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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
/ / 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
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 ___
As of November 8, 1995, 5,904,785 shares of Common Stock of the Registrant
were issued and outstanding.
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INDEX
HEMACARE CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets--September 30, 1995 and December 31,
1994
Consolidated statements of operations--Three and nine months ended
September 30, 1995 and 1994
Consolidated statements of cash flows--Nine months ended September
30, 1995 and 1994
Notes to consolidated financial statements--September 30, 1995
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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Item 1. Financial Statements
- ------- --------------------
HEMACARE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................... $ 1,394,561 $ 786,334
Short-term investments....................... -- 295,434
Accounts receivable, net of allowance for
doubtful accounts - $119,178 (1995) and
$141,243 (1994)............................ 1,250,155 1,606,566
Product inventories.......................... 141,319 117,683
Supplies..................................... 314,220 324,047
Prepaid expenses............................. 158,062 109,972
------------ ------------
Total current assets.................... 3,258,317 3,240,036
Plant and equipment, net of accumulated
depreciation and amortization of
$2,199,616 (1995) and $1,895,863 (1994)...... 1,382,131 1,463,261
Licenses....................................... 1,342,532 1,394,337
Note receivable from officer................... 106,494 90,470
Other assets................................... 206,133 100,805
------------ ------------
$ 6,295,607 $ 6,288,909
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable............................. $ 608,235 $ 967,545
Accrued payroll and payroll taxes............ 193,732 324,408
Other accrued expenses....................... 236,423 267,062
Current obligations under capital lease...... 152,828 221,555
Line of credit payable to bank............... -- 200,000
------------ ------------
Total current liabilities.............. 1,191,218 1,980,570
Obligations under capital leases, net
of current portion........................... 423,632 286,998
Other accrued employee benefits................ 108,504 121,406
------------ ------------
Total liabilities...................... 1,723,354 2,388,974
Shareholders' Equity
Common stock, without par value -
20,000,000 shares authorized,
5,904,035 and 5,366,381 issued
and outstanding at September 30, 1995
and December 31, 1994, respectively........ 12,151,153 11,316,671
Accumulated deficit.......................... (7,578,900) (7,416,736)
------------ ------------
Total shareholders' equity............. 4,572,253 3,899,935
------------ ------------
$ 6,295,607 $ 6,288,909
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Blood services......................... $ 925,615 $ 967,850 $ 2,672,225 $ 2,891,195
Blood products......................... 1,787,105 1,745,463 5,208,295 5,178,010
Specialty plasma....................... 31,834 57,031 170,624 219,897
------------ ------------ ------------ ------------
Total revenues..................... 2,744,554 2,770,344 8,051,144 8,289,102
------------ ------------ ------------ ------------
Cost of sales and services
Blood service.......................... 617,240 671,195 1,896,922 1,919,672
Blood products......................... 1,337,347 1,256,948 3,945,784 3,811,281
Specialty plasma....................... 64,370 150,149 207,986 512,625
----------- ------------ ------------ ------------
Total costs of sales and services.. 2,018,957 2,078,292 6,050,692 6,243,578
------------ ------------ ------------ ------------
Gross profit....................... 725,597 692,052 2,000,452 2,045,524
General and administrative expense....... 499,241 551,796 1,460,721 1,704,444
Research and development expense......... 198,113 570,958 696,175 1,974,128
Interest (income) expense
Interest income........................ (9,102) (8,907) (35,051) (30,815)
Interest expense....................... 12,433 13,672 40,771 35,343
------------ ------------ ------------ ------------
Net income (loss).................. $ 24,912 $ (435,467) $ (162,164) $(1,637,576)
============ ============ ============ ============
Per share amounts:
Net income (loss)...................... $ -- $ (0.09) $ (0.03) $ (0.33)
============ ============ ============ ============
Weighted average common shares
outstanding 6,020,684 5,091,215 5,622,215 4,959,390
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
Nine months ended September 30,
1995 1994
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (162,164) $(1,637,576)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of plant and
equipment.................................... 336,571 357,483
Amortization of discounts on short-term
investments.................................. (4,566) (3,198)
Amortization of intangible assets............. 52,345 47,925
