-----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, M5jgpKNY+MrJqzm1ciMPsLfW6H2Xqmb4nIYiLfWhFj+AWOL2+Zs3u0RiOi6Gbq0T gNnrnzAT6u3+H+JJJapjgQ== 0000801748-96-000002.txt : 19960402 0000801748-96-000002.hdr.sgml : 19960402 ACCESSION NUMBER: 0000801748-96-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-15223 FILM NUMBER: 96542106 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 (Fee Required) For fiscal year ended December 31, 1995 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) 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) 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 25, 1996, 5,929,285 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 average of the closing bid and asked prices of the Common Stock as reported on NASDAQ) was approximately $17,058,704. Portions of the Registrant's definitive Proxy Statement for its June 5, 1996 Annual Meeting of Shareholders (which has not been filed as of the date of this filing) are incorporated by reference into Part III. ============================================================================= 1 PART I ITEM 1. BUSINESS. General HemaCare Corporation was formed in 1978 to provide high quality, community- based blood products and services to hospitals. The Company is an industry leader in the commercial application of apheresis (cell separation) technology to blood banking. HemaCare provides blood component products, including single donor apheresis platelets, and therapeutic apheresis services to hospitals. The Company believes it is the largest commercial provider of apheresis-derived blood products and therapeutic blood services in southern California, based on its knowledge of the industry and information provided by its suppliers and trade organizations. The Company's corporate headquarters are located in Sherman Oaks, California, a suburb of Los Angeles. Southern California operations are conducted from this location and, starting in February 1996, from a blood center located at the University of Southern California Health Sciences Campus. In December 1995, the Company, opened a full-service regional blood program in St. Louis, Missouri. Therapeutic services are provided in northern Georgia from a facility located in metropolitan Atlanta. Changes in the health care industry are forcing hospitals to find ways of providing cost-effective, blood products and services, in a community-based, patient-focused model. Management believes that this environment provides opportunities for a national expansion of the Company's blood products and services business, together with the addition of other blood-related businesses. The Company s first two expansion projects are its University of Southern California Blood Center in Los Angeles, California and the Gateway Community Blood Program in St. Louis, Missouri. From 1990 to November 1995, the Company, through its wholly-owned subsidiary, HemaBiologics, Inc. ( HBI ), pursued the research and development of Immupath(TM), an anti-HIV hyperimmune plasma-based product intended to be used in the treatment of Acquired Immune Deficiency Syndrome ( AIDS ). The net losses incurred by the Company during this period were primarily due to Immupath-related expenses. In November 1995, after an unsuccessful search for third-party funding to continue the development of Immupath, the Company's Board of Directors decided to discontinue HBI's activities. (See "Discontinued Operations") Certain medical terms included in the following discussions are further explained in a glossary located at the end of this Item 1. HemaCare Corporation and its wholly-owned subsidiaries are collectively referred to herein as "HemaCare" or the "Company". Expansion Strategy and Recent Expansion - --------------------------------------- Management believes that the current health care industry environment, with its ever increasing emphasis on quality, cost-effective pricing, and customer service, provides strategic opportunities for a national expansion of HemaCare's blood products and services businesses and for expanding the range of the Company's products and services through internal development and/or acquisition of related and complementary businesses and technologies. The Company's most recent expansion projects, the University of Southern California Blood Center ("USC Blood Center") and Gateway Community Blood Program ("Gateway") represent the Company's implementation of its expansion strategies. The USC Blood Center, a full-service blood donation and services facility, opened in February 1996. Located on the USC Health Sciences Campus in Los Angeles, California, the center provides services to the USC/Norris Comprehensive Cancer Center and Hospital and the USC University Hospital (the "USC Hospitals"). The USC Hospitals have agreed that HemaCare will be their primary provider of blood products and therapeutic services. The USC Blood Center facility is leased from USC and is staffed and operated by HemaCare under its Food and Drug Administration ("FDA") license. Pathologists on the USC medical faculty provide medical direction services for the USC Blood Center as consultants to the Company. 2 Gateway, which commenced operations in December 1995, provides a comprehensive blood program to hospitals and patients in metropolitan St. Louis and to nearby Missouri and Illinois communities. In February 1996, Gateway opened a satellite collection center near Belleville, Illinois, in response to requests by local physicians and hospitals. Additional satellite collection and distribution centers are planned as necessary to provide convenient service to Gateway's donors and customers. In addition to collecting whole blood and platelets at its fixed sites, Gateway conducts mobile blood drives with local business, schools, churches and civic organizations. In connection with Gateway's formation, the Company entered into a letter of intent to make royalty payments to certain parties in consideration of certain commitments to the establishment of Gateway. The definitive agreement providing for the payment of these royalties has not been completed due to a dispute with one of the parties. The letter of intent provides for cash royalties of 20 percent of Gateway's cash flow and shares of HemaCare stock with a value equal to the cash royalty, up to a maximum of 500,000 shares of HemaCare stock. Royalty payments commence after the Company recovers its initial investment in Gateway including capital expenditures and operating deficits and terminate in 2003. Management is evaluating a number of additional expansion opportunities, including blood centers and regional programs similar to the USC Blood Center and Gateway and operations similar to the Company's existing southern California business. However, further expansion will require that the Company obtain additional financing. Various financing arrangements are under consideration, but there can be no assurance that the Company will be able to obtain the funds necessary to finance additional expansion projects. In addition, there can be no assurance that the recent or future expansion projects will be successfully implemented or profitable. Blood Products - -------------- General The Company provides a full range of component blood products to hospitals in southern California and Missouri. These products include whole-blood components ("components") such as packed red cells and fresh frozen plasma and single donor apheresis platelet products ("apheresis platelets" or "platelets ). Currently, only packed red cells can be provided to hospitals in Illinois. The Company has applied to amend its FDA Product license to allow Gateway to provide a full range of products to its hospital customers in Illinois and other states. The Company produces most of the platelet products it sells from donations made at its Sherman Oaks location. Sales of components prior to 1996 consisted entirely of distributed products purchased from third-party providers. In December 1995, the Company began whole-blood collections and component manufacturing at its St. Louis, Missouri facility, and in February 1996, component manufacturing commenced at the Sherman Oaks, California location for whole-blood collected at the USC Blood Center. Single Donor Apheresis Platelets The Company collects single donor platelets, using apheresis technology, at its FDA licensed donor center in Sherman Oaks, California, and intends to commence platelet collection at the USC Blood Center and Gateway locations in the second quarter of 1996. Platelet donors must pass the Company's stringent donor screening standards. After collection, the platelets are tested, labeled and delivered to hospital clients. Temperature control and constant movement (using a rotator) maintain the platelets' viability for five days. When necessary to meet its customer's needs, the Company also purchases and distributes platelet products. All platelet suppliers are FDA licensed and accredited by the American Association of Blood Banks. 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 patients with conditions associated with massive blood loss. Approximately 11% of platelets sold in 1995 were distributed product purchased from outside suppliers. 3 Apheresis technology allows a single donor to provide enough platelets for one to three therapeutic doses. Conventional technology requires the administration of platelets separated from six to ten pints of whole blood drawn from six to ten different donors to provide a therapeutic dose. As a result, a therapeutic dose of conventional platelets exposes the patient to a number of different donors and increases the risk of exposure to transfusion-related infections or allergic reactions. Apheresis-derived platelets, such as those sold by HemaCare, greatly reduce patient risk since a therapeutic dose is derived from a single donor. This is especially important to immune-compromised patients. Platelet apheresis technology involves the use of a cell separator operated by a trained nurse-specialist. 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 every two weeks, up to 24 times per year, since donating platelets does not deplete donors of red blood cells. In order to attract and retain qualified donors at its Sherman Oaks, California location, the Company reimburses these donors for their time and commitment. The cash reimbursement is variable, based on the number and frequency of donations, and includes a bonus program. The Company also plans to recruit non-cash compensated donors (volunteers under California law) for its USC Blood Center and Gateway platelet donation programs. Unless existing exemptive legislation is extended, California law will require that hospitals in California use blood products provided by volunteers by the end of 2001. Component Blood Products In response to requests by its hospital clients to provide a steady, reliable supply of whole-blood components, HemaCare began selling component blood products such as packed red cells, fresh frozen plasma and cryoprecipitate in 1991. From 1991 through 1995, all component products sold were purchased under contractual relationships with blood centers located throughout the U.S. All suppliers are FDA licensed and accredited by the American Association of Blood Banks. Starting in 1996, component products sold will include both purchased and Company-manufactured products. Component products manufactured by Gateway, under HemaCare's FDA license, are sold to hospitals in the St. Louis metropolitan area and adjacent communities. Component products manufactured at the Sherman Oaks facility are sold primarily to the USC Hospitals under the terms of the Company's agreements with these hospitals. Blood Services - -------------- General Since its inception, the Company has performed more than 29,000 therapeutic apheresis procedures in the treatment of more than 27 diseases. Therapeutic apheresis ("therapeutics" or "therapeutic services"), a technique for removing harmful components from a patient's blood, is used in the treatment of patients with autoimmune diseases and other disorders. Therapeutic services are provided to hospitals in southern California and to a lesser extent, northern Georgia. The Company may in the future, provide therapeutic services in Missouri and Illinois through Gateway. The number of therapeutic procedures performed and the gross profit margin on therapeutic services have declined over the last several years. Management believes that this decline is the result of a recessionary economy in the early 1990's, restricted opportunities for growth in southern California, its primary market, and changes in the health care utilization and reimbursement imposed by third-party payors. Therapeutic services are provided upon the request of a hospital who has received an order from a patient's physician or directly upon the request by a physician for his or her patient. The Company customarily bills the hospital directly for its therapeutic services. Therapeutic treatments are administered through the use of mobile units operated at the patient's bedside or in a hospital outpatient setting. The mobile therapeutics unit is self-contained and 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, under the supervision of a specially trained physician. Joshua Levy, M.D., a principal shareholder, director and medical director of the Company, through his private practice, treats patients who require therapeutic services. Sales by the Company to unaffiliated hospital customers for therapeutic services for Dr. Levy's patients amounted to approximately 7% ($802,000) of the Company's total revenues for 1995. There are no agreements between Dr. Levy or the Company and the Company's hospital 4 customers that require the hospitals to select HemaCare to provide therapeutic services to these patients. Recent amendments to the Federal self-referral laws and related regulations could restrict the Company's ability to provide therapeutic services to Dr. Levy's patients who are covered by Medicare or MediCal (approximately 50% of Dr. Levy's therapeutics patients). However, the legal requirements are complex, and the Company has requested a clarification of their application to its business from regulatory authorities. Dr. Levy has informed the Company that, in the event of an adverse response, it would be his intention to change his relationship with the Company to allow the Company to retain revenue from services for these patients. (See "Government Regulation") The Company provides therapeutic services using all currently recognized treatment methods: 1) conventional plasma exchange and cell depletion, 2) in-line immunoadsorbant columns, and 3) stem cell rescue. Conventional Plasma Exchange and Cell Depletion The primary blood service provided by the Company, accounting for 92% of therapeutics procedures in 1995, is conventional plasma exchange and cell depletion therapy. This procedure involves removing harmful substances from a patient's blood, using automated 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. Most individual treatments involve the removal of two to four liters of abnormal plasma or certain cellular components. Replacement fluids are used to maintain the patient's blood volume. Patients suffering from diseases such as multiple myeloma, HIV-polyneuropathy, leukemia, systemic lupus erythematosus, lupus nephritis, scleroderma, hyperviscosity syndrome, thrombocytosis, myasthenia gravis and Guillain-Barre syndrome may benefit from therapeutic treatments. A patient may require from four to twenty treatments over a period of time ranging from a few days to three months. Each treatment may last from two to four hours. Immunoadsorption Since 1988, the Company has also provided a second generation therapeutics treatment which adds an immunoadsorption column in-line to the apheresis equipment to selectively remove immune complexes. Currently, only one manufacturer offers an FDA approved column for commercial use. However, if additional columns were to be approved by the FDA, broadened clinical applications for column treatments could develop. Autologous Stem Cell Rescue and Cryopreservation In 1990, the Company began providing a technology known as peripheral stem cell collection 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 treatments of intensive chemotherapy followed by reinfusion of the patient's own stem cells. In 1994, the Company combined cryopreservation with its stem cell collection to provide a full-service program. This program consists of mobile, peripheral stem cell collection for certain cancer patients, followed by processing, freezing and short-term storage (cryopreservation) of the stem cells prior to reinfusion into the treated patient. The addition of cryopreservation service enables the Company to provide a full service stem cell program to community hospitals. In 1995, the Company provided its first full-service stem cell procedure to a community hospital. However, the Company's cryopreservation service has not yet begun full commercial operations because of the resistance of third party payors to reimbursing community hospital customers for this procedure. The procedure is generally reimbursed to larger hospitals with established programs. The Company believes that increasing pressure from physicians and patients will, in the future, result in acceptance of the procedure for reimbursement by third party payors to community hospitals and that the Company will benefit by being prepared to perform the service with its experienced and qualified personnel. 