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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, 2002
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)
California 95-3280412
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State or Other I.R. S. Employer I.D.
Jurisdiction of Number
Incorporation or
Organization
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 10, 2002, 7,591,175 shares of Common Stock of the registrant
were issued and outstanding.
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INDEX
HEMACARE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets-March 31, 2002 (unaudited) and
December 31, 2001
Consolidated statements of operations-Three ended March 31,
2002 and 2001 (unaudited)
Consolidated statements of cash flows-Three months ended March
31, 2002 and 2001 (unaudited)
Notes to consolidated financial statements-March 31, 2002
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
PART 1. FINANCIAL INFORMATION
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Item 1. Financial Statements
HEMACARE CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2002 2001
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,196,000 $ 1,025,000
Accounts receivable, net of allowance for
doubtful accounts - $208,000 (2002) and $212,000
(2001)............................................. 4,833,000 5,454,000
Product inventories and supplies..................... 852,000 707,000
Prepaid expenses..................................... 228,000 192,000
Deferred income taxes................................ 498,000 498,000
------------ ------------
Total current assets..................... 7,607,000 7,876,000
Plant and equipment, net of accumulated
depreciation and amortization of
$2,126,000 (2002) and $2,030,000 (2001).............. 2,637,000 2,348,000
Goodwill, net of amortization of $168,000.............. 362,000 362,000
Deferred taxes......................................... 2,486,000 2,405,000
Other assets........................................... 48,000 91,000
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$13,140,000 $13,082,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 2,348,000 $ 2,495,000
Accrued payroll and payroll taxes.................... 1,148,000 948,000
Other accrued expenses............................... 117,000 113,000
Current obligations under capital leases............. 54,000 31,000
Current obligations under notes payable.............. 176,000 168,000
Reserve for discontinued operations.................. 74,000 75,000
------------ ------------
Total current liabilities................ 3,917,000 3,830,000
Obligations under capital leases, net
of current portion................................... 269,000 176,000
Notes payable, net of current portion.................. 584,000 626,000
Other long-term liabilities............................ 21,000 23,000
Commitments and contingencies..........................
Shareholders' equity:
Common stock, no par value - 20,000,000 shares
authorized, 7,595,175 issued and outstanding in
2002 and 7,590,205 in 2001......................... 13,125,000 13,065,000
Accumulated deficit.................................. (4,776,000) (4,638,000)
------------ ------------
Total shareholders' equity............... 8,349,000 8,427,000
------------ ------------
$13,140,000 $13,082,000
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
2002 2001
------------ ------------
Revenues:
Blood products.................... 4,389,000 3,936,000
Blood services.................... 1,932,000 2,121,000
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Total revenue.................... 6,321,000 6,057,000
Operating costs and expenses:
Blood products.................... 4,151,000 3,486,000
Blood services.................... 1,260,000 1,379,000
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Total operating costs and
expenses....................... 5,411,000 4,865,000
----------- -----------
Gross profit...................... 910,000 1,192,000
General and administrative
expenses............................ 1,129,000 845,000
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(Loss) income before income taxes...... (219,000) 347,000
(Benefit) provision for income
taxes................................ (81,000) 128,000
----------- -----------
Net (loss) income................... $ (138,000) $ 219,000
=========== ===========
Basic and diluted per share amounts.... $ (0.02) $ 0.03
=========== ===========
Weighted average shares
outstanding - basic................ 7,591,000 7,505,000
=========== ===========
Weighted average shares
outstanding - diluted.............. 7,591,000 8,036,000
=========== ===========
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 Mar. 31
2002 2001
UPDATE THIS ------------ ------------
Cash flows from operating activities:
Net (loss) income......................................... $ (138,000) $ 219,000
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization.......................... 96,000 70,000
Non cash compensation related to employee severence.... 56,000 -
Deferred income taxes used to offset current period
income................................................ (81,000) 121,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable............ 621,000 (807,000)
(Increase) decrease in inventories, supplies and
prepaid expenses..................................... (181,000) 85,000
Decrease in other assets.............................. 43,000 -
Increase (decrease) in accounts payable, accrued