Provision for losses on accounts receivable... 819 46,943
Issuance of common stock for employee 401(K)
plan........................................ 54,668 46,604
Changes in operating assets and liabilities:
Decrease in accounts receivable................ 355,592 63,453
Increase in inventories, supplies and prepaid
expenses...................................... (61,899) (176,846)
Increase in other assets, net.................. (80,858) (393,992)
Decrease in accounts payable and accrued
expenses...................................... (520,625) (231,246)
Decrease in other accrued employee benefits... (12,902) --
------------ ------------
Net cash used in operating activities.............. (43,019) (1,880,450)
Cash flows from investing activities:
Advance to officer.................................. (16,024) --
Decrease in short-term investments.................. 300,000 500,000
Purchase of plant and equipment, net................ (113,125) (130,609)
------------ ------------
Net cash provided by investing activities.......... 170,851 369,391
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock.............. 779,814 1,578,547
Proceeds from short-term debt....................... -- 200,000
Principal payments on line of credit and capital
leases............................................. (299,419) (269,974)
------------ ------------
Net cash provided by financing activities.......... 480,395 1,508,573
------------ ------------
Increase (decrease) in cash and cash equivalents... 608,227 (2,486)
Cash and cash equivalents at beginning of period... 786,334 1,149,917
------------ ------------
Cash and cash equivalents at end of period......... $ 1,394,561 $ 1,147,431
============ ============
Items not impacting cash flows:
Increase in capital lease obligations............... $ 167,325 $ 107,623
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
5
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HEMACARE CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and General Information
- ------------------------------------------------------
The accompanying unaudited consolidated financial statements of HemaCare
Corporation (the "Company" or "HemaCare") have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six
months ended September 30, 1995 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1995. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
In 1994, HemaCare, through its wholly owned subsidiary, HemaBiologics, Inc.
("HBI"), incurred significant losses as a result of the expenditures related
to ImmupathTM, an experimental treatment for HIV/AIDS. HemaCare financed the
costs associated with the Immupath project from existing cash reserves,
operating cash flow and proceeds from sales of common stock and the exercise
of stock purchase warrants. In late 1994, the Company determined that ongoing
Immupath research and development activities would no longer be funded
internally. At that time, a search for alternative financing was initiated,
with the goal of securing sufficient funding to commence preclinical and
Phase I testing of the second-generation Immupath product. Pending additional
financing for Immupath, development activity has been suspended and other
related activity has been reduced to a minimum, including staff reductions,
closing of donor centers and limiting plasma processing operations. The
Company's current Immupath related activities consist of maintaining the
unfinished plasma processing facility, retaining the donated anti-HIV plasma
(of which the Company believes it has sufficient supply for future clinical
trials) and continuing to treat the remaining patients from the first-
generation Immupath Phase I/II clinical trial and follow their progress on a
monthly basis.
Although a number of potential financing sources have been investigated and
discussions with interested parties continue, there can be no assurance that
additional financing for the Immupath project will be obtained or that, if
financing is obtained, it will be sufficient to complete the development of
Immupath. If a commitment for Immupath financing sufficient to complete
preclinical and Phase I testing is not obtained, it is likely that the
Company will discontinue the Immupath project. Such a discontinuance could
occur as early as the fourth quarter of 1995. In this event, the Company
would seek to maximize the value of its assets related to this project, the
net book value of which at September 30, 1995, was approximately $2,100,000,
including approximately $985,000 (net of accumulated depreciation)
attributable to the Medicorp license rights (See Note 2). However, it is
unlikely that the Company would be able to realize the net book value of
these assets and anticipates that the write off of a substantial portion of
this value would result. In addition to this write-off, the Company would
incur various expenses in connection with discontinuing the Immupath project.
The amount of asset value which would not be realizable and the amount of
expenses which would be incurred in connection with the discontinuance are
not yet determinable.
