-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ElplMNoql1B6phUtX1yMBKFxt8fmCd0s5vT18ZbksTC66Uj9kGTQQs0NuRdytWZH g/P+JKToc9pdxkvOxHVtew== 0000801748-00-000002.txt : 20000331 0000801748-00-000002.hdr.sgml : 20000331 ACCESSION NUMBER: 0000801748-00-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEMACARE CORP /CA/ CENTRAL INDEX KEY: 0000801748 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 953280412 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-15223 FILM NUMBER: 586203 BUSINESS ADDRESS: STREET 1: 4954 VAN NUYS BLVD 2ND FLR CITY: SHERMAN OAKS STATE: CA ZIP: 91403 BUSINESS PHONE: 8189863883 MAIL ADDRESS: STREET 1: 4954 VAN NUYS BLVD, 2ND FL. CITY: SHERMAN STATE: CA ZIP: 91403 10-K405 1 ============================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 1999 / / 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 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock (without par value) Rights to purchase Preferred Stock 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 ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: X As of March 24, 2000, 7,583,107 shares of Common Stock of the Registrant were issued and outstanding. The aggregate market value of the Common Stock held by non-affiliates of the Registrant on that date (based upon the closing price of the Common Stock as reported by the OTC Bulletin Board was approximately,$16,955,267. Portions of the Registrant's definitive Proxy Statement for its June 15, 2000 Annual Meeting of Shareholders (which has not been filed as of the date of this filing) are incorporated by reference into Part III. Such proxy shall be filed with the Securities and Exchange Commission not later than 120 days after the registrant's fiscal year ended December 31, 1999. 2 PART I Item 1. Business. - ------------------ General - ------- HemaCare Corporation and its wholly owned subsidiary Coral Blood Services, Inc. offer a full range of blood services and products to hospitals and medical centers. HemaCare Corporation and its wholly owned subsidiaries are collectively referred to herein as "HemaCare" or the "Company", and Coral Blood Services, Inc. is referred to as "CBS." HemaCare is licensed by the Food and Drug Administration ("FDA"), which regulates the blood industry, and accredited by the American Association Blood Banks ("AABB"). The Company has been providing blood services and products in Southern California since 1979. In October 1998, Coral Blood Services, Inc. was formed to acquire blood products and services operations in the eastern United States. The Company now has operations in 12 states. During the last decade, hospitals have experienced increasing cost containment pressures. As a result, these institutions are continuously looking for ways of providing more cost-effective health services. HemaCare has responded to this need by developing customized blood services programs designed to meet the specific requirements of each individual hospital customer. The Company's customers include university teaching hospitals, medical centers and regional hospitals located in California, Connecticut, Massachusetts, Maine, New Hampshire, New Jersey, New York, North Carolina, Rhode Island, Tennessee and West Virginia. Products and services are provided to these customers under contractual agreements. Each customer selects the products and services provided by the Company which best meet its needs, including: - - Product procurement (apheresis platelets and plasma and whole blood derived components). - - Therapeutic apheresis (plasma exchange, cell depletion and immunadsorption procedures). - - Stem cell collection and cryopreservation. - - Interoperative autologous transfusion. - - Donor center management. - - Donor sample testing. - - Blood management consulting. - - Research and clinical trial protocols. Several of the Company's customers have elected to outsource some or all of their blood services to the Company in a blood management program arrangement as described below under the caption "Blood Management Programs." The Company's corporate headquarters are located in Sherman Oaks, California, north of downtown Los Angeles. This location also serves as the regional office for Southern California operations. Other regional offices are located in Portland, Maine, Yonkers, New York and Chapel Hill, North Carolina. The HemaCare scientific advisory board, established in 1997, provides input and counsel to the Company's board of directors and management on technical and regulatory matters as well as participating in periodic management meetings. Chaired by Joshua Levy, MD, the advisory board is comprised of nationally recognized experts in the fields of blood banking, apheresis technology and application, and regulatory compliance. Certain medical terms included in the following discussions are further explained in a glossary located at the end of this Item 1. 2 3 Blood Management Programs - ------------------------- A HemaCare Blood Management Program ("BMP") is an arrangement in which a hospital outsources some or all of its blood procurement and donor center management functions to HemaCare while retaining the convenience and efficiencies of an in-house program. In a BMP arrangement, HemaCare supplies the BMP customer with blood products from collections at the customer's donation center or from collections at other HemaCare donation sites or products purchased by HemaCare from outside suppliers. HemaCare establishes and operates a blood donation center under the name of the sponsoring BMP hospital. Typically, the center is staffed, operated and managed by the Company which is also responsible for regulatory compliance. A BMP aligns the interests of the Company and its hospital customer, providing the customer with a "partner" in achieving its financial, regulatory compliance and patient service goals. Dartmouth-Hitchcock Medical Center Dartmouth-Hitchcock Medical Center ("DHMC") outsources its apheresis platelet and plasma collections, autologous and directed donation collection services, therapeutic apheresis and stem cell collection services and blood related research support in a BMP arrangement. Located in Lebanon, New Hampshire, DHMC, a 430 bed hospital, is affiliated with Dartmouth College and is the teaching hospital for Dartmouth College Medical School. DHMC is a major research center and serves as the tertiary care center for New Hampshire and adjacent areas of Vermont. The Company collects apheresis products for the hospital and provides autologous and directed donations services and conducts a donor-retested plasma program. Therapeutic apheresis and stem cell collection services are provided in the hospital-based donor room or at the patient's bedside, as directed by the responsible physician. The Company's current BMP agreement with DHMC extends through October 2001. Maine Medical Center Located in Portland, Maine, the Maine Medical Center ("MMC"), a 600 bed teaching hospital, is the largest medical center in northern New England. In 1994, MMC elected to outsource its apheresis platelet collections and, in 1997, added therapeutic apheresis functions and stem cell collections to its BMP arrangement. The Company provides substantially all of the apheresis platelets used by MMC from products collected at its donor facility in Portland and on mobile platelet drives conducted in the greater Portland area. Mobile therapeutic apheresis and stem cell collection services are provided to MMC's patients and physicians by specially trained registered nurses. In addition, the Company offers low density lipoprotein ("LDL") therapeutic services to patients with extremely high blood cholesterol levels who are resistant to dietary and drug treatments. Although this contract recently expired, the Company continues to provide services in accordance with the terms of the most recent contract until the terms of a new contract are finalized. St. Vincent Hospital at Worcester Medical Center Located in Worcester, Massachusetts, St. Vincent Hospital at Worcester Medical Center ("St. Vincent") is a 300-bed tertiary and acute care hospital serving central Massachusetts. In March 1998, St. Vincent outsourced its entire blood procurement and donor room function on an exclusive basis. Services provided by the Company to St. Vincent include procurement of blood products, whole blood and apheresis platelet collections, autologous and directed donations services and therapeutic apheresis services. An integral part of these services is the operation of a donor room located in St. Vincent hospital. This facility provides a convenient location for patients and their families to donate blood. University of North Carolina The University of North Carolina's BMP arrangement designates the Company as the primary provider of apheresis products to the UNC Hospitals in Chapel Hill, North Carolina ("UNC"). 3 4 The Company collects these products in its hospital-based donor room and on mobile blood drives. The 660-bed UNC facility is the teaching hospital for the University of North Carolina School of Medicine and is an active blood- banking research institution. The Company's BMP arrangement extends through January 31, 2002. University of Southern California The University of Southern California ("USC") BMP agreement established HemaCare as the primary provider of blood products and services to the patients and physicians of USC/Norris Comprehensive Cancer Center and Hospital and USC University Hospital. Together these hospitals comprise a 340 bed tertiary care and research center. An integral part of the USC program is a blood donation center located on the USC Health Sciences Campus. In addition, the Company provides mobile therapeutic apheresis and stem cell collection services to USC. The BMP agreement is in effect until March 2002. University of California, Irvine Medical Center Located in Orange County, California, the University of California, Irvine Medical Center (UCI) outsources its apheresis platelet collections, autologous and directed donation collection services and therapeutic apheresis in a BMP arrangement that began in June, 1999. UCI is a 462 bed tertiary facility and is the teaching hospital for the University of California, Irvine Medical School The Company collects these blood products in a donor room located in the hospital and on mobile blood drives. This BMP agreement is in effect until February 28, 2002. Long Beach Memorial Medical Center On February 14, 2000, the Company entered into a partnership agreement to manage the blood collection activities for Long Beach Memorial Medical Center ("LBMMC"). LBMMC is a 726-bed major tertiary teaching hospital facility located in Southern Los Angeles County. It is the flagship medical center in the Memorial Care System, which includes four other hospitals. Under the agreement, HemaCare is responsible for management of LBMMC's existing programs for blood collection and for expanding those programs to include mobile blood drives in the greater Long Beach community. Additionally, HemaCare is responsible for providing therapeutic apheresis services to patients requiring this medical treatment. Presbyterian Intercommunity Hospital HemaCare entered into a partnership agreement to manage the comprehensive blood collection activities for Presbyterian Intercommunity Hospital ("PIH") beginning May 1, 2000. PIH is a 339-bed community medical center located in Whittier, California. Under this agreement, HemaCare will be responsible for management of PIH's existing blood collection programs, and for expanding those programs to include mobile blood drives in the greater Whittier and Los Angeles areas. In addition, HemaCare will be responsible for providing therapeutic apheresis services to patients requiring this medical treatment. Blood Products - -------------- General The Company sells single donor apheresis platelet products ("apheresis platelets" or "platelets"), apheresis plasma and whole blood derived components ("components") such as red blood cells and fresh frozen plasma to more than 100 hospital customers. Single Donor Apheresis Platelets The Company collects single donor platelets, using automated blood separation technology, at its Sherman Oaks, California location, each of the BMP locations and at two sponsoring hospitals in the metropolitan New York area. Platelets are sold to hospitals for transfusion into cancer patients undergoing chemotherapy, patients undergoing major surgery such as open heart surgery or transplant procedures, and trauma or other conditions associated with massive blood loss. Platelet apheresis technology involves the use of a cell separator operated by a trained clinician. The procedure removes blood from a donor through a needle in one arm, pumping the blood through the cell separator where the desired platelet component is retained and returning the blood, including the red cells, to the donor. The procedure typically requires one to three hours and may be done up to 24 times per year, since platelets regenerate within 48 hours. Temperature control and constant movement (using a rotator) maintain the platelets' viability for five days. When necessary to meet its customers' needs, the Company also purchases platelet products for resale. Such platelet suppliers are FDA licensed and accredited by the AABB. Approximately 4% of platelets sold by the Company in 1999 were purchased from outside suppliers. In order to attract and retain qualified donors at its Sherman Oaks, California location, the Company reimburses these donors for their time and 4 5 commitment. As a result, the Company has developed a select group of repeat donors who are tested regularly in connection with their frequent donations. Cash reimbursement to donors is variable, based on the number and frequency of donations, and includes a bonus program. Most southern California platelet products are obtained from paid donations made at the Company's Sherman Oaks location. Platelet donors who are compensated must pass the Company's stringent donor screening standards, which include a pre-donation and annual physical examination by a physician. Volunteer and compensated donors are subject to a prescreening interview before each donation, and all platelet donations are subject to infectious disease testing. After collection, the platelets are tested, labeled and delivered to hospital customers. The Company also recruits non-cash compensated donors for its BMP donor centers and hospital sponsored collection programs. In 1999, $3,500,000 of the Company's revenues resulted from the sale of platelets obtained from paid donors. Unless extended, the law enabling HemaCare to sell apheresis platelets obtained from paid donors in California will expire in December 2001. The loss of revenues from this program would have a material adverse affect on the Company's revenue and net income. In February 2000, proposed legislation (AB 2714) sponsored by the Company, was introduced in the California Legislature. If enacted, this legislation will make permanent the provisions of current California law enabling the Company to sell platelet products obtained from paid donors. There can be no assurances that AB 2714 will be passed by the legislature and enacted into law. However, 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 (see "Risk Factors"). Component Blood Products HemaCare provides whole blood derived component products such as red blood cells, fresh frozen plasma and cryoprecipitate to its non-BMP customers. Most of these products are purchased by the Company. All purchased product is obtained from blood centers located in the United States. All such suppliers are FDA licensed and accredited by the AABB. Blood Services General The Company provides therapeutic apheresis, interoperative autologous transfusion and donor testing services. Since its inception, the Company has performed more than 43,200 therapeutic apheresis procedures in the treatment of more than 27 diseases. The Company now provides these services in 11 states on the east and west coasts of the United States. Therapeutic Apheresis Therapeutic apheresis ("therapeutics" or "therapeutic services") is a technique for removing harmful components from a patient's blood and is used in the treatment of autoimmune diseases and other disorders. Therapeutic services are provided upon the request of a hospital, which has received an order from a patient's physician. Therapeutic treatments are administered using mobile units operated at the patient's bedside or in a hospital outpatient setting. The mobile therapeutics equipment includes a state-of- the-art blood cell separator and the disposables and supplies needed to perform the procedure. Treatments are administered by trained, nurse- specialists, acting in accordance with documented operating procedures and quality assurance protocols based on guidelines developed by the AABB and the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"), under the supervision of a specially trained physician. The Company provides therapeutic services using all currently recognized treatment methods: 1) plasma exchange and cell depletion, 2) in-line immunoadsorbant columns, and 3) stem cell rescue and cryopreservation. Plasma Exchange and Cell Depletion The primary blood services provided by the Company, accounting for 95% of therapeutics procedures in 1999, were plasma exchange and cell depletion therapy. These procedures involve removing harmful substances from a patient's blood, using automated blood separation equipment. As the patient's blood flows through the cell separator, abnormal or excess proteins or components associated with the disease being treated are selectively removed. The remaining blood components are returned to the patient. 6 7 Most treatments involve the removal of two to four liters of abnormal plasma or certain cellular components. Replacement fluids, most commonly albumin, are used to maintain the patient's blood volume. Patients suffering from diseases such as multiple myeloma, polyneuropathy, leukemia, systemic lupus erythematosus, scleroderma, hyperviscosity syndrome, thrombocytosis, myasthenia gravis and Guillain-Barre syndrome may benefit from therapeutic apheresis treatments. A patient may require from four to twenty treatments over a period of time ranging from a few days to several months. Each treatment may last from two to four hours. In late 1996, a shortage of albumin arose when a major U.S. manufacturer was required by regulatory agencies to temporarily cease operations. As a result, the price of albumin more than doubled during 1997. During 1998 and most of 1999, albumin remained in short supply. During the second half of 1999, the supply of albumin increased and prices declined. The price the Company charges to customers for albumin increased in 1997 and 1998, although it was unable to recover the full amount of the cost increase. With the easing of albumin pricing in 1999, the Company was able to recover substantially all of the remaining price increase. Immunoadsorption Since 1988, the Company has provided a therapeutic treatment which uses an in-line immunoadsorption column to modify patient's immune response. During immunoadsorption column therapy, blood is drawn from one arm of the patient, plasma and blood cells are separated, the plasma is filtered through the column to remove unwanted circulating immune complexes and immunoglobulin from the plasma. The plasma is then recombined with the red blood cells and returned to the patient's other arm. Immunoadsorption column therapy has been approved by the FDA for the treatment of ITP, an immune-mediated bleeding disorder since December 1997. In 1999, the FDA approved this procedure for the treatment of moderate to severe rheumatoid arthritis ("RA"). RA is a potentially crippling autoimmune disease that is estimated to affect approximately 2.5 million people in the United States. In RA, the body's immune system inappropriately makes antibodies, called rheumatoid factors, that collect in the joints and surrounding soft tissue causing inflammation and tissue damage. Joints, typically those in the hand, become painful and swollen, lose movement and become deformed. These individuals not only suffer a significantly reduced quality of life, but also a shortened life expectancy. This application may significantly increase the demand for immunadsorption column procedures. The typical RA patient treatment involves a series of twelve treatments in a three-month period. Approximately 50% of the treated patients experience a significant decrease in symptoms and are able to function without medication for a period of approximately one year. Stem Cell Rescue and Cryopreservation Since 1990, the Company has been providing peripheral stem cell collection services in California. In this application, stem cells (those cells which mature into all the different cellular components of blood) are collected from a cancer patient using apheresis technology. The patient then receives a series of intensive chemotherapy treatments followed by reinfusion of the patient's own stem cells. From 1994 to 1999 the Company added cryopreservation (processing, freezing and short-term storage of stem cells) to cell collection to provide a full-service program to community hospitals which are not able to establish their own in-house capabilities in the early development of this technology. The Company's cryopreservation capacity was underutilized as third arty payers were reluctant to reimburse community hospitals for this procedure. Consequently, the Company decided in 1999 to continue the collection of stem cells and to outsource the cryopreservation activities. Joshua Levy, M.D., a shareholder, founder and medical director of the Company, through his private practice, treats patients who require therapeutic services. The Company's ability to provide these services may be limited by Federal self-referral laws and regulations. (See "Government Regulation.") Interoperative Autologous Transfusion Interoperative autologous transfusions ("IAT") services offer an alternative to allogeneic transfusion, providing important benefits to the patient. The Company offers IAT services primarily in California and West Virginia. An IAT procedure involves recovery of blood lost during surgery, cleaning of this blood and reinfusion of the recovered blood into the surgery patient. IAT may eliminate the risk of alloimmunizaton, hepatitis and AIDS from transfused blood. 