SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment Number 1 to
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported): October 22, 1998
HEMACARE CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its chapter)
California
-----------------------------------------------
(State or other jurisdiction of incorporations)
0-15223 95-3280412
---------------------- --------------------------------
Commission File Number (IRS Employer Identification No.)
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
--------------
This Form 8-K/A amends and supplements the Form 8-K filed by the
undersigned registrant on November 5, 1998 relating to the acquisition of
certain assets of Coral Therapeutics, Inc. This Form 8-K/A contains the
information referred to in Item 7 of the Form 8-K.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
- - ------- ----------------------------------------------------------
(a) Financial Statements of Business Acquired.
Coral Therapeutics, Inc.
Audited 1997 and 1996 Financial Statements together with
Accountant's Report.
Provided herein as Exhibit A.
(b) Pro Forma Financial Information.
HemaCare Corporation and Coral Therapeutics, Inc.
Pro Forma Combined Condensed Balance Sheet as of
September 30, 1998.
Pro Forma Combined Condensed Statements of Income for the
year ended December 31, 1997 and the nine months ended
September 30, 1998.
Notes to Pro Forma Combined Condensed Financial Statements.
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: December 30, 1998
------------------
HemaCare Corporation
By /s/ Sharon C. Kaiser
--------------------------
Sharon C. Kaiser
Chief Financial Officer
<PAGE>
Item 7. (b) Pro Forma Financial Information
- - --------------------------------------------
Unaudited Pro Forma Combined Condensed Financial Statements
On October 22, 1998, HemaCare Corporation ("HemaCare" or the
"Company") through its wholly owned subsidiary Coral Blood Services,
Inc. ("CBS"), acquired substantially all the assets of Coral
Therapeutics, Inc. ("Coral") from Coral's secured lender. The
acquisition price of the assets was $950,000 in cash and 450,000
shares of HemaCare's Series B senior convertible preferred stock. The
Company financed the acquisition by (i) utilizing existing cash
balances, (ii) borrowing $600,000 on its line of credit and (iii)
issuing 450,000 shares of HemaCare Series B senior convertible
preferred stock. The Series B preferred stock is convertible into
500,000 shares of HemaCare common stock, at the option of the holder,
one year after issuance. Concurrently with the closing of the asset
purchase, HemaCare extended offers of employment to most of Coral's
employees. In addition, HemaCare has entered into or expects to enter
into non-competition agreements with certain former managers of Coral
pursuant to which HemaCare expects to make cash payments and issue
shares of HemaCare common stock and warrants to purchase HemaCare
common stock. HemaCare also is obligated to satisfy certain
liabilities of Coral to its ex-employees and expects to make payments
necessary to maintain essential business relationships. The
acquisition will be accounted for as a purchase.
The following unaudited pro forma combined condensed financial
statements and related notes give effect to the acquisition of the
assets of Coral as a purchase. The Pro Forma Combined Condensed
Balance Sheet presents the financial position of the Company as if
the acquisition had been completed on September 30, 1998. The Pro
Forma Combined Condensed Statements of Operations have been prepared
as if the acquisition occurred at the beginning of the period
presented.
The pro forma financial statements are presented for illustrative
purposes only. They do not purport to be indicative of the financial
position or results of operations of the Company which would have
occurred if the acquisition had been effected on the date or dates
indicated, nor do they purport to be indicative of future financial
position of results of operations. The pro forma financial statements
have been prepared based upon the historical financial statements of
HemaCare and Coral, adjusted as described in the accompanying notes.
No effect has been given in the pro forma results of operations for
efficiencies or other benefits which may be realized through the
acquisition. The pro forma financial statements should be read in
conjunction with the historical financial statements and related
notes thereto of HemaCare and Coral.
<PAGE>
HEMACARE CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HemaCare Coral Thera- Eliminations Pro Forma Pro Forma
Corporation peutics, Inc. (a) Adjustments
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents............ $ 1,473,000 $ 30,000 $ - $ (350,000)(b) $ 1,153,000
Marketable securities........... 480,000 - - - 480,000
Accounts receivable, net........ 1,417,000 1,461,000 - (191,000)(c) 2,687,000
Inventories, primarily supplies. 391,000 236,000 - 627,000
Other current assets............ 153,000 110,000 (102,000) - 161,000
------------- ------------- ------------ ------------ -------------
Total current assets........ 3,914,000 1,837,000 (102,000) (541,000) 5,108,000
Plant and equipment, net......... 474,000 387,000 - (72,000)(c) 789,000
Goodwill......................... - - - 709,000 (d) 709,000
Other assets..................... 105,000 25,000 (20,000) - 110,000
------------- ------------- ------------ ------------ -------------
$ 4,493,000 $ 2,249,000 $ (122,000) $ 96,000 $ 6,716,000
============= ============= ============ ============ =============
LIABILITIES
Current Liabilities
Accounts payable................ $ 415,000 $ 1,350,000 $(1,350,000) $ - $ 415,000
Accrued payroll and payroll
taxes.......................... 575,000 - - 649,000 (e) 1,224,000
Accrued expenses................ 340,000 1,077,000 (1,077,000) 854,000 (f) 1,194,000
Current obligations
under capital leases........... 126,000 - - - 126,000
Notes payable................... - 2,055,000 (2,055,000) - -
Bank borrowing.................. - - - 600,000 (b) 600,000
Other current liabilities....... 122,000 (277,000) 277,000 - 122,000
------------- ------------- ------------ ------------ -------------
Total current liabilities... 1,578,000 4,205,000 (4,205,000) 2,103,000 3,681,000
Obligations under capital leases,
net of current portion.......... 133,000 - - - 133,000
Other long-term liabilities...... - 825,000 (825,000) 22,000 (f) 22,000
Commitments and contingencies.... - - - - -
Shareholders equity
Preferred stock................. - 16,691,000 (16,691,000) 75,000 (b) 75,000
