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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, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number 0-15223
HEMACARE CORPORATION
(Exact name of registrant as specified in its charter)
State or other jurisdiction of I.R.S. Employer I.D.
incorporation or organization: California Number: 95-3280412
4954 Van Nuys Boulevard
Sherman Oaks, California 91403
(Address of principal executive offices) (Zip Code)
___________________
Registrant's telephone number, including area code: (818)986-3883
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: YES X NO ___
As of May 8, 1995, 5,633,452 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, 1995 and December
31, 1994
Consolidated statements of operations--Three months ended
March 31, 1995 and 1994
Consolidated statements of cash flows--Three months ended
March 31, 1995 and 1994
Notes to consolidated financial statements--March 31, 1995
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
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
HEMACARE CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1995 1994
(Unaudited)
------------- -------------
ASSETS
Current Assets
Cash and cash equivalents.............................. $ 911,200 $ 786,334
Short-term investments................................. 299,424 295,434
Accounts receivable, net of allowance for doubtful
accounts - $157,331 (1995) and $141,243 (1994)........ 1,319,617 1,606,566
Product inventories.................................... 102,327 117,683
Supplies............................................... 363,222 324,047
Prepaid expenses....................................... 187,113 109,972
Note receivable from officer........................... 101,623 90,470
------------- ------------
Total Current Assets.............................. 3,284,526 3,330,506
Plant and equipment, net of accumulated depreciation
and amortization of $2,006,701 (1995) and
$1,895,863 (1994)........................................ 1,544,799 1,463,261
Licenses.................................................. 1,377,069 1,394,337
Other assets.............................................. 108,005 100,805
------------- ------------
$ 6,314,399 $ 6,288,909
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable....................................... $ 691,206 $ 967,545
Accrued payroll and payroll taxes...................... 203,494 324,408
Other accrued expenses................................. 236,256 267,062
Current obligations under capital leases............... 159,001 221,555
Line of credit payable to bank......................... 200,000 200,000
------------- ------------
Total Current Liabilities.......................... 1,489,957 1,980,570
Obligations under capital leases, net of current portion.. 483,578 286,998
Other accrued employee benefits........................... 77,429 121,406
------------- ------------
Total Liabilities.................................. 2,050,964 2,388,974
Shareholders' Equity
Common stock, without par value - 20,000,000 shares
authorized, 5,633,202 and 5,366,381 issued and
outstanding at March 31, 1995 and December 31,
1994, respectively................................... 11,728,301 11,316,671
Accumulated deficit.................................... (7,464,866) (7,416,736)
------------- ------------
Total shareholders' equity........................ 4,263,435 3,899,935
------------- ------------
$ 6,314,399 $ 6,288,909
============= ============
Notes to Consolidated Financial Statements
3
HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three months ended
March 31,
--------------------------
1995 1994
------------ ------------
Revenues
Blood services...................................... $ 925,340 $ 898,892
Blood products...................................... 1,744,260 1,699,300
Specialty plasma.................................... 87,151 47,991
------------ ------------
Total revenues................................. 2,756,751 2,646,183
Cost of sales and services............................. 2,037,513 2,041,735
------------ ------------
Gross profit................................... 719,238 604,448
General and administrative expense..................... 489,912 557,115
Research and development expense....................... 283,632 732,755
Interest (income) expense
Interest income..................................... (14,522) (11,009)
Interest expense.................................... 8,346 11,701
------------ ------------
Net loss....................................... $ (48,130) $ (686,114)
============ ============
Per share amounts:
Net loss............................................ $ (0.01) $ (0.14)
============ ============
Weighted average common shares outstanding............. 5,455,321 4,792,443
============ ============
See Notes to Consolidated Financial Statements
4
HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three months ended
March 31,
--------------------------
1995 1994
----------- -----------
Cash flows from operating activities:
Net loss.............................................. $ (48,130) $ (686,114)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of plant and
