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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 1996
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

Commission file number 0-15223

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

State or other jurisdiction of I.R.S. Employer I.D.
incorporation or organization: California Number: 95-3280412
----------- -----------
4954 Van Nuys Boulevard
Sherman Oaks, California 91403
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (818) 986-3883

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

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: YES /X/ 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: / /

As of March 27, 1997, 7,190,710 shares of Common Stock of the Registrant were
issued and outstanding. The aggregate market value of the Common Stock held
by non-affiliates of the Registrant on that date (based upon the closing price
of the Common Stock as reported on NASDAQ) was approximately $15,785,348.

Portions of the Registrant's definitive Proxy Statement for its June 5, 1997
Annual Meeting of Shareholders (which has not been filed as of the date of
this filing) are incorporated by reference into Part III.

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2

PART I

Item 1. Business.
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General
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HemaCare Corporation, founded in 1978, provides blood products
and services for health care institutions. HemaCare believes it
is the only publicly-traded, FDA-licensed company engaged in
providing a broad spectrum of products and services to the $2
billion blood industry.

During 1996, the Company began establishing blood management
programs with its hospital customers. The Company's Blood
Management Program allows a hospital to retain the convenience
and efficiencies of an in-house blood program while outsourcing
the associated the regulatory and management burdens and related
financial risks. The BMP concept enhances the Company's ability
to compete by packaging its products and services in the way
which best responds to its customers needs. The Blood Management
Programs established in 1996 began the conversion of the
Company's business to relationships in which the Company is the
primary provider of blood products and services to a hospital or
affiliated hospital group.

The Company's corporate headquarters are located in Sherman Oaks,
California, near downtown Los Angeles. Southern California
operations are conducted from this location, from a blood donor
center located at the University of Southern California Health
Sciences Campus and from donor facilities at the Citrus Valley
Health Partners hospitals. In December 1995, the Company opened a
regional blood program in St. Louis, Missouri, with a satellite
location near Belleville, Illinois.

Certain medical terms included in the following discussions are
further explained in a glossary located at the end of this
Item 1. HemaCare Corporation and its wholly-owned subsidiaries
are collectively referred to herein as "HemaCare" or the
"Company".

Competitive Strategy
- ---------------------

Hospitals, faced with increasing cost containment pressures, are
looking for new ways of providing cost-effective health services
in a community-based setting. Hospital managers have been forced
to carefully examine every cost, including the cost of blood
products and services which typically represent approximately 2%
of a hospital's expenditures. In response, hospitals are
consolidating under common corporate umbrellas or into affiliated
purchasing or operational groups. The consolidated entities rely
on their combined purchasing power to solicit the lowest
competitive bids for their purchases, and increasingly, choose to
outsource various hospital functions to decrease costs and
increase efficiency.

HemaCare is meeting the challenges of the new healthcare
environment by continuing its 18 year strategy of providing
customized solutions to its customers' blood products and
services needs. The Company's blood management program ("Blood
Management Program" or "BMP") model is the most recent application
of this strategy. Management believes that this model provides
opportunities for expansion of the Company's blood products and
services businesses.

HemaCare's Blood Management Program concept enables a hospital to
meet its blood-related needs while controlling its blood
utilization and costs. A hospital which outsources its blood
procurement function to HemaCare, uses products collected at its
own BMP donation center as well as products collected at other
HemaCare donation sites and purchased products. The BMP blood
donor center also provides blood donation and other blood banking
services to patients and physicians of the BMP hospital. HemaCare
introduced its BMP model in late 1995 with the Gateway Community
Blood Program in St. Louis, Missouri and established two Southern
California Blood Management Programs in 1996.

The essential elements of a BMP are outlined in the following
diagram.

|--------------------| |----------------------------------| |---------------|
|HOSPITAL/MEDICAL | | THE BLOOD CENTER | | HEMACARE |
|- Medical Services | | - Autologous/Designated Donations| |- Management |
|- Facility |--->| - Whole Blood Collection |<---|- Staffing |
|- Community Advisory| | - Apheresis Platelet Collection | |- Regulatory |
| Board | | - Therapeutic Apheresis | | Compliance |
|--------------------| | - Peripheral Stem Cell Collection| |---------------|
| - Blood Drives |
|----------------------------------|
|
|
|------------------|
| PRIMARY CUSTOMERS|
| - Hospital(s)/ |
| Medical |
| Center(s) |
|------------------|
|
|
|-------------------|
|SECONDARY CUSTOMERS|
|-Unafilliated |
| Hospitals |
|-------------------|

The first two Southern California BMPs were established with the
University of Southern California, in February 1996, and Citrus
Valley Health Partners, in October 1996. The Gateway Community
Blood Program, located in St. Louis, Missouri, began operations
in December 1995 as a regional BMP. Each BMP is a working model
of how HemaCare assists its customers in tailoring solutions to
their specific problems while maintaining control over the supply
and cost of the blood products and services which they require.

The University of Southern California ("USC") BMP agreement
established HemaCare as the primary provider of blood services to
the patients and physicians of USC/Norris Comprehensive Cancer
Center and Hospital and USC University Hospital (the "USC
Hospitals"). An integral part of the program is a blood donation
center located on the USC Health Sciences Campus. The center is
staffed, operated and managed by the Company which is also
responsible for regulatory compliance. Pathologists on the USC
medical faculty provide medical services for the USC Blood
Center.

Under the terms of the Citrus Valley Health Partners ("Citrus
Valley") BMP, the Company is the exclusive provider of blood
services to a three-hospital network in the Los Angeles
metropolitan area. These hospitals, Queen of the Valley, Foothill
Presbyterian Hospital and Inter-Community Medical Center (the
"Citrus Valley Hospitals"), serve a community of 720,000. The
Citrus Valley blood donation center will be located in a
community-based facility convenient to all three hospitals.
Although the structure of the Citrus Valley BMP is similar to the
USC program, each BMP is tailored to provide innovative solutions
to a specific hospital customer's blood service needs. For
example, the Citrus Valley BMP includes a fee structure which
provides financial incentives to HemaCare and the Citrus Valley
Hospitals for the appropriate utilization of blood resources.

In the St. Louis, Missouri metropolitan area, Gateway offers
cost-effective, convenient blood products and services to its
primary customers, St. Louis University Medical Center, the Barnes-
Jewish-Christian hospital system and the Unity Medical Groups.
Gateway also operates a satellite collection center near Belleville,
Illinois, to provide autologous and directed donation services to
the Unity East Medical Group hospitals located in Illinois. In
addition to collecting whole blood and platelets at its fixed
sites, Gateway conducts mobile blood drives with local
businesses, schools, churches and civic organizations. Gateway,
which was originally planned as a regional BMP, has entered

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discussions with current customers with the objective of
establishing one or more hospital-based Blood Management
Programs.

The Company believes that its strategy of offering Blood
Management Programs tailored to meet individual customer needs
will favorably differentiate it from other suppliers of blood
products and services. However, there can be no assurance that
others will not successfully introduce similar programs that will
compete with those of the Company.

Blood Products
- --------------

General

The Company provides a full range of component blood products to
BMP and other hospital customers in southern California and the
St. Louis metropolitan area. These products include whole-blood
components ("components") such as packed red cells and fresh
frozen plasma and single donor apheresis platelet products
("apheresis platelets" or "platelets"). Currently, only packed
red cells can be provided to hospitals in Illinois. In February
1997, the Company has filed an application with the U.S. Food and
Drug Administration ("FDA") to separately license Gateway to
provide a full range of products to its hospital customers in
Illinois and other mid-western states. Completing the licensing
process typically takes six to twelve months.

Currently, the Company produces most of the platelet products it
sells from donations made at its Sherman Oaks location. However,
during 1996, platelet collections began at Gateway and the USC
donor center facilities.

In December 1995, the Company began whole-blood collections and
component manufacturing at its St. Louis, Missouri facility, and
in February 1996, component manufacturing commenced at the
Sherman Oaks, California location for whole-blood collected at
the USC Blood Center and on mobile blood drives. Component sales
in 1996 sales consisted of both purchased (imported from other
licensed blood centers) and products manufactured by the Company.
Prior to 1996, sales of components consisted entirely of products
purchased from third-party providers.

Single Donor Apheresis Platelets

The Company collects single donor platelets, using apheresis
technology, at its Sherman Oaks, California location, the USC
Blood Donor Center and at Gateway's St. Louis and Bellville
locations. In 1996, Gateway began collecting platelets in mobile
blood drives. All centers are operated under the Company's FDA
license. (See "Government Regulation") All platelet donors must
pass the Company's stringent donor screening standards. After
collection, the platelets are tested, labeled and delivered to
hospital clients. Temperature control and constant movement
(using a rotator) maintain the platelets' viability for five
days. Platelets are sold to hospitals for transfusion into cancer
patients undergoing chemotherapy, patients undergoing major
surgery such as open heart surgery or transplant procedures, and
trauma or other conditions associated with massive blood loss.
When necessary to meet its customers' needs, the Company also
purchases platelet products for resale. Such platelet suppliers
are FDA licensed and accredited by the American Association of
Blood Banks. Approximately 6% of platelets sold by the Company
in 1996 were purchased from outside suppliers.

Platelet apheresis technology involves the use of a cell
separator operated by a trained nurse-specialist. The procedure
removes blood from a donor through a needle in one arm, pumping
the blood through the cell separator where the desired platelet
component is retained and returning the blood, including the red
cells, to the donor. The procedure typically requires one to
three hours and may be done every two weeks, up to 24 times per
year, since donating platelets does not deplete donors of red
blood cells.

In order to attract and retain qualified donors at its Sherman
Oaks, California location, the Company reimburses these donors
for their time and commitment. The cash reimbursement is
variable, based on the number and frequency of donations, and
includes a bonus program. The Company also recruits non-cash
compensated donors (volunteers under California law) for its USC
and Citrus Valley BMPs and for the Gateway platelet donation
programs. Unless existing exemptive legislation is extended,
California law will require that hospitals in California use
blood products provided by volunteers only by the end of 2001.

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Component Blood Products

HemaCare provides component blood products such as packed red
cells, fresh frozen plasma and cryoprecipitate to its BMP and
other customers. In 1996, component blood products sold included
both purchased products and products manufactured by the Company
under its FDA license. The Company began collecting whole-blood
donations and manufacturing component products primarily for sale
to its BMP customers in December 1995. Component products
manufactured by Gateway are sold to hospitals in the St. Louis
metropolitan area and adjacent communities. Component products
manufactured at the Sherman Oaks facility are sold primarily to
the USC Hospitals and Citrus Valley Hospitals under the terms of
the BMP agreements with these hospitals. From 1991 through 1995,
all component products sold were purchased under contractual
relationships with blood centers located throughout the U.S. All
suppliers are FDA licensed and accredited by the American
Association of Blood Banks.

Blood Services
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General

Since its inception, the Company has performed more than 31,000
therapeutic apheresis procedures in the treatment of more than 27
diseases. Therapeutic apheresis ("therapeutics" or "therapeutic
services") is a technique for removing harmful components from a
patient's blood used in the treatment of patients with autoimmune
diseases and other disorders. Therapeutic services are provided
to BMP and other hospitals in southern California. The Company
may, in the future, provide therapeutic services in Missouri and
Illinois through Gateway.