Common stock.................... 13,570,000 2,000 (2,000) 23,000 (e,f) 13,593,600
Treasury Stock.................. - 1,000 (1,000) - -
Additional paid in capital...... - 82,000 (82,000) - -
Accumulated deficit............. (10,788,000) (19,557,000) 19,557,000 - (10,788,000)
------------- ------------- ------------ ------------ -------------
Total shareholders equity... 2,782,000 (2,781,000) 2,781,000 98,000 2,880,000
------------- ------------- ------------ ------------ -------------
$ 4,493,000 $ 2,249,000 $(2,249,000) $ 2,222,600 $ 6,716,000
============= ============= ============ ============ =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
HEMACARE CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HemaCare Coral Thera- Eliminations Pro Forma Pro Forma
Corporation peutics, Inc. (a) Adjustments Combined
(Audited) (Audited) (Unaudited)
------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue......................... $ 11,101,000 $ 7,906,000 $(2,039,000) $ - $ 16,968,000
Operating costs and expenses.... 9,194,000 5,654,000 (1,340,000) - 13,508,000
------------- ------------ ------------ ------------ -------------
Operating profit (loss)......... 1,907,000 2,252,000 (699,000) - 3,460,000
General and administrative
expense........................ 1,998,000 10,377,000 (3,493,000) (3,443,000)(b) 5,439,000
------------- ------------ ------------ ------------ -------------
Other Income (Expense):
Gain on sale of Gateway
Community Blood Program........ 128,000 - - - 128,000
------------- ------------ ------------ ------------ -------------
Income (loss) from continuing
operations before income taxes. 37,000 (8,125,000) 2,794,000 3,443,000 (1,851,000)
Provision for income taxes...... - - - - -
------------ ------------ ------------ ------------ -------------
Net income (loss) from
continuing operations.......... $ 37,000 $(8,125,000) $ 2,794,000 $ 3,443,000 $ (1,851,000)
============ ============ ============ ============ =============
Basic and diluted net income
from continuing operations..... $ 0.01 $ (0.24)
============ =============
Weighted average common shares
used to compute:
Basic income (loss) per share. 7,190,710 560,000 (c) 7,750,710
============ ============ =============
Diluted income (loss)
per share.................... 7,190,710 560,000 (c) 7,750,710
============ ============ =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
HEMACARE CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HemaCare Coral Thera- Eliminations Pro Forma Pro Forma
Corporation peutics, Inc. (a) Adjustments Combined
(Unaudited) (Unaudited) (Unaudited)
------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue......................... $ 8,431,000 $ 6,445,000 $ (987,000) $ - $ 13,889,000
Operating costs and expenses.... 6,412,000 4,854,000 (763,000) - 10,503,000
------------ ------------ ------------ ------------ -------------
Operating profit (loss)......... 2,019,000 1,591,000 (224,000) - 3,386,000
General and administrative
expense........................ 1,694,000 4,365,000 (339,000) (2,066,000)(b) 3,654,000
------------ ------------ ------------- ------------ -------------
Income (loss) from continuing
operations before income
taxes.......................... 325,000 (2,774,000) 115,000 2,066,000 (268,000)
Provision for income taxes...... - - - - -
------------ ------------ ------------ ------------ -------------
Net income (loss) from
continuing operations.......... $ 325,000 $(2,774,000) $ 115,005 $ 2,066,000 $ (268,000)
============ ============ ============ ============ =============
Basic and diluted net income
from continuing operations..... $ 0.05 $ (0.03)
============ =============
Weighted average common shares
used to compute:
Basic income (loss) per share.. 7,194,113 560,000 (c) 7,754,113
============ ============ =============
Diluted income (loss) per
share......................... 7,194,382 560,000 (c) 7,754,382
============ ============ =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
HEMACARE CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Pro Forma Combined Condensed Balance Sheet
- - ---------------------------------------------
a. To eliminate the assets and liabilities of Coral which were not
acquired by HemaCare.
b. To record the payment of the acquisition purchase price, including a
$950,000 cash payment, partially financed by $600,000 of credit line
borrowing and issuance of 450,000 shares of Series B convertible
preferred stock convertible at the option of the holder, after one
year, into 500,000 shares of HemaCare common stock.
c. To adjust the book value of Coral assets to estimated net realizable
value.
d. To record goodwill associated with the acquisition, equal to the
difference between the net realizable value of the assets acquired
and the aggregate consideration paid, including acquisition related
liabilities incurred.
e. To record the obligation for payments to be made and equity to be
issued to former Coral employees for payroll, severance and non-
competition agreements.
f. To record other obligations incurred and equity to be issued in
connection with the acquisition including:
Payments necessary to maintain
essential business relationships $352,000
Professional fees 330,000
Other transaction costs and
expenses 194,000
--------
$876,000
========
2. Pro Forma Combined Condensed Statements of Operations
- - ---------------------------------------------------------
a. To eliminate the revenues, costs and expenses of operations not
acquired by HemaCare, including a $2.8 million write off of goodwill
included in 1997 general and administrative expense.
b. To eliminate (i) historical depreciation and interest expense of
Coral and (ii) general and administrative expense related to
obligations not acquired; and to record depreciation, amortization
and interest expense related to the transaction as follows:
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31, 1998
------------------ -----------------
<S> <C> <C>
Historical amounts eliminated:
Depreciation and amortization $ (240,000) $ (319,000)
Interest (250,000) (275,000)
Amounts related to transaction
recorded:
Depreciation and amortization 111,000 148,000
Interest 38,000 51,000
Elimination of obligations
not acquired:
Compensation of Coral employees
who did not continue employment
with HemaCare (1,250,000) (2,283,000)
Lease obligation for facilities
not acquired (204,000) (239,000)
Other obligations, net (277,000) (534,000)
------------- ------------
$ (2,072,000) $(3,451,000)
============= ============
</TABLE>
c. Shares issued as a part of the acquisition.
