0001171520-11-000234.txt : 20110323 0001171520-11-000234.hdr.sgml : 20110323 20110322212031 ACCESSION NUMBER: 0001171520-11-000234 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20101231 FILED AS OF DATE: 20110323 DATE AS OF CHANGE: 20110322 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15223 FILM NUMBER: 11705083 BUSINESS ADDRESS: STREET 1: 15350 SHERMAN WAY STREET 2: SUITE 350 CITY: VAN NUYS STATE: CA ZIP: 91406 BUSINESS PHONE: 818-226-1968 MAIL ADDRESS: STREET 1: 15350 SHERMAN WAY STREET 2: SUITE 350 CITY: VAN NUYS STATE: CA ZIP: 91406 10-K 1 eps4142.htm HEMACARE CORPORATION HEMACARE CORPORATION Form 10-K For the fiscal year ended December 31, 2010

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark one)
T ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
   
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________

 

Commission file number: 0-15223

 

HEMACARE CORPORATION

(Exact name of registrant as specified in its charter)

 

California   95-3280412
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer Identification Number)
     
15350 Sherman Way, Suite 350    
Van Nuys, California   91406
(Address of principal executive offices)   (Zip Code)

 

Registrant's telephone number, including area code: (818) 226-1968

 

Securities registered pursuant to Section 12(b) of the Act: None
   
Securities registered pursuant to Section 12(g) of the Act: Common Stock (without par value)
  Rights to purchase Preferred Stock

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. £ YES   T NO

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. £ YES   T NO

 

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. T YES   £ NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). £ YES   £ 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. T

 

 
 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

 

Large accelerated filer  £ Accelerated filer  £ Non-accelerated filer  £ Smaller reporting company  T 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). £ YES   T NO

 

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2010, the last business day of the registrant’s most recently completed second fiscal quarter (based upon the last sale price of the common stock as reported by the OTC Bulletin Board), was approximately $6,500,000.

 

As of March 18, 2011, 9,712,948 shares of common stock of the registrant were issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s definitive proxy statement relating to its 2011 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days of the close of the registrant’s last fiscal year, are incorporated by reference into Part III of this Report.

 

 

 

 
 

TABLE OF CONTENTS

 

      Page
PART I
       
Item 1. Business   1
Item  1A. Risk Factors   8
Item  1B. Unresolved Staff Comments   17
Item 2. Properties   17
Item 3. Legal Proceedings   17
Item 4. Reserved   17
       
PART II
       
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   18
Item 6. Selected Financial Data   18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   18
Item 7A. Quantitative and Qualitative Disclosures about Market Risk   27
Item 8. Financial Statements and Supplementary Data   27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   28
Item  9A. Controls and Procedures   28
Item  9B. Other Information   29
       
PART III
       
Item 10. Directors, Executive Officers and Corporate Governance   29
Item 11. Executive Compensation   29
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   29
Item 13. Certain Relationships and Related Transactions, and Director Independence   29
Item 14. Principal Accounting Fees and Services   30
       
PART IV
       
Item 15. Exhibits, Financial Statement Schedules   30
       
Signatures     34
       
Index to Consolidated Financial Statements   F-1

 

i
 

PART I

 

Forward-Looking Statements

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statement of the plans and objectives of management for future operations, any statements concerning proposed new products or strategic arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “intends”, or “continue” or the negative thereof or other comparable terminology. Although the Company and its management believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. The Company’s future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the Risk Factors set forth under Item 1A, and for the reasons described elsewhere in this report. All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

Item 1. Business

 

General

 

HemaCare Corporation (“HemaCare” or the “Company”) provides the customized delivery of blood products and services. The Company collects, processes and distributes blood products to hospitals and research related organizations. The Company operates and manages donor centers and mobile donor vehicles to collect transfusable blood products from donors.

 

The Company also provides blood related services, principally therapeutic apheresis procedures, stem cell collection and other blood treatments to patients with a variety of disorders. Blood related therapeutic services are usually provided to hospitals under contract as an outside purchased service.

 

In May 2010, HemaCare entered into an agreement with Dendreon Corporation (NASDAQ: DNDN) to provide cellular collection services in Los Angeles and Maine for their new autologous cellular immunotherapy, PROVENGE® (sipuleucel-T). This personalized medicine is Dendreon’s lead product and is the first autologous cellular immunotherapy specifically designed to engage patients’ own immune systems to treat cancer. HemaCare currently leverages its expertise in automated cell collection (apheresis) and processing of blood products to provide specialty collection services to Dendreon and other organizations conducting cell therapy research and clinical trials.

 

The Company has operated in Southern California since 1979. In 1998, the Company expanded operations to include portions of the eastern United States. In August 2006, the Company acquired Florida based Teragenix Corporation, subsequently renamed HemaCare BioScience, Inc. (“HemaBio”), which sourced, processed and distributed human biological specimens, manufactured quality control products and provided clinical trial management and support services. As a result of projected losses by HemaBio in the third and fourth quarters of 2007, and the resignations of key members of HemaBio’s management, the Board of Directors of HemaBio, in consultation with, and with the approval of, the Board of Directors of the Company, determined HemaBio’s business could not operate without senior management, and therefore closed all operations of HemaBio, effective November 5, 2007. See Note 3 of Notes to Consolidated Financial Statements.

 

1
 

The Company’s current strategy is to expand efforts utilizing the Company’s exemplary customer service, expertise, and infrastructure to support developing cellular therapy technologies and research organizations. This infrastructure and expertise enable the Company to collect various cellular components for cellular therapy manufacturing and future personalized patient therapies. The Company already collects allogeneic, whole-blood derived stem cells for hospital customers, research organizations and biotech companies to support their cellular therapy research and manufacturing. In doing so, the Company directly leverages its equipment, facilities, licensure, current good manufacturing protocols (cGMP), and hospital relationships. Ultimately, the Company believes these specialized collections will generate high margin revenue through the support of advanced therapies and research activities.

 

The Company renamed its two business segments at the beginning of 2010 to reflect its increased emphasis on customer service. The historically named blood products segment was renamed the “blood services” segment, and the historically named blood services segment was renamed the “therapeutic services” segment.

 

Although most suppliers of transfusable blood products are organized as not-for-profit, tax-exempt organizations, all suppliers charge fees for blood products to cover their cost of operations. The Company believes that it is the only investor-owned and taxable organization operating as a transfusable blood supplier with significant operations in the U.S.

 

The Company was incorporated in the state of California in 1978.

 

Recent Developments

 

Weaknesses in the economy and blood utilization reduction initiatives have severely impacted the blood banking industry.

 

Calendar year 2010 was an extremely challenging year for the blood products industry. Weaknesses in the economy severely impacted the blood banking business, as hospitals and healthcare providers made concerted efforts to reduce blood utilization by as much as 30%. Hospitals are educating themselves in blood management to reduce usage as never before. Additionally the criteria justifying blood transfusions have changed. There is a large movement towards bloodless surgeries and intraoperative blood transfusions, which involves recovering blood lost during surgery and re-infusing the blood into the patient. Patients also continued to postpone elective and non-essential surgeries, which further reduced the demand for blood products.

 

Management Changes

 

During the first quarter of 2010, John Doumitt and Robert Chilton resigned as the Company’s Chief Executive Officer and Chief Financial Officer, respectively. Peter van der Wal was promoted to President and Chief Executive Officer in February 2010, and was appointed Chief Financial Officer in March 2010. Subsequently, in August 2010, Lisa Bacerra was promoted to Chief Financial Officer. The Company also created the position of Chief Operating Officer in August 2010, and appointed Anna Stock to serve in that capacity.

 

Business Segments

 

HemaCare operates in two primary business segments. The first is the blood services segment, which supplies customers with red blood cells, apheresis platelets and other blood products. Included in this segment are collections for research and cellular therapy customers. The second segment is the therapeutic services segment, which includes therapeutic apheresis procedures, stem cell collection and other blood therapies provided to patients typically in a hospital setting.

 

Blood Services Operations

 

This business segment collects, processes and distributes blood products utilized by health research related organizations, or cellular therapy companies, as well as for transfusion in a hospital setting,

2
 

 

In May 2010, HemaCare entered into an agreement with Dendreon Corporation (NASDAQ: DNDN) to provide cellular collection services in Los Angeles and Maine for their new autologous cellular immunotherapy, PROVENGE® (sipuleucel-T). PROVENGE ® is the first FDA-approved autologous cellular immunotherapy for the treatment of asymptomatic or minimally symptomatic metastatic castrate resistant (hormone refractory) prostate cancer. PROVENGE® is made using cells from a patient’s own immune system. It is designed to stimulate a patient’s immune system to target prostate cancer cells. The process of making PROVENGE ® involves the introduction of a patient’s immune cells to a protein that functions as a prostate cancer-associated antigen. An antigen is a substance that causes the body to react with an immune response. This process activates the patient’s immune cells against prostate cancer cells to help the immune system better fight the disease.

 

HemaCare leverages its expertise in automated cell collection (apheresis) and processing of blood products to provide specialty collection services to Dendreon and other organizations conducting cell therapy research and clinical trials. Acting as one of Dendreon’s collection partners, the Company collects blood from the patients and forwards the blood to Dendreon for processing. Each Dendreon patient requires three separate blood draws, each one week apart.

 

The Company contracts with hospitals to provide transfusable blood products and conduct blood drives in the hospital’s name, which provides the hospital with a source of locally collected blood products and markets the hospital to the community. The Company conducts whole blood collection drives at sponsor organizations, such as employers, schools or churches. The Company’s recruitment staff works with the staff of the sponsor organization to encourage individuals associated with the sponsor to donate blood at a blood drive. The Company utilizes 15 mobile blood collection vehicles, 12 in California and 3 in Maine, to transport equipment, supplies, and occasionally staff, to blood drives. The actual collection process is safe and simple for the donor. Whole blood collected at blood drives is tested and processed into blood products, principally red blood cells and plasma.

 

The Company operates four free standing donor centers, three in California and one in Maine, where selected blood components are collected, principally platelets, utilizing a cell separator. This process, known as apheresis, allows for the collection of only selected components of a donor’s blood, returning the other components to the donor’s bloodstream. Apheresis platelet collection is more complex and expensive than whole blood collection. Apheresis equipment is costly and requires longer donation times, which result in higher labor costs. Recruiting donors for apheresis platelet donations is considerably more difficult than recruiting whole blood donors because of the complexity of the donation process and longer donation times. Apheresis platelet donors are recruited from the most dedicated subset of the whole blood donor population. The Company has demonstrated a consistent track record of donor recruitment for apheresis platelet donors.

 

Platelet products are generally collected using apheresis because a sufficient volume of platelets is collected from a single donation to produce a transfusable unit. These products are known as Single Donor Platelets. Platelet products can be produced from whole blood donations as well; however, to produce a transfusable unit, platelets from several whole blood donations are aggregated. These products are known as Random Platelets. Random Platelets are considered less desirable for transfusion because the recipient is exposed to pathogen risk from multiple donors, as opposed to only a single donor from Single Donor Platelets.

 

The Company also purchases blood products from other blood suppliers to satisfy customer demand whenever the Company’s operations cannot produce sufficient quantity.

 

The Company generally uses its own vehicles to deliver blood products directly to customers, but will occasionally use a common carrier as well. The Company utilizes 11 vehicles, 7 in California and 4 in Maine, for the delivery of blood products.

3
 

Blood services revenue depends on a number of factors, including the success of the Company’s research and cellular therapy marketing, the success of the Company’s recruitment efforts, the success of the Company’s marketing efforts to attract and retain new customers, and the ability of the Company to properly process, store and transport blood products to customers.

 

Therapeutic Services Operations

 

Therapeutic apheresis is a technique for removing components from a patient's blood and is used in the treatment of autoimmune diseases and other disorders. These services are generally provided upon the request of a hospital, which has received an order from a patient's physician. Therapeutic treatments are administered using mobile equipment operated at the patient's bedside, a hospital outpatient setting or in a physician’s office. The mobile therapeutic equipment includes a blood cell separator and the disposables needed to perform the procedure. The Company utilizes four vehicles, two in California and two that are garaged in New York, for the delivery of equipment and supplies in support of its therapeutic services operations. Treatments are primarily administered by trained nurse-specialists, under the supervision of a physician, and acting in accordance with documented operating procedures and quality assurance protocols based on guidelines developed by the American Association of Blood Banks, or AABB, and the Joint Commission on Accreditation of Healthcare Organizations.

 

Since requests for therapeutic apheresis treatments are often sporadic and unpredictable, many hospitals choose not to equip, staff and maintain an apheresis unit. The existing shortage of trained nurses in the U.S. has also hindered hospital efforts to adequately staff apheresis units. The Company’s services enable hospitals to offer therapeutic apheresis services to their patients on an "as needed" basis without incurring the costs associated with maintaining a full-time team of apheresis specialists. In addition, the Company’s services can serve to supplement a hospital’s existing apheresis capability when demand exceeds capacity.

 

Therapeutic services utilization depends on a number of factors, including the occurrence of disease states that are appropriately treated by these services, and the perceived benefits of blood therapies compared with alternative courses of treatment. The Company believes that physician education on the benefits of therapeutic apheresis results in increased application of such treatments in medically appropriate circumstances. The Company’s affiliated medical directors conduct educational seminars for physicians to inform them of the benefits of therapeutic apheresis relative to other modes of patient treatment.

 

The Company provides therapeutic services using all currently recognized treatment methods: plasma exchange, red cell exchange, cell depletion, stem cell collection and photopheresis. Patients suffering from diseases such as multiple myeloma, polyneuropathy, leukemia, systemic lupus erythematosus, scleroderma, hyperviscosity syndrome, thrombocytosis, thrombotic thrombocytopenic purpura, myasthenia gravis and Guillain-Barre syndrome may benefit from therapeutic apheresis treatments. The Company provides therapeutic apheresis services on a regional basis in several states. Major operations are in Southern California and in several Mid-Atlantic states, including New York.

 

Competition

 

The blood services and therapeutic services industries have many participants, from small limited service providers to large full service organizations. There is competition for customers on the basis of many factors, including reputation for reliable customized quality performance, expertise and experience in specific areas, scope of service offerings, price, and customer service. The Company believes it competes favorably in these areas.

 

Most U.S. transfusable blood products suppliers are organized as not-for-profit, tax-exempt entities. However, all blood suppliers charge fees for the products utilized. These fees are generally set at levels based on the supply and demand for specific products, and are influenced by the competition among blood products suppliers and federal reimbursement rates to hospital customers. Many suppliers have greater financial, technical and personnel resources than the Company. In addition, since many of the Company’s competitors are tax-exempt, they do not bear the tax burden the Company faces, and they have access to lower cost tax-exempt debt financing. Their status as charitable institutions may also give them an advantage in recruiting volunteer donors.

4
 

Approximately 40% of U. S. transfusable blood products are supplied by the American Red Cross, or ARC, through its national collection network, and approximately 60% are supplied by local and regional blood centers, including the Company.

 

The Company competes in the blood product marketplace through a strategy of offering blood supply services tailored to the requirements of individual customers. The Company consistently reevaluates and revises its blood supply services to respond to marketplace factors. Some competitors have advantages over the Company as a result of established positions and relationships within the communities they serve. In addition, the ARC’s size and market dominance provides them with greater resources to sustain periods of unprofitable sales, or to adopt aggressive pricing strategies for the purpose of defending or increasing market share.

 

Competition in the therapeutic blood services business is primarily regional where we compete with community blood banks, dialysis companies that also provide therapeutic blood services, and a wide range of small blood services companies. In addition, since some diseases treatable with therapeutic apheresis are also treatable by other medical therapies, the competition for the Company’s therapeutic blood services business includes companies that market or provide many of these competing medical therapies. The Company believes that it competes in this market by offering customized quality performance, expertise and experience in specific areas, scope of service offerings, price, and customer service. In addition, the Company educates the medical community on the benefits of therapeutic apheresis as a treatment solution for various diseases by offering speakers at meetings with the cooperation of hospital customers or at meetings of professional organizations, conducting dinner lectures where clinical information is provided.

 

Sales to Major Customers

 

The Company provides products and services to healthcare providers, hospitals, and cellular therapy and research related organizations, all of which are referred to as “customers” for purposes of identifying concentration risk. During 2010, one customer represented approximately 18.1% of total revenue. The next two largest customers accounted for approximately 7.3% and 4.6% of total revenue respectively. The Company’s ten largest customers accounted for 54.7% of total revenue. Other than lease of space for donor centers at customers’ facilities, the Company’s only relationship with any of these customers is as a provider of blood products and services.

 

Human Resources

 

As of March 8, 2011, the Company had 214 employees, including 55 part-time and temporary employees. Most of the Company's professional and management personnel possess prior experience in hospitals, medical service companies or blood banks. None of the Company's employees is represented by a labor union. The Company considers its relations with its employees to be good.

 

Suppliers

 

The Company maintains relationships with numerous suppliers who provide cell separator equipment, disposable supplies, replacement fluids, testing services and blood products. Generally, the Company has no difficulty obtaining most of its equipment and supplies; however, if there were material adverse changes affecting the sources of its supplies, the Company's operations could be adversely affected. In particular, in the event of a war or other international conflict or natural disaster, the availability of critical supplies could be negatively affected and the cost of procuring these supplies could increase.

 

During 2010, the Company received goods and services from two major vendors, the first of which is CaridianBCT, which represented approximately 12.9% of the Company’s total operating costs from continuing operations. This vendor provided products that support the Company’s cell separation equipment used by both the blood services and therapeutic services segments. The second largest vendor is Creative Testing Solutions, which represented approximately 9.7% of total operating costs from continuing operations. This vendor provided laboratory services. The Company has no relationship with either vendor other than as a consumer of the goods and services provided by each.

5
 

The Company’s blood products consist of those produced from donated platelets and whole blood, and blood products purchased from other suppliers. The Company competes with the ARC and other blood suppliers in recruiting its donors. The growth of the Company's manufactured blood products business is dependent on the Company's ability to attract, screen and retain qualified donors, or purchase blood products from other suppliers.

 

Government Regulation

 

Blood Services Operations

 

Blood products suppliers are subject to extensive regulation and guidelines of the Food and Drug Administration, or FDA, the AABB, and various state licensing authorities. FDA regulations are comprehensive, complex and extend to virtually all aspects of the blood products industry, including recruiting and screening blood donors; processing, testing, labeling, storing and shipping blood products; recordkeeping; and communications with hospital customers and donors. FDA regulations also extend to the manufacturers of all critical supplies and equipment used in the blood supply industry.

 

The Company views product safety and compliance with governmental regulations as paramount concerns at all times. The Company has developed extensive procedures and internal quality control programs to increase compliance with all governmental regulations and industry standards. Employees routinely participate in training classes. Employees are evaluated at the conclusion of training to insure that the desired level of understanding of the Company’s compliance and safety procedures is achieved. Finally, HemaCare’s Regulatory Affairs and Quality Assurance Department conducts periodic audits of each operating unit to identify the level of compliance with regulatory procedures.

 

Organizations within the blood supply industry are registered by the FDA to operate blood collection and/or blood processing facilities. All of the Company’s facilities operate under FDA registrations.

 

The FDA also issues licenses to organizations within the blood supply industry to ship blood products across state lines if the qualifying organization can demonstrate adequate employee training programs, procedure documentation and quality control systems to insure the quality of the products shipped. HemaCare holds a license for its Van Nuys, California and Scarborough, Maine facilities to ship selected blood products across state lines.

 

On May 5, 2006, the Company received a warning letter from the FDA pertaining to specific observations from an inspection of the Company’s California operations. In August 2007, the FDA performed another inspection of the Company’s California operations. As a result of this inspection, the Company was provided with a list of observations of regulatory issues and was informed that the 2006 warning letter would remain in effect. During 2009, the FDA conducted an inspection at the Company’s Van Nuys, California facility. At the conclusion of this inspection, the FDA provided the Company with a list of observations of regulatory issues; however, the FDA did not document any repeat observations of previous compliance issues. In 2010, the FDA inspected our remote locations and did not identify any observations. The Company believes it has adequately addressed the issues raised by the FDA, and believes the operations are in compliance with current FDA regulations.

 

Periodically, the health departments of the states in which the Company operates conduct audits of the Company’s facilities and operations. These audits focus on compliance with specific state laws that cover HemaCare’s operations. In 2010, there was one California state inspection with no documented compliance issues. The Company believes that it is in compliance with state regulations governing the Company’s operations.

6
 

Therapeutic Services Operations

 

Therapeutic services are generally provided under contract and upon the request of a hospital, which has received an order from a patient's physician, and therefore is considered an outsourced function of the hospital’s treatment of the patient. Treatments are primarily administered by Company trained nurse-specialists, under the supervision of a physician, and acting in accordance with documented standard operating procedures and quality assurance protocols.

 

Although such procedures are generally considered medical treatment, and therefore not directly regulated by the FDA and other regulatory agencies, the protocols used are based on guidelines developed by the AABB, the Foundation for the Accreditation of Cellular Therapy, or FACT, and the Joint Commission on Accreditation of Healthcare Organizations, or Joint Commission. As such, the Company is obligated to adhere to these guidelines in order to maintain its accreditation with the AABB, and to assist hospital customers to comply with their Joint Commission and FACT accreditation.

 

In addition, the equipment and supplies used during the performance of therapeutic procedures are generally approved by the FDA for the specific treatment performed by the Company’s staff; however, physicians can request that the Company use its equipment and supplies to perform treatments not approved by the FDA, which is authorized as long as it is at the direction of the patient’s physician.

 

Blood Management Software Project

 

Federal and State regulations require that all donors and donations be tracked from donation though processing and storage to final disposition. Regulations also require that transfusing facilities, donors and patients receive information regarding donors who test positive for a variety of disease markers in years subsequent to original donation.

 

HemaCare will begin the implementation of Haemonetics Corporation’s ElDorado Donor software in the second quarter of 2011. The implementation of the ElDorado Donor software system is critical to the effective and efficient management of donor and product information to meet business and regulatory requirements for blood center operations.

