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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 March 31, 2000
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 May 11, 2000, 7,588,857 shares of Common Stock of the Registrant
were issued and outstanding.
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INDEX
HEMACARE CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets-March 31, 2000 (unaudited) and
December 31, 1999
Consolidated income statements-Three months ended March
31, 2000 and 1999 (unaudited)
Consolidated statements of cash flows-Three months ended
March 31, 2000 and 1999 (unaudited)
Notes to consolidated financial statements-March 31, 2000
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
SIGNATURES
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
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HEMACARE CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,274,000 $ 1,490,000
Marketable securities................................ 1,174,000 778,000
Accounts receivable, net of allowance for
doubtful accounts - $262,000 (2000) and $256,000
(1999)............................................. 3,592,000 3,090,000
Product inventories.................................. 81,000 91,000
Supplies............................................. 710,000 690,000
Prepaid expenses..................................... 150,000 202,000
------------ ------------
Total current assets..................... 6,981,000 6,341,000
Plant and equipment, net of accumulated
depreciation and amortization of
$1,966,000 (2000) and $1,920,000 (1999).............. 688,000 719,000
Goodwill, net of amortization of $75,000 (2000) and
$62,000 (1999)....................................... 455,000 468,000
Other assets........................................... 42,000 46,000
------------ ------------
$ 8,166,000 $ 7,574,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 1,425,000 $ 1,305,000
Accrued payroll and payroll taxes.................... 726,000 530,000
Accrued professional fees............................ 36,000 73,000
Other accrued expenses............................... 380,000 376,000
Current obligations under capital leases............. 67,000 63,000
Current notes payable................................ 140,000 138,000
Reserve for discontinued operations.................. 80,000 81,000
------------ ------------
Total current liabilities................ 2,854,000 2,566,000
Obligations under capital leases, net
of current portion................................... 169,000 188,000
Notes payable, net of current portion.................. 317,000 353,000
Other long-term liabilities............................ 27,000 27,000
Commitments and contingencies..........................
Shareholders' equity:
Preferred stock no par value 5,000,000 shares
authorized, 450,0000 issued and outstanding........ 75,000 75,000
Common stock, no par value - 20,000,000
shares authorized, 7,512,082 issued and
outstanding in 2000 and 7,475,082 in 1999........... 13,710,000 13,676,000
Accumulated deficit.................................. (8,986,000) (9,311,000)
------------ ------------
Total shareholders' equity............... 4,799,000 4,440,000
------------ ------------
$ 8,166,000 $ 7,574,000
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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HEMACARE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<CAPTIION>
Three months ended March 31,
2000 1999
------------- -------------
Revenues:
Blood management programs......................... $ 2,253,000 $ 1,538,000
Regional operations
Blood products.................................. 1,039,000 1,067,000
Blood services.................................. 1,680,000 1,848,000
------------ ------------
Total revenue................................. 4,972,000 4,453,000
Operating costs and expenses:
Blood management programs......................... 1,820,000 1,460,000
Regional operations
Blood products.................................. 788,000 737,000
Blood services.................................. 1,133,000 1,422,000
------------ ------------
Total operating costs and expenses........... 3,741,000 3,619,000
------------ ------------
Operating profit............................. 1,231,000 834,000
General and administrative expense.................. 891,000 686,000
Gain on sale of Gateway Community Blood Program..... - 100,000
------------ ------------
Income from operations before income taxes.......... 340,000 248,000
Provision for income taxes.......................... 15,000 5,000
------------ ------------
Net income..................................... $ 325,000 $ 243,000
============ ============
Basic and diluted per share amounts:
Net income..................................... $ 0.04 $ 0.03
============ ============
Weighted average shares outstanding - basic......... 7,489,000 7,281,000
============ ============
Weighted average shares outstanding - diluted....... 8,888,000 7,798,000
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
2000 1999
------------ ------------
Cash flows from operating activities:
Net Income................................................ $ 325,000 $ 243,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for losses on accounts receviable........... 6,000 -
Depreciation and amortization......................... 59,000 63,000
Issuance of common stock and options for compensation. - 4,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............ (508,000) 398,000
Decrease (increase) in inventories, supplies
and prepaid expenses................................. 42,000 (46,000)
(Increase) in other assets, net....................... - (1,000)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities...................... 282,000 (519,000)
----------- -----------
Net cash provided by operating activities............. 206,000 142,000
Cash flows from investing activities:
Decrease in other assets.................................. 4,000 2,000
(Increase) in marketable securities....................... (396,000) (288,000)
(Purchase) of plant and equipment, net.................... (15,000) (12,000)
----------- -----------
Net cash used in investing activities..................... (407,000) (298,000)
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 34,000 -
Principal payments on line of credit, net and capital
leases.................................................. (49,000) (76,000)
----------- -----------
Net cash used in financing activities..................... (15,000) (76,000)
----------- -----------
Increase in cash and cash equivalents....................... (216,000) (232,000)
Cash and cash equivalents at beginning of period............ 1,490,000 1,372,000
----------- -----------
Cash and cash equivalents at end of period.................. $1,274,000 $1,140,000
=========== ===========
Supplemental disclosure:
Interest paid............................................. $ 13,000 $ 20,000
=========== ===========
Income taxes paid......................................... $ 36,000 $ 0
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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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 months ended
March 31, 2000, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. 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, 1999.