expenses and other liabilities....................... 55,000 (245,000)
Expenditures for discontinued operations.............. (1,000) (1,000)
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Net cash provided by (used in) operating activities... 470,000 (558,000)
Cash flows from investing activities:
Decrease in other assets.................................. - 10,000
Decrease in marketable securities......................... - 388,000
Purchase of plant and equipment, net...................... (354,000) (91,000)
----------- -----------
Net cash (used in) provided by investing activities....... (354,000) 307,000
Cash flows from financing activities:
Proceeds from exercise of stock options................... 4,000 -
Principal payments on line of credit, capital leases
and notes payable........................................ (49,000) (13,000)
Proceeds from capitalized leases.......................... 100,000 -
Repurchase of common stock................................ - (332,000)
----------- -----------
Net cash provided by (used in) financing activities....... 55,000 (345,000)
----------- -----------
Increase (decrease) in cash and cash equivalents............ 171,000 (596,000)
Cash and cash equivalents at beginning of period............ 1,025,000 1,362,000
----------- -----------
Cash and cash equivalents at end of period.................. $1,196,000 $ 766,000
=========== ===========
Supplemental disclosure:
Interest paid............................................. $ 10,000 $ 3,000
=========== ===========
Income taxes paid......................................... $ - $ 7,000
=========== ===========
Items not affecting cash flow:
Notes and capitalized leases issued in connection with
acquisition of plant and equipment....................... $ 31,000 $ 116,000
=========== ===========
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, 2002, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2002. For further information, refer to
the consolidated financial statements and footnotes thereto included
in HemaCare's Annual Report on Form 10-K for the year ended December
31, 2001.
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States 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. Estimates also affect the reported amounts of revenue
and expenses during the reporting period. Actual results could
differ from those estimates.
Note 2 - Line of Credit and Notes Payable
The Company has a working capital line of credit whereby the
Company may borrow the lesser of 75% of eligible accounts
receivable or $2.0 million at an interest rate of prime plus .25%
(5.0% as of March 31, 2002). As of March 31, 2002, the Company's
net borrowings on this line of credit were $175,000. This line
matures on June 30, 2003 and is included in notes payable, net of
current portion on the balance sheet.
In addition the Company has a credit facility with the same bank
which provides for $1.2 million to be used to acquire vehicles and
equipment. Payments will be made on a straight-line basis over a
period of four years including interest equal to the bank's
internal cost of funds plus 2.5% (6.83% as of March 31, 2002). At
March 31, 2002 the total amount financed under the equipment line
of credit is $585,000 and requires 48 monthly principal payments of
$13,000 plus interest at a weighted average fixed rate of 6.6% per
annum. As of March 31, 2002, $760,000 was outstanding.
The two lines of credit are collateralized by substantially all of
the Company's assets and are cross defaulted. They also require
the maintenance of certain financial covenants. As of March 31,
2002, the Company was not in compliance with a covenant that
requires the Company to be profitable each quarter. During the
quarter ended March 31, 2002, the Company incurred a loss. The
bank has waived this violation.
Note 3 - Capitalized Lease
During the quarter ended March 31, 2002, the Company entered into a
capitalized lease in the amount of $131,000 to finance the
acquisition of certain equipment. The lease requires monthly
payments of $3,265 including interest at the rate of 8.8% per annum
and expires in January 2006.
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7
Note 4 - 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 have been exempted from this law
by a series of state statutes the latest of which expires on January
1, 2003. Unless existing California law is modified the exemption
will expire, which could have a material adverse effect on the
Company's revenue and net income.
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 HemaCare 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 5 - Business Segments
HemaCare operates in two business segments as follows:
- Blood Products - Collection, processing and distribution of
apheresis and whole blood derived products and donor testing.
- Blood Services - Therapeutic apheresis and stem cell collection
procedures and other therapeutic services to patients.
Previously, the Company reported its results of operations using
three segments: blood management programs, regional blood products
and regional blood services. During 2001, the Company reorganized
its operations and accordingly changed its segment reporting to
conform to the new organizational structure.
Management uses more than one measure to evaluate segment
performance. However, the dominant measurements are consistent with
HemaCare's consolidated financial statements, which present revenue
from external customers and operating income for each segment.