<PAGE>
EXHIBIT A
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Coral Therapeutics, Inc.:
We have audited the accompanying balance sheets of Coral Therapeutics,
Inc. (a Delaware corporation) as of December 31, 1997 and 1996, and the
related statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our 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.
As discussed in Note 9, subsequent to year-end, the Company defaulted
under its lines of credit and the lender foreclosed on certain assets of
the Company. Effective October 22, 1998, the lender sold substantially
all of the Company's assets to HemaCare Corporation. This transaction
resulted in the termination and dissolution of the Company.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Coral
Therapeutics, Inc. as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen, LLP
-------------------------
Arthur Andersen, LLP
Boston, Massachusetts
March 6, 1998 (except
with respect to the
matter discussed in
Note 9, as to which
the date is
October 22, 1998)
<PAGE>
CORAL THERAPEUTICS, INC.
BALANCE SHEETS-DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSETS 1997 1996 LIABILITIES AND STOCKHOLDERS' 1997 1996
EQUITY (DEFICIT)
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents..... $ 2,878,944 $ 256,677 Line of credit (Note 6)............... $ 898,847 $ -
Marketable securities - 2,215,193 Current portion of capital lease
Accounts receivable, net obligations........................... 90,945 22,492
of allowances of approximately Current portion of notes payable...... 1,105,717 866,019
$259,000 and $48,000 for Accounts payable and accrued expenses. 1,992,811 1,356,723
1997 and 1996, respectively... 1,516,300 1,161,485 Current portion of noncompete agree-
Inventories................... 235,317 187,369 ment obligations..................... 320,000 200,000
Other current assets.......... 88,600 138,616 ------------- ------------
------------ ------------
Total current assets..... 4,719,161 3,959,340 Total current liabilities....... 4,408,320 2,445,234
------------ ------------ ------------- ------------
LONG-TERM DEBT, NET OF CURRENT PORTION:
Noncompete agreement obligations...... 261,666 500,000
Notes payable......................... 1,899,994 1,896,417
Capital lease obligations............. 236,367 22,326
------------- ------------
2,398,027 2,418,743
------------- ------------
DUE FROM OFFICER - 25,000 COMMITMENTS (Note 5)
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT) (Note 8):
Mandatorily redeemable convertible
preferred stock, $.001 par value
(at redemption value) -
Series A -
PROPERTY AND EQUIPMENT, Authorized - 3,500,000 shares
AT COST: Issued and outstanding -
Furniture, fixtures and 3,500,000 shares............... 4,624,861 4,274,861
office equipment.............. 665,671 574,434 Series B -
Computer and clinical equip- Authorized - 4,077,042 and
ment.......................... 405,774 309,784 3,711,998 shares as of Dec-
Motor vehicles................. 141,671 141,671 ember 31, 1997 and 1996,
Leasehold improvements......... 29,335 14,510 respectively
------------ ------------ Issued and outstanding -
3,809,559 and 3,711,998
1,242,451 1,040,399 shares as of December 31,
1997 and 1996, respectively.... 9,187,239 8,216,279
Less--Accumulated depreciation Series C -
and amortization............. 525,043 243,420 Authorized - 3,636,362 shares
------------ ------------ Issued and outstanding -
3,636,362...................... 4,010,957 -
717,408 796,979 Common stock, $.001 par value
----------- ------------ Authorized - 15,536,581 and
11,000,000 shares as of
December 31, 1997 and 1996,
DEPOSITS 37,180 - respectively
Issued and outstanding -
1,926,118 and 1,812,069 shares
INTANGIBLE ASSETS, NET OF as of December 31, 1997 and 1996,
ACCUMULATED AMORTIZATION OF respectively........................ 1,926 1,812
$35,000 AND $115,000 FOR Treasury stock, 251,471 shares as
1997 AND 1996 (NOTE 2) 1,014,522 3,732,087 of December 31, 1997, at cost........ (79) -
----------- ------------ Subscription receivable............... (178,868) -
Additional paid-in capital............ 273,207 41,281
Accumulated deficit................... (18,237,319) (8,884,804)
------------- -------------
Total shareholders' equity (deficit). (318,076) 3,649,429
------------- -------------
$ 6,488,271 $ 8,513,406 $ 6,488,271 $ 8,513,406
============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
CORAL THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
REVENUE............................. $ 7,906,041 $ 5,017,177
COST OF REVENUE..................... 5,653,552 3,838,999
------------- -------------
Gross profit.............. 2,252,489 1,178,178
------------- -------------
COSTS AND EXPENSES:
General and administrative........ 6,760,715 4,429,526
Clinical support.................. 118,000 1,297,056
Marketing......................... 274,151 559,072
Severance and asset impairment
charges (Note 2)................. 2,949,745 -
------------- -------------
Total costs and expenses.... (10,102,611) 6,285,654
------------- -------------
Loss from operations........ (7,850,122) (5,107,476)
INTEREST INCOME (EXPENSE), NET...... (274,719) 75,311
------------- -------------
Net loss.................... (8,124,841) (5,032,165)
ACCRETION OF DIVIDENDS ON PREFERRED
STOCK.............................. (1,131,919) (956,683)
------------- -------------
Net loss available to
common stockholders........ $ (9,256,760) $ (5,988,848)
============= =============
BASIC AND DILUTED EARNINGS PER
SHARE.............................. $ (4.95) $ (3.30)
============= =============
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING........... 1,869,094 1,812,069
============= =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
CORAL THERAPEUTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE: Information described in two tables.