Therapeutic services are provided upon the request of a hospital
which has received an order from a patient's physician or
directly upon the request by a physician for his or her patient.
The Company customarily bills the hospital directly for its
therapeutic services. Therapeutic treatments are administered
through the use of mobile units operated at the patient's bedside
or in a hospital outpatient setting. The mobile therapeutics
equipment is self-contained and includes a state-of-the-art blood
cell separator and the disposables and supplies needed to perform
the procedure. Treatments are administered by trained, nurse-
specialists, acting in accordance with documented operating
procedures and quality assurance protocols, under the supervision
of a specially trained physician.

Joshua Levy, M.D., a shareholder and medical director of the
Company, through his private practice, treats patients who
require therapeutic services. Sales by the Company to
unaffiliated hospital customers for therapeutic services for Dr.
Levy's patients amounted to approximately 6% ($675,000) of the
Company's total revenues for 1996. There are no agreements
between Dr. Levy, or the Company, and the Company's hospital
customers that require the hospitals to select HemaCare to
provide therapeutic services to these patients. Amendments to the
Federal self-referral laws and related regulations which became
effective in 1995 could restrict the Company's ability to provide
therapeutic services to Dr. Levy's patients who are covered by
Medicare or MediCal (approximately 50% of Dr. Levy's therapeutics
patients). However, the legal requirements are complex, and the
Company has requested a clarification of their application to its
business from regulatory authorities. Dr. Levy has informed the
Company that, in the event of an adverse response, it would be
his intention to change his relationship with the Company to
allow the Company to retain revenue from its services for these
patients. (See "Government Regulation")

The Company provides therapeutic services using all currently
recognized treatment methods: 1) conventional plasma exchange and
cell depletion, 2) in-line immunoadsorbant columns, and 3) stem
cell rescue and cryopreservation.

Conventional Plasma Exchange and Cell Depletion

The primary blood services provided by the Company, accounting
for 87% of therapeutics procedures in 1996, are conventional
plasma exchange and cell depletion therapy. These procedures
involve removing harmful substances from a patient's blood, using
automated equipment. As the patient's blood flows through the
cell separator, abnormal or excess proteins or components
associated with the disease being treated are selectively
removed. The remaining blood components are returned to the
patient.

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Most individual treatments involve the removal of two to four
liters of abnormal plasma or certain cellular components.
Replacement fluids are used to maintain the patient's blood
volume. Patients suffering from diseases such as multiple
myeloma, HIV-polyneuropathy, leukemia, systemic lupus
erythematosus, lupus nephritis, scleroderma, hyperviscosity
syndrome, thrombocytosis, myasthenia gravis and Guillain-Barre
syndrome may benefit from therapeutic treatments. A patient may
require from four to twenty treatments over a period of time
ranging from a few days to three months. Each treatment may last
from two to four hours.

Immunoadsorption

Since 1988, the Company has also provided a second generation
therapeutic treatment which uses an in-line immunoadsorption
column to selectively remove immune complexes. Currently, only
one manufacturer sells an FDA approved column for commercial use.
However, if additional columns were to be approved by the FDA,
broadened clinical applications for column treatments could
develop.

Autologous Stem Cell Rescue and Cryopreservation

Since 1990, the Company has been providing a technology known as
peripheral stem cell collection in California. In this
application, stem cells (those cells which mature into all the
different cellular components of blood) are collected from a
cancer patient using apheresis technology. The patient then
receives a series of intensive chemotherapy treatments followed
by reinfusion of the patient's own stem cells. In 1994, the
Company combined cryopreservation with its stem cell collection
to provide a full-service program. This program consists of
mobile, peripheral stem cell collection for certain cancer
patients, followed by processing, freezing and short-term storage
(cryopreservation) of the stem cells prior to reinfusion into the
treated patient. The addition of cryopreservation service
enables the Company to provide a full service stem cell program
to community hospitals which may choose not to establish their
own in-house capabilities in the early development of this
technology.

The Company's cryopreservation service is not in full commercial
operations because of the resistance of third party payors to
reimburse community hospital customers for this procedure. The
procedure is generally reimbursed only to larger hospitals with
established programs. In 1996, the Company provided only one
full-service stem cell procedure to a community hospital. The
Company believes that increasing pressure from physicians and
patients will, in the future, result in acceptance of the
procedure for reimbursement by third party payors to community
hospitals and that the Company will benefit by being prepared to
perform the service with its experienced and qualified personnel.

Discontinued Operations

From 1990 through 1995, HemaBiologics, Inc. ("HBI")conducted
research and development activities relating to Immupath, an
anti-HIV hyperimmune plasma product. In late 1994, the Company
determined that ongoing Immupath research and development
activities could no longer be funded internally, and in November
1995, the Company's Board of Directors decided to terminate the
research and development activities. As a result of this
decision, the Company established a $1 million reserve for losses
during the disposal period, including $600,000 for a contingent
liability related to a dispute with Medicorp, Inc. ("Medicorp"),
a licensor.

In July 1996, the Medicorp dispute was settled without any
payment by the Company. As a result, the Company recognized a
$600,000 gain on disposal of discontinued operations in the third
quarter of 1996.

In June 1996, the Company agreed to sell most of its research and
development assets, including its FDA plasma licenses and plasma
collection center. In payment, the Company received cash and a
promissory note, collateralized by certain of the assets sold.
The note, which matured in November 1996, was repaid in March
1997, resulting in a gain of $130,000 on disposal of discontinued
operations in the first quarter of 1997. The Company does not
expect the discontinued operations to have a material impact on
its future operating performance.

During the wind down of the research and development operations,
the Company manufactured a supply of Immupath sufficient to
supply the patients still receiving treatment for approximately
24 months. There are currently approximately eight patients
receiving Immupath treatments.

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Competition
- -----------

General

The Company competes on the basis of its responsiveness to
customer needs, the price and quality of services and products
and the efficiency with which they are rendered or produced.
However, many blood providers, including the American Red Cross
("ARC"), have greater financial, technical and personnel
resources than the Company, and additional companies may enter
the field, increasing competition. In addition, some medical
teaching and other hospitals have in-house blood banking and
therapeutic service capabilities which do not compete directly
with the Company, but do reduce the market for third-party
services.

In many instances, the Company competes against the ARC in
providing its products and services to healthcare institutions.
To date, the ARC has aggressively responded to competition from
the Company, and management believes that such competition will
continue. In St. Louis, prior to the opening of Gateway, the ARC
provided virtually all blood products to hospitals in the greater
St. Louis area. Immediately following the opening of Gateway, the
ARC decreased its price for red blood cells in excess of 10%.
This price decrease materially impacted Gateway's ability to
market its products and services profitably.

In Southern California, the Los Angeles Region Blood Service of
the American Red Cross (the "Los Angeles ARC") employs pricing
practices which the Company has alleged violate antitrust laws.
These pricing practices may compel Southern California ARC
customers to purchase certain blood products from the ARC at
higher prices than those offered by the Company, unfairly
limiting the Company's ability to market its products in this
region. In December 1995, the Company filed an antitrust and
unfair competition complaint against the ARC with the United
States District Court in the Central District of California to
recover damages and secure injunctive relief. In response to the
complaint, the ARC filed a motion to dismiss which was partially
rejected by the Court. The Company amended its complaint, and in
November 1996, an ARC motion to dismiss the amended complaint was
denied. A June 1997 trial date has been set. The Company cannot
predict the outcome of this lawsuit at this time.

The Company has developed a Blood Management Program model which
can provide its hospital customers with the convenience and
efficiencies of an in-house blood program without the associated
regulatory and management burdens and related financial risks.
The USC and Citrus Valley Blood Programs are prototypes of this
approach. The Company's Blood Management Programs are being
marketed to:

- - Existing customers in Southern California and the St. Louis
metropolitan area who are buying various blood products and
services from the Company in a traditional buyer-vendor
relationship.

- - Potential customers who either have their own blood programs
which they prefer to outsource or have traditional blood
vendors who are not meeting all of their needs.

Although the initial response to the Company's Blood Management
Program has been positive, there can be no assurance that this
competitive strategy will be successful or profitable.

Management is evaluating a number of opportunities to implement
its BMP in a variety of other healthcare settings, as well as
considering other growth strategies. However, further growth may
require that the Company obtain additional financing to fund
start-up losses and equipment costs and the ability to compete
effectively against other blood product and service providers,
including the ARC. Accordingly, there can be no assurance that
the Company will be successful in marketing its BMPs or that, if
successful, it will be able to obtain the funds necessary to
finance such programs.

Blood Products

The primary competition for the Company's single donor platelets
and whole-blood component business is the American Red Cross.
Community and hospital-based blood banks also compete with
HemaCare to a lesser extent. Key competitive factors in the

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industry include reputation for responsive service, quality of
product and price.

Blood Services

Competitors of the Company's therapeutic blood services business
include the American Red Cross, a number of small blood banks
and local kidney specialists (nephrologists) who supplement
hemodialysis services with therapeutic apheresis services. In
addition, some of the diseases which are treated by therapeutic
apheresis can also be treated by other medical therapies. Since
therapeutic apheresis treatment requests are often sporadic and
unpredictable, most community hospitals cannot afford to equip,
staff and maintain an apheresis unit. The Company's mobile
service enables such hospitals to offer state-of-the-art
therapeutic apheresis services to their patients on an "as
needed" basis without incurring the fixed costs associated with
providing these services from in-house resources.

Marketing
- ---------

HemaCare markets its products and services as components of
custom-tailored programs developed to meet the needs of specific
customers. The Blood Management Program concept is the most
recent evolution of this marketing strategy with the USC Blood
Program as the prototype. The Company uses a depot system for
distributing its products to BMP and other large volume customers
which enhances convenience and product availability. The depot
system provides the customer with an on-site inventory of blood
products stocked by the Company under a standing order. Other
marketing tools include a combination of medical education,
technical and trade show presentations, advertising and
promotional programs, in-person sales and other marketing
programs directed to selected physicians, hospitals and donor
groups.

Human Resources
- ----------------

At March 1, 1997, the Company had approximately 66 full-time and
37 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 are represented by a labor union.
The Company considers its relations with its employees to be
good.

Supplies
- --------

The Company maintains relationships with numerous suppliers who
provide cell separator equipment, disposables, supplies,
replacement fluids and purchased blood products. To date, the
Company has experienced little difficulty in obtaining most of
its equipment and supplies from its sources. However, if there
were material changes in the sources of its supplies, the
Company's operations could be adversely affected.

In the last quarter of 1996, the Company began experiencing
increased difficulty in purchasing red blood cell products from
suppliers, and the cost of red blood cells obtained increased.
This trend has continued in 1997. Industry data indicates that
HemaCare's experience reflects a nationwide shortage of red blood
cell products. Whole blood donations collected at the Company's
BMP donor centers are expected to decrease the Company's reliance
on purchased red blood cells in 1997 and subsequent years.
However, if the Company is unable to manufacture or to purchase
red blood cells at a price which exceeds its contract prices to
customers, the Company's operations will be adversely affected.

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, unlike the American Red
Cross and most community blood banks, compensates its Sherman
Oaks platelet donors thereby enhancing its ability to retain a
pool of repeatedly tested platelet donors. Platelet and whole
blood donors at the USC Blood Center and Gateway St. Louis and
Belleville centers are volunteers. The Company competes directly
with the American Red Cross and other blood banks in recruiting
its volunteer donors. The growth of the Company's manufactured
blood products business is dependent on the Company's ability to

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attract, screen and retain qualified compensated and volunteer
donors.

