will upon Wells Fargo's demand assemble the Collateral and make it available to Wells Fargo at any place designated by Wells Fargo which is reasonably convenient to both parties;

(e)

Wells Fargo may exercise and enforce its rights and remedies under the Loan Documents;

(f)

Company will pay Wells Fargo upon demand in immediately available funds an amount equal to the Aggregate Face Amount plus any anticipated costs and fees for deposit to the Special Account pursuant to Section 1.11;

(g)

Wells Fargo may for any reason apply for the appointment of a receiver of the Collateral, to which appointment Company hereby consents; and

(h)

Wells Fargo may exercise any other rights and remedies available to it by law or agreement.

Upon the occurrence of an Event of Default described in Section 6.1(e) or (f), Company's Indebtedness shall immediately and automatically become due and payable without presentment, demand, protest or notice of any kind.

7.     MISCELLANEOUS

7.1

No Waiver; Cumulative Remedies.    No delay or any single or partial exercise by Wells Fargo of any right, power or remedy under the Loan Documents shall constitute a waiver of any other right, power or remedy under the Loan Documents. No notice to or demand on Company in any circumstance shall entitle Company to any additional notice or demand in any other circumstances.

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The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law. Wells Fargo may comply with applicable law in connection with a disposition of Collateral, and such compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

7.2

Amendment of Loan Documents; Consents and Waivers; Authentication.    No amendment or modification of any Loan Documents, or consent to or waiver of any Event of Default, or consent to or waiver of the application of any covenant or representation set forth in any of the Loan Documents, or any release of Wells Fargo's Security Interest in any Collateral, shall be effective unless it has been agreed to by Wells Fargo and memorialized in a Record that: (a) specifically states that it is intended to amend or modify specific Loan Documents, or waive any Event of Default or the application of any covenant or representation of any terms of specific Loan Documents, or is intended to release Wells Fargo's Security Interest in specific Collateral; and (b) is Authenticated by the signature of an authorized employee of both parties, or by an authorized employee of Wells Fargo with respect to a consent or waiver. The terms of an amendment, consent or waiver memorialized in any Record shall be effective only to the extent, and in the specific instance, and for the limited purpose to which Wells Fargo has agreed.

7.3

Execution in Counterparts; Delivery of Counterparts.    This Agreement and all other Loan Documents, and any amendment or modification to them may be Authenticated by the parties in any number of counterparts, each of which, once authenticated and delivered in accordance with the terms of this Section 7.3, will be deemed an original, and all such counterparts, taken together, shall constitute one and the same instrument. Delivery by fax or by encrypted e-mail or e-mail file attachment of any counterpart to any Loan Document Authenticated by an authorized signature will be deemed the equivalent of the delivery of the original Authenticated instrument. Company shall send the original Authenticated counterpart to Wells Fargo by first class U.S. mail or by overnight courier, but Company's failure to deliver a Record in this form shall not affect the validity, enforceability, and binding effect of this Agreement or the other Loan Documents.

7.4

Notices, Requests, and Communications; Confidentiality.    Except as otherwise expressly provided in this Agreement:

(a)

Delivery of Notices, Requests and Communications.    Any notice, request, demand, or other communication by either party that is required under the Loan Documents to be in the form of a Record (but excluding any Record containing information Company must report to Wells Fargo under Section 5.1 of this Agreement) may be delivered (i) in person, (ii) by first class U.S. mail, (iii) by overnight courier of national reputation, or (iv) by fax, or the Record may be sent as an Electronic Record and delivered (v) by an encrypted e-mail, or (vi) through Wells Fargo's Commercial Electronic Office® ("CEO®") portal or other secure electronic channel to which the parties have agreed.

(b)

Addresses for Delivery.    Delivery of any Record under this Section 7.4 shall be made to the appropriate address set forth on the last page of this Agreement (which either party may modify by a Record sent to the other party), or through Wells Fargo's CEO portal or other secure electronic channel to which the parties have agreed.

(c)

Date of Receipt.    Each Record sent pursuant to the terms of this Section 7.4 will be deemed to have been received on (i) the date of delivery if delivered in person, (ii) the date deposited in the mail if sent by mail, (iii) the date delivered to the courier if sent by overnight courier, (iv) the date of transmission if sent by fax, or (v) the date of transmission, if sent as an Electronic Record by electronic mail or through Wells Fargo's CEO portal or similar secure electronic channel to which the parties have agreed; except that any request for an Advance or any other notice, request, demand or other communication from Company required under Section 1 of this Agreement, and any request for an accounting under Section 9-210 of the UCC, will not be deemed to have been

23

received until actual receipt by Wells Fargo on a Business Day by an authorized employee of Wells Fargo.

(d)

Confidentiality of Unencrypted E-mail.    Company acknowledges that if it sends an Electronic Record to Wells Fargo without encryption by e-mail or as an e-mail file attachment, there is a risk that the Electronic Record may be received by unauthorized Persons, and that by so doing it will be deemed to have accepted this risk and the consequences of any such unauthorized disclosure.

7.5

Company Information Reporting; Confidentiality.    Except as otherwise expressly provided in this Agreement:

(a)

Delivery of Company Information Records.    Any information that Company is required to deliver under Section 5.1 in the form of a Record may be delivered to Wells Fargo (i) in person, or by (ii) first class U.S. mail, (iii) overnight courier of national reputation, or (iv) fax, or the Record may be sent as an Electronic Record (v) by encrypted e-mail, or (vi) through the file upload service of Wells Fargo's CEO portal or other secure electronic channel to which the parties have agreed.

(b)

Addresses for Delivery.    Delivery of any Record to Wells Fargo under this Section 7.5 shall be made to the appropriate address set forth on the last page of this Agreement (which Wells Fargo may modify by a Record sent to Company), or through Wells Fargo's CEO portal or other secure electronic channel to which the parties have agreed.

(c)

Date of Receipt.    Each Record sent pursuant to this Section will be deemed to have been received on (i) the date of delivery to an authorized employee of Wells Fargo, if delivered in person, or by U.S. mail, overnight courier, fax, or e-mail; or (ii) the date of transmission, if sent as an Electronic Record through Wells Fargo's CEO portal or similar secure electronic channel to which the parties have agreed.

(d)

Authentication of Company Information Records.    Company shall Authenticate any Record delivered (i) in person, or by U.S. mail, overnight courier, or fax, by the signature of the Officer or employee of Company who prepared the Record; (ii) as an Electronic Record sent via encrypted e-mail, by the signature of the Officer or employee of Company who prepared the Record by any file format signature that is acceptable to Wells Fargo, or by a separate certification signed and sent by fax; or (iii) as an Electronic Record via the file upload service of Wells Fargo's CEO portal or similar secure electronic channel to which the parties have agreed, through such credentialing process as Wells Fargo and Company may agree to under the CEO agreement.

(e)

Certification of Company Information Records.    Any Record (including any Electronic Record) Authenticated and delivered to Wells Fargo under this Section 7.5 will be deemed to have been certified as materially true, correct, and complete by Company and each Officer or employee of Company who prepared and Authenticated the Record, and may be legally relied upon by Wells Fargo without regard to method of delivery or transmission.

(f)

Confidentiality of Company Information Records Sent by Unencrypted E-mail.    Company acknowledges that if it sends an Electronic Record to Wells Fargo without encryption by e-mail or as an e-mail file attachment, there is a risk that the Electronic Record may be received by unauthorized Persons, and that by so doing it will be deemed to have accepted this risk and the consequences of any such unauthorized disclosure. Company acknowledges that it may deliver Electronic Records containing Company information to Wells Fargo by e-mail pursuant to any encryption tool acceptable to Wells Fargo and Company, or through Wells Fargo's CEO portal file upload service without risk of unauthorized disclosure.

