Back to GetFilings.com

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

FORM 10-K

Commission file number: 0-15223

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

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

        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

        The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2004, the last business day of the registrant's most recently completed second fiscal quarter (based upon the closing bid price of the Common Stock as reported by the OTC Bulletin Board), was approximately $4,492,000.

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Act). o Yes    ý No

        As of February 17, 2005, 8,078,060 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 2005 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

i

PART I

Item 1.    Business

        This 2004 Annual Report on Form 10-K contains statements which constitute 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. Those statements 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 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors Affecting the Company"). 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") collects, processes and distributes blood products to hospitals in the United States. The Company operates and manages donor centers and mobile donor vehicles to collect 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 services are usually provided under contract with hospitals 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 U.S. In 2003, new management reduced the number of geographic regions served as part of a restructuring plan to return the Company to profitability. In 2004, the Company's earnings improved compared with 2003 as a result of the successful implementation of management's plan. The Company's current strategy is to continue to focus on increasing the utilization of existing capacity in those markets currently served by the Company, expand the customer base for blood products to include biopharmaceutical companies and other organizations involved in research efforts on new treatments and therapies, and expand the market potential for therapeutic apheresis services through increased investment in physician education and other marketing efforts.

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

Recent Developments

Substantial Improvement in Profitability

        The Company recorded income before income taxes of $1,563,000 in 2004, representing the highest annual pretax earnings in the history of the Company. This represents a substantial change from the $1,695,000 loss before income taxes recorded in 2003. This accomplishment was due to the successful implementation in late 2003 of a restructuring plan designed to eliminate poorly performing operations, reduce overhead costs and improve the product collection capabilities in the geographic areas served by the Company.

Limitation on Blood Product Supply

        Blood products organizations, as well as regulatory agencies, focus significant attention and resources on improving the safety of the blood supply. Requirements to screen potential donors for possible exposure to a variety of pathogens, including HIV, malaria and SARS, have reduced the pool

1

of eligible donors. In addition, regulations and industry standards require an increasing number of tests on donated blood products to detect pathogens, including a new bacterial detection quality control test, which may negatively impact expiration rates of platelet products. The Company faces an increasing risk that these factors will increase the cost of producing blood products and reduce the ability to generate a sufficient supply of blood products to satisfy customer demand. The inability to satisfy customer demand could result in the loss of customers, and a loss of revenue.

Nursing Shortage

        Multiple factors, including a decline in nursing graduates, the retirement or movement of experienced nurses out of direct patient care, and the January 1, 2004 California law that increased the nurse-to-patient staffing ratios, have created a nursing shortage. This shortage has directly affected the blood industry because certain regulations and industry standards require a nurse's presence during donation and for therapeutic apheresis procedures. The shortage of nurses has increased the cost of recruitment and retention of nursing staff and may limit the Company's ability to provide and expand operations. This challenge of locating qualified nurses, however, may provide additional opportunities as hospitals may choose to outsource therapeutic services to HemaCare. If HemaCare can succeed in recruiting qualified nurses to perform these therapeutic services, the Company's market for such services could increase in the future.

Industry Changes to 24-Hour Frozen Plasma

        In Southern California, a major supplier of frozen plasma products converted operations to produce 24-hour frozen plasma from eight-hour fresh frozen plasma. Many hospital customers continue to demand eight-hour fresh frozen plasma. This has created an opportunity for the Company since the Company's operations continue to focus on the production of eight-hour fresh frozen plasma. As a result, the demand for the Company's plasma products has increased; however, the Company's production capacity may not grow sufficiently to satisfy the demand for this product. Therefore, some hospital customers may decide to switch to 24-hour frozen plasma in order to insure a reliable supply of this product. If a significant number of the Company's customers switch to 24-hour frozen plasma, the Company may need to reduce the price of its plasma products in order to retain customers. This could have a negative impact on the future profitability of the Company.

Therapeutic Apheresis Competition

        A new company recently began operations providing therapeutic apheresis services in direct competition with the Company. This new company has hired several of the Company's former employees, and as a result is aware of the Company's customer base, business strategies and resources. In addition, this new company has hired, or attempted to hire, many of the Company's trained apheresis nurses. This has caused the Company to incur significant recruitment costs to replace these nurses, and has caused the Company to dramatically increase the compensation to existing nurses. This new company has successfully contracted with several of the Company's customers. Therefore, it appears likely that the introduction of this new competitor will have a negative impact on the Company's future revenue for therapeutic apheresis services. In addition, it appears likely that the increase in costs associated with nurse retention and recruitment will negatively impact the future profitability for the blood services business segment.

Donor Center Closures

        In the first quarter of 2004, management closed the donor center in Chapel Hill, North Carolina as the final step to complete the implementation of the restructuring plan initiated in late 2003. The Company recorded revenues from this donor center of $1,190,000 in 2003, and $65,000 in the first quarter of 2004. In the second quarter of 2004, the donor center management contracts between the

2

Company and Presbyterian Intercommunity Hospital, located in Whittier, California, and between the Company and Dartmouth-Hitchcock Medical Center, located in Lebanon, New Hampshire, expired and were not renewed. The Company recorded revenues from the contract with Presbyterian Intercommunity Hospital in 2003 of $555,000, and $302,000 in the first six months of 2004. The Company recorded revenues from the contract with Dartmouth-Hitchcock Medical Center in 2003 of $1,053,000, and $595,000 in the first six months of 2004.

Business Segments

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

Blood Product Operations

        The practice of medicine depends on the availability of safe and adequate blood products. Most blood product collections consist of single units of whole blood. The actual collection process is simple and safe for the donor. After collection, whole blood units are tested and processed into components, and then distributed to hospitals for transfusion. These components include red blood cells and plasma. All blood products have limited therapeutic lives.