 

The ElDorado Donor software represents Haemonetics next generation software intended as a comprehensive blood management software application providing for the information system needs of blood banks and donor centers. The software is designed to manage, automate, and control activities associated with donors, donor collections, testing, manufacturing, inventory, and distribution.

 

On February 18, 2011, the Company entered into an agreement with Haemonetics to purchase the El Dorado Donor software system license. The Company also signed a hosting agreement for Haemonetics to host the El Dorado software system for a period of three years, with annual renewal options.

 

Other Matters

 

State and federal laws set forth anti-kickback and self-referral prohibitions, and otherwise regulate financial and referral relationships between blood suppliers, hospitals, physicians and others in the blood supply industry. The Company believes its present operations comply with all currently applicable regulations in this area.

 

New health care regulations are continuously under consideration by lawmakers at the federal level, and in many of the individual states in which the Company operates. New regulations could have a direct impact on the Company and its operations. The Company is not aware of any specific proposed regulation that would have a material adverse impact on the Company; however, the Company is uncertain what changes may be made in the future regarding health care policies, especially those regarding hospital reimbursements, health insurance coverage, product testing, record keeping and managed care that may materially impact the Company's operations.

7
 

Professional and Product Liability Insurance

 

The blood service and therapeutic service business is inherently subject to substantial potential liabilities for personal injury claims. The Company maintains medical professional liability insurance in the amount of $4,000,000 for a single occurrence and $5,000,000 in the aggregate per year. Based on the Company’s recent history of claims filed for personal injury and the related monetary damages paid, the Company believes it has adequate insurance; however, there can be no assurance that potential insurance claims will not exceed present coverage or that continued or additional insurance coverage would be available and affordable. If such insurance were ineffective or inadequate for any reason, the Company could be exposed to significant liabilities.

 

Additional Information

 

The Company makes available free of charge through its website, www.hemacare.com, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as soon as practical after those reports are filed with the SEC. The Company’s filings may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 800-SEC-0330. The SEC also maintains an Internet site, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

Item 1A Risk Factors

 

The Company’s short and long-term success is subject to many factors that are beyond management’s control. Shareholders and prospective shareholders of the Company should consider carefully the following risk factors, in addition to other information contained in this report. The Company’s business could be harmed by any of these risks. The trading price of the Company’s common stock could decline due to any of these risks, and investors may lose all or part of their investment.

 

Changes in demand for blood products could affect profitability

 

The Company’s operations are structured to produce particular blood products based on customers’ existing demand, and perceived potential changes in demand, for these products. Sudden or unexpected changes in demand for these products could have an adverse impact on the Company’s profitability. Increasing demand could harm relationships with customers if the Company is unable to alter production capacity, or purchase products from other suppliers, to fill orders adequately. This could result in a decrease in overall revenue and profits. Decreases in demand may require the Company to make sizeable investments to restructure operations away from declining products to the production of new products. Lack of access to sufficient capital, or lack of adequate time to properly respond to such a change in demand, could result in declining revenue and profits as customers transfer to other suppliers. Additionally, an increase in the supply of blood products in the marketplace could result in declining revenue and profits for the Company due to a market driven decrease in prices.

 

Costs increasing more rapidly than market prices could reduce profitability

 

The cost of collecting, processing and testing blood products has risen significantly in recent years and will likely continue to increase. These cost increases are related to new and improved testing procedures, increased regulatory requirements related to blood safety, and higher staff and supply costs related to collecting and processing blood products. Competition and fixed price contracts may limit the Company’s ability to maintain existing operating margins. Some competitors have greater resources than the Company to sustain periods of marginally profitable or unprofitable sales. Costs increasing more rapidly than market prices, may reduce profitability and may have a material adverse impact on the Company’s business and results of operations.

8
 

Competition may cause a loss of customers and an inability to pass on increases in costs thereby impacting profitability

 

Competition in the blood services and therapeutic services industries is primarily based on fees charged to customers. The Company’s primary competition in the blood products market is the ARC, which owns a significant market share advantage over the Company in the regions the Company operates. As a result, the ARC possesses significant market power to influence prices, which can prevent the Company from passing along increases in costs to customers. In addition, hospital consolidations and affiliations allow certain customers to negotiate as a group, exerting greater price pressure on the Company. These changes may have a negative impact on the Company’s future revenue, and may negatively impact future profitability.

 

Changing economic conditions could impact the ability of customers to pay the Company’s invoices

 

The Company’s principal customers are hospitals that depend on payments from private insurance companies and governments to fund operations, and to pay the Company’s invoices for products and services. Deteriorating economic conditions can result in higher unemployment and a related loss of medical insurance coverage for hospital patients. Reduced reimbursement for medical services can strain the financial health of the Company’s hospital customers, which could impact the ability of these customers to pay the Company’s invoices. The Company does not have sufficient resources to sustain operations for an extended period of time if any significant customer, or several smaller customers, failed to pay the Company’s invoices as expected.

 

Declining blood donations could affect profitability

 

The Company’s blood products business depends on the availability of donated blood. Only a small percentage of the population donates blood, and regulations intended to reduce the risk of introducing infectious diseases in the blood supply, result in a decreased pool of potential donors. If the level of donor participation declines, the Company may not be able to reduce costs sufficiently to maintain profitability in blood products. In addition, the donor population is aging, resulting in fewer donors as those donors develop health issues that make them ineligible. There is an effort within the blood banking community to attract younger and more diverse donors.

 

Operations depend on services of qualified professionals and competition for their services is strong

 

The Company is highly dependent upon obtaining the services of qualified professionals. In particular, the Company’s operations depend on the services of registered nurses, medical technologists, regulatory and quality assurance professionals, and others with knowledge of the blood industry. Nationwide, the demand for these professionals exceeds the supply and competition for their services is strong. The Company incurs significant costs to hire and retain staff. If the Company is unable to attract and retain a staff of qualified professionals, operations may be adversely affected which, in turn, may adversely impact profitability. In California there is an additional state licensure requirement for some licensed staff, especially medical technologists. This additional requirement within the state of California further limits the pool of certain professional staff.

 

Industry regulations and standards could increase operating costs or result in closure of operations

 

The business of collecting, processing and distributing blood products is subject to extensive and complex regulation by the state and federal governments. The Company is required to obtain and maintain numerous licenses in different legal jurisdictions regarding the safety, quality, identity, purity and potency of products, condition of facilities, medical waste disposal and that appropriate procedures are utilized. Periodically the FDA conducts inspections of HemaCare’s facilities and operations. At the conclusion of each inspection, the FDA provides the Company with a list, if any, of observations of regulatory issues discovered during the inspection. In 2006, the FDA inspected the Company’s California blood product operations and determined that deficiencies existed to require the FDA issue a “Warning Letter” to notify the Company that significant improvements were required or further regulatory action was likely. Subsequent to the issuance of this letter, the Company invested considerable time and money to address each of the issues raised by the FDA. During 2009, the Company’s California blood product operations were inspected again by the FDA, and at the conclusion of this inspection, the

9
 

FDA provided the Company with a list of observations; however, the FDA did not document any repeat observations of previous compliance issues. The Company responded to the FDA in September 2009. The FDA responded with a request for more clarification on some points in November 2009. The Company responded in January 2010. The FDA accepted the Company’s response in February 2010. Although future inspections could result in additional regulatory action, the Company’s focus on addressing the specific issues raised in the FDA Warning Letter, resulted in a vastly improved outcome compared to previous inspections.

 

The Company believes that its response and actions taken to address the FDA observations are sufficient and that it is in compliance with current FDA regulations; however, the Company cannot insure against future FDA actions, including possible sanctions or closure of selected Company operations.

 

State and federal laws include anti-kickback and self-referral prohibitions and other regulations that affect the shipment of blood products and the relationships between blood banks, hospitals, physicians and other persons who refer business to each other. Health insurers and government payers, such as Medicare and Medicaid, also limit reimbursement for products and services, and require compliance with certain regulations before reimbursement will be made.

 

The Company devotes substantial resources to complying with laws and regulations; however, the possibility cannot be eliminated that interpretations of existing laws and regulations will result in findings that the Company has not complied with existing regulations. Such a finding could materially harm the Company’s business. Moreover, healthcare reform is continually under consideration by regulators, and the Company does not know how laws and regulations will change in the future.

 

Pandemic or epidemic outbreak of disease could significantly impact blood donations and have a material adverse impact on profitability

 

If H1N1 flu, avian flu, or other disease, were to develop into a worldwide pandemic or epidemic in one or more regions in which the Company operates, the portion of the public that typically donates blood to the Company may be unable, or unwilling to donate, thereby significantly reducing the availability of blood that the Company relies upon to manufacture blood products. In addition, even if suspected diseases prove to be no more virulent than other more common disease, the heightened fear among the public resulting from widespread media coverage may result in dramatic decline in donations. Moreover, if a significant portion of the Company’s workforce becomes ill, is required to stay home to care for ill family members, or is required to stay home in connection with social distancing programs intended to minimize disease transmission, the Company’s operations could be significantly disrupted, which could have a material adverse impact on the Company’s profitability.

 

Healthcare Reform Bill may have a material effect on the Company

 

The Patient Protection and Affordable Care Act was signed into law on March 23, 2010 and was shortly thereafter amended by the Health Care and Education Reconciliation Act of 2010 which became law on March 30, 2010. Healthcare reform will change health care insurance coverage, cost containment and payments. It is not possible at this time to evaluate whether there will be a material impact on the Company's operations or profitability from any legislative enactments in this area, nor from any regulatory actions pursuant to this legislation.

 

Leadership changes within our customers and competitors could affect revenue

 

Changes in leadership within our customers and competitors could impact the environment in which we compete based on changes in their strategic direction. Leadership changes within our customer base could result in changes to contract, thus impacting revenue. Changes in leadership within our competitors could also impact our current customer base and thus revenue.

10
 

Decrease in reimbursement rates may affect profitability

 

Reimbursement rates for blood products and services provided to Medicaid, Medicare and commercial patients, impact the fees that the Company is able to negotiate with customers. In addition, to the degree that the Company’s hospital customers receive lower reimbursement for the products and services provided by the Company, these customers may reduce their demand for these goods and services, and adversely affect the Company’s revenue.

 

Not-for-profit status gives advantages to competitors

 

HemaCare is the only significant blood products supplier to hospitals in the U.S. that is operated for profit and investor owned. The not-for-profit competition is exempt from federal and state taxes, and has substantial community support and access to tax-exempt financing. The Company may not be able to continue to compete successfully with not-for-profit organizations, and the business and results of operations may suffer material adverse harm.

 

Potential inability to meet future capital needs could impact ability to operate

 

The Company may not generate sufficient operating cash in the future to finance its operations for the next year. The Company may not utilize its credit facility with Wells Fargo to help finance its operations due to the amendment to the credit agreement which changes the borrowing base from accounts receivable to cash. This in effect takes away the ability to draw on the line of credit. The Company may need to raise additional capital in the debt or equity markets in order to finance future operations and procure necessary equipment. There can be no assurance that the Company will be able to obtain such financing on reasonable terms or at all. Additionally, there is no assurance that the Company will be able to obtain sufficient capital to finance future expansion.

 

Reliance on relatively few vendors for significant supplies and services could affect the Company’s ability to operate

 

The Company currently relies on a relatively small number of vendors to supply important supplies and services. Significant price increases, or disruptions in the ability to obtain products and services from existing vendors, may force the Company to find alternative vendors. Alternative vendors may not be available, or may not provide their products and services at favorable prices. If the Company cannot obtain the products and services it currently uses, or alternatives at reasonable prices, the Company’s ability to produce products and provide services may be severely impacted, resulting in a reduction of revenue and profitability.

 

Potential adverse effect from changes in the healthcare industry, including consolidations, could affect access to customers

 

Competition to gain patients on the basis of price, quality and service is intensifying among healthcare providers who are under pressure to decrease the costs of healthcare delivery. There has been significant consolidation among healthcare providers seeking to enhance efficiencies, and this consolidation is expected to continue. As a result of these trends, the Company may be limited in its ability to increase prices for products in the future, even if costs increase. Further, customer attrition as a result of consolidation or closure of hospital facilities may adversely impact the Company.

 

Future technological developments or alternative treatments could jeopardize the business

 

As a result of the risks posed by blood-borne diseases, many companies and healthcare providers are currently seeking to develop alternative treatments for blood product transfusions. HemaCare’s business consists of collecting, processing and distributing human blood products and providing blood related therapeutic services, and collecting blood for the cellular therapy and research markets. The introduction and acceptance in the market of alternative treatments may cause material adverse harm to the future profitability for these products and to the Company’s business.

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Limited access to insurance could affect ability to defend against possible claims

 

The Company currently maintains insurance coverage consistent with the industry; however, if the Company experiences losses or the risks associated with the blood industry increase in the future, insurance may become more expensive or unavailable. The Company also cannot give assurance as the business expands, or as the Company introduces new products and services, that additional liability insurance on acceptable terms will be available, or that the existing insurance will provide adequate coverage against any and all potential claims. Also, the limitations on liability contained in various agreements and contracts may not be enforceable and may not otherwise protect the Company from liability for damages. The successful assertion of one or more large claims against the Company that exceeds available insurance coverage, or changes in insurance policies, such as premium increases or the imposition of large deductibles or co-insurance requirements, may materially and adversely impact the Company’s business.

 

Ability to attract, retain and motivate management and other skilled employees

 

The Company’s success depends significantly on the continued services of key management and skilled personnel. Competition for qualified personnel is intense and there are a limited number of people with knowledge of, and experience in, the blood services and therapeutic services industries. The Company does not have employment agreements with most key employees, nor maintain life insurance policies on them. The loss of key personnel, especially without advance notice, or the Company’s inability to hire or retain qualified personnel, could have a material adverse impact on revenue and on the Company’s ability to maintain a competitive advantage. The Company cannot guarantee that it can retain key management and skilled personnel, or that it will be able to attract, assimilate and retain other highly qualified personnel in the future.

 

Product safety and product liability could provide exposure to claims and litigation

 

Blood products carry the risk of transmitting infectious diseases, including, but not limited to, hepatitis, HIV and Creutzfeldt-Jakob disease. HemaCare screens donors, uses highly qualified testing service providers, and conducts selective blood testing, to test blood products for known pathogens in accordance with industry standards, and complies with all applicable safety regulations. Nevertheless, the risk that screening and testing processes might fail, or that new pathogens may be undetected by them, cannot be completely eliminated. There is currently no test to detect the pathogen responsible for Creutzfeldt-Jakob disease. If patients are infected by known or unknown pathogens, claims may exceed insurance coverage and materially and adversely impact the Company’s financial condition.

 

Targeted partner blood drives involve higher collection costs

 

Part of the Company’s current operations involves conducting blood drives in partnership with hospitals. These blood drives are conducted under the name of the hospital partner and require that all promotional materials and other printed material include the name of the hospital partner. This strategy lacks the efficiencies associated with blood drives that are not targeted to benefit particular hospital partners. As a result, collection costs might be higher than those experienced by the Company’s competition and may impact profitability and growth plans.

 

Bio-Hazard risks could cause the Company to incur substantial costs

 

HemaCare’s operations involve the controlled use of bio-hazardous materials and chemicals. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result, and any such liability could exceed the resources of the Company and its insurance coverage. The Company may incur substantial costs to maintain compliance with environmental regulations as it develops and expands its business.

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Business interruption due to terrorism and increased security measures in response to terrorism could adversely impact profitability

 

HemaCare’s business depends on the free flow of products and services through the channels of commerce and freedom of movement for patients and donors. Delays or stoppages in the transportation of perishable blood products and interruptions of mail, financial or other services could have a material adverse impact on the Company’s results of operations and financial condition. Furthermore, the Company may experience an increase in operating costs, such as costs for transportation, insurance and security, as a result of terrorist activities and potential activities, which may target health care facilities or medical products. The Company may also experience delays in receiving payments from payers that have been impacted by terrorist activities and potential activities. The U.S. economy in general is adversely impacted by terrorist activities, and potential activities, and any economic downturn may adversely impact the Company’s results of operations, impair its ability to raise capital or otherwise adversely impact its ability to grow its business.

 

Business interruption due to earthquakes could adversely impact profitability

 

HemaCare’s principal operations, as well as the Company’s corporate headquarters, are located in Southern California, which is an area known for potentially destructive earthquakes. A severe event in this location could have a substantial negative impact on the ability of the Company to continue to operate. Any significant delay in resuming operations following such an event could cause a material adverse impact on the profitability of the Company. In addition, the Company’s insurance policies do not provide any coverage for damages as a result of an earthquake. Therefore, the Company would bear all of the costs incurred to resume operations after an earthquake and the Company may not have sufficient resources to do so.

 

Evaluation and consideration of strategic alternatives, and other significant projects, may distract management from reacting appropriately to business challenges and lead to reduced profitability

 

As a publicly traded Company, management must constantly evaluate and consider new strategic alternatives, and other significant projects, in an attempt to maximize shareholder value. The Company does not possess a large management team that can both consider strategic alternatives and manage daily operations. Therefore, management distractions associated with the evaluation and consideration of strategic alternatives could prevent management from dedicating appropriate time to immediate business challenges or other significant business decisions. This may cause a material adverse impact on the future profitability of the Company.

 

Strategy to acquire companies may result in unsuitable acquisitions or failure to successfully integrate acquired companies, which could lead to reduced profitability

 

The Company may embark on a growth strategy through acquisitions of companies or operations that complement existing product lines, customers or other capabilities. The Company may be unsuccessful in identifying suitable acquisition candidates, or may be unable to consummate a desired acquisition. To the extent any future acquisitions are completed, the Company may be unsuccessful in integrating acquired companies or their operations, or if integration is more difficult than anticipated, the Company may experience disruptions that could have a material adverse impact on future profitability. Some of the risks that may affect the Company’s ability to integrate, or realize any anticipated benefits from, acquisitions include:

 

·unexpected losses of key employees or customers of the acquired company;
·difficulties integrating the acquired company’s standards, processes, procedures and controls;
·difficulties coordinating new product and process development;
·difficulties hiring additional management and other critical personnel;
·difficulties increasing the scope, geographic diversity, and complexity of the Company’s operations;
·difficulties consolidating facilities, transferring processes and know-how;
·difficulties reducing costs of the acquired company’s business;
·diversion of management’s attention from the management of the Company; and
·adverse impacts on existing business relationships with customers.
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Articles of Incorporation and Rights Plan could delay or prevent an acquisition or sale of HemaCare

 

HemaCare’s Articles of Incorporation empower the Board of Directors to establish and issue a class of preferred stock, and to determine the rights, preferences and privileges of the preferred stock. This gives the Board of Directors the ability to deter, discourage or make more difficult a change in control of HemaCare, even if such a change in control would be in the interest of a significant number of shareholders or if such a change in control would provide shareholders with a substantial premium for their shares over the then-prevailing market price for the Company’s common stock.

 

In addition, the Board of Directors has adopted a Shareholder’s Rights Plan designed to require a person or group interested in acquiring a significant or controlling interest in HemaCare to negotiate with the Board. Under the terms of the Company’s Shareholders’ Rights Plan, in general, if a person or group acquires more than 15% of the outstanding shares of common stock, all of the other shareholders would have the right to purchase securities from the Company at a discount to the fair market value of the common stock, causing substantial dilution to the acquiring person or group. The Shareholders’ Rights Plan may inhibit a change in control and, therefore, may materially adversely impact the shareholders’ ability to realize a premium over the then-prevailing market price for the common stock in connection with such a transaction.

 

Quarterly revenue and operating results may fluctuate in future periods, and the Company may fail to meet investor expectations

 

The Company’s quarterly revenue and operating results have fluctuated significantly in the past, and are likely to continue to do so in the future due to a number of factors, many of which are not within the Company’s control. If quarterly revenue or operating results fall below the expectations of investors, the price of the Company’s common stock could decline significantly. Factors that might cause quarterly fluctuations in revenue and operating results include the following:

 

·changes in demand for the Company’s products and services, and the ability to obtain the required resources to satisfy customer demand;
·ability to develop, introduce, market and gain market acceptance of new products or services in a timely manner;
·ability to manage inventories, accounts receivable and cash flows;
·ability to control costs; and
·ability to attract qualified blood donors.

 

The level of expenses incurred depends, in part, on the expectation for future revenue. In addition, since many expenses are fixed in the short term, the Company cannot significantly reduce expenses if there is a decline in revenue to avoid losses.

 

Stocks traded on the OTC Bulletin Board are subject to greater market risks than those of exchange-traded stocks since they are less liquid

 

HemaCare’s common stock trades on the OTC Bulletin Board, an electronic, screen-based trading system operated by the Financial Industry Regulatory Authority. Securities traded on the OTC Bulletin Board are, for the most part, thinly traded and generally are not subject to the level of regulation imposed on securities listed or traded on the Nasdaq Stock Market or on another national securities exchange. As a result, an investor may find it difficult to dispose of the Company’s common stock or to obtain accurate price quotations.

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Stock price could be volatile

 

The price of HemaCare’s common stock has fluctuated in the past and may be more volatile in the future. Factors such as the announcements of government regulation, new products or services introduced by the Company or by the competition, healthcare legislation, trends in health insurance, litigation, fluctuations in operating results and market conditions for healthcare stocks in general could have a significant impact on the future price of HemaCare’s common stock. In addition, the stock market has from time to time experienced extreme price and volume fluctuations that may be unrelated to the operating performance of particular companies. The generally low volume of trading in HemaCare’s common stock makes it more vulnerable to rapid changes in price in response to market conditions. The market price of the Company’s common stock could decline as a result of sales by, or the perceived possibility of sales by, existing stockholders. Most of the Company’s outstanding shares are eligible for public resale pursuant to Rule 144 under the Securities Act of 1933, as amended. Future sales of common stock by significant stockholders, including affiliates, or the perception that such sales may occur, could depress the price of the Company’s common stock.

 

Future sales of equity securities could dilute the Company’s common stock

 

The Company may seek new financing in the future through the sale of its securities. Future sales of common stock or securities convertible into common stock could result in dilution of the common stock currently outstanding. In addition, the perceived risk of dilution may cause some shareholders to sell their shares, which may further reduce the market price of the common stock.

