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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, 1997
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 13, 1997, 7,190,710 shares of Common Stock of the Registrant
were issued and outstanding.
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<PAGE> 2
INDEX
HEMACARE CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets-September 30, 1997 and
December 31, 1996
Consolidated statements of operations-Three and nine months
ended September 30, 1997 and 1996
Consolidated statements of cash flows-Nine months ended
September 30, 1997 and 1996
Notes to consolidated financial statements-September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEMACARE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 1,108,000 $ 1,136,000
Marketable securities.................... 459,000 415,000
Accounts receivable, net of allowance for
doubtful accounts - $57,000 (1997) and
$47,000 (1996).......................... 1,240,000 1,722,000
Product inventories...................... 68,000 74,000
Supplies................................. 306,000 306,000
Prepaid expenses......................... 147,000 146,000
Note receivable from officer - current... 15,000 15,000
------------- -------------
Total current assets.................. 3,343,000 3,814,000
Plant and equipment, net of accumulated
depreciation and amortization of
$1,938,000 (1997) and $1,875,000 (1996)... 471,000 823,000
Note receivable from officer - non-current. 78,000 88,000
Other assets............................... 10,000 51,000
------------- -------------
$ 3,902,000 $ 4,776,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 373,000 $ 909,000
Accrued blood purchases.................. 124,000 175,000
Accrued payroll and payroll taxes........ 334,000 335,000
Other accrued expenses................... 244,000 284,000
Current obligations under capital leases. 180,000 241,000
Reserve for discontinued operations -
current................................ 251,000 306,000
------------- -------------
Total current liabilities 1,506,000 2,250,000
Obligations under capital leases, net
of current portion........................ 280,000 503,000
Commitments and contingencies..............
Shareholders' equity:
Common stock, without par value -
20,000,000 shares authorized,
7,190,710 issued and outstanding in
1997 and 7,177,515 in 1996.............. 13,507,000 13,466,000
Accumulated deficit...................... (11,391,000) (11,443,000)
------------- -------------
Total shareholders' equity........... 2,116,000 2,023,000
------------- -------------
$ 3,902,000 $ 4,776,000
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Blood management programs........ $ 1,002,000 $ 707,000 $ 3,185,000 $ 1,708,000
Regional operations
Blood products................. 567,000 1,051,000 1,911,000 3,649,000
Blood services................. 1,098,000 868,000 3,166,000 2,757,000
------------ ------------ ------------ ------------
Total revenue................ 2,667,000 2,626,000 8,262,000 8,114,000
Operating costs and expenses:
Blood management programs........ 1,059,000 864,000 3,339,000 2,640,000
Regional operations
Blood products................. 426,000 826,000 1,451,000 2,809,000
Blood services................. 774,000 572,000 2,209,000 1,965,000
------------ ------------ ------------ ------------
Total operating costs and
expenses................... 2,259,000 2,262,000 6,999,000 7,414,000
------------ ------------ ------------ ------------
Operating profit............ 408,000 364,000 1,263,000 700,000
General and administrative
expense......................... 494,000 529,000 1,466,000 1,759,000
Other income (expense):
Interest, net................... 10,000 (7,000) 7,000 (39,000)
Gain on sale of Gateway
Community Blood Program....... 128,000 - 128,000 -
------------ ------------ ------------ ------------
Income (loss) from continuing
operations before income taxes... 52,000 (172,000) (68,000) (1,098,000)
Provision for income taxes........ - - - -
Discontinued operations:
Gain from write off of reserve.. - 600,000 - 600,000
Gain from disposal of
discontinued operations........ - - 120,000 -
------------ ------------ ------------ ------------
Net income (loss)............... $ 52,000 $ 428,000 $ 52,000 $ (498,000)
============ ============ ============ ============
Per share amounts:
Income (loss) from continuing
operations...................... $ 0.01 $ (0.02) $ (0.01) $ (0.17)
Discontinued operations:
Gain from write off of reserve.. - 0.09 - 0.09
Gain from disposal of
discontinued operations........ - - 0.02 -
------------ ------------ ------------ ------------
Net income (loss).............. $ 0.01 $ 0.07 $ 0.01 $ (0.08)
============ ============ ============ ============
Weighted average common and
common equivalent shares
outstanding..................... 7,190,710 6,384,838 7,197,398 6,477,203
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 52,000 $ (498,000)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Gain on disposal of discontinued
operations.............................. (120,000) -
Gain on sale of Gateway Community Blood
Program................................. (128,000) -
Depreciation and amortization............. 178,000 265,000
Decrease in reserve for discontinued
operations............................... - (600,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable.......... 482,000 (63,000)
Increase in inventories, supplies and
prepaid expenses....................... 5,000 (52,000)
Decrease (increase) in other assets, net. 41,000 (11,000)
Increase (decrease) in accounts payable
and accrued expenses................... (628,000) 151,000
Increase in other accrued expenses -
long-term............................... - 24,000