        Apheresis collection separates blood components during the donation process through the use of a cell separator. This process allows for the collection of only the desired components of a donor's blood and returns the other blood components to the donor's blood stream. Apheresis blood product collection, used by HemaCare to collect platelets, is considerably more complex and more expensive than whole blood collection and processing. Automated apheresis equipment is costly and requires longer donation times, which result in higher labor costs. The complexity of the donation process, and longer donation time, makes recruiting donors for apheresis procedures more difficult than recruiting whole blood donors.

        On average, only 5% of the United States population donates blood and a much smaller percentage are apheresis platelet donors. Recruiting and retaining donors is critical to the success of blood product operations. Apheresis platelet donors are recruited from the most dedicated and committed subset of the whole blood donor population. On average such donors donate platelets between four and six times a year, compared to twice a year for whole blood donors. Generally, success in donor recruitment is a major factor in success of any blood collection program. The Company has demonstrated a consistent track record of donor recruitment for apheresis donors at the donor centers it currently operates.

        In addition, the Company's blood products operations include extensive capability to collect whole blood from donors. The Company contracts with local hospitals to serve as their whole blood collection contractor. In this capacity, the Company solicits, on behalf of the hospital customer, sponsor organizations, such as employers, schools or churches, to conduct blood drives. The Company's recruitment staff works with the staff of the sponsor organization to encourage the individuals associated with the sponsor to donate blood at a blood drive usually conducted at the sponsor's facilities. Whole blood collected at these blood drives is processed into transfusable blood products and made available to the hospital customers as needed.

        Blood products revenue depends on a number of factors, including the success of the Company's donor recruitment efforts, the success of the Company's marketing efforts to attract and retain new customers for blood products, and the ability of the Company to properly process, store and transport blood products to customers prior to the products expiration dates.

3

        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, regulated and inspected by various state agencies.

        The American Association of Blood Banks ("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 operations are accredited by the AABB.

        The Company has blood collection operations in three states, California, Maine and Massachusetts. The Company operates free standing blood collection centers and mobile blood collection operations in Southern California and Maine, and a hospital based collection center in 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 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 or in a hospital outpatient setting. The mobile therapeutic equipment includes a blood cell separator and the disposables needed to perform the procedure. Treatments are 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 ("JCAHO").

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

        Blood services revenue depends on a number of factors, including the occurrence of disease states that are appropriately treated by these services, and the perceived benefits of blood therapies compared to alternative courses of treatment. The Company believes that education on the benefits of therapeutic apheresis results in increases 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; in-line immunoadsorbant columns; 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 located in Southern California and New York.

Competition

General

        Most U.S. blood suppliers are organized as not-for-profit, tax-exempt entities. However, all blood suppliers finance their activities by charging fees to hospitals for the products they utilize. These fees

4

are generally set at levels based on the supply and demand for specific products, and are influenced by the potential competition from other blood suppliers. 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 that the Company faces, and they have access to lower cost tax-exempt debt financing. Their status as charitable institutions may give them an advantage in recruiting volunteer donors. The Company competes on the basis of responsiveness to customer needs, value-based pricing and the high quality of the services and products provided.

Blood Products

        In the United States, approximately 50% of all 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.

Blood Services

        The competition in the therapeutic blood services business is primarily regional and community blood banks, dialysis companies that also provide therapeutic blood services, and a wide range of small blood services companies. This includes a newly established company that has hired several former HemaCare employees. 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 include companies that market or provide many of these competing medical therapies. The Company believes that it competes in this market by offering highly trained and experienced nurses and greater availability for customers with immediate needs. 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

        During 2004 only one customer represented any significant portion of the Company's total revenue. This customer accounted for approximately 10.6% of total revenue. The next largest customer accounted for approximately 7.7% of total revenue. No other customer accounted for any more than 5% of total revenue. The Company has no relationship with either 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 selected physicians and hospitals. The Company markets its products and services in the form of supply programs that meet the specific needs of individual customers. As a smaller company than the main competitors in the marketplace, HemaCare offers more flexibility in supply arrangements and pricing structure. This flexibility and focus on customer service are the main messages communicated throughout the marketing vehicles the Company utilizes.

5

Human Resources

        As of February 2, 2005, the Company had 259 employees, including 95 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 not experienced difficulty in 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 2004, the Company received goods and services from two major vendors that represented more than 10% of the Company's total costs. One vendor, that represents 47% of total costs, provides products that support the Company's apheresis activities. The other vendor, that represents 37% 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.

        The Company relies on blood donors to provide the platelets and whole blood required to produce the blood products manufactured and sold by the Company. The Company competes with the ARC and other blood suppliers in recruiting its volunteer 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.

Government Regulation

Blood Product Operations

        All hospitals and blood suppliers are subject to extensive regulation by the FDA and various state licensing authorities. FDA regulations are comprehensive, complex and extend to virtually all aspects of the blood supply industry, including: recruiting; screening blood donors; processing, testing, labeling, storing and shipping blood products; recordkeeping; and communications with hospital customers and donors. In addition, 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 tested at the conclusion of these classes 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.

        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. The Company believes it has adequately addressed all of the issues raised by the FDA, and that it is in compliance with current FDA regulations.

6

        During the past year, the Department of Health for the State of California conducted an audit of selected Company facilities located in California. This audit focused on compliance with specific California laws that cover HemaCare's operations. At the conclusion of this audit, the Department of Health provided the Company with a list of observations that have since been addressed. The Company believes that it is in compliance with California regulations governing the Company's operations within the state.

        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, with the exception of a blood collection facility within a hospital that operates under the hospital's 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 Sherman Oaks, California and Scarborough, Maine facilities to ship selected blood products across state lines. The Company has submitted an expanded license request to the FDA for additional blood products manufactured at Sherman Oaks, and for a license for blood products produced by the Company's Bangor, Maine facility. These requests are pending with the FDA.