7.6

Further Documents.    Company will from time to time execute, deliver, endorse and authorize the filing of any instruments, documents, conveyances, assignments, security agreements, financing

24

statements, control agreements and other agreements that Wells Fargo may reasonably request in order to secure, protect, perfect or enforce the Security Interest or Wells Fargo's rights under the Loan Documents (but any failure to request or assure that Company executes, delivers, endorses or authorizes the filing of any such item shall not affect or impair the validity, sufficiency or enforceability of the Loan Documents and the Security Interest, regardless of whether any such item was or was not executed, delivered or endorsed in a similar context or on a prior occasion).

7.7

Costs and Expenses.    Company shall pay on demand all costs and expenses, including reasonable attorneys' fees, incurred by Wells Fargo in connection with the Indebtedness, this Agreement, the Loan Documents, or any other document or agreement related to this Agreement, and the transactions contemplated by this Agreement, including all such costs, expenses and fees incurred in connection with the negotiation, preparation, execution, amendment, administration, performance, collection and enforcement of the Indebtedness and all such documents and agreements and the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security Interest.

7.8

Indemnity.    In addition to its obligation to pay Wells Fargo's expenses under the terms of this Agreement, Company shall indemnify, defend and hold harmless Wells Fargo, its parent Wells Fargo & Company, and any of its affiliates and successors, and all of their present and future Officers, Directors, employees, attorneys and agents (the "Indemnitees") from and against any of the following (collectively, "Indemnified Liabilities"):

(a)

Any and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of the Loan Documents or the making of the Advances;

(b)

Any claims, loss or damage to which any Indemnitee may be subjected if any representation or warranty contained in Exhibit D proves to be incorrect in any respect or as a result of any violation of the covenants contained in Section 5.12; and

(c)

Any and all other liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel) in connection with this Agreement and any other investigative, administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party to such proceedings, which may be imposed on, incurred by or asserted against any such Indemnitee, in any manner related to or arising out of or in connection with the making of the Advances and the Loan Documents or the use or intended use of the proceeds of the Advances, with the exception of any Indemnified Liability caused by the gross negligence or willful misconduct of an Indemnitee.

If any investigative, judicial or administrative proceeding described in this Section is brought against any Indemnitee, upon the Indemnitee's request, Company, or counsel designated by Company and satisfactory to the Indemnitee, will resist and defend the action, suit or proceeding to the extent and in the manner directed by the Indemnitee, at Company's sole cost and expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such action, suit or proceeding. If this agreement to indemnify is held to be unenforceable because it violates any law or public policy, Company shall nevertheless make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities to the extent permissible under applicable law. Company's obligations under this Section shall survive the termination of this Agreement and the discharge of Company's other obligations under this Agreement.

7.9

Retention of Company's Records.    Wells Fargo shall have no obligation to maintain Electronic Records or retain any documents, schedules, invoices, agings, or other Records delivered to Wells Fargo by Company in connection with the Loan Documents for more than 30 days after receipt by Wells Fargo. If there is a special need to retain specific Records, Company must notify Wells Fargo

25

of its need to retain or return such Records with particularity, which notice must be delivered to Wells Fargo in accordance with the terms of this Agreement at the time of the initial delivery of the Record to Wells Fargo.

7.10

Binding Effect; Assignment; Complete Agreement.    The Loan Documents shall be binding upon and inure to the benefit of Company and Wells Fargo and their respective successors and assigns, except that Company shall not have the right to assign its rights under this Agreement or any interest in this Agreement without Wells Fargo's prior consent, which must be confirmed in a Record Authenticated by Wells Fargo. To the extent permitted by law, Company waives and will not assert against any assignee any claims, defenses or set-offs which Company could assert against Wells Fargo. This Agreement shall also bind all Persons who become a party to this Agreement as a borrower. This Agreement, together with the Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter of this Agreement and supersedes all prior agreements, whether oral or evidenced in a Record. To the extent that any provision of this Agreement contradicts other provisions of the Loan Documents other than this Agreement, this Agreement shall control.

7.11

Sharing of Information.    Wells Fargo may share any information that it may have regarding Company and its Affiliates with its accountants, lawyers, and other advisors, and Wells Fargo and each direct and indirect subsidiary of Wells Fargo & Company may also share any information that they have with each other, and Company waives any right of confidentiality it may have with respect to the sharing of all such information.

7.12

Severability of Provisions.    Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining terms of this Agreement.

7.13

Headings.    Section and subsection headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

7.14

Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.    The Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of California. The parties to this Agreement (a) consent to the personal jurisdiction of the state and federal courts located in the State of California in connection with any controversy related to this Agreement; (b) waive any argument that venue in any such forum is not convenient; (c) agree that any litigation initiated by Wells Fargo or Company in connection with this Agreement or the other Loan Documents may be venued in either the state or federal courts located in the County of Los Angeles, California and (d) agree that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

7.15 Arbitration.

(a)

Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related Loan Documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.

(b)

Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association ("AAA"); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any

26

of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA's commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA's optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the "Rules"). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c)

No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d)

Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e)

Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the

27

request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available.

(f)

Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

(g)

Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h)

Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

(i)

Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

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THE PARTIES TO THIS AGREEMENT have executed this Agreement through their duly authorized officers as of the date set forth above.

	WELLS FARGO BANK,     NATIONAL ASSOCIATION		HEMACARE CORPORATION
By:	/s/ Jeffrey Cristol Jeffrey Cristol	By:	/s/ Jay Steffenhagen Jay Steffenhagen
	Its Vice President	Its	CEO
		By:	/s/ Robert S. Chilton Robert S. Chilton
		Its	EVP & CFO
		CORAL BLOOD SERVICES, INC.
		By:	/s/ Robert S. Chilton Robert S. Chilton
		Its	President
		By:	/s/ Robert S. Chilton Robert S. Chilton
		Its	CFO
Wells Fargo Bank, National Association    245 S. Los Robles Avenue Suite 700 Pasadena, CA 91101 Fax: (626) 844-9063 Attention: Ms. Gilda Pettit e-mail: gilda.m.pettit@wellsfargo.com		HemaCare Corporation Coral Blood Services, Inc. 15350 Sherman Way, Suite 350 Van Nuys, CA 91406 Fax: (818) 251-5356 Attention: Robert S. Chilton e-mail: bchilton@hemacare.com Federal Employer Identification No. 95-3280412/95-4709670 Organizational Identification No.

29

REVOLVING NOTE

$4,750,000 April 10, 2008

FOR VALUE RECEIVED, each of the undersigned, HEMACARE CORPORATION, a California corporation and CORAL BLOOD SERVICES, INC. a California corporation (jointly and severally, the "Company"), hereby promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), acting through its WELLS FARGO BUSINESS CREDIT operating division, on the Termination Date described in the Credit and Security Agreement dated April 10, 2008 (as amended from time to time, the "Agreement") and entered into between Wells Fargo and Company, at Wells Fargo's office at Los Angeles, California, or at any other place designated at any time by the holder, in lawful money of the United States of America and in immediately available funds, the principal sum of FOUR MILLION SEVEN HUNDRED FIFTY THOUSAND Dollars ($4,750,000) or the aggregate unpaid principal amount of all Advances made by Wells Fargo to Company under the Line of Credit under the Agreement, together with interest on the principal balance computed on the basis of actual days elapsed in a 360-day year, from the date of this Revolving Note until this Revolving Note is fully paid at the rate from time to time in effect under the terms of the Agreement. Principal and interest accruing on the unpaid principal amount of this Revolving Note shall be due and payable as provided in the Agreement. This Revolving Note may be prepaid only in accordance with the Agreement.

        This Revolving Note is the Revolving Note referred to in the Agreement, and is subject to the terms of the Agreement, which provides, among other things, for the acceleration of this Revolving Note. This Revolving Note is secured, among other things, by the Agreement and the Security Documents as defined in the Agreement, and by any other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements that may subsequently be given for good and valuable consideration as security for this Revolving Note.

        Company shall pay all costs of collection, including reasonable attorneys' fees and legal expenses if this Revolving Note is not paid when due, whether or not legal proceedings are commenced.

        Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

HEMACARE CORPORATION
By:	/s/ Jay Steffenhagen
Name:	Jay Steffenhagen
Its:	CEO
CORAL BLOOD SERVICES, INC.
By:	/s/ Robert S. Chilton
Name:	Robert S. Chilton
Its:	CFO

CAP EX NOTE

$250,000 April 10, 2008

FOR VALUE RECEIVED, each of the undersigned, HEMACARE CORPORATION, a California corporation and CORAL BLOOD SERVICES, INC. a California corporation (jointly and severally, the "Company"), hereby promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), acting through its WELLS FARGO BUSINESS CREDIT operating division, on the Termination Date described in the Credit and Security Agreement dated April 10, 2008 (as amended from time to time, the "Agreement") and entered into between Wells Fargo and Company, at Wells Fargo's office at Los Angeles, California, or at any other place designated at any time by the holder, in lawful money of the United States of America and in immediately available funds, the principal sum of TWO HUNDRED FIFTY THOUSAND Dollars ($250,000) or the aggregate unpaid principal amount of all Cap Ex Loan Advances made by Wells Fargo to Company under the terms of the Agreement, together with interest on the principal balance computed on the basis of actual days elapsed in a 360-day year, from the date of this Cap Ex Note until this Cap Ex Note is fully paid at the rate from time to time in effect under the terms of the Agreement. Principal and interest accruing on the unpaid principal amount of this Cap Ex Note shall be due and payable as provided in the Agreement. This Cap Ex Note may be prepaid only in accordance with the Agreement.

        This Cap Ex Note is the Cap Ex Note referred to in the Agreement, and is subject to the terms of the Agreement, which provides, among other things, for the acceleration of this Cap Ex Note. This Cap Ex Note is secured, among other things, by the Agreement and the Security Documents as defined in the Agreement, and by any other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements that may subsequently be given for good and valuable consideration as security for this Cap Ex Note.

        Company shall pay all costs of collection, including reasonable attorneys' fees and legal expenses if this Cap Ex Note is not paid when due, whether or not legal proceedings are commenced.

        Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

HEMACARE CORPORATION
By:	/s/ Jay Steffenhagen
Name:	Jay Steffenhagen
Its:	CEO
CORAL BLOOD SERVICES, INC.
By:	/s/ Robert S. Chilton
Name:	Robert S. Chilton
Its:	CFO

Exhibit A to Credit and Security Agreement

DEFINITIONS

"Account Funds" is defined in Section 1.4(a).

"Accounts" shall have the meaning given it under the UCC.

"Advance" and "Advances" is defined in Section 1.1(a).

"Affiliate" or "Affiliates" means Julian Steffenhagen, Robert S. Chilton and any other Person controlled by, controlling or under common control with Company, including any Subsidiary of Company. For purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

"Aggregate Face Amount" means the aggregate amount that may then be drawn under each outstanding Letter of Credit, assuming compliance with all conditions for drawing.

"Agreement" means this Credit and Security Agreement.

"Authenticated" means (a) to have signed; or (b) to have executed or to have otherwise adopted a symbol, or have encrypted or similarly processed a Record in whole or in part, with the present intent of the authenticating Person to identify the Person and adopt or accept a Record.

"Book Net Worth" means the aggregate of the common and preferred shareholder's equity in the Company, determined in accordance with GAAP, and calculated without regard to any change in the valuation of goodwill made in accordance with FASB Accounting Standard 142.

"Borrowing Base" is defined in Section 1.2(a).

"Borrowing Base Reserve" means, as of any date of determination, an amount or a percent of a specified category or item that Wells Fargo establishes in its sole discretion from time to time to reduce availability under the Borrowing Base (a) to reflect events, conditions, contingencies or risks which affect the assets, business or prospects of Company, or the Collateral or its value, or the enforceability, perfection or priority of Wells Fargo's Security Interest in the Collateral, as the term "Collateral" is defined in this Agreement, or (b) to reflect Wells Fargo's judgment that any collateral report or financial information relating to Company and furnished to Wells Fargo may be incomplete, inaccurate or misleading in any material respect or (c) to reflect, without limiting the generality of the any of the foregoing, contingencies or risks associated with respect to any facility or location of Company for which an executed Landlord Disclaimer and Consent (or similar agreement acceptable to Wells Fargo in its sole discretion) is required but is not obtained.

"Business Day" means a day on which the Federal Reserve Bank of New York is open for business.

"Capital Expenditures" means for a period, any expenditure of money during such period for the purchase or construction of assets, or for improvements or additions to such assets, which are capitalized on Company's balance sheet.

"CEO" is defined in Section 7.4(a).

"Change of Control" means the occurrence of any of the following events:

(a)

Any Person, entity or "group" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) who does not have an ownership interest in Company on the date of the initial Advance is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that any such Person, entity or group will be deemed to have "beneficial ownership" of all securities that such Person, entity or group has the right to

A-1

acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than fifteen percent (15%) of the voting power of all classes of ownership of Company;

(b)

During any consecutive two-year period, individuals who at the beginning of such period constituted the board of Directors of Company (together with any new Directors whose election to such board of Directors, or whose nomination for election by the Owners of Company, was approved by a vote of two thirds of the Directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of Directors of Company then in office.

"Collateral" means all of Company's Accounts, chattel paper and electronic chattel paper, deposit accounts, documents, Equipment, General Intangibles, goods, instruments, Inventory, Investment Property, letter-of-credit rights, letters of credit, all sums on deposit in any Collection Account, and any items in any Lockbox; together with (a) all substitutions and replacements for and products of such property; (b) in the case of all goods, all accessions; (c) all accessories, attachments, parts, Equipment and repairs now or subsequently attached or affixed to or used in connection with any goods; (d) all warehouse receipts, bills of lading and other documents of title that cover such goods now or in the future; (e) all collateral subject to the Lien of any of the Security Documents; (f) any money, or other assets of Company that come into the possession, custody, or control of Wells Fargo now or in the future; (g) Proceeds of any of the above Collateral; (h) books and records of Company, including all mail or e-mail addressed to Company; and (i) all of the above Collateral, whether now owned or existing or acquired now or in the future or in which Company has rights now or in the future.

"Collection Account" is defined in Section 1.4(a), and though owned by Wells Fargo as both depositor and as depository bank, the Collection Account is maintained in accordance with the terms of Wells Fargo's Commercial Account Agreement in effect for demand deposit accounts.

"Compliance Certificate" is defined in Section 5.1(a) and is in the form of Exhibit E.

"Commercial Letter of Credit Agreement" means an agreement governing the issuance of documentary letters of credit entered into between Company as applicant and Wells Fargo as issuer.

"Constituent Documents" means with respect to any Person, as applicable, that Person's certificate of incorporation, articles of incorporation, by-laws, certificate of formation, articles of organization, limited liability company agreement, management agreement, operating agreement, shareholder agreement, partnership agreement or similar document or agreement governing such Person's existence, organization or management or concerning disposition of ownership interests of such Person or voting rights among such Person's owners.

"Current Maturities of Long Term Debt" means, during a period beginning and ending on designated dates, the amount of Company's long-term debt and capitalized leases which become due during that period.

"Debt" means of a Person as of a given date, all items of indebtedness or liability which in accordance with GAAP would be included in determining total liabilities as shown on the liabilities side of a balance sheet for such Person and shall also include the aggregate payments required to be made by such Person at any time under any lease that is considered a capitalized lease under GAAP.

"Debt Service Coverage Ratio" means

(a)

the sum of (i) Funds from Operations and (ii) Interest Expense minus (iii) unfinanced Capital Expenditures, minus (iv) investments in, or other transfers to, Subsidiaries, minus (v) any dividends permitted to be paid by Wells Fargo in its sole discretion,

A-2

divided by

(b)

the sum of (i) Current Maturities of Long Term Debt and (ii) Interest Expense.

"Default Period" is defined in Section 1.6(c).

"Default Rate" is defined in Section 1.6(c).