Proceeds from (expenditures for)
discontinued operations................. (55,000) 9,000
------------ ------------
Net cash provided by (used in) operating
activities................................ (173,000) (775,000)
------------ ------------
Cash flows from investing activities:
Decrease in note receivable from officer... 10,000 8,000
Increase in short-term investments......... (44,000) -
Disposition of plant and equipment, net.... 282,000 8,000
------------ ------------
Net cash provided by (used in)
investing activities...................... 248,000 16,000
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common
stock..................................... - 1,289,000
Principal payments on line of credit and
capital leases............................ (103,000) (158,000)
------------ ------------
Net cash (used in) provided by financing
activities................................ (103,000) 1,131,000
------------ ------------
Increase (decrease) in cash and cash
equivalents............................... (28,000) 372,000
Cash and cash equivalents at beginning
of period................................. 1,136,000 997,000
------------ ------------
Cash and cash equivalents at end of period. $ 1,108,000 $ 1,369,000
============ ============
Supplemental disclosure:
Interest paid.............................. $ 42,000 $ 60,000
============ ============
Items not impacting cash flows:
Increase (decrease) in capital lease
obligations............................... $ (356,000) $ 92,000
============= ============
Issuance of common stock to employee
401k plan................................. $ 41,000 $ 44,000
============= ============
</TABLE>
See Notes to Consolidated Financial Statement.
5
<PAGE> 6
HemaCare Corporation
Notes to Consolidated Financial Statements
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. 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 nine months ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. Certain 1996 amounts have been reclassified to
conform to the 1997 presentation. 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, 1996.
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. In November 1995, the Company
discontinued the operations of HBI. (See Note 2.)
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. In August 1997, Gateway's
operations were sold. (See Note 7.)
In the fourth quarter of 1995, the Company began providing blood management
programs to its customers. A blood management program ("Blood Management
Program" or "BMP") allows a hospital or affiliated group of hospitals to
outsource many blood-related operations to HemaCare. HemaCare establishes a
local blood donor center for the BMP hospital and becomes the hospital's
primary provider of blood products and services. HemaCare introduced its Blood
Management Program model at the Gateway Community Blood Program in St. Louis,
Missouri, in December 1995, and established two Southern California Blood
Management Programs with existing customers in 1996. The University of Southern
California Blood Management Program commenced in February 1996 and the Citrus
Valley Health Partners Blood Management Program commenced in October 1996. In
August 1997, Gateway's operations were sold. (See Note 7.)
Note 2 - 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. The reserve established for estimated HBI operating losses during the
period of disposal included a $600,000 contingent liability related to a dispute
with a licensor. In July 1996, the dispute was settled without any payment by
the Company, and the Company recognized a $600,000 gain from write off of the
reserve. In June 1996, the Company agreed to sell substantially all the
tangible assets of the discontinued operations and FDA source plasma licenses.
6
<PAGE> 7
In the first quarter of 1997, the Company received the final proceeds from the
sale and recognized a $120,000 gain on disposal of discontinued operations.
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. The credit
line is in effect through April 30, 1998. Under the terms of the credit line
agreement, the Company may borrow up to 70% of eligible accounts receivable, up
to a maximum of $700,000, and must maintain certain financial ratios. The
Company was in compliance with all covenants of its credit line agreement at
September 30, 1997. Interest on credit line borrowings is at the lender's
prime rate (8.5% at September 30, 1997) plus one-half of a percentage point.
As of September 30, 1997, there was no balance outstanding under the line of
credit.
Note 4 - 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 the
employment of this employee and seeking relief in the amount of $550,000. In
October 1997, the lawsuit was settled. Although the terms of the settlement are
confidential, they will not have a material effect on the Company's operating
results or financial position.
On March 12, 1997, the Company was notified of a lawsuit filed by an investment
banking firm retained by the Company in connection with a 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,
however, if adversely decided, its ultimate resolution could have a material
impact on the Company's results of operations.
Note 5 - Related Party Information
- -----------------------------------
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. In January 1996,
these individual notes were consolidated into a promissory note and
collateralized by HemaCare stock owned by Dr. Levy. The note accrues interest
at a rate equal to the rate the Company pays under its line of credit, adjusted
quarterly. Interest accrued for the nine months ended September 30, 1997 and
1996 totaled $4,204 and $4,238, 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.