Government Regulation
- ---------------------

All providers of blood products and services are regulated by the
FDA and state licensing authorities, as well being subject to
industry accreditation by the American Association of Blood Banks
("AABB"). In response to the potential dangers of blood borne
infections such as hepatitis and HIV, the FDA now requires that
blood products be manufactured in accordance with Current Good
Manufacturing Practices ("cGMPs") which have long been applied to
the manufacturing of pharmaceuticals. HemaCare has maintained a
near perfect regulatory record for 17 years. This record, along
with its licenses and accreditations, are critical to the
Company's ability to attract and retain customers who want to
decrease their regulatory compliance burden by outsourcing all or
a portion of their blood-related activities.

The Company's blood products business is operated under an FDA
Establishment License, a State of California Biologics License
and is accredited by the American Association of Blood Banks
("AABB"). Gateway and the USC Blood Donor Center operate under
HemaCare's FDA Establishment License. The states of Missouri and
Illinois do not separately regulate blood banking operations.

The Company primarily relies on its licensed and accredited
laboratory to perform the various tests required by the FDA and
State of California to ensure the purity, potency and quality of
the blood products that are sold. The laboratory is staffed by
state licensed medical technologists and laboratory technicians.

Since 1976, California law has prohibited the infusion of blood
products into patients if the donors of those products were paid
unless, in the opinion of the recipient's physician, blood from a
non-paid donor was not immediately available. Apheresis platelet
products obtained from paid donors, including the Company's
Sherman Oaks paid donors, are exempted from this requirement by a
state statute passed in late 1994, but the statute contains a
"sunset" provision under which the exemption expires on December
31, 2001.

State and federal laws set forth antikickback and self-referral
prohibitions and otherwise regulate financial relationships
between blood banks and hospitals, physicians and other persons
who refer business to them. While the Company believes its
present operations comply with applicable regulations, there can
be no assurance that future legislation or rule making, or the
interpretation of existing laws and regulations will not prohibit
or adversely impact the delivery by HemaCare of its services and
products. Amendments to the Federal self-referral laws and
related regulations which became effective in 1995 could restrict
the Company's ability to provide therapeutic services to Dr.
Levy's patients who are covered by Medicare or MediCal. It is
estimated that revenues from these patients represents
approximately 3% of the Company's 1996 revenues ($338,000).
However, the legal requirements are complex, the Company has
requested a clarification of their application to its business
from the Health Care Financing Administration ("HCFA"). Upon a
recent inquiry about the status of this request, the Company's
legal counsel was informed that HCFA is now discussing new
proposed rules and can not respond to the Company's request for
clarification because of the uncertainty of the situation.

Dr. Levy has informed the Company that, in the event of an
adverse response by regulators, it would be his intention to
change his relationship with the Company to allow the Company to
retain revenue from services for these patients.

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

Malpractice and Product Liability Insurance
- -------------------------------------------

The nature of the Company's business is such that it may be
subject to substantial liabilities for personal injury. There
can be no assurance that potential insurance claims will not
exceed present coverage or that 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. HemaCare

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has medical malpractice insurance in the amount of $2,000,000 for
a single occurrence and $5,000,000 in the aggregate per year.

The state laws of California, Missouri, Illinois and the laws of
virtually all other states classify the provision and use of
whole blood, plasma and blood products for the purpose of
injections and transfusions into human beings as a service rather
than the sale of a product. Therefore, the Company should not be
subject to product liability claims as a result of injuries
arising out of the therapeutic infusion of its blood products and
does not intend to obtain product liability insurance at this
time.

Glossary
- ---------

Antibodies - Protective substances, protein in nature,
circulating in body fluids as the result of exposure to a
specific antigen. Chemically active against that antigen only.

Antigen - Any substance which is foreign to the recipient and
triggers the body's immune mechanism resulting in the production
of specific antibodies.

Autoimmune Diseases - Those diseases in which the patient's
immune system has become overly active to the point where it
produces antibodies which are directed against its own tissues or
cells.

Autologous - A blood product obtained from a patient and
subsequently reinfused into that patient.

Components - The products manufactured from whole blood
donations, including red blood cells, fresh frozen plasma and
cryoprecipitate.

Cryopreservation - The process of freezing tissues or cells,
usually in protective fluids, and storage at extremely low
temperatures in a frozen state (e.g., -70 degrees C or colder).

Human Immunodeficiency Virus (HIV) - The infectious agent of the
disease commonly referred to as Acquired Immune Deficiency
Syndrome (AIDS).

Immunoadsorbant Column - A device through which plasma is passed
in order to separate or remove certain harmful components such as
immune complexes.

Plasma - The liquid portion of whole blood; composed of a mixture
of soluble proteins including antibodies, minerals and nutrients.

Platelets - One of the cellular components of blood involved in
the blood clotting process.

Platelet Apheresis - The process of removing blood from a donor,
separating it into its various components and retaining the
concentrated platelets which will then be transfused into a
patient deficient in platelets. The remaining blood components
are returned to the donor.

Stem Cells - Cells which originate in the bone marrow and mature
into the different cellular components of blood (i.e., progenitor
cells). Frequently transfused into certain cancer patients in
order to facilitate regeneration of blood components after bone
marrow has been purposely destroyed by chemotherapy or radiation.

Therapeutic Apheresis - The application of apheresis technology
to the clinical treatment of autoimmune diseases and blood cell
disorders by removing selected, abnormal components or cells and
returning all other components.

Item 2. Properties.
- ------- -----------

The Company occupies a 12,000-square foot facility in Sherman
Oaks, California, where it maintains its corporate office and
operates a platelet apheresis center, a blood bank/laboratory and
manufacturing facility for whole blood components. The lease

10
11

terminates in July 1997. The Company is currently seeking to
either renew the lease on its existing facility on terms
favorable to the Company or negotiate a lease for another
facility. The USC Blood Center is a blood donation and
therapeutic treatment center in a 1,600 square foot facility in
Los Angeles, California, under a lease which terminates in
February 1999.

Gateway occupies a 12,260 square foot facility in St. Louis,
Missouri, where it maintains its offices and operates a blood
donation and blood services center and manufactures whole blood
components. The lease terminates in February 2001. Approximately
1,835 square feet of this space is subleased to a third party for
a term concurrent with the term of Gateway's lease. Gateway also
leases an additional 1,071 square feet of space near Belleville,
Illinois for the operation of a blood donation facility. This
lease expires in January 1998.

The Company also leases approximately 17,000 square feet of space
in Valencia, California. This space, which was leased for the
research and development operations which were discontinued in
November 1995, is subleased through July 1998 when the Company's
lease expires.

Item 3. Legal Proceedings.
- ------- ------------------

On March 11, 1994, the Company was served with a lawsuit filed by
a former employee against the Company and its wholly owned
subsidiary, HBI, in the Superior Court of the State of
California, related to the termination of this employee and
seeking relief in the amount of $550,000. The case is still in
the discovery stage in the proceedings and neither management nor
counsel are in a position to evaluate the probable merits of the
claim asserted by this former employee. Accordingly, the
resolution of this lawsuit could have a material impact on the
Company's financial condition and results of operations.

In December 1995, the HemaCare filed an antitrust and unfair
competition complaint to recover damages and secure injunctive
relief against the American Red Cross ("ARC") in connection with
ARC pricing practices in Southern California. The Company
believes that these pricing practices may compel Southern
California ARC customers to purchase certain blood products from
the ARC at prices higher than those offered by the Company.

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

None.

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
- ------- --------------------------------------------------

Market for Common Stock

The Company's Common Stock is traded in the NASDAQ Small-Cap
Issues market under the symbol HEMA. The following table sets
forth the range of high and low closing bid prices of the Common
Stock, as reported by NASDAQ, for the quarters ended March 31,
June 30, September 30 and December 31, 1996 and 1995. These
prices reflect inter-dealer quotations, without retail markups,
markdowns or commissions, and do not necessarily represent actual
transactions.

1996 1995
Quarter ended High Low High Low
- ------------- ----- ---- ----- ------

March 31 $ 4.25 $ 2.94 $ 3.00 $ 2.06
June 30 $ 6.00 $ 3.13 $ 2.63 $ 2.00
September 30 $ 3.75 $ 1.88 $ 4.63 $ 2.56
December 31 $ 3.69 $ 2.63 $ 4.25 $ 3.50

No cash dividends had been paid as of March 1, 1997. The Company
does not anticipate paying cash dividends in the foreseeable
future. As of March 1, 1997, there were approximately 342
holders of record of the Company's Common Stock.

11
12

In August 1996, the Company directly sold 1.2 million shares of
its common stock at $1 per share in a private placement to
accredited investors pursuant to Sections 4(2) and/or 4(6) of the
Securities Act of 1933 and pursuant to Rule 505 of Regulation D.
Gross proceeds of the offering were $1.2 million dollars.

In November 1996, the Company issued warrants to purchase 20,000
share of its common stock at $3.13 per share in return for
consulting services. The warrants are exercisable in equal
installments on the anniversary date of their issue over a three-
year period.

Item 6. Selected Financial Data.
- ------- ------------------------

Year Ended December 31,

1996 1995 1994 1993 1992
------------ ----------- ----------- ------------ ------------

Revenues $10,921,000 $10,783,000 $10,847,000 $11,556,000 $11,960,000
Gross Profit 1,234,000 2,558,000 2,963,000 3,307,000 3,819,000
Income from continuing
operations (1,090,000) 480,000 676,000 763,000 886,000
Discontinued Operations:
Loss from discontinued
operations - (902,706) (2,964,000) (3,309,000) (1,885,000)
Gain (loss) on disposal
of discontinued operations 600,000 (3,114,000) - - -
Net loss (490,000) (3,536,000) (2,288,000) (2,546,000) (999,000)

Per Share Amounts:
- ------------------

Income from continuing
operations (0.17) 0.08 0.13 0.16 0.21
Discontinued Operations:
Loss from discontinued
operations - (0.15) (0.57) (0.68) (0.44)
Gain (loss) on disposal of
discontinued operations 0.09 (0.53) - -
Net loss (0.08) (0.60) (0.44) (0.52) (0.23)

Total assets 4,776,000 4,456,000 6,289,000 6,717,000 7,162,000
Long-term debt and
capital lease
obligations, net
of current portion 503,000 649,000 287,000 432,000 464,000
Shareholders' equity 2,023,000 1,226,000 3,900,000 4,585,000 4,666,000

12
13

Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------

Condition and Results of Operations.

All comparisons within the following discussions are to the
previous year.

Revenues
- --------

Total revenues were generally consistent between 1996 and 1994,
with a 1% increase in 1996 and less than a 1% decrease in 1995.
Blood products revenues decreased 1% in 1996 and increased 2% in
1995. Blood services revenue increased by 5% in 1996, reversing a
5% decrease in 1995. In all years, the Company's blood products
business was negatively impacted by American Red Cross ("ARC")
pricing practices which the Company believes limit its ability to
obtain and retain blood products customers. During the same
period, blood services revenues were adversely affected by
pressures imposed by third-party payors to reduce health care
utilization, including certain specialized blood-related
treatments for which the Company provides services.