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.

        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 2%, or less, of the Company's total revenues in each of the three years ended December 31, 2004. 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 currently 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 and managed care that may materially impact the Company's operations.

Professional and Product Liability Insurance

        The blood products and blood services business inherently is 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 in California, and $1,000,000 for a single occurrence and $3,000,000 in the aggregate per year in other states. There can be no assurance that potential insurance claims will not exceed present coverage or that continued or additional insurance coverage would be available at affordable premium costs. If such insurance were ineffective or inadequate for any reason, the Company could be exposed to significant liabilities.

7

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 450 Fifth Street, NW, 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 that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

Item 2    Properties

        The Company's corporate offices and part of its distribution center are located in an 11,250 square foot facility in Woodland Hills, California. The rent for this facility is fixed at $16,700 per month and the lease on this space expires October 31, 2006. The Company has one five-year option to extend this lease at the then current market price.

        The Company also operates an apheresis donor center, a laboratory, a manufacturing facility for whole blood components and a distribution center in a 7,600 square foot facility in Sherman Oaks, California. The Company currently rents this space on a month-to-month basis for a monthly amount of approximately $22,500 while negotiating a lease for a multi-year term. Thus far the Company has been unable to negotiate a long-term lease agreement regarding this space, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors Affecting the Company—Lease for Major Production Facility has Expired."

        The Company leases space for a donor center in a 3,600 square foot facility in Scarborough, Maine. The monthly rent is approximately $4,300 per month, with an escalation clause for changes in the Consumer Price Index. The lease term expires October 31, 2007.

        The Company also leases space for a donor center in a 2,500 square foot facility in Bangor, Maine. The monthly rent is approximately $3,900 per month. The lease term expires December 31, 2006, and the Company has the option to extend the lease for two additional five-year terms at rates adjusted for changes in the Consumer Price Index.

        In addition, the Company leases a 1,278 square foot office space in Yonkers, New York which expires August 31, 2006, for a monthly amount of approximately $2,200 per month.

        The Company occupies space on the campus of several of its client hospitals. While the arrangements vary, certain of these facilities are formally subject to a lease agreement with the sponsoring hospital for periods concurrent with the blood supply agreement. Other agreements grant the Company the right to utilize space and facilities on the hospital premises during the term of the blood supply agreement at no cost.

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.

8

Item 4    Submission of Matters to a Vote of Security Holders

        None.

PART II

Item 5    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Effective November 2, 1998, the Company's Common Stock became quoted on the OTC Bulletin Board under the symbol HEMA. Prior to that date, the Company's Common Stock was listed on the Nasdaq Small Cap Market ("Nasdaq") under the same symbol.

        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.

        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. 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 February 17, 2005, the approximate number of shareholders of record was 282 (excluding individual participants in nominee security position listings).

9

Item 6    Selected Financial Data

        The following selected financial data should be read in conjunction with the other information and financial statements, including the notes thereto, appearing elsewhere herein:

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

General

        HemaCare operates two primary business segments. The first is the blood products segment which supplies hospitals and other customers 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.

        The earnings generated by the blood products segment improved dramatically during the past year. This was primarily the result of the successful implementation of a plan commenced in 2003 to restructure operations to return the segment to profitability. This plan included closing six donor centers, including the mobile operations associated with these centers, and a reduction in overhead expenses. As a result, the Company was able to focus more time and resources in 2004 on improving the volume of product produced by the remaining operations, and increasing overall efficiency.

        Other significant events for the blood products segment include increasing staff costs as a result of a growing nursing shortage in the U.S., increased regulatory requirements to screen potential donors to reduce the risk of pathogens in the blood supply, and industry requirements to test platelet products for bacteria beginning March 2004 which increased the cost to produce platelet products.

        In Southern California, a major supplier of frozen plasma products converted operations to produce 24-hour frozen plasma from eight-hour fresh frozen plasma. Many hospital customers continue to demand eight-hour fresh frozen plasma. As a result, the demand for the Company's plasma products has increased; however, the Company's production capacity may not grow sufficiently to satisfy the demand for this product. Therefore, some hospital customers may decide to switch to 24-hour frozen plasma in order to insure a reliable supply of this product. If a significant number of the Company's

10

customers switch to 24-hour frozen plasma, the Company may need to reduce the price of its plasma products in order to retain customers. This could have a negative impact on the future profitability of the Company.

        Finally, in the second quarter of 2004, the donor center management contracts between the Company and Presbyterian Intercommunity Hospital, located in Whittier, California, and between the Company and Dartmouth-Hitchcock Medical Center, located in Lebanon, New Hampshire expired and were not renewed.

        The second business segment is HemaCare's blood services segment which includes therapeutic apheresis procedures, stem cell collection and other blood therapies provided to patients generally in a hospital setting. This segment fluctuates based on the occurrence rate of diseases treated with therapeutic apheresis, the degree hospitals have fully staffed apheresis units available, and the degree of success of the Company's efforts at physician education about the potential benefits of therapeutic apheresis as a treatment alternative. Over the past few years this business segment has been relatively stable in Southern California; however, the Company believes growth opportunities exist in the New York market. The New England market has declined recently due to difficulties recruiting and retaining trained apheresis nurses.

        This business segment recently encountered a new threat in the form of a new company that recently began to provide therapeutic apheresis services in some of the same markets serviced by the Company. This new company has hired several of the Company's former employees, and as a result is aware of the Company's customer base, business strategies and resources. In addition, this new company has hired, or attempted to hire, many of the Company's trained apheresis nurses. This has caused the Company to incur significant recruitment costs to replace these nurses, and has caused the Company to dramatically increase the compensation to existing nurses. This new company has successfully contracted with several of the Company's customers. Therefore, it appears likely that the introduction of this new competitor will have a negative impact on the Company's future revenue for therapeutic apheresis services. In addition, it appears likely that the increase in costs associated with nurse retention and recruitment will negatively impact the future profitability for the blood services business segment.