Note 2 - License Agreement
- --------------------------
In February 1993, HemaCare entered into an expanded license agreement (the
"Agreement") with Medicorp Inc. ("Medicorp") for rights under U.S. patent
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<PAGE>
#4,863,730 to the technology which applies the principle of passive
hyperimmune therapy to treat HIV/AIDS. The Agreement superseded an earlier
agreement for similar rights limited to the State of California. In
accordance with the Agreement, HemaCare paid Medicorp $250,000 and granted
warrants to purchase up to 400,000 shares of HemaCare s Common Stock at an
exercise price of $5.50 per share, exercisable until February 17, 2003. The
Agreement provided for monthly payments of $25,000 which began January 1, 1994
to be credited against future royalty payments.
In January 1995, the Company notified Medicorp, Inc. that HemaCare would no
longer be able to make monthly $25,000 advance royalty payments to Medicorp,
as required by the license agreement, due to the lack of funds available for
the Immupath project. In March 1995, Medicorp informed the Company that the
holder of the patent for Immupath had asserted a claim that Medicorp was in
breach under its license agreement with the patent holder and that Medicorp's
license rights had terminated as a result of such breach. In connection with
the execution in February 1993 of the Company's license agreement with
Medicorp, a commitment letter from the patent holder was delivered to the
Company providing that the Company's license rights would remain in effect in
the event of the termination for any reason of the license between the patent
holder and Medicorp, so long as the Company is not in material breach of its
license agreement with Medicorp. However, in October 1995, the patent holder
informed the Company that it considered the commitment letter to be void due
to misrepresentations made by Medicorp to the patent holder in connection with
the issuance of the commitment letter.
The Company and Medicorp have negotiated the principal terms of amendments to
the Immupath license agreement and warrants previously issued by the Company
to Medicorp that would provide for an abeyance of royalty prepayments.
However, other terms of the proposed amendments, including those dealing with
the status of Medicorp's license rights to the Immupath patent and
contingencies related to the Company's efforts to obtain additional financing
for the Immupath project, remain outstanding. Although the Company believes
that a satisfactory resolution of the pending claims and open issues involving
the Company, Medicorp and the patent holder is feasible, there can be no
assurance that such a settlement can be reached in a timely fashion. In the
event of a failure to reach such a settlement or discontinuance by the
Company of the Immupath project for other reasons, the Immupath license would
have no future value. The Medicorp license is valued at cost ($1,100,000)
less accumulated amortization ($115,000) at September 30, 1995 and is included
in the caption "Licenses" in the accompanying balance sheet.
Note 3 - Line of Credit
- -----------------------
Since August 1991, the Company has maintained a line of credit with a
commercial bank secured by its accounts receivable, inventory and equipment.
Borrowing on the line is limited to 70% of the Company's eligible accounts
receivable under 90 days old, to a maximum of $700,000, with interest at the
lender's prime rate plus one-half of a percentage point. The line of credit
terms are in effect through April 1996, with the provision that the Company
maintain $400,000 in cash and/or short-term securities at all times. The
Company was in compliance with all covenants of its borrowing agreement at
June 30, 1995. As of September 30, 1995, there was no outstanding balance
under the line of credit.
Note 4 - Sale of Equity Securities
- ----------------------------------
In April 1994, HemaCare sold 250,000 units of common stock and common stock
purchase warrants (at $4.00 per unit) in an offshore transaction from which
it received net proceeds of approximately $900,000. Each unit consisted of
7
<PAGE>
one share of the Company's common stock and three warrants to purchase
additional shares. The first group of warrants was exercised in September
1994 and yielded net proceeds of approximately $500,000. The second group of
warrants was exercised in February 1995 yielding net proceeds of
approximately $350,000. In connection with this exercise, a fourth group of
250,000 warrants was granted to the purchaser in February 1995. The third
group of 250,000 warrants was exercised in June and July 1995, yielding net
proceeds of approximately $390,000. The warrants granted in February 1995
are exercisable at a price of $3.50 per share and expire in December 1998. In
connection with the offshore transaction and the subsequent exercise of
related warrants, the Company granted to the finder warrants to purchase
50,000 shares of the Company's common stock. The exercise prices of the
warrants range from $1.45 to $4.00, and the warrants expire five years from
the issue date. In addition, the Company agreed to issue to the finder up to
12,500 additional warrants at $3.50 per share. The number of additional
warrants to be granted is dependent upon the number of warrants to be
exercised in related offshore transactions.