Note 6 - Goodwill
During the first quarter of 2002, the Company adopted Statement of
Financial Accounting Standards Number 142, "Goodwill and Other
Intangible Assets, " of SFAS 142. In accordance with SFAS 142,
the Company discontinued amortizing goodwill and other intangible
assets with indefinite lives. The Company will complete the first
step of the transitional goodwill impairment test during the
second quarter of 2002 and will continue to test goodwill and other
intangible assets not subject to amortization for impairment at least
annually.
Goodwill was $362,000 as of March 31, 2002 and was unchanged since
December 31, 2001. There was no impairment loss recorded during
the quarter. The Company does not have any other intangible assets,
other than goodwill.
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The following table presents net income on a comparable basis after
adjustment for amortization of goodwill, for the three months ended
March 31:
2002 2001
---------- ----------
Reported net (loss) income $(138,000) $ 219,000
Goodwill amortization - 13,000
---------- ----------
Adjusted net (loss) income $(138,000) $ 232,000
========== ==========
Basic and diluted per share amounts:
Reported net (loss) income $ (0.02) $ 0.03
Goodwill lamortization - -
---------- ----------
Adjusted net (loss) income $ (0.02) $ 0.03
========== ==========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
------ ---------------------------------------------------------------
Our business segments include Blood Products and Blood Services.
Our regional Blood Products segment supplies hospitals with a portion of
their blood product needs. We perform blood collection efforts for the
benefit of our hospital clients. We also provide apheresis platelets
collected in our Sherman Oaks facility and specialty blood components
and donor testing services purchased from other blood centers for
hospitals in Southern California.
Our Blood Services segments include therapeutic apheresis procedures, stem
cell collection and other blood treatments provided to patients, generally
in a hospital setting.
As part of our marketing strategy we have entered into Blood Management
Programs ("BMP") with many of our hospital customers. Under a BMP
arrangement, we provide the hospital with some or all of the needed
blood products and services under a multiyear contractual agreement.
We often operate a donor collection centers either on or near the hospital
campus and recruit donors utilizing the hospital's community reputation.
We also conduct blood drives in the community on behalf of the hospital.
In addition, under our BMP arrangements, we assume responsibility for
blood donor recruiting, providing appropriately trained professional
staff and regulatory compliance of the blood collection programs
and the blood services.
RESULTS OF OPERATIONS
Three-months ended March 31, 2002 compared to the three-months ended
March 31, 2001
Revenue, Gross Profit and Net Income Overview
---------------------------------------------
Revenue for the three-months ended March 31, 2002, was $6,321,000
compared to $6,057,000 in the same period of 2001. The increase of
$264,000 (4%) reflects the continued expansion of our Blood Products
segment partially offset by a decrease in demand for Blood Services
and the loss of revenue ($484,000) from a terminated BMP
agreement.
Gross profits were $910,000 (14% of revenues) in 2002 compared to
$1,192,000 (20% of revenues) in 2001. The decrease in gross profit
margins primarily resulted from continuing start-up losses for our new
BMPs in Chicago and Wake Medical Center and pre-opening expenses
associated with our new BMPs in Vermont, Albany, New York and Bangor,
Maine along with the expansion of our California based mobile collection
program. Additionally, the decline in demand for therapeutic apheresis
negatively affected our gross profits. The decline in gross profit
margin associated with these factors was partially offset by financial
improvements in our Sherman Oaks based platelet collection program.
General and administrative expenses increased in 2002 as compared to
2001 as a result of increased costs relating to litigation with the
American Red Cross, and increased levels of infrastructure to
support our expanded operations. In 2002, general and administrative
expenses also includes a non-cash charge of approximately $60,000
associated with the alteration of terms of the stock options of a
form company executive.
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9
For the three-months ended March 31, 2002, we incurred a net loss of
$138,000, or $0.02 per share basic and diluted, compared to net income of
$219,000, $0.03 per share basic and diluted, during the same period of
2001.
Blood Products
The Company has made significant efforts to expand its mobile and fixed
site whole blood collection program conducted for its hospital clients
since mid 2001. While we have conducted whole blood collection services
for hospitals for several years, our activities in this area prior to 2001
were primarily viewed as necessary part of our service agreements with
hospital clients rather than a significant source of earnings. Nationwide
increases in the prices charged for red blood cells and other products
produced from whole blood, which became effecitve mid year 2001, have
now made this activity attractive economically.
Since mid 2001, we have made significant efforts to expand our capabilities
to collect large volumes of whole blood products in new blood centers
and in mobile drive dettings.