11

Results of Operations

        The following table sets forth, for the periods indicated, the percentage that certain items in the statement of operations were of net revenue and the percentage dollar increase (decrease) of such items from period to period.

Year ended December 31, 2004 compared to the year ended December 31, 2003

Overview

        The Company generated net income of $1,545,000, or $.20 basic and $.19 fully diluted, earnings per share for 2004, compared to a net loss of $4,679,000 or $.60, both basic and fully diluted, loss per share in 2003. The main reasons for this material change in the earnings of the Company are the reduction in costs realized by closing blood product operations as part of the successful implementation of management's restructuring plan in late 2003, and the lack of any increase in the deferred tax asset valuation reserve in 2004, compared to the increase in 2003.

        Gross profit increased 158.4% to $5,816,000 in 2004 from $2,251,000 in 2003 due to reduced operating costs as a result of the closure of underperforming donor centers as part of management's restructuring plan, improved product sales volumes at the Company's remaining operations and the reclassification of professional liability insurance expense from operating costs to general and administrative expense.

        General and administrative expenses increased 12.0% in 2004 to $4,420,000 from $3,946,000 in 2003. This is mostly attributable to a reclassification of professional liability insurance expense to general and administrative from operating costs, higher professional liability insurance premiums, higher staff recruitment costs and an increase in management bonuses as a result of achieving specific profitability targets.

        The Company recognized $167,000 in other income in 2004 as a result of the receipt of a refund of sales taxes previously paid to one of the Company's major suppliers.

        The Company recognized an $18,000 provision for income taxes for 2004, compared with $2,984,000 for 2003. This change was the result of an increase in the deferred tax asset valuation reserve in 2003 to 100%. The Company recognized a relatively low provision for 2004 because of net operating loss carryforwards from previous years.

12

Revenue and Gross Profit

Blood Products

        Blood products revenue for 2004 decreased by 3.4%, or $685,000, to $19,345,000 from $20,030,000 in 2004. In late 2003, the Company implemented a restructuring plan that resulted in the closure of six donor centers in the eastern United States, which contributed $3,028,000 of revenues in 2003. In the first quarter of 2004, management closed the donor center in Chapel Hill, North Carolina as the final step to complete the implementation of this plan. This donor center contributed $65,000 of revenue in 2004. In the second quarter of 2004, the donor center management contracts between the Company and Presbyterian Intercommunity Hospital, located in Whittier, California, and between the Company and Dartmouth-Hitchcock Medical Center, located in Lebanon, New Hampshire, expired and were not renewed. The Company recorded revenues from the contract with Presbyterian Intercommunity Hospital in 2003 of $555,000, and $302,000 in the first six months of 2004. The Company recorded revenues from the contract with Dartmouth-Hitchcock Medical Center in 2003 of $897,000, and $483,000 in the first six months of 2004.

        Gross profit for the blood products business segment increased $3,530,000 to $3,391,000 in 2004 from a loss of $139,000 in 2003. This is mostly attributable to the closure of underperforming donor centers in late 2003 and higher levels of efficiency that result from higher volumes in ongoing operations.

        The following table illustrates the components included in blood products results for 2004 and 2003, and segregates that portion of blood products revenue associated with closed operations:

*

Includes sales for platelets, whole blood and other frozen products, net of returns and credits

        Revenue from ongoing operations increased $2,945,000, or 18.9%, in 2004 compared to 2003. This is mostly attributable to increased platelet collections at the Company's donor centers in California and Maine. Following closure of underperforming donor centers in 2003, management has focused extensively on increasing collection volumes at the remaining facilities. Revenue from closed operations declined $3,630,000, or 81.0%, in 2004 compared to 2003. This is attributable to the fact that the Company closed five donor centers in late 2003, and three donor centers in the first half of 2004. One of the closures in early 2004 was the donor center in Chapel Hill, North Carolina that was closed as part of the restructuring plan implemented in late 2003. The other two were the donor centers at Presbyterian Intercommunity Hospital, located in Whittier, California, and at Dartmouth-Hitchcock Medical Center, located in Lebanon, New Hampshire. Both of these were closed when the management contracts between the Company and these hospitals expired and were not renewed.

        Gross profit from ongoing operations increased $2,123,000, or 196%, to $3,205,000 from $1,082,000 in 2003. In addition, the gross profit margin for ongoing operations improved to 17% in 2004, from 7% in 2003. This is mostly due to increased collection volume at the Company's remaining facilities. The increase in collection volume does not require a corresponding increase in many of the costs associated with the collection effort, such as facility costs, equipment costs and staffing costs. Gross profit for closed operations was $186,000 in 2004 and a loss of $1,221,000 in 2003. The donor centers closed in 2004 included Dartmouth-Hitchcock Medical Center and Presbyterian Intercommunity Hospital. These

13

facilities were not part of management's restructuring plan as they generally operated profitably. The contracts for these facilities were not renewed by the hospital customers. The donor centers closed in 2003 were generally underperforming operations.