7
<PAGE> 8
Note 6 - Recent Auditing Pronouncement
- --------------------------------------
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" (SFAS 128) and SFAS No. 129, "Disclosure of Information
about Capital Structure" (SFAS 129). SFAS 128 revises and simplifies the
computation of earnings per share and requires certain additional disclosures.
SFAS 129 requires additional disclosures regarding the Company's capital
structure. In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income" (SFAS 130) and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). The Company will adopt these standards in the fourth quarter of 1997.
Management does not expect that the adoption of theses standards will have a
material effect on the Company's financial position or results of operations.
Note 7 - Sale of Gateway's Operations
- -------------------------------------
On August 1, 1997, Gateway's operations were sold. The purchaser assumed
liability for certain leases related to Gateway's operations; purchased
Gateway's inventories and made a $200,000 non-refundable payment against
HemaCare's interest in future Gateway earnings. Cash proceeds from the sale,
net of transaction costs, were approximately $242,000 and the Company
recognized a $128,000 gain on the sale.
The Company is entitled to receive a percentage of Gateway's revenues, as
defined, over the five years subsequent to the date of sale, up to an
additional maximum of $422,000. An additional payment of $100,000 is due when
Gateway receives its Food and Drug Administration blood establishment license
or pursuit of such a license is abandoned.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ---------------------------------------------------------------------------
HemaCare's operations include blood management programs ("Blood Management
Program" or "BMP") and regional sales of blood products (Blood Products) and
services (Blood Services). The Company's Blood Management Program allows a
hospital or affiliated hospital group to outsource many of its blood-related
operations. Operating under its Food and Drug Administration license, HemaCare
establishes a local blood donor center to provide collection and other blood
banking services to patients and physicians of the BMP hospital and supplies
the hospital with a wide range of blood products and services. Blood Products
include apheresis platelet products and whole blood components such as red
blood cells and plasma products. Blood Services include therapeutic apheresis
procedures, stem cell collection and cryopreservation and donor testing.
All comparisons within the following discussions are to the comparable
periods of the previous year.
In December 1995, HemaCare opened the Gateway Community Blood Program
("Gateway") in St. Louis, Missouri. Two southern California, BMPs were
established with existing customers in 1996. 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. Both the USC and Citrus Valley BMP agreements
have three-year terms. In August 1997, Gateway's operations were sold. The
Gateway, USC and Citrus Valley BMPs are collectively referred to as the
"Programs" in the following discussions.
8
<PAGE> 9
Revenues and Operating Profit
- -----------------------------
Total revenues were unchanged for the three-month period and increased 2% for
the nine-month period of 1997. The nine-month increase resulted from higher BMP
and Blood Services revenues, offset by a decrease in Blood Products revenues.
The Company's operating profit as a percentage of revenues ("profit margin")
increased to 15% in the third quarter of 1997 from 14% in the comparable
quarter of 1996 and to 15% for the nine months of 1997 from 9% in the nine
months of 1996. These increases were due to lower operating costs and
expenses at Gateway. Blood Products revenues and operating profit in both
the third quarter and nine-month periods of 1997 were adversely affected by
pricing practices employed by the American Red Cross (the "ARC"). (See
Liquidity and Capital Resources.)
Blood Management Programs
- -------------------------
Revenue increased by $295,000 and $1,477,000 in the third quarter and nine-month
period of 1997, respectively. The third quarter increase was due primarily to
the conversion of Citrus Valley to a Blood Management Program customer,
partially offset by the sale of Gateway in August 1997. (See Sale of Gateway
Community Blood Program.) The nine-month increase resulted from higher USC
and Gateway revenue as well as the conversion of Citrus Valley to a Blood
Management Program customer. Program profit margins increased by 17% in the
third quarter of 1997 and by 50% in the nine-month period of 1997 as the
result of increased production at the USC Blood Donor Center and lower
Gateway operating losses, offset, in the third quarter, by Citrus Valley
losses.
Regional Operations
- --------------------
Blood Products
Blood Products revenues decreased $484,000 and $1,738,000 in the third quarter
and nine months of 1997, respectively. The decreases were due to lower sales
volumes for apheresis platelet and whole blood component products. Revenue
decreases of approximately 76% and 61% for the third quarter and nine-month
period of 1997, respectively, were due to the conversion of Citrus to a BMP
arrangement. The remainder of the decrease in platelet sales volumes resulted
from the loss of customers, primarily due to ARC pricing practices. Whole
blood component sales volumes also decreased due to a shortage of red blood
cells available for sale to non-BMP customers. The profit margin on Blood
Products sales increased in the 1997 third quarter and the nine month
periods due to the decrease in low-profit, red blood cells sales.