<TABLE>
<CAPTION>
--------Mandatorily Redeemable Convertible Preferred Stock-----------
Series A Series B Series C Common Stock
-------------------- -------------------- ---------------------- -----------------
Number Redem- Number Redem- Number Redem- Number $.001
of ption- of ption of ption of Par
Shares Value Shares Value Shares Value Shares Value
---------- ---------- --------- ---------- --------- ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 3,500,000 $3,924,861 - $ - - $ - 1,812,069 $1,812
Issuance of mandatorialy
redeemable convertible Series B Preferred Stock,
at $2.05 per share, net
of issuance costs at
$42,693 - - 3,711,998 7,609,596 - - - -
Accretion of cumulative
dividends on mandatorialy
redeemable preferred stock - 350,000 - 606,683 - - - -
Net loss - - - - - - - -
--------- ---------- --------- ---------- --------- ---------- --------- ------
BALANCE, DECEMBER 31, 1996 3,500,000 4,274,861 3,711,998 8,216,279 - - 1,812,069 1,812
Repurchase of common
shares - - - - - - - -
Issuance of mandatorialy
redeemable convertible
Series B Preferred Stock,
at $2.05 per share - - 97,561 200,000 - - - -
Issuance of mandatorialy
redeemable convertible
Series C Preferred Stock,
at $1.10, net of issuance
costs of $95,755 - - - - 3,636,362 3,999,998 - -
Series B warrants issued
in connection with notes
payable - - - - - - - -
Exercise of stock options - - - - - - 114,049 114
Accretion of cumulative
dividends on mandatorialy
redeemable preferred stock - 350,000 - 770,960 - 10,959 - -
Net loss - - - - - - - -
--------- ---------- --------- ---------- --------- ---------- --------- ------
BALANCE, DECEMBER 31, 1997 3,500,000 $4,624,861 3,809,559 $9,187,239 3,636,362 $4,010,957 1,926,118 $1,926
========= ========== ========= ========== ========= ========== ========= ======
</TABLE>
<TABLE>
<CAPTION>
Total
Treasury Stock Stock-
---------------------- Additional holders
Number of Subscription Paid-in Accumulated Equity
Shares At Cost Receivable Capital Deficit (Deficit)
---------- -------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 - $ - $ - $ 41,281 $ (2,853,263) $ 1,114,691
Issuance of mandatorialy
redeemable convertible
Series B Preferred Stock,
at $2.05 per share, net
of issuance costs at
$42,693 - - - - (42,693) 7,566,903
Accretion of cummulative
dividends on mandatorialy
redeemable preferred stock - - - - (956,683) -
Net loss - - - - (5,032,165) (5,032,165)
---------- -------- ------------ ------------ ------------- ------------
BALANCE, DECEMBER 31, 1996 - - - 41,281 (8,884,804) 3,649,429
Repurchase of common
shares 251,471 (79) - - - (79)
Issuance of mandatorialy
redeemable convertible
Series B Preferred Stock,
at $2.05 per share - - - - 200,000
Issuance of mandatorialy
redeemable convertible
Series C Preferred Stock,
at $1.10, net of issuance
costs of $95,755 - - (178,868) - (95,755) 3,725,375
Series B warrants issued
in connection with notes
payable - - - 219,235 - 219,235
Exercise of stock options - - - 12,691 - 12,805
Accretion of cumulative
dividends on mandatorialy
redeemable preferred stock - - - - (1,131,919) -
Net loss - - - - (8,124,841) (8,124,841)
---------- -------- ---------- ----------- ------------- ------------
BALANCE, DECEMBER 31, 1997 251,471 $ (79) $(178,868) $ 273,207 $(18,237,319) $ (318,076)
========== ======== ========== =========== ============= ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE> 5
CORAL THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $(8,124,841) $(5,032,165)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization............ 338,067 295,431
Severance and asset impairment charges... 2,661,121 -
Interest expense due to accretion of
preferred stock warrants................ 35,072 -
Changes in current assets and
liabilities, net of acquisitions-
Accounts receivable.................. (354,815) (838,547)
Inventories.............................. (47,948) (43,539)
Other current assets..................... 75,016 (90,703)
Accounts payable and accrued expenses.... 636,088 917,220
Noncompete agreements.................... (118,334) 700,000
------------ ------------
Net cash used in operating
activities........................... (4,900,574) (4,092,303)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (202,052) (256,856)
Maturity (purchases) of marketable
securities................................. 2,215,193 (2,215,193)
Increase in other long-term assets.......... (37,180) -
Cash paid for acquisitions of blood
services companies......................... - (1,472,000)
------------ ------------
Net cash provided by (used in)
investing activities................. 1,975,961 (3,944,049)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of mandatorily
redeemable convertible preferred stock..... 3,925,375 7,579,403
Borrowings (repayments) under line of
credit and notes payable, net.............. 1,326,285 (44,367)
Borrowings under capital lease obligations,
net........................................ 282,494 18,301
Repurchase of common stock.................. (79) -
Proceeds from exercise of stock options..... 12,805 -
------------ ------------
Net cash provided by financing
activities......................... 5,546,880 7,553,337
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS............................. 2,622,267 (483,015)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.. 256,677 739,692
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR........ $ 2,878,944 $ 256,677
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for-
Interest.................................... $ 309,975 $ 34,372
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
AND INVESTING ACTIVITIES:
Accretion of dividends on mandatorily
redeemable convertible preferred stock..... $ 1,131,919 $ 956,683
============ ============
Acquisition of equipment under capital
lease obligations.......................... $ 405,435 $ 22,492
============ ============
Preferred stock warrants issued in
connection with notes payable.............. $ 219,235 $ -
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
CORAL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Coral Therapeutics, Inc. (the Company) was incorporated in the state
of Massachusetts in May 1992 and reincorporated in the state of
Delaware in February 1995. The Company contracts with health care
organizations to provide specialized blood services, including
cellular and ex-vivo therapies, collection of specific blood
components from donors and patients, and management services.