Blood Services

        Revenue for this business segment in 2004 was $7,491,000, which represents a 0.4% increase from the $7,458,000 recognized in 2003. The Company performed 13.0% fewer procedures in 2004 compared to 2003, mostly as a result of reduced procedure volumes in the New York and New England markets. The Company experienced difficulties recruiting trained apheresis nurses in these markets, which contributed to the decline in procedures performed. The Company was able to recognize a small increase in revenue for this segment, despite the decline in procedure volume, mostly due to a change in procedure mix to higher average price procedures. The Company recognized a 1.5% improvement in gross profit for this business segment from $2,390,000 in 2003 to $2,425,000 in 2004. This improvement is attributable to a change in procedure mix in 2004, the reduction in operating costs due to the reclassification of professional liability insurance expense to general and administrative expense from operating costs. In 2003, operating costs for the blood services business segment was charged $86,000 for liability insurance.

General and Administrative Expenses

        General and administrative expenses increased $474,000, or 12%, to $4,420,000 from $3,946,000 in 2003. This is mostly attributable to the reclassification of liability insurance in 2004, an increase in overall insurance expense, higher staff recruitment costs and an increase in management bonuses. Beginning in 2004, the Company charged general and administrative expenses for professional liability insurance premiums which had previously been charged to operating costs, but which are not specifically attributable to any specific operation or location. Therefore, as a result of this reclassification, insurance expense included in general and administrative expense in 2004 increased $341,000 compared to 2003. In addition, the Company experienced an increase in the cost for all forms of insurance coverage in 2004 of $151,000. Also in 2004, fees and other services related to nurse recruitment increased $298,000 compared to 2003. The 2004 bonus program for senior management provided for bonuses based on the Company's achievement of specific profitability targets. The Company achieved these targets and recognized an increase of $155,000 in bonuses in 2004 compared to 2003. These increases in general and administrative expenses were partially offset by a reduction in bad debt expense incurred in 2004. As a result of the closure of several donor centers in late 2003, the Company recorded bad debt expense for certain hospital customers associated with these closed donor centers that would likely delay or withhold payment of outstanding invoices. In 2004, the Company did not experience any similar risk. As a result, bad debt expense recognized in 2004 declined by $299,000 compared with 2003. In 2004, the Company changed its audit firm and recognized a $74,000 reduction in audit fees associated with the examination of the Company's 2004 financial statements.

Income Taxes

        During 2003, the Company recorded a valuation allowance of $2,984,000 against deferred tax assets. This non-cash charge reduced the net value of the deferred tax assets on the balance sheet to zero. The assets were the result of income tax benefits that were recorded due to operating losses in prior years. Current accounting standards place significant weight on a history of recent cumulative losses in determining whether it is more likely than not that the Company will realize the tax benefits in the near future and accordingly whether a valuation allowance is necessary. Forecasts of future taxable income are not considered sufficient positive evidence to outweigh a history of losses. Accordingly, the assets were reserved in full, and remain fully reserved as of the end of 2004. The Company's federal and state net operating loss carryforwards are not impacted by this change in

14

valuation allowance and therefore are still available for future use for up to 20 years. In 2004, the Company utilized these carryforwards to substantially reduce income tax expense. Other than state franchise tax, the Company expects to incur an estimated $18,000 in California alternative minimum tax for 2004.

Year ended December 31, 2003 compared to the year ended December 31, 2002

Overview

        The net loss for 2003 was $4,679,000, or $.60 both basic and fully diluted loss per share, compared with a net loss of $591,000, or $.08 both basic and diluted loss per share, for 2002. This represents a 692% increase in the loss reported between the two periods. The four main reasons for this result are the decline in therapeutic apheresis procedures, the costs associated with closing blood product operations as part of management's restructuring plan, increased insurance costs, and the increase in the deferred tax asset valuation reserve.

        Gross profit declined 39.9% to $2,251,000 in 2003 from $3,745,000 in 2002 primarily due to the decline in therapeutic apheresis procedures, the costs incurred in 2003 associated with management's restructuring plan and increases in insurance costs.

        General and administrative expenses decreased 3.1% in 2003 to $3,946,000 from $4,074,000 in 2002. This is mostly attributable to lower legal expenses in 2003 since the Company settled the ARC litigation in late 2002, and severance expenses in 2002 associated with the termination of the prior Chief Executive Officer.

        The provision for income taxes for 2003 was $2,984,000 compared with a net benefit of $151,000 in 2002. This change reflects the increase in the deferred tax asset valuation reserve in 2003. In addition, ongoing operating losses in the blood products segment prior to the implementation of management's restructuring plan contributed to the net loss in 2003.

Revenue and Gross Profit

Blood Products

        Blood products revenue for 2003 grew $586,000, or 3%, to $20,030,000 from $19,444,000. The following table illustrates the components included in blood products revenue for 2003 and 2002, and segregates that portion of blood products revenue associated with the closed centers. The numbers shown under Ongoing Operations combine California mobile operations, unlike the presentation included in the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2003:

*

Includes a facility at the University of North Carolina, Chapel Hill that was closed in January 2004. Excludes the facilities at Dartmouth-Hitchcock and Presbyterian Intercommunity Hospital that were considered Ongoing Operations when the Company filed Form 10-K for 2003 and were terminated in the 2nd quarter of 2004.

**

Includes sales for platelets, whole blood and other frozen products, net of returns and credits

15

        All of the $749,000 increase in blood products revenue from ongoing operations in 2002 compared with 2003 came from California mobiles, despite a 0.9% decline in whole blood units collected. This result was due to increases in contracted fees charged, passed through costs for additional pathogen testing and a change in product mix to a higher percentage of leuko-reduced red blood cells which garner higher average prices. Closed operations revenue declined from 2002 to 2003 mostly as the result of the fact the centers closed in 2003 ceased operations in August or September, whereas these centers operated for a full year in 2002

        The gross profit for blood products decreased from $997,000 in 2002 to negative gross profit of $139,000 in 2003. This is primarily due to the increase in operating costs at the closed operations associated with implementing management's plan to close underperforming facilities and improve overall operations. These costs include the write-off of $214,000 in assets previously used in the operations of the closed centers, severance payments of $77,000 to 29 terminated employees, recognition of unexpired facility lease obligations of $253,000, and other associated costs. Gross profit for ongoing operations declined $323,000, or 21.3%, from $1,515,000 in 2002 to $1,192,000 in 2003 due to the loss of certain testing revenue of $220,000, a decrease in California platelet volume of $698,000, increases in insurance costs of $275,000 and the write-off of certain assets related to the Sherman Oaks facility totaling $186,000.