 

Lack of dividend payments could impact the price of the Company’s common stock

 

The Company intends to retain any future earnings for use in its business, and therefore does not anticipate declaring or paying any cash dividends in the foreseeable future. The declaration and payment of any cash dividends in the future will depend on the Company’s earnings, financial condition, capital needs and other factors deemed relevant by the Board of Directors. In addition, the Company’s credit agreement prohibits the payment of dividends during the term of the agreement.

 

Ability to utilize net operating loss carryforwards may be limited, resulting in income taxes sooner than currently anticipated

 

As of December 31, 2010, the Company had net operating loss carryforwards (“NOL”) of approximately $7.0 million for federal income tax purposes that will begin to expire in 2011, and $16.6 million for state income tax purposes that will begin to expire in 2017. These NOLs may be used to offset future taxable income, to the extent the Company generates any taxable income, and thereby reduces or eliminates future federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes limitations on a corporation's ability to utilize NOLs if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percent over a three-year period. In the event that an ownership change has occurred, or were to occur, utilization of the Company’s NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate as defined in the Internal Revenue Code. Any unused annual limitation may be carried over to later years. The Company could experience an ownership change under Section 382 as a result of events in the past in combination with events in the future. If so, the use of the Company’s NOLs, or a portion thereof, against future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of the NOLs before utilization. Therefore, the Company could be liable for income taxes sooner than otherwise would be true if the Company were not subject to Section 382 limitations.

15
 

Use and disclosure of patient or donor information is subject to privacy and security regulations, which may result in increased costs

 

While collecting blood from donors, or while performing therapeutic procedures for patients, the Company may collect, use, disclose, maintain and transmit patient information in ways that will be subject to many of the numerous state, federal and international laws and regulations governing the collection, use, disclosure, storage, transmission and/or confidentiality of patient-identifiable health information, including the administrative simplification requirements of the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (“HIPAA”). The HIPAA Privacy Rule restricts the use and disclosure of patient information, and requires safeguarding that information. The HIPAA Security Rule establishes elaborate requirements for safeguarding patient information transmitted or stored electronically. HIPAA applies to covered entities, which may include healthcare facilities and does include hospitals that will contract for the use of the Company’s services. The HIPAA rules require covered entities to bind contractors like the Company to comply with certain burdensome HIPAA rule requirements known as business associate requirements. The Company may be required to make costly system purchases or system modifications, and make significant and burdensome changes to the Company’s policies and procedures in order to comply with the HIPAA rule requirements. Inappropriate disclosure of protected information may result in significant liability to the Company and adversely affect the Company’s profitability.

 

In addition, other federal and state consumer protection laws may also apply to the Company’s collection, use, storage, and disclosure of other personal information of donors or patients. The Company’s efforts to adhere to these laws, or any failure to abide by these laws, may result in significant liability for the Company or increase the Company’s cost of doing business.

 

Evaluation of internal control and remediation of potential problems will be costly and time consuming and could expose weaknesses in financial reporting

 

The regulations implementing Section 404 of the Sarbanes-Oxley Act of 2002 require management to perform an assessment of the effectiveness of the Company’s internal control over financial reporting beginning with its Annual Report on Form 10-K for the fiscal year ending December 31, 2007.

 

This process is expensive and time consuming, and requires significant attention of management. This process can reveal material weaknesses in internal controls that will require remediation. (See “Item 9A. Controls and Procedures” elsewhere in this report.) The remediation process may also be expensive and time consuming, and management can give no assurance that the remediation effort will be completed on time or be effective. In addition, management can give no assurance that additional material weaknesses in internal controls will not be discovered. Management also can give no assurance that the process of evaluation will be completed on time. The disclosure of a material weakness, even if quickly remedied, could reduce the market’s confidence in the Company’s financial statements and harm the Company’s stock price, especially if a restatement of financial statements for past periods is required.

 

Discontinuation of the operations of the Company’s Florida-based research subsidiary may hinder the Company’s ability to generate profits

 

The Company’s Florida-based research subsidiary recorded a decrease in revenue and a related increase in operating losses throughout the first three quarters of 2007. On November 5, 2007, the Board of Directors of HemaBio closed this operation to avoid further losses. On December 4, 2007, HemaBio executed an Assignment for Benefit of Creditors, under Florida Statutes Section 727.101 et seq., assigning all of its assets to an assignee, who is responsible for taking possession of, protecting, preserving, and liquidating such assets and ultimately distributing the proceeds to creditors of HemaBio according to their priorities as established by Florida law. During 2008, the assignee successfully liquidated most of HemaBio’s assets, including inventory, furniture and equipment. As of December 31, 2010, the assignee was still engaged to complete the liquidation and closure activities. These activities could temporarily increase costs, utilize scarce financial resources, distract management and have a material adverse impact on the Company and its results of operations. In addition, HemaBio creditors could attempt to pursue HemaCare for recovery of unpaid claims if they are not satisfied with the results of the Assignment for Benefit of Creditors process. If HemaBio’s creditors are successful, HemaCare may not have sufficient liquidity to satisfy these obligations.

16
 

Item 1B Unresolved Staff Comments

 

None.

 

Item 2 Properties

 

On February 24, 2006, the Company entered into a lease for approximately 19,600 square feet located in Van Nuys, California to house corporate offices, mobile blood drive operations, a blood component manufacturing lab and a blood products distribution operation. The Company occupied this facility in November 2006. The rent for this facility started at approximately $36,000 per month; however, the lease provides for 3% rent escalation upon the annual anniversary of the beginning of the lease term, and for increases in the cost of common area maintenance. The rent for this facility currently is approximately $41,000 per month. The lease on this space expires July 31, 2017; however, the Company has one five-year option to extend this lease at the then current market price. On April 11, 2007, the Company entered into an amendment to add approximately 5,735 square feet to this lease to house a donor center and supply warehouse. This amendment added $13,250 per month in rent expense, which adjusts annually by 3.9% on the anniversary of the lease commencement date. The rent for this facility currently is approximately $14,800 per month. As part of the lease agreement, the Company received approximately $508,000 in tenant improvement allowance from the landlord.

 

As security for lease obligations associated with this lease, the Company is required to maintain a Letter of Credit. The Letter of Credit was initially in the amount of $815,000, with 10% decreases each year on August 14, 2009, 2010, 2011 and 2012. The decreases become 20% each year on August 14, 2013 and 2014. This Letter of Credit was reduced to $660,000 on December 7, 2010, in accordance with the 10% decrease per year for 2009 and 2010.

 

The Company leases space for offices, a laboratory, a manufacturing facility for blood components and a distribution center in a 3,600 square foot facility in Scarborough, Maine. The monthly rent is approximately $4,500, and the lease term expires October 31, 2012.

 

The Company also leases space for a donor center in a 1,300 square foot facility in Scarborough, Maine. The monthly rent is approximately $1,500. The initial lease term expired October 21, 2010 and was renewed for an additional two years bringing the expiration date to October 21, 2012. The rental rate adjusts 3.5% annually.

 

The Company entered into a lease agreement on June 1, 2009 for a 1,625 square foot office space in White Plains, New York. This lease expires on May 14, 2014, and the current rent is $3,000 with annual adjustments of 2%.

 

The Company leases a 1,500 square foot donor center on the campus of one of its client hospitals for a monthly amount of $3,700. The lease expires June 30, 2011. The Company entered into a second lease agreement with this client on August 1, 2009 for an additional 1,631 foot donor center. This lease expired on December 31, 2010 and the monthly rent is $2,400. The Company rents the facility on a month to month basis since December 31, 2010.

 

We believe that our facilities are suitable, in good condition, and adequate to meet our current and foreseeable needs.

 

Item 3 Legal Proceedings

 

From time to time, the Company is involved in various routine legal proceedings incidental to the conduct of its business. Management does not believe that any of these legal proceedings will have a material adverse impact on the business, financial condition or results of operations of the Company, either due to the nature of the claims, or because management believes that such claims should not exceed the limits of the Company’s insurance coverage. The Company is not currently involved in any litigation that requires disclosure in this report.

 

Item 4 Reserved

 

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PART II

 

Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and issuer purchases of equity securities

 

The Company's common stock is quoted on the OTC Bulletin Board under the symbol HEMA.OB.

 

The following table sets forth the range of high and low closing bid prices of the common stock, as reported by the OTC Bulletin Board, for the periods indicated. These prices reflect inter-dealer quotations, without retail markups,

markdowns, or commissions, and do not necessarily represent actual transactions. The prices appearing below were obtained from the National Quotation Bureau.

 

    2010   2009
Quarter ended High   Low   High   Low
March 31   $0.70   $0.50   $0.40   $0.20
June 30   $0.70   $0.46   $0.54   $0.31
September 30   $0.70   $0.40   $0.97   $0.37
December 31   $0.67   $0.42   $0.75   $0.46

 

On March 14, 2011, the closing bid price of the Company’s common stock was $0.36 Shareholders are urged to obtain current market quotations for the Company’s common stock.

 

The Company has never paid any cash dividends on its common stock. The Company intends to retain any future earnings for use in its business, and therefore, does not anticipate declaring or paying any cash dividends in the foreseeable future. The declaration and payment of any cash dividends in the future will depend upon the Company’s earnings, financial condition, capital needs, line of credit requirements and other factors deemed relevant by the Board of Directors.

 

On March 14, 2011, the Company had approximately 247 shareholders of record of its common stock.

 

Item 6 Selected Financial Data

 

Intentionally omitted.

 

Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations

 

General

 

HemaCare operates in two primary business segments. The first is the blood services segment which supplies hospitals and health research related organizations with red blood cells, apheresis platelets, and other blood products. The Company operates and manages donor centers and mobile donor vehicles to collect blood products from donors, and purchases blood products from other suppliers. We include revenues from research projects and cellular therapy collections in the blood services segment. Additionally, the Company operates a therapeutic services segment, wherein the Company performs therapeutic apheresis procedures, stem cell collection and other blood treatments on patients with a variety of disorders. Therapeutic services are usually provided under contract with hospitals as an outside purchased service.

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In November 2007, the Board of Directors of HemaBio closed the Company’s Florida-based research blood products subsidiary that sourced, processed and distributed human biological specimens, manufactured quality control products and provided clinical trial management and support services. With the closure of HemaBio, the Company reports the financial results for 2010 and 2009 of HemaBio, as well as the impact of the closure activities, as “Discontinued Operations” on the income statement.

 

 

Results of Operations

 

The following table sets forth, for the periods indicated, statement of income data as a percentage of net revenue and the percentage dollar (decrease) increase of such data from period to period.

 

Percent of Total Revenue

 

          Percentage
(Decrease) Increase
         Years Ended
   Years Ended December 31, December 31,
   2010  2009  2010 to 2009 
Continuing Operations               
                
Revenue   100.0%    100.0%    (16.9%)
                
Operating costs   85.5%    82.3%    (13.6%)
                
Gross profit   14.5%    17.7%    (32.2%)
                
General and administrative expenses   17.1%    15.3%    (7.0%)
                
(Loss) income before income taxes   (2.7%)   2.4%    (191.9%)
                
Benefit of income taxes   (0.2%)   (0.1%)   114.3% 
                
Income   (2.5%)   2.5%    (182.4%)
                
                
Discontinued Operations               
                
Loss from discontinued operations   (0.2%)   (0.1%)   0.0% 
                
Consolidated               
                
Net (loss) income   (2.6%)   2.4%    (193.1%)

 

19
 

Year ended December 31, 2010 compared to the year ended December 31, 2009

 

Overview

 

Calendar year 2010 was an extremely challenging year for the blood services industry. Weaknesses in the economy severely impacted the blood banking business all through 2010. As the national economy began to see a recovery in many areas, healthcare reform was signed into law placing additional pressure on our customers to cut their operating costs. The blood products industry throughout the country has been dealing with intensely competitive pricing pressures. There was an unprecedented industry wide surplus of blood products as blood suppliers were generally slow to reduce production. In order to sell excess inventory, blood suppliers lowered prices to levels not seen in recent years. In the portion of Southern California the Company services, four additional competitors emerged in 2010, further increasing competition and driving down prices.

 

Concurrently, hospitals and healthcare providers have experienced lower reimbursement rates. Health care reform and ever increasing health costs have forced far reaching cost containment initiatives which have had a major impact on the blood industry. This environment has made price an overriding concern to hospital products and services vendors. In an effort to address these issues, hospitals are educating themselves in blood management to reduce usage. Additionally, the criteria justifying blood transfusions have changed. There is a large movement towards bloodless surgeries and intraoperative autologous transfusions, which involves recovering blood lost during surgery and re-infusing the blood into the patient. Patients also continued to postpone elective and non-essential surgeries, which further reduced the demand for blood products.

 

We have been reevaluating the blood business and determining how we can change our business model in response to these mounting changes. In August, 2010, we closed our Bangor, Maine facility as a result of the decreased volume in California. Our Bangor facility was producing platelets and sending them to our California facility, where demand for these products had dropped. We decided against selling blood products from our New York facility, which is currently offering only therapeutic services. We are focusing on using our existing infrastructure and expertise to increase our position in growing industries with higher margins, such as cellular therapy and research where we are beginning to provide our services. We plan to continue our efforts in growing this part of our business.

 

By developing relationships with biotech companies and research organizations, both nationally and globally, management is positioning the Company to better access global markets. We are positioning to become the supplier of choice with these customers because of our increasing reputation for compassionate patient care, and excellent service and products.

 

In the future, the Company intends to leverage its core-business infrastructure to enable collection of various cellular components for biotech and pharmaceutical research, commercialization, manufacturing, cellular therapy protocols, and personalized patient therapies. The Company already collects allogeneic, whole-blood derived stem cells for hospital customers, research organizations and other biotech companies to support their cellular therapy research and manufacturing. In doing so, the Company directly leverages its expertise, equipment, facilities, licensure, current good manufacturing protocols, and hospital relationships. Ultimately, the Company believes these specialized collections will generate high margin revenue through the support of advanced therapies and research activities.

 

The Company reported a net loss of $796,000 in 2010, or $0.08 basic and diluted loss per share, compared to net income in 2009 of $855,000, or $0.09 basic and $0.08 diluted earnings per share.

 

The drop in revenue between 2010 and 2009 of just over $6,000,000, or 17%, was primarily due to decreased revenue in the blood services segment for the reasons described above. The Company lost market share in 2010 due to increased competition. Gross profit also suffered in 2010, down 32% as compared to 2009, despite an increase in gross profit from therapeutics business. This resulted from the decrease in capacity utilization arising from the decreased volume. The decrease in revenue and the decrease in average selling price were both principally the result of an overall decrease in sales volume and a relative increase in sales to more price-sensitive customers during 2010.

20
 

The Company instituted comprehensive expense reduction initiatives both in operating costs and in general and administrative costs throughout 2010.

 

The $50,000 loss from discontinued operations was the same as it was for 2009. The loss was attributable to interest expense accrual for the two outstanding notes payable, more fully described in the discontinued operations note in the notes to financial statements.

 

In 2010, the Company recorded a $60,000 benefit for income taxes related to a federal filing for a net operating loss carry back refund. The Company had recorded a benefit in 2009 of $28,000 primarily as a result of a federal refundable research and development tax credit.

 

Blood Services

 

For this business segment, the following table summarizes the revenue and gross profit for 2010 and 2009:

 

Blood Services
 
For the Years Ended December 31,
   2010  2009  Variance $  Variance %
             
Revenues  $22,366,000   $28,642,000   ($6,276,000)   -22% 
                     
Gross Profit   2,122,000    4,287,000    (2,165,000)   -51% 
                     
Gross Profit %   9%    15%           

 

Sales of whole blood units collected through our California mobile blood collections department in 2010 decreased by 21% as compared to 2009 and imported whole blood unit sales decreased by 45%. Imported unit sales of platelets in 2010 decreased significantly as compared to 2009. Units sold that had been collected in the Company’s Van Nuys facility decreased 14%. In addition to the overall lower demand for blood products, our revenues were adversely affected by the loss in June 2009 of a large customer that decided to move its business to a lower priced provider.

 

In our Maine facility, unit sales of whole blood decreased by 38% in 2010 as compared to 2009, while platelet unit sales decreased by 15%. This was primarily due to the lack of demand for blood products in California, which was the market served by our Maine facility.

 

Therapeutic Services

 

For this business segment, the following table summarizes the revenue and gross profit for 2010 and 2009:

 

Therapeutic Services
 
For the Years Ended December 31,
   2010  2009  Variance $  Variance %
             
Revenue  $7,886,000   $7,745,000   $141,000    2% 
                     
Gross Profit  $2,255,000   $2,165,000   $90,000    4% 
                     
Gross Profit %   29%    28%           

 

The increase in revenue in therapeutic services in 2010 as compared to 2009 was due to an increase of over 25% in the number of procedures performed in the California region, though the mix of procedures and the price of procedures declined offsetting this increase. Additionally procedure volume in the Mid-Atlantic region dropped by 9%, due to increased competition in the market.

21
 

 

General and Administrative Expenses

 

The following table summarizes general and administrative expenses for 2010 and 2009:

 

General and Administrative Expenses
 
For the Years Ended December 31,
2010   2009    Variance $    Variance % 
                
$5,183,000  $5,575,000   ($392,000)   -7% 

 

During the last three quarters of 2010, management instituted major cost reduction initiatives which brought costs down significantly in many areas. In particular, by absorbing the vast majority of the work that in the past had been fulfilled by outside consultants, temporary labor and outside professionals, the Company saved $352,000, or 35%, in 2010 as compared to 2009. Investor relations and public company compliance costs decreased by 16%, or $7,000, in 2010 as compared to 2009, and repairs, maintenance, supplies, postage and small tools expense decreased by $26,000 in 2010 as compared to 2009.

 

By amending the line of credit arrangement with Wells Fargo Bank in December 2009, bank charges decreased by $139,000 in 2010 as compared to 2009, and since the Company did not draw from the line of credit during 2010, interest expense decreased to $0 in 2010 from $160,000 in 2009. Travel and entertainment expenses decreased by $17,000 in 2010 as compared to 2009.

 

Offsetting these decreases were increases in personnel programs of $74,000, of which $65,000 was for an employer 401(k) matching contribution in 2010 as compared to no such matching contribution in 2009; an increase in officer salaries of $116,000; and an increase in office salaries of $74,000. Officer salaries increased as a result of the $184,000 of severance related expenses paid to the former Chief Executive Officer and former Chief Financial Officer early in 2010. Additionally, our Vice President of Operations was promoted to Chief Operating Officer in August 2010, which resulted in an increase in officer salaries relating to this position and a corresponding decrease in blood management salaries which is included in operating costs and expenses. The increase in office salaries also is due to an increase in personnel hired to replace temporary workers, the cost of which had been included in outside services.

 

Income Taxes

 

In 2010, the Company recorded a $60,000 benefit for income taxes related to a federal filing for a net operating loss carry back refund. The Company had recorded a benefit in 2009 of $28,000 primarily as a result of a federal refundable research and development tax credit.

 

Discontinued Operations

 

On November 5, 2007, the Board of Directors of the Company’s wholly owned subsidiary, HemaCare BioScience, Inc. (“HemaBio”), in consultation with, and with the approval of, the Board of Directors of the Company, decided that it was in the best interest of HemaBio’s creditors to close all operations of HemaBio. On December 4, 2007, HemaBio executed an Assignment for Benefit of Creditors, under Florida Statutes Section 727.101 et seq. (“Assignment”), assigning all of its assets to an assignee, who is responsible for taking possession of, protecting, preserving, and liquidating such assets and ultimately distributing the proceeds to creditors of HemaBio according to their priorities as established by Florida law. The assignee continues to fulfill his obligations under the Assignment, but has not concluded his efforts to liquidate all of the assets or complete a final distribution of all proceeds to HemaBio’s creditors. All of the costs incurred in 2010 associated with the Assignment were estimated and accrued in prior periods, with the exception of $50,000 in interest expense that HemaBio continues to accrue on two notes payable to former investors of HemaBio.

22
 

2010 and 2009 Quarterly Financial Data

 

The following table presents unaudited statement of income data for each of the eight quarters ended December 31, 2010. Management believes that all necessary adjustments have been included to fairly present the quarterly information when read in conjunction with the consolidated financial statements. The operating results for any quarter are not necessarily indicative of the results for any subsequent quarter.

 

UNAUDITED
(In Thousands, Except Share and Per Share Data) 

 

   2009  2010
   Quarter Ended  Quarter Ended
   March 31  June 30  Sept. 30  Dec. 31  March 31  June 30  Sept. 30  Dec. 31
                         
Continuing Operations                                        
Revenue  $9,711   $10,029   $8,401   $8,246   $7,847   $8,144   $7,250   $7,011 
Gross profit   1,535    2,034    1,453    1,430    1,388    1,435    607    947 
Income (loss) before other income taxes   84    417    158    218    (192)   247    (678)   (183)
Income tax provision (benefit)   3    48    (88)   9    —      10    (70)   —   
                                         
Net income (loss) from continuing operations  $81   $369   $246   $209   $(192)  $237   $(608)  $(183)
                                         
Earnings (loss) per share                                        
Basic  $0.01   $0.04   $0.02   $0.02   $(0.02)  $0.02   $(0.06)  $(0.02)
Diluted  $0.01   $0.04   $0.02   $0.02   $(0.02)  $0.02   $(0.06)  $(0.02)
                                         
Discontinued Operations                                        
                                         
Loss from discontinued operations  $(12)  $(12)  $(13)  $(13)  $(12)  $(13)  $(13)  $(12)
                                         
Loss per share                                        
Basic  $(0.00)  $(0.00)  $(0.00)  $(0.00)  $(0.00)  $(0.00)  $(0.00)  $(0.00)
Diluted  $(0.00)  $(0.00)  $(0.00)  $(0.00)  $(0.00)  $(0.00)  $(0.00)  $(0.00)

 

The Company’s quarterly revenue and operating results have fluctuated significantly in the past, and are likely to continue to do so in the future, due to a number of factors, many of which are not within the Company’s control. If quarterly revenue or operating results fall below the expectations of investors, the price of the Company’s common stock could decline significantly. Factors that might cause quarterly fluctuations in revenue and operating results include the following:

 

·changes in demand for the Company’s products and services, and the ability to obtain the required resources to satisfy customer demand;
·ability to develop, introduce, market and gain market acceptance of new products or services in a timely manner;
·ability to manage inventories, accounts receivable and cash flows;
·ability to control costs; and
·ability to attract qualified blood donors.