Note 2 - Line of Credit and Note Payable
- ----------------------------------------
Line of Credit
The Company maintains a line of credit with a commercial bank
secured by its accounts receivable, inventory and equipment.
Under the terms of the credit agreement, the Company may borrow
up to 70% of eligible accounts receivable, up to a maximum of
$1.2 million at an interest rate of prime (9.0% as of March 31,
2000) plus 0.5%, and must maintain certain financial ratios and
covenants. The Company was in compliance with all covenants of
its borrowing agreement at March 31, 2000, and there was no
balance outstanding under the line of credit.
Subsequent to March 31, 2000, the Company entered into two new
line of credit agreements, one relating to working capital and
the other for equipment purchases. Under the terms of the
working capital agreement, the Company may borrow the lesser of
75% of eligible accounts receivable or $2.0 million at an
interest rate of prime plus 0.25%. The Company must maintain
certain financial ratios and covenants. Additionally, the
Company has a secondary line of credit of $350,000 for equipment
purchases. Borrowings on the equipment purchase line of credit
are converted annually to a fully amortized note payable. This
equipment purchase line of credit bears interest at the rate of
the bank's internal cost of funds plus 3.0% (10.1% as of April
30, 2000). As of April 30, 2000, there were no borrowings on
either of these lines of credit and the Company was in compliance
with all loan covenants.
Note Payable
The Company has a term note with a bank, payable in 48 monthly
payments of principal and interest of approximately $15,000
through February 2003. The note bears interest at the prime rate
(9.0% as of March 31, 2000) plus one percent. Subsequent to
March 31, 2000, the Company paid off the remaining balance of
this note.
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Note 3 - Commitments and Contingencies
- --------------------------------------
Since 1976, California law has prohibited the infusion of blood
products into patients if the donors of those products were paid
unless, in the opinion of the recipient's physician, blood from a
non-paid donor was not immediately available. Apheresis platelet
products obtained from paid donors, including the Company's
Sherman Oaks Center's paid donors, are exempted from this law by
a series of state statutes the latest of which passed in late
1994. Unless a new exemption is obtained, the existing exemption
will expire under its sunset provision of December 31, 2001,
which could have a material adverse effect on the Company's
revenue and net income.
In February 2000, AB 2714, sponsored by the Company, was
introduced in the California Legislature. If enacted, this bill
would make permanent the current provisions of California law
allowing payment of apheresis platelet donors. However, there are
no assurances that AB 2714 will be passed by the legislature
and enacted into law.
State and Federal laws set forth antikickback and self-referral
prohibitions and otherwise regulate financial relationships
between blood banks and hospitals, physicians and other persons
who refer business to them. While the Company believes its
present operations comply with applicable regulations, there can
be no assurance that future legislation or rule making, or the
interpretation of existing laws and regulations will not prohibit
or adversely impact the delivery by HemaCare of its services and
products.
Note 4 - Business Segments
- ---------------------------
The Company operates in three business segments, each of which
represents a separate business activity. The segments and a
description of their business activities follows:
- - Blood Management Programs (BMP) - outsource programs which
provide all or a major portion of the blood related functions
to a hospital.
- - Blood Products- the collection, manufacture and distribution
of apheresis and whole blood derived products.
- - Blood Services - therapeutic apheresis and stem cell
collection procedures, autologous interoperative transfusion
and donor testing.
Management uses more than one measure to evaluate segment
performance. However, the dominant measurements are consistent
with the Company's consolidated financial statements, which
present revenue from external customers and operating income for
each segment.
Note 5 - Gain on Disposition
- ----------------------------
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
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and Illinois. In August 1997, Gateway's operations were sold.
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 a maximum of $422,000. The Company received an
additional payment of $100,000 during the first quarter of 1999,
when Gateway received a Food and Drug Administration
establishment license. This amount was accounted for as an
additional gain on the disposition of Gateway in the quarter
ended March 31, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- -------------------------------------------------------------------
HemaCare's operations include blood management programs ("Blood
Management Programs" or "BMPs") and regional sales of blood products
("Blood Products") and blood services ("Blood Services").