Blood Services

        Revenue for this business segment in 2003 declined 10.9%, compared with 2002 due to a 10.2% decline in therapeutic apheresis procedures, principally in the Southern California and New England markets. As a result, therapeutic apheresis revenue declined $915,000, from $8,373,000 to $7,458,000. This decline in revenue contributed to a 13% decrease in gross profit, from $2,748,000 to $2,390,000. The balance of the decrease in gross profit is attributable to increases in workers' compensation insurance and professional liability insurance costs, especially in California.

General and Administrative Expenses

        General and administrative expenses declined from 2002 to 2003 by $128,000, or 3.1%, to $3,946,000. This decline is attributable to the elimination of litigation expenses associated with the Company's claims against the ARC. During 2002, the Company paid $285,000 in legal expense associated with the ARC claim. Late in 2002, the Company and the ARC settled all of the outstanding issues between them. In addition, approximately $247,000 was incurred during 2002 for severance related expenses to the Company's former Chief Executive Officer. Offsetting these reductions in expense from 2002 to 2003 is $112,000 in increases in audit and tax preparation expenses and increases in insurance premiums.

Income Taxes

        During 2003, the Company recorded a valuation allowance of $2,984,000 against deferred tax assets. This non-cash charge reduced the net value of the deferred tax assets on the balance sheet to zero. The assets were created as a result of income tax benefits related to operating losses in prior years. Current accounting standards place significant weight on a history of recent cumulative losses in determining whether it is more likely than not that the Company will realize the tax benefits in the near future and accordingly whether a valuation allowance is necessary. Forecasts of future taxable income are not considered sufficient positive evidence to outweigh a history of losses. Accordingly, the assets were reserved in full. The Company's federal net operating loss carryforwards are not impacted by this change in valuation allowance and therefore are still available for future use for up to 20 years.

16

2004 and 2003 Quarterly Financial Data

        The Company generated positive net income in every quarter of 2004. Most of this positive result was due to improved gross profit margins at the remaining donor centers, and reduced overhead expenses required to support the organization.

        The following table presents unaudited statement of operations data for each of the eight quarters ended December 31, 2004. 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.

Critical Accounting Policies and Estimates

General

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

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

17

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.

Income Taxes

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

Goodwill

        During the first quarter of 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." In accordance with SFAS 142, the Company discontinued amortizing goodwill that was recorded as part of the Coral Blood Services, Inc. acquisition in 1998. During 2002, the Company determined that the goodwill was impaired and recorded an adjustment to write off all of the remaining goodwill in the amount of $362,000. The Company does not have any other intangible assets.

Liquidity and Capital Resources

        At December 31, 2004, the Company had cash and cash equivalents of $2,082,000 and working capital of $3,068,000.

        The Company has a working capital line of credit with Comerica Bank—California. The amount the Company may borrow is the lesser of 75% of eligible accounts receivable less amounts outstanding on the notes payable discussed below, or $2 million. Interest is payable monthly at a rate of prime plus 0.5% (5.75% as of December 31, 2004). As of December 31, 2004, the Company's had no net borrowings on this line of credit. As of December 31, 2004, the unused portion of the Company's line of credit was $2,000,000. The Comerica credit facility expires on June 30, 2005, but management has already opened negotiations to replace this facility. There is no indication that the Company will face any difficulties replacing this facility before the existing facility expires.

        This line of credit is collateralized by substantially all of the Company's assets and requires the maintenance of certain financial covenants, including minimum levels of profitability, quick assets to current liability ratio, and debt to equity ratio and prohibits the payment of dividends or stock repurchases. As of December 31, 2004, the Company was in compliance with all of these covenants.

        The Company has a note payable with One Source Financial. As of December 31, 2004, the balance due on this note was $39,000, of which $37,000 is included in current obligations. The note

18

requires quarterly payments of approximately $10,000, including interest at the rate of 8.5%, and is secured by certain fixed assets.

        Late in 2003, the Company completed an asset purchase transaction for blood collection and blood treatment equipment. The Company financed this transaction as a capital lease with the manufacturer. As of December 31, 2004, the approximate total value of the lease obligation was $789,000, of which approximately $173,000 is included in current obligations. This lease requires monthly payments of approximately $18,500, which includes interest at a rate of 7.5%.

        The Company also has a capital equipment lease with GE Capital Healthcare Financial Services used to finance the acquisition of vehicles. As of December 31, 2004, the balance outstanding on this lease was approximately $158,000, of which approximately $73,000 is included in current obligations. This lease is scheduled to mature in January 2007, and has a fixed interest rate of 8.0%.

        Finally, the Company has a capital equipment lease with Dell Financial Services associated with the acquisition of computer equipment. As of December 31, 2004, the balance outstanding on this lease was approximately $7,000, all of which is included in current obligations. This lease is scheduled to mature in August 2005, and has a fixed interest rate of 12.6%.

        The following table summarizes our contractual obligations by year (in thousands).

        Net cash provided by operating activities was $2,325,000 for 2004, and $761,000 for 2003. The increase of $1,564,000 was mainly due to the improved operating results in 2004. In addition, payables increased by $328,000, mostly associated with the timing of vendor payments at the end of each year, and an increase in accrued management bonuses in 2004 compared with 2003. This was offset by an increase in net accounts receivable of $259,000. The days sales outstanding statistic as of December 31, 2004 stood at 46 days, compared with 42 days as of the end of 2003.