equipment........................................ 110,838 114,288
Amortization of intangible assets.................. 17,448 16,045
Provision for losses on accounts receivable........ 15,963 8,296
Issuance of common stock for employee
401(K) plan...................................... 54,668 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable........ 270,987 (35,789)
Increase in inventories, supplies and prepaid
expenses........................................ (100,960) (46,480)
Increase in other assets, net..................... (7,380) (56,796)
Increase (decrease) in accounts payable and
accrued expenses................................ (428,059) 112,908
Increase (decrease) in other accrued employee
benefits........................................ (43,977) 18,508
----------- ------------
Net cash used in operating activities............. (158,602) (555,134)
----------- ------------
Cash flows from investing activities:
Acquisition of licenses............................... -- (100,000)
Advance to officer.................................... (11,153) --
Decrease (increase) in short-term investments......... (3,990) 496,802
Purchase of plant and equipment, net.................. (25,051) (84,135)
----------- ------------
Net cash provided by (used in) investing activities... (40,194) 312,667
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock................ 356,962 90,525
Principal payments on line of credit and capital
leases.............................................. (33,300) (61,509)
----------- ------------
Net cash provided by financing activities............. 323,662 29,016
----------- ------------
Increase (decrease) in cash and cash equivalents...... 124,866 (213,451)
Cash and cash equivalents at beginning of period...... 786,334 1,149,917
----------- ------------
Cash and cash equivalents at end of period............ $ 911,200 $ 936,466
=========== ============
Items not impacting cash flows:
Increase in capital lease obligations................. $ 167,325 $ --
=========== ============
See Notes to Consolidated Financial Statements
5
HEMACARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation and General Information
- - -------------------------------------------------------
The accompanying unaudited consolidated financial statements of HemaCare
Corporation (the "Company" or "HemaCare") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months
ended March 31, 1995 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1995. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1994.
In 1994 and 1995, HemaCare, through its wholly owned subsidiary,
HemaBiologics, Inc. ("HBI") continued to incur significant losses as a result
of the expenditures related to ImmupathTM, an experimental treatment for
HIV/AIDS, and continuing losses from its specialty plasma blood products
business. HemaCare financed the costs associated with the Immupath project
with existing cash reserves, cash from operations and proceeds from sales of
common stock and stock purchase warrants. Beginning in August 1994 and
continuing through the first quarter of 1995, the Company generally suspended
most of the Immupath development efforts and implemented cost reductions
which included closing two donor centers, curtailing staffing and donor
recruiting activities at the remaining locations and suspending the
construction of its plasma processing facility. The Company may enter into a
corporate partnership, sell equity securities or enter into other financing
or corporate transactions in order to obtain the necessary capital to
continue the project. There can be no assurance, however, that any financing
or corporate transaction will occur or that the Company will obtain sufficient
funds to continue the research and development of Immupath or complete its
plasma processing facility. If necessary, because of lack of funding, the
Company may have to abandon the Immupath research project.
Note 2 - License Agreement
- - ---------------------------
Under the terms of a license agreement ("Agreement") with Medicorp Inc.,
("Medicorp") for the rights to the Immupath technology which applies the
principle of passive hyperimmune therapy to treat HIV/AIDS, the Company began
making monthly payments of $25,000 in January 1994 to Medicorp to be credited
against future royalty payments. In accordance with the agreement, $300,000
was paid in 1994. In January 1995, the Company notified Medicorp that it
would no longer be able to make its monthly $25,000 royalty prepayments
because of a lack of funds. The Company and Medicorp are currently
negotiating the terms of a deferral or abeyance of the prepayments. Also, in
March 1995, Medicorp informed the Company that the patent holder for Immupath
has served Medicorp with a claim that Medicorp is in violation of its license
agreement with the patent holder. The Company believes that an agreement it
has with the patent holder whereby the Company's license rights will remain
in effect in the event that the license between the patent holder and
Medicorp is terminated for any reason will preserve the Company's rights
under the U.S. patent.