The Company has incurred cumulative operating losses of approximately
$17,024,000 through December 31, 1997, as the Company has been
primarily engaged in raising funds, building its management team,
expanding its market share in existing markets and developing new
markets. The Company has funded these losses through issuances of
equity securities. The Company is subject to risks such as the
uncertainty of success in selling its services, competition from
other companies, dependence on key individuals and the ability to
obtain additional financing.
As discussed in Note 8, subsequent to year end, the Company defaulted
under its line of credit and the lender foreclosed on certain asets
of the Company. Effective October 22, 1998, the lender sold substantially
all of the Company's assets to HemaCare Corporation. This transaction
resulted in the termination and dissolution of the Company.
The accompanying financial statements reflect the application of
certain significant accounting policies as described below:
(a) Management 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 and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(b) Revenue Recognition
Revenues are recognized as services are performed.
(c) Cash and Cash Equivalents
Cash and cash equivalents include money market accounts that have
original maturities of less than three months.
(d) Marketable Securities
The Company has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company reported
its investments at amortized cost, which approximates fair market
value. The Company's marketable securities consisted of U.S.
Treasury bills and were classified as available-for-sale at the
end of 1996.
<PAGE>
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market and consist primarily of disposable medical supplies.
(f) Depreciation and Amortization
The Company provides for depreciation by charges to operations in
amounts estimated to allocate the cost of the assets ratably over
their estimated useful lives on a straight-line basis as follows:
Estimated
Asset Classification Useful Life
---------------------------------------- -------------
Furniture, fixtures and office equipment 5 years
Computer and clinical equipment 3 years
Motor vehicles 4 years
Leasehold improvements Life of lease
Depreciation expense for 1997 and 1996 was approximately $282,000
and $189,000, respectively.
(g) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentration of Credit Risk, requires disclosure of any
significant off-balance-sheet and credit risk concentrations.
Financial instruments that subject the Company to credit risk
consist primarily of trade accounts receivable. For the year
ended December 31, 1997, the Company had two significant
customers that represented 26% of total revenue. The Company had
one significant customer that represented 14% of total revenue
for the year ended December 31, 1996. The number of customers
having balances greater than 10% of total accounts receivable was
0 and three as of December 31, 1997 and 1996, respectively.
The following schedule summarizes the activity of the Company's
accounts receivable reserve for the two years ended December 31,
1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Balance at Charged to
Beginning of Costs and Balance at
Description Period Expenses Write-offs End of Period
- - --------------------- ------------ ----------- ---------- --------------
ACCOUNTS RECEIVABLE
RESERVE
December 31, 1996 $ 48,000 $ - $ - $ 48,000
December 31, 1997 48,000 234,000 23,000 259,000
</TABLE>
<PAGE>
(h) Accrued Expenses
Accounts payable and accrued expenses at December 31, 1996 and
1997 consist of the following:
December 31,
1997 1996
------------ -----------
Trade accounts payable $ 744,000 $ 484,000
Accrued payroll and payroll
related 1,064,000 638,000
Accrued other 185,000 235,000
----------- -----------
$ 1,993,000 $ 1,357,000
=========== ===========
(i) Net Loss Per Common Share
In 1997, the Company adopted SFAS No. 128, Earnings Per Share,
effective December 15, 1997. SFAS No. 128 establishes standards
for computing and presenting earnings per share and applies to
entities with publicly held common stock or potential common
stock. The Company has applied the provisions of SFAS No. 128
retroactively to all periods presented. Diluted weighted average
shares have not been presented because to do so would have been
antidilutive.
(j) Recently Issued Accounting Standards
In June and July 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income and SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information, respectively. Both
SFAS No. 130 and No. 131 are effective for fiscal years beginning
after December 15, 1997. The Company believes that the adoption
of these new accounting standards will not have a material impact
on the Company's financial statements.
(2) SEVERANCE AND ASSET IMPAIRMENT CHARGES
The Company had recognized goodwill from the business acquisitions
discussed in Note 3, and had been amortizing these assets over their
useful lives of 20 years on a straight-line basis. The Company has
assessed the realizability of these assets in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed of. The Company evaluated the
realizability of its goodwill based on estimated cash flows to be
generated from the acquisitions giving rise to this asset. An
impairment was identified, and therefore, the Company recognized a
write-down of goodwill.
Beginning in 1997, the Company implemented a plan to increase the
operational efficiency of the Company. As part of this plan, the
Company relocated corporate headquarters and terminated 12 employees.
<PAGE>
The severance and asset impairment charges included in the
accompanying statement of operations for the year ended December 31,
1997 consists of the following:
1997
------------
Charge for write-off of goodwill $ 2,661,121
Charge for employee severance 288,624
------------
$ 2,949,745
============
The total cash impact of the severance and asset impairment charges
amounted to approximately $289,000. The total cash paid as of
December 31, 1997 was approximately $165,000 and the remaining amount
will be paid in 1998.
(3) ACQUISITIONS OF BLOOD SERVICES COMPANIES
During 1996, the Company acquired the assets of four blood services
businesses for total consideration of approximately $3,970,000.
Consideration for these businesses included payment in cash of
$811,000, issuance of notes payable (see Note 7) of $2.5 million and
repayment of acquired debt obligations of $452,000. Acquisition and
legal expenses incurred amounted to approximately $207,000. The
total cash paid in 1996 for acquisitions was approximately
$1,472,000, which has been recorded as an investing activity in the
accompanying statement of cash flows. In addition, the Company
entered into employment or consulting agreements with the former
owners of the acquired businesses (see Note 5).