 

The level of expenses incurred depends, in part, on the expectation for future revenue. In addition, since many expenses are fixed in the short term, the Company cannot significantly reduce expenses if there is a decline in revenue to avoid losses.

23
 

Critical Accounting Policies and Estimates

 

General

 

Management’s discussion and analysis of the Company’s financial condition and results of operations are based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that impact the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to valuation reserves, income taxes and intangibles. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Accounting for Share-Based Incentive Programs

 

Pursuant to Financial Accounting Standards Board, Accounting Standards Codification (“ASC”) Topics 505, Equity and 718, Stock Compensation, an entity shall account for share-based compensation transactions with employees in accordance with the fair-value-based method, that is, the cost of services received from employees in exchange for awards of share-based compensation generally shall be measured based on the grant-date fair value of the equity instruments issued or on the fair value of the liabilities incurred. The Company’s assessment of the estimated fair value of share-based payments is impacted by the price of the Company’s stock, as well as assumptions regarding a number of complex and subjective variables and the related tax impact. Management calculates fair value based on fair value of the stock at the date of issuance for restricted stock and restricted stock units. Management utilized the Black-Scholes model to estimate the fair value of share-based payments granted. Valuation techniques used for employee share options and similar instruments estimate the fair value of those instruments at a single point in time (for example, at the grant date). The assumptions used in a fair value measurement are based on expectations at the time the measurement is made, and those expectations reflect the information that is available at the time of measurement.

The Black-Scholes valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model also requires the input of highly subjective assumptions including:

·The expected volatility of the common stock price, which was determined based on historical volatility of the Company’s common stock;
·expected dividends, which are not anticipated;
·expected life, which is estimated based on the historical exercise behavior of employees; and
·expected forfeitures.

 

In the future, management may elect to use different assumptions under the Black-Scholes valuation model or a different valuation model, which could result in a significantly different impact on earnings.

During 2010, the Company used the 2006 Equity Incentive Plan (“2006 Plan”) to issue stock option grants totaling 290,000 shares of the Company’s Common Stock to directors and senior management, which Company determined, utilizing the Black-Scholes valuation model, that the fair value of these options was $154,000. During 2009, the Company used the 2006 Equity Incentive Plan (“2006 Plan”) to issue stock option grants totaling 260,000 shares of the Company’s Common Stock to directors and senior management, which Company determined, utilizing the Black-Scholes valuation model, that the fair value of these options was $109,000.

24
 

Allowance for Doubtful Accounts

 

The Company makes ongoing estimates on the collectability of accounts receivable and maintains a reserve for estimated losses resulting from the inability of customers to meet their financial obligations to the Company. In determining the amount of the reserve, management considers the historical level of credit losses and makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Since management cannot predict future changes in the financial stability of customers, actual losses from uncollectible accounts may differ from the estimates. If the financial condition of customers were to deteriorate, resulting in their inability to make payments, a larger reserve may be required. In the event it is determined that a smaller or larger reserve is appropriate, the Company would record a credit or a charge to general and administrative expenses in the period in which such a determination is made.

Inventory and Supplies

 

Inventories consist of Company-manufactured platelets, whole blood components and other blood products, as well as component blood products purchased for resale. Supplies consist primarily of medical supplies used to collect and manufacture products and to provide therapeutic services. Inventories are stated at the lower of cost or market and are accounted for on a first-in, first-out basis. Management estimates the portion of inventory that might not have future value by analyzing the sales history for the twelve months prior to any balance sheet date. For each inventory type, management establishes an obsolescence reserve equal to the value of inventory quantity in excess of twelve months of historical sales quantity, using the first-in, first-out inventory valuation methodology. Therefore, the Company periodically adjusts the inventory reserve based on recent sales and inventory data, which can cause the net value of inventory to fluctuate dramatically from period to period.

 

Income Taxes

 

The process of preparing the financial statements requires management estimates of income taxes in each of the jurisdictions that the Company operates. This process involves estimating current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the balance sheet. Pursuant to ASC Topic 740, Income Taxes, the Company utilizes an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Management must assess the likelihood that the deferred tax assets or liabilities will be realized for future periods, and to the extent management believes that realization is not likely, must establish a valuation allowance. To the extent a valuation allowance is created or adjusted in a period, the Company must include an expense or benefit within the tax provision in the statements of operations.

 

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. It is possible that a selection of different input variables could produce a materially different estimate of the provision, asset, liability and valuation allowance.

 

Based on management’s analysis of the Company’s recent performance, management determined that there was insufficient evidence of guaranteed future profitability to ensure that the Company would realize any benefit from the deferred tax assets. Therefore, as of December 31, 2010, the Company continued to record a 100% valuation reserve against all of the deferred tax assets.

 

ASC Topic 740-10 prescribes a two-step process for the financial statement measurement and recognition of a tax position. The first step involves the determination of whether it is more likely than not (greater than 50 percent likelihood) that a tax position will be sustained upon examination, based on the technical merits of the position. The second step requires that any tax position that meets the more-likely-than-not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. ASC Topic 740-10 also provides guidance on the accounting for related interest and penalties, financial statement classification and disclosure. Interest and penalties related to uncertain tax positions will be recognized in income tax expense when incurred. As of December 31, 2010, the Company did not incur any interest or penalties related to uncertain tax positions. The oldest tax year that remains open to possible evaluation and interpretation of the Company’s tax position is 2006.

25
 

 

In September 2009, the State of California suspended the use of net operating loss carryforwards when calculating income taxes for 2009 and 2010; however, due to other timing differences, this suspension did not materially impact the Company’s 2010 tax provision to the State of California.

 

Liquidity and Capital Resources

 

The Company’s primary sources of liquidity include cash on hand, and cash generated from operations. Liquidity depends, in part, on timely collections of accounts receivable. Any significant delays in customer payments could adversely affect the Company’s liquidity.

 

For continuing operations, the Company, on December 31, 2010, had cash, cash equivalents and restricted cash of $2,298,000 and working capital of $3,928,000.

 

Management anticipates that cash on hand and cash generated by operations will be sufficient to provide funding for the Company’s needs during the next year, including working capital requirements, equipment purchases and operating lease commitments.

 

Line of Credit

 

On December 9, 2009, the Company, together with the Company’s subsidiary, Coral Blood Services, Inc., entered into a new Credit Agreement (the “New Wells Agreement”), and related security agreements, with Wells Fargo to replace the Wells Fargo Agreement entered into on April 10, 2008. The New Wells Agreement provided that the Company could borrow the lesser of 80% of eligible accounts receivable or $5 million, and had a maturity date of December 1, 2011. Most of the terms in the New Wells Agreement were similar to those in the former Wells Fargo Agreement; however, the New Wells Agreement provided that the Company pay interest on a monthly basis on any outstanding balance at 0.25% above the bank’s prime rate, but eliminated any minimum monthly interest requirement. The New Wells Agreement also granted the bank a first priority security interest in all of the assets of the Company and Coral Blood Services, Inc.

 

The Company had no outstanding borrowings under the New Wells Agreement as of December 31, 2010, except for a letter of credit issued by Wells Fargo as security for lease obligations associated with the Company’s Van Nuys facility. The Company is required to maintain a letter of credit under the lease, initially in the amount of $815,000 and reducing by 10% each year on August 14, 2009, 2010, 2011 and 2012, and 20% each year on August 14, 2013 and 2014. At December 31, 2010, the letter of credit was for $660,000. No amounts have been drawn against the letter of credit.

 

The New Wells Agreement also required that the Company maintain certain financial covenants, including minimum tangible net worth, maximum total liabilities and minimum net income over a rolling two quarter basis. As of December 31, 2010, the Company was out of compliance with the financial covenants in the New Wells Agreement.

 

Effective as of January 15, 2011, in consideration of Wells Fargo waiving the Company’s existing defaults under the Credit Agreement, the Company agreed to amend the New Wells Agreement to provide that outstanding borrowings, including outstanding advances and letters of credit, shall not at any time exceed the amount of cash collateral in a segregated, blocked deposit account maintained by the Company with Wells Fargo and with respect to which Wells Fargo has been granted a first priority security interest to secure all present and future indebtedness of the Company to Wells Fargo. Pursuant to this arrangement, the Company has pledged $660,000 in cash to Wells Fargo, and the Company has outstanding letters of credit for an aggregate of $660,000 under the New Wells Agreement.

 

Notes Payable of HemaBio

 

When the Company acquired HemaBio, two former HemaBio investors, Dr. Lawrence Feldman and Dr. Karen Raben, each held a $250,000 note from HemaBio. The Board of Directors of HemaBio decided that it was in the best interest of HemaBio’s creditors to close all operations of HemaBio, effective November 5, 2007 and these notes remain unpaid.

26
 

Since August 29, 2007, HemaBio, now shown as discontinued operations, recognized accrued interest expense on the outstanding balance on both notes at an interest rate of 10%, which totaled $50,000 for the year ended December 31, 2010.

 

As of December 31, 2010, HemaBio’s default on the notes to Drs. Feldman and Raben remains unresolved. Both of these notes are included in the Company’s December 31, 2010 balance sheet as part of Liabilities related to Assets Held for Sale.

Cash Flows

 

Net cash provided by operating activities from continuing operations was $1,057,000 for 2010, compared with $3,249,000 for 2009, representing an decrease of $2,192,000. The decrease was due primarily to the $796,000 of net loss realized in 2010 as compared to the $855,000 of net income realized in 2009. The Company pledged $660,000 cash to collateralize a letter of credit in association with the Company’s Van Nuys facility lease. Additionally, 2010 cash flows from operating activities were affected by a smaller decrease in accounts receivable in 2010 of $877,000 as compared to a decrease in accounts receivable in 2009 of $2,453,000, due in part to improvements in collections and an overall decrease in accounts receivable stemming from reduced sales. In 2010 the Company experienced a $27,000 decrease in accounts payable, as compared to a $1,583,000 decrease in 2009, as the Company reduced payables with the proceeds it received from improved collections of accounts receivable. The Company calculates days sales outstanding utilizing the average sales for the three months preceding the date of the calculation. The Company’s days sales outstanding for continuing operations stood at 36 days as of December 31, 2010, compared with 41 days as of December 31, 2009.

 

Cash used in investing activities from continuing operations decreased to $234,000 in 2010 from $674,000 for 2009. This was primarily due to a decrease in investment in capital expenditures as well as the write off of impaired assets in 2010 of $126,000, related to assets purchased for the Company’s software project which were no longer needed as management decided to utilize a hosting solution offered by the software vendor.

 

Cash used in financing activities from continuing operations in 2010 was $192,000 compared with $2,471,000 in 2009. In 2010, the Company repurchased its common stock in the amount of $281,000 offset by proceeds from the sale of common stock of $83,000. In 2009, the Company paid off all indebtedness to Wells Fargo with the exception of an outstanding letter of credit, accounting for the entire use of investment activity cash for 2009.

 

Cash was used in discontinued operations was $5,000 in 2010 compared with $97,000 in 2009. The cash used in 2009 was for fees and other expenses associated with the HemaBio Assignment.

 

Off-Balance Sheet Arrangements

At December 31, 2010, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, variable interest or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if it had engaged in such relationships.

 

Item 7a Quantitative And Qualitative Disclosures About Market Risk

 

Intentionally Omitted

 

Item 8 Financial Statements and Supplementary Data

27
 

 

The Index to Financial Statements and Schedules appears on page F-1. The Report of Independent Registered Public Accounting Firm appears on page F-2, and the Consolidated Financial Statements and Notes to Consolidated Financial Statements appear beginning on page F-4

 

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A Controls And Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Chief Executive Officer and the Chief Financial Officer of the Company, with the participation of the Company's management, carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2010, the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2010.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting during the quarter ended December 31, 2010 that have materially impacted, or are reasonably likely to materially impact, the Company’s internal control over financial reporting.

 

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934). Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Chief Executive Officer and the Chief Financial Officer and implemented by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

 

The Company’s internal control over financial reporting includes those policies and procedures that: i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are made only in accordance with authorizations of management and directors of the Company; and iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material impact on the financial statements.

 

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures, or the Company’s internal controls over financial reporting, will necessarily prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, the Company’s internal control system can provide only reasonable assurance of achieving its objectives and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and can provide only reasonable, not absolute, assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.

28
 

Management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management concluded that as of December 31, 2010, the Company’s internal control over financial reporting was effective.

 

This annual report does not include an attestation report by our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only our management report in this annual report.

 

Item 9B Other Information

 

None.

 

PART III

 

Item 10 Directors, Executive Officers and corporate governance

 

The information concerning the directors and executive officers of the Company and corporate governance is incorporated herein by reference from the section entitled “Proposal 1 - Election of Directors” contained in the definitive proxy statement of the Company to be filed pursuant to Regulation 14A within 120 days after the end of the Company’s fiscal year (the “Proxy Statement”).

 

Item 11 Executive Compensation

 

The information concerning executive compensation is incorporated herein by reference from the section entitled “Proposal 1 - Election of Directors” contained in the Proxy Statement.

 

Item 12 Security Ownership of Certain Beneficial Owners and Management and related stockholder matters

 

The information concerning the security ownership of certain beneficial owners and management and related stockholder matters is incorporated herein by reference from the section entitled “General Information - Security Ownership of Principal Stockholders and Management” and “Proposal 1 - Election of Directors” contained in the Proxy Statement.

 

Item 13 Certain Relationships And Related Transactions, and director independence

 

The information concerning certain relationships and related transactions and director independence is incorporated herein by reference from the section entitled “Proposal 1 – Election of Directors – Certain Relationships and Related Transactions” contained in the Proxy Statement.

29
 

Item 14 Principal Accounting Fees and Services

The information concerning the Company’s principal accountant’s fees and services is incorporated herein by reference from the section entitled “Proposal 2 – Ratification of the Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.

 

PART IV

 

Item 15 Exhibits and Financial Statement Schedules

 

The following are filed as part of this Report:

 

1. Financial Statements

 

An index to Financial Statements and Schedules appears on page F-1.

 

2. Financial Statement Schedules

 

The schedules for which provision is made in the applicable accounting regulations of the SEC are not required under related instructions or are inapplicable, and therefore have been omitted.

 

3. Exhibits

 

The following exhibits listed are filed or incorporated by reference as part of this Report.

 

Exhibit  
Number Description
   
3.1 Restated Articles of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to Form 10-K of the Registrant for the year ended December 31, 2002.
3.2 Amended and Restated Bylaws of the Registrant, as amended, incorporated by reference to Exhibit 3.1 to Form 8-K of the Registrant filed on March 28, 2008.
4.1 Rights Agreement between the Registrant and U.S. Stock Transfer Corporation dated March 3, 1998, incorporated by reference to Exhibit 4 to Form 8-K of the Registrant dated March 5, 1998.
4.1.1 Amendment and Extension of Rights Agreement dated as of March 3, 1998, between HemaCare Corporation and Computershare Trust Company, N.A., incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed on March 24, 2008.
4.2 Form of Common Stock Certificate, incorporated by reference to Exhibit 4.4 to Form S-8 of the Registrant dated July 10, 2006.
10.1* Amended and Restated HemaCare Corporation 1996 Stock Incentive Plan, dated December 31, 2008, incorporated by reference to Exhibit 99.6 to Form 8-K of the Registrant filed on January 8, 2009. 

 

30
 

10.2* Amended and Restated HemaCare Corporation 2006 Equity Incentive Plan, dated May 11, 2010, incorporated by reference to Exhibit 10.1 to Form 8-K of the Registrant filed on May 14, 2010.
10.3* 2004 Stock Purchase Plan of the Registrant, incorporated by reference to Exhibit 10.2 to Form 10-K of the Registrant for the year ended December 31, 2004.
10.4 Lease agreement between HemaCare Corporation, as tenant, and ECI Sherman Plaza LLC, as landlord for approximately 20,000 square feet located in Van Nuys, California, dated February 10, 2006, incorporated by reference to Exhibit 99.1 of Form 8-K of the Registrant filed on March 1, 2006.
10.5 Promissory Note dated August 29, 2006, in the principal amount of $250,000, of Teragenix Corporation, payable to Dr. Lawrence Feldman, incorporated by reference to Exhibit 99.7 to Registrant’s Current Report on Form 8-K filed on September 5, 2006.
10.6 Promissory Note dated August 29, 2006, in the principal amount of $250,000, of Teragenix Corporation, payable to Dr. Karen Raben, incorporated by reference to Exhibit 99.8 to Registrant’s Current Report on Form 8-K filed on September 5, 2006.
10.7 Assignment for the Benefit of Creditors made as of December 4, 2007, incorporated by reference to Exhibit 99.1 to Registrants Current Report on Form 8-K filed on December 14, 2008.
10.8 First Amendment to Lease between HemaCare Corporation as tenant and ECI Sherman Plaza, Inc. as landlord, dated August 17, 2006, incorporated by reference to Exhibit 10.35 to Form 10-K of the Registrant for the year ended December 31, 2007.
10.9 Second Amendment to Lease between HemaCare Corporation as tenant and ECI Sherman Plaza, Inc. as landlord, dated April 11, 2008, incorporated by reference to Exhibit. 10.36 to Form 10-K of the Registrant for the year ended December 31, 2007.
10.10 Indemnification Agreement between HemaCare Corporation and Julian Steffenhagen, executed March 11, 2008, incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed on March 17, 2008.
10.11 Credit Agreement among HemaCare Corporation, Coral Blood Services, Inc. and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.1 to Form 8-K of the Registrant filed on December 15, 2009.
10.12 Revolving Line of Credit Note by HemaCare Corporation and Coral Blood Services, Inc. to the benefit of Wells Fargo Bank, dated December 4, 2010, incorporated by reference to Exhibit 10.2 to Form 8-K of the Registrant filed on December 15, 2009.
10.13 Third Party Security Agreement: Rights to Payment and Inventory between Coral Blood Services, Inc. and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.3 to Form 8-K of the Registrant filed on December 15, 2009.
10.14 Third Party Security Agreement: Rights to Payment and Inventory between HemaCare Corporation, and Wells Fargo Bank, dated December 4, 2009 incorporated by reference to Exhibit 10.4 to Form 8-K of the Registrant filed on December 15, 2009.
10.15 Continuing Security Agreement: Rights to Payment and Inventory among HemaCare Corporation, Coral Blood Services, Inc. and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.5 to Form 8-K of the Registrant filed on December 15, 2009.

 

31
 

 

10.16 Third Party Security Agreement: Equipment between Coral Blood Services, Inc. and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.6 to Form 8-K of the Registrant filed on December 15, 2009.
10.17 Third Party Security Agreement: Equipment between HemaCare Corporation, and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.7 to Form 8-K of the Registrant filed on December 15, 2009.
10.18 Security Agreement among HemaCare Corporation, Coral Blood Services, Inc. and Wells Fargo Bank, dated December 4, 2009, incorporated by reference to Exhibit 10.8 to Form 8-K of the Registrant filed on December 15, 2009.
10.19 Amendment to Credit Agreement, dated as of January 15, 2011, among Wells Fargo Bank, HemaCare Corporation and Coral Blood Services, Inc., incorporated by reference to Exhibit 10.6 to Form 8-K of the Registrant filed on January 15, 2011.
10.20 First Modification to Promissory Note, dated as of January 15, 2011, between HemaCare Corporation, Coral Blood Services, Inc. and Wells Fargo Bank, incorporated by reference to Exhibit 10.7 to Form 8-K of the Registrant filed on January 15, 2011.
10.21 Security Agreement Specific Rights to Payment, dated January 15, 2011, between HemaCare Corporation and Wells Fargo Bank, with addendum, incorporated by reference to Exhibit 10.8 to Form 8-K of the Registrant filed on January 15, 2011.
10.22* Separation Agreement between HemaCare Corporation and John Doumitt, dated February 26, 2010, incorporated by reference to Exhibit 10.2 to Form 8-K of the Registrant filed on March 16, 2010.
10.23* Employment Agreement between HemaCare Corporation and Pete van der Wal, President and Chief Executive Officer dated March 2, 2010, incorporated by reference to Exhibit 10.1 to Form 8-K of the Registrant filed on March 16, 2010.
10.24* Separation Agreement between HemaCare Corporation and Robert Chilton, dated March 11, 2010, incorporated by reference to Exhibit 10.3 to Form 8-K of the Registrant filed on March 16, 2010.
10.25 † Blood Donor Center Management Community Mobile Blood Collections Services Agreement, USC Blood Donor Center, USC University Hospital, between USC University Hospital, Inc. and HemaCare Corporation.
10.26 † First Amendment to the Blood Donor Center Management Community Mobile Blood Collections Services Agreement, entered into as of March 7, 2006, between USC University Hospital, Inc. and HemaCare Corporation.
10.27 † Second Amendment to the Blood Donor Center Management Community Mobile Blood Collections Services Agreement, entered into as of April 10, 2007, between USC University Hospital, Inc. and HemaCare Corporation.
10.28 † Third Amendment to the Blood Donor Center Management Community Mobile Blood Collections Services Agreement, entered into as of May 1, 2009, between University of Southern California, on behalf of USC University Hospital, and HemaCare Corporation.