7 8 The Company provides IAT services using standard operating procedures designed to insure strict adherence to the highest quality standards. HemaCare's IAT procedures are based on guidelines developed by the AABB and the JCAHO and comply with the requirements of applicable Federal and state regulatory agencies. Discontinued Operations From 1990 through 1995, the Company, through its wholly owned subsidiary HemaBiologics, Inc., conducted research and development activities relating to Immupath, an anti-HIV hyperimmune plasma product. In November 1995, the Company decided to terminate these research and development activities. As a result of this decision, the Company established a $1 million reserve for losses during the disposal period, including $600,000 for a contingent liability related to a dispute with Medicorp, Inc. ("Medicorp"), a licensor of the research product. In July 1996, the Medicorp dispute was settled without any payment by the Company. As a result, the Company recognized a $600,000 gain on disposal of discontinued operations in the third quarter of 1996. In June 1996, the Company agreed to sell most of its research and development assets, including its FDA plasma licenses and a plasma collection center for which the Company received cash and a promissory note, collateralized by certain of the assets sold. The note was repaid in March 1997, resulting in a gain of $120,000 on disposal of discontinued operations in the first quarter of 1997. During the wind down of the research and development operations, the Company manufactured a supply of Immupath sufficient for the patients still receiving treatment for a limited period of time. There are currently two patients receiving Immupath treatments. In the fourth quarter of 1997, the Company reviewed and revised its estimate of the remaining costs of discontinued operations, including the costs to treat remaining patients and the other continuing liabilities of the discontinued operations, and recognized an additional gain on disposal of $173,000. The Company does not expect discontinued operations to have a material impact on its future operating performance. Sales to Major Customers - ------------------------ Sales of products and services to USC/Norris Comprehensive Cancer Center and Hospital and USC University Hospital (the "USC Hospitals") comprised 12%, 16% and 18% of the Company's revenues in 1999, 1998 and 1997, respectively. Although the USC Hospitals are not under common ownership, the Company's agreements with these hospitals are interrelated. Loss of sales to the USC Hospitals could have a material, adverse impact on the Company's net income. The Citrus Valley Health Partners Hospitals accounted for approximately 13% of the Company's total 1997 sales. Competition - ----------- General The Company competes on the basis of its responsiveness to customer needs, value-based pricing and the high quality of its services and products. The Company's competitors are generally not for profit entities including the American Red Cross ("ARC"), and regional and community blood banks. Many of these competitors have greater financial, technical and personnel resources than the Company, and additional companies may enter the field, thus increasing competition. In Southern California, the Los Angeles Region Blood Service of the American Red Cross (the "Los Angeles ARC") employed pricing practices which the Company alleged were in violation of antitrust laws. These pricing practices may have compelled Los Angeles ARC customers to purchase certain blood products from the ARC at higher prices than those offered by the Company, unfairly limiting the Company's ability to market its products in this region. In December 1995, the Company filed an antitrust and unfair competition complaint against the ARC with the United States District Court in the Central District of California to recover damages and secure injunctive 8 9 relief. In June 1997, this suit was settled. Although the terms of the settlement are confidential, the Company believes that the settlement has improved its ability to obtain and retain blood product customers. Competition among apheresis platelet suppliers intensified during 1999. In response to the increased competition, the Company decreased its platelet prices to certain customers. The Company expects the market for apheresis platelets to remain competitive in the foreseeable future. The Company has developed several blood product and service programs in response to the needs of its customers. These include a depot system and its BMP outsourcing program. The Company believes that its strategy of offering blood product and service programs tailored to the requirements of individual customers favorably differentiates it from other suppliers of blood products and services and that outsourcing programs provide opportunities for expansion of the Company's businesses. Management consistently reevaluates and revises its outsourcing programs to meet customer demand. However, there can be no assurance that others will not successfully introduce similar programs that will compete with those of the Company. In addition, further growth may require that the Company obtain additional financing or partner with other blood product and service providers. Accordingly, there can be no assurance that the Company will be successful in marketing outsourcing programs or that, if successful, it will be able to obtain the funds necessary to finance such programs. Presently, HemaCare is unaware of any competitors to its BMP outsourcing programs. Blood Products The primary competitor for the Company's single donor platelet and whole blood component business is the ARC. Community and hospital-based blood banks also compete with HemaCare to a lesser extent. Key competitive factors in the industry include price, responsive service and quality of product. Blood Services Competitors for the Company's therapeutic blood services business are primarily regional and community blood banks and local kidney specialists (nephrologists) who supplement hemodialysis services with therapeutic apheresis services. In addition, some of the diseases that are treated by therapeutic apheresis can also be treated by other medical therapies. Since therapeutic apheresis treatment requests are often sporadic and unpredictable, most community hospitals cannot afford to equip, staff and maintain an apheresis unit. The Company's mobile service enables such hospitals to offer state-of-the-art therapeutic apheresis services to their patients on an "as needed" basis without incurring the fixed costs associated with providing these services from in-house resources. Marketing - --------- HemaCare markets its products and services as components of custom-tailored programs developed to meet the needs of specific customers. The BMP is the most recent application of this marketing strategy. The Company uses a depot system for distributing its blood products to BMP and other large volume customers which enhances convenience and product availability. The depot system provides the customer with an on-site inventory of blood products stocked by the Company under a standing order. Other marketing tools include a combination of medical education, technical and tradeshow presentations, advertising and promotional programs, in-person sales and other marketing programs directed to selected physicians, hospitals and donor groups. Human Resources - --------------- At March 14, 2000, the Company had approximately 92 full-time and 86 part-time employees. Most of the Company's professional and management personnel possess prior experience in hospitals, medical service companies or blood banks. None of the Company's employees is represented by a labor union. The Company considers its relations with its employees to be good. 9 10 Supplies - -------- The Company maintains relationships with numerous suppliers who provide cell separator equipment, disposables, supplies, replacement fluids, testing services and blood products. Generally, the Company has not experienced difficulty in obtaining most of its equipment and supplies from its sources. However, if there were material changes in the sources of its supplies, the Company's operations could be adversely affected. Since late 1996, the Company has experienced difficulty in obtaining red blood cell products from suppliers, and the cost of products obtained has increased. Industry data indicates that HemaCare's experience reflects a nationwide decrease in the availability of red blood cell products. According to the National Blood Data Resource Center, collections of whole blood units decreased by 6% between 1994 and 1997, while blood transfusions increased slightly. A shortage in the supply of red blood cell products could increase hospital demand for the Company's BMP donor centers. One BMP arrangement includes a fixed price for red blood cells thereby shifting the price risk to the Company. In this instance, if the Company is unable to manufacture or purchase red blood cells at costs that are less than the contract customer price, the Company's profitability would be adversely affected. The Company relies on blood donors to provide the platelets and whole blood required to produce the blood products manufactured and sold by the Company. The Company, unlike the ARC and most community blood banks, compensates platelet donors who donate at its Sherman Oaks facility thereby enhancing its ability to retain a pool of qualified repeat platelet donors. Sales of apheresis platelets from paid donors may be prohibited by California law after December 2001 (See "Government Regulation" and "Risk Factors"). Platelet and whole blood donors at the Company's BMP donor centers are not given cash compensation by the Company. The Company competes directly with the ARC and other blood banks in recruiting its volunteer donors. The growth of the Company's manufactured blood products business is dependent on the Company's ability to attract, screen and retain qualified compensated and non-compensated donors. Albumin is the most commonly used replacement fluid in therapeutic apheresis procedures. In late 1996, a shortage of albumin arose when a major U.S. manufacturer was required by regulatory agencies to temporarily cease operations. As a result of the shortage, the price of albumin to HemaCare more than doubled. During 1999, the supply of albumin increased and prices declined. Government Regulation - --------------------- Providers of blood products and services are regulated by the FDA and state licensing authorities, as well as being subject to accreditation by the AABB. An FDA Establishment License allows the license holder to sell licensed products across state lines. In contrast, an FDA registration permits sales of blood products only within a state. Most of the products produced at the Company's Sherman Oaks location are licensed for interstate distribution under the Company's FDA Establishment License. In 1998, the Company's Maine center operated under the FDA registration of Maine Medical Center. Effective January 1999, the Company's Maine center is authorized to distribute products intrastate under its own FDA registration. Other east coast centers operate under the FDA registration of the sponsoring hospital, and accordingly, may only distribute products collected as directed by the sponsoring hospital and not on an interstate basis. It is the Company's intention to extend its FDA licensure to certain CBS locations. In December 1999, the Company's Maine center applied for an FDA Establishment License to sell its products across state lines. In response to the potential dangers of blood borne infections such as hepatitis and HIV, the FDA now requires that blood products be manufactured in accordance with Current Good Manufacturing Practices which have long been applied to the manufacturing of pharmaceuticals. HemaCare has maintained a near perfect regulatory record for 21 years. This record, along with its licenses and accreditations, are critical to the Company's ability to attract and retain customers who want to decrease their regulatory compliance burden by outsourcing all or a portion of their blood-related activities. 10 11 The Company's laboratory is licensed and accredited to perform various tests required by the FDA and State of California to ensure the purity, potency and quality of the blood products that it sells in California. Prior to June 1999, this lab tested California based blood collections. The Company determined that it was more cost effective to outsource this activity. Accordingly, the Company ceased in-house testing in July 1999, and engaged outside laboratories. All blood donations tested by outside laboratories are performed on a contract basis. These laboratories are FDA licensed and the Company regularly audits their operations to assure compliance with stated standards. 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, have been 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 on 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 can be no assurances that AB 2714 will be passed by the legislature 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. It is anticipated that such blood centers, which compete with the Company, will oppose the passage of AB 2714. 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. Joshua Levy, M.D., medical director of the Company and a shareholder, through his private practice, treats patients who require therapeutic services. Sales by the Company to unaffiliated hospital customers for therapeutic services provided to Dr. Levy's patients amounted to approximately 3% ($481,000), 4% ($589,000) and 5% ($584,000) of the Company's total revenues for 1999, 1998 and 1997, respectively. There are no agreements between Dr. Levy, or the Company, and the Company's hospital customers that require the hospitals to select HemaCare to provide therapeutic services to the hospital's patients. Health care reform is continuously under consideration by lawmakers, and it is not certain as to what changes may be made in the future regarding health care policies. However, policies regarding reimbursement, health insurance and managed competition may materially impact the Company's operations. Professional and Product Liability Insurance - -------------------------------------------- The nature of the Company's business is such that it may be subject to substantial liabilities for personal injury. There can be no assurance that potential insurance claims will not exceed present coverage or that additional insurance coverage would be available at affordable premium costs. If such insurance were ineffective or inadequate for any reason, the Company could be exposed to significant liabilities. HemaCare has medical professional liability insurance in the amount of $2,000,000 for a single occurrence and $5,000,000 in the aggregate per year. 11 12 Glossary - -------- Albumin - A protein based fluid derived from human plasma, commonly used to replace the plasma removed in a plasma exchange therapeutic apheresis procedure. Antibodies - Protective substances, protein in nature, circulating in body fluids as the result of exposure to a specific antigen. Chemically active against that antigen only. Autoimmune Diseases - Those diseases in which the patient's immune system has become overly active to the point where it produces antibodies which are directed against its own tissues or cells. Autologous - A blood product obtained from a patient and subsequently reinfused into that patient. Components - The products manufactured from whole blood donations, including red blood cells, fresh frozen plasma and cryoprecipitate. Cryopreservation - The process of freezing tissues or cells, usually in protective fluids, and storage at extremely low temperatures in a frozen state (e.g., -70 degrees C or colder). Human Immunodeficiency Virus (HIV) - The infectious agent of the disease commonly referred to as Acquired Immune Deficiency Syndrome (AIDS). Immunoadsorbant Column - A device through which plasma is passed in order to separate or remove certain harmful components such as immune complexes. Plasma - The liquid portion of whole blood; composed of a mixture of soluble proteins including antibodies, minerals and nutrients. Platelets - One of the cellular components of blood involved in the blood clotting process. Platelet Apheresis - The process of removing blood from a donor, separating it into its various components and retaining the concentrated platelets which will then be transfused into a patient deficient in platelets. The remaining blood components are returned to the donor. Stem Cells - Cells which originate in the bone marrow and mature into the different cellular components of blood. Frequently transfused into certain cancer patients in order to facilitate regeneration of blood components after bone marrow has been purposely destroyed by chemotherapy or radiation. Therapeutic Apheresis - The application of apheresis technology to the clinical treatment of autoimmune diseases and blood cell disorders by removing selected, abnormal components or cells and returning all other components. Risk Factors - ------------ If the Company is unable to compensate donors beyond December 2001, or has not developed a suitable volunteer donor base, then revenues and income may be adversely affected. If the Company is unable to renew its BMP contracts when they expire, then revenue and profits will be adversely affected. Our competitors, many of whom have substantially greater financial resources, could continue or expand the pricing competitiveness in the apheresis platelet markets. Such competition may result in a decline in profit margins and profitability. Therapeutic apheresis is one of many available alternative treatments. New treatments could reduce the need for this procedure or existing treatments could increase in popularity thereby reducing demand for this service. If the Company were to lose its FDA licensure or other Federal or state certifications, its ability to provide services to its customers would be adversely affected. The Company believes that it is the only provider of BMP outsourcing programs. In the event that competition materializes, then the Company's ability to expand this program may be limited. In the event that there is another shortage of albumin, the Company's ability to provide this product to its customers would be adversely affected. 12 13 Item 2. Properties. - -------------------- The Company occupies a 12,000-square foot facility in Sherman Oaks, California, where it maintains its corporate office and operates a platelet apheresis center, a blood bank laboratory, a manufacturing facility for whole blood components and a distribution center. On August 1, 1998, the lease on this space was extended for a four-year period ending October 31, 2002. The USC Blood Donor Center occupies a 1,600 square foot facility located in Los Angeles, California, under a lease with a rolling one-year term. The Citrus Valley Blood Donor Center, which was closed in July 1998, occupied a 2,300 square foot facility located in Covina, California. Under its terms, the Citrus Valley Center lease expires in April 2003, however, HemaCare may terminate this lease any time after April 2000, under certain circumstances. Additionally, the University of Irvine Blood Donor Center occupies a 1,200 square foot facility located in the hospital under the terms of the related BMP agreement. The Company assumed several existing leases in connection with its purchase of certain assets of Coral Therapeutics, Inc.("Coral") from Coral's secured lender. The Company occupies a 1,278 square foot office space in Yonkers, New York, which expires August 31, 2001. The St. Vincent BMP Donor Center occupies an 879 square foot facility located in St. Vincent Hospital in Worcester, Massachusetts under the terms of the related BMP agreement. The UNC Blood Donor Center is located in a 1,200 square foot facility in the UNC Hospitals. The lease on this space is concurrent with the term of the BMP agreement. The Maine Medical Center occupies a 3,600 square foot donor center in Scarborough, Maine. The lease expires October 31, 2004. Item 3. Legal Proceedings. - --------------------------- In December 1995, HemaCare filed with the United States District Court in the Central District of California an antitrust and unfair competition complaint to recover damages and secure injunctive relief against the ARC in connection with ARC pricing practices in Southern California. The Company believed that these pricing practices may have compelled Southern California ARC customers to purchase certain blood products from the ARC at prices higher than those offered by the Company. In June 1997, this suit was settled. Although the terms of the settlement are confidential, the Company believes that the settlement may ultimately improve its ability to obtain and retain blood product customers. The Company is also party to various actions and proceedings incidental to its normal business operations. The Company believes the outcome of such litigation and proceedings, individually and in the aggregate, will not have a material adverse effect on the business and financial condition of the Company. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. - ------------------------------------------------------------------------------- Market for Common Stock Effective November 2, 1998, the Company's common stock became quoted on the OTC Bulletin Board under the symbol HEMA. Prior to that date, the Company's common stock was listed on the Nasdaq Small Cap Market ("Nasdaq") under the same symbol. The following table sets forth the range of high and low closing bid prices of the Common Stock, as reported by the OTC Bulletin Board, for the quarters ended March 31, June 30, September 30 and December 31, 1999 and 1998. These prices reflect inter-dealer quotations, without retail markups, markdowns or commissions, and do not necessarily represent actual transactions.