In late 1995 and in 1996, the Company initiated three blood
management programs. The Gateway Community Blood Program
("Gateway") opened in St. Louis, Missouri, in December 1995. The
University of Southern California ("USC") Blood Management
Program commenced in February 1996 and the Citrus Valley Health
Partners ("Citrus Valley") Blood Management Program commenced in
October 1996. These programs are collectively referred to as the
"Blood Management Programs" in the following discussions.

Blood Products

Revenues in all years were adversely affected by pricing
practices employed by the ARC which the Company has alleged
violate antitrust laws. These pricing practices may compel Los
Angeles area ARC customers to purchase certain blood products
from the ARC at higher prices than those offered by the Company.
In December 1995, the Company filed an antitrust and unfair
competition complaint against ARC with the United States District
Court in the Central District of California to recover damages
and secure injunctive relief.

Blood products (apheresis platelet and component) revenues
decreased 1% ($56,000) in 1996 and increased 2% ($145,000) in
1995. The 1996 revenue decrease was due to a 9% ($407,000)
decrease in platelet revenues and an offsetting 14% ($351,000)
increase in component product revenues. The 1996 decrease in
platelet revenues resulted from a 4% decrease in the number of
units sold and a 5% decrease in the price per unit. The decrease
in units sold relates primarily to customers lost due to ARC
pricing practices. To discourage further erosion of its platelet
customer base, the Company reduced its platelet prices
approximately 5% in August 1996. Component revenues increased in
1996 due a 5% increase in the number of products sold, partially
offset by a 8.5% decrease in the average unit price. The increase
in component sales volumes and the decrease in average unit sales
price resulted from products produced and sold by Gateway in
Missouri and Illinois. Southern California component revenues
decreased in 1996, due to a shortage of RBC products available
for purchase by the Company and customers lost as a result of ARC
pricing practices.

In 1995, platelet revenues increased 3% ($142,000) as a result of
a 1% increase in units sold and a 3% increase in the average per
unit price. Revenues from sales of component products were flat
between 1995 and 1994. During this period, a 7% decrease in the
volume of units sold was offset by a corresponding increase in
the average per unit sales price. In 1995, increased sales to
existing customers and the addition of new apheresis and
component customers offset the effects of ARC pricing practices
on blood products revenue.

Management believes that the potential for future growth of its
platelet product sales is severely restricted in the southern
California market so long as the current ARC pricing practices
continue. Although demand for component products is expected to
increase, sales of component products may also be limited by the
Company's ability to produce or purchase products at an economic
price.

13
14

Blood Services

Blood services revenue increased 5% ($194,000) in 1996 and
deceased 5% ($209,000) in 1995. The 1996 revenue was primarily
due to growth in laboratory testing services, partially offset by
a decrease in Atlanta therapeutics revenue. The 1995 decease was
due primarily to a decrease in the number of therapeutic
procedures performed.

Los Angeles therapeutics revenues were stable in 1996, after a 4%
($155,000) decline in 1995. In 1996, a 3% increase in the number
of Los Angeles therapeutic procedures was largely offset by a
corresponding decrease in the average price per procedure. The
1995 decrease in Los Angeles therapeutic services revenue was due
to a 6% decrease in the number of procedures performed, partially
offset by a 1% price increase. The choice of therapeutic
apheresis rather than an alternative treatment for a particular
diagnosis often depends on general acceptance by the medical
community and the willingness of third-party payors to reimburse
hospitals for the cost of this treatment. In addition, other
changes in medical practices can affect the usage of therapeutic
apheresis technology. An increase in the use of high dosage
radiation, chemotherapy and stem cell therapy to treat certain
cancers has resulted in an increase in the number of stem cell
collection procedures performed by the Company. However, because
of the large market share of the therapeutics business in
southern California enjoyed by HemaCare, management expects that
unless there are additional medical applications approved for
therapeutics or other significant changes in market factors,
future therapeutics revenues will remain flat or decline in
Southern California.

On an annual basis, therapeutics revenues from the northern
Georgia operation, which was closed in July 1996, decreased 40%
($108,000) in 1996 and 17% ($54,000) in 1995. The 1996 decrease
was due to few procedures performed while the operation was
active and the July closure. In 1995, revenue decreased as the
result of a 34% decline in the number of procedures performed.

In 1996, the Company expanded its outside testing services, more
than tripling the number of units tested for customers. Most of
this increase was from testing samples for the City of Hope
National Medical Center's blood donor program.

Operating Profit
- ----------------

Operating profit as a percentage of revenue ("operating profit
margin") decreased to 11% in 1996 from 24% in 1995 and 27% in
1994. The decrease in the 1996 and 1995 operating profit margins
is due primarily to the operating losses associated with Blood
Management Programs startups. The operating profit margin from
stabilized operations was 26% in 1996 and 1995.

Blood Products

The operating profit margin on both total platelet sales and
total component product sales decreased in 1996 and 1995.

The 1996 decrease in total platelet sales operating profit margin
was due to the costs associated with developing donations at the
Blood Management Program donor centers. The 1996 operating profit
margin on stabilized platelet sales increased slightly over the
1995 margin due to lower operating costs. The 1995 decrease in
platelet profit margin was due to higher disposables costs and an
increase in the number of distributed platelets sold. The
Company's profit margin on purchased and distributed platelets is
less than the profit margin on the Company's in-house,
manufactured platelets.

The 1996 decrease in total component sales operating profit
margin was primarily due to the product pricing and costs
associated with establishing the Gateway program. In addition,
the operating profit margin on stabilized component sales
decreased in 1996 due to an increase in the average cost of
purchased components, primarily red blood cells. The decrease in
the 1995 component sales gross profit margin was due to an
increase in the average cost per unit sold, partially offset by
an increase in the average per unit selling price.

14
15

Blood Services

The gross profit margin for the Los Angeles therapeutic services
remained stable in 1996 and decreased in 1995 due primarily to a
lower volume of procedures performed.

The Atlanta therapeutic services operation, which never achieved
sustained profitability, was closed in July 1996.

General and Administrative Expenses
- -----------------------------------

General and administrative expenses increased 10% ($214,000) in
1996 and decreased 9% ($210,000) in 1995. In both years,
corporate spending controls, including staffing reductions, were
in effect but in 1996, the positive effect of these controls was
more than offset by increased legal fees, an increase in
regulatory personnel costs and the addition of a business
development department.

Discontinued Operations
- -----------------------

From 1990 to 1995, the Company engaged in research and
development for Immupath, an experimental treatment for HIV/AIDS.
The Company incurred losses of $902,000 related to this business
in 1995. In November 1995, the Company discontinued its research
and development activities. In connection with this decision, the
Company wrote off the remaining book value of the research and
development assets ($2,079,000) and provided a reserve for
estimated operating losses ($1,035,000) of the discontinued
operations from the November 30, 1995 measurement date through
December 1996. The reserve included $600,000 for a contingent
liability related to a dispute with Medicorp, a licensor. The
reserve amount was net of the proceeds expected to be realized
from the sale of research and development assets.

In July 1996, the Medicorp dispute was settled without any
payment by the Company. As a result of this settlement, the
Company recognized a $600,000 gain on disposal of discontinued
operations in the third quarter of 1996.

Liquidity and Capital Resources
- --------------------------------

At December 31, 1996, the Company had cash and short-term
investments of $1.5 million. The Company's $700,000 line of
credit with a commercial bank is in effect until April 30, 1997.
Under the terms of the credit line agreement, as amended, the
Company may borrow up to 70% of eligible accounts receivable, up
to a maximum of $700,000 and must maintain certain ratios,
including working capital, as defined, of $500,000 and a tangible
net worth of not less than $1.2 million prior to March 31, 1997
and not less than $1.8 million thereafter. The Company was in
compliance with all covenants of its borrowing agreement, as
amended, at December 31, 1996. At December 31, 1996, there were
no borrowings outstanding on the line of credit, and the Company
has requested its bank to renew the credit agreement.

For general corporate purposes and in order to maintain the
listing of its common stock on the Nasdaq SmallCap Market, the
Company increased its capitalization through a $1.2 million
private placement of 1,200,000 shares of its common stock which
was completed in August 1996. Net proceeds from the placement
were $1,136,000.

The Company's blood products and services businesses, other than
blood donor center operations established for the Blood
Management Programs, are profitable and cash flow positive.
Effective August 1, 1996, the Company reduced many of its blood
product prices, as a part of its overall marketing strategy. The
price reductions are intended to retain existing customers and
attract new customers. However, this strategy has not yet been
proven to be effective, and profit margins on the affected
products have been reduced.

To offset the effect of the price reductions and increase the
overall profitability of its operations, the Company implemented
the following cost reduction and control measures beginning in
June 1996:

15
16

- - Closing of the Atlanta-based therapeutic services business
which did not achieve sustained profitability.

- - Reorganization of Los Angeles-based operations to increase
efficiency and reduce costs. Operation of the collection,
testing, manufacturing and distribution departments were
reevaluated and revised to reduce personnel costs.

- - Reduction of general and administrative expenses. Personnel-
related and other costs were critically reviewed, resulting in
staff reductions.

At December 31, 1996, the blood donor center ("Center")
activities of the Company's Blood Management Programs were
incurring operating losses which are expected to continue until
these activities reach stabilization. For the USC and Citrus
Valley programs, these losses temporarily reduce the overall
profitability of the BMP arrangement to the Company. The Company
has implemented plans to achieve a profitable level of
collections and sales for these Centers. Although these plans
have decreased the USC and Citrus Valley Center losses, there can
be no assurance that the USC and Citrus Valley Centers will be
able to achieve and maintain a profitable level of collections.

Gateway sustained a large net loss in 1996. For the first half of
1996, Gateway competed directly with the ARC on a regional basis.
In June 1996, Gateway's strategic direction was redefined to
target a more profitable mix of blood products and services
marketed to specific hospital customers. A substantial reduction
in personnel and other costs resulted. The success of Gateway's
redefined strategy is dependent on a number of factors and
circumstances, many of which are outside the Company's control,
and accordingly, there can be no assurance that Gateway will be
able to achieve and maintain a profitable level of collections
and sales. If profitable operations are not achieved, Gateway
will be closed. The costs of such a closure are not expected to
be material to the Company's overall results of operations.

The terms of the Citrus Valley Health Partners agreement require
the Company to equip and operate a blood donor center in the
vicinity of the three hospitals. The blood donation center is
expected to be open in the second quarter of 1997.

Management is evaluating a number of opportunities to implement
the Blood Management Program in a variety of healthcare settings.
However, further expansion may require that the Company obtain
additional financing to fund start-up losses and equipment costs
and the ability to compete effectively against other blood
product and service providers. Accordingly, there can be no
assurance that the Company will be successful in marketing its
Blood Management Programs or that, if successful, it will be able
to obtain the funds necessary to finance such programs.

In November 1995, the Company discontinued its research and
development operations and provided a $1 million reserve for
losses during the disposal period. In 1996, approximately $31,000
of the reserve, net of amounts received from asset sales, was
expended. In March 1997, the sale of the assets of the
discontinued operations was completed, resulting in a gain of
$130,000 on disposal in the first quarter of 1997. See
"Discontinued Operations."