 

32
 

 

10.29 † Therapeutic Apheresis Services Agreement, entered into as of January 30, 2003, between Kenneth Norris Jr. Cancer Hospital and HemaCare Corporation.
10.30 First Amendment to Services Agreement, entered into as of August 18, 2006, between Tenet Healthsystem Norris, Inc. and HemaCare Corporation.
10.31 Second Amended and Restated Services Agreement, entered into as of April 1, 2008, between Tenet Healthsystem Norris, Inc. and HemaCare Corporation.
10.32 Third Amendment to Services Agreement, entered into as of November 1, 2009, between University of Southern California, on behalf of USC Norris Cancer Hospital, and HemaCare Corporation.
10.33 Software License and Support Services Agreement, dated as of February 14, 2011, between Haemonetics Corporation and HemaCare Corporation.
14. Code of Ethics – incorporated by reference to Exhibit 14 to Form 10-K of the Registrant for the year ended December 31, 2004.
21. Subsidiaries of the Registrant, incorporated by reference to Exhibit 21 to Form 10-K of the Registrant for the year ended December 31, 2009.
23.1 Consent of Stonefield Josephson, Inc., Independent Registered Public Accounting Firm.
23.2 Consent of Marcum LLP, Independent Registered Public Accounting Firm.
24. Power of attorney (see signature page).
31.1 Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
32.1 Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

 

 

*Management contracts and compensatory plans and arrangements.
†Certain portions of this agreement have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for an order granting confidential treatment pursuant to Rule 24b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934.

 

33
 

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.

 

Dated: March 21, 2011   HEMACARE CORPORATION
         
      By: /s/ Lisa Bacerra
        Lisa Bacerra, Chief Financial Officer

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Pete van der Wal and Lisa Bacerra, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution, to sign and execute on behalf of the undersigned any and all amendments to this report, and to perform any acts necessary in order to file the same, with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requested and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their or his or her substitutes, shall do or cause to be done by virtue hereof.

 

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 21st day of March, 2011.

 

Signature   Title
     
/s/ Pete van der Wal   President and Chief Executive Officer and Director
Pete van der Wal   (Principal Executive Officer)
     
/s/ Lisa Bacerra   Chief Financial Officer
Lisa Bacerra   (Principal Financial and Accounting Officer)
     
/s/ Steven Gerber    
Steven Gerber   Chairman of the Board, Director
     
/s/ Julian Steffenhagen    
Julian Steffenhagen   Director
     
/s/ Teresa Sligh    
Teresa Sligh   Director
     
/s/ Terry Van Der Tuuk    
Terry Van Der Tuuk   Director

 

34
 

 

 

Index to Consolidated Financial Statements

 

  Page
  Number
   
Report of Stonefield Josephson, Independent Registered Public Accounting Firm F-2
   
Report of Marcum LLP, Independent Registered Public Accounting Firm F-3
   
Consolidated balance sheets F-4
   
Consolidated statements of operations F-5
   
Consolidated statements of shareholders' equity F-6
   
Consolidated statements of cash flows F-7
   
Notes to consolidated financial statements F-8

 

 

 

F-1
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

 

 

 

To the Audit Committee of the

Board of Directors and Shareholders

of HemaCare Corporation and Subsidiaries:

 

We have audited the accompanying consolidated balance sheet of HemaCare Corporation and subsidiaries (the “Company”) as of December 31, 2010 and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended. 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 audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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, 2010, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

 

/s/ Marcum LLP

 

Irvine, California

March 21, 2011

 

 

F-2
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

To the Board of Directors and Shareholders of

HemaCare Corporation and Subsidiaries:

 

 

We have audited the accompanying consolidated balance sheet of HemaCare Corporation and subsidiaries (the “Company”), as of December 31, 2009, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit 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, 2009, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Stonefield Josephson, Inc.

 

Irvine, California

March 23, 2010

 

F-3
 

 

HEMACARE CORPORATION

CONSOLIDATED BALANCE SHEETS

 

   December 31,  December 31,
   2010  2009
       
Assets          
Current assets:          
Cash and cash equivalents  $1,638,000   $1,007,000 
Restricted cash   660,000      
Accounts receivable, net of allowance for          
doubtful accounts of $91,000 in 2010 and $87,000 in 2009   2,780,000    3,669,000 
Product inventories and supplies   617,000    870,000 
Prepaid expenses   522,000    558,000 
Assets held for sale   210,000    215,000 
Other receivables   168,000    56,000 
Total current assets   6,595,000    6,375,000 
Plant and equipment, net of accumulated          
depreciation and amortization of $7,704,000 in 2010 and          
$6,654,000 in 2009   3,100,000    4,035,000 
Other assets   148,000    165,000 
Total assets  $9,843,000   $10,575,000 
           
Liabilities and Shareholders' Equity          
Current liabilities:          
Accounts payable  $1,486,000   $1,601,000 
Accrued payroll and payroll taxes   636,000    583,000 
Other accrued expenses   319,000    217,000 
Current portion of capital lease   16,000    —   
Liabilities related to assets held for sale   2,094,000    2,049,000 
    Total current liabilities   4,551,000    4,450,000 
Deferred rent   533,000    600,000 
Long term portion of capital lease   77,000    —   
           
Shareholders' equity:          
Common stock, no par value - 20,000,000 shares authorized,          
9,712,948 issued and outstanding in 2010 and 10,049,539 in 2009   16,289,000    16,336,000 
Accumulated deficit   (11,607,000)   (10,811,000)
Total shareholders' equity   4,682,000    5,525,000 
Total liabilities and shareholders' equity  $9,843,000   $10,575,000 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-4
 

 

HEMACARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended Decmber 31,

 

   Twelve Months Ended
   December 31,
   2010  2009
Revenue          
Blood services  $22,366,000   $28,642,000 
Therapeutic services   7,886,000    7,745,000 
Total revenue   30,252,000    36,387,000 
           
Operating costs and expenses          
Blood services   20,244,000    24,355,000 
Therapeutic services   5,631,000    5,580,000 
Total operating costs and expenses   25,875,000    29,935,000 
           
Gross profit   4,377,000    6,452,000 
           
General and administrative expenses   5,183,000    5,575,000 
           
(Loss) income from operations   (806,000)   877,000 
           
Benefit from income taxes   (60,000)   (28,000)
           
(Loss) income from continuing operations   (746,000)   905,000 
           
Loss from discontinued operations   (50,000)   (50,000)
           
Net (loss) income  $(796,000)  $855,000 
           
(Loss) income per share          
Basic          
Continuing operations  $(0.07)  $0.09 
Discontinued operations  $(0.01)  $—   
Total  $(0.08)  $0.09 
Diluted          
Continuing operations  $(0.07)  $0.09 
Discontinued operations  $(0.01)  $—   
Total  $(0.08)  $0.08 
           
Weighted average shares outstanding-basic   9,968,120    10,008,000 
           
Weighted average shares outstanding-diluted   9,968,120    10,132,000 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

F-5
 

HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Years Ended December 31, 2010 and 2009

 

    Common Stock     Accumulated      
    Shares    Amount    Deficit    Total 
Balance as of December 31, 2008   9,886,955   $16,204,000   $(11,666,000)  $4,538,000 
                     
Conversion of restricted stock and                    
   restricted stock units to common stock   162,585                
                     
Share-based compensation expense        132,000    —      132,000 
Net income             855,000    855,000 
Balance as of December 31, 2009   10,049,540    16,336,000    (10,811,000)   5,525,000 
                     
Issuance of common stock through                    
   Employee Stock Purchase Plan   150,908    83,000         83,000 
                     
Stock options exercised   22,500    11,000         11,000 
                     
Stock repurchased   (510,000)   (281,000)        (281,000)
                     
Share-based compensation expense        140,000         140,000 
Net loss        —      (796,000)   (796,000)
Balance as of December 31, 2010   9,712,948   $16,289,000   $(11,607,000)  $4,682,000 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6
 

HEMACARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

 

   2010  2009
Cash flows from operating activities:     
Net (loss) income  $(796,000)  $855,000 
Adjustments to reconcile net (loss) income to     
net cash provided by operating activities:     
Loss from discontinued operations   50,000    50,000 
Provision for (recovery of) bad debts   12,000    (71,000)
Depreciation and amortization   1,134,000    1,054,000 
Loss on disposal of assets   7,000    2,000 
Share-based compensation   140,000    132,000 
Impairment of capitalized asset in progress   126,000    —   
           
Changes in operating assets and liabilities:     
(Increase) in restricted cash   (660,000)   —   
Decrease in accounts receivable   877,000    2,453,000 
Decrease in inventories, supplies and prepaid expenses   289,000    347,000 
(Increase) decrease in other receivables   (112,000)   2,000 
Decrease in other assets   17,000    8,000 
Decrease in accounts payable, accrued payroll, accrued expenses and deferred rent   (27,000)   (1,583,000)
Net cash provided by operating activities   1,057,000    3,249,000 
           
Cash flows from investing activities:          
Proceeds from the sale of plant and equipment   6,000    10,000 
Purchases of plant and equipment   (240,000)   (684,000)
Net cash used in investing activities   (234,000)   (674,000)
           
Cash flows from financing activities:          
Proceeds from sale of common stock   83,000    —   
Proceeds from the exercise of stock options   11,000    —   
Repurchases of common stock   (281,000)   —   
Principal payments on capital leases   (5,000)     
Principal payments on notes payable   —      (2,471,000)
Net cash used in financing activities   (192,000)   (2,471,000)
           
Net cash provided by continuing operations   631,000    104,000 
           
Cash Flows - Discontinued Operations          
Net cash used in operating activities   (5,000)   (97,000)
Net cash used in discontinued operations   (5,000)   (97,000)
           
Increase in cash and cash equivalents   626,000    7,000 
Cash and cash equivalents at beginning of period   1,222,000    1,215,000 
Cash and cash equivalents at end of period   1,848,000    1,222,000 
           
Cash, cash equivalents - Continuing operations   1,638,000    1,007,000 
Cash and cash equivalents - Assets held for sale   210,000    215,000 
Total cash and cash equivalents  $1,848,000   $1,222,000 
         —   
Supplemental disclosure:          
Interest paid  $3,000    160,000 
Income taxes refunded  $(18,000)   (26,000)
Capital lease addition for capital equipment  $98,000   $—   

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-7
 

HemaCare Corporation

Notes to Consolidated Financial Statements

December 31, 2010

 

 

Note 1 - Organization

 

HemaCare Corporation (“HemaCare or the “Company”), along with its wholly-owned subsidiary Coral Blood Services, Inc., collects, processes and distributes blood products to hospitals and research related organizations in the United States, and has operations in Southern California, Maine and Mid-Atlantic United States. In 2006, HemaCare acquired 100% of the capital stock of Teragenix Corporation, subsequently renamed HemaCare BioScience, Inc. (“HemaBio”). On November 5, 2007, the Board of Directors of HemaBio decided to close all operations of HemaBio.

 

Note 2 - Summary of Accounting Policies

 

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also impact the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include, but are not limited to, accruals, stock based compensation, estimates used in the determination of fair value of stock options and the provision for doubtful accounts.

 

Cash and Cash Equivalents: The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash balances at various financial institutions. Deposits not exceeding $250,000 for each institution are insured by the Federal Deposit Insurance Corporation Section 343 of the Dodd-Frank Act amends the Federal Deposit Insurance Act to include noninterest-bearing transaction accounts as a new temporary deposit insurance account category. All funds held in noninterest-bearing transaction accounts will be fully insured, without limit, from December 31, 2010, through December 31, 2012. At December 31, 2010, the Company had uninsured restricted cash of $410,000, and on December 31, 2009, the Company had $754,000 of unrestricted, uninsured cash and cash equivalents, The Company had $660,000 of cash restricted to Wells Fargo Bank at December 31, 2010, as security for a Letter of Credit as required as part of the lease obligation at the Company’s Van Nuys facility. The Company had no restricted cash at December 31, 2009.

 

Fair Value Disclosure of Financial Instruments: The Company has estimated the fair value amounts of its financial instruments using the available market information and valuation methodologies considered to be appropriate and has determined that the book value of the Company’s cash and cash equivalents, restricted cash, accounts receivable, inventories, prepaid expenses, accounts payable, accrued expenses, and income tax payable as of December 31, 2010 and 2009 approximate fair value. The interest rate applied to capital leases is based upon the Company's borrowing rate, and therefore their carrying value approximates fair value.

 

Revenue and Accounts Receivable: The Company recognizes revenue upon shipment of its products to its customers, provided that the Company either has a contract with the customer, received a purchase order or the price is fixed, collection of the resulting receivable is reasonably assured and transfer of title and risk of loss has occurred. Revenue is recognized upon acceptance of the blood products or the performance of blood services. Occasionally the Company receives advance payment against future delivery of blood products or services. Until the related products or services are delivered, the Company records advance payments as deferred revenue, which appears as a current liability on the balance sheet. Therapeutic services revenue consists primarily of mobile therapeutics sales, while blood services revenue consists primarily of sales of single donor platelets, whole blood components or other blood products that are manufactured or purchased and distributed by the Company. Accounts receivable are reviewed periodically for collectability.

 

F-8
 

Inventories and Supplies: Inventories consist of Company-manufactured platelets, whole blood components and other blood products, as well as component blood products purchased for resale. Supplies consist primarily of medical supplies used to collect and manufacture products and to provide therapeutic services. Inventories are stated at the lower of cost or market and are accounted for on a first-in, first-out basis. Management estimates the portion of inventory that might not have future value by analyzing historical sales history for the twelve months prior to any balance sheet date. For each inventory type, management establishes an obsolescence reserve equal to the value of inventory quantity in excess of twelve months of historical sales quantity, using the first-in, first-out inventory valuation methodology. The Company did not record any reserves for obsolete inventory in either 2010 or 2009.

 

Inventories are comprised of the following as of December 31,

 

   2010  2009
           
Supplies  $461,000   $691,000 
Blood products   156,000    179,000 
Total  $617,000   $870,000 

 

Plant and Equipment: Plant and equipment are stated at original cost less accumulated depreciation and amortization and impairment charges. Furniture, fixtures, equipment and vehicles are depreciated using the straight-line method over five to ten years. Leasehold improvements are amortized over the lesser of their useful life or the length of the lease, ranging from three to ten years. The cost of normal repairs and maintenance are expensed as incurred.

 

Long-lived Assets: All long-lived assets are reviewed for impairment in value when changes in circumstances dictate, based upon undiscounted future operating cash flows. Appropriate losses are recognized and reflected in current earnings, to the extent the carrying amount of an asset exceeds its estimated fair value determined by the use of appraisals, discounted cash flow analyses or comparable fair values of similar assets.

 

Income Taxes: Under the provisions of ASC Topic 740, Income Taxes, the Company must utilize an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Management must assess the likelihood that the deferred tax assets or liabilities will be realized for future periods, and to the extent management believes that realization is not likely, must establish a valuation allowance. To the extent a valuation allowance is created or adjusted in a period, the Company must include an expense or benefit, within the tax provision in the statements of operations. The Company determined that it was unlikely to realize any future benefit from the deferred tax asset in 2010 and 2009 and therefore booked a 100% valuation allowance as of both December 31, 2010 and December 31, 2009.

 

On January 1, 2007, the Company adopted ASC Topic 740-10, Income Taxes, which clarifies the accounting for uncertainty in income taxes by prescribing rules for recognition, measurement and classification in financial statements of tax positions taken or expected to be taken in a tax return.

Per Share Data: Earnings per share-basic is computed by dividing net income by the weighted average shares outstanding. Earnings per share-diluted is computed by dividing net income by the weighted average number of shares outstanding including the diluted effect of options, restricted stock, restricted stock units and warrants.

 

Interest Expense: During the years ended December 31, 2010 and 2009, the Company incurred interest expense of $4,000 and $160,000, for continuing operations and $50,000 and $50,000 for discontinued operations, respectively.

 

F-9
 

 

Share-Based Compensation: As per the ASC Topics 505, Equity and 718, Stock Compensation, an entity shall account for share-based compensation transactions with employees in accordance with the fair-value-based method, that is, the cost of services received from employees in exchange for awards of share-based compensation generally shall be measured based on the grant-date fair value of the equity instruments issued or on the fair value of the liabilities incurred. The Company’s assessment of the estimated fair value of share-based payments is impacted by the price of the Company’s stock, as well as assumptions regarding a number of complex and subjective variables and the related tax impact. Management utilized the Black-Scholes model to estimate the fair value of share-based payments granted. Valuation techniques used for employee share options and similar instruments estimate the fair value of those instruments at a single point in time (for example, at the grant date). The assumptions used in a fair value measurement are based on expectations at the time the measurement is made, and those expectations reflect the information that is available at the time of measurement.

 

The Black-Scholes valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model also requires the input of highly subjective assumptions including:

 

(a)The expected volatility of the common stock price, which was determined based on historical volatility of the Company’s common stock;
(b)expected dividends, which are not anticipated;
(c)expected life, which is estimated based on the historical exercise behavior of employees; and
(d)expected forfeitures.

 

In the future, management may elect to use different assumptions under the Black-Scholes valuation model or a different valuation model, which could result in a significantly different impact on earnings.

 

Note 3 – Discontinued Operations

 

In the first six months of 2007, HemaBio produced significantly lower earnings than anticipated by the Company and HemaBio’s management team. In the third quarter of 2007, HemaBio’s management team projected a net loss from operations of approximately $300,000, and projected further losses for the fourth quarter of 2007 as well. On November 2, 2007, HemaBio received letters of resignation from Mr. Joseph Mauro, HemaBio’s President, and Mr. Valentin Adia, HemaBio’s Vice President of Business Development. Mr. Mauro and Mr. Adia both stated that their resignations were submitted under the “good reason” provisions of their employment agreements. The Board of Directors of HemaBio, in consultation with, and with the approval of, the Board of Directors of the Company, determined that HemaBio’s business could not operate successfully because i) HemaBio was always operated as a separate and independent business from the Company, ii) HemaBio’s employees, principally Mr. Mauro and Mr. Adia, possessed all knowledge of HemaBio’s suppliers, markets and customers, iii) without senior management there were no other individuals at HemaBio who could run the business and find a pathway to future profitability, iv) none of the Company’s management were available, nor possessed the knowledge, to take over the responsibility to run HemaBio, and v) the projected operating losses at HemaBio were growing, and HemaBio did not have sufficient financial resources to operate for the time period required to recruit, hire and train new management. Therefore, the Board of Directors of HemaBio decided that it was in the best interest of HemaBio’s creditors to close all operations of HemaBio, effective November 5, 2007.

 

On December 4, 2007, HemaBio executed an Assignment for Benefit of Creditors, under Florida Statutes Section 727.101 et seq. (“Assignment”), assigning all of its assets to an assignee, who is responsible for taking possession of, protecting, preserving, and liquidating such assets and ultimately distributing the proceeds to creditors of HemaBio according to their priorities as established by Florida law.

 

Per ASC Topic 205-20, Discontinued Operations and ASC Topic 360-10, Impairment or Disposal of Long-Lived Assets, the results of operations of HemaBio, along with an estimate of all closure related costs, were recorded in 2007. The following is the breakdown of the assets held for sale and the liabilities related to the assets held for sale for the discontinued operations as of December 31, 2010 and December 31, 2009:

 

F-10
 

 

HEMACARE BIOSCIENCE, INC

Discontinued Operations

 

   December 31,  December 31,
   2010  2009
       
Assets held for Sale          
Cash and cash equivalents  $210,000   $215,000 
Total assets held for sale  $210,000   $215,000 
           
Liabilities related to assets held for sale          
Accounts payable  $774,000   $779,000 
Accrued payroll and payroll taxes   603,000    603,000 
Accrued interest   217,000    167,000 
Notes payable   500,000    500,000 
Total liabilities related to assets held for sale  $2,094,000   $2,049,000 

 

When the Board of Directors of HemaBio authorized the execution of the Assignment of Benefit of Creditors, HemaBio conveyed all of its assets, defined as “all real property, fixtures, goods, stock inventory, equipment, furniture, furnishings, accounts receivable, bank deposits, cash, promissory notes, cash value and proceeds of insurance policies, claims and demands”, to the Assignee. The Assignee is then responsible for liquidating any non-monetary assets, for the purpose of eventually satisfying any and all creditor claims against HemaBio. Unlike a federal bankruptcy proceeding, the Florida ABC process does not stay any legal action the creditors might choose to force HemaBio to pay claims.

 

Therefore, management concluded that given liabilities remained outstanding throughout the ABC, it was appropriate to keep these liabilities on the books of HemaBio as outstanding until such time as the Assignee pays these claims, the claims are dismissed by a court, or the claimants rights to pursue claims expires per the Florida Statute of Limitations.

 

Management analyzed all of the claims submitted to the Assignee, and after reviewing the applicable Florida Statute of Limitations, management determined that the claimant’s rights to pursue claims would not expire for at least three years. Therefore, management concluded that none of the claims against HemaBio can be removed as of December 31, 2010.

 

Note 4 - Allowance for Doubtful Accounts

 

The Company periodically reviews the outstanding balances owed by its customers. Generally, the Company recognizes an allowance for doubtful accounts for any balances owed that are 90 days or more past due based on the invoice date, unless substantial evidence exists that the receivable is collectable, such as subsequent cash collection. In addition, balances less than 90 days past due are reserved based on the Company’s recent bad debt experience.

 

For 2010, the Company recorded an increase to the allowance for doubtful accounts of $12,000 for continuing operations as a result of management’s review of outstanding receivables, whereas for 2009 the Company recorded a decrease of $71,000. In 2009, the decrease was due to collection of customer balances previously included in the allowance. The Company’s policy is to write-off a receivable when collection efforts are terminated and the probability of collection is very low.

 

F-11
 

Note 5 - Plant and Equipment

 

Plant and equipment consists of the following:

 

   December 31,  December 31,
   2010  2009
           
Furniture, fixtures and equipment  $8,511,000   $8,375,000 
Leasehold improvements   2,293,000    2,314,000 
           
Less accumulated depreciation and amortization   (7,704,000)   (6.654,000)
   $3,100,000   $4,035,000 

 

Depreciation and amortization expense for 2010 and 2009 was $1,134,000 and $1,054,000, respectively.

 

The Company wrote off impaired assets in 2010 totaling $126,000, related to assets purchased for the Company’s software project which were no longer needed as management decided to utilize a hosting solution offered by the software vendor.