Note 5 - 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 excess of $350,000. Neither management nor
counsel are currently in a position to evaluate the probable merits of the
claim asserted by this former employee.
Note 6 - Related Party Information
- ----------------------------------
In 1994 and 1995, the Company, through its wholly owned subsidiary, HBI, made
a series of personal loans to Joshua Levy, an officer and director of the
Company. At September 30, 1995, no payments had been made on the loans which,
including accrued interest, totaled $106,494. These notes are due on demand
and accrue interest at a rate equal to the prime rate of a commercial bank
plus 0.5%. The Company is currently negotiating an agreement to provide for
the repayment of the notes over a period expected to be in excess of 12
months, and accordingly, the loans have been reclassified from current assets
in the accompanying balance sheets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Comparison of the Quarter and Nine Months ended September 30, 1995 and 1994.
All comparisons within the following discussions are to the same period of
the previous year.
Revenues and Gross Profit
- -------------------------
Revenues for the three-month and nine-month periods ended September 30,
1995, decreased 1% ($26,000) and 3% ($238,000), respectively.
Blood services revenues for the three-month and nine-month periods ended
September 30, 1995 decreased 4% and 8%, respectively. The decreases resulted
from 9% and 10% decreases, respectively, in the number of procedures
performed during these periods. The decline in procedures was due to the
effects of competitive and cost containment pressures on the demand for
therapeutic services. Blood products revenues increased 2% ($42,000) in
the third quarter of 1995 and were flat for the 1995 nine month period. The
third quarter increase was due to higher platelet sales volumes (4%) and
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<PAGE>
higher average prices for platelet and allogeneic products (2%), partially
offset by lower sales volumes (14%) for allogeneic products. Revenues from
the specialty plasma business decreased $25,000 in the three months and
$49,000 during the nine months ended September 30, 1995, due to lower sales
volume attributable to planned reductions in this business.
The Company's total gross profit, as a percentage of sales, increased to 26%
for the three months ended September 30, 1995 from 25% for the corresponding
period of 1994, and remained at 25% for the nine month period ended September
30, 1995.
Blood services gross profit, as a percentage of sales, increased to 33% from
31% for the three months and decreased to 29% from 34% for the nine months
ended September 30, 1995. The increase in the third quarter 1995 gross profit
margin was due to non-recurring costs incurred in the 1994 quarter associated
with the introduction of a new therapeutic procedure during the quarter. The
decrease for the nine month period was due primarily to the lower volume of
apheresis procedures performed in 1995, resulting in higher fixed costs per
procedure. Blood products gross profit, as a percentage of sales, decreased
to 25% from 28% for the three months and to 24% from 26% for the nine months
ended September 30, 1995. The lower 1995 blood products gross profit
percentages resulted from lower product yields per apheresis donation and an
increase in the use of imported apheresis products sold. Product yields are
determined by the composition of the donor pool. When apheresis products
produced from donations are not sufficient to meet demand, additional
apheresis products are imported from third-party providers, typically at a
higher cost.
Losses incurred on the Company's specialty plasma business decreased for the
three and nine month periods of 1995, due to the decision to close two
centers and reduce operations at remaining centers. These decreased losses
favorably impacted total gross profit as a percentage of sales.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses decreased 10% ($53,000) for the three
months ended September 30, 1995 and 14% ($244,000) for the nine months ended
September 30, 1995, primarily as the result of management controls over
corporate spending instituted in late 1994.