"Dilution" means, as of any date of determination, a percentage, based upon the prior six (6) months, which is the result of dividing (a) actual bad debt write-downs, discounts, advertising allowances, credits, and any other items with respect to the Accounts determined to be dilutive by Wells Fargo in its sole discretion during this period, by (b) Company's net sales during such period (excluding extraordinary items) plus the amount of clause (a).

"Director" means a director if Company is a corporation, or a governor or manager if Company is a limited liability company.

"Earnings Before Taxes" means pretax earnings from operations, excluding extraordinary gains, but including extraordinary losses.

"Electronic Record" means a Record that is created, generated, sent, communicated, received, or stored by electronic means, but does not include any Record that is sent, communicated, or received by fax.

"Eligible Accounts" means all unpaid Accounts of Company arising from the sale or lease of goods or the performance of services, net of any credits, but excluding any such Accounts having any of the following characteristics:

(a)

That portion of Accounts unpaid 90 days or more after the invoice date;

(b)

That portion of Accounts related to goods or services with respect to which Company has received notice of a claim or dispute, which are subject to a claim of offset or a contra account, or which reflect a reasonable reserve for warranty claims or returns;

(c)

That portion of Accounts not yet earned by the final delivery of goods or that portion of Accounts not yet earned by the final rendition of services by Company to the account debtor, including with respect to both goods and services, progress billings, and that portion of Accounts for which an invoice has not been sent to the applicable account debtor;

(d)

Accounts constituting (i) Proceeds of copyrightable material unless such copyrightable material shall have been registered with the United States Copyright Office, or (ii) Proceeds of patentable inventions unless such patentable inventions have been registered with the United States Patent and Trademark Office;

(e)

Accounts owed by any unit of the federal government except for Accounts of the United States if Company has assigned its rights to receive payment to Wells Fargo and the assignment has been acknowledged by the unit of the federal government under the Federal Assignment of Claims Act of 1940, as amended;

(f)

Accounts denominated in any currency other than United States Dollars;

(g)

Accounts owed by an account debtor located outside the United States or Canada which are not (i) backed by a bank letter of credit naming Wells Fargo as beneficiary or assigned to Wells Fargo, in Wells Fargo's possession or control, and with respect to which a control agreement concerning the letter-of-credit rights is in effect, and acceptable to Wells Fargo in all respects, in its sole discretion, or (ii) covered by a foreign receivables insurance policy acceptable to Wells Fargo in its sole discretion;

A-3

(h)

Accounts owed by an account debtor that is insolvent, the subject of bankruptcy proceedings or has gone out of business;

(i)

Accounts owed by an Owner, Subsidiary, Affiliate, Officer or employee of Company;

(j)

Accounts not subject to the Security Interest or which are subject to any Lien in favor of any Person other than Wells Fargo;

(k)

That portion of Accounts that has been restructured, extended, amended or modified;

(l)

That portion of Accounts that constitutes advertising, finance charges, service charges (excluding normal charges incurred from normal business transactions) or sales or excise taxes;

(m)

Accounts owed by an account debtor, regardless of whether otherwise eligible, to the extent that the aggregate balance of such Accounts exceeds 15% of the aggregate amount of all Accounts; provided, however, such percentage will be 25%, in the aggregate, for Accounts for which the following Tenet owned hospitals are the account debtor: (1) USC University Hospital and (2) USC Norris Cancer Hospital;

(n)

Accounts owed by an account debtor, regardless of whether otherwise eligible, if 25% or more of the total amount of Accounts due from such debtor is ineligible under clauses (a), (b), or (k) above; and

(o)

Accounts, or portions of Accounts, otherwise deemed ineligible by Wells Fargo in its sole discretion.

"Eligible Equipment" means that Equipment designated by Wells Fargo as eligible from time to time in its sole discretion, but excluding Equipment having any of the following characteristics:

(a)

Equipment that is subject to any Lien other than in favor of the Wells Fargo;

(b)

Equipment that has not been delivered to the Premises;

(c)

Equipment in which the Wells Fargo does not hold a first priority security interest;

(d)

Equipment that is obsolete or not currently saleable;

(e)

Equipment that is not covered by standard "all risk" insurance for an amount equal to its forced liquidation value;

(f)

Equipment that requires proprietary software in order to operate in the manner in which it is intended when such software is not freely assignable to the Wells Fargo or any potential purchaser of such Equipment;

(g)

Equipment consisting of computer hardware, software, tooling, or molds; and

(h)

Equipment otherwise deemed unacceptable by the Wells Fargo in its sole discretion.

"Equipment" shall have the meaning given it under the Uniform Commercial Code in effect in the state whose laws govern this Agreement.

"Event of Default" is defined in Section 6.1.

"Floating Rate" means an annual interest rate applicable to the Advances which is based on the Prime Rate.

"Floating Rate Advance" means an Advance bearing interest at the Floating Rate.

"Funds from Operations" means for a given period, the sum of (a) Net Income, (b) depreciation and amortization, (c) any increase (or decrease) in deferred income taxes, (d) any increase (or decrease) in

A-4

lifo reserves, and (e) other non-cash items, each as determined for such period in accordance with GAAP.

"GAAP" means generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described on Exhibit D.

"General Intangibles" shall have the meaning given it under the UCC.

"Guarantor(s)" means any other Person now or in the future guaranteeing the Indebtedness through the issuance of a Guaranty.

"Guaranty" means an unconditional continuing guaranty executed by a Guarantor in favor of Wells Fargo (if more than one, the "Guaranties").

"Indebtedness" is used in its most comprehensive sense and means any debts, obligations and liabilities of Company to Wells Fargo, whether incurred in the past, present or future, whether voluntary or involuntary, and however arising, and whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and including without limitation indebtedness arising under any swap, derivative, foreign exchange, hedge, deposit, treasury management or any similar transaction or arrangement that Company may enter into at any time with Wells Fargo or with Wells Fargo Merchant Services, L.L.C., whether or not Company may be liable individually or jointly with others, or whether recovery upon such Indebtedness may subsequently become unenforceable.

"Indemnified Liabilities" is defined in Section 7.8.

"Indemnitees" is defined in Section 7.8.

"Infringement" or "Infringing" when used with respect to Intellectual Property Rights means any infringement or other violation of Intellectual Property Rights.

"Intellectual Property Rights" means all actual or prospective rights arising in connection with any intellectual property or other proprietary rights, including all rights arising in connection with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade names or mask works.

"Interest Expense" means for a fiscal year-to-date period, Company's total gross interest expense during such period (excluding interest income), and shall in any event include (a) interest expensed (whether or not paid) on all Debt, (b) the amortization of debt discounts, (c) the amortization of all fees payable in connection with the incurrence of Debt to the extent included in interest expense, and (d) the portion of any capitalized lease obligation allocable to interest expense.

"Interest Payment Date" is defined in Section 1.8(a).

"Inventory" shall have the meaning given it under the UCC.

"Investment Property" shall have the meaning given it under the UCC.

"L/C Amount" means the sum of (a) the Aggregate Face Amount of any outstanding Letters of Credit, plus (b) the amount of each Obligation of Reimbursement that either remains unreimbursed or has not been paid through an Advance on the Line of Credit.

"L/C Application" means an application for the issuance of standby or documentary Letters of Credit pursuant to the terms of a Standby Letter of Credit Agreement or Commercial Letter of Credit Agreement, in form acceptable to Wells Fargo.

"Letter of Credit" and "Letters of Credit" are each defined in Section 1.10(a).

"Licensed Intellectual Property" is defined in Exhibit D.

"Lien" means any security interest, mortgage, deed of trust, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument or device, including the interest of each lessor under any

A-5

capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or subsequently acquired and whether arising by agreement or operation of law.

"Line of Credit" is defined in the Recitals.

"Loan Documents" means this Agreement, the Revolving Note, the Cap Ex Note, each Guaranty, each Patent and Trademark Security Agreement, each Standby Letter of Credit Agreement, each Commercial Letter of Credit Agreement, any L/C Applications, and the Security Documents, together with every other agreement, note, document, contract or instrument to which Company now or in the future may be a party and which may be required by Wells Fargo.