A HemaCare Blood Management Program allows a hospital to outsource all
or a portion of its blood procurement and donor center management
operations and other blood related activities. Blood Products include
apheresis platelets and whole blood components such as red blood cells
and plasma products. Blood Services include therapeutic apheresis
procedures, stem cell collection, interoperative autologus transfusion
and donor testing.
In October 1998, the Company, through its subsidiary Coral Blood
Services, Inc. ("CBS"), acquired existing blood products and services
operations in the eastern United States. These consist of Blood
Management Programs and other blood services provided to hospitals and
medical centers.
In February 2000, the Company commenced a Blood Management Program
with Long Beach Memorial Medical Center ("LBMMC"). The Company now
operates seven blood management programs. In addition to the LBMMC
program, the Company operates programs at the University of Southern
California ("USC"), initiated in 1996, the University of California at
Irvine ("UCI"), initiated in June 1999, and four East Coast programs.
The East Coast programs are Dartmouth-Hitchcock Medical Center
("DHMC"), Maine Medical Center ("MMC"), St. Vincent Hospital ("St.
Vincent") and University of North Carolina ("UNC"). Prior to October
1998, Coral Therapeutics, Inc. operated these programs.
All comparisons within the following discussions are to the comparable
periods of the previous year.
Revenues and Operating Profit
- -----------------------------
Total revenues increased 12% ($519,000) in the first quarter of 2000.
The increase was due to the expansion of the California based BMPs
and increased revenue at other BMPs, partially offset by lower
California Blood Services revenue. The Company's operating profit as
a percentage of revenue ("profit margin") increased to 25% in the
first quarter of 2000 from 19% in the comparable quarter of 1999.
This increase reflects continued improvement in CBS's operating
efficiency.
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Blood Management Programs
Revenue increased 46% ($715,000) in the first quarter of 2000. The
revenue increase was primarily due to the addition of two new
California BMPs. The UCI BMP opened in June 1999, and the LBMMC BMP
opened in February 2000. These new programs contributed approximately
$450,000 to first quarter 2000 revenues. The balance of the increase
was due to increased demand for products and services at continuing BMPs.
Operating profit increased by 455% ($355,000) in the first quarter of
2000. The increase is attributable to the new programs and improved
operating efficiencies at continuing programs.
Blood Products
Blood Products revenue decreased by 3% ($28,000) in the first quarter
of 2000. The decrease in revenue is primarily due to a decrease in
the average price per blood platelet unit sold offset by an increase
in the number of platelets sold. Competition among apheresis platelet
suppliers intensified during the third quarter of 1999 and continued
through the first quarter of 2000. In response to the competitive
pressures (primarily from the American Red Cross), the Company decreased
its platelet prices to certain customers.
The profit margin on Blood Products decreased to 24% from 31% in the
first quarter of 1999. The decrease in profit margin resulted primarily
from a decrease in the average price per platelet sold along with a
greater number of product expirations.
Blood Services
Blood Services revenue decreased by 9% ($168,000) in the first quarter
of 2000. While the total number of therapeutic procedures was
comparable in 1999 and 2000, the decrease in revenue resulted from
lower albumin sales. The Company often provides albumin, a plasma
replacement fluid, used in therapeutic procedures. The Company's cost
of albumin and the price the Company charges its customers decreased
in the first quarter of 2000 compared to 1999.
Blood Services profit increased by $121,000 or 28% in the first
quarter of 2000. The increase is due primarily to improved operating
efficiencies in East Coast operations.
Gain on Disposition
As part of the terms of sale of Gateway's operations, the Company was
entitled to receive a payment of $100,000 when Gateway received a Food
and Drug Administration establishment license. In the first quarter
of 1999, Gateway received this license, and the Company realized an
additional $100,000 gain on the disposition.
General and administrative expense
General and administrative expenses increased by 30% ($205,000) during
the first quarter of 2000. The increase reflects additional expenses
incurred in connection with proposed California legislation (AB2714)
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(See Liquidity and Capital Resources below), expanded marketing
efforts, and accrual of employee incentive compensation related to
improved operating performance.
Liquidity and Capital Resources
At March 31, 2000, the Company had cash and cash equivalents and
marketable securities of $2,448,000 and working capital of $4,127,000.
As of March 31, 2000, the Company had a line of credit with a
commercial bank whereby the Company may borrow up to 70% of eligible
accounts receivable, up to a maximum of $1.2 million and must maintain
certain financial ratios. The Company was in compliance with all
covenants of its borrowing agreement at March 31, 2000, and there were
no borrowings outstanding on the line of credit at that date.