Blood Services
Blood Services revenues increased 21% ($230,000) and 13% ($409,000) in the
three-month and nine-month periods of 1997, respectively. Both increases
resulted from a higher volume of therapeutic apheresis procedures performed in
southern California, higher per procedure prices and growth of the Company's
testing services business. The nine-month increase was partially offset by the
elimination of revenue from the Company's Atlanta-based therapeutic services
operation, which was closed in July 1996.
The profit margin on Blood Services revenues decreased in the third quarter of
1997 and increased in the nine month period of 1997. The third quarter decrease
resulted from higher prices for albumin, a plasma product used in most
therapeutic procedures, while the nine-month increase was due to elimination
of losses from the Atlanta operation and increased testing services operating
profits.
9
<PAGE> 10
General and Administrative Expense
- ----------------------------------
General and administrative expense decreased 7% ($35,000) for the three-month
period and 17% ($293,000) for the nine-month period of 1997. Both decreases
reflect the effect of spending controls initiated in mid-1996. In addition, the
nine-month period includes a $71,000 recovery of previously expensed legal fees
related to the ARC lawsuit which was settled in September 1997.
Sale of Gateway's Operations
- -----------------------------
Gateway sustained substantial operating losses since its inception in December
1995. In June 1996, Gateway's strategic direction was refocused to market a more
profitable mix of blood products and services to specific hospital customers.
Despite increased revenue and significant reductions in personnel and other
costs resulting from thesechanges, Gateway's operations were still unable to
meet the Company's financial requirements. On August 1, 1997, Gateway's
operations were sold. The purchaser assumed certain lease liabilities
related to Gateway's operations; purchased Gateway's inventories and made a
$200,000 non-refundable payment against HemaCare's interest in future
Gateway earnings. Cash proceeds from the sale, net of transaction costs were
approximately $242,000, and the Company recognized a $128,000 gain on the sale.
The Company is entitled to receive a percentage of Gateway's revenues, as
defined, over the five years subsequent to August 1, 1997, up to an additional
$422,000. The terms of the sale also provide for a $100,000 payment to HemaCare
when Gateway receives a Food and Drug Administration blood establishment license
or pursuit of such a license is abandoned.
Discontinued Operations
- ------------------------
In November 1995, the Company discontinued its Immupath related research and
development activities and established a reserve for operating losses and
contingent liabilities related to the disposal of the research and development
and related specialty plasma businesses. The reserve amount, which included
$600,000 for a contingent liability related to a dispute with a licensor, was
net of the proceeds expected to be realized from the sale of research and
development assets.
In July 1996, the dispute with the licensor 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.
In March 1997, the Company completed disposition of the assets of the
discontinued operations and recognized a further $120,000 gain on disposal. The
Company does not expect the discontinued operations to have a material impact on
its future operating performance.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1997, the Company had cash and cash equivalents of $1.6
million and working capital of $1.8 million. The Company's $700,000 line of
credit with a commercial bank is in effect through April 30, 1998. Under the
terms of the credit line agreement, the Company may borrow up to 70% of
eligible accounts receivable, up to a maximum of $700,000, and must maintain
certain financial ratios including working capital, as defined, of $500,000
and a tangible net worth of not less than $1.75 million. The Company was in
compliance with all covenants of its borrowing agreement at September 30,
1997, and there were no borrowings outstanding on the line of credit at that
date.
10
<PAGE> 11
The Company's USC Blood Management Program and its regional Blood Products and
Blood Services businesses are profitable and cash flow positive. However, the
loss of three significant apheresis platelet customers during the first quarter
of 1997 had a negative impact on 1997 Regional Blood Product sales and
profitability which is expected to continue until these sales can be replaced.
The Citrus Valley Blood Management Program is incurring losses due to the cost
of red blood cells and the start up of its blood donor center which opened in
August 1997. The Company has negotiated an increase in the price paid by Citrus
Valley for red blood cells, beginning October 1997.
In December 1995, 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. The suit alleged
that pricing practices employed by the ARC may have compelled southern
California area ARC customers to purchase certain blood products from the ARC at
higher prices than those offered by the Company. In June 1997, this suit was
settled. Although the terms of the settlement are confidential and, to the best
of the Company's knowledge, have not yet been fully implemented, the Company
believes that the settlement may ultimately improve its ability to obtain and
retain blood product customers.