"Lockbox" is defined in Section 1.4(b)(i), and is subject to the terms of the Lockbox service description to the Master Agreement for Treasury Management Services.

"Master Agreement for Treasury Management Services" means the Master Agreement for Treasury Management Services, the related Acceptance of Services, and each and every service description governing all deposit and treasury management products offered by Wells Fargo to Company.

"Material Adverse Effect" means any of the following:

(a)

A material adverse effect on the business, operations, results of operations, prospects, assets, liabilities or financial condition of Company;

(b)

A material adverse effect on the ability of Company to perform its obligations under the Loan Documents;

(c)

A material adverse effect on the ability of Wells Fargo to enforce the Indebtedness or to realize the intended benefits of the Security Documents, including a material adverse effect on the validity or enforceability of any Loan Document or of any rights against any Guarantor, or on the status, existence, perfection, priority (subject to Permitted Liens) or enforceability of any Lien securing payment or performance of the Indebtedness; or

(d)

Any claim against Company or threat of litigation which if determined adversely to Company would cause Company to be liable to pay an amount exceeding $50,000 or would result in the occurrence of an event described in clauses (a), (b) and (c) above.

"Maturity Date" is defined in Section 1.1(b).

"Maximum Line Amount" is defined in Section 1.1(a).

"Minimum Interest Charge" is defined in Section 1.6(b).

"Net Income" means fiscal year-to-date after-tax net income from continuing operations, including extraordinary losses but excluding extraordinary gains, all as determined in accordance with GAAP.

"Obligation of Reimbursement" is defined in Section 1.10(b).

"OFAC" is defined in Section 5.12(b).

"Officer" means with respect to Company, an officer if Company is a corporation, a manager if Company is a limited liability company, or a partner if Company is a partnership.

"Operating Account" is defined in Section 1.3(a), and maintained in accordance with the terms of Wells Fargo's Commercial Account Agreement in effect for demand deposit accounts.

"Overadvance" means the amount, if any, by which the outstanding principal balance of the Revolving Note, plus the L/C Amount, is in excess of the then-existing Borrowing Base.

"Owned Intellectual Property" is defined in Exhibit D.

A-6

"Owner" means with respect to Company, each Person having legal or beneficial title to an ownership interest in Company or a right to acquire such an interest.

"Patent and Trademark Security Agreement" means each Patent and Trademark Security Agreement entered into between Company and Wells Fargo.

"Permitted Lien" and "Permitted Liens" are defined in Section 5.3(a).

"Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision of a governmental entity.

"Premises" is defined in Section 2.4(a).

"Prime Rate" means at any time the rate of interest most recently announced by Wells Fargo at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Wells Fargo's base rates, and serves as the basis upon which effective rates of interest are calculated for those loans making reference to it, and is evidenced by its recording in such internal publication or publications as Wells Fargo may designate. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced by Wells Fargo.

"Proceeds" shall have the meaning given it under the UCC.

"Ready Remit" is defined in Section 1.4(b)(ii), and is subject to the terms of the Ready Remit service description to the Master Agreement for Treasury Management Services.

"Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form, and includes all information that is required to be reported by Company to Wells Fargo pursuant to Section 5.1.

"Restricted Account Agreement" means the Restricted Account Agreement entered into between Company, Wells Fargo, and the depository where such account is maintained.

"Revolving Note" is defined in Section 1.1(d).

"Security Documents" means this Agreement, the Patent and Trademark Security Agreement(s), and any other document delivered to Wells Fargo from time to time to secure the Indebtedness.

"Security Interest" is defined in Section 2.1.

"Special Account" means a specified cash collateral account maintained with Wells Fargo or another financial institution acceptable to Wells Fargo in connection with each undrawn Letter of Credit issued by Wells Fargo, as more fully described in Section 1.11.

"Standby Letter of Credit Agreement" means an agreement governing the issuance of standby letters of credit by Wells Fargo entered into between Company as applicant and Wells Fargo as issuer.

"Subordinated Creditor(s)" means any Person now or in the future subordinating indebtedness of Company held by that Person to the payment of the Indebtedness.

"Subordination Agreement" means a subordination agreement executed by a Subordinated Creditor in favor of Wells Fargo (if more than one, the "Subordination Agreements").

"Subsidiary" means any Person of which more than 50% of the outstanding ownership interests having general voting power under ordinary circumstances to elect a majority of the board of directors or the equivalent of such Person, irrespective of whether or not at the time ownership interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency, is at the time directly or indirectly owned by Company, by Company and one or more other Subsidiaries, or by one or more other Subsidiaries.

A-7

"Termination Date" is defined in Section 1.1(b).

"UCC" means the Uniform Commercial Code in effect in the state designated in this Agreement as the state whose laws shall govern this Agreement, or in any other state whose laws are held to govern this Agreement or any portion of this Agreement.

"Unused Amount" is defined in Section 1.7(b).

"Wells Fargo" means Wells Fargo Bank, National Association in its broadest and most comprehensive sense as a legal entity, and is not limited in its meaning to the Wells Fargo Business Credit operating division, or to any other operating division of Wells Fargo.

A-8

Exhibit B to Credit and Security Agreement

PREMISES

        The Premises referred to in the Credit and Security Agreement are legally described as follows:

15350 Sherman Way
Van Nuys, CA 91406

2250 Alcazar Street, #136
Los Angeles, CA 90033

300 Professional Drive
Scarborough, ME 04074

152 U.S. Route 1
Scarborough, ME 04074

992 Union Street
Bangor, ME 04401

297 Knollwood Road, Unit #301
White Plains, NY 10607

B-1

Exhibit C to Credit and Security Agreement

CONDITIONS PRECEDENT

(a)

The Revolving Note.

(b)

The Master Agreement for Treasury Management Services, the Acceptance of Services, and related service description for each credit related product or service that is described in this Agreement.

(c)

Restricted Account Agreements with each depository other than Wells Fargo where Company maintains deposit accounts.

(d)

A Standby Letter of Credit Agreement and a Commercial Letter of Credit Agreement, and a separate L/C Application for each Letter of Credit that Company has requested that Wells Fargo issue.

(e)

The Guaranty of Guarantors, pursuant to which each Guarantor unconditionally guarantees the full and prompt payment of all Indebtedness.

(f)

[Intentionally Omitted]

(g)

[Intentionally Omitted]

(h)

A true and correct copy of any leases pursuant to which Company is leasing the Premises, and, within thirty (30) days of the date of this Agreement, a Landlord's Disclaimer and Consent with respect to Company's facility at 300 Professional Drive, Scarborough, ME 04074 (the "Maine Facility"). A Landlord's Disclaimer and Consent will not be required with respect to any other facility of the Company. Furthermore, without limiting the generality of the definition of Borrowing Base Reserve, a reserve will be established in an amount equal to three (3) months' rent of (i) Company's facility at 15350 Sherman Way, Van Nuys, CA 914069 (provided; however, such reserve will be reduced, in Wells Fargo's discretion, if a Landlord Disclaimer and Consent is executed by the landlord of such facility in form and substance acceptable to Wells Fargo in its discretion) and (ii) Company's Maine Facility at 15350 Sherman Way, Van Nuys, CA 91406 (but this subclause (ii) will not be applicable if the executed Landlord's Disclaimer and Consent with respect to Company's Maine Facility is received by Wells Fargo within thirty (30) days of the date of this Agreement).

(i)

A true and correct copy of every agreement pursuant to which Company's property is in the possession of a Person other than Company, together with, in the case of any goods held by such Person for resale, (i) a consignee's acknowledgment and waiver of Liens, (ii) UCC financing statements sufficient to protect Company's and Wells Fargo's interests in such goods, and (iii) UCC searches showing that no other secured party has filed a financing statement against such Person and covering property similar to Company's other than Company, or if there exists any such secured party, evidence that each such party has received notice from Company and Wells Fargo sufficient to protect Company's and Wells Fargo's interests in Company's goods from any claim by such secured party.