1999 1998 Quarter ended High Low High Low - -------------- ----- ---- ----- ---- March 31 $0.70 $0.31 $0.78 $0.38 June 30 $1.44 $0.63 $0.88 $0.38 September 30 $1.28 $0.81 $0.53 $0.28 December 31 $0.81 $0.63 $0.81 $0.13
No cash dividends had been paid as of March 1, 2000. The Company does not anticipate paying cash dividends in the foreseeable future. As of March 1, 2000, there were approximately 311 holders of record of the Company's Common Stock. 14 15 On October 22, 1998, the Company issued 450,000 shares of its Series B Senior Convertible Preferred Stock ("Series B Preferred") to Comdisco, Inc. ("Comdisco") in connection with the purchase, from Comdisco, of the assets of Coral. The Series B Preferred shares are convertible into 500,000 shares of HemaCare Common Stock, at the option of the holder, after one year from the date of issue, without payment of further consideration. In addition, as a part of the asset purchase, HemaCare (i) has entered into non-competition agreements with certain former managers of Coral pursuant to which the Company issued 60,000 common shares and warrants to purchase 90,000 shares of Common Stock at an exercise price of $0.90 per share and (ii) issued warrants for 35,000 shares of Common stock at an exercise price of $0.31 per share to consultants who assisted in the acquisition. The warrants will expire in October 2003. The Company has relied on Section 4(2) of the Securities Act of 1933, as amended, and/or Regulation D thereunder, in connection with the issuance of these securities. Item 6. Selected Financial Data. - --------------------------------- The following selected financial data should be read in conjunction with the other information and financial statements, including the notes thereto, appearing elsewhere herein.
Years Ended December 31, (In Thousands, except Per Share Data) 1999 1998 1997 1996 1995 ------- ------- -------- ------- ------- Revenues $19,021 $13,124 $11,101 $10,921 $10,783 Operating profit 4,026 3,122 1,907 1,234 2,559 Income (loss) from continuing operations 1,057 745 37 (1,090) 480 Loss from discontinued operations - - - - (902) Gain (loss) on disposal of discontinued operations - - 293 600 (3,114) Net income (loss) $ 1,057 $ 745 $ 330 $ (490) (3,536) Basic per Share Amounts: - ------------------------ Income (loss) from continuing operations $ 0.14 $ 0.10 $ 0.01 $ (0.17) $ 0.08 Income (loss) from discontinued operations - - 0.04 0.09 (0.70) -------- -------- -------- -------- -------- Net income (loss) $ 0.14 $ 0.10 $ 0.05 $ (0.08) $ (0.62) ======== ======== ======== ======== ======== Diluted Per Share Amounts: - -------------------------- Income (loss) from continuing operations $ 0.13 $ 0.10 $ 0.01 $ (0.17) $ 0.08 Income (loss) from discontinued operations - - 0.04 0.09 (0.69) -------- -------- -------- -------- -------- Net income (loss) $ 0.13 $ 0.10 $ 0.05 $ (0.08) $ (0.61) ======== ======== ======== ======== ======== Total assets $ 7,574 $ 7,662 $ 4,384 $ 4,776 $ 4,456 Long-term debt and capital lease obligations, net of current portion 541 1,118 209 503 649 Shareholders' equity 4,440 3,291 2,402 2,023 1,226
15 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. - ------------------------------------------------------------------------- All comparisons within the following discussions are to the previous year. 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 and cryopreservation 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 operations are primarily comprised of blood management programs and other blood services provided to hospitals and medical centers. In June 1999, the Company commenced a Blood Management Program with the University of California at Irvine ("UCI"). The Company now operates six blood management programs. In addition to the UCI program, the Company operates the University of Southern California ("USC") program, initiated in 1996, in Southern California 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 the east coast programs. In late 1995, the Company initiated the Gateway Community Blood Program ("Gateway") located in St. Louis, Missouri, and in October 1996 the Citrus Valley Health Partners ("Citrus Valley") Blood Management Program located in southern California, commenced. Both the Gateway and Citrus Valley BMPs failed to meet the Company's profitability criteria. Gateway was sold in August 1997, and the Citrus Valley contract was terminated in July 1998. Revenues, Operating Profit and Net Income - ----------------------------------------- Total revenues increased 45% ($5,897,000) in 1999. The increase was due to CBS, which began operations in October 1998. This was partially offset by slightly lower California revenues ($189,000) from existing business lines. Operating profit increased by 29% ($904,000) in 1999, and net income increased by 42% ($312,000). The increases in operating profit and net income were primarily attributed to CBS. Total revenues increased 18% ($2,023,000) in 1998. The CBS acquisition contributed $1,366,000 of the increase. The remainder of the increase was due to higher demand for California based blood services and products offset by a decrease in BMP revenue. Net income increased by 125% ($415,000) as a result of improved performance of the BMP's and a change in product mix from low volume whole blood components to apheresis platelets. Blood Management Programs - ------------------------- BMP revenue increased by 118% ($4,235,000) in 1999 after decreasing by $513,000 in 1998. The increase in 1999 revenue is attributable to the Coral acquisition in October 1998 and an expansion of California based BMP's. CBS reported revenue of $3,836,000 for the full year of 1999 compared to $771,000 for the two months of 1998. Additionally, the BMP at UCI, which opened in June 1999 ($1,017,000), was partially offset by the termination of the Citrus Valley contract in July 1998. The 1998 decrease was due primarily to the disposition of Gateway ($587,000) and termination of the Citrus Valley contract ($703,000), partially offset by the addition of the CBS BMPs ($771,000). Citrus Valley was terminated because it failed to meet the Company's profitability criteria. BMP operating profits increased by 236% ($737,000) in 1999. CBS operations contributed $441,000 of this increase. Additionally, the UCI BMP contributed operating profits of $319,000. 16 17 The USC operating profit declined by 29% ($95,000) in 1999 as the number of donations during the first half of the year declined at a rate faster than expenses were reduced. During the second half of 1999, collections increased to previous levels. Inefficiencies in the donor center were partially offset by an increase in demand for apheresis products produced by the Sherman Oaks operation and sold to the USC hospitals. Additionally, the Company terminated the Citrus Valley program during 1998 after reporting a loss of $30,000 for the period from January to June 1998. No losses were reflected for Citrus Valley in 1999. BMP generated profit of $312,000 in 1998 compared to a loss of $210,000 in 1997. The 1998 operating profit resulted from improved performance of the USC program and elimination of operating losses from Gateway and Citrus Valley. Operating profit from the USC program increased in 1998 due to more efficient donor center operations and a lower cost of apheresis products produced by the Sherman Oaks operation and sold to the USC hospitals. Regional Operations - ------------------- Blood Products Blood products revenues increased 14% ($503,000) in 1999, after increasing by 36% ($941,000) in 1998. The 1999 increase is partially attributable to CBS ($196,000) and an increase in the volume of apheresis platelet sales in California. The increase in the volume of platelet sales was offset by a decline in the average selling price per platelet. The 1998 increase resulted from an increase in the volume of apheresis platelet sales, partially offset by a small decrease in the sales price of these products, and a decrease in the volume of whole blood components sold. The operating margin on blood product sales decreased to 28% in 1999, from 32% in 1998. In 1997, the operating profit margin was 27%. Competition among apheresis platelet suppliers intensified during 1999. In response to the increased competition, the Company decreased its platelet prices to certain customers. In 1998, the operating profit margin increase was primarily due to a change in the product mix whereby the Company sold more high margin apheresis platelets and less low margin whole blood components. Additionally, apheresis platelet profit margins increased in 1998 as a result of lower per unit production costs, partially offset by lower per unit sales prices. Blood Services Blood services revenue increased by 19% ($1,159,000) in 1999 and 36% ($1,595,000) in 1998. The increase in 1999 was primarily due to CBS ($2,054,000) which was offset by a decrease in California based regional blood services ($895,000). The total number of therapeutic apheresis procedures in California was consistent between 1999 (2,772) and 1998 (2,724); although in 1999 more procedures were directed to servicing BMP customers and fewer procedures were directed towards non-BMP customers. Additionally, during 1998, California based regional blood services obtained an excess supply of albumin; a protein replacement fluid used certain therapeutic procedures. This albumin purchase was at a favorable price and was offered for sale to non-hospital customers. During 1998, the Company sold $306,000 of albumin. There were no sales of albumin to non-hospital customers during 1999. The 1998 increase in revenues resulted form sales of albumin, the addition of CBS's operations ($565,000) and a higher volume of southern California therapeutic procedures. The operating profit margin for blood services decreased by 2% in 1999 and 4% in 1998. The decrease in 1999 reflects CBS's lower operating margin. In order to compete in certain markets, CBS charges less for therapeutic apheresis procedures than California based procedures. California based blood services remained constant at 30% for both years. Gain on Disposition As part of the terms of the sale of Gateway's operations, the Company was entitled to receive a payment of $100,000 when Gateway received an FDA establishment license. During the first quarter of 1999 the Company received this amount and accounted for this cash receipt as an additional gain on the disposition of Gateway. 17 General and Administrative Expenses General and administrative expenses increased by 29% ($687,000) in 1999 and 18% ($356,000) in 1998. The increase in 1999 reflects the additional overhead costs required to support CBS's operations and includes increases in personnel, insurance, interest expense on borrowings used to fund the Coral acquisition and amortization of goodwill. Additionally, officer compensation, temporary help and other general and administrative expenses increased during 1999. As a percentage of revenue, general and administrative expenses decreased to 16% of revenue in 1999 compared to 18% of revenue in 1998. The 1998 increase was due to severance payments and increased legal, director and consulting fees. Discontinued Operations From 1990 through 1995, the Company, through its wholly owned subsidiary HemaBiologics, Inc., conducted research and development activities relating to Immupath, an anti-HIV hyperimmune plasma product. In November 1995, the Company's Board of Directors decided to terminate these research and development activities. As a result of this decision, the Company established a reserve for losses during the disposal period. In June 1996, the Company agreed to sell most of its research and development assets, including its FDA plasma licenses and a plasma collection center for which the Company received cash and a promissory note, collateralized by certain of the assets sold. The note was repaid in March 1997, resulting in a gain of $120,000 on disposal of discontinued operations in the first quarter of 1997. During the wind down of the research and development operations, the Company manufactured a supply of Immupath sufficient for the patients still receiving treatment for a limited period of time, and all remaining HIV positive plasma was disposed of in 1997. There are currently two patients receiving Immupath treatments. In the fourth quarter of 1997, the Company reviewed and revised its estimated costs of discontinued operations, including on-going cost of patient treatment and other continuing liabilities related to discontinued operations, and recognized an additional gain of $173,000. The Company does not expect the discontinued operations to have a material impact on its future operating performance. Liquidity and Capital Resources At December 31, 1999, the Company had cash and marketable securities of $2,268,000. The Company has a line of credit with a commercial bank whereby the Company may borrow the lesser of 70% of eligible accounts receivable or $1.2 million. As of December 31, 1999, there were no amounts outstanding on this line of credit. This credit facility bears interest at prime plus 0.5% and includes certain financial covenants. The Company was in compliance with all covenants of its borrowing agreement as of December 31, 1999. Subsequent to year-end the Company obtained a letter of intent from a new bank. Under the terms of the new agreement the Company may borrow the lesser of 75% of eligible accounts receivable or $2 million at an interest rate of prime plus 0.25%. Additionally, the bank will provide a secondary line for qualifying capital expenditures. This line has a maximum availability of $350,000 and will be converted into a term-loan at the end of each year. These credit facilities are subject to the bank completing its due diligence. The Company anticipates that positive cash flow from its operations, cash and investments on hand and borrowing from its bank line of credit will be sufficient to provide funding for its needs during the next 12 months, including (i) expansion of BMP's and regional products and services, (ii) the remaining costs of its discontinued operations and (iii) other working capital requirements, including capital and operating lease commitments. Effective November 2, 1998, the Company's common stock is quoted on the OTC Bulletin Board. Prior to that date, the Company's common stock was listed on the Nasdaq Small Cap Market ("Nasdaq"). Issuers listed on the Nasdaq SmallCap Market are required to maintain a minimum bid price of $1.00, and the Company's Common Stock was trading below the minimum price in excess of the period prescribed by Nasdaq rules. On October 29, 1998, the Company's stock was delisted from Nasdaq SmallCap. Although the Company's Common Stock is quoted on the OTC Bulletin Board, the Nasdaq delisting may impair the liquidity of the Company's Common Stock and the Company's ability to raise capital. In order to be listed on the Nasdaq SmallCap, the price of the Company's stock must reach $4.00. 18 19 All of the Company's operations are profitable and cash flow is positive. The Company periodically evaluates the profitability and viability of each of its operating units. As the result of such an evaluation, the Company sold Gateway's unprofitable St. Louis-based operations in August 1997 and terminated the Citrus Valley BMP in July 1998. 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, have been 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 on 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 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. It is anticipated that such blood centers, which compete with the Company will oppose AB2714. See "Government Regulation" and "Risk Factors." 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 this Form 10-K 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, demand for the Company's products and services, and the anticipated outcome of contingent claims against the Company. Such forward- looking statements involve important risks and uncertainties, many of which will be beyond the control of the Company. These risks and uncertainties could significantly affect anticipated results in the future, both short-term and long-term, and accordingly, such results may differ from those expressed in forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to the ability of the Company to develop and market profitable outsourcing programs, obtain additional financing, to achieve profitability in certain Blood Management Programs Centers, to continue its paid donor business, to retain existing customers, to improve the profitability of the Company's other operations, to successfully negotiate contracts with its east coast customers, to expand its operations, to renew and comply with the covenants under its bank line of credit, to effectively compete against the ARC and other competitors, and the effects of he Year 2000. 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. 19 20 Item 8. Financial Statements and Supplementary Data. - ----------------------------------------------------- The Index to Financial Statements and Schedules appears on page F-1, the Report of Independent Public Accountants appears on F-2, and the Consolidated Financial Statements and Notes to Consolidated Financial Statements appear on pages F-3-16. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. - ------------------------------------------------------------------------- None. PART III Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------- The information required by this Item is set forth under the caption "Election of Directors" in the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission and is incorporated herein by this reference as if set forth in full. Item 11. Executive Compensation. - --------------------------------- The information required by this Item is set forth under the caption "Executive Compensation" in the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission and is incorporated herein by this reference as if set forth in full. Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------- The information required by this Item is set forth under the caption "Principal Shareholders" in the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission and is incorporated herein by this reference as if set forth in full. Item 13. Certain Relationships and Related Transactions. - --------------------------------------------------------- The information required by this Item is set forth under the caption "Certain Transactions" in the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission and is incorporated herein by this reference as if set forth in full. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. - -------------------------------------------------------------------------- The following are filed as part of this Report: (a) 1. Financial Statements An index to Financial Statements and Schedules appears on page F-1. (a) 2. Financial Statement Schedules The following financial statement schedule is filed herewith: Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under related instructions or are inapplicable, and therefore have been omitted. (a) 3. Exhibits The following exhibits listed are filed or incorporated by reference as part of this Report. 2.1 Amended and Restated Asset Purchase Agreement between the Registrant, HemaBiologics, Inc. (a wholly owned subsidiary of the Registrant) and Atopix Pharmaceuticals Corporation, dated June 26, 1996 --incorporated by reference to Exhibit 2.1 to Form 10-Q of the Registrant for the quarter ended June 30, 1996. 20 21 2.2 Asset Purchase Agreement between the Registrant, Gateway Community Blood Program and Haemonetics Corporation, dated August 1, 1997--incorporated by reference to Exhibit 2.1 to Form 10-Q of the Registrant for the quarter ended September 30, 1997. 3.1 Restated Articles of Incorporation of the Registrant-- incorporated by reference to Exhibit 3.1 to Form 10-K of the Registrant for the year ended December 31, 1995. 3.2 Bylaws of the Registrant, as amended--incorporated by reference to Exhibit 3.1 to Form 10-Q of the Registrant for the quarter ended March 31, 1998. 4.1 Warrant Agreement between the Registrant and Medicorp Inc. dated February 17, 1993--incorporated by reference to Exhibit 4 to the Current Report on Form 8-K of the Registrant dated February 17, 1993. 4.2 Form of Warrant Agreement between the Registrant and each of the following consultants: British Far East Holdings, Ltd., Joseph T. McDonald and E. Keene Wolcott dated September 30, 1994--incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended September 30, 1994. 4.3 Warrant Agreement between the Registrant and Torrey Pines Securities, Inc., dated April 8, 1994--incorporated by reference to Exhibit 4.2 to Form 10-Q of the Registrant for the quarter ended March 31, 1994. 4.4 Amendment to Warrant Agreement between the Registrant and Torrey Pines Securities dated April 3, 1995--incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended March 31, 1995. 4.5 Warrant Agreement between the Registrant and Joseph T. McDonald dated November 1, 1996--incorporated by reference to Exhibit 4.9 to Form 10-K of the Registrant for the year ended December 31, 1996. 4.6 Warrant Agreement between the Registrant and Kibel, Green, Inc., dated March 4, 1999--incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended March 31, 1999. 4.7 Warrant Agreement between the Registrant and Stuart Dinney, dated March 4, 1999--incorporated by reference to Exhibit 4.2 to Form 10-Q of the Registrant for the quarter ended March 31, 1999. 4.8 Warrant Agreement between the Registrant and Lori Terra- Vassalo, dated March 4, 1999. 4.9 Rights Agreement between the Registrant and U.S. Stock Transfer Corporation dated March 3, 1998--incorporated by reference to Exhibit 4 to Form 8-K of the Registrant dated March 5, 1998. 4.10 Amended Certificate of Determination dated March 18. 1998-- incorporated by reference to Exhibit 4.8 on Form 10-K of the Registrant for the year ended December 31,1997. 4.11 Certificate of Determination of the Registrant's Series B Senior Convertible Preferred Stock between the Registrant and Comdisco Health Care Group dated October 23, 1998-- incorporated by reference to Exhibit 4.1 of Form 8-K of the Registrant dated November 5, 1998. 4.12 Registration Rights of Shareholders'-- Incorporated by reference to Exhibit 4.9 to the Current Report on Form 8-K of the Registrant dated August 19, 1996. 21 22 4.13 Loan Agreement between the Registrant and Bank Leumi, USA, dated June 1, 1999--incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended June 30, 1999. 10.1 1986 Employee Stock Option Plan, as amended and restated through October 1994--incorporated by reference to Exhibit 10.4 to Form 10-Q of the Registrant for the quarter ended September 30, 1994. 10.2 1996 Stock Incentive Plan, as amended, of the Registrant-- incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended September 30, 1996. 10.3 Office Building Lease dated August 21, 1998 between the Registrant and Tar Asset Addison Place, L.P.--incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 1998. 10.4 Revolving Credit Agreement between the Registrant and Bank Leumi USA, dated February 5, 1999--incorporated by reference to Exhibit 10.7 of Form 10-K of the Registrant for the year ended December 31, 1998. 10.5 Promissory Note between the Registrant and Bank Leumi USA, dated February 5, 1999--incorporated by reference to Exhibit 10.8 of Form 10-K of the Registrant for the year ended December 31, 1998. 10.6 Promissory Note to HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, from Joshua Levy dated January 1, 1996 -- incorporated by reference to Exhibit 10.10 to Form 10-K of the Registrant for the year ended December 31, 1995. 10.7 Pledge Agreement between HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, and Joshua Levy dated January 1, 1996--incorporated by reference to Exhibit 10.11 to Form 10-K of the Registrant for the year ended December 31, 1995. 10.8 Loan Reimbursement Agreement between HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, and Joshua Levy dated January 30, 1998--incorporated by reference to Exhibit 10.10 to Form 10-K of the Registrant for the year ended December 31, 1998. 10.9 Settlement Agreement between the Registrant and Medicorp, Inc.--incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Registrant dated July 19, 1996. 10.10 Foreclosure Sale Agreement between the Registrant and Comdisco Health Care Group, Inc dated October 23, 1998-- incorporated by reference to Exhibit 2.1 of Form 8-K of the Registrant dated November 5, 1998. 10.11 Employment agreement between the Registrant and William D. Nicely dated May 27, 1998--incorporated by reference to Form 10-Q for the quarter ended June 30, 1998. 10.12 Services Agreement between the Registrant and Alan C. Darlington, dated March 10, 1999--incorporated by reference to Exhibit 10.1 of Form 10-Q of the Registrant for the quarter ended March 31, 1999. 11 Computation of earnings (loss) per common equivalent share. 21 Subsidiaries of the Registrant 23 Consent of Arthur Andersen LLP 27 Financial Data Schedule 22 23 (b) Reports on Form 8-K. None. Signatures Pursuant to the requirements of Section 13 or 15(d) 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. HEMACARE CORPORATION Dated: March 29, 2000 \s\ David Fractor ------------------------------ David Fractor, Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated on the 29th day of March 2000. Signature Title \s\ Alan C. Darlington - ----------------------------- Chairman of the Board Alan C. Darlington \s\ William D. Nicely Chief Executive Officer and Director - ----------------------------- (Principal Executive Officer) William D. Nicely \s\ David Fractor Vice President Finance, Chief - ----------------------------- Financial Officer David Fractor (Principal Financial and Accounting Officer) \s\ Charles R. Schwab, Jr. Director - ----------------------------- Charles R. Schwab, Jr. \s\ Julian L. Steffenhagen Director - ----------------------------- Julian L. Steffenhagen \s\ Robert L. Johnson Director - ----------------------------- Robert L. Johnson 23 24 Index to Consolidated Financial Statements and Schedules Item 14(a)(1) and (2) Sequential Page Number ----------- Report of Independent Public Accountants.................... F-2 Consolidated balance sheets at December 31, 1999 and December 31, 1998........................................... F-3 For the years ended December 31, 1999, 1998 and 1997: Consolidated statements of operations.................. F-4 Consolidated statements of shareholders' equity........ F-5 Consolidated statements of cash flows.................. F-6 Notes to consolidated financial statements.................. F-7 Report of Independent Public Accountants on Financial Statement Schedule.................................................... S-1 Schedule II - Valuation and Qualifying Accounts............. S-2 All other schedules are not submitted because either they are not applicable, not required or because the information required is included in the Consolidated Financial Statements, including the notes thereto. F-1 25 Report of Independent Public Accountants - ----------------------------------------- To the Shareholders and Board of Directors of HemaCare Corporation: We have audited the accompanying consolidated balance sheets of HemaCare Corporation (a California corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HemaCare Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP -------------------------- ARTHUR ANDERSEN LLP Los Angeles, California February 29, 2000 F-2 26 Part I. Financial Information - ------------------------------- Item 1. Financial Statements - ----------------------------- HEMACARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 1999 1998 ------------- ------------ ASSETS Current assets: Cash and cash equivalents.................... $ 1,490,000 $ 1,372,000 Marketable securities........................ 778,000 288,000 Accounts receivable, net of allowance for doubtful accounts of $256,000 (1999) and $596,000 (1998)............................. 3,090,000 3,038,000 Product inventories.......................... 91,000 87,000 Supplies..................................... 690,000 604,000 Prepaid expenses............................. 180,000 160,000 Note receivable from related party - current. 22,000 24,000 ------------- ------------- Total current assets................ 6,341,000 5,573,000 Plant and equipment, net of accumulated depreciation and amortization of $1,920,000 (1999) and $1,869,000 (1998)...... 719,000 1,289,000 Goodwill, net of amortization of $62,000 (1999) and $11,000 (1998)............ 468,000 742,000 Note receivable from related party - non-current.................................. 32,000 49,000 Other assets................................... 14,000 9,000 ------------- ------------- $ 7,574,000 $ 7,662,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable............................. $ 1,305,000 $ 1,414,000 Accrued payroll and payroll taxes............ 530,000 802,000 Accrued professional fees.................... 73,000 173,000 Other accrued expenses....................... 376,000 419,000 Current obligations under capital leases..... 63,000 203,000 Current notes payable........................ 138,000 109,000 Reserve for discontinued operations.......... 81,000 109,000 ------------- ------------- Total current liabilities........... 2,566,000 3,229,000 Obligations under capital leases, net of current portion........................... 188,000 627,000 Notes payable, net of current portion.......... 353,000 491,000 Other long-term liabilities.................... 27,000 24,000 Commitments and contingencies.................. Shareholders' equity: Preferred stock no par value - 5,000,000 shares authorized, 450,000 issued and outstanding................................. 75,000 75,000 Common stock, no par value - 20,000,000 shares authorized, 7,475,082 issued and outstanding in 1999 and 7,281,120 in 1998.. 13,676,000 13,584,000 Accumulated deficit.......................... (9,311,000) (10,368,000) ------------- ------------- Total shareholders' equity.......... 4,440,000 3,291,000 ------------- ------------- $ 7,574,000 $ 7,662,000 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F-3 27 HEMACARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999 1998 1997 ------------ ------------ ------------ Revenues: Blood management programs......... $ 7,827,000 $ 3,592,000 $ 4,105,000 Regional operations Blood products.................. 4,033,000 3,530,000 2,589,000 Blood services.................. 7,161,000 6,002,000 4,407,000 ------------- ------------- ------------ Total revenue................... 19,021,000 13,124,000 11,101,000 Operating costs and expenses: Blood management programs......... 6,778,000 3,280,000 4,315,000 Regional operations Blood products.................. 2,904,000 2,394,000 1,879,000 Blood services.................. 5,313,000 4,328,000 3,000,000 ------------- ------------- ------------ Total operating costs and expenses...................... 14,995,000 10,002,000 9,194,000 ------------- ------------ ------------ Operating profit................ 4,026,000 3,122,000 1,907,000 General and administrative expense.. 3,041,000 2,354,000 1,998,000 Gain on sale of Gateway Community Blood Program..................... 100,000 - 128,000 ------------- ------------- ------------ Income from continuing operations before income taxes.... 1,085,000 768,000 37,000 Provision for income taxes.......... (28,000) (23,000) - ------------- ------------- ------------ Income from continuing operations........................ 1,057,000 745,000 37,000 Discontinued operations: Gain from disposal of discontinued operations........................ - - 293,000 ------------- ------------- ------------ Net income...................... $ 1,057,000 $ 745,000 $ 330,000 ============= ============= ============ Income per share: Basic Income from continuing operations. $ 0.14 $ 0.10 $ 0.01 Income from discontinued operations...................... - - 0.04 ------------- ------------- ------------ Net income...................... $ 0.14 $ 0.10 $ 0.05 ============= ============= ============ Diluted Income from continuing operations. $ 0.13 $ 0.10 $ 0.01 Income from discontinued operations....................... - - 0.04 ------------- ------------- ------------ Net income....................... $ 0.13 $ 0.10 $ 0.05 ============= ============= ============ Weighted average shares outstanding - basic............................ 7,393,000 7,268,000 7,189,000 ============= ============= ============ Weighted average shares outstanding - diluted.......................... 8,158,000 7,373,000 7,205,000 ============= ============= ============