        For 2004, net cash used in investing activities was $176,000, compared with $191,000 for 2003. The cash used in investing activities in 2004 was primarily for the acquisition of blood testing equipment. In 2003, the cash used in investing activities was primarily for other equipment.

        Cash used by financing activities in 2004 was $1,002,000, compared with $683,000 for 2003. Most of the cash utilized in both years was to reduce or eliminate outstanding notes payable, capitalized leases or other debt obligations.

        Management anticipates that cash on hand, availability on the bank line of credit and cash generated from operations will be sufficient to provide funding for any of the Company's for the upcoming year, including working capital requirements, equipment purchases and lease commitments.

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,

19

competition, the impact of future price increases for blood products and demand for the Company's products and services. Such forward-looking statements involve important risks and uncertainties, many of which will be beyond the control of the Company. These risks and uncertainties could significantly affect anticipated results in the future, both short-term and long-term, and accordingly, such results may differ from those expressed in forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to those listed below as "Risk Factors" or in other filings by the Company with the Securities and Exchange Commission.

Risk Factors Affecting the Company

        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. This Annual Report on Form 10-K contains forward-looking statements. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various risks and uncertainties, including those described below.

Market Prices for Blood Do Not Necessarily Reflect Costs

        The Company depends on competitive pricing to obtain and maintain sales. As costs increase, the Company may not be able to raise prices commensurately if competitors do not. Some competitors have greater resources than the Company to sustain periods of unprofitable sales. Cost increases may therefore have a direct negative effect on profits and a material adverse effect on the business.

Changes in Demand for Blood Products Could Affect Profitability

        The Company's operations are structured to produce particular blood products based on the existing demand, and perceived potential changes in demand, for these products by customers. Sudden and unexpected changes in demand of 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 adequately to fill orders. This could result in a net 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 business depends on the availability of donated blood. Only a small percentage of the population donates blood, and new regulations intended to reduce the risk of introducing infectious diseases in the blood supply have decreased the 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.

Increasing Costs Could Affect Profitability

        The costs of collecting, processing and testing blood have risen significantly in recent years and will likely continue to increase. These cost increases are related to new and improved testing procedures to assure that blood is free of infectious disease, increased regulatory requirements related to blood safety, and increased costs associated with recruiting blood donors. New testing protocols have required the Company to outsource much of the required testing. Competition may limit the Company's ability to pass these increased costs to customers. In this circumstance, the increased costs may reduce profitability and may have a material adverse effect on the business and results of operations.

20

Operations Depend on Obtaining the Services of Qualified Medical Professionals

        The Company is highly dependent upon obtaining the services of qualified medical professionals. In particular, the Company's blood services business segment depends on the services of registered nurses and other medical technologists. Nationwide, the demand for these professionals exceeds the supply and competition for their services is strong. This shortage could be aggravated in the event of a war or other international conflict or natural disaster. If the Company is unable to attract and retain a staff of qualified medical professionals, operations may be adversely affected.

Impact of Reimbursement Rates

        Reimbursement rates for blood products and services provided to Medicaid and Medicare patients impact the fees that the Company is able to negotiate with hospitals. Decreases in reimbursement rates or increases which do not keep pace with higher costs, may impact the Company's profitability.

Lease for a Major Production Facility has Expired

        The long-term lease for the Company's Sherman Oaks production facility has expired. The Company has been unable to negotiate a lease renewal. Presently, the Company continues to occupy this facility with the possibility of receiving a 30-day notice to vacate at any time. The lack of a long-term lease agreement for this facility could have an adverse impact on profitability if the Company receives a 30-day notice to vacate and is unable to locate an alternative facility. The Company's ability to produce platelet and whole blood products for Southern California customers may be severely impacted and result in a reduction of revenue and profitability.

Potential Inability to Meet Future Capital Needs Could Affect Plans to Finance Future Expansion

        Currently, the Company believes it has sufficient cash available through its cash on hand, bank credit facilities and funds from operations to finance its operations for the next year. The Company generated $1,545,000 in net income in 2004; however, there is no assurance this performance will be sustainable, and the Company may need to raise additional capital in the debt or equity markets. 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.

Targeted Partner Blood Drives Involve Higher Collection Costs

        Part of the Company's current operations involves conducting blood drives in partnership with hospitals. 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 affect profitability and growth plans.

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 products 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

21

that exceed 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 affect the business.

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 Adverse Affect from Changes in the Healthcare Industry Could Affect Access to Customers

        In the U.S., a fundamental change is occurring in the healthcare system. 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. A national hospital chain has announced plans to sell 19 of its facilities in California, many of which are customers of the Company. In addition, there has been significant consolidation among healthcare providers as providers seek 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, the Company may be adversely affected by customer attrition as a result of consolidation or closure of hospital facilities.

Future Technological Developments Could Jeopardize Business

        As a result of the risks posed by blood-borne diseases, many companies are currently seeking to develop synthetic substitutes for human blood products. HemaCare's business consists of collecting, processing and distributing human blood and blood products. The introduction and acceptance in the market of synthetic blood substitutes may cause material adverse harm to the business.

Heavily Regulated Industry Could Increase Operating Costs

        The business of collecting, processing and distributing blood and blood products are all 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 of products, facilities and procedures, and regarding the purity and quality of blood products. In addition, state and federal laws include anti-kickback and self-referral prohibitions and other regulations that affect 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, and believes it is currently in compliance; however, the possibility cannot be eliminated that interpretations of existing laws and regulations will result in a finding that the Company has not complied with significant existing regulations. Such a finding could materially harm the 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. Some of these changes may require costly compliance efforts or expensive outsourcing of functions which may cause some of the Company's operations prohibitively expensive or impossible to continue.