5 Discontinued Operations - ------------------------ Overview From 1990 through 1994, HBI conducted research and development activities relating to Immupath, an anti-HIV hyperimmune plasma product. During the past century, hyperimmune plasma products have been successfully used in the treatment and prophylaxis of diseases such as polio, tetanus, Rh disease of the newborn, hepatitis, vaccinia, herpes zoster, rabies and cytomegalovirus. By providing patients with a wide variety of anti-HIV antibodies which they cannot manufacture themselves, Immupath was believed to have the potential for the treatment of AIDS. In late 1994, the Company determined that ongoing Immupath research and development activities could no longer be funded internally. At that time, most Immupath related activity was suspended, and a search for alternative financing was initiated. Although a number of potential financing sources were investigated, none proved viable, and in November 1995, the Company's Board of Directors decided to discontinue HBI's operations, including research and development activities and the associated specialty plasma business. As a result of this decision, the Company recorded a loss on disposal of discontinued operations of $3.1 million in the fourth quarter of 1995, which includes the write off of the research and development and specialty plasma assets and a reserve for operating losses and contingent liabilities related to the disposal of HBI's discontinued operations. The Company does not expect the discontinued operations to have a material impact on its future operating performance. Research and Development During the wind down of the research and development operations, the Company is exploring opportunities to sell HBI's research and development assets and to transfer the research project to a third party. The Company has a manufactured a supply of Immupath sufficient to supply the 20 patients still receiving treatment for approximately 24 months. Specialty Plasma Business To obtain the raw material for the manufacturing of Immupath, HBI operated four FDA licensed plasma donor centers. When anti-HIV plasma donations were suspended because of lack of funding for the Immupath project, the centers continued to collect plasma from donors who have unusual and valuable antibodies for sale to pharmaceutical and diagnostic reagent manufacturers. Although this activity was intended to cover the operating costs of the centers until the Immupath project received additional funding, the specialty plasma business incurred losses from its inception. Two of the plasma centers were closed in 1994 and a third was closed in 1995. The remaining center, located in San Diego, California, will be sold or closed as a part of the discontinued operations wind down, and the FDA licenses are being offered for sale. Competition - ------------ General The Company competes on the basis of its responsiveness to customer needs, the price and quality of services and products and the efficiency with which they are rendered or produced. However, many blood providers, including the American Red Cross, have greater financial, technical and personnel resources than the Company, and additional companies may enter the field, increasing competition. In addition, some medical teaching and other hospitals have in- house blood banking and therapeutic service capabilities which, do not compete directly with the Company, but do reduce the market for third-party services. Blood Products The primary competition for the Company's single donor platelets and component blood products is the American Red Cross. Community and hospital-based blood banks also compete with HemaCare to a lesser extent. Key competitive factors in the industry include reputation for responsive service, quality of product and price. The Company believes that it provides superior quality platelet products due to its more selective and stable donor pool, its apheresis production techniques, its stringent testing standards and its experienced and qualified staff. 6 Blood Services Competitors of the Company's therapeutic blood services business include the American Red Cross, a number of small blood banks and local kidney specialists (nephrologists) who supplement hemodialysis services with therapeutic apheresis services. In addition, some of the diseases which 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 - ---------- The Company markets its therapeutic services and blood products through a combination of medical education, technical and trade show presentations, advertising and promotional programs, in-person sales and other marketing programs directed to selected physicians, hospitals and donors. Such programs emphasize the cost and safety benefits of using the Company's blood services and products. The Company uses a depot system for distributing its blood products to certain of its customers which enhances convenience and product availability. This depot system provides the customer with an on- site inventory of blood products stocked by the Company under a standing order. If the customer cannot make use of a depot inventory product before its expiration date, the Company attempts to relocate the product to a customer in need of such product at no additional charge to the depot customer. Due to the nature of this arrangement, depot systems are implemented only at larger volume order customer locations. Human Resources - --------------- At March 1, 1996, the Company had approximately 85 full-time and 35 part-time employees. Most of the Company's professional and management personnel possess prior experience in hospitals, medical companies or blood banks. None of the Company's employees are represented by a labor union. The Company considers its relations with its employees to be good. Supplies - -------- The Company maintains relationships with numerous suppliers who provide cell separator equipment, disposables, supplies, replacement fluids and distributed blood products. To date, the Company has experienced little difficulty in obtaining 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. 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 American Red Cross and most community blood banks, compensates most of its Sherman Oaks platelet donors thereby enhancing its ability to retain its pool of repeatedly tested, frequent donors. However, most of the USC Blood Center and Gateway donors are expected to be volunteers. Accordingly, the Company will compete directly with the American Red Cross and other blood banks in recruiting volunteer donors at its USC Blood Center and at Gateway. 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 volunteer donors. Government Regulation - --------------------- The Company's business is subject to various federal, state and local regulations including those of the FDA and California Department of Health Services. The Company's blood products business is operated under an FDA Establishment License, a State of California Biologics License and is accredited by the American Association of Blood Banks ("AABB"). Gateway operates under HemaCare s FDA Establishment License. The states of Missouri and Illinois do not separately regulate blood banking operations in their states. State and federal laws set forth antikickback and self- referral prohibitions and otherwise regulates financial relationships between blood banks and hospitals, physicians and other persons who refer business to them. While the Company believes its present operations comply 7 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. The Company primarily relies on its licensed and accredited laboratory to perform the various tests required by the FDA and State of California to ensure the purity, potency and quality of the blood products that are sold. The laboratory is staffed by state licensed medical technologists and laboratory technicians. 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. The Company's apheresis platelet products, which are obtained from paid donors, are exempted from this requirement by a state statute passed in late 1994, but which contains a "sunset" provision under which the exemption expires on December 31, 2001. Recent amendments to the Federal self-referral laws and related regulations could restrict the Company's ability to provide therapeutic services to Dr. Levy's patients who are covered by Medicare or MediCal. It is estimated that revenues from these patients represents approximately 3.5% of the Company's 1995 revenues ($401,000). However, the legal requirements are complex, and the Company has requested a clarification of their application to its business from regulatory authorities. Dr. Levy has informed the Company, in the event of an adverse response, it would be his intention to change his relationship with the Company to allow the Company to retain revenue from services for these patients. The Company has been informed by counsel that legislation may be introduced in Congress which, if adopted, would exclude the services performed by the Company in hospitals from self-referral prohibitions. However, there can be no assurance that such legislation will be introduced and, if introduced, that it will be enacted. Health care reform is still 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 price controls, universal health insurance and managed competition may materially impact the Company's operations. Malpractice 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 malpractice insurance in the amount of $2,000,000 for a single occurrence and $5,000,000 in the aggregate per year. The state laws of California, Missouri, Illinois and the laws of virtually all other states classify the provision and use of whole blood, plasma and blood products for the purpose of injections and transfusions into human beings as a service rather than the sale of a product. Therefore, the Company should not be subject to product liability claims as a result of injuries arising out of the therapeutic infusion of its blood products and does not intend to obtain product liability insurance at this time. Glossary - -------- 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. Antigen - Any substance which is foreign to the recipient and triggers the body's immune mechanism resulting in the production of specific antibodies. 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. 8 Autologous - A blood product obtained from a patient and subsequently reinfused into that patient. 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 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; takes part 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 (i.e., progenitor cells). 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 hemapheresis technology to the clinical treatment of autoimmune diseases and blood cell disorders by removing selected, abnormal components or cells and returning all other components. 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 and manufacturing facility for whole blood components. The lease terminates in July 1997. The USC Blood Center operates a blood donation and therapeutics center in a 1,600 square foot facility in Los Angeles, California, under a lease which terminates in February 1999. Gateway occupies a 12,260 square foot facility in St. Louis, Missouri, where it maintains its offices and operates a blood donation and blood services center and manufactures whole blood components. The lease terminates in February 2001. In February 1996, Gateway leased an additional 1,071 square feet of space near Belleville, Illinois for the operation of a blood donation facility. This lease expires in January 1997. The Company also leases approximately 20,000 square feet of space in San Diego and Valenica, California, which will be subleased or otherwise disposed of in connection with the disposal of HBI s operations. ITEM 3. LEGAL PROCEEDINGS. On March 11, 1994, the Company was served with a lawsuit filed by a former employee against the Company and its wholly owned subsidiary, HBI, in the Superior Court of the State of California, related to the termination of this employee and seeking relief in the amount of $550,000. The case is still in the discovery stage in the proceedings and neither management nor counsel are in a position to evaluate the probable merits of the claim asserted by this former employee. Accordingly, the resolution of this lawsuit could have a material impact on the Company's financial condition and results of operations. 9 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 - ------------------------ The Company's Common Stock is traded in the NASDAQ Small-Cap Issues market under the symbol HEMA. The following table sets forth the range of high and low closing bid prices of the Common Stock, as reported by NASDAQ, for the quarters ended March 31, June 30, September 30 and December 31, 1995 and 1994. These prices reflect inter-dealer quotations, without retail markups, markdowns or commissions, and do not necessarily represent actual transactions. 1995 1994 Quarter ended High Low High Low March 31 $ 3.00 $ 2.06 $ 7.00 $ 5.38 June 30 $ 2.63 $ 2.00 $ 5.75 $ 3.75 September 30 $ 4.63 $ 2.56 $ 4.38 $ 3.13 December 31 $ 4.25 $ 3.50 $ 4.00 $ 2.50 No cash dividends had been paid as of March 1, 1996. The Company does not anticipate paying cash dividends in the foreseeable future. As of March 1, 1996, there were approximately 360 holders of record of the Company's Common Stock. ITEM 6. SELECTED FINANCIAL DATA.