(j)

[Intentionally Omitted].

(k)

A true and correct copy of any agreements pursuant to which Company's property is in the possession of any Person other than Company, together with (i) an Acknowledgment and Waiver of Liens from each landlord or mortgagee who has or may in the future have possession of Company's goods from time to time, (ii) UCC financing statements sufficient to protect Company's and Wells Fargo's interests in such goods, and (iii) UCC searches showing that no other secured party has filed a financing statement covering such Person's property other than Company, or if there exists any such secured party, evidence that the secured party has received notice from

C-1

Company and Wells Fargo sufficient to protect Company's and Wells Fargo's interests in Company's goods from any claim by such secured party.

(l)

An acknowledgement and agreement from each licensor of Intellectual Property Rights in favor of Wells Fargo, together with a true and correct company copy of all license agreements, including, without limitation, an assignment of that certain license agreement of Haemonetics Software Solutions, a Haemonetics® Company.

(m)

Current searches of appropriate filing offices showing that (i) no Liens have been filed and remain in effect against Company except Permitted Liens or Liens held by Persons who have agreed in an Authenticated Record that upon receipt of proceeds of the initial Advances, they will satisfy, release or terminate such Liens in a manner satisfactory to Wells Fargo, and (ii) Wells Fargo has duly filed all financing statements necessary to perfect the Security Interest, to the extent the Security Interest is capable of being perfected by filing.

(n)

A certificate of Company's secretary or assistant secretary certifying that attached to such certificate are (i) the resolutions of Company's Directors and, if required, Owners, authorizing the execution, delivery and performance of the Loan Documents, (ii) true, correct and complete copies of Company's Constituent Documents, and (iii) examples of the signatures of Company's Officers or agents authorized to execute and deliver the Loan Documents and other instruments, agreements and certificates, including Advance requests, on Company's behalf.

(o)

A current certificate of good standing or status issued by the secretary of state or other appropriate authority for Company's state of organization, certifying that Company is in compliance with all applicable organizational requirements of the state of organization.

(p)

Evidence that Company is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary.

(q)

A certificate of an appropriate Officer of Company confirming, in his or her personal capacity, the representations and warranties set forth in this Agreement.

(r)

Certificates of the insurance required under this Agreement, with all hazard insurance containing a lender's loss payable endorsement in Wells Fargo's favor and with all liability insurance naming Wells Fargo as an additional insured.

(s)

The Patent and Trademark Security Agreement(s).

(t)

[Intentionally Omitted].

(u)

Payment of fees and commissions due under this Agreement through the date of initial Advance, and any expenses incurred by Wells Fargo through such date and payable by Company, including all legal expenses incurred through the date of this Agreement.

(v)

Evidence that after making the initial Advance, establishing reserves for all Letters of Credit, satisfying all obligations owed to Company's prior lender, satisfying all trade payables older than 60 days from due date, book overdrafts and closing costs, availability as measured by subtracting the initial Advance from the Maximum Line Amount or the Borrowing Base shall be not less than $500,000.

(w)

A Customer Identification Information form and such other forms and verification as Wells Fargo may need to comply with the U.S.A. Patriot Act.

(x)

Payment of the fees due under Section 1.7 through the date of the initial Advance or issuance of a Letter of Credit, plus reimbursement of and costs and expenses incurred by Wells Fargo through such date that are required to be paid by Company under Section 7.7, including any legal expenses incurred through such date.

(y)

Such other documents as Wells Fargo in its sole discretion may require.

C-2

Exhibit D to Credit and Security Agreement

REPRESENTATIONS AND WARRANTIES

        Company represents and warrants to Wells Fargo as follows:

(a)

Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Federal Employer Identification Number and Organizational Identification Number.    Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. Company has all requisite power and authority to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents. During its existence, Company has done business solely under the names set forth below in addition to its correct legal name. Company's chief executive office and principal place of business is located at the address set forth below, and all of Company's records relating to its business or the Collateral are kept at that location. All Inventory and Equipment is located at that location or at one of the other locations set forth below. Company's name, Federal Employer Identification Number and Organization Identification Number are correctly set forth at the end of the Agreement next to Company's signature.

Trade Names

HemaCare Corporation
Coral Blood Services, Inc.
So. Cal. Blood Services
Southern California Blood Services
USC Donor Center
Maine Donor Center

Chief Executive Office / Principal Place of Business

15350 Sherman Way
Van Nuys, CA 91406

Other Inventory and Equipment Locations

2250 Alcazar Street, #136
Los Angeles, CA 90033

300 Professional Drive
Scarborough, ME 04074

152 U.S. Route 1
Scarborough, ME 04074

992 Union Street
Bangor, ME 04401

297 Knollwood Road, Unit #301
White Plains, NY 10607

(b)

Capitalization.    The capitalization chart below constitutes a correct and complete list of all ownership interests of five percent (5%) or more of the outstanding stock of the Company, based upon the most recent SEC filings on Form 13D and 13G prior to the date hereof, and rights to acquire ownership interests including the record holder, number of interests and percentage

D-1

interests on a fully diluted basis, and the organizational chart below shows the ownership structure of all Subsidiaries of Company.

Capitalization Chart

Holder	Type of Rights/Stock	No. of Shares (after exercise of all rights to acquire shares)	% Interest (on a fully diluted basis)
James G. Wolf	Common Stock	800,000	9.1	%
D. Carnegie & Co AB	Common Stock	775,519	8.8	%
John W. Egan	Common Stock	775,519	8.8	%
Gil and Oly Avidar	Common Stock	706,901	8.0	%
Gerber Family Trust dated 12/13/96	Common Stock	695,000	7.9	%

Organizational Chart

See Attached (Note: Comprehensive Blood Services has been dissolved).

(c)

Authorization of Borrowing; No Conflict as to Law or Agreements.    The execution, delivery and performance by Company of the Loan Documents and borrowing under the Line of Credit have been duly authorized and do not (i) require the consent or approval of Company's Owners; (ii) require the authorization, consent or approval by, or registration, declaration or filing with, or notice to, any governmental agency or instrumentality, whether domestic or foreign, or any other Person, except to the extent obtained, accomplished or given prior to the date of this Agreement; (iii) violate any provision of any law, rule or regulation (including Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to Company or of Company's Constituent Documents; (iv) result in a breach of or constitute a default or event of default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which Company is a party or by which it or its properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than the Security Interest) upon or with respect to any of the properties now owned or subsequently acquired by Company.

(d)

Legal Agreements.    This Agreement constitutes and, upon due execution by Company, the other Loan Documents will constitute the legal, valid and binding obligations of Company, enforceable against Company in accordance with their respective terms.

(e)

Subsidiaries.    Except as set forth in below, Company has no Subsidiaries.

Subsidiaries

Coral Blood Services, Inc.

Hemabiologics, Inc.

HemaCare BioScience, Inc.

Company represents and warrants to Lender that Hemabiologics, Inc. has no assets and does not conduct any business, and that Hemabiologics, Inc. will not in the future own any assets or conduct any business.

(f)

Financial Condition; No Adverse Change.    Company has furnished to Wells Fargo its audited financial statements for its fiscal year ended December 31, 2006, and unaudited financial statements for the fiscal-year-to-date period ended December 31, 2007, and those statements fairly present Company's financial condition as of those dates and the results of Company's operations

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and cash flows for the periods then ended and were prepared in accordance with GAAP. Since the date of the most recent financial statements, there has been no Material Adverse Effect.

(g)

Litigation.    There are no actions, suits or proceedings pending or, to Company's knowledge, threatened against or affecting Company or any of its Affiliates or the properties of Company or any of its Affiliates before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to Company or any of its Affiliates, would result in a final judgment or judgments against Company or any of its Affiliates in an amount in excess of $50,000 (apart from those matters specifically set forth below) or have a Material Adverse Effect on the financial condition, properties or operations of Company or any of its Affiliates.