6
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 line is equivalent to 70% of the Company's eligible accounts receivable
under 90 days old, to a maximum of $700,000, with interest at the lender's
prime rate plus one-half of a percentage point, and matures April 30, 1996.
As of March 31, 1995, the Company was in compliance with respect to all
covenants under the line of credit agreement. The Company is required to
maintain $400,000 in cash and/or short-term securities at all times during
the term of the agreement. As of March 31, 1995, $200,000 was outstanding
under the line of credit.
Note 4 - Sale of Equity Securities
- - -----------------------------------
In April 1994, HemaCare sold 250,000 units of common stock and common stock
purchase warrants (at $4.00 per unit) in an offshore transaction from which
it received net proceeds of approximately $900,000. Each unit consisted of
one share of the Company's common stock and three warrants to purchase
additional shares, which become exercisable and expire at intervals through
April 15, 1996. The first group of warrants were exercised in September 1994
and yielded net proceeds of approximately $500,000. The second group of
250,000 warrants was fully exercised in the first quarter of 1995 and yielded
net proceeds of approximately $350,000. In consideration of this exercise,
which was made 45 days prior to the warrant's termination date, a fourth
group of 250,000 warrants was granted to the purchaser in February 1995. The
third group of 250,000 warrants are exercisable from July 1, 1995 (subject
to acceleration if certain conditions are satisfied) and expire April 15,
1996. The fourth group of 250,000 warrants, which will be exercisable only
if the third group has been exercised in full, expire December 31, 1998. The
exercise price of the third group will be determined in part by reference to
the market price of the Company's common stock from time to time, and the
exercise price of the fourth group is fixed at $3.50 per share. In
connection with the offshore transaction and the subsequent exercise of
related warrants, the Company granted to the finder warrants to purchase
37,500 shares of the Company's common stock. The exercise prices of the
warrants range from $1.45 to $4.00, and the warrants expire five years from
the issue date. In addition, the Company agreed to issue to the finder up to
25,000 additional warrants. The exercise price and the number of additional
warrants to be granted is dependent upon the number and price of warrants to
be exercised in related offshore transactions.
Note 5 - Contingencies
- - -----------------------
On March 11, 1994, the Company was served with a lawsuit filed by a former
employee against the Company and its wholly owned subsidiary, HBI, in the
Superior Court of the State of California, related to the termination of this
employee and seeking relief in excess of $350,000. At this stage in the
proceedings, neither management nor counsel are in a position to evaluate the
probable merits of the claim asserted by this former employee.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
All comparisons within the following discussions are to the
previous year.
REVENUES
Revenues for the three months ended March 31, 1995, increased 4%
($111,000) primarily because the first quarter of 1994 reflected
the lowest volumes of therapeutic hemapheresis procedures and
sales of platelets for the year. The net increase was the result
of increases in all of the Company's businesses except sales of
allogeneic blood products, which decreased 10% ($70,000).
Blood Services (therapeutic hemapheresis-TH) revenue increased
3% ($26,000) for the three months ended March 31, 1995, primarily
as a result of a 12% increase in procedures performed. The
revenue per unit decreased 8%, however, because of a change in
mix of the diagnoses for which the procedure was used for the
quarters being compared. The choice of TH rather than an
alternative treatment for a particular diagnosis often depends on
general acceptance by the medical community. The fact that
particular diseases are being treated with TH over a short term
basis such as a quarter or even from one year to the next is not
necessarily significant to the business. However, because of the
large market share of TH business in southern California enjoyed
by HemaCare, management expects that unless there are additional
medical applications approved for TH or other significant
changes in market factors, future TH revenues will remain flat or
decline.