Blood Products revenue during the three-months ended March 31, 2002, was
$4,389,000 compared to $3,936,000 in the same period of 2001, an increase
of $453,000 (12%). The increase is primarily attributable to the
expansion of the Southern California mobile whole blood collection
program that contributed revenue of $1.2 million in the first quarter
of 2002 compared to $234,000 in the same period of 2001.
Our program in Chicago began operations in June 2001, and contributed
revenue of $90,000 in the first quarter of 2002. The additional
revenue from these programs was offset by the loss of the St.
Vincent's BMP that terminated in August of 2001 and contributed
revenue of $484,000 during the quarter ended March 31, 2001.
(The St. Vincent BMP arrangement was terminated since it required
the Company to purchase all blood products on behalf of the
hospital in addition to providing the products collected from
our activities. The Company no longer offers BMP programs
which require it to purchase blood products from other blood
suppliers irrespective of the cost of such products.)
Gross profit for the three months ended March 31, 2002, was
$238,000 (5% of revenue) compared to $450,000 (11% of revenue) during the
three months ended March 31, 2001. The decrease in gross profit
percentage is primarily due to start-up losses associated with opening
new BMPs and costs associated with the expansion of the Southern
California whole blood collection program.
During the quarter ended March 31, 2002, our mobile whole blood collection
program in California collected approximately 7,400 whole blood donations
compared to 1,900 during the same period of 2001 and revenue from this
program increased to $1.2 million from $234,000. While whole blood
collections continue to increase, this activity continues to operate on
a break-even or loss basis. Some of our customers have pricing that
pre-dates the market price adjustment that occurred in 2001. Currently,
we are adjusting our prices to market levels. During the quarter ended
March 31, 2002, we obtained price increases from certain hospital
customers that will go into effect in April and May. During the quarter
ended March 31, 2002, we averaged $145 per red cell with prices that range
from $120 to $180. The market price for red cells in Southern California
is approximately $200. We expect that our average revenue per
collection will increase as our existing contracts are renewed. All
contracts with new hospitals reflect current market prices. Recently, we
added two new customers to our mobile collection program. The addition
of these new customers should allow us to spread our fixed costs over a
larger revenue base thereby decreasing our average cost per collection
and increasing our gross profit margin.
The profitability of our fixed site donor centers declined in the three
months ended March 31, 2002 compared to the same period in 2001. Several
fixed site donor centers were previously focused on apheresis platelet
collections. We have been asked by our hospital customers to expand our
whole blood collections and we continue to incur substantial costs to
expand these programs. Like our mobile whole blood collection program,
some of these customers have prices that predate the increase in red cell
prices that occurred during 2001. We have renegotiated prices with
certain hospital customers that will take affect during the second and
third quarters of 2002. These price increases should increases the
revenue per collection and increase our profitability. We are in the
process of negotiating with these hospitals for price increases that
reflect the current market price of red cells. These discussions are
ongoing and there can be no assurance that we will obtain the requested
price increases prior to the expiration of the existing contracts.
Additionally, our BMP in Portland, Maine was negatively affected by
aggressive competition for donors from the ARC. Consequently,
collections were significantly less than expected.
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Our donor center in Chicago lost $90,000 during the quarter ended March
31, 2002 as collections continue to develop slower than expected. During
the second or third quarter of 2002, we expect to begin mobile platelet
collections to increase our sales volumes. We are also negotiating a new
pricing schedule with the hospital. Additionally, we incurred
approximately $96,000 of start-up expenses from our other new
programs in Vermont, Albany, New York and Bangor, Maine.
During the fourth quarter of 2001, we began using new laboratory
equipment that increased the number of saleable products we obtain per
donor in our Sherman Oaks platelet program. As a result of this change
in laboratory equipment, we collected a similar number of platelets from
fewer platelet donors thereby reducing our cost per platelet and
increasing our gross profit margin. The increase in donor yield has
significantly reduced our need for imported platelets.
Blood Services
Revenue for the three months ended March 31, 2002, was $1,932,000
compared to $2,121,000 in the same period last year. The decrease of
$189,000 (9%) was primarily due to a slowdown in demand for therapeutic
apheresis services in Southern California. Demand for therapeutic
apheresis services in other regions was consistent with the prior year.