Litigation Matters in Excess of $50,000

None

(h)

Intellectual Property Rights.

(i)    Owned Intellectual Property.    Set forth below is a complete list of all patents, applications for patents, trademarks, applications to register trademarks, service marks, applications to register service marks, mask works, trade dress and copyrights for which Company is the owner of record (the "Owned Intellectual Property"). Except as set forth below, (A) Company owns the Owned Intellectual Property free and clear of all restrictions (including covenants not to sue any Person), court orders, injunctions, decrees, writs or Liens, whether by agreement memorialized in a Record Authenticated by Company or otherwise, (B) no Person other than Company owns or has been granted any right in the Owned Intellectual Property, (C) all Owned Intellectual Property is valid, subsisting and enforceable, and (D) Company has taken all commercially reasonable action necessary to maintain and protect the Owned Intellectual Property.

(ii)    Agreements with Employees and Contractors.    Company has entered into a legally enforceable agreement with each Person that is an employee or subcontractor obligating that Person to assign to Company, without additional compensation, any Intellectual Property Rights created, discovered or invented by that Person in the course of that Person's employment or engagement with Company (except to the extent prohibited by law), and further obligating that Person to cooperate with Company, without additional compensation, to secure and enforce the Intellectual Property Rights on behalf of Company, unless the job description of the Person is such that it is not reasonably foreseeable that the employee or subcontractor will create, discover, or invent Intellectual Property Rights.

(iii)    Intellectual Property Rights Licensed from Others.    Set forth below is a complete list of all agreements under which Company has licensed Intellectual Property Rights from another Person ("Licensed Intellectual Property") other than readily available, non-negotiated licenses of computer software and other intellectual property used solely for performing accounting, word processing and similar administrative tasks ("Off-the-shelf Software") and a summary of any ongoing payments Company is obligated to make with respect thereto. Except as set forth below or in any other Record, copies of which have been given to Wells Fargo, Company's licenses to use the Licensed Intellectual Property are free and clear of all restrictions, Liens, court orders, injunctions, decrees, or writs, whether by agreed to in a Record Authenticated by Company or otherwise. Except as set forth below, Company is not contractually obligated to make royalty payments of a material nature, or pay fees to any owner of, licensor of, or other claimant to, any Intellectual Property Rights.

(iv)    Other Intellectual Property Needed for Business.    Except for Off-the-shelf Software and as set forth below, the Owned Intellectual Property and the Licensed Intellectual Property constitute all

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Intellectual Property Rights used or necessary to conduct Company's business as it is presently conducted or as Company reasonably foresees conducting it.

(v)    Infringement.    Except as set forth below, Company has no knowledge of, and has not received notice either orally or in a Record alleging, any Infringement of another Person's Intellectual Property Rights (including any claim set forth in a Record that Company must license or refrain from using the Intellectual Property Rights of any Person) nor, to Company's knowledge, is there any threatened claim or any reasonable basis for any such claim.

Intellectual Property Disclosures

HemaCare Corporation recently learned that Global First Step, LLC ("GFS"), located in Ft. Myers, Florida, is doing business as "HemaCare" to promote and provide services in the areas of blood and blood testing an analysis. HemaCare Corporation also learned that GFS established a website (www.hema-care.com) which is very similar to HemaCare Corporation's sites (www.hemacare.com; www.hemacare.org; and www.hemacare.net). On March 5, 2008, Hemacare Corporation's counsel sent a letter to GFS demanding that GFS immediately: (1) stop using "HemaCare" and any similar mark as a tradename, service mark and/or domain name; (2) stop using the mark in advertisements and in all other manners; (3) transfer the "www.hema-care.com" domain name to HemaCare Corporation; and (4) preserve all evidence of infringement.

(i)

Taxes.    Company and its Affiliates have paid or caused to be paid to the proper authorities when due all federal, state and local taxes required to be withheld by each of them. Company and its Affiliates have filed all federal, state and local tax returns which to the knowledge of the Officers of Company or any Affiliate, as the case may be, are required to be filed, and Company and its Affiliates have paid or caused to be paid to the respective taxing authorities all taxes as shown on these returns or on any assessment received by any of them to the extent such taxes have become due.

(j)

Titles and Liens.    Company has good and absolute title to all Collateral free and clear of all Liens other than Permitted Liens. No financing statement naming Company as debtor is on file in any office except to perfect only Permitted Liens.

(k)

No Defaults. Company is in compliance with all provisions of all agreements, instruments, decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which could have a material adverse effect on Company's financial condition, properties or operations.

(l)

Submissions to Wells Fargo.    All financial and other information provided to Wells Fargo by or on behalf of Company in connection with Company's request for the credit facilities contemplated hereby is (i) true and correct in all material respects, (ii) does not omit any material fact necessary to make such information not misleading and, (iii) as to projections, valuations or proforma financial statements, present a good faith opinion as to such projections, valuations and proforma condition and results.

(m)

Financing Statements.    Company has previously authorized the filing of financing statements sufficient when filed to perfect the Security Interest and other security interests created by the Security Documents. When such financing statements are filed, Wells Fargo will have a valid and perfected security interest in all Collateral capable of being perfected by the filing of financing statements. None of the Collateral is or will become a fixture on real estate, unless a sufficient fixture filing has been filed with respect to such Collateral.

(n)

Rights to Payment.    Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or, in the case of all future Collateral, will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, setoff or counterclaim of the account debtor or other obligor named in that instrument.

D-4

Exhibit E to Credit and Security Agreement

COMPLIANCE CERTIFICATE

To:	Wells Fargo Bank, National Association
Date:	, 200
Subject:	Financial Statements

        In accordance with our Credit and Security Agreement dated                                     , 200             (as amended from time to time, the "Credit Agreement"), attached are the financial statements of                                    (the "Company") dated                                     , 200             (the "Reporting Date") and the year-to-date period then ended (the "Current Financials"). All terms used in this certificate have the meanings given in the Credit Agreement.

        A.    Preparation and Accuracy of Financial Statements.    I certify that the Current Financials have been prepared in accordance with GAAP, subject to year-end audit adjustments, and fairly present Company's financial condition as of the Reporting Date.

        B.    Name of Company; Merger and Consolidation.    I certify that:

(Check one)

o

Company has not, since the date of the Credit Agreement, changed its name or jurisdiction of organization, nor has it consolidated or merged with another Person.



o

Company has, since the date of the Credit Agreement, either changed its name or jurisdiction of organization, or both, or has consolidated or merged with another Person, which change, consolidation or merger: o was consented to in advance by Wells Fargo in an Authenticated Record, and/or o is more fully described in the statement of facts attached to this Certificate.

        C.    Events of Default.    I certify that:

(Check one)

o

I have no knowledge of the occurrence of an Event of Default under the Credit Agreement, except as previously reported to Wells Fargo in a Record.



o

I have knowledge of an Event of Default under the Credit Agreement not previously reported to Wells Fargo in a Record, as more fully described in the statement of facts attached to this Certificate, and further, I acknowledge that Wells Fargo may under the terms of the Credit Agreement impose the Default Rate at any time during the resulting Default Period.

        D.    Litigation Matters.    I certify that:

(Check one)

o

I have no knowledge of any material adverse change to the litigation exposure of Company or any of its Affiliates or of any Guarantor.



o

I have knowledge of material adverse changes to the litigation exposure of Company or any of its Affiliates or of any Guarantor not previously disclosed in Exhibit D, as more fully described in the statement of facts attached to this Certificate.