The Company anticipates that positive cash flow from its
stabilized operations and its cash and investments on hand will
be sufficient to provide funding for its needs during the next 12
months, including (i) anticipated operating deficits of the Blood
Management Programs as well as new 1997 programs (ii) equipping
and operating the Citrus Valley Health Partners blood donor
center and blood donor centers for new 1997 programs, (iii) if
necessary, the closure of Gateway, (iv) the remaining costs of
disposing of its discontinued operations and (v) other working
capital (including capital and operating lease commitments of
approximately $1,043,000).
16
17

Factors Affecting Forward-Looking Information
- ---------------------------------------------

The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" from liability for forward-looking statements.
Certain information included in this Form 10-K and other
materials filed or to be filed by the Company with the Securities
and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by or
on behalf of the Company) are forward-looking, such as statements
relating to operational and financing plans, competition, the
completion of the disposal of research and developments assets,
demand for the Company's products and services, and the
anticipated outcome of contingent claims against the Company.
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 relating to the ability of the Company to obtain additional
financing, to achieve profitability in its Blood Management
Programs, to improve the profitability of the Company's other
operations, to expand its operations, to comply with the
covenants under its bank line of credit, to effectively compete
against the ARC and other competitors, to complete the sale of
the Company's research and development assets on contracted terms
and to resolve favorably through negotiation or litigation claims
asserted against Company. Each of these risks and uncertainties
as well as others are discussed in greater detail in the
preceding paragraphs of this Management's Discussion and Analysis
of Financial Condition and Results of Operations.

Item 8. Financial Statements and Supplementary Data.
- ------- ---------------------------------------------

The Index to Financial Statements and Schedules appears on page
F-1, the Independent Auditors' Report appears on F-2, and the
Consolidated Financial Statements and Notes to Consolidated
Financial Statements appear on pages F-3-12.

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures.
- ------- -------------------------------------------------

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------

The information required by this Item is set forth under the
caption "Election of Directors" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission
and is incorporated herein by this reference as if set forth in
full.

Item 11. Executive Compensation.
- -------- ------------------------

The information required by this Item is set forth under the
caption "Executive Compensation" in the Company's definitive
Proxy Statement to be filed with the Securities and Exchange
Commission and is incorporated herein by this reference as if set
forth in full.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------

The information required by this Item is set forth under the
caption "Principal Shareholders" in the Company's definitive
Proxy Statement to be filed with the Securities and Exchange
Commission and is incorporated herein by this reference as if set
forth in full.

Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------

The information required by this Item is set forth under the
caption "Certain Transactions" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission
and is incorporated herein by this reference as if set forth in
full.

17
18

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
- -------- -------------------------------------------------------

The following are filed as part of this Report:

(a) 1. Financial Statements

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

(a) 2. Financial Statement Schedules

The following financial statement schedule is filed
herewith:

Schedule II - Valuation and Qualifying Accounts

All other 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.

(a) 3. Exhibits

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

2.1 Amended and Restated Asset Purchase Agreement between
the Registrant, HemaBiologics, Inc. (a wholly owned
subsidiary of the Registrant) and Atopix
Pharmaceuticals Corporation, dated June 26, 1996
incorporated by reference to Exhibit 2.1 to Form 10-Q
of the Registrant for the quarter ended June 30, 1996.

3.1 Restated Articles of Incorporation of the Registrant--
incorporated by reference to Exhibit 3.1 to Form 10-K
of the Registrant for the year ended December 31, 1995.

3.2 Bylaws of the Registrant--incorporated by reference to
Exhibit 3.2 to Form 10-K of the Registrant for the year
ended December 31, 1992.

4.1 Warrant Agreement between the Registrant and Medicorp
Inc. dated February 17, 1993--incorporated by reference
to Exhibit 4 to the Current Report on Form 8-K of the
Registrant dated February 17, 1993.

4.2 Warrant Agreement between the Registrant and Huss Kealy
Sinclair dated May 7, 1993--incorporated by reference
to Registration Statement on Form S-3 of the
Registrant (File No. 33-44869).

4.3 Form of Warrant Agreement between the Registrant and
each of the following consultants: British Far East
Holdings, Ltd., Joseph T. McDonald and E. Keene Wolcott
dated September 30, 1994--incorporated by reference to
Exhibit 4.1 to Form 10-Q of the Registrant for the
quarter ended September 30, 1994.

4.4 Offshore Securities Subscription Agreement between the
Registrant and Tesoma Overseas, Inc., dated April 8,
1994--incorporated by reference to Exhibit 4.1 to Form
10-Q of the Registrant for the quarter ended March 31,
1994.

4.5 Warrant Agreement between the Registrant and Torrey
Pines Securities, Inc., dated April 8, 1994--
incorporated by reference to Exhibit 4.2 to Form 10-Q
of the Registrant for the quarter ended March 31, 1994.

18
19

4.6 Amendment to Warrant Agreement between the Registrant
and Torrey Pines Securities dated April 3, 1995--
incorporated by reference to Exhibit 4.1 to Form 10-Q
of the Registrant for the quarter ended March 31, 1995.

4.7 Warrant Agreement between the Registrant and M.A. Levy
and Associates dated March 1, 1995--incorporated by
reference to Exhibit 4.7 to Form 10-K of the Registrant
for the year ended December 31, 1994.

4.8 Form of Warrant Agreement between the Registrant and
Tesoma Overseas, Inc. dated February 9, 1995--
incorporated by reference to Exhibit 4.8 to Form 10-K
of the Registrant for the year ended December 31, 1994.

4.9 Warrant Agreement between the Registrant and Joseph T.
McDonald dated November 1, 1996.

10.1* 1986 Employee Stock Option Plan, as amended and
restated through October 1994--incorporated by
reference to Exhibit 10.4 to Form 10-Q of the
Registrant for the quarter ended September 30, 1994.

10.2* 1996 Stock Incentive Plan, as amended, of the
Registrant--incorporated by reference to Exhibit 4.1
to Form 10-Q of the Registrant for the quarter ended
September 30, 1996.

10.3 Lease dated July 10, 1986 between the Registrant and
Addison Place Partners--incorporated by reference to
Registration Statement on Form S-18 of the Registrant
(File No. 33-8513-LA).

10.4 Amendment No. 1 to Lease between the Registrant and
Addison Place Partners dated March 30, 1993--
incorporated by reference to Exhibit 10.3 to Form 10-K
of the Registrant for the year ended December 31, 1994.

10.5* Employment Agreement between Harold I. Lieberman and
the Registrant, dated September 19, 1988-- incorporated
by reference to Exhibit 10.4 to Form 10-K of the
Registrant for the year ended December 31, 1994.

10.6* Amendment to Employment Agreement between the
Registrant and Harold I. Lieberman, dated September 19,
1989--incorporated by reference to Exhibit 10.5 to Form
10-K of the Registrant for the year ended December 31,
1994.

10.7 Revolving Credit Agreement between the Registrant and
Bank Leumi Le-Israel, B.M., dated April 30, 1995 and
related security agreements--incorporated by reference
to Exhibit 10.1 to Form 10-Q of the Registrant for the
quarter ended March 31, 1995.

10.8 Amendment to Loan Agreement between the Registrant and
Bank Leumi dated November 8, 1996 -- incorporated by
reference to Exhibit 10.1 to Form 10-Q of the
Registrant for the quarter ended September 30, 1996.

10.9 Promissory Note to HemaBiologics, Inc., a wholly owned
subsidiary of the Registrant, from Joshua Levy dated
January 1, 1996 -- incorporated by reference to Exhibit
10.10 to Form 10-K of the Registrant for the year ended
December 31, 1995.

10.10 Pledge Agreement between HemaBiologics, Inc., a
wholly owned subsidiary of the Registrant, and Joshua
Levy dated January 1, 1996 -- incorporated by reference
to Exhibit 10.11 to Form 10-K of the Registrant for the
year ended December 31, 1995.

19
20

10.11 Settlement Agreement between the Registrant and
Medicorp, Inc. -- incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K of the
Registrant dated July 19, 1996.

10.12 Registration Rights of Shareholders-incorporated by
reference to Exhibit 4.9 to the Current Report on Form
8-K of the Registrant dated August 19, 1996.

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

21 Subsidiaries of the Registrant

23 Consent of Arthur Andersen LLP

27 Financial Data Schedule

* Denotes a management contract or compensatory plan or
arrangement.

(b) Reports on Form 8-K.

None.

20
21

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.

HEMACARE CORPORATION

Dated: March 28, 1997 \s\ Sharon C. Kaiser
----------------------------------
Sharon C. Kaiser, Chief Financial
Officer

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
28th day of March, 1997.

Signature Title
- --------------------------- --------------------------------

\s\ Glenn W. Bartlett
- -------------------------
Glenn W. Bartlett Chairman of the Board

\s\ Hal I. Lieberman
- -------------------------
Hal I. Lieberman President, Chief Executive
Officer and Director
Principal Executive Officer)

\s\ Sharon C. Kaiser
- -------------------------
Sharon C. Kaiser Vice President, Finance, Chief
Financial Officer and Director
(Principal Financial and Accounting
Officer)

- -------------------------
Jon B. Victor Director

\s\ Alan C. Darlington
- -------------------------
Alan C. Darlington Director

21
22

Index to Consolidated Financial Statements and Schedules
Item 14(a)(1) and (2)

Sequential
Page Number
------------

Report of Independent Public Accountants. . . . . . . . F-2

Consolidated balance sheets at December 31, 1996 and
December 31, 1995. . . . . . . . . . . . . . . . . . . . F-3

For the years ended December 31, 1996, 1995 and 1994:

Consolidated statements of operations. . . . . . . . . F-4

Consolidated statements of shareholders' equity. . . . F-5

Consolidated statements of cash flows. . . . . . . . . F-6

Notes to consolidated financial statements. . . . . . . F-7

Report of Independent Public Accountants on Financial
Statement Schedule. . . . . . . . . . . . . . . . . . . . S-1

Schedule II - Valuation and Qualifying Accounts . . . . . S-2

All other 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
23

Report of Independent Public Accountants
- -----------------------------------------

To the Shareholders and Board of Directors of HemaCare Corporation:

We have audited the accompanying consolidated balance sheets of
HemaCare Corporation (a California corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of HemaCare Corporation and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP
--------------------------
ARTHUR ANDERSEN LLP

Los Angeles, California
February 25, 1997

F-2
24

Part I. Financial Information
Item 1. Financial Statements
---------------------

HEMACARE CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, December 31,
1996 1995
------------- -------------

ASSEETS

Current assets:
Cash and cash equivalents............ $ 1,136,000 $ 997,000
Marketable securities................ 415,000 -
Accounts receivable, net of allowance
for doubtful accounts - $47,000
(1996) and $94,000 (1995)........... 1,722,000 1,627,000
Product inventories.................. 74,000 141,000
Supplies............................. 306,000 327,000
Prepaid expenses..................... 146,000 117,000
Note receivable from related party
- current........................... 15,000 15,000
------------- -------------
Total current assets.............. 3,814,000 3,224,000

Plant and equipment, net of
accumulated depreciation and
amortization of $1,875,000 (1996)
and $1,513,000 (1995)................. 823,000 1,051,000
Note receivable from related party
- non-current......................... 88,000 94,000
Other assets........................... 51,000 87,000
------------- -------------
$ 4,776,000 $ 4,456,000
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable..................... $ 909,000 $ 473,000
Accrued blood purchases.............. 175,000 251,000
Accrued payroll and payroll taxes.... 335,000 448,000
Other accrued expenses............... 284,000 264,000
Current obligations under capital
leases.............................. 241,000 209,000
Reserve for discontinued operations
- current........................... 306,000 336,000
------------- -------------
Total current liabilities...... 2,250,000 1,981,000