 

Note 6 - Line of Credit and Notes Payable

 

On December 9, 2009, the Company, together with the Company’s subsidiary, Coral Blood Services, Inc., entered into a new Credit Agreement (the “New Wells Agreement”), and related security agreements, with Wells Fargo to replace the Wells Fargo Agreement entered into on April 10, 2008. The New Wells Agreement provided that the Company could borrow the lesser of 80% of eligible accounts receivable or $5 million, and had a maturity date of December 1, 2011. Most of the terms in the New Wells Agreement were similar to those in the former Wells Fargo Agreement; however, the New Wells Agreement provided that the Company pay interest on a monthly basis on any outstanding balance at 0.25% above the bank’s prime rate, but eliminated any minimum monthly interest requirement. The New Wells Agreement also granted the bank a first priority security interest in all of the assets of the Company and Coral Blood Services, Inc.

 

The Company had no outstanding borrowings under the New Wells Agreement as of December 31, 2010, except for a letter of credit issued by Wells Fargo as security for lease obligations associated with the Company’s Van Nuys facility. The Company is required to maintain a letter of credit under the lease, initially in the amount of $815,000 and reducing by 10% each year on August 14, 2009, 2010, 2011 and 2012, and 20% each year on August 14, 2013 and 2014. At December 31, 2010, the letter of credit was for $660,000. No amounts have been drawn against the letter of credit.

 

The New Wells Agreement also required that the Company maintain certain financial covenants, including minimum tangible net worth, maximum total liabilities and minimum net income over a rolling two quarter basis. As of December 31, 2010, the Company was out of compliance with the financial covenants in the New Wells Agreement.

 

Effective as of January 15, 2011, in consideration of Wells Fargo waiving the Company’s existing defaults under the Credit Agreement, the Company agreed to amend the New Wells Agreement to provide that outstanding borrowings, including outstanding advances and letters of credit, shall not at any time exceed the amount of cash collateral in a segregated, blocked deposit account maintained by the Company with Wells Fargo and with respect to which Wells Fargo has been granted a first priority security interest to secure all present and future indebtedness of the Company to Wells Fargo. Pursuant to this arrangement, the Company has pledged $660,000 in cash to Wells Fargo, and the Company has outstanding letters of credit for an aggregate of $660,000 under the New Wells Agreement.

 

F-12
 

Note 7 - Leases

 

The Company leases its facilities and certain equipment under operating leases that expire through the year 2017.

 

Future minimum rentals under operating and capital leases for continuing operations are as follows:

 

Years ending December 31,  Operating  Capital
2011  $813,000   $16,000 
2012   793,000    20,000 
2013   747,000    20,000 
2014   744,000    23,000 
2015   740,000    14,000 
Thereafter   1,202,000    —   
Total  $5,039,000   $93,000 

 

For continuing operations total rent expense under all operating leases was $977,000 and $893,000 for the years ended December 31, 2010 and 2009, respectively.

 

Most of the operating leases for facilities include options to renew the lease at the then current fair market value for periods of one to five years. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases.

 

On February 24, 2006, the Company entered into a lease for approximately 19,600 square feet located in Van Nuys, California intended to house corporate offices, mobile blood drive operations, a blood component manufacturing lab and a blood products distribution operation. The Company occupied this facility in November 2006. The rent for this facility started at approximately $36,000 per month; however, the lease provides for an annual 3% rent escalation upon the annual anniversary of the beginning of the lease term and for increases in the cost of common area maintenance. The lease on this space expires July 31, 2017; however, the Company has one five-year option to extend this lease at the then current market price. On April 11, 2007, the Company entered into an amendment to add approximately 5,735 square feet to this lease intended to house a donor center and supply warehouse. This amendment added $13,250 per month in rent expense, which adjusts annually by 3.9% on the anniversary of the lease commencement date. As part of the lease agreement, the Company received approximately $508,000 in tenant improvement allowance from the landlord.

 

The Company recognizes the total rent obligation for this facility, net of the tenant improvement allowance, as rent expense on a straight line basis over the term of the lease. The Company allocates on a straight-line basis the total lease payments, including rent escalation, abated rent, and tenant improvement reimbursement, over the term of the lease. As a result, the Company recognizes approximately $41,000 in monthly rent expense over the term of the lease. As of December 31, 2010, the Company recorded $66,000 in deferred rent included in accrued expenses associated with this lease to be utilized over the next twelve months. As of December 31, 2010, the Company has remaining $533,000 deferred rent associated with this lease, included in other long-term liabilities on the balance sheet.

 

On August 18, 2010, the Company entered into a capital lease with Horiba Financial Services for the lease of equipment used in processing in the Company’s Van Nuys laboratory facility. The total value of the lease is $98,000 at 10.5% interest which is payable monthly in the amount of $2,100 and expires in July 2015.

 

F-13
 

Note 8 - Income Taxes

 

The provision for income taxes for the years ended December 31, 2010 and 2009 is as follows:

 

   2010  2009
           
Federal – Net operating loss carryback  $(63,000)  $0 
           
Federal – Refundable research and development credit   —      (12,000)
           
State – current year provision   3,000    14,000 
           
State – prior year amendments and refunds   —      (30,000)
Income tax (benefit) provision  $(60,000)  $(28,000)

 

For continuing operations, the Company recorded a $60,000 benefit from income taxes for 2010 compared with a $28,000 benefit from income taxes for 2009.

 

ASC Topic 740-10 prescribes a two-step process for the financial statement measurement and recognition of a tax position. The first step involves the determination of whether it is more likely than not (greater than 50 percent likelihood) that a tax position will be sustained upon examination, based on the technical merits of the position. The second step requires that any tax position that meets the more-likely-than-not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. ASC Topic 740-10 also provides guidance on the accounting for related interest and penalties, financial statement classification and disclosure. Interest and penalties related to uncertain tax positions will be recognized in income tax expense when incurred. As of December 31, 2010, the Company did not incur any interest or penalties related to uncertain tax positions. The oldest tax year that remains open to possible evaluation and interpretation of the Company’s tax position is 2006.

 

Differences between the provision for income taxes and income taxes at the statutory federal income tax rate for the years ended December 31, 2010 and 2009 are as follows:

 

   2010  2009
Income tax expense at federal statutory rate  $(297,000)  $296,000 
Refundable research and development credit   —      (12,000)
State income taxes, net of federal benefit   (6,000)   26,000 
Change in valuation allowance   348,000    (514,000)
Permanent differences   30,000    44,000 
Change in deferred tax asset and other   —      5,000 
Expiration of federal credit   (72,000)   157,000 
Income tax expense   3,000    2,000 
State prior period tax amendments and refunds   —      (30,000)
Federal NOL carryback   (63,000)   —   
Income tax benefit  $(60,000)  $(28,000)

 

 

F-14
 

The Company recognized no net deferred tax asset as of December 31, 2010 and 2009. The components of the net deferred tax asset at December 31, 2010 and 2009 are as follows:

 

   2010  2009
Current:          
Accounts receivable reserve  $33,000   $26,000 
Accrued expenses and other   562,000    623,000 
Total current deferred tax asset  $595,000   $649,000 
           
Noncurrent:          
Net operating loss carryforward  $2,801,000   $2,489,000 
Depreciation and amortization   34,000    (126,000)
Tax credit carryforward   54,000    85,000 
Stock compensation   211,000    192,000 
Other   (180,000)   (122,000)
Valuation allowance   (3,515,000)   (3,167,000)
Total non-current deferred tax   (595,000)   (649,000)
Total deferred tax asset  $—     $—   

 

A valuation allowance is recorded if the weight of available evidence suggests it is more likely than not that some portion or the entire deferred tax asset will not be recognized.

 

The Company determined at the end of 2010 and 2009 that, based on recent operating results, it was unlikely that the Company would realize any of the deferred tax assets. Therefore, the Company recorded a 100% valuation reserve against all of the net deferred tax assets as of December 31, 2010 and December 31, 2009.

 

As of December 31, 2010, the value of the Company’s federal and state net operating loss carryforwards were $7.0 million and $16.6 million, respectively. The difference in the net operating loss carryovers for Federal and State purposes relate to the filing of combined versus stand alone income tax returns. The ability of the Company to utilize the available federal net operating loss carryforward is scheduled to expire over time starting in 2011 and ending in 2030. The ability for the Company to utilize the available state net operating loss is scheduled to expire over time starting in 2017 and ending 2030.

 

Utilization of our net operating loss may be subject to substantial annual limitation as a result of a change in ownership as provided by the Internal Revenue Code and similar state provisions. Such a limitation could result in the expiration of the net operating loss before utilization.

 

Note 9 - Shareholders' Equity

 

Stock Options

 

On May 24, 2006, the shareholders approved the 2006 Equity Incentive Plan (“2006 Plan”) since the 1996 Plan expired in July 2006. The following is a summary of the 2006 Plan:

 

Background and Purpose.   The primary purpose of the 2006 Plan is to encourage ownership in the Company by key personnel whose long-term service is considered essential to the Company’s continued progress, thereby linking these employees directly to stockholder interests through increased stock ownership.

F-15
 

Eligible Participants.   Awards may be granted under the 2006 Plan to any of the Company’s officers, directors, or consultants or Company affiliates. An incentive stock option may be granted under the 2006 Plan only to a person who, at the time of the grant, is an employee of the Company or a related corporation.

Number of Shares of Common Stock Available.   A total of 1,200,000 shares of common stock had been reserved for issuance under the 2006 Plan upon inception, and an amendment to the 2006 Equity Incentive Plan, to increase the maximum number of shares of common stock that may be issued pursuant to all types of awards granted under the Plan from 1,200,000 to 2,200,000 shares, was approved at the May 21, 2010 annual shareholder’s meeting. If an award is cancelled, terminates, expires, or lapses for any reason without having been fully exercised or vested, or is settled for less than the full number of shares of common stock represented by such award actually being issued, the unvested, cancelled, or unissued shares of common stock generally will be returned to the available pool of shares reserved for issuance under the 2006 Plan. In addition, if the Company experiences a stock dividend, reorganization, or other change in capital structure, the administrator may, in its discretion, adjust the number of shares available for issuance under the 2006 Plan and any outstanding awards as appropriate to reflect the stock dividend or other change. The share number limitations included in the 2006 Plan will also adjust appropriately upon such event.

 

As of December 31, 2010, the Company had utilized 1,137,835 of the shares reserved under the 2006 Plan, and 1,062,165 shares remain available. Awards may be granted to any employee, director or consultant of the Company or its subsidiaries, or those of the Company’s affiliates.

 

At the March 11, 2010 meeting of the Board of Directors, the non-employee directors were awarded, pursuant to the Company’s director compensation policy, their 2010 annual stock option grants utilizing the closing stock price on March 11, 2010 the date of the meeting, and the Black-Scholes valuation model. Since this grant was intended as compensation for annual service, the Company recorded $64,000 of share-based compensation for the year ended December 31, 2010.The recorded share based-compensation for the annual stock option grants awarded to non-employee directors as compensation for annual service for the year ended December 31, 2009 was $37,000.

 

Total share-based compensation expense for award grants issued to employees for the years ended December 31, 2010 and 2009 was $76,000 and $95,000 respectively.

 

The table below summarizes stock option activity for 2010 and 2009:

 

   2010  2009
   Shares  Weighted
Average
Exercise
Price		  Shares  Weighted
Average
Exercise
Price
Outstanding at beginning of year   1,815,000   $1.14    1,641,000   $1.23 
Granted   290,000   $0.61    260,000   $0.42 
Exercised   (22,500)  $0.49    —     $—   
Forfeited   (155,750)  $0.63    —     $—   
Expired   (357,750)  $1.34    (86,000)  $0.74 
Outstanding at end of year   1,569,000   $1.05    1,815,000   $1.14 
Vested at end of year   1,252,000   $1.17    1,453,000   $1.25 

 

As of December 31, 2010, the total aggregate intrinsic value of all fully vested stock options, and of all stock options outstanding, was $149,000 and $200,000, respectively.

 

F-16
 

The following table summarizes the range of exercise price, weighted average remaining contractual life (“Life”) and weighted average exercise price (“Price”) for all stock options outstanding as of December 31, 2010:

 

   Options Outstanding  Options Exercisable
Range of Exercise Price  Shares  Life  Price  Shares  Price
$0.18 to $0.75   892,000    7.3 years   $0.48    585,000   $      0.44 
$0.76 to $1.50   370,000    2.3 years   $1.24    370,000   $1.24 
$1.51 to $2.50   157,000    4.8 years   $2.35    147,000   $2.35 
$2.51 to $2.71   150,000    6.1 years   $2.68    150,000   $2.68 
    1,569,000    5.7 years   $1.05    1,252,000   $1.17 

 

The table below summarizes restricted stock activity for 2010 and 2009:

 

   2010  2009
   Shares  Price  Shares  Price
Outstanding at beginning of year   —     $—      115,585   $0.00 
Granted   —      —      —      —   
Exercised   —      —      (115,585)   0.00 
Forfeited   —      —      —      —   
Expired   —      —      —      —   
Outstanding at end of year   —     $—      —     $0.00 
Exercisable at end of year   —      —      —      —   

 

The table below summarizes restricted stock unit activity for 2010 and 2009:

 

   2010  2009
   Shares  Price  Shares  Price
Outstanding at beginning of year   —     $—      47,200   $0.00 
Granted   —      —      —      —   
Exercised   —      —      (47,200)   0.00 
Forfeited   —      —      —      —   
Expired   —      —      —      —   
Outstanding at end of year   —     $—      —     $0.00 
Exercisable at end of year   —      —      —      —   

 

The Black-Scholes option pricing model is used by the Company to determine the weighted average fair value of share-based payments. The fair value of options at date of grant and the assumptions utilized to determine such values are indicated in the following table:

 

  Years Ended December 31,
  2010   2009
Weighted average fair value at date of grant for options granted during the period $     0.53   $     0.39
Weighted average fair value for options exercised during the period $    0.45   $    0.00
Weighted average fair value for options vested during the period $    0.67   $    0.57
Risk-free interest rates 2.8%   2.9%
Expected stock price volatility 157.0%   157.0%
Expected dividend yield 0.0%   0.0%
Expected forfeitures 29.5%   29.5%
Expected Option Term  6.5 years   6.5 years

 

F-17
 

For the year ended December 31, 2010, the Company recognized non-cash share-based compensation costs of $140,000, in accordance with ASC Topics 505 and 718, reducing the income before taxes and net income by this amount.

 

The following summarizes the activity of the Company’s stock options that have not vested for the year ended December 31, 2010:

 

   Shares  Weighted
average
fair value
Nonvested at January 1, 2010   361,750   $0.61 
Granted   290,000    0.54 
Vested   (179,000)   0.68 
Cancelled   (155,750)   0.57 
Nonvested at December 31, 2010   317,000   $0.53 

 

As of December 31, 2010, the unrecognized compensation cost related to nonvested awards is $99,000 with a weighted-average period over which such unrecognized compensation is expected to be recognized of 3.7 years.

 

As of December 31, 2010, there were 1,252,000 fully vested stock options outstanding with a weighted average fair value of $0.40 and an average contractual term of 5.0 years.

 

Stock Repurchase Plan

 

The Board of Directors of the Company approved a plan on February 26, 2010 to purchase and retire up to 1,000,000 shares of the Company's common stock, or approximately 10% of current shares outstanding, over a twelve month period. Subsequently, on November 10, 2010, the Board of Directors approved the expansion of the plan to 2,000,000 shares and extension of the plan for an additional twelve months ending December 31, 2011.The Company anticipates that these stock repurchases will be made from time to time, depending on market prices, from cash on hand.

 

Pursuant to the stock repurchase program, the Company purchased 5,000 shares of common stock during the second quarter of 2010, and purchased 505,000 shares of common stock during the third quarter of 2010, for aggregate purchases of 510,000 shares for the year ended December 31, 2010. These shares have all been retired.

 

Employee Stock Purchase Plan

 

On May 25, 2004, the Board of Directors of the Company approved the Company’s 2004 Stock Purchase Plan, (the “ESPP”), which initially provided for the issuance of up to 1,000,000 shares of the Company's Common Stock (subject to adjustment). The Company registered 1,000,000 such shares on a Registration Statement on Form S-8 (File No. 333-116405) filed with the Commission on June 10, 2004. On August 6, 2009, the Board of Directors of the Company increased the number of shares which may be issued and sold under the ESPP from 1,000,000 to 2,000,000 (subject to adjustment). On August 19, 2009, the Company filed a Registration Statement on Form S-8 with the SEC to register 1,000,000 additional shares of the Company's Common Stock for issuance pursuant to the ESPP, and such indeterminate number of additional shares as may become available under the ESPP as a result of the adjustment provisions thereof.

F-18
 

Three purchases were made from the Employee Stock Purchase Plan (“ESPP”) during 2010. On August 23, 2010, Pete van der Wal made two purchases totaling 90,909 shares from the plan at $.55 each for a total of $50,000, and on the same date, Steven Gerber purchased 60,000 shares from the plan at $.55 each for a total of $33,000.

As of December 31, 2010, there were 419,191 remaining shares in the ESPP.

Note 10 – Earnings per Share

 

The following table provides the calculation methodology for the numerator and denominator for earnings per share:

 

   Years Ended December 31,
   2010  2009
Net (loss) income from continuing operations  $(746,000)  $905,000 
           
Weighted average shares outstanding   9,968,000    10,008,000 
Net effect of diluted options and warrants   —      124,000 
Weighted average dilutive shares outstanding   9,968,000    10,132,000 
           
(Loss) earnings per share from continuing operations - diluted  $(0.07)  $0.09 
           
Net loss from discontinued operations  $(50,000)  $(50,000)
           
Loss per share from discontinued operations - diluted  $(0.01)  $(0.00)
           
Net (loss) income  $(796,000)  $855,000 
           
(Loss) earnings per share - diluted  $(0.08)  $0.08 

 

Options outstanding representing 1,569,000 and 1,450,000 shares of common stock for the years ended December 31, 2010 and 2009, have been excluded from the above calculation because their effect would have been anti-dilutive.

 

Note 11– 401(k) Profit Sharing Plan

 

The HemaCare Corporation 401(k) Profit Sharing Plan qualifies, in form, under Section 401(k) of the Code. The Company accrued a matching contribution to be paid in 2011 for the 2010 plan year of $65,000. The Company did not match any 401(k) contribution in 2010 for the 2009 plan year.

 

Note 12 - Commitments and Contingencies

 

State and federal laws set forth anti-kickback and self-referral prohibitions and otherwise regulate financial relationships between blood banks and hospitals, physicians and other persons who refer business to them. While the Company believes its present operations comply with applicable regulations, there can be no assurance that future legislation or rule making, or the interpretation of existing laws and regulations will not prohibit or adversely impact the delivery by HemaCare of its services and products.

 

F-19
 

Healthcare reform is continuously under consideration by lawmakers, and it is not certain as to what changes may be made in the future regarding health care policies. However, policies regarding reimbursement, universal health insurance and managed competition may materially impact the Company's operations.

 

The Company is party to various claims, actions and proceedings incidental to its normal business operations. The Company believes the outcome of such claims, actions and proceedings, individually and in the aggregate, will not have a material adverse effect on the business and financial condition of the Company.

 

Note 13 – Concentration Risk

 

The Company provides products and services to healthcare providers, hospitals and research and cellular therapy related organizations, all of which are referred to as “customers” for purposes of identifying concentration risk in this note. During 2010, one customer represented 18.1% of the Company’s total revenue from continuing operations. The next two largest customers accounted for approximately 7.3% and 4.6% of total revenue respectively. The Company’s ten largest customers accounted for 54.7% of total revenue. Other than the lease of space for two donor centers at a customer’s facility, the Company’s only relationship with any of these customers is as a provider of blood products and services.

 

In addition, consolidations and affiliations within the hospital industry have changed the environment for the blood services segment. The newly consolidated or affiliated hospitals have started to negotiate with the Company as a group, and therefore exert greater pressure on the Company for price discounts. This may force the Company to offer price discounts to retain sales volume that previously would not have been granted if the hospitals were not negotiating as a group.

 

During 2010, the Company received goods and services from two major vendors; the first of which is CaridianBCT, which represented approximately 12.9% of the Company’s total operating costs from continuing operations. This vendor provided products that support the Company’s cell separation equipment used by both the blood services and therapeutic services segments. The second largest vendor is Creative Testing Solutions, which represented approximately 9.7% of total operating costs from continuing operations. This vendor provided laboratory services. The Company has no relationship with either vendor other than as a consumer of the goods and services provided by each.

 

Note 14 – Subsequent Events

 

Amendment to New Wells Agreement

Effective as of January 15, 2011, the Company entered into a letter agreement (the “Amendment”) with Wells Fargo Bank (the “Bank’), pursuant to which the parties amended the New Wells Agreement, by and among the Company, the Bank and Coral Blood Services, Inc. and the Bank waived the Company’s existing defaults under the Credit Agreement.

In connection with the Amendment, the Company also entered into a First Modification To Promissory Note, and a Security Agreement Specific Rights to Payment, as modified by the Addendum attached thereto, each dated as of January 15, 2011

Blood Management Software Project

On February 18, 2011, the Company entered into an agreement with Haemonetics, Inc. to purchase the license to the El Dorado Donor software system. The Company also signed a hosting agreement for Haemonetics to host the El Dorado software system for a period of three years, with annual renewal options.

 

F-20

 

 EX-10 2 ex10-25.htm

Exhibit 10.25

BLOOD DONOR CENTER MANAGEMENT
COMMUNITY MOBILE BLOOD COLLECTIONS SERVICES
AGREEMENT

USC BLOOD DONOR CENTER
USC University Hospital

I. RECITALS

A. Whereas, USC University Hospital (“Hospital”) operates a medical center located at 1500 San Pablo Street, Los Angeles, California 90033;

B. Whereas, HemaCare Corporation (“HemaCare”) headquartered at 21101 Oxnard Street, Woodland Hills, California 91367 provides blood services to hospitals and health care facilities throughout the United States, including collection, processing, testing and distribution of blood components and performance of specialized donor and therapeutic apheresis services;

C. Whereas, Hospital desires to retain HemaCare to provide certain blood services and HemaCare is willing to provide such services;

Therefore, in consideration of the foregoing premises and the mutual covenants set forth herein, Hospital and HemaCare enter into this Agreement in order to provide a full statement of their respective rights and obligations in connection with the provision of those services.