These acquisitions have been accounted for as purchase transactions
in accordance with the Accounting Principles Board Opinion No. 16,
Business Combinations, and results of operations includes the period
subsequent to the acquisition in the accompanying statement of
operations. The total consideration was allocated between the fair
market value of assets acquired on the purchase date and goodwill,
with substantially all of the purchase price allocated to goodwill.
In 1997, the Company evaluated the realizability of goodwill
pertaining to the above acquisitions and determined an impairment was
identified. Therefore, the Company recognized a write-down of
goodwill in the current period (see Note 2).
(4) INCOME TAXES
The Company provides for income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes. Under SFAS No. 109, a deferred
tax asset or liability is recorded for all temporary differences
between financial and tax reporting. Deferred tax expense (benefit)
results from the net change in deferred tax assets and liabilities
during the year. A deferred tax valuation allowance is required if
it is more likely than not that all or a portion of recorded deferred
tax assets will not be realized.
<PAGE>
The approximate tax effect of each type of temporary difference and
carryforward that gives rise to the Company's deferred tax asset as
of December 31, 1997 and 1996 is as follows:
1997 1996
------------ ------------
Net operating loss carryforward $ 3,662,000 $ 2,298,000
Goodwill 1,526,000 (19,000)
Nondeductible accruals 445,000 602,000
Valuation allowance (5,633,000) (2,881,000)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
The Company has provided a valuation allowance equal to its net
deferred tax asset due to the uncertainty regarding its ability to
fully utilize this asset.
The Company has a federal net operating loss carryforward of
approximately $10,771,000, which expires through 2012. The Company's
federal net operating loss carryforward differs from the accumulated
loss since inception for financial reporting purposes primarily as a
result of losses incurred while the Company was an S corporation, the
effect of goodwill amortization and the effect of nondeductibel accruals.
The Company terminated its S corporation status on October 13, 1994.
Pursuant to the Tax Reform Act of 1986, the utilization of net
operating loss carryforwards for tax purposes is subject to an annual
limitation if a cumulative change of ownership of greater than 50%
occurs over any three-year period.
(5) COMMITMENTS AND RELATED PARTY TRANSACTIONS
(a) Operating Leases
The Company leases its facility and certain equipment under
operating lease agreements expiring through November 2002.
Future minimum rental payments due under these agreements are
approximately as follows as of December 31, 1997:
1998 $ 447,000
1999 272,000
2000 170,000
2001 167,000
2002 172,000
-----------
$ 1,228,000
===========
Total rental expense included in the accompanying statements of
operations amounted to approximately $362,000 and $212,000 for
the years ended December 31, 1997 and 1996, respectively.
<PAGE>
(b) Capital Leases
The Company entered into an equipment lease facility
that provides for maximum borrowings of $1,700,000. The Company has
$303,925 outstanding on this line as of December 31, 1997. The
borrowings consist of three separate notes payable in equal monthly
installments over a period of 30 to 42 months with an interest rate
of 5.73%-9.17%. The Company issued warrants to purchase 53,902
shares of Series B Preferred Stock at $1.10 per share in connection
with this debt, which resulted in a discount of $44,427, of which
$38,773 is unamortized at year-end (see Note 7).
The Company leases certain equipment under capital leases
expiring through March 2002. Future minimum lease payments
under these capital lease obligations as of December 31, 1997 are
as follows:
Year Amount
---- ---------
1998 $ 153,763
1999 136,868
2000 119,435
2001 31,205
2002 9,675
---------
Total minimum lease payments 450,946
Less-Amount representing interest 123,634
---------
327,312
Less-Current portion of capital leases 90,945
----------
$ 236,367
=========
(c) Consultant and Employment Agreements
The Company has a five-year consulting agreement with the former
owner of an acquired blood services company under which it is
required to make annual payments to the former owner of amounts
based on a certain percentage of the gross revenues of the blood
services business, with such payments not to exceed $30,000 per
year. The agreement also prohibits the sellers of the assets
from conducting business that is in direct competition with
services provided by the Company for the term of the consulting
agreement and a period of three years thereafter.
Concurrent with the acquisitions in 1996 (see Note 3), the
Company entered into consulting and employment agreements with
the former owners of the acquired businesses. These agreements
have terms from one year to four years. In addition, options to
purchase a total of 45,000 shares at fair market value were also
granted as part of these agreements. As a condition of these
former owners' employment by the Company, these individuals will
be eligible to receive options to purchase an additional 33,333
shares of the Company's stock at the completion of each of the
first two years of employment with the Company and 33,334 shares
at the completion of the third year of employment, which will be
issued at their fair market value at date of grant. These former
owners have also entered into noncompete agreements with the
Company in the event their employment is terminated. The Company
has a total commitment of $583,333 in connection with these
agreements as of December 31, 1997.
<PAGE>
The Company has employment agreements with certain key employees
as of December 31, 1997. In addition to setting forth the terms
of employment, these agreements prohibit the employees from
conducting business that is in direct competition with services
provided by the Company for up to two years following
termination.
In January 1997, the Company terminated the employment of two key
employees. Under the terms of the Employee Noncompetition,
Nondisclosure and Management Agreements dated October 13, 1994
with these individuals, the Company is required to pay these two
individuals $100,000 each, per year, in 1997 and 1998. This
amount is included in general and administrative expenses as of
December 31, 1997. Furthermore, the agreement also prohibits the
former employees from conducting business that is in direct
competition with services provided by the Company for up to two
years following termination.
(d) Other Commitments
As of December 31, 1997 and 1996, the Company has $2,041,200 and
$1,646,000, respectively, of clinical equipment on loan from
three vendors and one vendor, respectively. This equipment has
not been recorded as a fixed asset by the Company since the
vendors continue to hold title to the equipment. The Company is
obligated to purchase all consumables associated with the
operation of this equipment from the vendor; however, there is no
minimum purchase commitment specified. The Company has insured
the clinical equipment from risk of loss/damage.