Research and Development Expenses; Immupath Project
- ---------------------------------------------------
The Company incurred research and development expenses of $198,000 for the
third quarter of 1995 compared to $571,000 for the third quarter of 1994 and
$696,000 for the nine months ended September 30, 1995 compared to $1,974,000
for the nine months ended September 30, 1994. The decrease in these expenses
is due to the suspension of non-essential activities related to ImmupathTM,
an experimental treatment of HIV/AIDS.
In late 1994, the Company determined that ongoing Immupath research and
development activities would no longer be funded internally. At that time,
a search for alternative financing was initiated, with the goal of securing
sufficient funding to commence preclinical and Phase I testing of the second-
generation Immupath product. Pending additional financing for Immupath,
development activity has been suspended and other related activity has been
reduced to a minimum, including staff reductions, closing of donor centers
and limiting plasma processing operations. The Company's current Immupath
related activities consist of maintaining the unfinished plasma processing
facility, retaining the donated anti-HIV plasma (of which the Company
believes it has sufficient supply for future clinical trials) and continuing
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to treat the remaining patients from the first-generation Immupath Phase I/II
clinical trial and follow their progress on a monthly basis.
Although a number of potential financing sources have been investigated and
discussions with interested parties continue, there can be no assurance that
additional financing for the Immupath project will be obtained or that, if
financing is obtained, it will be sufficient to complete the development of
Immupath. If a commitment for Immupath financing sufficient to complete
preclinical and Phase I testing is not obtained, it is likely that the
Company will discontinue the Immupath project. Such an action could occur as
early as the fourth quarter of 1995 (See "Liquidity and Capital Resources"
below).
In January 1995, the Company notified Medicorp, Inc., the company from which
HemaCare has licensed the rights to the U.S. patent for Immupath, that
HemaCare would no longer be able to make monthly $25,000 advance royalty
payments to Medicorp, as required by the license agreement, due to the lack
of funds available for the Immupath project. In March 1995, Medicorp
informed the Company that the holder of the patent for Immupath had asserted
a claim that Medicorp was in breach under its license agreement with the
patent holder and that Medicorp's license rights had terminated as a result
of such breach. In connection with the execution in February 1993 of the
Company's license agreement with Medicorp, a commitment letter from the
patent holder was delivered to the Company providing that the Company's
license rights would remain in effect in the event of the termination for any
reason of the license between the patent holder and Medicorp, so long as the
Company is not in material breach of its license agreement with Medicorp.
However, in October 1995, the patent holder informed the Company that it
considered the commitment letter to be void due to misrepresentations made by
Medicorp to the patent holder in connection with the issuance of the
commitment letter.
The Company and Medicorp have negotiated the principal terms of amendments to
the Immupath license agreement and warrants previously issued by the Company
to Medicorp that would provide for an abeyance of royalty prepayments.
However, other terms of the proposed amendments, including those dealing with
the status of Medicorp's license rights to the Immupath patent and the
contingencies related to the Company s efforts to obtain additional financing
for the Immupath project, remain outstanding. Although the Company believes
that a satisfactory resolution of the pending claims and open issues
involving the Company, Medicorp and the patent holder is feasible, there can
be no assurance that such a settlement can be reached in a timely fashion.
In the event of a failure to reach such a settlement or discontinuance by the
Company of the Immupath project for other reasons, the Immupath license would
have no future value. (See "Liquidity and Capital Resources" below.)
Liquidity and Capital Resources
- -------------------------------
At September 30, 1995, the Company had cash and cash equivalents of
$1,395,000. In April 1994, the Company completed a private placement of
250,000 units, consisting of 250,000 shares of common stock and 750,000
warrants for net proceeds of approximately $900,000. The warrants consisted
of three groups of 250,000 each, exercisable sequentially. The first group of
warrants was exercised in September 1994 and yielded net proceeds of
approximately $500,000. The second group of warrants was exercised in
February of 1995, yielding net proceeds of approximately $350,000, and the
third group of warrants was exercised in June and July of 1995 yielding net
proceeds of approximately $390,000. In connection with the exercise of the
second group of warrants, a fourth group of 250,000 warrants was granted.