Year Ended December 31, 1995 1994 1993 1992 1991 ------------ ------------ ------------ ------------ ------------ Revenues................. $10,782,884 $10,847,651 $11,556,280 $11,960,489 $ 8,250,416 Gross Profit............. 2,707,316 2,963,432 3,307,122 3,818,890 3,159,854 Income from continuing operations............. 479,755 676,337 763,698 885,963 1,125,280 Discontinued Operations: Loss from discontinued operations............ (901,706) (2,963,742) (3,309,466) (1,884,883) (1,356,043) Loss on disposal of discontinued operations............ (3,113,925) -- -- -- -- Net loss................. (3,535,876) (2,287,405) (2,545,768) (998,920) (230,763) Per Share Amounts: - ------------------- Income from continuing operations............. 0.08 0.13 0.16 0.21 0.33 Discontinued Operations: Loss from discontinued operations............ (0.15) (0.57) (0.68) (0.44) (0.40) Loss on disposal of discontinued operations............ (0.53) -- -- -- -- Net loss................. (0.60) (0.44) (0.52) (0.23) (0.07) Total assets............. 4,455,656 6,288,909 6,717,235 7,161,762 5,109,019 Long-term debt and capital lease obligations, net of current portion........ 648,614 286,998 431,574 463,806 758,237 Shareholders' equity..... 1,226,690 3,899,935 4,584,786 4,665,862 2,690,328
10 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. Revenues - Continuing Operations - -------------------------------- Total revenues for 1995 approximated the 1994 amount, while 1994 revenues decreased approximately 6% ($709,000) from the 1993 amount. A decrease in 1995 blood service revenues was approximately offset by an increase in blood products revenues. The 1995 change in therapeutics revenues reflects a continuing downward trend in demand. Both blood products and blood services revenues decreased in 1994. In 1995 and 1994, the Company's businesses were negatively impacted by the slow recovery of the southern California economy, which continued to lag behind the nation as a whole, and pressures imposed by third-party payors to reduce health care utilization, including certain specialized treatments for which the Company provides blood products or services. In addition, the Company lost several major platelet customers in 1994, one of which was closed most of the year because of damage from the January earthquake and others which developed in-house blood donation facilities. Blood Products Blood products (apheresis platelet and component) revenues increased 2% ($135,000) in 1995 and decreased 7% ($489,000) in 1994. The 1995 revenue increase was due to a 3% ($141,000) increase in platelet revenues resulting from a 1% increase in the number of units sold and a 2% increase in the price per unit. In 1994, platelet revenues decreased 18% ($926,000) as a result of a 19% decrease in units sold and an offsetting 2% overall increase in the price per unit. Revenues from sales of component products distributed by the Company were flat in 1995 and increased 16% ($355,000) in 1994, as a result of a 9% increase in units sold and a 7% increase in the price per unit. The decrease in platelet sales in 1994 reflects the loss of: 1) a significant hospital customer because of damage from the January 1994 earthquake and 2) major customers who developed in-house platelet manufacturing programs, reducing their demand for the Company's products. The Company added new customers in 1994 which offset some of the reductions described above. Management believes that the future growth of platelet product sales will be modest in the southern California market, and although it expects demand for component products to increase, sales of distributed component products may also be flat because the Company may not be able to obtain purchased products for its customers at an attractive price because of the overall blood shortage in the U.S. Sales of Company-manufactured component products are expected to increase as donation's at the USC Blood Center and Gateway increase. Blood Services Blood Services revenue decreased 5% ($200,000) in 1995 and 5% ($220,000) in 1994. Los Angeles therapeutics revenues declined 4% ($154,000) in 1995 and remained relatively stable for 1994. In 1995, the number of therapeutic procedures performed in the Los Angeles area decreased by 6%, while the price per procedure increased slightly. The number of 1994 Los Angeles therapeutics procedures and the related revenue approximated the 1993 amounts. The choice of therapeutic apheresis rather than an alternative treatment for a particular diagnosis often depends on general acceptance by the medical community and the willingness of third-party payors to reimburse hospitals for the cost of this treatment. In addition, other changes in medical practices can affect the usage of therapeutic apheresis technology. An increase in the use of high dosage radiation, chemotherapy and stem cell therapy to treat certain cancers has resulted in an increase in the number of stem cell collection procedures performed by the Company. However, because of the large market share of the therapeutics business in southern California enjoyed by HemaCare, management expects that unless there are additional medical applications approved for therapeutics or other significant changes in market factors, future therapeutics revenues will remain flat or decline in southern California. Therapeutics revenues from the northern Georgia operation decreased 17% ($54,000) in 1995 and 27% ($121,000) in 1994. The decrease in revenues is a result of 34% and 20% declines in the number of procedures performed in 1995 and 1994, respectively. The decrease in 1995 revenues was partially offset by an increase in the revenue per procedure of 26%, while revenue per procedure declined by 13% in 1994. 11 Gross Profit - Continuing Operations - ------------------------------------ Gross profit as a percentage of revenue decreased to 25% in 1995 from 27% in 1994 and 29% in 1993. The decrease in the 1995 gross profit margin is due to the operating losses associated with starting up the USC Blood Center and Gateway projects. In 1994, the gross profit margin remained relatively stable, despite the negative impact of expenses associated with start up of the new stem cell business which incurred $250,000 in operating losses. Expansion Operations The USC Blood Center and Gateway commenced operations in February 1996 and December 1995, respectively. Operating losses associated with the start up of these new operations reduced the Company s 1995 overall gross profit margin by 2%. (See "Liquidity and Capital Resources") Blood Products The gross profit margin on platelets decreased in 1995 and 1994, while the gross profit margin on component products increased in both years. The 1995 decrease in platelet profit margin was due to higher disposables costs and an increase in the number of distributed platelets sold. The Company's profit margin on purchased and distributed platelets is less than the profit margin on the Company's manufactured platelets. The 1994 decrease in platelet gross profit margin was due to higher expenses per unit of platelets sold because of higher supply and laboratory costs and the impact of overhead costs on lower volumes of sales. The increase in the 1995 component sales gross profit margin was due to an increase in the average sales price per unit. In 1994, profitability for component products increased because of increased average per unit sales prices and reductions in purchase prices. Blood Services The gross profit margin on the Los Angeles therapeutic services decreased in 1995 due primarily to a lower volume of procedures performed. In 1994, profitability of Los Angeles therapeutic services improved primarily because of an overall price increase together with decreases in per unit labor costs resulting from the use of flexible staffing. In the second quarter of 1995, the Georgia therapeutics operation began sharing office space and certain administrative services with an unaffiliated company in a similar but non-competitive business. This change reduced 1995 overhead costs for this operation by 47% ($72,000). Management believes that this reduction in overhead will allow Georgia therapeutics business to operate at least at break even in 1996. However, because the success of the Georgia operations is uncertain, the Company wrote off the related goodwill balance of approximately $71,000 at December 31, 1994. General and Administrative Expenses - ----------------------------------- General and administrative expenses were 3% ($59,000) lower in 1995 and 11% ($275,000) lower in 1994. The decrease in 1995 expenses is primarily due to the 1994 write off of goodwill associated with the acquisition of the Company's northern Georgia therapeutic services operation. The decrease in 1994 expenses was the result of management's implementation of corporate spending controls, including staffing reductions. Discontinued Operations - ----------------------- The Company incurred research and development expenses and associated speciality plasma business losses of $902,000 in 1995, $2,964,000 in 1994 and $3,309,000 in 1993 for Immupath, its experimental treatment for HIV/AIDS, and the associated plasma donation centers. During 1994 and 1993, the Company engaged in on-going activities related to the research project including treating patients from the California clinical trials and continuing to research the manufacturing of a second generation Immupath product. In late 1994, the Company determined that ongoing Immupath research and development activities could no longer be funded internally. In November 1995, the Company's Board of Directors decided to discontinue its research and development activities. As a result of this decision, the 12 Company recorded a loss on disposal of discontinued operations of $3.1 million in the fourth quarter of 1995 which includes a reserve for operating losses and contingent liabilities related to the disposal of the research and development and specialty plasma businesses. The Company does not expect the discontinued operations to have a material impact on its future operating results. Liquidity and Capital Resources - ------------------------------- At December 31, 1995, the Company had cash and short-term investments of $996,608. The Company's $700,000 line of credit with its commercial bank is in effect until April 30, 1996, with a provision that the Company maintain cash and/or short-term security balances of at least $400,000 (excluding borrowings) at all times, which it has done. After recording the loss on disposal of its discontinued operations, the Company was in default under certain of the covenants of its line of credit agreement. The bank has waived compliance with these covenants through April 30, 1996. At December 31, 1995, there were no borrowings outstanding on the line of credit, and the Company has requested its bank to renew the credit agreement. The USC Blood Center draws its donors from the practices of physicians associated with the USC Hospitals, the families of hospitalized patients, students at the University of Southern California and the local community. Under the terms of the Company's three-year agreements with the Hospitals, products produced from collections at the USC Blood Center are first to be made available to fill the needs of the Hospitals. If all products produced are not purchased by the Hospitals, the Company may sell them to other customers. Until its operations reaches break even, the Company will be required to fund the Center's start up losses. The Company is further obligated to fund the costs of tenant improvements for the center. Up to $100,000 of these charges are recoupable through surcharges payable by the Hospitals. Gateway opened for business and began conducting blood drives in December 1995. Gateway, which competes directly with the American Red Cross, is currently building its donor and customer base. Until Gateway's operations achieve break even, the Company will be required to fund its working capital needs. Based on hospital usage and purchasing patterns, the St. Louis blood products and services market is believed to generate $40 million per year in sales of blood products and services. Management believes that Gateway will be able to capture a sufficient portion of this market to make its operation profitable, however, the success of operations will be dependent on a number of factors and circumstances, many of which will be outside the Company's control. Accordingly, there can be no assurance that profitable operations will be achieved. Management is evaluating a number of additional expansion opportunities, including blood centers and regional programs similar to the USC Blood Center and Gateway and operations similar to the Company's existing southern California business. However, further expansion will require that the Company obtain additional financing. Various financing arrangements are under consideration, but there can be no assurance that the Company will be able to obtain the funds necessary to finance additional expansion projects. Winding down discontinued operations will require funding operating costs, including salaries and benefits and facilities costs, until disposal of these operations is complete. Approximately $336,000 of the reserve provided for disposal is expected to be funded from the Company's working capital in 1996. Up to an additional $600,000 of the reserve may be funded from working capital or capital resources in future periods. However, although the reserve for disposal was estimated based on the best available information, there can be no assurance that the reserve provided will be sufficient to cover all disposal costs. On March 11, 1994, the Company was served with a lawsuit filed by a former employee against the Company and its wholly owned subsidiary, HBI, in the Superior Court of the State of California, related to the termination of this employee and seeking relief in the amount of $550,000. The case is still in the discovery stage in the proceedings and neither management nor counsel are in a position to evaluate the probable merits of the claim asserted by this former employee. Accordingly, the resolution of this lawsuit could have a material impact on the Company's financial condition and results of operations. 