Oligations under capital leases,
net of current portion................ 503,000 649,000
Reserve for discontinued operations -
non-current........................... - 600,000
Commitments and contingencies..........
Shareholders' equity:
Common stock, without par value -
20,000,000 shares authorized,
7,177,515 and 5,911,285 issued and
outstanding in 1996 and 1995,
respectively........................ 13,466,000 12,179,000
Accumulated deficit.................... (11,443,000) (10,953,000)
------------- -------------
Total shareholders' equity.......... 2,023,000 1,226,000
------------- -------------
$ 4,776,000 $ 4,456,000
============= =============

The accompanying notes are an integral part of these
consolidated balance sheets

F-3
25

HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31,
1996 1995 1994
------------- ------------- -------------

Revenues:
Blood products.................. $ 6,848,000 $ 6,904,000 $ 6,759,000
Blood services.................. 4,073,000 3,879,000 4,088,000
------------- ------------- -------------
Total revenues................ 10,921,000 10,783,000 10,847,000

Operating costs and expenses:
Blood products.................. $ 6,929,000 $ 5,582,000 $ 4,919,000
Blood services.................. 2,758,000 2,643,000 2,965,000
------------- ------------- -------------
Total operating costs and
expenses..................... 9,687,000 8,225,000 7,884,000
------------- ------------- -------------
Operating profit.............. 1,234,000 2,558,000 2,963,000

General and administrative
expense.......................... 2,288,000 2,074,000 2,284,000
Interest expense, net............. 36,000 4,000 3,000
------------- ------------- -------------

Income (loss) from continuing
operations before income taxes... (1,090,000) 480,000 676,000
Provision for income taxes........ - - -
------------- ------------- -------------
Income (loss) from continuing
operations....................... (1,090,000) 480,000 676,000

Discontinued operations:
Gain (loss) on disposal of
discontinued operations........ 600,000 (3,114,000) -
Loss from discontinued
operations..................... - (902,000) (2,964,000)
------------- ------------- -------------
Net loss.......................... $ (490,000) $ (3,536,000) $ (2,288,000)
============= ============= =============

Per share amounts:
Income (loss) from continuing
operations...................... $ (0.17) $ 0.08 $ 0.13

Discontinued operations:
Gain (loss) on disposal of
discontinued operations......... 0.09 (0.53) -
Loss from discontinued
operations...................... - (0.15) (0.57)
------------- ------------- -------------
Net loss.......................... $ (0.08) $ (0.60) $ (0.44)
============= ============= =============

Weighted average number of
common and common equivalent
shares outstanding............... 6,349,940 5,844,267 5,240,793
============= ============= =============

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

F-4
26

HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Common Stock Accumulated
Shares Amount Deficit Total
----------- ------------ ------------- ------------

Balances at December 31, 1993... 4,792,443 $ 9,714,000 $ (5,129,000) $ 4,585,000

Exercise of stock options
and warrants................... 315,833 666,000 - 666,000
Issuance of common stock........ 250,000 890,000 - 890,000
Issuance of common stock for
employee 401(k) and incentive
bonus plans.................... 8,105 47,000 - 47,000
Net loss........................ - - (2,288,000) (2,288,000)
----------- ------------ ------------- ------------
Balances at December 31, 1994... 5,366,381 11,317,000 (7,417,000) 3,900,000

Exercise of stock options
and warrants................... 528,083 796,000 - 796,000
Compensation expense related
to the issuance of common
stock options at a price below
market......................... - 12,000 - 12,000
Issuance of common stock
for employee 401(k) and
incentive bonus plans.......... 16,821 54,000 - 54,000
Net loss........................ - - (3,536,000) (3,536,000)
----------- ------------ ------------- ------------
Balances, at December 31, 1995.. 5,911,285 12,179,000 (10,953,000) 1,226,000

Exercise of stock options
and warrants................... 53,750 107,000 - 107,000
Issuance of common stock, net... 1,200,000 1,136,000 - 1,136,000
Issuance of common stock for
employee 401(k) and incentive
bonus plans.................... 12,480 44,000 - 44,000
Net loss........................ - - (490,000) (490,000)
----------- ------------ ------------- ------------
Balances at December 31, 1996 7,177,515 $13,466,000 $(11,443,000) $ 2,023,000
=========== ============ ============= ============

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

F-5

HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31,
1996 1995 1994
------------ ------------ -----------

Cash flows from operating
activities:
Net loss.......................... $ (490,000) $(3,536,000) $(2,288,000)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Write-off of assets from
discontinued operations........ - 2,079,000 -
Loss (gain) on disposal of
discontinued operations........ (600,000) - -
Write-off of intangible assets.. - - 71,000
Depreciation and amortization... 359,000 498,000 542,000
Provision for losses on
accounts receivable............ (25,000) 29,000 (23,000)
Issuance of common stock for
employee compensation.......... 44,000 67,000 47,000

Changes in operating assets
and liabilities:
Inrease in accounts receivable.. (70,000) (49,000) (131,000)
Decrease (increase) in
inventories, supplies and
prepaid expenses............... 59,000 (34,000) 32,000
Decrease (increase) in other
assets, net.................... 28,000 (92,000) (7,000)
Increase (decrease) in accounts
payable and accrued expenses... 267,000 (240,000) 228,000
Increase (decrease) in reserve
for discontinued operations.... (30,000) 936,000 -
------------ ------------ ------------
Net cash used in operating
activities........................ (458,000) (342,000) (1,529,000)
------------ ------------ ------------

Cash flows from investing activities:
Acquisition of licenses............ - - (315,000)
Decrease (increase) in note
receivable from related party..... 6,000 (18,000) (90,000)
Decrease (increase) in marketable
securities........................ (415,000) 295,000 201,000
Purchase of plant and equipment,
net............................... (32,000) (181,000) (108,000)
------------ ------------ ------------
Net cash (used in) provided by
investing activities............... (441,000) 96,000 (312,000)
------------ ------------ ------------

Cash flows from financing activities:
Net proceeds from issuance of
common stock...................... 1,243,000 796,000 1,556,000
Proceeds from line of credit
borrowing......................... - - 400,000
Principal payments on line of
credit and capital leases........ (205,000) (339,000) (479,000)
------------ ------------ ------------
Net cash provided by financing
activities........................ 1,038,000 457,000 1,477,000
------------ ------------ ------------

Net increase (decrease) in cash
and cash equivalents.............. 139,000 211,000 (364,000)
Cash and cash equivalents at
beginning of period............... 997,000 786,000 1,150,000
------------ ------------ ------------
Cash and cash equivalents at
end of period..................... $ 1,136,000 $ 997,000 $ 786,000
============ ============ ============
Supplemental disclosure:
Interest paid...................... $ 78,000 $ 47,000 $ 43,000
============ ============ ============

Items not impacting cash flows:
Increase in capital lease
obligations....................... $ 92,000 $ 487,000 $ 108,000
============ ============ ============

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

F-6
28

HemaCare Corporation
Notes to Consolidated Financial Statements

Note 1 - Organization
- ---------------------

HemaCare Corporation was incorporated in California in 1978 for
the purpose of providing community-based blood services and blood
products to healthcare institutions.

In September 1995, the Company formed Gateway Community Blood
Program, Inc. ("Gateway"), a wholly-owned subsidiary incorporated
in Missouri, to provide blood products and services in Missouri
and Illinois.

From 1990 to November 1995, the Company, through its wholly-owned
subsidiary HemaBiologics, Inc. ("HBI"), conducted research and
development of Immupath, an anti-HIV hyperimmune plasma-based
product intended to be used in the treatment of Acquired Immune
Deficiency Syndrome ("AIDS"). In November of 1995, the Company's
Board of Directors decided to discontinue the operations of HBI.
(See Note 11 below.)

In 1992, the Company acquired Georgia Hemapheresis Services
("GHS"), a company it had previously managed. GHS was merged into
HemaCare Corporation and was a division HemaCare Corporation. GHS
was closed in July 1996.

HemaCare Corporation and its wholly-owned subsidiaries are
referred to as "HemaCare" or the "Company" in the accompanying
consolidated financial statements and notes to the consolidated
financial statements.

Note 2 - Summary of Accounting Policies
- ----------------------------------------

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

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

Cash, Cash Equivalents and Marketable Securities: The Company
considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Marketable
securities consist of U.S. government treasury bills and
certificates of deposit held at financial institutions.

Financial Instruments: Cash and cash equivalents, short-term
investments, accounts receivable and accounts payable are carried
at cost which approximates fair value. The interest rate applied
to notes receivable and capital leases is equal to the Company's
borrowing rate, and therefore their carrying value approximates
fair value.

Revenues and Accounts Receivable: Revenues are recognized upon
the sale of blood products or the performance of blood services.
Blood services revenues consist primarily of mobile therapeutics
sales, while blood product revenues consist primarily of sales of
single donor platelets and blood components that are manufactured
or purchased and distributed by the Company. Accounts receivable
are reviewed periodically for collectibility.

Inventories and Supplies: Inventories consist of Company-
manufactured platelets and whole blood components as well as
component blood products purchased for resale. Supplies consist
primarily of medical supplies directly related to procedures for
collecting and manufacturing products and providing therapeutic
services. Inventories are accounted for on a first-in, first-out
basis.

F-7
29

Plant and Equipment: Plant and equipment is stated at original
cost. Furniture, fixtures, equipment and automobiles are
depreciated using the straight-line method over three to five
years. Leasehold improvements are amortized over the length of
the lease, ranging from five to ten years. Capital equipment
leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the equipment at the
beginning of the lease term. The cost of normal repairs and
maintenance are expensed as incurred.

Other Assets: As of December 31, 1996 and 1995, other assets
consisted primarily of deposits and organizational costs of
Gateway. Organization costs are amortized using the straight-line
method, over a period of five years.

Goodwill: In 1994, the Company wrote off goodwill ($71,000)
related to the acquisition of GHS. The write off is included in
General and Administrative Expense in the accompanying 1994
consolidated statement of operations.

Long-Lived Assets: In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting For the Impairment of
Long-Lived Assets and For Long-Lived Assets to Be Disposed Of."
SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. SFAS 121 was adopted
by the Company on January 1, 1996. The implementation of this
statement did not have a material impact on the Company's
financial position or its results of operations.

Income Taxes: Income taxes are computed under the provisions of
SFAS No. 109, "Accounting for Income Taxes". SFAS 109 is an
asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax
consequences, SFAS 109 generally considers all expected future
events other than enactments of changes in the tax law or rates.

Per Share Data: Per share data is computed by dividing net income
(loss) by the weighted average number of common and dilutive
common share equivalents outstanding during each period. In 1995
and 1994, shares issuable upon the exercise of stock warrants and
options are included in the weighted average common shares
outstanding because their effect is dilutive on income from
continuing operations. In 1996, shares issuable upon the
exercise of stock warrants and options were excluded from the
computation because the effect would be anti-dilutive.

In March 1997, the FASB issued SFAS No. 128, "Earnings Per
Share." SFAS 128 is effective for fiscal years ending after
December 15, 1997 and will require restatement of prior years'
per share data. Management believes that the adoption of SFAS
128 will not have a material impact on the accompanying
consolidated financial statements.

Reclassification: Certain 1995 and 1994 amounts have been
reclassified to conform with 1996 presentations.