The Company continues to sponsor a physician education program that began
in 2000. That program, along with an increase in the diseases that
require therapeutic apheresis, increased demand for our blood services in
2001. We are continuing our physician education program, however, the
incidence of diseases requiring therapeutic apheresis in Southern
California decreased in the first quarter of 2002 compared to 2001. The
gross profit margins were 35% in both periods. During the three months
ended March 31, 2002, we performed 1,707 therapeutic procedures compared
to 1,876 procedures in the first quarter of 2001. The average revenue
per procedure was $1,131 for both periods.
General and administrative
--------------------------
General and administrative expenses were $1,129,000 for the three months
ended March 31, 2002 compared to $845,000 for the three months ended
March 31, 2001. The increase of $284,000 (34%) is primarily attributable
to increased legal fees associated with the ARC litigation, increased
marketing expenses, expanded staff and corporate facilities. Additionally,
we incurred $60,000 of non cash compensation expense related to
employee stock options.
Liquidity and Capital Resources
-------------------------------
As of March 31, 2002, we had cash and cash equivalents of $1,196,000 and
working capital of $3,690,000.
We have two lines of credit with a commercial bank. The first line of
credit is a working capital line. We can borrow the lesser of 75% of
eligible accounts receivable or $2.0 million. Interest is payable
monthly at a rate of prime plus 0.25% (5.0% as of March 31, 2002). The
second line of credit provides $1.25 million for equipment purchases.
Periodically, we can convert equipment purchase loans 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 2.5%
(6.83% as of March 31, 2002). As of March 31, 2002, we had net
borrowings of $175,000 on the working capital line and $577,000 on the
equipment line of credit. These lines of credit are secured by
substantially all of our unencumbered assets and require us to maintain
certain financial covenants. As of March 31, 2002, we were not in
compliance with one of these covenants due to our incurring a loss in the
first quarter of 2002. The bank has waived this covenant violation.
Cash flow provided from operations was $470,000 for the three months
ended March 31, 2002, compared to cash used in operations of $558,000
during the same period of 2001. During 2001, we experienced a slowdown
in our accounts receivable collections. Beginning in late 2001, we
increased the frequency of our customer contacts and tightened our credit
policies. Consquently, we were able to reduce the number of days sales
outstanding from 77 days at December 31, 2001, to 70 days as of March 31,
2002.
Cash used in investing activities during the three months ended March 31,
2002, was $354,000 compared to $307,000 of cash generated from investing
activities during the three months ended March 31, 2001. All of the cash
used in investing activities during the three months ended March 31, 2002
represents the acquisition of plant and equipment. During the most
recent quarter we continued our investment in our blood bank computer
system and capitalized approximately $70,000 of internal costs associated
with the system's testing and validation.
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Cash provided from financing activities for the three months ended March
31, 2002 was $55,000 compared to cash used from financing activities of
$345,000 for the same period of 2001. The cash provided from financing
activities during the three months ended March 31, 2002, was primarily
from the proceeds of a capitalized lease obligation, partially offset by
principal payments on notes payable and capitalized leases. During the
three months ended March 31, 2002, we used $332,000 to repurchase company
stock.
Our programs to expand whole blood collections for existing customers and
to extend our blood collection and blood management programs to new
hospital customers will require significant capital investments in new
equipment for new blood collection centers, mobile collection units
("bloodmobiles"), blood processing laboratories and other supporting
facilities. Additionally, these new programs will require capital to
finance start-up costs and working capital requirements. The amounts of
such capital needs may exceed our existing sources of capital (operating
cash flow and unused borrowing facilities) and require us to raise
additional capital in the debt or equity markets. There can be no
assurance that we will be able to obtain such financing on reasonable
terms or at all.
Our primary sources of liquidity include our cash on hand, available
lines of credit and cash generated from operations. Our liquidity is
dependent, in part, on timely collections of accounts receivable. Any
significant delays in customer payments could adversely affect our
liquidity. Our liquidity is also dependent on our maintaining compliance
with our bank covenants. As previously stated the bank waived the March
31, 2002 covenant violation. If in the future we are unable to comply
with our loan covenants and the bank does not issue a waiver, then our
liquidity could be materially affected.