13 In February 1996, the Company terminated an agreement with a vendor, based on the inability of the vendor's product to perform to the standards outlined in the agreement. The vendor is disputing the basis for the termination. The Company intends to vigorously defend any legal action which may result from this dispute, and the resolution of this matter is not expected to have a material impact on the Company's financial position or future results of operations. At December 31, 1995, the Company had working capital of approximately $1,382,000. The Company's continuing operations, other than the USC Blood Center and Gateway, are profitable and cash flow positive. The Company anticipates that positive cash flow from its operations, its cash and investments on hand and funds available under its credit line will be sufficient to provide funding for the anticipated 1996 operating deficits of the USC Blood Center and Gateway, fund the costs of disposing of its discontinued operations and meet its other working capital needs for 1996 (including capital and operating lease commitments of approximately $981,000). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Index to Financial Statements and Schedules appears on page F-1, the Independent Auditors' Report appears on F-2, and the Consolidated Financial Statements and Notes to Consolidated Financial Statements appear on pages F-3-12. 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 14 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 ot 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. 3.1 Restated Articles of Incorporation of the Registrant 3.2 Bylaws of the Registrant--incorporated by reference to Exhibit 3.2 to Form 10-K of the Registrant for the year ended December 31, 1992 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 Warrant Agreement between the Registrant and Huss Kealy Sinclair dated May 7, 1993--incorporated by reference to Registration Statement on Form S-3 of the Registrant (File No. 33-44869) 4.3 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 4.4 Offshore Securities Subscription Agreement between the Registrant and Tesoma Overseas, Inc., dated April 8, 1994- -incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended March 31, 1994 4.5 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 4.6 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 he Registrant for the quarter ended March 31, 1995 4.7 Warrant Agreement between the Registrant and M.A. Levy and Associates dated March 1, 1995--incorporated by reference to Exhibit 4.7 to Form 10-K of the Registrant for the year ended December 31, 1994 4.8 Form of Warrant Agreement between the Registrant and Tesoma Overseas, Inc. dated February 9, 1995--incorporated by reference to Exhibit 4.8 to Form 10-K of the Registrant for the year ended December 31, 1994 15 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 Lease dated July 10, 1986 between the Registrant and Addison Place Partners--incorporated by reference to Registration Statement on Form S-18 of the Registrant (File No. 33-8513-LA) 10.3 Amendment No. 1 to Lease between the Registrant and Addison Place Partners dated March 30, 1993--incorporated by reference to Exhibit 10.3 to Form 10-K of the Registrant for the year ended December 31, 1994 10.4* Employment Agreement between Harold I. Lieberman and the Registrant, dated September 19, 1988--incorporated by reference to Exhibit 10.4 to Form 10-K of the Registrant for the year ended December 31, 1994 10.5* Amendment to Employment Agreement between the Registrant and Harold I. Lieberman, dated September 19, 1989-- incorporated by reference to Exhibit 10.5 to Form 10-K of the Registrant for the year ended December 31, 1994 10.6 License agreement between the Registrant and Medicorp Inc. dated February 17, 1993--incorporated by reference to Exhibit 10 to the Current Report on Form 8-K of the Registrant dated February 17, 1993 10.7 Revolving Credit Agreement between the Registrant and Bank Leumi Le-Israel, B.M., dated April 30, 1995 and related security agreements--incorporated by reference to Exhibit 10.1 to Form 10-Q of the Registrant for the quarter ending March 31, 1995 10.8 Computer System Acquisition Agreement between the Registrant and EtCom Canada, Inc. dated May 17, 1994-- incorporated by reference to Exhibit 10.4 to Form 10-Q of the Registrant for the quarter ended June 30, 1994 10.9 Disclosure and License Agreement for Blood Derived Therapeutic Products between HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, and The New York Blood Center dated November 1, 1994--incorporated by reference to Exhibit 10.9 to Form 10-K of the Registrant dated December 31, 1995 10.10 Promissory Note to HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, from Joshua Levy dated January 1, 1996 10.11 Pledge Agreement between HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, and Joshua Levy dated January 1, 1996 11 Computation of earnings (loss) per common equivalent share 21 Subsidiaries of the Registrant 23 Consent of Arthur Andersen LLP 27 Financial Data Schedule * Denotes a management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. None. 16 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, 1996 \s\ Sharon C. Kaiser -------------------------- Sharon C. Kaiser, 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, 1996. Signature Title --------- ----- \s\ Thomas M. Asher ------------------------ Thomas M. Asher Chairman of the Board \s\ Hal I. Lieberman - ------------------------- Hal I. Lieberman President, Chief Executive Officer and Director(Principal Executive Officer) \s\ Joshua Levy - ------------------------- Joshua Levy Senior Vice President, Medical Affairs and Director \s\ Sharon C. Kaiser - -------------------------- Sharon C. Kaiser Chief Financial Officer (Principal Financial and Accounting Officer) \s\ Jon B. Victor - -------------------------- Jon B. Victor Director __________________________ Glenn W. Bartlett Director __________________________ Willis L. Warner Director 17 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, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . F-3 For the years ended December 31, 1995, 1994 and 1993: 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 18 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, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP ----------------------------- ARTHUR ANDERSEN LLP Los Angeles, California March 7, 1996 F-2 19 ITEM 14 (a). FINANCIAL STATEMENTS HEMACARE CORPORATION CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 AND 1994
December 31, 1995 1994 ----------- ----------- ASSETS Current assets: Cash and cash equivalents................. $ 996,608 $ 786,334 Short-term investments.................... -- 295,434 Accounts receivable, net of allowance for doubtful accounts - $94,489 (1995) and $141,243 (1994).......................... 1,626,923 1,606,566 Product inventories....................... 141,072 117,683 Supplies.................................. 327,517 324,047 Prepaid expenses.......................... 116,874 109,972 Note receivable from officer - current.... 15,000 -- ------------- ------------- Total current assets................... 3,223,994 3,240,036 Plant and equipment, net of accumulated depreciation and amortization of $1,513,443 (1995) and $1,895,863 (1994)... 1,050,576 1,463,261 Note receivable from officer - non-current.. 93,973 90,470 Licenses.................................... - 1,394,337 Other assets................................ 87,113 100,805 ------------- ------------- $ 4,455,656 $ 6,288,909 ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................... $ 472,701 $ 765,233 Accrued blood purchases................... 251,487 202,312 Accrued payroll and payroll taxes......... 309,315 324,408 Other accrued expenses.................... 263,506 267,062 Current obligations under capital leases.. 208,521 221,555 Line of credit payable to bank............ -- 200,000 Reserve for discontinued operations - current.................................. 336,387 -- ------------- ------------- Total current liabilities.............. 1,841,917 1,980,570 Obligations under capital leases, net of current portion........................ 648,614 286,998 Other accrued employee benefits............. 138,435 121,406 Reserve for discontinued operations - non-current............................... 600,000 -- Commitments and contingencies............... Shareholders' Equity: Common stock, without par value - 20,000,000 shares authorized, 5,911,285 and 5,366,381 issued and outstanding in 1995 and 1994, respectively............................. 12,179,302 11,316,671 Accumulated deficit........................ (10,952,612) (7,416,736) ------------- ------------ Total shareholders' equity............. 1,226,690 3,899,935 ------------- ------------ $ 4,455,656 $ 6,288,909 ============= ============
See Notes to Consolidated Financial Statements F-3 20 HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995 1994 1993 ------------ ------------ ------------- Revenues: Blood services......................... $ 3,741,174 $ 3,940,809 $ 4,160,823 Blood products......................... 7,041,710 6,906,842 7,395,457 ------------- ------------- ------------- Total revenues...................... 10,782,884 10,847,651 11,556,280 Cost of sales and services: Blood services........................ 2,564,856 2,752,751 2,759,905 Blood products........................ 5,510,712 5,131,468 5,489,253 ------------- ------------- ------------- Total cost of sales and services... 8,075,568 7,884,219 8,249,158 ------------- ------------- ------------- Gross profit....................... 2,707,316 2,963,432 3,307,122 General and administrative expense....... 2,225,453 2,284,350 2,559,025 Interest (income) expense: Interest income........................ (45,355) (40,224) (80,373) Interest expense....................... 47,463 42,969 64,772 ------------- ------------- ------------- Income from continuing operations before income taxes........................... 479,755 676,337 763,698 Provision for income taxes............... -- -- -- Discontinued operations: Loss from discontinued operations...... (901,706) (2,963,742) (3,309,466) Loss on disposal of discontinued operations, including provision of $1,034,787 for operating losses during phase-out period............... (3,113,925) -- -- ------------- ------------- ------------- Net loss........................... $ (3,535,876) $ (2,287,405) $ (2,545,768) ============= ============= ============= Per share amounts: Income from continuing operations...... $ 0.08 $ 0.13 $ 0.16 Discontinued operations: Loss from discontinued operations...... (0.15) (0.57) (0.68) Loss on disposal of discontinued operations, including provision for operating losses during phase-out period................................ (0.53) -- -- ------------- ------------- ------------- Net loss........................... $ (0.60) $ (0.44) $ (0.52) ============= ============= ============= Weighted average common and common equivalent shares outstanding........ 5,844,267 5,240,793 4,879,671 ============= ============= =============
See Notes to Consolidated Financial Statements F-4 21 HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
Common Stock Accumulated Shares Amount Deficit Total ----------- ----------- ------------- ------------ Balances, December 31, 1992............ 4,357,075 $ 7,249,425 $ (2,583,563) $ 4,665,862 Exercise of stock options and warrants. 29,417 85,892 -- 85,892 Issuance of common stock............... 400,000 1,776,840 -- 1,776,840 Issuance of common stock for employee 401(k) and incentive bonus plans...... 5,951 51,960 -- 51,960 Issuance of warrants.................. -- 550,000 -- 550,000 Net loss............................... -- -- (2,545,768) (2,545,768) ---------- ------------ ------------- ------------ Balances, December 31, 1993............ 4,792,443 9,714,117 (5,129,331) 4,584,786 Exercise of stock options and warrants. 315,833 665,863 -- 665,863 Issuance of common stock............... 250,000 890,087 -- 890,087 Issuance of common stock for employee 401(k) and incentive bonus plans...... 8,105 46,604 -- 46,604 Net loss.............................. -- -- (2,287,405) (2,287,405) ---------- ------------ ------------- ------------ Balances, December 31, 1994............ 5,366,381 11,316,671 (7,416,736) 3,899,935 Exercise of stock options and warrants. 528,083 795,925 -- 795,925 Compensation expense related to the issuance of common stock options at a price below market.................. -- 12,038 -- 12,038 Issuance of common stock for employee 401(k) and incentive bonus plans...... 16,821 54,668 -- 54,668 Net loss............................... -- -- (3,535,876) (3,535,876) ---------- ----------- ------------- ------------ Balances, December 31, 1995............ 5,911,285 $12,179,302 $(10,952,612) $ 1,226,690 ========== =========== ============= ============