The accompanying notes are an integral part of these consolidated financial statements. F-4 28 HEMACARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Preferred Stock Common Stock Accumulated Shares Amount Shares Amount Deficit Total -------- ---------- ---------- ------------ ------------- ----------- Balances at December 31, 1996.......... - $ - 7,177,515 $13,466,000 $(11,443,000) $ 2,023,000 Issuance of common stock for employee 401(k) and incentive bonus plans.............. - - 13,195 41,000 - 41,000 Non-cash compensation....... - - - 8,000 - 8,000 Net income.......... - - - - 330,000 330,000 ------- -------- ---------- ------------ ------------- ------------ Balances at December 31, 1997........... - - 7,190,710 13,515,000 (11,113,000) $ 2,402,000 Issuance of common stock for employee 401(k) and incentive bonus plans.............. - - 90,410 42,000 - 42,000 Issuance of pre- ferred stock....... 450,000 75,000 - - - 75,000 Non-cash compensation....... - - - 27,000 - 27,000 Net income.......... - - - - 745,000 745,000 ------- -------- ----------- ------------ ------------- ------------ Balances at December 31, 1998........... 450,000 75,000 7,281,120 13,584,000 (10,368,000) $ 3,291,000 Issuance of common stock for employee 401(k) and incentive bonus plans.............. 96,462 44,000 - 44,000 Private placement... - - 97,500 9,000 - 9,000 Non-cash compensation....... - - - 39,000 - 39,000 Net income.......... - - - - 1,057,000 1,057,000 -------- -------- ----------- ------------ ------------- ------------ Balances at December 31, 1999........... 450,000 $75,000 7,475,082 $13,676,000 $ (9,311,000) $ 4,440,000 ======= ======== =========== ============ ============= ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 29 HEMACARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended December 31, 1999 1998 1997 ------------ ------------ ------------- Cash flows from operating activities: Net Income...................................... $ 1,057,000 $ 745,000 $ 330,000 Adjustments to reconcile net income to net cash provided by operating activities: Gain on disposal of discontinued operations.. - - (293,000) Gain on sale of Gateway Community Blood Program..................................... - - (128,000) Provision for losses on accounts receivable.. - - 35,000 Depreciation and amortization................ 334,000 175,000 187,000 Non cash compensation........................ 83,000 69,000 50,000 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable... 131,000 (415,000) 196,000 (Increase) in inventories, supplies and prepaid expenses........................ (110,000) (203,000) (1,000) (Increase) decrease in other assets, net..... (10,000) 6,000 41,000 Decrease in accounts payable, accrued expenses, and other liabilities..... (467,000) (213,000) (185,000) Proceeds from (expenditures for) discontinued operations.................................. (28,000) (6,000) 8,000 ------------ ------------ ------------ Net cash provided by operating activities.... 990,000 158,000 240,000 Cash flows from investing activities: Purchase of assets, net of cash acquired........ - (555,000) - Decrease in note receivable from related party................................. 19,000 16,000 14,000 (Increase) decrease in marketable securities.... (490,000) 75,000 (52,000) (Purchase) disposition of plant and equipment, net........................................... (81,000) (23,000) 46,000 ------------ ------------ ------------ Net cash (used in) provided by investing activities.................................... (552,000) (487,000) 8,000 Cash flows from financing activities: Borrowings from note payable.................... - 600,000 - Principal payments on line of credit, net, and capital leases................................ (320,000) (148,000) (135,000) ------------ ------------ ------------ Net cash (used in) provided by financing activities.................................... (320,000) 452,000 (135,000) ------------ ------------ ------------ Increase in cash and cash equivalents........... 118,000 123,000 113,000 Cash and cash equivalents at beginning of period........................................ 1,372,000 1,249,000 1,136,000 ------------ ------------ ------------ Cash and cash equivalents at end of period...... 1,490,000 $ 1,372,000 $ 1,249,000 ============ ============ ============ Supplemental disclosure: Interest paid................................... $ 93,000 $ 23,000 $ 51,000 ============ ============ ============ Items not impacting cash flow: Increase in capital lease obligations........... $ 401,000 $ 629,000 $ 38,000 ============ ============ ============ Liability for issuance of stock and warrants with the purchase of assets.................... $ 22,000 $ 22,000 $ - ============ ============ ============ Issuance of preferred stock in the purchase of assets...................................... $ - $ 75,000 $ - ============ ============ ============ Termination of capital leases................... $ 769,000 $ - $ - ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-6 30 HemaCare Corporation Notes to Consolidated Financial Statements Note 1 - Organization - ---------------------- HemaCare Corporation was incorporated in California in 1978, for the purpose of providing blood products and blood services to hospitals and medical centers. Coral Blood Services, Inc., a wholly owned subsidiary of the Company, was formed in October 1998, for the purpose of purchasing substantially all of the assets of a company which had been in the business of supplying blood products and services to hospitals primarily in the eastern United States. (See Note 3.) In September 1995, the Company formed Gateway Community Blood Program, Inc. ("Gateway"), a wholly owned subsidiary incorporated in Missouri, to provide blood products and services in Missouri and Illinois. In August 1997, Gateway's operations were sold. From 1990 to November 1995, the Company, through its wholly-owned subsidiary HemaBiologics, Inc. ("HBI"), conducted research and development of Immupath, an anti-HIV hyperimmune plasma-based product intended to be used in the treatment of Acquired Immune Deficiency Syndrome ("AIDS"). In November of 1995, the Company's Board of Directors decided to discontinue the operations of HBI. (See Note 12.) HemaCare Corporation and its wholly owned subsidiaries are referred to as "HemaCare" or the "Company" in the accompanying consolidated financial statements and notes to consolidated financial statements. Note 2 - Summary of Accounting Policies - --------------------------------------- Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents and Marketable Securities: The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Marketable securities consist of U.S. government treasury bills and certificates of deposit held at financial institutions. Financial Instruments: Cash and cash equivalents, marketable securities, accounts receivable and accounts payable are carried at cost which approximates fair value. The interest rate applied to notes receivable and capital leases is equal to the Company's borrowing rate, and therefore their carrying value approximates fair value. Revenues and Accounts Receivable: Revenues are recognized upon acceptance of the of blood products or the performance of blood services. Blood services revenues consist primarily of mobile therapeutics sales, while blood product revenues consist primarily of sales of single donor platelets and whole blood components that are manufactured or purchased and distributed by the Company. Accounts receivables are reviewed periodically for collectability. Inventories and Supplies: Inventories consist of Company-manufactured platelets and whole blood components as well as component blood products F-7 31 purchased for resale. Supplies consist primarily of medical supplies for collecting and manufacturing products and providing therapeutic services. Inventories are accounted for on a first-in, first-out basis. Plant and Equipment: Plant and equipment is stated at original cost. Furniture, fixtures, equipment and automobiles are depreciated using the straight-line method over three to seven years. Leasehold improvements are amortized over the lesser of the their useful life or the length of the lease, ranging from three to five years. Capital equipment leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the equipment at the beginning of the lease term. The cost of normal repairs and maintenance are expensed as incurred. Goodwill: Goodwill is being amortized on a straight-line basis over ten years. It is the Company's policy to periodically evaluate goodwill for recoverability. In the event of a permanent impairment, the goodwill balance would be reduced to net realizable value, and the write down would be charged to expense. Income Taxes: Income taxes are computed under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. Per Share Data: Earnings per shares-basic is computed by dividing net income by the weighted average shares outstanding. Earnings per share-diluted is computed by dividing net income by the weighted average number of shares outstanding including the diluted effect of options, warrants and preferred stock. Warrants and options to purchase 863,800, 1,443,300 and 1,289,800 shares of common stock outstanding at December 31, 1999, 1998 and 1997, respectively, were not included in the computation of diluted earnings per share because the exercise price of the warrants and options was greater than the average market price of the common stock. Concentration of risk: Sales of products and services to an unaffiliated hospital group accounted for $2,221,000 (12%) and $2,051,000 (16%) of the Company's revenues in 1999 and 1998, respectively. In 1997, sales to two unaffiliated hospital groups accounted for $2,044,000 (18%) and $1,473,000 (13%) of the Company's revenues. At December 31, 1999 and 1998, no customer accounted for over 10% of the Company's accounts receivable. Note 3 - Acquisition - -------------------- In October 1998, the Company purchased, through its wholly owned subsidiary CBS, substantially all of the assets of Coral Therapeutics, Inc. ("Coral") from Coral's secured lender. Prior to the acquisition, Coral provided blood services to major university, teaching and community hospitals in Maine, New Hampshire, Massachusetts, Connecticut, New York, North Carolina and other states. The acquired assets included (i) approximately $1.6 million in accounts receivable, $600,000 of which were over 90 days old, (ii) inventory and supplies with a net book value of approximately $113,000 (iii) fixed assets with a net book value of approximately $248,000 and (iv) Coral's rights under its hospital contracts. Concurrent with the closing of the asset purchase, HemaCare extended offers of employment to most of Coral's employees. F-8 32 The acquisition was accounted for as a purchase, and the operations of the acquired assets are included in the Company's consolidated operations for the period from the acquisition date (October 23, 1998). The acquisition price of the assets was $950,000 in cash and 450,000 shares of HemaCare's Series B senior convertible preferred stock. The Company financed the acquisition by (i) utilizing existing cash balances, (ii) borrowing $600,000 on its line of credit and (iii) issuing 450,000 shares of HemaCare Series B senior convertible preferred stock. In addition, HemaCare has entered into or expects to enter into non-competition agreements with certain former managers of Coral pursuant to which HemaCare will make (i) cash payments, (ii) issue 60,000 shares of HemaCare common stock and (iii) issue warrants to purchase 90,000 shares of HemaCare common stock with an exercise price of $0.90 per share, expiring in October, 2003. In addition, warrants for 35,000 shares of HemaCare common stock exercisable at $0.31 per share were issued to consultants who assisted in the acquisition. These warrants will expire in October 2003. Note 4 - Plant and Equipment - ---------------------------- Plant and equipment consists of the following: December 31, --------------------------- 1999 1998 ------------ ------------ Furniture, fixtures and equipment $ 2,444,000 $ 2,969,000 Leasehold improvements 195,000 189,000 ------------ ------------ 2,639,000 3,158,000 Less accumulated depreciation and amortization (1,920,000) (1,869,000) ------------ ------------ $ 719,000 $ 1,289,000 ============ ============ Equipment with a cost of $401,000 in 1999, $1,369,000 in 1998 and $740,000 in 1997 was financed by capital leases. In 1999, the Company terminated certain capital leases with a cost of $931,000. In 1997, the Company disposed of equipment and leasehold improvements with a cost of $347,000, including $188,000 financed by capital leases, in connection with the sale of Gateway's operations. Note 5 - 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 agreement, the Company may borrow up to the lesser of $1.2 million or 70% of eligible accounts receivable at an interest rate of prime plus 0.5% per annum. The Company must maintain certain financial covenants. As of December 31, 1999, there were no balances outstanding under this line of credit and the Company was in compliance with all covenants of the borrowing agreement. F-9 33 Note Payable In 1998, the Company entered into 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 plus one percent (9.5% at December 31, 1999). Minimum future payments under the note at December 31, 1999 are as follows: Year ending December 31, 2000 $ 138,000 2001 151,000 2002 167,000 2003 35,000 ---------- $ 491,000 ========== The Company incurred $42,000 and $9,000 of interest expense in connection with the note payable and line of credit agreement in 1999 and 1998, respectively. No interest expense was incurred in connection with the line of credit agreement in 1997. Note 6 - Leases - ---------------- The Company has entered into several capital leases for equipment. Future minimum payments are as follows: Year Ending December 31, 2000 $ 77,000 2001 56,000 2002 25,000 2003 19,000 2004 8,000 Thereafter 94,000 --------- Total minimum lease payments 279,000 Less: Amount representing interest (28,000) --------- Present value of minimum lease payments 251,000 Less current portion (63,000) --------- $188,000 ========= F-10 34 The Company leases its facilities and certain equipment under operating leases which expire through the year 2003. Future minimum rentals under operating leases are as follows: Year ending December 31, 2000 $ 392,000 2001 383,000 2002 322,000 2003 65,000 2004 45,000 Thereafter - ---------- $1,207,000 ========== Total rent expense under all operating leases was $463,000, $424,000 and $600,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Note 7 - Income Taxes - --------------------- The provision for income taxes for the year ended December 31, 1999, was primarily due to the effects of the alternative minimum tax and states in which the Company did not have any net operating loss carryforwards ("NOL") available. The provision, which is all current, consists of $9,000 of federal income tax expense and $19,000 of state income tax expense. The tax provision for 1998, which was all current, included $20,000 of federal income tax expense and $3,000 of state income tax expense. There was no current or deferred income tax provision for 1997, as the Company utilized its NOL's. A reconciliation of income tax expense at the statutory rate to income tax recognized follows.
1999 1998 1997 ---------- --------- ---------- Income tax expense at statutory rate........................... $ 369,000 $ 261,000 $ 13,000 State income taxes, net of Federal benefit................ 65,000 46,000 2,000 (Utilization) of NOL............. (406,000) (284,000) (15,000) ---------- ---------- ---------- Income tax expense............... $ 28,000 $ 23,000 $ - ========== ========== ==========
The approximate tax effects of temporary differences which gave rise to significant deferred tax assets and liabilities at December 31, 1999 and 1998, are as follows:
1999 1998 ----------- ----------- Current: Reserve for doubtful accounts..... $ 175,000 $ 238,000 Accrued expenses and other........ 262,000 323,000 Noncurrent: Depreciation and amortization..... 240,000 220,000 Deferred research and development expenses......................... 200,000 200,000 Other............................. 18,000 8,000 Net operating loss carryforwards.. 2,760,000 2,725,000 Tax credit carryforwards.......... 873,000 878,000 ------------ ------------ Total deferred assets............. 4,528,000 4,592,000 Valuation allowance............... (4,528,000) (4,592,000) ------------ ------------ $ - $ - ============ ============
F-11 35 A valuation allowance is recorded if the weight of available evidence suggests it is more likely that not that some portion or all of the deferred tax asset will not be recognized. There is no assurance that the Company will continue to be profitable in future periods. Accordingly, a valuation allowance has been recorded for the full amount of the deferred tax assets in 1999 and 1998. At December 31, 1999, the Company had net operating loss carryforwards available for Federal income and state tax purposes of $7,621,000 and $2,148,000, respectively, expiring through 2010. Acquisitions of common stock which result in changes in equity ownership in the Company could result in an "ownership change" within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), thereby imposing an annual limitation (the "Section 382 Limitation") on the Company's ability to utilize its net operating loss carryforwards to reduce future taxable income. In the event of a Section 382 Limitation, the Company's utilization of its net operating loss carryforwards would be restricted. At December 31, 1999, the Company had Federal income tax credit carryforwards of approximately $557,000 expiring through 2010, and state tax credit carryforwards of approximately $316,000 which are not subject to expiration. Note 8 - Shareholders' Equity - ------------------------------ Stock Options In July 1996, the Board of Directors approved and adopted a new stock incentive plan (the "1996 Plan") which provides for grants of both stock options and shares of restricted stock. Prior to that date, options were granted under the Company's 1986 Stock Option Plan, as amended (the "1986 Plan"). A total of 1,400,000 shares may be granted under the terms of the 1996 Plan. The term of the options granted is determined by the Company's Board of Directors, but in no event may be longer than ten years. The exercise price of options granted generally is required to be not less than the fair market value of the common stock on the date of grant. Options granted to employees must vest at a rate of at least 20% per year. The 1986 Plan expired in July 1996. At December 31, 1999, 38,800 options were out- standing under this plan. A one-time grant of options typically is made to each non-employee director at the time of joining the Board, and, beginning in 1999, an additional 15,000 options are granted annually to non-employee directors. The table below summarizes transactions in the 1986 Plan and the 1996 Plan (together the "Plans").