The fourth group of warrants expire December 31, 1998.
10
<PAGE>
The Company's $700,000 line of credit with its commercial bank is in effect
until April 30, 1996, with a provision that the Company maintain cash and/or
short-term security balances of at least $400,000 (excluding borrowing) at
all times. The Company was in compliance with this and other covenants of its
borrowing agreement at September 30, 1995. At September 30, 1995, no amount
was outstanding on the line of credit.
The net losses experienced by the Company since 1991 have been due to
research and development expenses incurred in connection with the Immupath
project. As described under the caption "Research and Development
Expenses; Immupath Project," the Company has suspended non-essential Immupath
related activities. If financing to continue the Immupath project is not
secured, the Company would seek to maximize the value of its assets related
to this project, the net book value of which at September 30, 1995, was
approximately $2,100,000, including approximately $985,000 (net of
accumulated amortization) attributable to the Medicorp license rights.
However, it is unlikely that the Company would be able to realize the net
book value of these assets and anticipates that the write off of a
substantial portion of this value would result. In addition to this write-
off, the Company would incur various expenses in connection with
discontinuing the Immupath project. The amount of asset value which would
not be realizable and the amount of expenses which would be incurred in
connection with discontinuing the Immupath project are not yet determinable.
The Company's core businesses are profitable and cash flow positive. The
Company is focusing on expanding these core blood products and services
business, including recently announced business expansions in Los Angeles,
California and St. Louis, Missouri.
On August 1, 1995, the Company announced the completion of agreements to
establish a full-service blood center (the "USC Blood Center") at the
University of Southern California ("USC") Health Services Campus. Initially,
the USC Blood Center will serve the USC/Norris Comprehensive Cancer Center
and Hospital and the USC University Hospital (the "Hospitals"). Under the
terms of the three-year agreements with Hospitals, the USC Blood Center will
collect and process blood products which will first be made available to fill
the needs of the Hospitals. The Hospitals have agreed that HemaCare will be
their primary provider of blood products and therapeutic hemapheresis
services. Based on the current and anticipated requirements of the Hospitals
for blood products and services, the Company expects that stabilized revenues
from sales to the Hospitals, only one of which currently is a significant
customer, will increase by 50% from its current level by the second year of
operations. Sales to the Hospitals account for approximately 15% of the
Company's current blood products revenue. Although management believes its
assumptions are reasonable, the success of the USC Blood Center will be
dependent upon a number of factors and circumstances, many of which will be
beyond the control of the Company, and no assurance can be given that the
anticipated level of revenues will be achieved.
The USC Blood Center, which is expected to open in December 1995, will be
located in space leased from USC and will be staffed and operated by
HemaCare. Pathologists on the USC medical faculty will provide medical
direction services for the USC Blood Center as consultants to the Company.
The Company will pay for the costs of tenant improvements for the USC space,
estimated at $110,000, of which up to $100,000 may be recouped through
surcharges payable by the Hospitals. The Company believes that its current
working capital and funds available under its line of credit are sufficient
to pay for tenant improvements and USC Blood Center start up costs, including
working capital requirements during initial operations.
11
<PAGE>
In September 1995, the Company announced the formation of Gateway Community
Blood Program, Inc. ("Gateway"), a wholly-owned subsidiary of HemaCare, which
will provide a comprehensive blood program to hospitals and patients in the
greater St. Louis area. Based on its knowledge of the demand for blood
products and services in the bi-state area, the Company believes that the St.
Louis market generates approximately $40 million per year in sales of blood
product and services. Management believes that Gateway will be able to
capture a sufficient portion of this market to make its operations
profitable. However, the American Red Cross, which has significantly greater
resources than the Company, currently dominates the St. Louis market.
The success of Gateway s operations will be dependent on a number of factors
and circumstances, many of which will be outside the Company s control.