See Notes to Consolidated Financial Statements F-5 22 HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 1994 1993 ------------- ------------- ------------- Cash flows from operating activities: Net loss................................... $ (3,535,876) $ (2,287,405) $ (2,545,768) Adjustments to reconcile net loss to net cash used in operating activities: Write-off of assets from discontinued operations............................ 2,079,138 -- -- Increase in reserves for discontinued operations............................ 936,387 -- -- Write-off of intangible assets.......... -- 71,209 -- Depreciation and amortization of plant and equipment................... 434,430 476,880 426,854 Amortization of intangible assets....... 64,037 65,430 60,124 Provision for losses on accounts receivable............................ 29,015 (22,811) 43,065 Provision for 401(K) matching........... -- -- 49,984 Issuance of common stock for employee compensation................. 66,706 46,604 51,960 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable............................ (49,372) (130,522) 707,184 Decrease (increase) in inventories, supplies and prepaid expenses......... (33,761) 31,902 (122,930) Increase in other assets, net........... (92,577) (7,262) (40,297) Increase (decrease) in accounts payable and accrued expenses.................. (257,404) 307,545 (12,845) Increase (decrease) in other accrued employee benefits..................... 17,029 (79,467) 53,220 ------------- ------------- ------------- Net cash used in operating activities...... (342,248) (1,527,897) (1,329,449) ------------- ------------- ------------- Cash flows from investing activities: Acquisition of licenses.................... -- (315,000) (250,000) Increase in note receivable from officer... (18,503) (90,470) -- Decrease (increase) in short-term investments.............................. 295,434 201,368 40,108 Purchase of plant and equipment, net....... (181,527) (108,358) (714,170) ------------- ------------- ------------- Net cash used in investing activities...... 95,404 (312,460) (924,062) ------------- ------------- ------------- Cash flows from financing activities: Proceeds from issuance of common stock..... 795,925 1,555,950 1,862,732 Proceeds from line of credit............... -- 400,000 -- Principal payments on line of credit and capital leases....................... (338,807) (479,176) (290,004) ------------- ------------- ------------- Net cash provided by financing activities............................... 457,118 1,476,774 1,572,728 ------------- ------------- ------------- Increase (decrease) in cash and cash equivalents.............................. 210,274 (363,583) (680,783) Cash and cash equivalents at beginning of period................................ 786,334 1,149,917 1,830,700 ------------- ------------- ------------- Cash and cash equivalents at end of period................................ $ 996,608 $ 786,334 $ 1,149,917 ============= ============= ============= Supplemental disclosure: Interest paid.............................. $ 47,463 $ 42,969 $ 64,772 ============= ============= ============= Items not impacting cash flows: Increase in capital lease obligations...... $ 487,389 $ 107,623 $ 274,440 ============= ============= ============= Issuance of common stock warrants for acquisition of license................... $ -- $ -- $ 550,000 ============= ============= ============= See Notes to Consolidated Financial Statements F-6 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization - --------------------- HemaCare Corporation was incorporated in California in 1978 for the purpose of providing community-based blood services and blood products to hospitals. 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 portions of Missouri and Illinois. From 1990 to November 1995, the Company, through its wholly-owned subsidiary HemaBiologics, Inc. ("HBI"), conducted research and development of Immupath(TM), 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. (Note 11) In 1992, the Company acquired Georgia Hemapheresis Services (GHS), a company it had previously managed. GHS was merged into HemaCare Corporation and is now a division HemaCare Corporation. GHS provides therapeutic services to hospitals in northern Georgia. HemaCare Corporation and its wholly-owned subsidiaries are referred to as "HemaCare" or the "Company" in these Notes. Note 2 - Summary of Accounting Policies - --------------------------------------- Principles of Consolidation: The accompanying consolidated financial statements include the accounts of HemaCare, Gateway and HBI. 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. (Note 11) Cash, Cash Equivalents and Short-term Investments: The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Short-term investments consist of U.S. government treasury bills. Financial Instruments: Cash and cash equivalents, short-term investments, 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 the sale 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 blood components F-7 24 that are manufactured or purchased and distributed by the Company. Accounts receivable are reviewed periodically for collectibility. Inventories and Supplies: Inventories consist of Company-manufactured platelets and whole blood components as well as component blood products purchased for resale. Supplies consist primarily of medical supplies directly related to procedures for collecting and manufacturing products and providing therapeutic services. Plant and Equipment: Plant and equipment is stated at original cost. Furniture, fixtures, equipment and automobiles are depreciated using the straight-line method over 3 to 5 years. Leasehold improvements are amortized over the length of the lease, ranging from 5 to 10 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. Other Assets: As of December 31, 1995 and 1994, other assets consisted primarily of deposits. Licenses: At December 31, 1994, licenses consisted of FDA licenses which permitted the Company to harvest and sell certain blood products and a license agreement with Medicorp Inc. ("Medicorp") for the rights to the United States patent to commercialize Immupath. Costs were amortized on a straight-line basis over the shorter of the length of the license agreement or 40 years. Accumulated amortization of licenses was $175,522 at December 31, 1994. In November 1995, the Company discontinued operations of HBI and wrote off the unamortized book value of the licenses. (Notes 9 and 11) Goodwill: In 1993, goodwill associated with the acquisition of GHS was being amortized over 40 years. Due to market factors, GHS has incurred losses for the past three years. Although management believes that GHS can operate at least at break-even level and has taken steps to reduce its operating costs, the Company wrote off goodwill ($71,209) related to the acquisition in 1994. The write off is included in General and Administrative Expense. Long-Lived Assets: In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting For the Impairment of Long-Lived Assets and For Long- Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS 121 must be adopted by the Company no later than January 1, 1996. The Company does not expect that the implementation of this statement will have a material impact on its financial position or its results of operations. Income Taxes: Income taxes are computed under the provisions of the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Per Share Data: Per share data is computed by dividing net income (loss) by the weighted average number of common and dilutive common share equivalents outstanding during each period. In 1995, 1994 and 1993, shares issuable upon the exercise of stock warrants and options are included in the weighted average common shares outstanding because their effect is dilutive on income from continuing operations. F-8 25 Reclassification: Certain 1994 and 1993 amounts have been reclassified to conform with 1995 presentations. Note 3 - Plant and Equipment - ----------------------------- Plant and equipment consists of the following: December 31, 1995 1994 ------------ ------------- Furniture, fixtures and equipment....................... $ 2,148,912 $ 2,787,123 Leasehold improvements........... 167,572 299,678 Construction in progress......... 247,535 272,323 ------------ ------------ 2,564,019 3,359,124 Less accumulated depreciation and amortization................ (1,513,443) (1,895,863) ------------ ------------ $ 1,050,576 $ 1,463,261 ============ ============ Equipment with a cost of $1,172,251 in 1995 and $1,004,998 in 1994 is financed by capital leases. In the fourth quarter of 1995, the Company wrote off $614,521, including $85,981 financed by capital leases, of leasehold improvements, equipment and accumulated depreciation which were related to HBI s discontinued operations. (Note 11) Note 4 - Debt Financing - ----------------------- Since August 1991, the Company has maintained a line of credit with a commercial bank secured by its accounts receivable, inventory and equipment. Under the terms of the credit line, the Company may borrow up to 70 percent of eligible accounts receivable, up to a maximum of $700,000. Interest on credit line borrowings is at the lender's prime rate (8.5 percent at December 31, 1995) plus one-half of a percentage point. The Company is required to maintain cash and/or short-term security balances of at least $400,000 (excluding borrowings) at all times. After the write off associated with discontinued operations (Note 11), the Company was in default under certain covenants of the credit line agreement. The bank has waived compliance with these covenants through the April 30, 1996 effective date of the credit line. The Company has requested its bank to renew the credit agreement. There were no borrowings outstanding on the credit line at December 31, 1995. At December 31, 1994, there was $200,000 outstanding under the line of credit. Note 5 - Leases - --------------- The Company has entered into several capital leases for equipment. Future minimum capital lease payments, which expire at various times during the period from 1996 to 2001, are as follows: Year Ending December 31, 1996........................... $ 274,425 1997........................... 275,124 1998........................... 276,292 1999........................... 134,323 2000........................... 70,100 ----------- Total minimum lease payments... 1,030,264 Less: Amount representing interest............... 173,129 ----------- Present value of minimum lease payments..................... $ 857,135 =========== F-9 26 Future minimum rentals under operating leases, which expire in 1996 through 2001, are as follows: Year Ending December 31, 1996........................... $ 698,281 1997........................... 359,318 1998........................... 253,440 1999........................... 133,169 2000........................... 127,918 Thereafter..................... 20,842 ----------- $1,592,968 =========== Total rent expense under all operating leases was $565,617, $648,397 and $636,101 for the years ended December 31, 1995, 1994 and 1993, respectively. Note 6 - Income Taxes - --------------------- Effective January 1, 1993, the Company adopted SFAS 109. SFAS 109 requires, among other things, a change to the liability method of computing deferred income taxes. The change had no cumulative income or loss effect on the Company's financial statements. The Company incurred losses for each of the last three years and therefore has not recorded a provision for income taxes. The approximate tax effects of temporary differences which gave rise to significant deferred tax assets and liabilities at December 31, 1995 and 1994, are as follows: 1995 1994 ----------- ----------- Current: Accrued expenses deferred for tax purposes..................... $ 650,827 $ 151,640 Deferred: Depreciation and amortization .... 316,511 324,638 Deferred research and development expenses............. 195,032 100,926 Other............................. (201,505) 10,295 Net operating loss carryforwards.. 2,659,094 2,280,248 Tax credit carryforwards.......... 966,697 810,216 ------------ ------------ Total deferred assets............. 4,586,656 3,677,963 Valuation allowance............... (4,586,656) (3,677,963) ------------ ------------ $ 0 $ 0 ============ ============ At December 31, 1995 and 1994, the Company had net operating loss carryforwards available for federal income tax purposes of $6,722,000 (expiring from 2004 to 2010) and $5,887,000 (expiring from 2003 and 2009), respectively. The Company also had net operating loss carryforwards available for state income tax purposes of approximately $3,244,000 at December 31, 1995 and $3,045,000 at December 31, 1994, the majority of which are California losses scheduled to expire between 1997 and 2000, in 1995, and between 1995 to 1999, in 1994. F-10 27 At December 31, 1995, the Company had federal income tax credit carryforwards of approximately $626,000 scheduled to expire between the years 1996 and 2010 and state tax credit carryforwards of approximately $341,000 which are not subject to expiration. Note 7 - Shareholders' Equity - ----------------------------- In May 1993, the Company sold 400,000 shares of common stock at $5.00 per share in a private placement from which it received net proceeds of approximately $1,800,000. In connection with this sale, the Company granted warrants (which expire May 6, 1998) to purchase 40,000 shares of the Company's common stock at $6.50 per share to the sales agent who represented the Company. In 1994, the shareholders of the Company voted to approve an amendment to the 1986 Employee Stock Option Plan (the "Plan") authorizing the Company to grant options to purchase up to an aggregate of 960,000 shares of the Company's common stock. As of December 31, 1995, there were options outstanding under the Plan to purchase 395,800 shares of common stock at prices ranging from $1.13 to $6.69 per share (339,967 options were exercisable). As of December 31, 1995, 271,751 options had been exercised under the Plan. The table below summarizes transactions in the Plan during 1995, 1994 and 1993. 1995 1994 1993 ---------- --------- --------- Options outstanding at beginning of year............. 581,083 516,916 461,832 Granted........................ 37,800 167,000 140,000 Exercised...................... 28,083 65,833 29,417 Canceled....................... 195,000 37,000 55,499 ---------- --------- --------- Options outstanding at end of year ($1.13 to $7.62 per share)....................... 