II. HEMACARE RESPONSIBILITIES — BLOOD DONOR CENTER & COMMUNITY MOBILE BLOOD DRIVE PROGRAM

A. Blood Donor Center and Community Mobile Blood Drive Program

1. HemaCare will provide to Hospital services required to establish, maintain and operate a donor program to provide whole blood and single donor platelets to Hospital. For purposes of this Agreement, Blood Donor Center Services will mean those services listed in Attachment I (Fee Schedule.) Subject to the provisions of this Agreement regarding the Hospital's intellectual property rights, the blood donor programs shall be known as the USC BLOOD DONOR CENTER. Attachment II sets forth the anticipated Hospital request for blood products per month. The volumes set forth in Attachment II represent the combined blood product volumes for USC Kenneth Norris Jr., Cancer Hospital and USC University Hospital. HemaCare's goal is to produce the volumes established in Attachment H. Not meeting the specified volumes is not considered an explicit breach of contract by HemaCare.

2. HemaCare shall be generally responsible, at its sole cost and expense, for operating and providing non-physician operational, administrative, management and other functions of the Center and for obtaining medical management for the Center.

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3. HemaCare, or its lessor, shall provide at its or their sole cost and expense, all utilities, telephone and communication services, janitorial, and maintenance services (including hazardous and infectious waste disposal), laundry services, reception, secretarial and transcribing services, postage and other supplies, duplication services, and all medical pharmaceuticals and supplies, including without limitation Blood Products (as defined herein), drugs, chemicals, and other medical supplies, and such other services and supplies as may be reasonably necessary for the proper operation of the Center. Without limiting the foregoing, HemaCare shall also supply to the Center blood bags, needles, skin sterilization supplies, bandages and other relevant and properly maintained supplies.

4. HemaCare will be responsible for providing trained and qualified clinical, technical and administrative personnel to the Blood Donor Center. HemaCare will also provide trained and qualified clinical, technical and administrative personnel for Community Mobile Blood Collections.

5. The provision of such personnel shall occur in accordance with Section 11.B. hereof.

6. HemaCare will provide all equipment and supplies required in the course of delivering the Blood Donor Center and Community Mobile Blood Services. Equipment will remain the property of HemaCare. Any equipment provided by Hospital in support of the Blood Donor Center or otherwise for use by HemaCare, will remain the property of Hospital. HemaCare will perform Quality Control as required.

7. HemaCare will provide all donor recruitment support for this program, including the management of the donor base. Promotional materials for donor recruitment shall be subject to the terms of Section V1H.A hereof. Hospital will use their best efforts to facilitate the timely approval of such promotional materials. The Hospital Blood Bank Medical Director and the Donor Center Medical Director must approve patient educational material content. Any use of the USC logo will have approval on its use. HemaCare shall exercise all commercially reasonable efforts to conduct donor recruitment in a manner that will assure a donor base sufficient to meet Hospital's requirements for blood products, as established in Attachment II.

8. HemaCare will provide Preventive Maintenance and repair on all Blood Donor Center equipment.

9. HemaCare will be responsible for Regulatory Compliance, including record keeping and the maintenance of a Donor Deferral Registry and notification to state and county agencies.

10. HemaCare shall maintain proper registration of the Blood Donor Center and Community Mobile Blood Drive Program as may be required by state and federal law, including without limitation, the requirements of the federal Food and Drug Administration (“FDA”). All blood will be collected and processed under HemaCare's FDA registration.

11. HemaCare will test, process, and label all blood products according to FDA and AABB requirements.

12. HemaCare will provide a list of the first 750 units collected monthly to the Hospital. Such lists shall contain sequential unit numbers (subject to breaks in sequence due to positive results and/or production issues) for units collected at each mobile drive for each Hospital.

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B. HemaCare Personnel

1. Unless otherwise agreed upon specifically by the parties, all personnel providing Services under this Agreement (“HemaCare Personnel”) will be employed by or contracted to HemaCare. HemaCare will be solely and exclusively responsible for the compensation and benefits of HemaCare Personnel and for the payment of all local, state and federal employment taxes and contributions, including unemployment taxes and contributions.

2. HemaCare shall also secure and maintain at all times during the Term, at HemaCare's sole expense, workers' compensation and employers' liability insurance covering HemaCare's employees and all Physicians, with a carrier licensed to do business in the State and having at least an “A” BEST rating, at the following limits:

  Workers' Compensation: Statutory limits
  Employer's Liability: $1,000,000 each accident;
    $1,000,000 disease policy limit;
    $1,000,000 disease each employee

Such coverage shall be placed as an actual Workers' Compensation policy, not as a health benefits policy, and shall be endorsed to include (1) a waiver of subrogation in favor of Hospital, and (2) a 30-day notice of cancellation. Such coverage shall be primary and non-contributory. HemaCare shall annually provide a certificate of insurance to Hospital evidencing such coverage and coverage extensions.

3. HemaCare shall comply with all labor laws applicable to HemaCare Personnel, including applicable equal employment opportunity laws.

4. HemaCare shall require its Personnel that work at the Hospital:

a. To follow all rules of conduct as defined by Hospital for its employees.

b. To participate in initial and annual orientation as required by Hospital (approximately one day per orientation session), and Hospital shall have no responsibility for compensating HemaCare or HemaCare Personnel for time spent in orientation.

c. To participate in such additional annual evaluation and training as may be required by Hospital for purposes of maintaining compliance with regulatory and accreditation standards.

5. HemaCare shall provide Hospital with documentation, upon employment or retention of Personnel that work at Hospital, and annually thereafter or as Hospital may request for purposes of compliance with legal and/or accreditation requirements, of the following: (i) health status, for all HemaCare Personnel; (ii) Hepatitis B and other required or recommended vaccinations as appropriate to. job responsibilities; (iii) HemaCare orientation and competency assessment for all HemaCare Personnel; (iv) current California licensure or certification for all HemaCare Personnel providing nursing or other direct patient services; and (v) current CPR certification for all HemaCare Personnel providing nursing services.

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6. HemaCare shall ensure that all HemaCare Personnel providing nursing or other direct patient services pursuant to this Agreement shall have undergone appropriate training, shall provide services in accordance with Standard Operating Procedures, and shall comply with all applicable laws and regulations concerning patient's rights.

7. The Services to be rendered hereunder shall be performed by HemaCare personnel or agents as may be employed by or under contract with HemaCare. HemaCare shall control the process of interviewing prospective HemaCare Personnel for the USC Donor Center (including the selection of interviewees) but agrees that Hospital's designated administrative liaison(s) may participate in the interview and selection process for all such HemaCare Personnel. The Hospital CEO shall have the right to request removal of any such HemaCare personnel whose actions violate the Hospital's Code of Conduct. HemaCare would remove the employee immediately until Code of Conduct actions/issues are resolved.

8. In addition to any other indemnification provided herein, HemaCare shall indemnify, defend, and hold Hospital harmless with respect to any claim, including without limitation, any asserted tax liability, arising from or out of HemaCare's employment practices or arising with respect to the status of HemaCare Personnel as employees or contractors of HemaCare.

C. Other:

1. Hospital and HemaCare may agree upon the provision of other services by HemaCare, which services and fees shall be mutually agreed upon by the parties.

2. HemaCare will not discriminate on the basis of race, color, sex, age, religion, national origin, handicap, or source of payment in providing services under this Agreement.

III. HOSPITAL RESPONSIBILITIES - BLOOD DONOR CENTER & COMMUNITY MOBILES

A. Blood Donor Center and Community Mobile Blood Drive Program:

1. Hospital will make donor parking available and guarantee reasonable donor access to the Blood Donor Center at no cost to HemaCare. Such fees, if paid by HemaCare, will be billed monthly to Hospital.

2. The parties agree that Hospital may place such signage in the Blood Donor Center area, as it deems necessary to advise the public of the relationship between HemaCare and Hospital. HemaCare shall not alter or remove such signage without Hospital's consent.

3. Hospital will provide assistance from Administration and Public Relations in donor recruitment efforts. Assistance from Hospital Administration in donor recruitment efforts is to include signature of approved blood drive sponsor letters, referrals to local businesses where Administration members may have affiliations and referrals to Hospital board members to support community based blood drives. Assistance from Hospital is to include a Public Relations department contact, timely review and approval of donor recruitment material (see Section VIIIA), inclusion of information and or articles in Hospital based employee newsletters/bulletins and community outreach material.

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4. Hospital liaison will facilitate global e-mails to Hospital employees at HemaCare's request.

5. Hospitals are required to accept all units of blood and blood products collected and produced on its behalf (including FFP) through the USC Blood Donor Center and/or Community Mobile Blood Drives, as long as the collections do not exceed the Monthly Volumes established in Attachment II. Such acceptance occurs upon availability of blood products. Upon acceptance, at which point HemaCare will invoice Hospital, the quantity and the schedule of the delivery of the blood products shall be determined by the Hospital. In no circumstance however, may delivery extend beyond seven days of the date of availability. It is not considered an explicit breach of contract if the Hospital's failure to purchase the minimum volume from HemaCare is the result of HemaCare's inability to supply such volume or is attributable to a material decline in overall Hospital utilization.

6. After delivery of blood and blood components from the Blood Donor Center for Hospital's use, Hospital will be responsible for the disposition of such products. Return of products will be managed according to the procedures attached hereto at Attachment III.

7. Hospital shall provide identification badges for HemaCare Personnel. Hospital's name, logo, and other service marks as required by Hospital shall appear on such identification badges along with information identifying HemaCare Personnel as contractors. HemaCare shall require HemaCare Personnel to display such badges at all times while on Hospital premises.

8. In addition to any other indemnification provided herein, Hospital shall indemnify, defend, and hold HemaCare harmless with respect to any claim for personal injury or property damage to any patient or Hospital employee relating to the condition of the Hospital premises, except to the extent such condition was caused by HemaCare or HemaCare Personnel.

IV. STANDARD OPERATING PROCEDURES AND DOCUMENTATION

A. Blood Donor Center and Community Mobiles:

1. All Blood Donor Center and Community Mobile collections will be conducted in accordance with Standard Operating Procedures (“SOPs”) developed by HemaCare. HemaCare further agrees to adhere to all applicable laws, regulations and professional standards relating to donor apheresis and blood services including without limitation the American Association of Blood Banks' Standards for Blood Banks and Transfusion Services.

2. HemaCare will be responsible for maintaining up-to-date documents to comply with the requirements set forth by regulatory agencies, by the Hospital (with respect to its general operations, policies, and procedures), or by joint agreement between HemaCare and Hospital.

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3. All SOPs, protocols, computer programs, and (except as set forth in Section VIII. A. hereof) marketing materials created and used by HemaCare in providing the Services will remain the property of HemaCare. HemaCare will provide individuals designated by Hospital with copies of all pertinent materials as needed to support their own duties and fulfill their responsibilities within Hospital, or otherwise required for compliance with the requirements of any regulatory or accreditation agency. Such copies may be retained by Hospital for record keeping purposes following termination of expiration of this Agreement.

4. Hospital will not make any use of the protocols, SOPs, computer files or other documents for any purpose other than those contemplated by this Agreement unless agreed upon in writing by HemaCare, with the exception of jointly-owned property.

5. All reports, records, donor and QC databases as well as any other electronic records generated by HemaCare in the course of providing services are the property of HemaCare.

6. Confidentiality.

a. Hospital/HemaCare information. Both parties recognize and acknowledge that, by virtue of entering into this Agreement and providing services to Hospital hereunder, both parties and their Staff may have access to certain information of each that is confidential and constitutes valuable, special and unique property of the parties. Both parties agree that neither the parties nor any of their Staff will at any time, (either during or subsequent to the term of this Agreement), disclose to others, use, copy or permit to be copied, without the other's express prior written consent, except in connection with the performing of the parties and the parties staffs' duties hereunder, any confidential or proprietary information of the other, including, without limitation, information which concerns Facility's patients, costs, or treatment methods developed by the parties, and which is not otherwise available to the public.

b. Terms of this Agreement. Except for disclosure to the parties or any of the parties staffs legal counsel, accountant or financial advisors (none of whom shall be associated or affiliated in any way with the other parties' or any of its affiliates), neither the parties nor any of the parties' staff shall disclose the terms of this Agreement to any person, unless disclosure thereof is required by law or otherwise authorized by this Agreement or consented to by the other party. Unauthorized disclosure of the terms of this Agreement shall be a material breach of this Agreement and shall provide the other party with the option of pursuing remedies for breach or immediate termination of this Agreement in accordance with Section VI. B.4.b. hereof.

c. Patient Information. Neither HemaCare nor any HemaCare Staff shall disclose to any third party, except where permitted or required by law or where such disclosure is expressly approved by Hospital in writing, any patient or medical record information regarding Hospital patients, and HemaCare and HemaCare Staff shall comply with all federal and state laws and regulations, and all bylaws, rules, regulations, and policies of Hospital regarding the confidentiality of such information. HemaCare acknowledges that in receiving or otherwise dealing with any records or information from Hospital about Hospital's patients receiving treatment for alcohol or drug abuse, HemaCare and HemaCare Staff are bound by the provisions of the federal regulations governing Confidentiality of Alcohol and Drug Abuse Patient Records, 42 C.F.R. Part 2, as amended from time to time.

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d. HIPAA Compliance. HemaCare agrees to comply with the applicable provisions of the Administrative Simplification section of the Health Insurance Portability and Accountability Act of 1996, as codified at 42 U.S.C. § 1320 through d-8 (“HIPAA”), and the requirements of any regulations promulgated thereunder, including, without limitation, the federal privacy regulations as contained in 45 C.F.R. Part 164, and the federal security standards as contained in 45 C.F.R. Part 142 (collectively, the “Regulations”). HemaCare shall not use or further disclose any protected health information, as defined in 45 C.F.R. 164.504, or individually identifiable health information, as defined in 42 U.S.C. § 1320d (collectively, the “Protected Health Information”), other than as permitted by this Agreement and the requirements of HIPAA or the Regulations. HemaCare will implement appropriate safeguards to prevent the use or disclosure of Protected Health Information other than as contemplated by this Agreement. HemaCare will promptly report to Hospital and Facility any use or disclosures of which HemaCare becomes aware, of Protected Health Information in violation of HIPAA or the Regulations. In the event that HemaCare contracts with any agents to whom HemaCare provides Protected Health Information, HemaCare shall include provisions in such agreements pursuant to which HemaCare and such agents agree to the same restrictions and conditions that apply to HemaCare with respect to Protected Health Information. HemaCare will make its internal practices, books and records relating to the use and disclosure of Protected Health Information available to the Secretary to the extent required for determining compliance with HIPAA and the Regulations. No attorney-client, accountant-client or other legal or equitable privilege shall be deemed to have been waived by HemaCare, Hospital or Facility by virtue of this Subsection.

V. INSURANCE AND LIABILITY

A. Commercial General Liability HemaCare shall secure and maintain at all times during the Term, at HemaCare's sole expense, commercial general liability insurance, covering HemaCare, all Physicians and all of HemaCare's employees, with a carrier licensed to do business in the State and having at least an “A” BEST rating, at the following limits:

Commercial General Liability covering bodily injury and property damage to third parties and including Products/Completed Operations, Blanket Contractual Liability, and Personal/Advertising Injury:

$1,000,000 per occurrence; $3,000,000 general aggregate

and

$1,000,000 per occurrence Personal/Advertising Injury

$3,000,000 Products/Completed Operations aggregate

Such insurance shall name Hospital as an additional insured and shall not be cancelable except upon 30 days' prior written notice to Hospital. Such coverage shall be primary and non-contributory. HemaCare shall annually provide Hospital a certificate of insurance evidencing such coverage and coverage extensions.

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B. HemaCare shall require all HemaCare Staff to secure and maintain at all times during the Term, at each HemaCare Staff's sole expense, personal auto liability covering HemaCare Staff, and any vehicle which HemaCare Staff will bring onto Hospital property, with a carrier licensed to do business in the State and having at least an “A” BEST rating. Such coverage shall be primary and non-contributory and procured at the minimum statutory limits promulgated by the State, but in any event no less than:

$ 15,000 bodily injury per person

$ 30,000 bodily injury per accident

$ 5,000 property damage

C. Indemnification.

1. By Hospital. To the fullest extent permitted by law, Hospital shall indemnify, appear and defend, and hold harmless HemaCare and HemaCare's officers, directors, agents and employees (collectively, the “HemaCare Indemnified Parties”) from and against any and all claims, damages, losses, fines, penalties, and expenses, including but not limited to, reasonable attorneys' fees, (collectively, “claims”) asserted against one or more HemaCare Indemnified Parties and that arise out of or result from the willful or negligent acts or omissions of Hospital in the performance of this Agreement, but only to the extent such claims are not also the result of acts or omissions of the HemaCare Indemnified Parties. The parties agree that the foregoing Indemnification obligations shall not be construed to negate, abridge, or reduce any other rights or remedies available to the HemaCare under this Agreement, at law, or in equity.

2. By HemaCare. To the fullest extent permitted by law, HemaCare shall indemnify, appear and defend, and hold harmless Hospital and Hospitals' officers, directors, agents and employees (collectively, the “Hospital Indemnified Parties”) from and against any and all claims, damages, losses, fines, penalties, and expenses, including but not limited to, reasonable attorneys' fees, (collectively, “claims”) asserted against one or more Hospital Indemnified Parties and that arise out of or result from the willful or negligent acts or omissions of HemaCare in the performance of this Agreement, but only to the extent such claims are not also the result of acts or omissions of the Hospital Indemnified Parties. The parties agree that the foregoing indemnification obligations shall not be construed to negate, abridge, or reduce any other rights or remedies available to Hospital under this Agreement, at law, or in equity.

3. Procedure. Any indemnified party claiming a right to indemnification under this Section V.B. shall notify the indemnifying party promptly following assertion against such indemnified party of a claim-giving rise to such right. Such indemnified party may be represented by counsel as to any such claim but, provided that the indemnifying party shall appear and defend such claim, the indemnifying party shall have no obligation hereunder for legal fees and expenses incurred with respect to such separate representation. An indemnified party shall not compromise any claim giving rise to an asserted right of indemnification without the express written consent of the indemnifying party.

D. Relationship of the Parties. The relationship of HemaCare and Hospital pursuant to this Agreement is that of independent contractors, and the parties intend that neither of them (including their employees and agents) shall be, nor shall hold itself out as, the agent, partner, employee, or joint venturer of the other. Nothing in this Agreement, including requirements concerning HemaCare Personnel compliance with general Hospital policies, shall be deemed to confer on Hospital the right to direct the performance of individual Services by HemaCare or to determine the means or methods by which such Services are performed.

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E. Limited Exclusivity. It is agreed and acknowledged by the parties that, as an independent contractor, HemaCare retains the right to contract with and provide services to entities and individuals other than Hospital and its patients, and nothing in this Agreement be interpreted as limiting or restricting in any way HemaCare's right to do so. HemaCare agrees to establish no other competing USC Blood Donor Centers. Hospital agrees that HemaCare will be the sole outside provider of the described Blood Donor Center and Community Mobile Blood Drive Program during the term of this Agreement and Hospital agrees not to contract with any other third party to conduct the Services unless HemaCare is unable to meet its obligations under this Agreement or as otherwise provided herein. Nothing in the foregoing sentence shall prohibit Hospital from purchasing blood products from any vendor at any time.

VI. TERM AND TERMINATION

A. This agreement shall commence April 1, 2004 and shall continue for a term of two (2) years.

B. Termination.

1. Termination Without Cause. At any time during the Term of this Agreement, either party may, in its sole discretion, terminate this Agreement without cause by giving the other party at least 60 days' prior written notice. If such notice is given by Hospital, Hospital may, in its sole discretion, at any time prior to the effective date of such termination, relieve HemaCare of HemaCare's duties hereunder as long as Hospital continues to perform its obligations under this Agreement until the effective date of such termination.

2. Termination for Breach. Either party may terminate this Agreement upon breach by the other party of any material provision of this Agreement, provided such breach continues for 15 days after receipt by the breaching party of written notice of such breach from the non- breaching party.

3. Immediate Termination by Hospital. Hospital may terminate this Agreement immediately by written notice to HemaCare upon the occurrence of any of the following:

(a) conduct by HemaCare or any HemaCare Staff which, in the sole discretion of Hospital, could affect the quality of professional care provided by USC Blood Donor Center staff, the performance of duties required hereunder, or which could be prejudicial or adverse to the best interest and welfare of Hospital or its patients;

(b) breach by either party or their respective staffs of any of the confidentiality provisions hereof;

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(c) failure by HemaCare to maintain the insurance required under this Agreement;

(d) closure of Hospital, cessation of the patient care operations or sale of Hospital or of all, or substantially all, of Hospital's assets; or

(e) HemaCare or any of HemaCare Staffs conviction of a criminal offense related to health care or HemaCare or any HemaCare Staff's listing by a federal agency as being debarred, excluded, or otherwise ineligible for federal program participation.

HemaCare may cure such breach caused by any HemaCare Staff under this Subsection B.4.(a) by immediately terminating all employment and other HemaCare-based professional and business relationships with such HemaCare Staff and preventing said HemaCare Staff from providing any Services hereunder.

C. If at termination of Agreement there are blood drives booked for Hospital, HemaCare will conduct booked blood drives and will provide all products collected from blood drive(s) to Hospital. At termination of Agreement, HemaCare will cease all recruitment activities relating to booking future blood drives on behalf of Hospital.

VII. FEES AND BILLING PROCEDURES

A. During the term of this Agreement Hospital will compensate HemaCare for services provided hereunder according to the Fee Schedule attached as Attachment I. In addition to the prices listed in the Fee Schedule, HemaCare may pass through to Hospital, any additional costs of manufacturing of blood products that become 'standard of care' or required by any applicable federal, state or local laws, ordinances, rules and regulations and accreditation standards, including without limitation those of the FDA and the AABB. Fifteen (15) days notice prior to the beginning of the month is required for any changes to the Fee Schedule.