Management is evaluating a number of opportunities to develop new outsourcing
models and to implement these models, including its Blood Management Program,
in a variety of healthcare settings. However, the development and implementation
of additional outsourcing models and Blood Management Programs may require that
the Company obtain additional financing to fund start-up, equipment and
marketing costs. There can be no assurance that the Company will be able to
obtain the necessary funds.
The Company's common stock is listed on the Nasdaq Small Cap Market ("Nasdaq").
Earlier this year, Nasdaq proposed new listing standards to strengthen both the
quantitative and qualitative listing requirements for issuers. In August 1997,
the Securities and Exchange Commission approved the new standards, which
require that issuers listed on the Nasdaq SmallCap Market maintain a minimum
bid price of $1 and net tangible assets, as defined, of at least $2 million.
The minimum bid price of the Company's stock as of November 13, 1997 was less
than $1 and its net tangible assets at September 30, 1997 were $2.1 million.
Nasdaq issuers have until February 24, 1998 to achieve compliance with the
new listing standards. If the Company is not in compliance with such standards
by February 1998, it is possible that Nasdaq could initiate de-listing
proceedings with respect to the Company's common stock. In the event that
the Company's common stock is no longer listed on the Nasdaq SmallCap Market
or a national securities exchange, the liquidity of the Company's common stock
would be adversely affected and the Company's ability to raise capital may be
impaired.
In March 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 the employment
of this employee and seeking relief in the amount of $550,000. The lawsuit
was settled in October 1997. Although the terms of the settlement are
confidential, they will not have a material effect on the Company's operating
results or financial position.
The Company anticipates that cash flow from profitable operations, borrowing
available from its bank line of credit and its cash and investments on hand will
be sufficient to provide funding for its existing needs during the next twelve
months.
11
<PAGE> 12
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-Q 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, 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, and to resolve favorably
through negotiation or litigation claims asserted by or against the 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 and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -----------------------------
In March 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
the employment of this employee and seeking relief in the amount of
$550,000. The lawsuit was settled in October 1997. Although the terms
of the settlement are confidential, they will not have a material effect
on the Company's operating results or financial position.
In December 1995, Company filed an antitrust and unfair competition
complaint against the American Red Cross ("ARC") with the United States
District Court in the Central District of California to recover damages
and secure injunctive relief. The suit alleged that pricing practices
employed by the ARC may have compelled southern California area ARC
customers to purchase certain blood products from the ARC at higher
prices than those offered by the Company. In June 1997, this suit was
settled. Although the terms of the settlement are confidential and to the
best of the Company's knowledge, have not yet been fully implemented, the
Company believes that the settlement may improve its ability to obtain and
retain blood product customers.
On March 12, 1997, the Company was notified of a lawsuit filed by an
investment banking firm retained by the Company in connection with a
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, however, if adversely decided, its ultimate
resolution could have a material impact on the Company's results of
operations.
12
<Page13
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------
a. Exhibits
27 Financial Data Schedule for the Quarter Ended September 30,
1997
b. On August 1, 1997, HemaCare Corporation filed a Report on Form 8-K
dated August 1, 1997. The Company reported Under Item 2 that the
Company and its wholly-owned subsidiary, Gateway Community Blood
Bank, Inc. entered into an agreement with Haemonetics Corporation
to sell substantially all the operating assets of Gateway to
Haemonetics Corporation.
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 14, 1997 HEMACARE CORPORATION
------------------------- (Registrant)
/s/ Sharon C. Kaiser
_________________________
Sharon C. Kaiser, Vice
President, Finance and
Chief Financial Officer
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Method of Filing
<S> <C> <C>
27 Financial Data Schedule for the quarter ended
September 30, 1997................................ 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,
1997 and is qualified in its entirety to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,108,000
<SECURITIES> 459,000
<RECEIVABLES> 1,240,000
<ALLOWANCES> 57,000
<INVENTORY> 68,000
<CURRENT-ASSETS> 3,343,000
<PP&E> 2,409,000
<DEPRECIATION> 1,938,000
<TOTAL-ASSETS> 3,902,000
<CURRENT-LIABILITIES> 1,506,000
<BONDS> 0
0
0
<COMMON> 13,507,000
<OTHER-SE> (11,391,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,902,000
<SALES> 2,667,000
<TOTAL-REVENUES> 2,667,000
<CGS> 2,259,000
<TOTAL-COSTS> 2,259,000
<OTHER-EXPENSES> 494,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,000
<INCOME-PRETAX> 52,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 52,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,000
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