395,800 581,083 516,916 ========== ========= ========= Exercisable.................... 339,967 368,417 358,417 ========== ========= ========= Available for grant............ 292,449 135,249 105,249 ========== ========= ========= The Company makes a one-time grant of Plan options to each non- employee director (Director) at the time of joining the Board. Director options outstanding totaled 45,000 at December 31, 1995, 1994 and 1993. All options were at fair market value at date of grant. In April 1994, HemaCare sold 250,000 units of common stock and common stock purchase warrants (at $4.00 per unit) in an offshore transaction from which it received net proceeds of approximately $900,000. Each unit consisted of one share of the Company's common stock and three warrants to purchase additional shares. The terms of the warrants were modified in July 1994 through an exchange offer. The first group of 250,000 warrants was exercised in full in September 1994 resulting in net proceeds of approximately $500,000. The second group of 250,000 warrants was fully exercised in the first quarter of 1995 and yielded net proceeds of approximately $350,000. In consideration of this exercise, which was made 45 days prior the expiration date, a fourth group of 250,000 warrants exercisable at a price of $3.50 per share and expiring in December 1998 was granted to the purchaser. The third group of 250,000 warrants was exercised in June and July 1995, yielding net proceeds of approximately $390,000. The fourth group of options remains outstanding at December 31, 1995. In connection with the sale of the units and the subsequent exercise of related warrants, the Company granted to the finder F-11 28 warrants to purchase 50,000 shares of the Company's common stock (Finder Warrants). The Finder Warrants expire five years from their issue date and are exercisable at prices ranging from $1.45 to $4.00. Up to 12,500 additional Finder Warrants may be issued at $3.50 per share, depending on the number of the fourth group of 250,000 warrants which are exercised. On September 30, 1994, the Company amended and restated the terms of its July 1993 contingent warrant agreements with three consultants to reduce the purchase price and the total number of shares of Common Stock purchasable upon exercise of the warrants from 20,000 to 10,000 for each of the three agreements. The expiration date of the warrants remain at June 30, 2002, but a contingency related to the market price of the Company's common stock exceeding certain targets before certain dates was removed. In November 1995, the financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" ("SFAS 123"). SFAS 123 recommends changes in accounting for employee stock based compensation plans and requires certain disclosures with respect to these plans. The Company will adopt SFAS 123 disclosures effective January 1, 1996. Note 8 - Employee Salary Deferral Plan - --------------------------------------- As of January 1, 1990, HemaCare adopted an Employee Salary Deferral Plan which qualifies under Section 401(K) of the Internal Revenue Service Code (the "401K Plan"). The 401K Plan covers all employees who are at least 21 years of age, have one year of service and who work at least 1,000 hours per year. Eligible employees may contribute up to 12 percent of their pre-tax salaries, subject to certain limitations. HemaCare matches 50 percent of the first 5 percent of each participant's contribution on an annual basis with HemaCare common stock. During 1995, 1994 and 1993, HemaCare issued 16,821 shares ($54,668), 8,105 shares ($46,604) and 5,591 shares ($51,960) of common stock as matching contributions for the 1994, 1993 and 1992 plan years, respectively. HemaCare plans to issue approximately 12,480 shares in 1996 as matching contributions for the 1995 plan year. Note 9 - Commitments and Contingencies - -------------------------------------- On March 11, 1994, the Company was served with a lawsuit filed by a former employee against the Company and its wholly owned subsidiary, HBI, in the Superior Court of the State of California, related to the termination of this employee and seeking relief in the amount of $550,000. At this stage in the proceedings, neither management nor counsel are in a position to evaluate the probable merits of the claim asserted by this former employee. Accordingly, the resolution of this lawsuit could have a material impact on the Company's financial condition and results of operations. In September 1995, the Company entered into a letter of intent to make royalty payments to certain parties in consideration of certain commitments to the establishment of Gateway. The definitive agreement providing for the payment of these royalties has not been completed due to a dispute with one of the parties. The letter of intent provides for cash royalties of 20 percent of Gateway's cash flow and shares of HemaCare common stock with a value equal to the cash royalty, up to a maximum of 500,000 shares of HemaCare common stock. Royalty payments commence after the Company recovers its initial investment in Gateway including capital expenditures and operating deficits and terminate in 2003. F-12 29 In November 1995, the Company terminated its license agreement with Medicorp (Note 2) due to a default by the license holder. The Company also notified Medicorp that the stock purchase warrants (exercisable for 400,000 shares of HemaCare common stock at $5.50 per share) issued by the Company to Medicorp had terminated under their terms, due to the default. Medicorp has denied that it has breached the license agreement and has alleged that the Company is liable for royalties under the license agreement of approximately $425,000 and that its warrants remain outstanding. The Company intends to vigorously defend any legal action which may result from this dispute. In February 1996, the Company terminated an agreement with a vendor, based on an unsatisfactory level of performance of the product. The vendor is disputing the basis for the termination. The Company intends to vigorously defend any legal action which may result from this dispute, and the resolution of this matter is not expected to have a material impact on the Company s future financial position or results of operations. Note 10 - Segment and Related Party Information - ----------------------------------------------- The Company operates within one industry, blood services and products. In 1994 and 1993, there were no sales to any single, unaffiliated customer which exceeded 10 percent of total revenues. In 1995, sales to one unaffiliated hospital of $1,077,000 accounted for 10 percent of revenue. The Company s medical director, Joshua Levy, as part of his private medical practice in the treatment of his own patients, receives professional fees from patients, insurers or other third-party payors for supervising therapeutic hemapheresis procedures at hospitals where the Company provided such service. Company sales to unaffiliated customers through this related party medical practice were approximately $802,000 (7%), $1,043,000 (9%) and $962,000 (8%) for the years ended December 31, 1995, 1994 and 1993, respectively. In 1995 and 1994, the Company made a series of personal loans to Joshua Levy totaling $98,307. The proceeds of these loans were used to refinance existing debt which was collateralized by HemaCare stock owned by Dr. Levy. Interest accrued for the years ended December 31, 1995 and 1994 totaled $9,571 and $1,095, respectively. In January 1996, these individual notes were consolidated into a promissory note which accrues interest at a rate equal to the rate the Company pays under its line of credit (Note 4), adjusted quarterly. The note is collateralized by HemaCare stock owned by Dr. Levy. The note requires four annual installment payments of $15,000 due on January 31 and the balance of the principal and accrued interest is due on January 31, 2000. The Company received its first annual installment payment of $15,000 in January 1996. Note 11 - Discontinued Operations - --------------------------------- In November 1995, the Company s Board of Directors decided to discontinue the operations of HBI, including the research and development of Immupath and the associated specialty plasma business. In connection with this decision, the Company wrote off the remaining book value of HBI s assets ($2,079,138) and provided a reserve for estimated operating losses ($1,034,787) from the November 30, 1995 measurement date through December 1996, the expected date of substantial completion of disposal. The operating loss reserve was estimated based on the best available information. However, actual operating losses during the disposition period may differ from the estimate. The Company is actively pursuing a sale of HBI s research and development and associated specialty plasma business assets. F-13 30 The net losses of the research and development and associated speciality plasma operations prior to December 1, 1995 are included in the consolidated statements of operations as a loss from discontinued operations. Revenues from such operations were $159,732 for the eleven months ended November 30, 1995, and $202,941 and $239,695 for the years ended December 31, 1994 and 1993, respectively. Net loss from discontinued operations for the month of December 1995 was $98,400. The loss on the disposition of HBI s operations has been accounted for as discontinued operations, and prior years financial statements have been restated to reflect the discontinuation of these operations. Note 12 - Subsequent Event - -------------------------- The University of Southern California Blood Center (USC Blood Center), a full-service blood donation and services facility, opened in February 1996. The USC Blood Center facility is leased from USC and is staffed and operated by HemaCare under its Food and Drug Administration ("FDA") license. Located on the USC Health Sciences Campus in Los Angeles, California, the center provides services to the USC/Norris Comprehensive Cancer Center and Hospital and the USC University Hospital (the "USC Hospitals"). The USC Hospitals have agreed that HemaCare will be their primary provider of blood products and therapeutic services. Pathologists on the USC medical faculty provide medical direction services for the USC Blood Center as consultants to the Company. F-14 31 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Shareholders and Board of Directors of HemaCare Corporation: We have audited in accordance with generally accepted auditing standards, 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 March 7, 1996. 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 March 7, 1996 S-1 32 HEMACARE CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For The Years Ended December 31, 1995, 1994 and 1993
Additions ---------------------------- Balance at Charged to Charged Balance beginning costs and to other at end of Description of period expenses accounts Write-offs period - ------------------------ ---------- ---------- ---------- ---------- --------- Year ended December 31, 1995 - Allowance for uncollectible accounts $ 141,243 $ 29,015 $ -- $ 75,769 $ 94,489 Year ended December 31, 1994 - Allowance for uncollectible accounts $ 167,184 $(22,811)(1) $ (1,437)(2) $ 1,693 $ 141,243 Year ended December 31, 1993 - Allowance for uncollectible accounts $ 289,229 $ 43,065 $ -- $ 165,110(3) $ 167,184
1) Includes a net reduction in the reserve of $84,282 based on the year ending aging at December 31, 1994. 2) Amount charged to other accounts in 1994 consisted of $1,437 for collection for accounts written off in prior years. 3) Write-off amounts for 1993 included $53,424 related to continuing operations and $111,686 related to discontinued operations. S-2 33 INDEX TO EXHIBITS
Sequential Page Number 3.1 Restated Articles of Incorporation of the Registrant......... 36 3.2 Bylaws of the Registrant--incorporated by reference to Exhibit 3.2 to Form 10-K of the Registrant for the year ended December 31, 1992...................................... 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 Warrant Agreement between the Registrant and Huss Kealy Sinclair dated May 7, 1993--incorporated by reference to Registration Statement on Form S-3 of the Registrant (File No. 33-44869).......................................... 4.3 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........................................... 4.4 Offshore Securities Subscription Agreement between the Registrant and Tesoma Overseas, Inc., dated April 8, 1994 --incorporated by reference to Exhibit 4.1 to Form 10-Q of the Registrant for the quarter ended March 31, 1994.......... 4.5 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......................... 4.6 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............................. 4.7 Warrant Agreement between the Registrant and M.A. Levy and Associates dated March 1, 1995--incorporated by reference to Exhibit 4.7 to Form 10-K of the Registrant for the year ended December 31, 1994............................................ 4.8 Form of Warrant Agreement between the Registrant and Tesoma Overseas, Inc. dated February 9, 1995--incorporated by reference to Exhibit 4.8 to Form 10-K of the Registrant for the year ended December 31, 1994............................. 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 Lease dated July 10, 1986 between the Registrant and Addison Place Partners--incorporated by reference to Registration Statement on Form S-18 of the Registrant (File No. 33-8513-LA)........................................ 10.3 Amendment No. 1 to Lease between the Registrant and Addison Place Partners dated March 30, 1993--incorporated by reference to Exhibit 10.3 to Form 10-K of the Registrant for the year ended December 31, 1994.........................