F-8
30

Note 3 - Plant and Equipment

Plant and equipment consists of the following:

December 31,
1996 1995
------------ ------------

Furniture, fixtures and
equipment............... $ 2,497,000 $ 2,149,000
Leasehold improvements... 201,000 168,000
Construction in progress. - 247,000
------------ ------------
2,698,000 2,564,000
Less accumulated
depreciation and
amortization............ (1,875,000) (1,513,000)
------------ ------------
$ 823,000 $ 1,051,000
============ ============

Equipment with a cost of $1,097,000 in 1996 and $1,172,000 in
1995 is financed by capital leases. In the fourth quarter of
1995, the Company wrote off $615,000, including $86,000 financed
by capital leases, of leasehold improvements, equipment and
accumulated depreciation which were related to HBI's discontinued
operations.

Note 4 - Debt Financing
- -----------------------

The Company has maintains a line of credit with a commercial bank
secured by its accounts receivable, inventory and equipment. The
credit line is in effect through April 30, 1997. Under the terms
of the credit line agreement, as amended, the Company may borrow
up to 70% of eligible accounts receivable, up to a maximum of
$700,000 and must maintain certain ratios. The Company was in
compliance with all covenants of its borrowing agreement, as
amended, at December 31, 1996. Interest on credit line
borrowings is at the lender's prime rate (8.25% at December 31,
1996) plus one-half of a percentage point. As of December 31,
1996 and 1995, and during the years then ended, there were no
balances outstanding under the line of credit.

Note 5 - Leases
- ---------------

The Company has entered into several capital leases for
equipment. Future minimum capital lease payments, which expire
at various times during the period from 1997 to 2001, are as
follows:

Year Ending December 31,

1997......................... $ 364,000
1998......................... 276,000
1999......................... 115,000
2000......................... 94,000
2001......................... 8,000
----------
Total minimum lease payments. 857,000
Less: Amount representing
interest.................... 113,000
----------
Present value of minimum
lease payments.............. $ 744,000
==========

Future minimum rentals under operating leases, which expire in
1997 through 2001, are as follows:

Year ending December 31,

1997......................... $ 679,000
1998......................... 225,000
1999......................... 136,000
2000......................... 134,000
2001......................... 22,000
Thereafter................... --
----------
$1,196,000
==========

F-9
31

Total rent expense under all operating leases was $519,000,
$566,000 and $648,000 for the years ended December 31, 1996, 1995
and 1994, respectively.

Note 6 - Income Taxes
- ----------------------

The Company has incurred losses for each of the last three years
and therefore has not recorded a provision for income taxes.

The approximate tax effects of temporary differences which gave
rise to significant deferred tax assets and liabilities at
December 31, 1996 and 1995, are as follows:

1996 1995
------------ ------------

Current:
Accrued expenses deferred for
tax purposes .................. $ 249,000 $ 651,000

Noncurrent:
Depreciation and amortization.. 415,000 316,000
Deferred research and
development expenses.......... 160,000 195,000
Other.......................... (99,000) (201,000)
Net operating loss
carryforwards................. 2,484,000 2,659,000
Tax credit carryforwards....... 963,000 967,000
------------ ------------
Total deferred assets.......... 4,172,000 4,587,000
Valuation allowance............ (4,172,000) (4,587,000)
------------ ------------
$ - $ -
============ ============

At December 31, 1996 and 1995, the Company had net operating loss
carryforwards available for federal income tax purposes of
$7,267,000, and $6,722,000, expiring from 2004 to 2010.

Acquisitions of common stock which result in changes in equity
ownership in the Company could result in an "ownership change"
within the meaning of Section 382 of the Internal Revenue Code of
1986, as amended (the "Code"), thereby imposing an annual
limitation (the "Section 382 Limitation") on the Company's
ability to utilize its net operating loss carryforwards to reduce
future taxable income. In the event of a Section 382 Limitation,
the Company's utilization of its net operating loss carryforwards
would be restricted to an annual amount equal to the product of
the equity value, as defined in the Code, of the Company at the
time of the applicable ownership change multiplied by the long-
term tax-exempt rate as published monthly by the Internal Revenue
Service. The expiration dates of the net operating loss
carryforwards would not be extended, and accordingly, a Section
382 Limitation could result in the expiration of a portion of
Company's net operation loss carryforwards. The long-term, tax-
exempt rate is currently 5.8%; such rate, however, is subject to
change, and it is impossible to predict whether the equity value
of the Company and such rate will increase, or decrease, and to
what extent.

The Company also had net operating loss carryforwards available
for state income tax purposes of approximately $3,930,000 at
December 31, 1996 and $3,244,000 at December 31, 1995. These
state net operating loss carryforwards expire from 1997 to 2000.

At December 31, 1996, the Company had federal income tax credit
carryforwards of approximately $623,000, expiring 1997 to 2010,
and state tax credit carryforwards of approximately $341,000
which are not subject to expiration.

Note 7 - Shareholders' Equity
- ------------------------------

The Company grants stock options to employees and others in
accordance with the terms of its stock option plans. Warrants

F-10
32

are granted upon the Board of Director's approval. The Company
accounts for these plans and recognizes compensation expense in
accordance with APB Opinion No. 25. Under the provisions of this
opinion, the Company recognized $5,000 and $12,000 of
compensation expense in 1996 and 1995, respectively. Had
compensation expense for these plans been recognized in
accordance with SFAS 123 "Accounting for Stock-Based
Compensation", the Company's net loss and net loss per share in
1996 and 1995 would have been as follows:

Years ended December 31,
1996 1995
------------ -------------
Net loss:
As reported............. $ (490,000) $ (3,536,000)
Pro forma............... (622,000) (3,579,000)

Net loss per share:
As reported............ $ (0.08) $ (0.60)
Pro forma.............. (0.10) (0.61)

Because the SFAS 123 method of accounting has not been applied to
options or warrants granted prior to January 1, 1995, the
resulting pro forma compensation cost may not be representative
of that to be expected in future years. The above pro forma
amounts were calculated by estimating the fair value of each
option or warrant granted on the date of grant using the Black-
Scholes option pricing model, using weighted average risk free
interest rates of 5.75% and 6.5%, expected volatility of 60% and
52%, and weighted average fair value of options and warrants of
$1.53 and $1.16 for 1996 and 1995, respectively. The pro forma
calculation assumes that the expected lives of options or
warrants granted is three years.

In July 1996, the Board of Directors approved and adopted a new
stock incentive plan ("the 1996 Plan") which provides for grants
of both stock options and shares of restricted stock. Prior to
that date, options were granted under the Company's 1986 Stock
Option Plan, as amended (the "1986 Plan"). A total of 750,000
shares may be granted under the terms of the 1996 Plan, of which
15,000 were granted during 1996. The term of the options granted
is determined by Company's Board of Directors, but in no event
may be longer than ten years. The exercise price of options
granted generally is required to be not less than the fair market
value of the common stock on the date of grant. Options granted
to employees must be exercisable at a rate of at least 20% per
year.

The 1986 Plan expired in July 1996. At December 31, 1996,
170,800 options were outstanding under this plan, of which 48,000
were granted in 1996.

A one-time grant of options typically is made to each non-
employee director at the time of joining the Board, and
additional options may be granted to non-employee directors at
other times. The table below summarizes transactions in the
Plans and weighted average exercise prices ("Price") during 1996,
1995 and 1994.

1996 1995 1994
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- --------

Outstanding at
beginning of year.. 395,800 $3.12 581,083 $3.60 516,916 $3.25
Granted............. 63,000 3.41 37,800 2.23 167,000 4.27
Exercised........... 53,750 1.99 28,083 1.83 65,833 2.42
Canceled............ 219,250 2.59 195,000 4.55 37,000 3.89
------- ----- ------- ----- ------- -----
Outstanding at end
of year............ 185,800 4.01 395,800 3.12 581,083 3.60
======= ===== ======= ===== ======= =====
Exercisable at end
of year............ 140,300 $4.12 339,967 $2.85 368,417 $2.86
======= ===== ======= ===== ======= =====

F-11
33

The following table summarizes the range of exercise price,
weighted average remaining contractual life ("Life") and weighted
average exercise price ("Price") for all stock options
outstanding as of December 31, 1996:

Options Outstanding Options Exercisable
-------------------------------- --------------------
Range of Shares Shares
exercise price outstanding Life Price exercisable Price
- --------------- ----------- ---------- -------- ----------- -------

$1.75 to $2.43 12,000 4.5 months $1.75 12,000 $1.75
$2.44 to $4.99 108,800 5.8 years 3.35 66,300 3.24
$5.00 to $6.13 65,000 1.2 years 5.50 62,000 5.51
------- ------ ------- -----
185,800 $4.01 140,300 $4.12
======= ===== ======= =====

The table below summarizes warrant transactions and weighted
average exercise prices ("Price") during 1996, 1995 and 1994.

1996 1995 1994
--------------- --------------- ---------------
Warrants Price Warrants Price Warrants Price
-------- ----- -------- ----- -------- -----

Outstanding at
beginning of year..... 140,000 $3.84 115,000 $4.57 160,000 $7.63
Granted............... 20,000 3.13 25,000 1.54 75,000 3.55
Exercised............. -- -- -- -- -- --
Canceled.............. -- -- -- -- 120,000 8.00
------- ----- ------- ----- ------- -----
Outstanding at end
of year.............. 160,000 3.75 140,000 3.84 115,000 4.57
======= ===== ======= ===== ======= =====
Exercisable at end
of year.............. 140,000 $3.84 140,000 $3.84 95,000 $4.71
======= ===== ======= ===== ======= =====

The following table summarizes range of exercise price, weighted
average remaining contractual life ("Life") and weighted average
exercise price ("Price") for all warrants outstanding as of
December 31, 1996:

<CAPTIN>
Warrants Outstanding Warrants Exercisable
------------------------------ --------------------
Range of Warrants Warrants
exercise price outstanding Life Price exercisable Price
- --------------- ----------- ---------- ----- ------------ -----

$1.45 to $3.99 107,500 4.11 years $2.71 87,500 $2.61
$4.00 to $6.50 52,500 1.66 years 5.91 52,500 5.91
------- ----- ------- -----
160,000 $3.75 140,000 $3.84
======= ===== ======= =====

Note 8 - Employee Salary Deferral Plan
- ---------------------------------------

As of January 1, 1990, HemaCare adopted an Employee Salary
Deferral Plan which qualifies under Section 401(k) of the
Internal Revenue Service Code (the "401(k) Plan"). The 401(k)
Plan covers all employees who are at least 21 years of age, have
one year of service and who work at least 1,000 hours per year.
Eligible employees may contribute up to 12 percent of their pre-
tax salaries, subject to certain limitations. HemaCare matches
50 percent of the first 5 percent of each participant's
contribution on an annual basis with HemaCare common stock.
During 1996, 1995 and 1994, HemaCare issued 12,480 shares
($44,000), 16,821 shares ($55,000) and 8,105 shares ($47,000) of
common stock as matching contributions for the 1995, 1994 and
1993 plan years, respectively. HemaCare plans to issue
approximately 13,195 shares ($41,000) in 1997 as matching
contributions for the 1996 plan year.