        E.    Financial Covenants.    I further certify that:

(Check and complete each of the following)

        1.    Minimum Book Net Worth.    Pursuant to Section 5.2(a) of the Credit Agreement, as of the Reporting Date, Company's Book Net Worth (excluding intercompany receivables owed from

E-1

Hemacare Bioscience, Inc.), was $                , which o satisfies o does not satisfy the requirement that such amount be not less than the applicable amount set forth in the table below (numbers appearing between "< >"are negative) on the Reporting Date:

Period	Minimum Book Net Worth
Month Ending February 29, 2008	$	4,550,000
Month Ending March 31, 2008	$	4,550,000
Month Ending April 30, 2008	$	4,525,000
Month Ending May 31, 2008	$	4,525,000
Month Ending June 30, 2008	$	4,525,000
Month Ending July 31, 2008	$	4,600,000
Month Ending August 31, 2008	$	4,600,000
Month Ending September 30, 2008	$	4,600,000
Month Ending October 31, 2008	$	4,675,000
Month Ending November 30, 2008	$	4,675,000
Month Ending December 31, 2008 and each month ending thereafter	$	4,675,000

        2.    Minimum Net Income.    Pursuant to Section 5.2(b) of the Credit Agreement, as of the Reporting Date, Company's Net Income was $                , which o satisfies o does not satisfy the requirement that Net Income be not less than the amount set forth in the table below (numbers appearing between "< >" are negative):

Period	Minimum Net Income
Fiscal Quarter Ending March 31, 2008	$	<75,000	>
Fiscal Quarter Ending June 30, 2008	$	<25,000	>
Fiscal Quarter Ending September 30, 2008	$	75,000
Fiscal Quarter Ending December 31, 2008	$	75,000
Fiscal Year Ending December 31, 2008	$	270,000

        3.    Minimum Earnings Before Taxes.    [Not Applicable]

        4.    Minimum Debt Service Coverage Ratio.    Pursuant to Section 5.2(d) of the Credit Agreement, as of the Reporting Date, Company's Debt Service Coverage Ratio was to 1.00, which o satisfies o does not satisfy the requirement that such ratio be not less than the applicable ratio set forth in the table below on the Reporting Date:

Period	Minimum Debt Service Coverage Ratio
Nine months ended September 30, 2008	to 1.00; provided, however, if a Cap Ex Loan is requested and made, then 1.20 to 1.0
Twelve months ended December 31, 2008	1.10 to 1.00; provided, however, if a Cap Ex Loan is requested and made, then 1.20 to 1.0
Each calendar quarter ending after December 31	1.10 to 1.00; provided, however, if a Cap Ex Loan is requested and made, then 1.20 to 1.0

        5.    Capital Expenditures.    Pursuant to Section 5.2(e) of the Credit Agreement, for the year-to-date period ending on the Reporting Date, Company has expended or contracted to expend during the fiscal year ended                 , 200    , for Capital Expenditures, $                 in the aggregate,

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which o satisfies o does not satisfy the requirement that such expenditures not exceed $1,000,000 in the aggregate during such year.

        Attached are statements of all relevant facts and computations in reasonable detail sufficient to evidence Company's compliance with the financial covenants referred to above, which computations were made in accordance with GAAP.

HEMACARE CORPORATION
CORAL BLOOD SERVICES, INC.
By:	Its Chief Financial Officer

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Exhibit F to Credit and Security Agreement

PERMITTED LIENS

Creditor	Collateral	Jurisdiction	Filing Date	Filing No.
Cobe Leasing Co.	Specific Equipment	California	07/08/99	9919860616
Dell Financial Services, LP	Leased Equipment	California	07/09/02	0219160928

INDEBTEDNESS

Creditor	Current Principal Amt.		Maturity Date	Monthly Payment	Collateral
Joseph Mauro	$	153,800	August 29, 2010	n/a	Secured by Assets of HemaBio
Valentin Adia	$	46,200	August 29, 2010	n/a	Secured by Assets of HemaBio

GUARANTIES

Primary Obligor	Amount and Description of Obligation Guaranteed	Beneficiary of Guaranty
NONE

F-1

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Exhibit 10.39

WELLS FARGO BUSINESS CREDIT CREDIT AND SECURITY AGREEMENT
RECITALS
AGREEMENT
Exhibit A to Credit and Security Agreement DEFINITIONS
Exhibit B to Credit and Security Agreement PREMISES
Exhibit C to Credit and Security Agreement CONDITIONS PRECEDENT
Exhibit D to Credit and Security Agreement REPRESENTATIONS AND WARRANTIES
Exhibit E to Credit and Security Agreement COMPLIANCE CERTIFICATE
Exhibit F to Credit and Security Agreement PERMITTED LIENS
INDEBTEDNESS
GUARANTIES

EX-11

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Exhibit 11

HemaCare Corporation

Basic and Diluted Net (Loss) Income per Share

	Years ended December 31,
	2007			2006
BASIC
Weighted average common shares used to compute basic earnings per share		8,687,000			8,265,000
Net (loss) income—continuing operations	$	(1,828,000	)	$	1,471,000
Basic net (loss) income per share—continuing operations	$	(0.21	)	$	0.18
Net (loss) income—discontinued operations	$	(5,960,000	)	$	380,000
Basic net (loss) income per share—discontinued operations	$	(0.69	)	$	0.04
Total net (loss) income	$	(7,788,000	)	$	1,851,000
Total basic net (loss) income per share	$	(0.90	)	$	0.22
DILUTED
Weighted average common shares used to compute basic earnings per share		8,687,000			8,265,000
Dilutive common equivalent shares attributable to stock options (based on average market price)		N/A			830,000
Weighted average common shares and equivalents used to compute diluted earnings per share		8,687,000			9,095,000
Net (loss) income—continuing operations	$	(1,828,000	)	$	1,471,000
Diluted net (loss) income per share—continuing operations	$	(0.21	)	$	0.16
Net (loss) income—discontinued operations	$	(5,960,000	)	$	380,000
Diluted net (loss) income per share—discontinued operations	$	(0.69	)	$	0.04
Total net (loss) income	$	(7,788,000	)	$	1,851,000
Total diluted net (loss) income per share	$	(0.90	)	$	0.20

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Exhibit 11

HemaCare Corporation Basic and Diluted Net (Loss) Income per Share

EX-21

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Exhibit 21

Subsidiaries of Registrant

Coral Blood Services, Inc.
HemaBiologics, Inc.
HemaCare BioScience, Inc.

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Exhibit 21

EX-23.1

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Exhibit 23.1

CONSENT OF STONEFIELD JOSEPHSON, INC.,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We consent to the incorporation by reference in the Registration Statements on Form S-8 pertaining to the 2006 Equity Incentive Plan (No. 333-135663), 2004 Stock Purchase Plan (No. 333-116405) and 1996 Stock Incentive Plan (No. 333-132603, 333-18601 and 333-114013), of HemaCare Corporation our report dated April 11, 2008, with respect to the consolidated financial statements of HemaCare Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 2007.

CERTIFIED PUBLIC ACCOUNTANTS

/s/ Stonefield Josephson, Inc.
Los Angeles, California
April 11, 2008

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CONSENT OF STONEFIELD JOSEPHSON, INC., INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31.1

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Exhibit 31.1

CERTIFICATION

I, Jay Steffenhagen, certify that:

        1.     I have reviewed this Annual Report on Form 10-K of HemaCare Corporation;

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

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

        4.     The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

        (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

        (c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        (d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

        5.     The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

        (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

        (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 14, 2008

/s/  JAY STEFFENHAGEN Jay Steffenhagen
Chief Executive Officer
(Principal Executive Officer)

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Exhibit 31.1

CERTIFICATION

EX-31.2

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Exhibit 31.2

CERTIFICATION

I, Robert S. Chilton, certify that:

        1.     I have reviewed this Annual Report on Form 10-K of HemaCare Corporation;

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

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

        4.     The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

        (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

        (c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        (d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

        5.     The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

        (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

        (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 14, 2008

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

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Exhibit 31.2

CERTIFICATION

EX-32.1

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EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        The undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to their knowledge, the Annual Report on Form 10-K for the year ended December 31, 2007 of HemaCare Corporation (the "Company") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in such report.

Very truly yours,

Jay Steffenhagen
Chief Executive Officer

Robert S. Chilton
Chief Financial Officer

Dated: April 14, 2008

        A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to HemaCare Corporation and will be furnished to the Securities and Exchange Commission or its staff upon request.

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EXHIBIT 32.1