34
Sequential Page Number ----------- 10.4* Employment Agreement between Harold I. Lieberman and the Registrant, dated September 19, 1988 -- incorporated by reference to Exhibit 10.4 to Form 10-K of the Registrant for the year ended December 31, 1994......................... 10.5* Amendment to Employment Agreement between the Registrant and Harold I. Lieberman, dated September 19, 1989 --incorporated by reference to Exhibit 10.5 to Form 10-K of the Registrant for the year ended December 31, 1994........ 10.6 License agreement between the Registrant and Medicorp Inc. dated February 17, 1993--incorporated by reference to Exhibit 10 to the Current Report on Form 8-K of the Registrant dated February 17, 1993............................ 10.7 Revolving Credit Agreement between the Registrant and Bank Leumi Le-Israel, B.M., dated April 30, 1995 and related security agreements--incorporated by reference to Exhibit 10.1 to Form 10-Q of the Registrant for the quarter ending March 31, 1995................................. 10.8 Computer System Acquisition Agreement between the Registrant and EtCom Canada, Inc. dated May 17, 1994--incorporated by reference to Exhibit 10.4 to Form 10-Q of the Registrant for the quarter ended June 30, 1994.... 10.9 Disclosure and License Agreement for Blood Derived Therapeutic Products between HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, and The New York Blood Center dated November 1, 1994--incorporated by reference to Exhibit 10.9 to Form 10-K of the Registrant for the year ended December 31, 1994.......................... 10.10 Promissory Note to HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, from Joshua Levy dated January 1, 1996............................................... 40 10.11 Pledge Agreement between HemaBiologics, Inc., a wholly owned subsidiary of the Registrant, and Joshua Levy dated January 1, 1996....................................................... 42 11 Computation of earnings (loss) per common equivalent share.... 48 21 Subsidiaries of the Registrant................................ 49 23 Consent of Arthur Andersen LLP................................ 50 27 Financial Data Schedule....................................... 51
* Denotes a management contract or compensatory plan or arrangement. 35 EX-3.1 2 EXHIBIT 3.1 A472947 ENDORSED FILED In the office of the Secretary of State of the State of California MARCH 7, 1996 /s/ Bill Jones -------------------------- Bill Jones, Secretary of State RESTATED ARTICLES OF INCORPORATION OF HEMACARE CORPORATION Hal I. Lieberman and JoAnn Stover certify that: 1. They are the president and the secretary, respectively, of HEMACARE CORPORATION, a California corporation. 2. The articles of incorporation of this corporation are restated to read as follows: Article One The name of this corporation is HEMACARE CORPORATION. Article Two The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust business or the practice of a profession permitted to be incorporated by the California Corporations Code. Article Three The total number of shares of all classes of stock which the corporation shall have authority to issue is 25,000,000, consisting of (i) 20,000,000 shares of common stock ("Common Stock"), and (ii) 5,000,000 shares of preferred stock ("Preferred Stock"). The board of directors is hereby expressly authorized, by resolution or resolutions, to provide out of the unissued shares of Preferred Stock, for series of Preferred Stock. Before any shares of any such series are issued the board of directors shall fix, and hereby is expressly empowered to fix, by resolution or resolutions, the following provisions of the shares thereof: (a) the designation of such series and the number of shares to constitute such series; (b) whether the shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so,the terms of such voting rights, which may be general or limited; 36 (c) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of this class; (d) whether the shares of such series shall be subject to redemption by the corporation, and, if so, the times, prices and other conditions of such redemption; (e) the amount or amounts payable upon shares of such series upon, and the rights of the holders of such series in, the voluntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the corporation; (f) whether the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares or such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; (g) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of this class or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; (h) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the corporation of, the Common Stock or shares of stock of any other class or any other series of this class; (i) the conditions or restrictions, if any, upon the creation of indebtedness of the corporation or upon the issue of any additional stock, including additional shares of such series or of any other series of this class or of any other class; and (j) any other powers, preferences and relative participating, optional and other special rights, and any qualifications, limitations and restrictions thereof. 37 The powers, preferences and relative participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. All shares of any one series of Preferred Stock shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. Article Four Whenever by statute the vote or consent of the shareholders of the corporation shall be required to authorize or approve a sale, lease, or exchange of all or substantially all of the corporation's property or assets or to adopt or approve an agreement of merger or consolidation of the corporation with or into any other corporation or to merge any other corporation into the corporation, the vote or consent of at least sixty-six and two-thirds percent of the outstanding stock of corporation entitled to vote or consent thereon shall be required for any such authorization, adoption or approval. Such affirmative vote or consent shall be in addition to the vote or consent of the holders of the stock of the corporation otherwise required by law or any agreement between the corporation and any national securities exchange, if applicable. The provisions of this paragraph shall not apply to any transaction with another corporation, person or entity if (i) a majority of the outstanding shares of all classes entitled to vote generally in the election of directors, considered for this purpose as one class, of such other corporation or entity is owned of record or beneficially by the corporation and its subsidiaries, if any, or (ii) prior to the consummation of such transaction, the board of directors of the corporation either (a) adopts by unanimous written consent without a meeting a resolution in favor of the transaction or (b) adopts such resolution at a meeting by the affirmative vote of at least sixty-six and two-thirds percent of the directors then in office. Notwithstanding any other provision of the Articles of Incorporation or the bylaws of the corporation or any other lesser percentage that may be specified by law or any agreement between the corporation and any national securities exchange, if applicable, the vote or consent of at least sixty-six and two-thirds percent of the outstanding stock of the corporation entitled to vote shall be required to amend, alter, change or repeal any of the provisions of this paragraph. 38 Article Five (a) Limitation of Directors' Liability. The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) Indemnification of Corporate Agents. The corporation is authorized to provide, whether by bylaw, agreement or resolution of the board of directors or shareholders of the corporation, for the indemnification of agents (as defined in Section 317 of the California General Corporation Law) of the corporation in excess of that expressly permitted by such Section 317, for breach of duty to the corporation and its shareholders to the fullest extent permissible under California law. (c) Repeal or Modification. Any repeal or modification of this Article Five by the shareholders of the corporation shall not adversely affect any right or protection of a director or agent of the corporation existing at the time of such repeal or modification. 3. The foregoing restatement of articles of incorporation has been duly approved by the board of directors. 4. The foregoing restatement of articles of incorporation did not require approval by the vote of the shareholders of the corporation since it does not effect any alteration or amendment of the articles of incorporation as heretofore amended. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. DATE: March 1, 1996 /s/ Hal I. Lieberman --------------------------- Hal I. Lieberman, President /s/ JoAnn Stover ---------------------------- JoAnn Stover, Secretary 39 EX-10.10 3 EXHIBIT 10.10 PROMISSORY NOTE $108,973.00 Los Angeles, California January 1, 1996 FOR VALUE RECEIVED, the undersigned JOSHUA LEVY ("Debtor"), promises to pay to HEMABIOLOGICS, INC., a California corporation (Holder"), or order, the principal sum of One Hundred Eight Thousand, Nine Hundred Seventy-Three and 00/100 Dollars ($108,973.00), together with interest on the unpaid principal balance of this note, until paid in full initially at the rate of nine and one-quarter percent (9.25%) per annum. The per annum interest rate shall be adjusted on the first day of each January, April, July and October of each year (commencing April 1, 1996) to be equal to one-half percentage point in excess of the announced per annum prime rate or designated rate of interest as of each such date for unsecured borrowings to commercial cust- omers of the financial institution with which HemaCare Corporation maintains a corporate line of credit facility, or in the absence of any such line of credit, of Bank of America, N.T. & S.A., but in no event in excess of the maximum rate of interest permitted by applic able law. Interest shall be computed on the premise that a year consists of 360 days and that each month consists of 30 days. Principal and interest shall be payable to Holder at: 4954 Van Nuys Boulevard, Sherman Oaks, California 91403, or at such other place as the holder of this note may designate in writing to Debtor, in annual installments of Fifteen Thousand and 00/100 Dollars ($15,000.00) due each January 31, commencing with January 31, 1996, until January 31, 2000, on which date all principal and accrued interest shall be due and payable. All payments hereunder shall be applied first to the payment of accrued interest and the balance to the payment of principal. All payments hereunder shall be made in lawful currency of the United States of America. This note may be prepaid in whole or in part at any time without penalty. If any legal action is required to collect this note, the holder shall be entitled to collect all reasonable costs and expenses of such action, including but not limited to reasonable attorneys' fees. This note is secured by collateral described in that certain Pledge Agreement, dated the date hereof, between Debtor and Holder (the "Pledge Agreement"), and this note may be accelerated as provided in the Pledge Agreement. The failure of the holder to exercise any option to accelerate this note as provided herein or in the Pledge Agreement, or to exercise any other option or remedy available to the holder hereunder, under the Pledge Agreement or under applicable law, in any one or more instances, or the acceptance by the holder of partial payments or partial performance, shall not constitute a waiver of such option or remedy or of any default by Debtor, and all such options and remedies shall remain continuously in force. Acceleration of maturity, once claimed hereunder by the holder, may at the holder's option be rescinded by written acknowledgment to that effect, but the tender and acceptance of partial payment or partial performance shall not in any way affect or rescind such acceleration of maturity. 40 Presentment, diligence, dishonor, notice of dishonor, protest and all other notices of any kind (except to the extent expressly required by this note), and, to the fullest extent permitted by law, the right to plead any applicable statute of limitations as a defense to any demand hereunder, are hereby waived by all makers, sureties, guarantors and endorsers, and this waiver shall be binding upon their successors and permitted assigns. It is the express intent of the parties hereto that Debtor not pay and the holder of this note not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be legally paid by Debtor to any holder of this note under applicable laws. If, under any circumstances whatsoever, any such holder shall ever receive anything of value that shall be deemed excessive interest under applicable laws, such excessive interest shall be applied to reduce the principal balance hereunder or to any other principal indebtedness of Debtor to any such holder and not to the payment of interest, or, if such excessive interest exceeds such unpaid balance of principal or such other indebtedness, such excess shall be refunded to Debtor. Any notice to Debtor in connection with this note shall be in writing and shall be delivered in person or by first class mail, certified or registered, return receipt requested, postage prepaid, addressed to Debtor in care of HemaCare Corporation at 4954 Van Nuys Boulevard, Sherman Oaks, California 91423; or to such other address as Debtor may from time to time designate by notice to the holder of this note. Any notice to the holder of this note in connection with this note shall be in writing and shall be in person or by first class mail, certified or registered, return receipt requested, postage prepaid, addressed to the holder at the address set forth in the second paragraph of this note; or to such other address as the holder may from time to time designate by notice to Debtor. Notices sent by certified or registered mail shall be deemed given at the earlier of the time of its receipt by the addressee and five (5) days after its mailing, and notices given in person shall be deemed given upon delivery. This note shall be governed in all respects by the laws of the State of California without giving effect to conflict of laws rules or principles. IN WITNESS WHEREOF, this note has been executed and delivered at Los Angeles, California, as of the date set forth above. By: /s/ Joshua Levy ------------------- Joshua Levy 41 EX-10.11 4 EXHIBIT 10.11 PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (this "Agreement") is made and entered into effective as of the 1st day of January 1996, by and between JOSHUA LEVY ("Pledgor") and HEMABIOLOGICS, INC., a California corporation ("Pledgee"). WHEREAS, Pledgor is indebted to Pledgee for borrowings totaling One Hundred Eight Thousand, Nine Hundred Seventy-Three and 00/100 Dollars ($108,973.00), as evidenced by a Promissory Note of concurrent date herewith (the "Note") made and delivered in replacementand cancellation of various demand notes previously given by Pledgor to Pledgee; and WHEREAS, as a condition to accepting the Note, Pledgee has demanded that Pledgor secure his obligations under the Note by the pledge of Forty Thousand (40,000) shares of the Common Stock of HemaCare Corporation, a California corporation ("HemaCare"), owned of record and beneficially by Pledgor (the "Pledged Shares"). NOW, THEREFORE, in consideration of the premises and of the covenants herein contained, the parties hereto agree as follows: 1. Pledge of Stock. (a) As security for the full and prompt payment of all amounts due under the Note and the full and prompt performance of this Agreement by Pledgor (collectively, the "Secured Obligations"), Pledgor hereby assigns, transfers, pledges, grants a security interest in and delivers to Pledgee HemaCare stock certificate(s) number(s) 5074 (1,000 shares), 5094 (5,000 shares), 5095 (5,000 shares), 5096 (5,000 shares), 5107 (10,000 shares), 5108 (10,000 shares) and 6039 (4,000 shares), representing the Pledged Shares, duly endorsed in blank or accompanied by an executed stock power, together with all proceeds thereof, additions thereto and replacements and substitutions therefor, including without limitation any and all new or substituted or additional shares, other securities, cash or other properties distributed with respect to the Pledged Shares or other securities or interests subject to this Agreement whether as a result of merger, consolidation, dissolution, reorganization, recapital- ization, stock split, reverse stock split, stock dividend, reclass- ification, redemption or any other change declared or made in the capital structure of HemaCare, or otherwise (the "Collateral"). Pledgor hereby consents to Pledgee's presentation of the certificate representing the Pledged Shares or any other Collateral in respect thereof to HemaCare, or its transfer agent, for the purpose of changing the name of the registered owner of the Collateral from Pledgor to Pledgee, but only upon the occurrence of a Default, as defined in Section 4. (b) Pledgor shall from time to time make, execute, acknowledge and deliver all such further documents, instruments and assurances as may be requested by Pledgee to perfect or preserve the security interest created by and to carry out the intent of this Agreement, and hereby authorizes Pledgee to file financing statements and amendments thereto or any other document relating to all or any part of the Collateral where desirable in Pledgee's judgment to perfect the security interest granted herein without the signature of Pledgor (where permitted by law). 