Note 9 - Commitments and Contingencies
- --------------------------------------

On March 11, 1994, the Company was served with a lawsuit filed by
a former employee against the Company and its wholly owned
subsidiary, HBI, in the Superior Court of the State of
California, related to the termination of this employee and
seeking relief in the amount of $550,000. A trial date has been
set for October 29, 1997; however, at this stage in the
proceedings, neither management nor counsel are in a position to
evaluate the probable merits of the claim asserted by this former
employee. Accordingly, the resolution of this lawsuit could have
a material impact on the Company's financial condition and
results of operations.

F-12

In November 1995, the Company terminated its license agreement
with Medicorp Inc. ("Medicorp") for the rights to the United
States patent to commercialize Immupath (Note 11) due to a
default by the license holder. The Company also notified
Medicorp that the stock purchase warrants (exercisable for
400,000 shares of HemaCare common stock at $5.50 per share)
issued by the Company to Medicorp had terminated under their
terms, due to the default. On July 19, 1996, the Company and
Medicorp Inc. entered into a settlement agreement and mutual
release resolving all disputes between them related to the
license agreement. In the Medicorp settlement agreement, the
parties agreed (i) to terminate the license agreement, (ii) to
mutually release each other from all prior monetary and other
breaches of the license agreement, (iii) that the Medicorp
warrants would remain outstanding and exercisable and (iv) that
the Company would grant a nonexclusive royalty-free license to
Medicorp to certain research data and other documentation
associated with the Immupath project.

On March 12, 1997, the Company was notified of a lawsuit filed by
an investment banking firm retained by the Company in connection
with the August 1996 private placement of its common stock,
seeking recovery of damages in the amount of approximately
$60,000. The Company intends to vigorously defend this claim, and
its ultimate resolution is not expected to have a material impact
on the Company's financial condition or its results of
operations.

Note 10 - Segment and Related Party Information
- -----------------------------------------------

The Company operates within one industry, blood services and
products. In 1996 and 1994, there were no sales to any single,
unaffiliated customer which exceeded 10 percent of total
revenues. In 1995, sales to one unaffiliated hospital of
$1,077,000 accounted for 10 percent of revenue.

In 1995 and 1994, the Company made a series of personal loans to
Joshua Levy, then an officer and director of the Company totaling
$98,000. The proceeds of these loans were used to refinance
existing debt which was collateralized by HemaCare stock owned by
Dr. Levy. In January 1996, these individual notes were
consolidated into a promissory note, collateralized by HemaCare
stock owned by Dr. Levy, which accrues interest at a rate equal
to the rate the Company pays under its line of credit, adjusted
quarterly. Interest accrued for the years ended December 31, 1996
and 1995 totaled $7,000 and $10,000, respectively. The note
requires four annual installment payments of $15,000 due from
1996 to 1999 and the balance of the principal and accrued
interest is due on January 31, 2000. The Company received annual
installment payments of $15,000 in January 1996 and January 1997.

Note 11 - Discontinued Operations
- ---------------------------------

In November 1995, the Company discontinued the operations of HBI,
including the research and development of Immupath and the
associated specialty plasma business. In connection with this
decision, the Company wrote off the remaining book value of HBI's
assets ($2,079,000) and provided a reserve for estimated
operating losses ($1,035,000) from the November 30, 1995
measurement date through December 1996, the expected date of
substantial completion of disposal. The loss on the disposition
of HBI's operations has been accounted for as a discontinued
operation, and prior year financial statements have been restated
to reflect the discontinuation of these operations.

The reserve established for estimated HBI operating losses during
the period of disposal included a $600,000 contingent liability
for the resolution of the dispute with Medicorp. In July 1996,
the dispute was settled without any payment by the Company (See
Note 9), and the Company recognized a $600,000 gain on disposal
of discontinued operations. In June 1996, the Company agreed to
sell substantially all the tangible assets of the discontinued
operations and the FDA source plasma licenses. The sale and
transfer of the licenses was contingent upon obtaining FDA
approval which was received on October 21, 1996. The buyer
delivered a promissory note, due in November 1996, in payment of
the purchase price for certain tangible assets sold which is
collateralized by these assets. However, the buyer did not
repay the note at maturity and requested an extension of
this payment date to February 1997, which was granted by
the Company. The Company does not expect discontinued operations
to have a material impact on future operating results.

F-13
35

Report of Independent Public Accountants

To the Shareholders and Board of Directors of HemaCare
Corporation:

We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in
HemaCare Corporation's annual report to shareholders included in
this Form 10-K, and have issued our report thereon dated February
25, 1997. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule
listed in the index of consolidated financial statements is the
responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly
states in all material respects the financial data required to be
set forth therein in relation to the basic consolidated financial
statements taken as a whole.

/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP

Los Angeles, California
February 25, 1997

S-1
36

HEMACARE CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

For The Years Ended December 31, 1996, 1995 and 1994

Additions
-----------------------
Balance at Charged to Charged to Balance
beginning of costs and other at end of
Description period expenses accounts Write-offs period
- ---------------------- ------------ ---------- ----------- ----------- ---------

Year ended December
31, 1996 - Allowance
for uncollectible
accounts............. $ 94,000 $(25,000)(1) $ -- $ 22,000 $ 46,840

Year ended December
31, 1995 - Allowance
for uncollectible
accounts............. $ 141,000 $ 29,000 $ -- $ 76,000 $ 94,489

Year ended December
31, 1994 - Allowance
for uncollectible
accounts............. $ 167,000 $(23,000)(1) $ (1,000)(2)$ 2,000 $167,184

1) Includes a net reduction in the reserve of $48,000 and $84,000,
respectively, based on the year ending agings at December 31,
1996 and 1994.

2) Amount charged to other accounts in 1994 consisted of $1,000
for collection of accounts written off in prior years.

S-2
37

Index to Exhibits

Sequential
Page Number

2.1 Amended and Restated Asset Purchase Agreement between the
Registrant, HemaBiologics, Inc. (a wholly owned subsidiary
of the Registrant) and Atopix Pharmaceuticals Corporation,
dated June 26, 1996--incorporated by reference to Exhibit
2.1 to Form 10-Q of the Registrant for the quarter ended
June 30, 1996....................................................

3.1 Restated Articles of Incorporation of the Registrant--
incorporated by reference to Exhibit 3.1 to Form 10-K of
the Registrant for the year ended December 31, 1995..............

3.2 Bylaws of the Registrant--incorporated by reference to
Exhibit 3.2 to Form 10-K of the Registrant for the year ended
December 31, 1992................................................

4.1 Warrant Agreement between the Registrant and Medicorp Inc.
dated February 17, 1993--incorporated by reference to Exhibit
4 to the Current Report on Form 8-K of the Registrant dated
February 17,1993.................................................

4.2 Warrant Agreement between the Registrant and Huss Kealy
Sinclair dated May 7, 1993--incorporated by reference to
Registration Statement on Form S-3 of the Registrant
(File No. 33-44869)..............................................

4.3 Form of Warrant Agreement between the Registrant and each
of the following consultants: British Far East Holdings, Ltd.,
Joseph T. McDonald and E. Keene Wolcott dated September 30,
1994--incorporated by reference to Exhibit 4.1 to Form 10-Q of
the Registrant for the quarter ended September 30, 1994..........

4.4 Offshore Securities Subscription Agreement between the
Registrant and Tesoma Overseas, Inc., dated April 8, 1994--
incorporated by reference to Exhibit 4.1 to Form 10-Q of the
Registrant for the quarter ended March 31, 1994..................

4.5 Warrant Agreement between the Registrant and Torrey Pines
Securities, Inc., dated April 8, 1994--incorporated by reference
to Exhibit 4.2 to Form 10-Q of the Registrant for the quarter
ended March 31, 1994.............................................

4.6 Amendment to Warrant Agreement between the Registrant and
Torrey Pines Securities dated April 3, 1995--incorporated by
reference to Exhibit 4.1 to Form 10-Q of the Registrant for the
quarter ended March 31, 1995.....................................

4.7 Warrant Agreement between the Registrant and M.A. Levy and
Associates dated March 1, 1995--incorporated by reference to
Exhibit 4.7 to Form 10-K of the Registrant for the year ended
December 31, 1994................................................

4.8 Form of Warrant Agreement between the Registrant and
Tesoma Overseas, Inc. dated February 9, 1995--incorporated by
reference toExhibit 4.8 to Form 10-K of the Registrant for the
year ended December 31, 1994.....................................

4.9 Warrant Agreement between the Registrant and Joseph T.
McDonald dated November 1, 1996.................................. Filed herewith electronically

10.1* 1986 Employee Stock Option Plan, as amended and restated
through October 1994--incorporated by reference to Exhibit 10.4
to Form 10-Q of the Registrant for the quarter ended September 30,
1994.............................................................

10.2* 1996 Stock Incentive Plan of the Registrant, as amended--
incorporated by reference to Exhibit 4.1 to Form 10-Q of the
Registrant for the quarter ended September 30, 1996..............

10.3 Lease dated July 10, 1986 between the Registrant and Addison
Place Partners--incorporated by reference to Registration
Statement on Form S-18 of the Registrant (File No. 33-8513-LA)...

10.4 Amendment No. 1 to Lease between the Registrant and Addison
Place Partners dated March 30, 1993--incorporated by reference to
Exhibit 10.3 to Form 10-K of the Registrant for the year ended
December 31, 1994................................................

10.5* Employment Agreement between Harold I. Lieberman and the
Registrant, dated September 19, 1988--incorporated by reference
to Exhibit 10.4 to Form 10-K of the Registrant for the year ended
December 31, 1994................................................

10.6* Amendment to Employment Agreement between the Registrant
and Harold I. Lieberman, dated September 19, 1989--incorporated
by reference to Exhibit 10.5 to Form 10-K of the Registrant for
the year ended December 31, 1994.................................

10.7 Revolving Credit Agreement between the Registrant and Bank
Leumi Le-Israel, B.M., dated April 30, 1995 and related security
agreements--incorporated by reference to Exhibit 10.1 to Form
10-Q of the Registrant for the quarter ended March 31, 1995......

10.8 Amendment to Loan Agreement between the Registrant and Bank
Leumi Le-Israel dated April 30, 1995 and related security
agreements -- incorporated by reference to Exhibit 10.1 to From
10-Q of the Registrant for the quarter ended September 30, 1996..

10.9 Promissory Note to HemaBiologics, Inc., a wholly owned
subsidiary of the Registrant, from Joshua Levy dated January 1,
1996--incorporated by reference to Exhibit 10.10 to Form 10-K of
the Registrant for the year ended December 31, 1995..............

10.10 Pledge Agreement between HemaBiologics, Inc., a wholly owned
subsidiary of the Registrant, and Joshua Levy dated January 1,
1996--incorporated by reference to Exhibit 10.11 to Form 10-K
of the Registrant for the year ended December 31, 1995...........

10.11 Settlement Agreement between the Registrant and Medicorp
Inc.--incorporated by reference to Exhibit 10.1 to Form 8-K of
the Registrant dated July 19, 1996...............................

10.12 Registration Rights of Shareholders - incorporated by reference
to Exhibit 4.9 to the Current Report on Form 8-K of the
Registrant dated July 19, 1996...................................

11 Computation of earnings (loss) per common equivalent share....... Filed herewith electronically

21 Subsidiaries of the Registrant................................... Filed herewith electronically

23 Consent of Arthur Andersen LLP................................... Filed herewith electronically

27 Financial Data Schedule.......................................... Filed herewith electronically

* Denotes a management contract or compensatory plan or arrangement.