Blood Products (plateletpheresis and allogeneic) revenue
increased 3% ($45,000) for the first quarter of 1995. Sales of
plateletpheresis products, which are manufactured by the Company,
increased 12% ($116,000) as a result of a 9% increase in units
sold and a 2% overall increase in price per unit. Revenues from
sales of allogeneic products, which are distributed by the
Company, decreased 10% ($70,000), reflecting both a 13% decrease
in units sold and an offsetting 4% increase in the price per
unit. Allogeneic sales for the first quarter of 1994 were
unusually high, averaging 8% more than the remaining three
quarters. Management believes that sales of platelet products
will be flat in the southern California market, and although it
expects demand to increase, sales of allogeneic products may also
be flat because the Company may not be able to obtain products
for its customers at an attractive price due to the overall blood
shortage in the U.S.
Revenues from the Company's specialty plasma operation increased
because of several spot sales of product. (See "Gross Profit and
Expenses" for a discussion of the Company's plans for this
operation).
GROSS PROFIT AND EXPENSES
Gross profit as a percentage of sales increased from 23% in 1994,
to 26% in 1995 primarily because of the decrease in losses from
the Company's specialty plasma business resulting from the
closing of two centers, Torrance and West Hollywood, and scaling
back operations at its two remaining centers, San Diego and San
Francisco.
In May 1995, the Company began operating its Georgia TH business
on a shared basis with an unaffiliated blood services company in
a similar, but non-competing business. Management believes that
the Georgia business can operate at least at break-even under
this arrangement.
8
General and administrative expenses were 12% ($67,000) lower for
the first quarter of 1995. The decrease in expense reflects
management's continuing control over corporate spending,
including staffing reductions, and is expected to continue for
the remainder of the year.
The Company incurred research and development expenses of
$284,000 for the first quarter of 1995 compared to $783,000 for
the first quarter of 1994. In order to conserve cash and because
of a lack of funding necessary to continue development of
Immupath, beginning in the third quarter of 1994 and continuing
into 1995, certain non-essential activities were eliminated or
decreased, including reducing staff, closing donor centers and
curtailing activities of the plasma processing facility. In
January 1995, the Company decided to focus its efforts on the
intended commercial form of Immupath, a multi-step fractionated
intravenous immunoglobulin (IVIG) preparation consisting of the
same neutralizing antibodies as the first generation whole plasma
product. The next step for the development of the IVIG version
of Immupath is to conduct preclinical animal toxicology, viral
inactivation and product characterization testing. Assuming
satisfactory results of these tests, the next step would be to
file an IND for Phase I testing of the product in a small scale
clinical trial. At this time, the Company is unable to proceed
with the preclinical and Phase I testing because of a lack of
funds to continue the project. (See "Liquidity and Capital
Resources" below). The Company's current activities related to
Immupath consist of maintaining the unfinished plasma processing
facility, retaining the donated anti-HIV plasma (of which the
Company believes it has sufficient supply to conduct future
clinical trials) and continuing to treat the remaining patients
from the Phase I/II clinical trial and following their progress
on a monthly basis. Also, in January 1995, the Company notified
Medicorp, the company with which it has a license agreement for
the U.S. patent for Immupath, that it would no longer be able to
make its monthly $25,000 royalty prepayments because of a lack of
funds. The Company and Medicorp are currently negotiating the
terms of a deferral or abeyance of the prepayments. Also, in
March 1995, Medicorp informed the Company that the patent holder
for Immupath has served Medicorp with a claim that Medicorp is in
violation of its license agreement with the patent holder. The
Company believes that an agreement it has with the patent holder
whereby the Company's license rights remain in effect in the
event that the license between the patent holder and Medicorp is
terminated for any reason will preserve the Company's rights
under the U.S. patent.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, the Company had cash and short-term
investments of $1,211,000. In April 1994, the Company completed
a private placement of 250,000 units, consisting of 250,000
shares of common stock and 750,000 warrants for net proceeds of
approximately $900,000. The warrants consisted of three groups
of 250,000 each, the first of which was exercised in full on
September 29, 1994 for net proceeds of approximately $500,000.