1999 1998 1997 ------------------ ---------------- ---------------- Shares Price Shares Price Shares Price --------- ------ --------- ------ -------- ------ Outstanding at beginning of year.................... 923,300 $1.12 495,800 $2.36 185,800 $4.01 Granted...................... 505,000 0.55 535,000 0.67 372,500 1.74 Exercised.................... - - - - - - Canceled..................... 107,000 2.38 107,500 3.58 62,500 2.78 --------- ----- -------- ----- -------- ----- Outstanding at end of year... 1,321,300 $0.89 923,300 $1.12 495,800 $2.36 ========= ===== ======== ===== ======== ===== Exercisable at end of year... 520,800 $1.12 386,300 $1.61 184,550 $3.05 ========= ===== ======== ===== ======== =====
F-12 36 The following table summarizes the range of exercise price, weighted average remaining contractual life ("Life") and weighted average exercise price ("Price") for all stock options outstanding as of December 31, 1999:
Options Outstanding Options Exercisable ---------------------------- ------------------- Range of Exercise Price Shares Life Price Shares Price - ------------------------ --------- -------- ----- -------- ------- $0.41 to $.75 1,015,000 8.9 years $0.58 317,500 $0.61 $0.76 to $1.50 172,500 9.0 years 1.41 132,500 1.50 $1.51 to $3.50 133,800 8.1 years 2.53 70,800 2.68 --------- ----- ------- ----- 1,321,300 $0.89 520,800 $1.12 ========= ===== ======= =====
The Company grants stock options to employees and others in accordance with the terms of its Plans. Warrants are granted upon the Board of Directors' approval. The Company has elected to adopt SFAS 123 "Accounting for Stock-Based Compensation" for disclosure purposes only and applies the provisions of APB Opinion No. 25. The Company recognized $39,000, $27,000 and $8,000 of compensation expense related to consulting options in 1999, 1998 and 1997, respectively. Had compensation expense for all options granted been recognized in accordance with SFAS 123, the Company's net income and net income per share would have been as follows:
Years ended December 31, 1999 1998 1997 ----------- ----------- ---------- Pro forma net income........... $ 870,000 $ 617,000 $ 288,000 Pro forma basic net income per share..................... $ 0.12 $ 0.08 $ 0.04 Pro forma diluted net income per share..................... $ 0.11 $ 0.08 $ 0.04
The above pro forma amounts were calculated by estimating the fair value of each option or warrant granted on the date of grant using the Black-Scholes option-pricing model as follows:
Years ended December 31, 1999 1998 1997 ------------ ----------- ----------- Expected life................. 3 Years 3 Years 3 Years Expected volatility........... 80% 75% 68% Interest rate................. 5.5% 5.5% 5.0% Dividend yield................ 0 % 0 % 0 %
Warrants At December 31, 1999, 1998 and 1997, the Company had a total of 600,000, 520,000 and 810,000 warrants to purchase common stock outstanding, at weighted average exercise prices of $4.17, $4.89 and $4.54, respectively. Of the outstanding warrants, 540,000, 500,000 and 790,000 were exercisable at weighted average exercise prices of $4.54, $4.96 and $4.65, in 1999, 1998 and 1997, respectively. At December 31, 1999, 1998 and 1997, 50,000, 70,000 and 70,000 warrants for consulting services were outstanding, respectively. As of December 31, 1999, 50,000 were exercisable with exercise prices between $3.13 and $3.69 and expire through June 2002. In connection with stock sales in 1993 and 1994, the Company issued warrants to finders. Warrants to purchase 25,000 shares of the Company's stock are still outstanding at prices ranging from $1.45 and $1.70, expiring through July 2000. F-13 37 In 1993, the Company issued warrants to purchase 400,000 shares of stock at $5.50 per share in connection with the acquisition of the Immupath license. (See Note 12.) These options expire in February 2003. Preferred Stock In October, 1998 as part of the purchase price of the acquisition of Coral (see Note 3), 450,000 shares of no par value Senior Convertible Series B preferred stock ("Series B Preferred") were issued to the seller. The Series B Preferred is convertible into 500,000 shares of HemaCare common stock, at the option of the holder at any time after one year from the date of issuance. The Series B Preferred holders are entitled to dividends when declared by the Company's Board of Directors and, if dividends are declared on the Company's common stock, Series B Preferred holders are entitled to participate in the common stock dividend on an as converted basis. In the event of liquidation, dissolution or wind up of the Company, Series B Preferred holders are entitled to a preferential distribution of $0.90 per share. Note 9 - Employee Salary Deferral Plan - --------------------------------------- HemaCare's Employee Salary Deferral Plan qualifies under Section 401(k) of the Internal Revenue Service Code (the "401(k) Plan"). Eligible employees may contribute up to 12 percent of their pre-tax salaries, subject to certain limitations. HemaCare may elect to match a portion of the employees' contribution. In 1999, 1998 and 1997, the Company elected to match 50 percent of the of each participant's contribution, up to 5% of the participants annual salary, with HemaCare common stock. During 1999, 1998 and 1997, HemaCare issued 96,462 shares ($44,000), 90,410 shares ($42,000) and 13,195 shares ($41,000) of common stock as matching contributions for the 1998, 1997 and 1996 plan years, respectively. Subsequent to December 31, 1999, the Board approved the issuance of approximately 114,275 shares ($75,000) in 2000 as matching contributions for the 1999 plan year. Note 10 - 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 passed the latest of which passed in late 1994. Unless a new exemption is obtained, the existing exemption will expire under its sunset provision on 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. 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. It is anticipated that such blood centers, which compete with the Company will oppose AB2714. See "Government Regulation" and "Risk Factors." 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. Healthcare reform is continuously under consideration by lawmakers, and it is not certain as to what changes may be made in the future regarding health care policies. However, policies regarding reimbursement, universal health insurance and managed competition may materially impact the Company's operations. The Company entered into a long-term commitment with a vendor to purchase kits used to produce blood products from blood donors and to provide F-14 38 blood services to patients. Under the terms of the agreement, the Company is obligated to purchase $6,090,000 of kits at established prices through May 2003. Note 11 - Segment and Related Party Information - ----------------------------------------------- Business Segments The Company operates in three business segments as follows: - - Blood Management Programs ("BMP"); Outsource programs which provide all or a major portion of the blood banking functions to a hospital. - - Blood Products; 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 measure segment performance. However, the dominant measurements are consistent with the Company's consolidated financial statements which present revenue from external customers and operating profit income for each segment. Supplemental data are as follows:
BMP Blood Products Blood Services ----------- -------------- -------------- 1999 - ---- Depreciation and amortization $ 142,000 $ 29,000 $ 114,000 Expenditures for fixed assets 11,000 3,000 3,000 1998 - ---- Depreciation and amortization $ 56,000 $ 18,000 $ 52,000 Expenditures for fixed assets 484,000 4,000 388,000 1997 - ---- Depreciation and amortization $ 74,000 $ 18,000 $ 54,000 Expenditures for fixed assets 38,000 - -
Management evaluates segment performance based primarily on operating income. Other revenue and expenses are not allocated to the segments. The accounting policies of the segments are the same as those described in the significant accounting policies. Related Party Loan In 1995 and 1994, the Company made a series of personal loans to Dr. Joshua Levy, then an officer and director of the Company totaling $98,000. The proceeds of these loans were used to refinance existing debt that was collateralized by HemaCare stock owned by Dr. Levy. In January 1996, these individual notes were consolidated into a promissory note, collateralized by HemaCare stock owned by Dr. Levy, which accrued interest at a rate equal to the rate paid by the Company under its line of credit. The Company received installment payments in accordance with the F-15 39 terms of this note of $15,000 in January 1996 and January 1997. Effective July 31, 1997, the Company entered into an agreement with Dr. Levy that superceded the 1996 note. Under the terms of this agreement, the Company agreed to forgive the remaining balance of Dr. Levy's note, including interest accrued at a 10% annual rate, over a five-year period so long as Dr. Levy remains employed by the Company. Note 12 - Discontinued Operations - --------------------------------- In November 1995, the Company discontinued the operations of HBI, including the research and development of Immupath and the associated specialty plasma business. The reserve established for estimated HBI operating losses during the period of disposal included a $600,000 contingent liability for the resolution of the dispute with Medicorp. In July 1996, the dispute was settled without any payment by the Company, and the Company recognized a $600,000 gain on disposal of discontinued operations. In June 1996, the Company agreed to sell substantially all the tangible assets of the discontinued operations and the FDA source plasma licenses. The sale and transfer of the licenses was contingent upon obtaining FDA approval that was received on October 21, 1996. The buyer delivered a promissory note, in payment of the purchase price for certain tangible assets sold, which is collateralized by these assets. The note was repaid in March 1997, resulting in a gain on disposal of $120,000 in the first quarter of 1997. During the wind down of the research and development operations, the Company manufactured a supply of Immupath to supply the patients still receiving treatment for a limited period of time. There are currently two patients receiving Immupath treatments. In the fourth quarter of 1997, the Company reviewed and revised its estimate of the remaining costs of discontinued operations and recognized an additional gain on disposal of $173,000. The Company does not expect discontinued operations to have a material impact on future operating results. F-16 40 Report of Independent Public Accountants To the Shareholders and Board of Directors of HemaCare Corporation: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in HemaCare Corporation's annual report to shareholders included in this Form 10-K, and have issued our report thereon dated February 29, 2000. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index of consolidated financial statements is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP ------------------------- ARTHUR ANDERSEN LLP Los Angeles, California February 29, 2000 S-1 41 HEMACARE CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For The Years Ended December 31, 1999, 1998 and 1997
Additions Balance at Charged to Charged to Balance beginning costs and other at end of Description of period expenses accounts Write-offs period - --------------------------- ---------- ----------- ---------- ----------- ---------- Year ended December 31, 1999 - Allowance for uncollectible accounts $ 596,000 $ -- $(183,000)(1) 157,000 $ 256,000 Year ended December 31, 1998 - Allowance for uncollectible accounts $ 81,000 $ -- $515,000(2) $ -- $ 596,000 Year ended December 31, 1997 - Allowance for uncollectible accounts $ 47,000 $ 35,000 $ -- $ 1,000 $ 81,000
1) Represents goodwill adjustment of acquired receivables. 2) Represents allowance for doubtful accounts of acquired assets at date of acquisition. S-2 42 Index to Exhibits
Sequential Page Number ----------- 2.1 Amended and Restated Asset Purchase Agreement between the Registrant, HemaBiologics, Inc. (a wholly owned subsidiary of the Registrant) and Atopix Pharmaceuticals Corporation, dated June 26, 1996--incorporated by reference to Exhibit 2.1 to Form 10-Q of the Registrant for the quarter ended June 30, 1996....................... 2.2 Asset Purchase Agreement between the Registrant, Gateway Community Blood Program and Haemonetics Corporation, dated August 1, 1997--incorporated by reference to Exhibit 2.1 to Form 10-K of the Registrant for the quarter ended September 30, 1997........................................ 3.1 Restated Articles of Incorporation of the Registrant-- incorporated by reference to Exhibit 3.1 to Form 10-K of the Registrant for the year ended December 31, 1995....... 3.2 Bylaws of the Registrant, as amended--incorporated by reference to Exhibit 3.1 to Form 10-Q of the Registrant for the quarter ended March 31, 1998...................... 4.1 Warrant Agreement between the Registrant and Medicorp Inc. dated February 17, 1993--incorporated by reference to Exhibit 4 to the Current Report on Form 8-K of the Registrant dated February 17, 1993........................ 4.2 Form of Warrant Agreement between the Registrant and each of the following consultants: British Far East Holdings, Ltd., Joseph T. McDonald and E. Keene Wolcott dated September 30, 1994--incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended September 30, 1994........................................ 4.3 Warrant Agreement between the Registrant and Torrey Pines Securities, Inc., dated April 8, 1994--incorporated by reference to Exhibit 4.2 to Form 10-Q of the Registrant for the quarter ended March 31, 1994...................... 4.4 Amendment to Warrant Agreement between the Registrant and Torrey Pines Securities dated April 3, 1995--incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended March 31, 1995...................... 4.5 Warrant Agreement between the Registrant and Joseph T. McDonald dated November 1, 1996--incorporated by reference to Exhibit 4.9 to Form 10-K of the Registrant for the year ended December 31, 1996.................................... 4.6 Warrant Agreement between the Registrant and Kibel, Green, Inc., dated March 4, 1999--incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended March 31, 1999....................................... 4.7 Warrant Agreement between the Registrant and Stuart Dinney, dated March 4, 1999--incorporated by reference to Exhibit 4.2 to Form 10-Q of the Registrant for the quarter ended March 31, 1999............................................. 43 4.8 Warrant Agreement between the Registrant and Lori Terra- Vasslo, dated March 4, 1999................................ Filed herewith Electronically 4.9 Rights Agreement between the Registrant and U.S. Stock Transfer Corporation dated March 3, 1998--incorporated by reference to Exhibit 4 to Form 8-K of the Registrant dated March 5, 1998....................................... 4.10 Amended Certificate of Determination, dated March 18, 1998--incorporated by reference to Exhibit 4.8 on Form 10-K for the Registrant for the year ended December 31, 1997..................................................... 4.11 Certificate of Determination of the Registrant's Series B Senior Convertible Preferred Stock between the Registrant and Comdisco Health Care Group dated October 23, 1998-- incorporated by reference to Exhibit 4.1 of Form 8-K of The Registrant dated November 5, 1998................. 4.12 Registration Rights of Shareholders'--Incorporated by reference to Exhibit 4.9 To the Current Report on Form 8-K of the Registrant dated August 19, 1996.............. 4.13 Loan Agreement between the Registrant and Bank Leumi, USA, dated June 1, 1999--incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended June 30, 1999............................................ 10.1 1986 Employee Stock Option Plan, as amended and restated through October 1994--incorporated by reference to Exhibit 10.4 to Form 10-Q of the Registrant for the quarter ended September 30, 1994......................................... 10.2 1996 Stock Incentive Plan of the Registrant, as amended-- incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended September 30, 1996.... 10.3 Office Building Lease dated August 21, 1998 between the Registrant and Tar Addison Place, LP--incorporated by reference to Exhibit 10.1 to Form 10-Q of the Registrant for the quarter ended September 30, 1998................... 10.4 Revolving Credit Agreement between the Registrant and Bank Leumi USA, dated February 5, 1999--incorporated by reference to Exhibit 10.7 of Form 10-K of the Registrant for the year ended December 31, 1998....................... 10.5 Promissory Note between the Registrant and Bank Leumi USA, dated February 5, 1999--incorporated by reference to Exhibit 10.8 of Form 10-K of the Registrant for the year ended December 31, 1998................................... 10.6 Promissory Note to HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, from Joshua Levy dated January 1, 1996--incorporated by reference to Exhibit 10.10 to Form 10-K of the Registrant for the year ended December 31, 1995 ........................................ 44 10.7 Pledge Agreement between HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, and Joshua Levy dated January 1, 1996--incorporated by reference to Exhibit 10.11 to Form 10-K of the Registrant for the year ended December 31, 1995................................................... 10.8 Loan Reimbursement Agreement between HemaBiologics, Inc., a wholly owned Subsidiary of the Registrant, and Joshua Levy dated January 30,1998--incorporated by reference to Exhibit 10.10 of Form 10-K of the Registrant for the year ended December 31,1998........................................... 10.9 Settlement Agreement between the Registrant and Medicorp Inc.--incorporated by reference to Exhibit 10.1 to Form 8-K of the Registrant dated July 19, 1996 ...................... 10.10 Foreclosure Sale Agreement between the Registrant and Comdisco Health Care Group, Inc., dated October 23, 1998 --incorporated by reference to Exhibit 2.1 of Form 8-K of the Registrant dated November 5, 1998....................... 10.11 Employment Agreement between the Registrant and William D. Nicely, dated May 27, 1998--incorporated by reference to Form 10-Q for the quarter ended June 30, 1998............ 10.12 Services Agreement between the Registrant and Alan C. Darlington, dated March 10, 1999--incorporated by reference to Exhibit 10.1 of Form 10-Q of the Registrant for the quarter ended March 31, 1999................................ 11 Computation of earnings (loss) per common equivalent share..Filed herewith Electronically 21 Subsidiaries of the Registrant............................. Filed herewith Electronically 23 Consent of Arthur Andersen LLP............................. Filed herewith Electronically 27 Financial Data Schedule.................................... Filed herewith Electronically