42 (c) Pledgor shall promptly reimburse Pledgee for any and all sums, including costs, expenses and reasonable attorneys' fees, which Pledgee may pay or incur in defending, protecting or enforcing the pledge and security interest under this Agreement or the priority thereof, or in enforcing or collecting the Secured Obligations, or in discharging any prior or subsequent lien or adverse claim against the Collateral or any part thereof, or by reason of becoming or being made a party to or intervening in any action or proceeding affecting the Collateral or the rights of Pledgee therein, all of which actions Pledgee shall have the right to take. 2. Rights With Respect to Distributions. Pledgee may upon the occurrence of a Default receive and apply against any amounts due under any Secured Obligations any dividends or other distributions made with respect to the Collateral. Any and all other such dividends or other distributions shall belong to and shall be paid over to Pledgor. 3. Conditional Irrevocable Proxies/Voting Rights. (a) Pledgor hereby irrevocably appoints Pledgee as Pledgor's proxy holder with respect to the Pledged Shares and any additional Collateral in respect thereof with full power and authority to vote such Collateral and otherwise act with respect to such Collateral on behalf of Pledgor, provided that this proxy shall only be operative upon the occurrence of a Default and only for so long as such Default continues. Subject to Section 2 hereof, so long as there is no Default, Pledgor shall be entitled to the full ownership rights as the owner of the Collateral, including, without limitation, the voting and management rights pertaining thereto. (b) In the event that Pledgee becomes the registered owner of the Pledged Shares as contemplated by Section 1 hereof, Pledgee hereby irrevocably appoints Pledgor as Pledgee's proxy holder with respect to the Pledged Shares with full power and authority to vote the Pledged Shares Collateral and otherwise act with respect to the Pledged Shares on behalf of Pledgee, provided that this proxy shall only be operative during the period or periods in which there shall be no uncured Default. In addition, Pledgee shall issue to Pledgor any other proxies demanded by Pledgor pursuant to Section 705(d) of the California Corporations Code. (c) The foregoing proxies are each coupled with an interest and shall be irrevocable in the case of the proxy granted by Pledgor until the final release of the Collateral pursuant to Section 6 hereof and in the case of the proxy granted by Pledgee until the termination of Pledgor's interest in the Collateral. 4. Default. Pledgee may elect to accelerate the entire outstanding balance of the Note and shall thereupon and thereafter have any or all of the rights and remedies to which a secured party is entitled in the event of and after default under the provisions of the California Uniform Commercial Code - Secured Transactions, as amended and in effect on the date hereof, upon the occurrence of any of the following (each of which shall be deemed to be a "Default" for purposes of this Agreement): (a) The default of Pledgor to satisfy fully any amount due and payable under any Secured Obligation within ten (10) days after the due date provided for in the Secured Obligation or in the event of 43 a breach of any other term of this Agreement that is not cured within fifteen (15) days after written notice of such breach is given to Pledgor. (b) An assignment by Pledgor for the benefit of creditors; a filing by or against Pledgor of a voluntary or involuntary petition in bankruptcy; a filing by Pledgor of a petition or an answer seeking for such person any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation; a filing by Pledgor of an answer or other pleading admitting or failing to contest the material allegations of a petition filed against Pledgor in any proceeding of such nature; a seeking of, consent to or acquiescence in the appointment of a trustee, receiver or liquidator of Pledgor or of all or any substantial part of Pledgor's assets or the appointment without Pledgor's consent or acquiescence of such a trustee, receiver or liquidator; or the insolvency of Pledgor. Notwithstanding the foregoing, Pledgee shall not have any right to require the registration or qualification of the Collateral for public offering under any federal or state securities laws. 5. Application of Proceeds of Sale. The proceeds of sale of any Collateral sold pursuant to Section 4 hereof shall be applied by Pledgee as follows: First: to the payment of the reasonable costs and expenses of such sale, including the out-of-pocket expenses of Pledgee and the reasonable fees and out-of-pocket expenses of counsel employed in connection therewith, and to the payment of all reasonable advances made by Pledgee for the account of Pledgor hereunder and the payment of all reasonable costs and expenses incurred by Pledgee in connection with the administration and enforcement of this Agreement; Second: to the payment in full of all amounts then due and payable under the Secured Obligations; and Third: to the payment to Pledgor of any remaining proceeds. 6. Final Release of Collateral. Upon the satisfaction in full of the Secured Obligations, all right, title and interest in and to the Collateral shall completely revest in Pledgor, and Pledgee shall execute and deliver all documents and instruments necessary to accomplish such revesting. 7. Representations and Warranties. Pledgor hereby represents and warrants that: (a) Ownership of Collateral. Pledgor is the legal and equitable owner of the Collateral, free and clear of all liens, charges, encumbrances and security interests of every kind and nature, except for any community property interest of the spouse, if any, of Pledgor. (b) Authority to Pledge. Pledgor has the right and power to pledge the Collateral in the manner hereby done or contemplated. (c) Governmental Approval. No consent or approval of any governmental body or regulatory authority is necessary to the validity of the rights created hereunder. 44 (d) Validity of Security Interest. This Agreement constitutes a good, valid and subsisting security interest in all of the Collateral for the full amount of the Secured Obligations. 8. Consent of Spouse; Further Assurances. Pledgor shall promptly cause his spouse to execute a Consent of Spouse in the form attached to this Agreement and deliver such executed Consent to Pledgee. Upon demand, Pledgor shall execute and deliver to Pledgee such instruments and documents as Pledgee may deem reasonably necessary or advisable to confirm or perfect the rights of Pledgee under this Agreement and Pledgee's interest in the Collateral. Pledgor shall take all necessary and reasonable action to preserve and protect the security interest created hereby as a first lien and encumbrance upon the Collateral. 9. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the heirs, legal representatives, successors and permitted assigns of each of the parties hereto. 10. Entire Agreement. This Agreement, together with the Secured Obligations, represents the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements, understandings, discussions and negotiations. This Agreement may not be amended, supplemented or otherwise modified except in a writing signed by the parties hereto. 11. Counterparts. This Agreement may be executed simultaneously, in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12. Headings; Gender; Number. The headings of the Sections herein are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement. In this Agreement, unless the context requires otherwise, the masculine, feminine and neuter genders and the singular and plural numbers include one another. 13. No Waiver. Any forbearance or failure or delay by Pledgee in exercising any right, power or remedy hereunder shall not be deemed to be a waiver of such right, power or remedy, and any single or partial exercise of any right, power or remedy shall not preclude the further exercise thereof. 14. Applicable Law. This agreement shall be governed, construed and interpreted in accordance with the laws of the State of California without giving effect to conflict of laws rules or principles. 15. Attorneys' Fees. If any litigation or any other proceeding is commenced in connection with or related to this Agreement, the losing party or parties shall pay the reasonable expenses, including without limitation the attorneys' fees and expenses of investigation, of the prevailing party or parties. 16. Severability. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected thereby. To the extent permitted by applicable 45 law, each party waives any provision of law that renders or would render any provision of this Agreement invalid, illegal or unenforceable. 17. Notices. All notices and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be personally delivered or sent first class mail, registered or certified, postage prepaid, to the appropriate party or parties at their respective addresses set forth in the Note. Notices and other communications shall be deemed delivered, in the case of personal delivery, on the date of their receipt at the address specified for delivery of such notices, and, in the case of delivery by mail, five (5) days after being placed in the mail, unless otherwise specified herein. Any party may change its address for the giving of notices and other communications by notice given in accordance with this paragraph. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. PLEDGOR: /s/ Joshua Levy -------------------- Joshua Levy PLEDGEE: HEMABIOLOGICS, INC. By: /s/ Hal I. Lieberman ----------------------- Hal I. Lieberman, President Signature and Title 46 CONSENT OF SPOUSE The undersigned has read the foregoing Pledge Agreement (the "Agreement") and is aware of and understands its terms and conditions, including the restrictions it imposes on shares of Common Stock of HemaCare Corporation ("HemaCare") owned by Joshua Levy, including her community interest therein, if any. The undersigned further acknowledges, understands and agrees to comply fully with the provisions of the Agreement, and further directs the executors of her will or the administrators of her estate or her other representatives to take all actions necessary or appropriate to give effect to the provisions of the Agreement. The undersigned hereby consents and agrees to execute and deliver such instruments and documents and to do such other acts as may be necessary or appropriate to carry out the provisions of this Consent and the Agreement. The undersigned has been given full access and disclosure of all facts surrounding the Agreement and HemaCare, has had full and ample opportunity to receive independent advice with respect to her entering into this Consent, is freely and voluntarily entering into this Consent, and acknowledges that to the extent required the undersigned has received notice under California Family Code 1100. Dated: /s/ Doris Levy --------------------- Doris Levy /s/ Linda McDermott - ---------------------- Witness 47 EX-11 5 HEMACARE CORPORATION EXHIBIT 11 Net Income (Loss) per Common and Common Equivalent Share --------------------------------------------------------
Years Ended December 31, 1995 1994 1993 ------------ ------------ ------------ INCOME(LOSS) ------------ Income from continuing operations................. $ 479,755 $ 676,337 $ 763,698 Discontinued operations: Loss from discontinued operations................ (901,706) (2,963,742) (3,309,466) Loss on disposal of discontinued operations, including provision of $1,034,787 for operating losses during phase-out period.................... (3,113,925) -- -- ------------ ------------ ------------ Net loss..................... $(3,535,876) $(2,287,405) $(2,545,768) ============ ============ ============ PRIMARY ------- Weighted average number of shares outstanding........... 5,692,920 5,060,777 4,618,670 Dilutive common equivalent shares attributable to stock options (based on average market price)........ 122,057 169,893 210,638 Dilutive common equivalent shares attributable to warrants (based on average market price)................ 29,290 10,123 50,363 ------------ ------------ ------------ Total common and common equivalent shares - primary... 5,844,267 5,240,793 4,879,671 ============ ============ ============ Primary income (loss) per share based on common and common equivalent shares - primary: Income from continuing operations.................... $ 0.08 $ 0.13 $ 0.16 Discontinued operations: Loss from discontinued operations.................. (0.15) (0.57) (0.68) Loss on disposal of discontinued operations, including provision for operating losses during phase-out period............ (0.53) -- -- ------------ ----------- ------------ Net loss....................... $ (0.60) $ (0.44) $ (0.52) ============ =========== ============ FULLY DILUTED ------------- Common and common equivalent shares used in calculating primary earnings per share... 5,844,267 5,240,793 4,879,671 Dilutive common equivalent shares attributable to stock options (based on higher ending or average market price)........ 7,963 1,576 14,201 Dilutive common equivalent shares attributable to warrants (based on higher ending or average market price)................ 9,787 3,111 4,996 ------------ ----------- ------------ Total common and common equivalent shares - fully diluted................ 5,862,017 5,245,480 4,898,868 ============ =========== ============ Fully diluted income (loss) per share based on common and common equivalent shares - fully diluted: Income from continuing operations.................. $ 0.08 $ 0.13 $ 0.16 Discontinued operations: Loss from discontinued operations................ (0.15) (0.57) (0.68) Loss on disposal of discontinued operations, including provision for operating losses during phase-out period... (0.53) -- -- ------------ ---------- ------------ Net loss..................... $ (0.60) $ (0.44) $ (0.52) ============ ========== ============
48 EX-21 6 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT HemaBiologics, Inc., a California corporation Gateway Community Blood Program, Inc., a Missouri corporation, which does business as Gateway Community Blood Program 49 EX-23 7 EXHIBIT 23 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 File No. 33-30991, File No. 33-52622 and 33-60101 and on Form S-3 File No. 33-44869. /s/ Arthur Andersen LLP ------------------------ ARTHUR ANDERSEN LLP Los Angeles, California March 28, 1996 50 EX-27 8
5 This schedule contains summary financial information extracted from audited financial statements contained in Form 10-K for the Quarter ending December 31, 1995 and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1995 DEC-31-1995 996,608 0 1,721,412 94,489 468,589 3,223,994 2,564,019 1,513,443 4,455,656 1,841,917 0 0 0 12,179,302 (10,952,612) 4,455,656 10,782,884 10,782,884 8,075,568 8,075,568 2,225,453 29,015 47,463 479,755 0 479,755 (4,015,631) 0 0 (3,535,876) (0.60) (0.60) Discontinued includes $901,706 from discontinued operations and $3,113,925 from loss on disposal of discontinued operations. Additional information with respect discontinued operations is contained in Note 11 in Notes to Consolidated Financial Statements.
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