The second group of 250,000 warrants was fully exercised in the
first quarter of 1995 and yielded net proceeds of approximately
$350,000. In connection with this exercise, a fourth group of
250,000 warrants was granted to the purchaser in 1995. The third
group of 250,000 warrants are exercisable from July 1, 1995
(subject to acceleration if certain conditions are satisfied) and
expire April 15, 1996. The fourth group of 250,000 warrants,
which will be exercisable only if the third group has been
exercised in full, expire December 31, 1998. If the warrants are
exercised, the resulting proceeds will provide the Company with
additional funding. The Company's $700,000 line of credit with
its commercial bank is in effect until April 30, 1996, with a
provision that the Company maintain cash and/or short-term
security balances of at least $400,000 (excluding borrowings) at
all times, which it has done. At March 31, 1995, $200,000 was
outstanding on the line of credit.
9
At March 31, 1995, the Company had working capital of
approximately $1,795,000. The Company's core blood products and
services businesses are profitable and cash flow positive. In
addition, the Company has taken the steps described above to
reduce expenses related to the Immupath research project to the
current level of approximately $70,000 per month and to seek to
operate the Georgia TH operation and the specialty plasma
operation at least on a break even basis. The Company
anticipates that positive cash flow from its operations, its cash
and investments on hand and its ability to terminate completely
the Immupath project, if necessary, will be sufficient to meet
its working capital requirements for the next 12 months.
Management believes that growth of the Company's blood products
and services businesses in southern California is constrained
because of its already high market share, the state of the local
economy and the continuing downward pressure on health care
utilization. The Company believes that the current healthcare
environment in the U.S., which is focused to a great extent on
more efficient delivery systems largely through consolidation of
providers, presents a timely opportunity for a national expansion
of its core blood products and services businesses together with
the addition of other blood related businesses. However, the
Company lacks sufficient capital to finance other expansions into
new businesses or new locations at this time. The Company,
together with its financial advisor, is currently discussing
various business arrangements with potential corporate partners
and other sources of capital in order to fund its proposed
expansion. There can be no assurance that the Company will be
able to obtain the funds necessary to finance the proposed
expansion.
In addition, the Company is continuing to seek funding to conduct
the preclinical testing and proposed Phase I trials of IVIG
Immupath and is currently in discussions with several potential
sources of capital. The total amount of funding required is
dependent upon the results of the various steps in the clinical
trials processes, the scope of the studies and the capital
requirements for its plasma processing facility. The Company may
enter into a corporate partnership, sell equity securities or
enter into other financing or corporate transactions in order to
obtain the necessary capital. There can be no assurance,
however, that any financing or corporate transaction will occur
or that the Company will obtain sufficient funds to continue the
research and development of Immupath or complete its plasma
processing facility. If necessary, because of lack of funding,
the Company may have to abandon the Immupath research project.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See disclosure in Form 10-K for the year ended December 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
4.1 Amendment to Warrant Agreement between the Registrant and
Torrey Pines Securities dated April 3, 1995.
10.1 Revolving Credit Agreement between the Registrant and Bank
Leumi Le-Israel, B.M. dated April 30, 1995 and related
security agreements.
10
27 Financial data schedule for the quarter ending March
31, 1995.
b. The Company did not file any reports on Form 8-K during the
three months ended March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date May 9, 1995 HEMACARE CORPORATION
---------------------- -------------------------------
(Registrant)
\s\ Devra G. Shapiro
--------------------------------
Devra G. Shapiro, Vice President,
Finance and Chief Financial Officer
11
INDEX TO EXHIBITS
EXHIBIT METHOD OF FILING
- - ------- -----------------------------
4.1 Amendment to Warrant Agreement between the Registrant
and Torrey Pines Securities, Inc., dated April
3, 1995................................................... Filed herewith electronically
10.1 Revolving Credit Agreement between the Registrant and
Bank Leumi Le-Israel, B.M. dated April 30, 1995........... Filed herewith electronically
27 Financial Data Schedule for the quarter ending March
31, 1995.................................................. Filed herewith electronically