EX-4 2 EXHIBIT 4.8 EXHIBIT 4.8 WARRANT AGREEMENT THIS WARRANT AGREEMENT (this "Agreement") is made and entered into as of the 4 day of March, 1999 by and between LORI TERRA-VASSALO (the "Warrantholder") and HEMACARE CORPORATION, a California corporation (the "Company"). WHEREAS, the Warrantholder and the Company are parties to that certain Noncompetition Agreement dated as of December 30, 1998 (the "Noncompetition Agreement"), pursuant to which Warrantholder is to receive a warrant to purchase 30,000 shares of the common stock of the Company ("Common Stock"), without par value (the "Common Stock"), subject to vesting as provided herein. NOW, THEREFORE, in consideration of the foregoing, and for the purpose of defining the terms and provisions of such warrants, and the respective rights and obligations of the parties with respect thereto, the Company and the Warrantholder hereby agree as follows: Section 1. Form of Warrants; Limitations on Transferability. 1.1 Form and Registration. A Warrant certificate in the form as set forth in Exhibit A attached hereto, shall be issued to the Warrantholder upon the execution and delivery of this Agreement by the Company and the Warrantholder. The Warrant certificate shall be executed on behalf of the Company by its President or by a Vice President, and attested to by its Secretary or an Assistant Secretary. A Warrant certificate bearing the signature of an individual who was at any time the proper officer of the Company shall bind the Company, notwithstanding that such individual shall have ceased to hold such office prior to the delivery of such Warrant certificate or did not hold such office on the date of this Agreement. The Warrant certificate shall be dated as of the date of signature thereof by the Company either upon initial issuance or upon division, exchange, substitution or transfer. Each Warrant certificate shall be numbered and shall be registered on the books of the Company when issued. 1.2 Transfer. The Warrants shall be transferable only on the books of the Company maintained at its principal office in Sherman Oaks, California, or wherever its principal office may then be located, upon delivery thereof duly endorsed by the Warrantholder or by its duly authorized attorney or representative, accompanied by proper evidence of succession, assignment or authority to transfer. Upon any registration of a valid and proper transfer, the Company shall execute and deliver a new Warrant certificate to the person entitled thereto. 1.3 Limitations on Transfer of the Warrants. The Warrantholder agrees that prior to making any transfer or disposition of the Warrants or the shares purchasable upon exercise of the Warrants (the ?Shares?) or any interest therein, the Warrantholder shall give written notice to the Company describing briefly the manner in which any such proposed transfer or disposition is to be made together with an opinion of counsel, in form and substance satisfactory to the Company, to the effect that: (i) a registration statement or other notification or post-effective amendment thereto (hereinafter collectively a ?Registration Statement?) under the Securities Act of 1933, as amended (the "Act") is not required with respect to such transfer or disposition or that such a Registration Statement has been filed with, and declared effective, if necessary, by, the Securities and Exchange Commission (the "Commission"), or (ii) all requirements under any federal, state or foreign securities laws have been satisfied or fulfilled such as to permit the proposed transfer or disposition lawfully pursuant to all such laws. Except as provided in Section 11 hereof, the Company shall not be required to cause the Warrants or the Shares to be registered under any securities laws. The Company will, however, respond to reasonable requests from the Warrantholder for assistance in connection with the perfection or qualification of any exemption from registration under applicable securities laws; provided that the Warrantholder pays or reimburses the Company for its costs and expenses incurred in connection therewith. Unless the context indicates otherwise, the term "Warrantholder" shall include any transferee or transferees of the Warrants, and the term ?Warrants? shall include any and all warrants outstanding pursuant to this Agreement, including those evidenced by a certificate or certificates issued upon division, exchange, substitution or transfer pursuant to this Agreement. 1.4 Legend on Shares and Warrants. Warrantholder hereby represents and warrants to the Company that (i) Warrantholder understands that the offering and sale of the Warrants and the shares purchasable upon exercise thereof have not been, and will not be, registered under the Act or under any state securities laws, and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, and that, as such, the Warrants and the shares purchasable upon exercise thereof will not be freely transferable, that certificates representing the Securities will bear restrictive legends under applicable federal and state securities laws as provided below and shall be subject to stops on transfer. Each certificate for Warrants or Shares issued upon exercise of the Warrants shall bear the following legend, unless, at the time of exercise, such Shares or Warrants are subject to a currently effective Registration Statement under the Act and, if required, are subject to a currently effective qualification or registration under any applicable securities laws of any other jurisdiction: THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR HYPOTHECATION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS SUCH TRANSACTION IS DULY REGISTERED UNDER THE ACT AND ALL OTHER APPLICABLE SECURITIES LAWS OR UNLESS SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE ACT AND ALL OTHER APPLICABLE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER A WARRANT AGREEMENT DATED AS OF MARCH 4, 1999, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER. Any certificate issued at any time in exchange or substitution for any certificate bearing such legends (except a new certificate issued upon completion of a registered distribution as provided above) shall also bear the above legends unless, in the opinion of the Company's counsel, the securities represented thereby need no longer be subject to such restrictions. 1.5 The Warrantholder hereby represents and warrants that it (i) is acquiring the Warrants for its own account for investment purposes only and not with a view to or for sale in connection with a distribution of the Warrants or the Shares; (ii) has relied on its own business and financial knowledge and experience in making the decision to invest in the Warrants; and (iii) has sufficient knowledge and experience in business and financial matters to enable it to use the information made available to it about the Company (including the Company's periodic and other filings with the Securities and Exchange Commission) to evaluate the merits and risks of an investment in the Warrants and to make an informed investment decision with respect thereto. Section 2. Exchange of Warrant Certificate. Any Warrant certificate may be divided, combined or exchanged for another certificate or certificates entitling the Warrantholder to purchase a like aggregate number of Shares as the certificate or certificates surrendered then entitled such Warrantholder to purchase. Any Warrantholder desiring to divide, combine or exchange a Warrant certificate shall make such request in writing delivered to the Company, and shall surrender, properly endorsed, with signatures guaranteed, the certificate evidencing the Warrant to be so exchanged. Thereupon, the Company shall execute and deliver to the person entitled thereto a new Warrant certificate as so requested. Section 3. Term of Warrants; Exercise of Warrants. Subject to the terms of this Agreement, the Warrantholder shall have the right, at any time during the period commencing at 9:00 a.m., Pacific time, on the applicable Vesting Date (as defined in Section 7.1 below), and ending at 5:00 p.m., Pacific time, on October 23, 2003 (unless earlier terminated in accordance herewith), to purchase from the Company (and the Company shall issue and sell to such Warrantholder) any or all of the number of Shares underlying the Warrants which have vested as provided in Section 7.1 below, upon surrender to the Company at its principal office, or upon surrender to any transfer agent designated by the Company for such purposes, of the certificate evidencing the Warrants to be exercised, together with the purchase form attached thereto duly filled in and signed, with signatures guaranteed, and upon payment to the Company of the per share purchase price of $0.90 (the "Warrant Price"), subject to adjustment as provided in Section 8, for the number of Shares in respect of which such Warrant is then exercised, but in no event for less than 500 Shares (unless less than an aggregate of 500 Shares are then purchasable under all outstanding Warrants held by a Warrantholder). Payment of the aggregate Warrant Price shall be made in cash or by cashiers or certified check or bank draft. In lieu of such payment, Warrantholder shall be entitled to receive, without the payment by the Warrantholder of any additional consideration, shares of Common Stock equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the company, with the net issue election notice attached hereto as Exhibit B duly executed, at the principal office of the Company. Thereupon, the Company shall issue to the Warrantholder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula: Where: X= the number of shares of Common Stock to be issued to the Warrant holder. Y= the number of shares of Common Stock covered by this Warrant in respect of which the net issue election is made. A= the fair market value of one share of Common stock, as determined below, as at the time the net issue election is made. B= the Exercise Price in effect under this Warrant at the time the net issue election is made. For purpose of this Section, fair market value of one share of Common Stock as of a particular date shall mean the closing price of the Company's Common Stock on the OTC Bulletin Board or other quotation medium or stock exchange or which the Common Stock is quoted or listed on the day notice of exercise is provided to the Company as provided above. If the Common Stock is not so quoted or listed as provided above, then the fair market value of one share of Common Stock shall be determined by the Board of Directors of the Company in good faith, which determination shall be conclusive and binding on the Warrantholder. Upon such surrender of the Warrants and payment of such Warrant Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the Warrantholder and in the name of the Warrantholder a certificate or certificates for the number of full Shares so purchased upon the exercise of the Warrant, together with cash, as provided in Section 9 hereof, in respect of any fractional Shares otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and the Warrantholder shall be deemed to have become a holder of record of such securities as of the date of surrender of the Warrants and payment of the Warrant Price, as aforesaid, notwithstanding that the certificate or certificates representing such securities shall not actually have been delivered or that the stock transfer book of the Company shall then be closed. The Warrants shall be exercisable, at the election of the Warrantholder, either in full or from time to time in part and, in the event that a certificate evidencing the Warrants is exercised in respect of less than all of the Shares specified therein at any time prior to the termination date, a new certificate evidencing the remaining portion of the Warrants will be issued by the Company. Upon the exercise of a Warrant at a time when there is not in effect under the Act a registration statement relating to the Shares issuable upon exercise thereof and available for delivery to the Warrantholder a prospectus meeting the requirements of Section 10(a)(3) of the Act, the Warrantholder shall represent and warrant in writing to the Company that the Shares purchased are being acquired for investment and not with a view to the distribution thereof. No Shares shall be issuable upon the exercise of any Warrant unless and until any then applicable requirements of the Securities and Exchange Commission, the California Corporations Commissioner, or other regulatory agencies having jurisdiction, and of any exchanges upon which common stock of the Company may be listed, shall have been complied with in full. Section 4. Payment of Taxes. The Company will pay all United States documentary stamp taxes, if any, attributable to the initial issuance of the Shares issuable upon the exercise of the Warrants; provided, however, the Company shall not be required to pay any foreign documentary stamp taxes or tax which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for shares of Common Stock in a name other than that of the registered holder of Warrants in respect of which such shares are issued, and in such case neither the Company nor the Warrant Agent shall be required to issue or deliver any certificate for shares of Common Stock or any Warrant certificate until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid. Section 5. Mutilated or Missing Warrants. In case the certificate or certificates evidencing the Warrants shall be mutilated, lost, stolen or destroyed, the Company may at its discretion, at the request of the Warrantholder, issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate or certificates, or in lieu of and substitution for the certificate or certificates lost, stolen or destroyed, a new Warrant certificate or certificates of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant certificate and a bond of indemnity, if requested, also satisfactory in form and amount at the applicant's cost. Applicants for such substitute Warrant certificates shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe. Section 6. Reservation of Shares. There has been reserved, and the Company shall at all times keep reserved so long as the Warrants remain outstanding, out of its authorized Common Stock, such number of shares of Common Stock as shall be subject to purchase under the Warrants. Every transfer agent for the Common Stock issuable upon the exercise of the Warrants will be irrevocably authorized and directed at all times to reserve such number of authorized and unissued shares as shall be requisite for such purpose. The Company will keep a copy of this Agreement on file with every transfer agent for the Common Stock issuable upon the exercise of the Warrants. The Company will supply every such transfer agent with duly executed stock and other certificates, as appropriate, for such purpose and will provide or otherwise make available any cash which may be payable as provided in Section 9 hereof. Section 7. Vesting Date; Early Termination. 7.1 The applicable "Vesting Date" of the Warrants shall be the earliest to occur of (i) the following vesting dates: Number of Shares Vesting Date 10,000 April 1, 1999 10,000 July 1, 1999 10,000 October 1, 1999 (ii) the sale of all or substantially all the assets of the Company and (iii) the 15th day prior to the date fixed as the record date or the date of closing the stock transfer books of the Company for the determination of the stockholders entitled to any rights to receive merger consideration or other rights in connection with any proposed merger or consolidation of the Company with respect to which the Company would not be the surviving entity. 7.2 Notwithstanding any other provision of this Agreement to the contrary, the Warrants shall immediately terminate and shall not be or become exercisable upon (a) the breach by Warrantholder of any provision of the Noncompetition Agreement, or (b) the termination of Warrantholder's employment with the company for Cause (as defined below). Cause shall mean (i) the conviction of a felony in a court of law, (ii) a material breach of fiduciary duty owed to the Company, or (iii) gross neglect of duties by the Warrantholder. Section 8. Adjustments. The number and kind of securities purchasable upon the exercise of the Warrants and the Warrant Price shall be subject to adjustment from time to time upon the happening of certain events, as follows: 8.1 Adjustments. The number of Shares purchasable upon the exercise of the Warrants shall be subject to adjustment as follows: (a) In case the Company shall (i) pay a dividend in Common Stock or make a distribution in Common Stock, (ii) subdivide its outstanding Common Stock, (iii) combine its outstanding Common Stock into a smaller number of shares of Common Stock, or (iv) issue, by reclassification of its Common Stock, other securities of the Company, the number of Shares purchasable upon exercise of the Warrants immediately prior thereto shall be adjusted so that the Warrantholder shall be entitled to receive the kind and number of Shares or other securities of the Company which the Warrantholder would have owned or would have been entitled to receive immediately after the happening of any of the events described above, had the Warrants been exercised immediately prior to the happening of such event or any record date with respect thereto. Any adjustment made pursuant to this subsection 8.1(a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) No adjustment in the number of Shares purchasable pursuant to the Warrants shall be required unless such adjustment would require an increase or decrease of at least one percent in the number of Shares then purchasable upon the exercise of the Warrants; provided, however, that any adjustments which by reason of this subsection 8.1(b) are not required to be made immediately shall be carried forward and taken into account in any subsequent adjustment. (c) Whenever the number of shares of Common Stock purchasable upon the exercise of a Warrant is adjusted as herein provided, the Warrant Price payable upon exercise of the Warrant shall be adjusted by multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of such Warrant immediately prior to such adjustment, and the denominator of which shall be the number of Shares of Common Stock so purchasable immediately thereafter. (d) Whenever the number of Shares purchasable upon the exercise of the Warrants is adjusted as herein provided, the Company shall cause to be promptly mailed to the Warrantholder by certified or registered mail, return receipt requested, postage prepaid, notice of such adjustment and a certificate of the chief financial officer of the Company setting forth the number of Shares purchasable upon the exercise of the Warrants after such adjustment, a brief statement of the facts requiring such adjustment and the computation by which such adjustment was made. (e) For the purpose of this subsection 8.1, the term "Common Stock" shall mean the class of stock designated as the Common Stock of the Company at the date of this Agreement. In the event that at any time, as a result of an adjustment made pursuant to this Section 8, the Warrantholder shall become entitled to purchase any securities of the Company other than Common Stock, (i) if the Warrantholder's right to purchase is on any other basis than that available to all holders of the Company's Common Stock, the Company shall obtain an opinion of an independent investment banking firm valuing such other securities and (ii) thereafter the number of such other securities so purchasable upon exercise of the Warrants shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Shares contained in this Section 8. 8.2 No Adjustment for Dividends. Except as provided in subsection 8.1, no adjustment in respect of any dividends or distributions out of earnings shall be made during the term of the Warrants or upon the exercise of the Warrants. Subject to any requirements of California corporate laws and regulations, applicable federal and state securities laws and regulations and any securities exchanges or over-the-counter markets upon which the Common Stock is listed or qualified for trading enacted or adopted after the date of this Agreement, the record date for the payment of any dividend or distribution out of earnings made while any of the Warrants are outstanding shall be not less than thirty (30) days after the public announcement of the declaration of such dividend or distribution. 8.3 Preservation of Purchase Rights upon Merger or Consolidation. In case of any consolidation of the Company with or merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property, assets or business of the Company as an entirety or substantially as an entirety, the Company or such successor or purchasing corporation, as the case may be, shall execute with the Warrantholder an agreement that the Warrantholder shall have the right thereafter upon payment of the Warrant Price in effect immediately prior to such action to purchase, upon exercise of the Warrants, the kind and amount of shares and other securities and property which it would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had the Warrants been exercised immediately prior to such action. In the event of a triangular merger in which the Company is the surviving corporation, the right to purchase Shares under the Warrants shall terminate on the date of such merger and thereupon the Warrants shall become null and void, but only if the controlling corporation shall agree to substitute for the Warrants its warrant which entitles the holder thereof to purchase upon its exercise the kind and amount of shares and other securities and property which it would have owned or been entitled to receive had the Warrants been exercised immediately prior to such merger. Any such agreements referred to in this subsection 8.3 shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section 8 hereof. The provisions of this subsection 8.3 shall similarly apply to successive consolidations, mergers, sales or conveyances. 8.4 Independent Public Accountants. The Company may retain a firm of independent public accountants of recognized national standing (which may be any such firm regularly employed by the Company) to make any computation required under this Section 8, and a certificate signed by such firm shall be presumptive evidence of the correctness of any computation made under this Section 8. 8.5 Statement on Warrant Certificates. Irrespective of any adjustments in the number of securities issuable upon exercise of Warrants, Warrant certificates theretofore or thereafter issued may continue to express the same number of securities as are stated in the similar Warrant certificates initially issuable pursuant to this Agreement. However, the Company may, at any time in its sole discretion (which shall be conclusive), make any change in the form of Warrant certificate that it may deem appropriate and that does not affect the substance thereof; and any Warrant certificate thereafter issued, whether upon registration of transfer of, or in exchange or substitution for, an outstanding Warrant certificate, may be in the form so changed. Section 9. Fractional Interests. The Company shall not be required to issue fractional Shares on the exercise of the Warrants. If any fraction of a Share would, except for the provisions of this Section 9, be issuable on the exercise of the Warrants (or specified portion thereof), the Company shall pay an amount in cash equal to the then Current Market Price multiplied by such fraction. For purposes of this Agreement, the term "Current Market Price" shall mean (i) if the Common Stock is traded in the over-the- counter market and not in the Nasdaq National Market System nor on any national securities exchange, the average of the per share closing bid prices of the Common Stock on the 30 consecutive trading days immediately preceding the date in question, as reported by Nasdaq or an equivalent generally accepted reporting service, or (ii) if the Common Stock is traded in the Nasdaq National Market System or on a national securities exchange, the average for the 30 consecutive trading days immediately preceding the date in question of the daily per share closing prices of the Common Stock in the Nasdaq National Market System or on the principal stock exchange on which it is listed, as the case may be. For purposes of clause (i) above, if trading in the Common Stock is not reported by Nasdaq, the bid price referred to in said clause shall be the lowest bid price as reported in the "pink sheets" published by National Quotation Bureau, Incorporated. The closing price referred to in clause (ii) above shall be the last reported sale price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case in the Nasdaq National Market System or on the national securities exchange on which the Common Stock is then listed. Section 10. No Rights as Shareholder; Notices to Warrantholder. Nothing contained in this Agreement or in the Warrants shall be construed as conferring upon the Warrantholder any rights as a stockholder of the Company, including the right to vote, receive dividends, consent or receive notices as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or any other matter. If, however, at any time following the Vesting Date and prior to the expiration of the Warrants and prior to their exercise, any one or more of the following events shall occur: (a) any action which would require an adjustment pursuant to Section 8.1 or 8.3; (b) the Company shall make a declaration for the payment of any other dividend or the making of any other distribution upon the Common Stock; (c) the Company shall make an offer to the holders of Common Stock for the subscription or purchase by them any share of any class or any other rights; (d) the capital reorganization of the Company or the reclassification of the capital stock of the Company; or (e) the consolidation or merger of the Company with or into another entity, the sale of all or substantially all of the assets of the Company or the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall give notice in writing of such event to the Warrantholder, as provided in Section 12 hereof, at least 20 days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to any relevant dividend, distribution, subscription rights or other rights or for the determination of stockholders entitled to vote on such proposed dissolution, liquidation or winding up. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to mail or receive such notice or any defect therein shall not affect the validity of any action taken with respect thereto. Section 11. Registration Rights. (a) Whenever the Company proposes to file with the Commission a Registration Statement (other than a registration statement on Form S-4 or S-8 or any corresponding future forms, or any other form for a limited purpose which excludes registration of the Shares, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation) in connection with the registration of its Common Stock, the Company shall, at least fifteen (15) days prior to each such filing, give written notice of such proposed filing to the Warrantholder and each holder of the Shares, and shall use its reasonable efforts to include in such filing any proposed disposition of the Shares (issued or issuable upon the exercise of Warrants which are then vested in accordance with Section 7, herein) upon receipt by the Company of a written request therefor, given within ten (10) days after such notice is given by the Company, setting forth the facts with respect to such proposed disposition and all other information with respect to such person necessary to be included in such Registration Statement; provided that the Company shall have the right to postpone or withdraw any registration of its Common Stock (and the corresponding registration effected pursuant to this Section 11) without obligation to the Warrantholder or any holder of the Shares. (b) Notwithstanding the foregoing, the Company shall not be required to include any Shares in an underwritten public offering unless the Warrantholder or holder of the Shares accepts the terms of the underwriting as agreed upon between the Company and the underwriter(s) selected by it, and then only in such quantity as will not, in the opinion of the managing underwriter(s), jeopardize or be detrimental to the success of the offering (including price) by the Company. In the event that the managing underwriter(s) advise the Company in writing that the inclusion of all or any portion of the Shares in the offering would jeopardize or be detrimental to the success of the offering, the number of the Shares to be included in the offering shall be reduced to the number of Shares, if any, that the managing underwriter(s) believe may be sold without causing such adverse effect. In the event that the managing underwriter(s) advise the Company in writing that the inclusion of a portion of such Shares in the offering would not jeopardize or be detrimental to the success of the offering, and such portion is less than the amount requested for inclusion by all persons having registration rights in respect of the offering, then the amount to be included shall be prorated among the requesting Warrantholder, requesting holders of the Shares and other security holders of the Company possessing similar registration rights in accordance with their relative holdings, it being agreed to by the Company that no person who does not possess such registration rights shall be allowed to participate in the offering to the exclusion of any Shares requested to be included by any holder of the Warrants or the Shares, and such Shares shall be offered and sold on the same terms and conditions as the shares of Common Stock, if any, being offered by the Company in such offering. In the event that any of the Shares are registered in connection with the registration of an underwritten public offering but are not included in such underwritten public offering, those Shares which are excluded from the offering shall be withheld from the market by the Warrantholder or the holder(s) of such Shares for a period, not to exceed 120 days, which the managing underwriter(s) reasonably determine is necessary in order to effect the underwritten public offering. The Company shall use its best efforts to keep effective any Registration Statement covering any of the Shares not subject to or included in an underwritten public offering for a period of 90 days after the later of the effective date of such Registration Statement or the date, if any, that the underwriter(s) specify to be the date upon which such Shares may first be distributed. (c) All fees, disbursements and out-of-pocket expenses (other than brokerage or underwriting fees and commissions and legal fees of counsel to the Warrantholder or any holder of the Shares, if any) in connection with the filing of any Registration Statement under this Section 11 and in complying with applicable securities and Blue Sky laws shall be borne by the Company; provided, however, that all underwriting discounts and selling commissions applicable to the Shares covered by registrations effected pursuant to this Section 11 shall not be borne by the Company but shall be borne by the Warrantholder and each holder of the Shares benefited thereby. Notwithstanding the foregoing, the Company shall not be required to register the Shares or perfect any exemption for the offering and sale of the Shares under (i) the securities laws of any foreign jurisdiction or (ii) the securities laws of any State, territory or possession of the United States in the event that registration or the perfection of an exemption under the law of any such State, territory or possession would, in the opinion of the Company, result in the imposition of unreasonable restrictions on the Company or its shareholders, officers, directors or employees. The Company at its expense will supply the Warrantholder and any holder of the Shares with copies of such Registration Statement and the prospectus included therein and other related documents in such quantities as may be reasonably requested by the Warrantholder or holder of the Shares. In addition, the Company shall have no obligation to register the Shares in the event the Warrantholder is free to sell such securities under Rule 144 under the Act. Section 12. Notices. Any notice pursuant to this Agreement by the Company or by a Warrantholder or a holder of Shares shall be in writing and shall be deemed to have been duly given if delivered or mailed by certified mail, return receipt requested: (a) If to the Warrantholder or a holder of Shares - addressed to Lori Terra-Vassalo, XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX, XXXXXXXXX. (b) If to the Company - addressed to it at 4954 Van Nuys Boulevard, Sherman Oaks, California 91403, Attention: William D. Nicely, Chief Executive Officer, with a copy to Sheppard, Mullin, Richter & Hampton, LLP, 333 South Hope Street, 48th Floor, Los Angeles, California 90071, Attention: James M. Rene, Esquire. Each party may from time to time change the address to which notices to it are to be delivered or mailed hereunder by notice in accordance herewith to the other party. Section 13. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company, the Warrantholder or the holders of Shares shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 14. Survival of Representations and Warranties. All statements contained in any schedule, exhibit, certificate or other instrument delivered by or on behalf of the parties hereto, or in connection with the transactions contemplated by this Agreement, shall be deemed to be representations and warranties hereunder. Notwithstanding any investigations made by or on behalf of the parties to this Agreement, all representations, warranties and agreements made by the parties to this Agreement or pursuant hereto shall survive. Section 15. Applicable Law. This Agreement shall be deemed to be a contract made under the laws of the State of California and for all purposes shall be construed in accordance with the laws of said State. This Agreement has been executed and delivered by the parties in the State of California. Section 16. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Warrantholder and the holders of Shares any legal or equitable right, remedy or claim under this Agreement. This Agreement shall be for the sole and exclusive benefit of the Company, the Warrantholder and the holders of Shares. Section 17. Entire Agreement; Amendments. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes any and all prior agreements with respect to the subject matter hereof, and may be modified only by a written instrument duly executed by each party affected by any such modification. Section 18. Descriptive Headings. The descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed, all as of the day and year first above written. HEMACARE CORPORATION (CORPORATE SEAL) By: /s/ William D. Nicely --------------------------- William D. Nicely Chief Executive Officer ATTEST: /s/ JoAnn R. Stover - --------------------------- JoAnn R. Stover, Secretary /s/ Lori Terra-Vasslo ------------------------ LORI TERRA-VASSALO EXHIBIT A THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR HYPOTHECATION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS SUCH TRANSACTION IS DULY REGISTERED UNDER THE ACT AND ALL OTHER APPLICABLE SECURITIES LAWS OR UNLESS SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE ACT AND ALL OTHER APPLICABLE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER A WARRANT AGREEMENT DATED AS OF ______________, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER. WARRANT CERTIFICATE NO. __________ WARRANT TO PURCHASE _______ SHARES OF COMMON STOCK VOID AFTER 5:00 P.M., PACIFIC TIME, ON ___________, 20__ HEMACARE CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA This certifies that, for value received,_________________________ or permitted assigns (the "Holder"), is entitled to purchase from HEMACARE CORPORATION, a California corporation (the "Company"), at any time before 5:00 p.m., Pacific Time, on _______, 200_, at a per share purchase price of $_____ (the "Warrant Price"), the number of shares of Common Stock, without par value, of the Company set forth above (the "Shares"). The number of Shares purchasable upon exercise of this Warrant and the Warrant Price are subject to adjustment from time to time as set forth in the Warrant Agreement referred to below. This Warrant may be exercised in whole or in part by presentation of this certificate with the Purchase Form attached hereto duly executed (with a signature guarantee as provided on such Purchase Form) and simultaneous payment of the Warrant Price (subject to adjustment) at the principal office of the Company or at the office of any stock transfer agent designated by the Company for such purposes. Payment of such price shall be made at the option of the Holder in cash or by certified check or bank draft, all as provided in the Warrant Agreement. This Warrant is part of a duly authorized issue of Common Stock Purchase Warrants with rights to purchase an aggregate of up to ________ Shares of Common Stock of the Company and are issued under and in accordance with a Warrant Agreement dated as of ________, 19__, between the Company and _____________ (the "Warrant Agreement") and are subject to the terms and provisions contained in the Warrant Agreement, to all of which the Holder of this Warrant certificate by acceptance hereof consents. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Company. The Warrant Agreement provides for the early termination of this Warrant upon the occurrence of certain events. Upon any partial exercise of this Warrants, there shall be countersigned and issued to the Holder a new Warrant certificate in respect of the Shares as to which this Warrant has not been exercised. This Warrant certificate may be exchanged at the principal office of the Company, or at the office of any stock transfer agent designated by the Company for such purposes, by surrender of this Warrant certificate properly endorsed (with a signature guarantee) either separately or in combination with one or more other Warrants for one or more new Warrants to purchase the same aggregate number of Shares evidenced by the Warrant or Warrants exchanged. No fractional Shares will be issued upon the exercise of this Warrant, but the Company shall pay the cash value of any fractional share otherwise issuable upon the exercise of this Warrant. This Warrant is transferable at the principal office of the Company, or at the office of any stock transfer agent designated by the Company for such purposes, in the manner and subject to the limitations set forth in the Warrant Agreement. The Holder hereof may be treated by the Company and all other persons dealing with this Warrant certificate as the absolute owner hereof for all purposes and as the person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding, and until such transfer is entered on such books, the Company may treat the Holder hereof as the owner for all purposes. This Warrant certificate does not entitle the Holder hereof to any of the rights of a shareholder of the Company. Dated as of: ___________ HEMACARE CORPORATION By: __________________________ Alan C. Darlington Chairman of the Board ATTEST: ___________________________ JoAnn R. Stover, Secretary HEMACARE CORPORATION PURCHASE FORM Mailing Address: HemaCare Corporation 4954 Van Nuys Boulevard Sherman Oaks, California 91403 The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant for, and to purchase thereunder, Shares of Common Stock provided for therein, and requests that certificates for such Shares be issued in the name of: ________________________________________________________________ (Please Print or Type Name, Address and Social Security Number) ________________________________________________________________ and, if said number of Shares shall not be all the Shares purchasable hereunder, that a new Warrant certificate for the balance of the Shares purchasable under the within Warrant certificate be registered in the name of the undersigned Holder or his Assignee as below indicated and delivered to the address stated below. I hereby make the following representations and warranties with respect to the Shares I am hereby acquiring: (i) I am purchasing the Shares for my own account, for investment purposes only and not with a view to or for sale in connection with the distribution of such Shares; (ii) I have relied on my own business and financial knowledge and experience in making the decision to invest in the Shares; (iii) I have sufficient knowledge and experience in business and financial matters to enable me to use the information made available to me about the Company (including the Company's periodic and other filings with the Securities and Exchange Commission) to evaluate the merits and risks of an investment in the Shares and to make an informed investment decision with respect thereto; and (iv) I have no reason to anticipate any change in circumstances, financial or otherwise, that necessitate or require any sale or distribution of the Shares. Dated: ___________________________________________ Name of Holder or Assignee: _________________________________________________________ (Please Print) Address: __________________________________________________________________ __________________________________________________________________ Signature:_________________________________________________________ _ Note: The above signature must correspond with the name as it appears upon the face of the within Warrant certificate in every particular, without alteration or enlargement or any change whatever, unless this Warrant has been assigned Signature Guaranteed:________________________________________________ (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered securities exchange or the National Association of Securities Dealers, Inc. The guarantor of signature must be a participant in the Medallion Stamp Program.) ASSIGNMENT (To be signed only upon assignment of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto - ------------------------------------------------------------- (Name and Address of Assignee Must Be Printed or Typewritten) the within Warrant, hereby irrevocably constituting and appointing _________________________________________ Attorney to transfer said Warrant on the books of the Company, with full power of substitution in the premises. Dated: _____________ ______________________________________________ Signature of Registered Holder The signature on this assignment must correspond with the name as it appears upon the face of the within Warrant certificate in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed:_________________________________________________ (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered securities exchange or the National Association of Securities Dealers, Inc. The guarantor of signature must be a participant in the Medallion Stamp Program.) EXHIBIT B Net Issue Election HemaCare Corporation 4954 Van Nuys Boulevard Sherman Oaks, CA 91403 Ladies and Gentlemen: The undersigned hereby elects under Section __ of the Warrant dated ________ (the "Warrant"), to exercise its right to receive ________ shares of Common Stock pursuant to the Warrant. The certificate(s) for such shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below: Name for Registration:____________________________________ Mailing Address: _________________________________________ __________________________________________________________ Name: _____________________________________ By: Its: EX-11 3 EXHIBIT 11 HemaCare Corporation EXHIBIT 11 Net Income per Common and Common Equivalent Share
Years Ended December 31, ------------------------------------------------------- 1999 1998 1999 1998 ----------- ------------ ------------ ----------- BASIC ----- Weighted average common shares used to compute basic earnings per share............................... 7,437,582 7,281,120 7,393,001 7,267,753 =========== ============ ============ ========= Net income.......... $ 342,000 $ 420,000 $1,057,000 $ 745,000 =========== ============ ============ ========= Basic net income per share............. $ 0.05 $ 0.06 $ 0.14 $ 0.10 =========== ============ ============ ========= DILUTED ------- Weighted average common shares used to compute basic earnings per share.... 7,437,582 7,281,120 7,393,001 7,267,753 =========== =========== ============ ========= Dilutive preferred equivalent shares.. 500,000 376,344 500,000 94,086 Dilutive effect of common stock issuable in connection with acquisition.......................... 45,000 11,342 Dilutive common equivalent shares attributable to stock options (based on average market price)..... 185,726 - 243,680 - Dilutive common equivalent shares attributable to warrants (based on average market price)............... 19,600 - 20,838 - ---------- ---------- ---------- --------- Weighted average common shares and equivalents used to compute diluted earnings per share.......... 8,142,908 7,702,464 8,157,519 7,373,181 =========== =========== ============ ========= Net income........... $ 342,000 $ 420,000 $1,057,000 $ 745,000 ========== =========== ============ ========== Diluted net income per share ...... $ 0.04 $ 0.06 $ 0.13 $ 0.10 =========== =========== ============ ==========
EX-21 4 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT HemaBiologics, Inc., a California corporation Comprehensive Blood Services, Inc., a Missouri corporation Coral Blood Services, Inc., a California corporation EX-23 5 EXHIBIT 23 EXHIBIT 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K, of our report dated March 25, 2000 included in Registration Statements on Form S-8 File No. 33-30991, File No. 33-52622, File No. 33-60101 and File No. 333-18601 and on Form S-3 File No. 33-44869 and File No. 333-18599. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1999 or performed any audit procedures subsequent to the date of our report. /s/ Arthur Andersen LLP ------------------------- ARTHUR ANDERSEN LLP Los Angeles, California March 28, 2000 EX-27 6 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary financial information extracted from audited financial statements contained in Form 10-K for the year ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1999 DEC-31-1999 1,490,000 778,000 3,346,000 256,000 781,000 6,341,000 2,639,000 1,920,000 7,574,000 2,566,000 0 0 75,000 13,676,000 9,311,000 7,574,000 19,021,000 19,021,000 14,995,000 14,995,000 3,041,000 0 93,000 1,085,000 28,000 1,057 ,000 0 0 0 1,057,000 0.14 0.13
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