22

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 carefully screens donors, uses highly qualified testing service providers to test its 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 affect the Company's financial condition. Furthermore, healthcare regulations are constantly changing and certain changes may require costly compliance or make some of our operations impossible to continue.

Environmental Risks

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

Business Interruption Due to Terrorism and Increased Security Measures in Response to Terrorism

        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. The 2001 response to terrorist activities slowed or stopped transportation, mail, financial and other services for a period of time. Further delays or stoppages in transportation of perishable blood products and interruptions of mail, financial or other services could have a material adverse effect 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 the 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 affected by terrorist activities and potential activities. The U.S. economy in general is adversely affected 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 affect its ability to grow its business.

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 our 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'

23

Rights Plan may inhibit a change in control and, therefore, may materially adversely affect 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 5, 1998.

Stocks Traded on the OTC Bulletin Board are Subject to Greater Market Risks than Those of Exchange-Traded and Nasdaq Stocks

        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 a national securities exchange. As a result, an investor may find it difficult to dispose of our common stock or to obtain accurate quotations as to its price.

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 the 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

        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 an assessment of the effectiveness of the Company's internal control over financial reporting beginning with our Annual Report on Form 10-K for the fiscal year ending December 31, 2006. The Company's independent auditors will be required to confirm in writing whether management's assessment of the effectiveness of the internal control over financial reporting is fairly stated in all material respects, and

24

separately report on whether they believe management maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006.

        This process will be expensive and time consuming, and will require significant attention of management. Management can give no assurance that 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. If a material weakness is discovered, corrective action may be time consuming, costly and further divert the attention of management. 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.

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.

        The Company has $993,000 of debt, all of which is from notes payable and capitalized leases with fixed interest rates. The interest rate payable on the Company's working capital line of credit is based upon the prime interest rate. At December 31, 2004, no amount was outstanding on this line of credit.

        In the normal course of business, the Company also faces risks that are either non-financial or not quantifiable, including those risks described earlier "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors Affecting the Company."

Item 8    Financial Statements and Supplementary Data

        The Index to Financial Statements and Schedules appears on page F-1. The Reports of Independent Public Accountants appears on F-2 and F-3, and the Consolidated Financial Statements and Notes to Consolidated Financial Statements appear on pages F-4 to F-15.

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

        On April 5, 2004, the Company dismissed Ernst & Young LLP, an independent registered public accounting firm ("E&Y"), as the independent accountants of the Company. On April 8, 2004 appointed Stonefield Josephson, Inc., an independent registered public accounting firm ("Stonefield"), as the independent accountants of the Company for the fiscal year ended December 31, 2004. The determination to dismiss E&Y and to appoint Stonefield was made by the Board of Directors of the Company upon the recommendation of the Audit Committee.

        The reports of E&Y on the financial statements of the Company for the fiscal years ended December 31, 2003 and 2002 did not contain any adverse opinion, disclaimer of opinion, or qualification or modification as to uncertainty, audit scope or accounting principles.

        During the Company's fiscal years ended December 31, 2003 and 2002, and the interim period from January 1, 2004 through April 8, 2004, there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of E&Y, would have caused them to make reference to the subject matter of the disagreement in connection with their reports on the Company's financial statements for such years.

25

        During the Company's fiscal years ended December 31, 2003 and 2002, and the interim period from January 1, 2004 through April 8, 2004, no reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K) has occurred.

        During the Company's fiscal years ended December 31, 2003 and 2002, and the interim period from January 1, 2003 through April 8, 2004, the Company did not consult with Stonefield on the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, or any matter which was the subject of any disagreement or any reportable event (as defined in Items 304(a)(1)(iv) and 304(a)(1)(v), respectively, of Regulation S-K).

        E&Y was provided with a copy of the disclosures contained herein. A letter from E&Y confirming its agreement with the statements contained herein is attached as Exhibit 16.1 to the Company's Form 8-K dated April 9, 2004.

Item 9A    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 are effective in making known to them material information relating to the Company (including its consolidated subsidiaries) required to be included in this report.

        Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.

        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, 2004 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Item 9b    Other Information

        None.

26

PART III

Item 10    Directors and Executive Officers of the Registrant

        The information concerning the directors and executive officers of the Company 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

        The information concerning certain relationships and related transactions 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 "Independent Registered Public Accounting Firm" in the Proxy Statement.

PART IV

Item 15    Exhibits and Financial Statement Schedules

        The following are filed as part of this Report:

1.

Financial Statements

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

2.

Financial Statement Schedules

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

27

3.

Exhibits

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

28

*

Management contracts and compensatory plans and arrangements.

**

Filed herewith.

29

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.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated on the twenty-fifth day of March, 2005.

30

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

        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 STONEFIELD JOSEPHSON, INC., INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders of HemaCare Corporation:

        We have audited the accompanying consolidated balance sheet of HemaCare Corporation and subsidiaries, as of December 31, 2004, and the related consolidated statements of operations and shareholder's equity and cash flows for the year then ended. 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 audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HemaCare Corporation and subsidiaries as of December 31, 2004, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS

Santa Monica, California
February 8, 2005

F-2

REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of HemaCare Corporation:

        We have audited the accompanying consolidated balance sheet of HemaCare Corporation (a California Corporation) and subsidiaries as of December 31, 2003, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years in the period ended December 31, 2003. 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. An audit also includes 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of HemaCare Corporation at December 31, 2003, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.

/s/ ERNST & YOUNG LLP
Los Angeles, California
February 17, 2004

F-3

HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

F-4

HEMACARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,

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

F-5

HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the Years Ended December 31, 2004, 2003, and 2002

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

F-6

HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,