Accordingly, there can be no assurance that profitable operations will be
achieved.
The Company has entered into a five-year lease for 12,260 square feet of
space in St. Louis and made commitments for the purchase of equipment and
furnishings for Gateway s facilities. The Company believes that its current
working capital, cash flow from operations and funds available under its line
of credit are sufficient to meet these commitments and fund initial operating
deficits. The Company also entered into a letter of intent with another
blood products company in St. Louis, under which the other company will agree
not to compete with Gateway in exchange for royalties based on Gateway's
cumulative cash flow (defined generally as cumulative net income increased by
charges for depreciation and amortization). The royalty rate will increase
after the recoupment of HemaCare's initial capital investment in Gateway.
The letter of intent also provides for the payment of royalties on the same
basis to certain persons who have agreed to become employees of Gateway.
Royalties will be payable quarterly both in cash and not more than 500,000
shares of HemaCare Common Stock (subject to adjustment in certain
circumstances) for a period ending not later than December 31, 2003.
The current healthcare environment in the U.S. is focused on providing more
cost-effective, efficient delivery of services. Management believes that
this environment provides opportunities for a national expansion of its core
blood products and services businesses together with the addition of other
blood related businesses. The Company's first two expansion projects are the
USC Blood Center and the Gateway Community Blood Program. The Company, is
currently discussing various business arrangements with potential corporate
partners and other sources of capital in order to fund its further expansion.
There can be no assurance that the Company will be able to obtain the funds
necessary to finance additional expansion projects.
The Company has taken the steps described above under "General and
Administrative" and "Research and Development Expenses; Immupath Project"
to reduce expenses. In addition, the Company has reduced the operating
expenses of the Georgia operation and the specialty plasma businesses with
the objective of achieving at least break-even operating results for those
operations.
At September 30, 1995, the Company had working capital of approximately
$2,067,000. The Company anticipates that positive cash flow from its
operations, its cash and investments on hand and the funds available under
its line of credit will be sufficient to meet its working capital
requirements, including commitments for the USC Blood Center and for Gateway
during the next 12 months.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
See disclosure in Form 10-K for the year ended December 31, 1994.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ------- ---------------------------------
a. Exhibits
27 Financial Data Schedule for the quarter ending September
30, 1995.
b. The Company did not file any reports on Form 8-K during the
three months ended September 30, 1995.
SIGNATURES
Pursuant to the requirements 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.
Date: November 13, 1995 HEMACARE CORPORATION
----------------- (Registrant)
/s/ Sharon C. Kaiser
-----------------------
Sharon C. Kaiser, Chief
Financial Officer
13
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit # Method of Filing
- --------- ----------------
<S> <C> <C>
27 Financial Data Schedule for the quarter ending
September 30, 1995............................... Filed herewith electronically
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
financial statements contained in Form 10-Q for the Quarter ending September 30,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,394,561
<SECURITIES> 0
<RECEIVABLES> 1,369,333
<ALLOWANCES> 119,178
<INVENTORY> 455,539
<CURRENT-ASSETS> 3,258,317
<PP&E> 3,581,747
<DEPRECIATION> 2,199,616
<TOTAL-ASSETS> 6,295,607
<CURRENT-LIABILITIES> 1,191,218
<BONDS> 0
<COMMON> 12,151,153
0
0
<OTHER-SE> (7,578,900)
<TOTAL-LIABILITY-AND-EQUITY> 6,295,607
<SALES> 8,051,144
<TOTAL-REVENUES> 8,051,144
<CGS> 6,050,692
<TOTAL-COSTS> 6,050,692
<OTHER-EXPENSES> 2,156,896<F1>
<LOSS-PROVISION> 819
<INTEREST-EXPENSE> 40,771
<INCOME-PRETAX> (162,164)
<INCOME-TAX> 0
<INCOME-CONTINUING> (162,164)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (162,164)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
<FN>
<F1>Other expenses include $1,460,721 in general and administrative expense and
$696,175 in research and development expense.
</FN>
</TABLE>