(6) LINES OF CREDIT
On May 28, 1997, the Company entered into a line-of-credit agreement
with a lender. The agreement provides for total maximum borrowings
of up to $1,800,000, not to exceed 75% of the Company's total
eligible accounts receivable, at an interest rate of prime plus 1%
(9.5% at December 31, 1997) per annum. The line of credit is secured
by all of the Company's accounts receivable and property (which is
not already subject to a lien on security interest). The line of
credit expires on May 27, 1998. The Company has borrowings under
this line of $930,000 as of December 31, 1997. The Company issued
warrants to purchase 65,854 shares of Series B preferred stock at
$1.10 per share in connection with this debt, which resulted in a
discount of $54,278, of which $31,153 was unamortized at year-end
(see Note 7).
<PAGE>
(7) NOTES PAYABLE
The following is a listing of the Company's outstanding notes payable
as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Note payable to selling stockholder
of Dialysis Apheresis Consultants,
Inc. bearing interest at prime rate
plus 1% (9.5% at December 31, 1997),
with principal payments of $15,000
plus interest due quarterly $ 165,000 $ 225,000
Note payable to selling stockholder
of Circulatory Support Services,
Inc. bearing interest at prime rate
(8.5% at December 31, 1997), with
principal payments of $18,125 plus
interest due quarterly, secured by
the assets acquired and subordinated
to any obligations to any bank or
financial institutions 145,000 217,500
Note payable to selling stockholder
of Norcal Surgical Blood, Inc.
bearing interest at 9%, with
principal payments commencing with
four quarterly principal payments of
$137,500 plus interest, followed by
fifteen quarterly principal payments
of $60,000 plus interest 900,000 1,450,000
Note payable to selling stockholder
of Center for Apheresis &
Immunology, Inc. bearing interest at
prime rate (8.5% at December 31,
1997), with quarterly principal
payments of $62,500 plus interest,
secured by the assets acquired and
subordinated to any bank or
financial institutions 375,000 500,000
<PAGE>
Present value of non-interest-
bearing note payable to selling
stockholder of Center for Apheresis
& Immunology, Inc. payable in twelve
quarterly principal payments of
$25,000, secured by the assets
acquired and subordinated to any
bank or financial institutions,
discounted at a rate of 8.25% 217,938 236,504
Note payable to selling stockholder
of Apheresis Specialties, Inc.
bearing interest at prime rate (8.5%
at December 31, 1997) with quarterly
principal payments of $5,555 plus
interest 61,111 66,666
Note payable to a bank paid in 1997 - 10,433
Notes payable to a financing
institution for the purchase of
motor vehicles bearing interest
ranging from 10.25-10.90% 33,972 56,333
Present value of subordinated note
payable to a financing institution
bearing interest at 12.5%, payable
in thirty-six monthly principal and
interest payments of $16,554, less
unamortized discount due to warrants
(see Note 8) 427,875 -
Present value of subordinated note
payable to a financing institution
bearing interest at 12.5%, payable
in thirty-six monthly principal and
interest payments of $24,832, less
unamortized discount due to warrants
(see Note 8) 679,815 -
------------ -----------
3,005,711 2,762,436
Less-Current portion of notes
payable 1,105,717 866,019
------------ -----------
$ 1,899,994 $ 1,896,417
============ ===========
</TABLE>
<PAGE>
The following table summarizes scheduled payments required on all
notes payable:
Year Amount
---- ------------
1998 $ 1,105,717
1999 991,743
2000 728,199
2001 180,052
------------
Total $ 3,005,711
============
(8) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Mandatorily Redeemable Convertible Preferred Stock
On October 13, 1994, the Company authorized and issued 3,500,000
shares of $.001 par value Series A mandatorily redeemable
convertible preferred stock (Series A Preferred Stock). Series A
Preferred Stock is convertible, at any time at the option of the
holder, into shares of the Company's $.001 par value common stock
at a price of $1.00 per share, subject to certain adjustments.
On March 15, 1996, the Company issued 3,711,998 shares of $.001
par value Series B mandatorily redeemable convertible preferred
stock (Series B Preferred Stock) at a price of $2.05 per share.
On May 28, 1997, the Company authorized and issued an additional
97,561 shares of Series B Preferred Stock at a price of $2.05 per
share. Series B Preferred Stock is convertible at any time at
the option of the holder into shares of the Company's $.001 par
value common stock at a price of $2.05 per share, subject to
certain adjustments.
On December 21, 1997, the Company authorized and issued 3,636,362
shares of $.001 par value Series C mandatorily redeemable
convertible preferred stock (Series C Preferred Stock). Series C
Preferred Stock is convertible at any time at the option of the
holder into shares of the Company's $.001 par value common stock
at a price of $1.10 per share, subject to certain adjustments.
Dividends on Series A, Series B and Series C Preferred Stock are
cumulative and accrue on a daily basis at a per annum rate of
$.10 per share of Series A Preferred Stock, $.205 per share of
Series B Preferred Stock and $.11 per share of Series C Preferred
Stock. In addition, commencing any time after October 13, 1999
and upon the election of two-thirds of the holders of the
outstanding shares of preferred stock, the Company is obligated
to redeem all outstanding shares of such stock for $1.00 per
share for Series A Preferred Stock, $2.05 per share for Series B
Preferred Stock and $1.10 per share of Series C Preferred Stock
plus accrued dividends. The accretion of cumulative dividends
for Series A, B and C Preferred Stock has been recorded in the
accompanying statements of stockholders' equity (deficit).