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 our Sherman Oaks center's paid donors, have been
exempted from this law by a series of state statutes. Unless a new
exemption is obtained, the existing exemption will expire under its
sunset provision of December 31, 2002. This could have a material adverse
effect on the Company's revenue and net income. Revenue from paid
platelet donors during the quarter ended March 31, 2002 was $1,433,000.
If we are unable to continue our practice of paying platelet donors in
our Sherman Oaks operation, it would have a materially adverse affect on
our profitability and could have an impact on loan compliance. Absent
significant economic improvement in our volunteer donor blood programs in
Southern California, we may exit the blood products business and focus on
our therapeutic apheresis operations in the state and our non-California
blood products operations and BMPs.
We anticipate that our cash on hand and borrowing from the bank lines of
credit will be sufficient to provide funding for our needs during the
next 12 months, including (i) expansion of Blood Products and Blood
Services, (ii) the remaining costs of discontinued operations, and (iii)
other working capital requirements, including capital and operating lease
commitments.
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In July 2000, we announced our intention to repurchase up to 15% of our
outstanding common stock, or up to 1.1 million shares. Purchases were
made in the open market or in private transactions depending on price and
availability. We funded the purchases from cash and cash equivalents and
marketable securities along with profits generated in the normal course
of business. As of March 31, 2002, we repurchased 772,000 shares at an
average price of $1.41 per share. No purchases were made during the
first quarter of 2002.
Although we incurred a loss during the first quarter of 2002, most of our
established operations remain profitable. Our losses were primarily due
to start-up losses associated with the expansion of our blood management
programs, expenses associated with the expansion of our whole blood
collection program and litigation expense associated with our lawsuit
against the ARC.
Factors Affecting Forward-Looking Information
---------------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" from liability for forward-looking statements. Certain
information included in this Form 10-Q and other materials filed or to be
filed by our 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 our Company) are forward-looking,
such as statements relating to operational and financing plans,
competition, the impact of future price increases for blood products, the
effects of discontinued operations, demand for our Company's products and
services, and the anticipated outcome of litigated matters. Such forward-
looking statements involve important risks and uncertainties, many of
which will be beyond the control of our 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 our Company. These risks and uncertainties include, but are not
limited to, the following: the high degree of government regulation of
our business; product safety concerns and potential liability for blood-
borne diseases; environmental risks; access to insurance; declining blood
donations; new laws that might threaten our paid donor programs; our
competitor's advantages as tax-exempt organizations; difficulties in
expanding our business; increasing costs; increasing reliance on outside
laboratories; our emphasis on single-donor platelet products, which may
have limited future growth; difficulty in recruiting new volunteer donors
for apheresis collection; our emphasis on smaller donor groups than our
competitors; lack on increases in reimbursement rates from Medicare and
Medicaid payers; competitive restraints on our ability to pass increased
costs on to customers; increased use of fixed price contracts for our
services; possible interruptions from terrorist activity; uncertainty
about our ability to obtain additional capital when needed in the future
or to obtain capital for expansion of our business; defaults on our
credit agreements that could lead to a loss of our working capital credit
line; our dependence on key personnel; our Rights Plan and provisions of
our Articles of Incorporation, which could discourage a takeover of the
Company; the limited market for our stock resulting from our delisting
from the Nasdaq Small Cap Market and thin trading volume; possible
volatility in our stock price; possible dilution from future issuances of
equity securities; and the likelihood that we will not pay dividends in
the future
Item 3. Qualitative and Quantitative Disclosures About Market Risk
------- ----------------------------------------------------------
None.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
------- -----------------
See disclosure in Form 10-K for the year ended December 31,
2001.
Item 2. Changes in Securities and Use of Proceeds
------- -----------------------------------------
None.
Item 3. Defaults Upon Senior Securities
------- -------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
None.
Item 5. Other Information
------- -----------------
None.
Item 6. Exhibits and Reports on Form 8-K
------- ---------------------------------
a. Exhibits
11 Net Income per Common and Common Equivalent Share
b. HemaCare did not file any reports on Form 8-K during the three
months ended March 31, 2002.
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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 15, 2002 HEMACARE CORPORATION
(Registrant)
/s/ David E. Fractor
------------------------------
David E. Fractor, Chief
Financial Officer
(Duly authorized officer
and principal financial and
accounting officer)
13