The Company also has a term note with a bank that has a March 31,
2000, balance of $457,000. The note requires monthly payments of
approximately $15,000 including interest equal to the prime rate
(9% at March 31, 2000) plus one percent. This note is cross
collateralized with the Company's line of credit. Subsequent to March
31, 2000, this note was paid in full.
Subsequent to March 31, 2000, the Company entered into a new banking
relationship. Under the terms of this new agreement the Company has a
working capital line of credit and a second line of credit for equipment
purchases. The working capital line provides availability equal to
the lesser or 75% of eligible accounts receivable or $2.0 million.
Interest is payable monthly at a rate of prime plus 0.25%. The
Company must maintain certain financial ratios and covenants. This
line matures in December 2001.
The equipment purchase line provides $350,000 for equipment purchases.
On an annual basis, the Company may convert its equipment purchases into
a long-term, fully amortized note payable. The note requires monthly
payments including interest equal to the Bank's internal cost of funds
plus 3% (10.1% at April 30, 2000).
These new banking arrangements are secured by substantially all of the
Company's unencumbered assets and require the Company to maintain
certain financial covenants. As of March 31, 2000, the Company was in
compliance with these covenants.
Since 1976, California law has prohibited the infusion of blood
products into patients if the donors of those products were paid
unless, in the opinion of the recipient's physician, blood from a non-
paid donor was not immediately available. Apheresis platelet products
obtained from paid donors, including the Company's Sherman Oaks
Center's paid donors, are exempted from this law by a series of state
statutes the latest of which passed in late 1994. Unless a new
exemption is obtained, the existing exemption will expire under its
sunset provision of December 31, 2001, which could have a material
adverse effect on the Company's revenue and net income.
In February 2000, AB 2714, sponsored by the Company, was introduced in
the California Legislature. If enacted, this bill would make
permanent the current provisions of California law allowing payment of
apheresis platelet donors. The Company believes that its twenty-one
year history of providing platelets to hospitals and patients (without
a single adverse patient health outcome) and its excellent regulatory
compliance record strongly support the passage of AB 2714. However,
there are no assurances that AB 2714 will be passed by the legislature
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and enacted into law. Historically, legislation permitting the
payment of apheresis platelet donors has been opposed by the not for
profit blood centers operating in California which rely exclusively on
uncompensated blood product donors. Such blood centers, which compete
with the Company, oppose AB 2714.
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.
Year 2000 Disclosure
To date, the Company has not experienced any major systems failures or
other adverse consequences due to Year 2000 noncompliance. While the
possibility still exists for further computer failures, internally or
among its customers and suppliers, management does not expect that
these developments, should they occur, would have a material adverse
impact on the financial position, results of operation or cash flows
of the Company.
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 the 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, the effects of discontinued operations,
the effect of state and Federal regulation and demand for the
Company's products and services. Such forward-looking statements
involve important risks and uncertainties, many of which will be
beyond the control of the Company. These risks and uncertainties
could significantly affect anticipated results in the future, both
short-term and long-term, and accordingly, such results may differ
from those expressed in forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are
not limited to, those relating to the passage of AB 2714 in California
to permit continuation of the Company's use of paid apheresis platelet
donors in California, the ability of the Company to expand its
operations, to obtain additional financing, to repay existing debt, to
retain existing customers and obtain new customers and to comply with
the covenants under its bank line of credit. 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, 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See disclosure in Form 10-K for the year ended December 31,
1999.
Item 4. Submission of Matters to a Vote of Security Holders
None
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Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Revolving Credit Loan & Security Agreement between
the Registrant and Comerica Bank, dated March 1,
2000
11 Net Income per Common and Common Equivalent Share
27 Financial Data Schedule for the Quarter Ended
March 31, 2000
b. The Company did not file any reports on Form 8-K during
the three months ended March 31, 2000.
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: May 12, 2000 HEMACARE CORPORATION
-----------------------
(Registrant)
/s/ David E. Fractor
------------------------
David E. Fractor, Chief
Financial Officer
(Duly authorized officer
and principal financial and
accounting officer)
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INDEX TO EXHIBITS
Method of Filing
----------------
10.1 Revolving Credit Loan & Security Agreement between
the Registrant and Comerica Bank, dated March 1,
2000............................................... Filed herewith electronically
11 Net Income per Common and Common Equivalent Share.. Filed herewith electronically
27 Financial Data Schedule for the quarter ended
September 30, 1999................................. Filed herewith electronically
13