<PAGE>
The Series A, Series B and Series C Preferred Stock automatically
converts to common stock upon the closing of an underwritten
public offering providing the Company with net proceeds of at
least $15 million and an initial public offering price of at
least $10.00 per share. The conversion rate into common stock
for Series A, Series B and Series C Preferred Stock shall be 1-
to-1, 1-to-1.25 and 1-to-1, respectively. Upon liquidation of
the Company, the Series A, Series B and Series C preferred
stockholders are entitled, before any distribution is made to the
common stockholders, to be paid $1.00 per share, $2.05 and $1.10
per share, respectively, plus accrued dividends. The preferred
stockholders vote, together with the common stockholders, as a
single class based on the number of shares of common stock into
which the shares convert.
As of December 31, 1997, the liquidation preference and
redemption value for Series A Preferred Stock was $4,624,861,
including cumulative dividends of $1,124,861. As of December 31,
1997, the liquidation preference and redemption value of Series B
Preferred Stock was $9,187,239, including cumulative dividends of
$1,249,149. As of December 31, 1997, the liquidation preference
and redemption value for Series C Preferred Stock was $4,010,957,
including cumulative dividends of $20,423. The accompanying
balance sheets and statements of stockholders' equity (deficit)
state the value of the Series A, B and C Preferred Stock at their
liquidation preference and redemption value.
(b) Common Stock
The Company has 15,536,581 shares of authorized common stock,
$.001 par value, of which 1,926,118 shares are issued and
15,088,648 shares are reserved for issuance upon conversion of
Series A, Series B and Series C Preferred Stock, warrants and
common stock issuance under the Company's stock option plan As
of December 31, 1997, the Company had a deficit of 447,933
authorized shares needed in order to sufficiently reserve for the
issuance upon conversion of preferred stock, warrants and common
stock issuance under the Company's stock option plan.
The common stock issued to the Company's officers, employees and
consultants vests over various periods up to approximately five
years, and the unvested shares are subject to repurchase by the
Company, at any time prior to vesting, upon certain defined
events. In connection with the termination of two key employees
in January 1997 (see Note 5(c)), the Company repurchased 251,471
shares of common stock from one of these individuals at the
original issuance price paid by this individual. In January
1998, the Company purchased 251,471 shares of common stock from
the other individual at the original issuance price.
(c) Stock Option Plan
On October 31, 1994, the Company's Board of Directors approved
the establishment of the 1994 Stock Option Plan (the Plan).
Under the terms of the Plan, the Board of Directors may grant key
employees, stockholders and consultants options to purchase
approximately 3,000,000 shares of common stock. The Company
<PAGE>
values option grants to nonemployees using methods defined under
SFAS No. 123, Accounting for Stock-Based Compensation. The
options generally vest in equal installments of 20% per year over
five years and expire on the earlier of 10 years from the date of
grant or 30 days following employee termination. A summary of
stock option activity for the years ended December 31, 1997 and
1996 is as follows:
<TABLE>
<CAPTION> Weighted
Exercise Average
Number of Price per Exercise
Shares Share Price
---------- ----------- ----------
<S> <C> <C> <C>
Outstanding, December 31, 1995 865,000 $ .10-1.00 $ .12
Granted 436,625 .10-.20 .15
Canceled (35,000) .10 .10
-----------
Outstanding, December 31, 1996 1,266,625 .10-1.00 .13
Granted 1,743,448 .11-1.00 .12
Canceled (560,370) .10-1.00 .14
Exercised (114,049) .10-.20 .11
-----------
Outstanding, December 31, 1997 2,335,654 $ .10-1.00 $ .12
=========== ========== =======
Exercisable, December 31, 1997 327,428 $ .10-1.00 $ .12
=========== ========== =======
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, which requires the measurement of the fair value of
stock options or warrants to be included in the statement of
income or disclosed in the notes to the financial statements.
The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and elect the disclosure-only alternative under SFAS
No. 123. The Company has computed the pro forma disclosures
required for options granted in 1997 and 1996 using the Black-
Scholes option pricing model prescribed by SFAS No. 123.
The weighted average assumptions are as follows:
December 31,
1997 1996
------------ ------------
Risk-free interest rate 5.83%-6.86% 6.24%
Expected dividend yield - -
Expected lives 7 years 7 years
Expected volatility - -
<PAGE>
The effect of applying SFAS No. 123 would increase the Company's
net loss by $7,000 and $2,000 in 1997 and 1996, respectively.
(d) Warrants
In 1997, the Company granted 267,483 warrants to purchase Series
B Preferred Stock at a price of $1.10 per share to a noteholder
(see Notes 6 and 7). Additionally, the noteholder is entitled to
an additional number of warrants equal to 1% of outstanding
principal at the same price for each month principal is overdue.
These warrants are exercisable for ten years after the date of
issuance or five years after the Company's initial public
offering, whichever is longer. The value assigned to the
warrants, $219,235, is being accounting for as a discount on the
debt and is being amortized over the life of the loan. The
Company recognized an amortization expense for these warrants of
$35,000 during 1997.
(9) SUBSEQUENT EVENTS
On July 31, 1998, the Company sold substantially all of the assets it
acquired in the purchase of Intraoperative Autologous Transfusion
Services Business back to its original owner in exchange for the
forgiveness of the remaining $780,000 of debt issued as part of the
Company's original acquisition.
On September 9, 1998, the Company sold substantially all of the
assets it acquired in the purchase of Therapeutic Apheresis Services
business back to its original owner in exchange for the forgiveness
of the remaining $361,667 of debt issued as part of the Company's
original acquisition.
Subsequent to year-end, the Company defaulted under its lines of
credit (Note 6). The lender noticed a foreclosure sale under
Article 9 of the Illinois Uniform Commercial Code. Effective
October 22, 1998, HemaCare Corporation made an offer to the lender,
which the lender accepted, resulting in the sale of substantially all
of the Company's assets by the lender to HemaCare Corporation for
$950,000 in cash and 450,000 shares of HemaCare's Series B senior
convertible preferred stock. This transaction resulted in the
termination and dissolution of the Company by the lender.
</TABLE>