B. HemaCare will invoice Hospital on a bi-monthly basis. Such invoice shall include a detailed report of all products and services for which payment is claimed. HemaCare shall provide all additional documentation that the Hospital may reasonably request to verify the invoiced amount. Payment is due in full within 30 days of invoice date.

C. Changes to Fee Schedule must be mutually agreed upon, except in cases where the FDA or the State of California require new testing or additional quality control requirements. All Fee Schedule changes will be effective the first day of the month following 15 days notice of change.

 

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VIII. MISCELLANEOUS

A. Hospital Intellectual Property. Notwithstanding any provision of this Agreement, Hospital shall be and remain the sole owner of its name, trademarks, and service marks. HemaCare shall not use any trademark or service mark of Hospital without Hospital's express written consent. All advertising, promotional, and other materials (including Internet materials) developed and/or disseminated by HemaCare that identifies Hospital in any way, as well as all press releases and similar media communications concerning the Program or the Hospital, shall be approved by the Hospital in advance of any use or publication by HemaCare. Any request for approval shall be acted upon by the Hospital within ten (10) business days. On the eleventh (11) business day, approval will be assumed if no responses or comments have been provided by Hospital. Upon expiration or termination of this Agreement for any reason, HemaCare shall immediately cease all use of the Hospital's name, trademarks, and service marks for any purpose.

B. Compliance with Applicable Laws. The terms of this Agreement and the actions of the parties pursuant thereto shall comply with all applicable federal, state and local laws and regulations as well as the American Association of Blood Banks' Standards for Blood Banks and Transfusion Services. If this Agreement contains any provision which is unlawful pursuant to the laws and regulations of the state of California or the United States, such provision will be deemed null and void and of no effect and will be struck from this Agreement without affecting the binding force of the of the remainder of this Agreement.

C. Non-Solicitation. Hospital and HemaCare mutually agree not to solicit each other's employees, except upon written permission granted by one party to the other. The period of non-solicitation will extend for one-year post-HemaCare or -Hospital employment. The penalty for breach will be one times the employee's annual salary prior to termination of services with the aggrieved party. Nothing in the foregoing covenant shall restrict either party from entering into employment discussions with an employee of the other party who initiates such discussions.

D. Entire Agreement Modification. This Agreement represents the full and complete understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral or written, and all other communications between the parties relating to the subject matter. This Agreement may not be amended or modified except by a written instrument signed by both parties. Waiver, express or implied, of any default by either party of any provision(s) of the Agreement or the failure to insist on strict performance thereof, shall not be deemed to be a waiver of any other default or breach of the same or a different provision of this Agreement.

E. Access to Books and Records. For at least seven (7) years after providing services pursuant to this Agreement, HemaCare shall, upon request, make the following documents available to the Secretary of Health and Human Services, the Comptroller General, or the duly authorized representative of either: a copy of this Agreement, all books, documents, and records of HemaCare necessary to certify the nature and extent of the costs incurred by Hospital in connection with this Agreement and such other documents as may be requested pursuant to Section 952 of the Omnibus Reconciliation Act of 1980, 42 U.S.C. Section 1395x(v)(1)(I), as amended.

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F. Assignment. Neither party may assign this Agreement or 4ny of its rights or obligations hereunder, without the express written consent of the other party. Any purported assignment in contravention of the foregoing shall be void and of no effect.

G. Arbitration. Any dispute or controversy arising under, out of or in connection with, or in relation to this Agreement, or any amendment hereof, or the breach hereof shall be determined and settled by arbitration in Los Angeles County, California, in accordance with the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration and applying the laws of the State. Any award rendered by the arbitrator shall be final and binding upon each of the parties, and judgment thereon may be entered in any court having jurisdiction thereof. The costs shall be borne equally by both parties. During the pendency of any such arbitration and until final judgment thereon has been entered, this Agreement shall remain in full force and effect unless otherwise terminated as provided hereunder. The provisions set forth herein shall survive expiration or other termination of this Agreement regardless of the cause of such termination.

H. Authority. The parties represent and warrant that the execution and delivery of this Agreement have been duly authorized by all necessary corporate action.

I. Governing Law. It is understood and agreed between the parties hereto that all matters relating to the interpretation, laws of the State of California shall govern validity and performance of this Agreement. These provisions of this paragraph shall survive expiration or other termination of this Agreement, regardless of the cause of such termination.

J. Notices. All notices hereunder shall be in writing, delivered personally or by certified or registered mail, return receipt requested, or by a national overnight courier service, and shall be deemed to have been duly given when delivered personally or when deposited in the United States mail, postage prepaid, or deposited with the overnight courier, addressed as follows:

If to Hospital:  

USC University Hospital

1500 San Pablo Street

Los Angeles, CA 90033

Attn: Chief Executive Officer

     
With a copy to:  

Tenet HealthSystem

3 Imperial Promenade, Suite 600

Santa Ana, CA 92707

Attn: Regional Director – Operations

     
And:  

Tenet HealthSystem

3 Imperial Promenade, Suite 740

Santa Ana, CA 92707

Attn: Regional Counsel - Law Department

 

12
 

 

 

If to HemaCare Corporation:  

HemaCare Corporation

21101 Oxnard Street

Woodland Hills, CA 91367

Attn: Judi Irving

 

or to such other person or places as either party may from time to time designate by notice to this paragraph.

IX. CAPTIONS

The captions contained herein are used solely for convenience and shall not be deemed to define or limit the provisions of this agreement.

IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE EXECUTED BY THEIR RESPECTIVE DULY AUTHORIZED REPRESENTATIVES EFFECTIVE AS OF THE DATE SPECIFIED HEREIN.

USC UNIVERSITY HOSPITAL, INC. D/B/A   FOR HEMACARE CORPORATION:
USC UNIVERSITY HOSPITAL:      
         
Signature /s/ Debbie Walsh   Signature /s/ Judi Irving
Name Debbie Walsh   Name Judi Irving
Title COO   Title Chief Executive Officer
Date 4/30/04   Date 5/8/04

 

The terms set forth and established in this Agreement are offered to Hospital in good faith. If the Agreement is not signed by Hospital within 30 days of date of receipt, HemaCare reserves the option to modify the terms of the Agreement to meet then current market conditions.

13
 

 

Attachment I

USC UNIVERSITY HOSPITAL

BLOOD SERVICES FEE SCHEDULE

Hospital Services Direct Order Lines

800-826-7962 or 818-986-3977

 

COMPONENT Fees Per Unit

Directed Donor Red Blood Cells $[l]1
Directed Donor Leukocyte Reduced Red Blood Cells $[l]
Directed Donor Leukocyte Reduced Red Blood Cells, Irradiated $[l]
Directed Donor Single Donor Platelets, Leukocyte Reduced $[l]
Directed Donor Single Donor Platelets, Leukocyte Reduced, Irradiated $[l]
Autologous Donor Red Blood Cells $[l]
Autologous Donor Red Leukocyte Reduced Red Blood Cells $[l]
Leukocyte Reduced Single Donor Platelets $[l]
Leukocyte Reduced Single Donor Platelets, Pediatric Unit $[l]
Allogeneic Red Blood Cells $[l]
Allogeneic Red Blood Cells, Irradiated $[l]
Allogeneic Red Blood Cells, Irradiated, CMV- $[l]
Allogeneic Leukocyte Reduced Red Blood Cells $[l]
Allogeneic Leukocyte Reduced Red Blood Cells, Irradiated $[l]
Allogeneic Leukocyte Reduced Red Blood Cells, Irradiated, CMV-           $[l]
Fresh Frozen Plasma $[l]
Cryoprecipitate $[l]
Cryo-Poor Plasma $[l]
Therapeutic Phlebotomy $[l]
ADDITIONAL SERVICES  
CMV Negative Screening Per Unit $[l]

 

 

1 Terms represented by this symbol are considered confidential. These confidential terms have been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission (“SEC”) and have been filed separately with the SEC. 

 

 

14
 

 

Irradiation Fee Per Unit $[l]2
STAT Distribution Fee Per Order [l] $[l]

 

Effective 05-01-04

 

2 Terms represented by this symbol are considered confidential. These confidential terms have been omitted pursuant to a Confidential Treatment Request filed with the SEC and have been filed separately with the SEC. 

 

15
 

 

ATTACHMENT II

ESTIMATED HOSPITAL DEMAND FOR SERVICES

Hospitals agree to purchase from HemaCare all Allogeneic units of blood and blood products collected and produced on its behalf (including FFP) through the USC Blood Donor Center and/or Community Mobile Blood Drives, as shown below:

Monthly Volumes:

Hospital # Allogeneic RBC's Per Month (a) # Allogeneic
Leukoreduced
RBC's Per Month (b)		 Allogeneic Red
Blood Cells
(a+b)

 

 

# FFP Per
Month

 

# Single Donor
Platelets per
Month

USC/Kenneth Norris Jr. Cancer Hospital [l]3 [l] [l] [l] [l]
USC University
Hospital		 [l] [l] [l] [l] [l]
Total [l] [l] [l] [l] [l]

 

1.Hospital purchases may be combined to equal total monthly volumes.
2.The Hospitals will accept the first [l] allogeneic Red Blood Cells, the first [l] allogeneic leukoreduced Red Blood Cells, and the first [l] units of FFP per month. If Hospitals cannot use the minimum number of units, but are obligated to purchase units, Hospitals have the right to direct purchased (unused) units to another Southern California hospital in Los Angeles or Orange Counties. The quantity and the schedule of delivery of the blood products shall be determined by Hospitals. In no circumstances, however may delivery extend beyond seven days of date of product availability.
3.The Hospitals guarantee to purchase from HemaCare a minimum of [l] Leukocyte Reduced Single Donor Platelets per month. If Hospitals do not purchase [l] Single Donor Platelets monthly, the Hospitals will be billed for each unit not purchased up to [l] units per month.

 

16
 

ATTACHMENT III

RETURN/CREDIT POLICY

Subject to the terms and conditions of this Attachment III, the Hospital may return Blood to HemaCare for a full or partial credit based upon quality assurance findings as follows:

A. Damaged Blood: If Blood arrives to the Hospital: (1) in a damaged condition, or (2) in a condition rendering the Blood unsuitable for transfusion, then Hospital may return such Blood to HemaCare (or discard the Blood upon HemaCare's request) for full or partial credit based upon quality assurance findings. HemaCare shall maintain responsibility for any shipping costs associated with such returns.

B. Recalled or Withdrawn Blood: In the event HemaCare or FDA or other regulatory agency requires HemaCare to withdraw or recall Blood, Hospital shall return the Blood to HemaCare in accordance with Section C of this Attachment HI for full or partial credit based upon quality assurance findings. HemaCare shall maintain responsibility for any shipping costs associated with such returns.

C. Reporting and Documentation of Returns: Before returning Blood to HemaCare for any reason, Hospital shall contact HemaCare at 818-986-3977. All shipments of returned Blood must be accompanied by a completed Shipping and Distribution Record for Blood Products Form (HemaCare SO. 117) provided by HemaCare. The individual completing the Form certifies that: (1) the returned Blood has not been out of control of the Hospital's blood bank, (2) the Blood has been continuously stored at the appropriate temperature in accordance with the Code of Federal Regulations, and (3) Hospital has examined the Blood and found it satisfactory for issue.

D. Storage Requirements: In order to return platelets suitable for transfusion, Hospital shall always:

1. store platelet products at 20 to 24C with constant agitation.

2. maintain control over access to the platelet products and authorization to remove the platelet products.

3. utilize storage devices that are capable of maintaining proper storage temperatures.

4. continuously monitor storage temperatures for all platelet products. If a continuous monitoring device is not used, temperatures must be recorded every 4 hours.

5. ensure that returned platelets have adequate segments for crossmatch.

E. Amount of Credit/Refund: The credit/refund shall not exceed the original Fee paid by Hospital to HemaCare.

F. Compliance: Hospital shall comply with the requirements of the Code of Federal Regulations as related to the storage of Blood.

G. Return Fee: Hospital will be permitted to return two Allogeneic Leukocyte Reduced Single Donor Platelets per month. Returns of product greater than the specified number will be charged a restocking fee of $200.00 per unit. Hospital must notify HemaCare of all platelet returns; thirty- six hours or more must remain on the platelet product for return. Return privilege and fees are subject to change without notice.

17
 

ATTACHMENT IV

BLOOD SERVICES

DEPOT HOSPITAL AGREEMENT

HemaCare agrees to provide status to USC University (Hospital) as a depot for Platelet Pheresis unit storage.

Terms and Conditions:

1. Platelet Pheresis units are delivered to the Hospital blood bank after testing as described in the Blood Services Agreement.

2. HemaCare's Hospital Services staff will check with the Hospital blood bank daily for needs and disposition of products.

3. When a product is used for a patient, the Hospital is then invoiced.

4. When a product is approaching 36 hours of dating remaining, the blood bank has the option of returning the product to HemaCare, subject to conditions listed in 6 below.

5. If the Hospital blood bank chooses to keep products with less than 36 hours dating, the product then becomes the Hospital's responsibility.

6. Hospital will be permitted two (2) product returns per month. Returns of product greater than the specified number will be charged a re-stocking fee of $200.00 per unit. HemaCare's product return policy and restocking fees are subject to change without notice.

7. If a platelet pheresis unit(s) is ordered and delivered as STAT, the platelet pheresis is not returnable to HemaCare.

8. Hospital agrees to store platelets in accordance with all applicable California State Department of Health Services, Federal FDA and AABB standards and/or regulations. Temperature will be maintained at 20 -24 C and platelets will be continuously agitated by means of a platelet agitator or rotator. Hospital agrees to permit periodic audits performed by HemaCare to ensure compliance with storage requirements.

9. Maintenance of Depot Status is dependent upon the Hospital using an average of 102 Platelet Pheresis units per month that are obtained from HemaCare.

 

18

EX-10 3 ex10-26.htm

Exhibit 10.26

 

FIRST AMENDMENT TO THE

BLOOD DONOR CENTER MANAGEMENT

COMMUNITY MOBILE BLOOD COLLECTIONS SERVICES
AGREEMENT

This FIRST AMENDMENT is entered into by and between USC University Hospital, Inc., doing business as USC University Hospital (“Hospital”), a medical center located at 1500 San Pablo Street, Los Angeles, California 90033 and HemaCare Corporation (“HemaCare”), located at 21101 Oxnard Street, Woodland Hills, California 91367.

 

RECITALS

A.               Hospital and HemaCare are parties to that certain Services Contract (the “Agreement”) effective May 1, 2004.

B.                Hospital and HemaCare desire to amend the terms of the Agreement as set forth herein below.

NOW, THEREFORE, the parties hereto, based upon the above recitals and the covenants and conditions set forth herein, agree as follows:

1.                                      TERM AND TERMINATION. Section VI, paragraph A of the Agreement shall be amended as follows:

This agreement shall commence May 1, 2006 and continue for a term of one (1) year.

2.                                      HEMACARE'S COMPENSATION. For Services rendered pursuant to this Agreement, Hospital shall pay HemaCare in accordance with the attached revised Fee Schedule, Attachment I.

3.                                      ESTIMATED HOSPITAL DEMAND FOR SERVICES. Hospital agrees to purchase from HemaCare all allogeneic units of blood and blood products collected and produced on its behalf in accordance with the attached revised page 14 of the Agreement, Attachment II.

4.                                      GENERAL. If provisions of this Amendment and the Agreement conflict, the provisions of this Amendment shall prevail. Except as specifically amended herein, all terms and conditions of the Agreement shall remain in full force and effect.

THE PARTIES HERETO have executed this Amendment on the 7th day of March, 2006.

USC UNIVERSITY HOSPITAL   HEMACARE CORPORATION
         
/s/ Ted Schreck    /s/ Judi Irving
By: Ted Schreck   By: Judi Irving
Title: Chief Executive Officer   Title: Chief Executive Officer

 

 

 

Attachment I

USC UNIVERSITY HOSPITAL
BLOOD SERVICES FEE SCHEDULE
Hospital Services Direct Order Lines

800-826-7962 or 818-986-3977

COMPONENT Fees Per Unit  
Directed Donor Red Blood Cells $[l]1
Directed Donor Leukocyte Reduced Red Blood Cells $[l]
Directed Donor Leukocyte Reduced Red Blood Cells, Irradiated $[l]
Directed Donor Single Donor Platelets, Leukocyte Reduced $[l]
Directed Donor Single Donor Platelets, Leukocyte Reduced, Irradiated $[l]
Autologous Donor Red Blood Cells $[l]
Autologous Donor Red Leukocyte Reduced Red Blood Cells $[l]
Leukocyte Reduced Single Donor Platelets $[l]
Leukocyte Reduced Single Donor Platelets, Pediatric Unit $[l]
Allogeneic Red Blood Cells $[l]
Allogeneic Red Blood Cells, Irradiated $[l]
Allogeneic Red Blood Cells, Irradiated, CMV- $[l]
Allogeneic Leukocyte Reduced Red Blood Cells $[l]
Allogeneic Leukocyte Reduced Red Blood Cells, Irradiated $[l]
Allogeneic Leukocyte Reduced Red Blood Cells, Irradiated, CMV- $[l]
Fresh Frozen Plasma $[l]
Cryoprecipitate $[l]
Cryo-Poor Plasma $[l]
Therapeutic Phlebotomy $[l]
ADDITIONAL SERVICES  
CMV Negative Screening Per Unit $[l]
Irradiation Fee Per Unit $[l]
STAT Distribution Fee Per Order [l]
Courier Services in Addition to Normal Delivery $[l]

Subject to terms and conditions in Blood Donor Center Management Community Mobile Blood Collections Services Agreement. Prices in effect through 04-30-07.

Effective 05-01-06

 

1 Terms represented by this symbol are considered confidential. These confidential terms have been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission (“SEC”) and have been filed separately with the SEC.

 

ATTACHMENT II
ESTIMATED HOSPITAL DEMAND FOR SERVICES

Hospitals agree to purchase from HemaCare all Allogeneic units of blood and blood products collected and produced on its behalf (including FFP) through the USC Blood Donor Center and/or Community Mobile Blood Drives, as shown below:

Monthly Volumes:

Hospital # Allogeneic RBC's Per Month (a) # Allogeneic
Leukoreduced
EEC's Per Month (b)		 Allogeneic Red
Blood Cells
(a+b)

 

# FFP Per
Month

 # Single Donor
Platelets per
Month
USC/Norris Comprehensive
Cancer Center		 [l]2 [l] [l] [l] [l]
USC University
Hospital		 [l] [l] [l] [l] [l]
Total [l] [l] [l] [l] [l]

 

1.      Hospital purchases may be combined to equal total monthly volumes.

2.      The Hospitals will accept the first [l] allogeneic Red Blood Cells, the first [l] allogeneic leukoreduced Red Blood Cells, and the first [l] units of FFP per month. If Hospitals cannot use the minimum number of units, but are obligated to purchase units, Hospitals have the right to direct purchased (unused) units to another Southern California hospital in Los Angeles or Orange Counties. The quantity and the schedule of delivery of the blood products shall be determined by Hospitals. In no circumstances, however may delivery extend beyond seven days of date of product availability.

3.      The Hospitals guarantee to purchase from HemaCare a minimum of [l] Leukocyte Reduced Single Donor Platelets per month. If Hospitals do not purchase [l] Single Donor Platelets monthly, the Hospitals will be billed for each unit not purchased up to [l] units per month.

 

 

 

2 Terms represented by this symbol are considered confidential. These confidential terms have been omitted pursuant to a Confidential Treatment Request filed with the SEC and have been filed separately with the SEC.

 

 

 EX-10 4 ex10-27.htm

Exhibit 10.27

SECOND AMENDMENT TO THE

BLOOD DONOR CENTER MANAGEMENT

COMMUNITY MOBILE BLOOD COLLECTIONS

SERVICES AGREEMENT

This SECOND AMENDMENT is entered into by and between USC University Hospital, Inc., doing business as USC University Hospital (“Hospital”), a medical center located at 1500 San Pablo Street, Los Angeles, California 90033 and HemaCare Corporation (“HemaCare”), located at 15350 Sherman Way, Suite 350, Van Nuys, California 91406.

RECITALS

A.              Hospital and HemaCare are parties to that certain Services Contract (the “Agreement”) effective May 1, 2004.

B.              Hospital and HemaCare desire to amend the terms of the Agreement as set forth herein below.

NOW, THEREFORE, the parties hereto, based upon the above recitals and the covenants and conditions set forth herein, agree as follows:

1.                                      TERM AND TERMINATION. Section VI, paragraph A of the Agreement shall be amended as follows:

This agreement shall commence May 1, 2007 and continue for a term of two (2) years.

2.                                      HEMACARE'S COMPENSATION. For Services rendered pursuant to this Agreement, Hospital shall pay HemaCare in accordance with the attached revised Fee Schedule, Attachment “I.” HemaCare will provide Hospital with thirty (30) days written notice of any fee changes. Fees for the second year of the Agreement will be negotiated at the end of year one.

3.                                      GENERAL. If provisions of this Amendment and the Agreement conflict, the provisions of this Amendment shall prevail. Except as specifically amended herein, all terms and conditions of the Agreement shall remain in full force and effect.

THE PARTIES HERETO have executed this Amendment on the 10th day of April, 2007.

USC UNIVERSITY HOSPITAL   HEMACARE CORPORATION
         
/s/ S. Walsh   /s/ Judi Irving
By: S. Walsh   By: Judi Irving
Title: COO   Title: Chief Executive Officer

 

 

Attachment I

USC/NORRIS COMPREHENSIVE CANCER CENTER
BLOOD SERVICES FEE SCHEDULE

Hospital Services Direct Order Lines

800-826-7962 or 818-986-3977

COMPONENT Fees Per Unit  
Directed Donor Red Blood Cells $[l]1
Directed Donor Leukocyte Reduced Red Blood Cells $[l]
Directed Donor Leukocyte Reduced Red Blood Cells, Irradiated $[l]
Directed Donor Single Donor Platelets, Leukocyte Reduced $[l]
Directed Donor Single Donor Platelets, Leukocyte Reduced, Irradiated $[l]
Autologous Donor Red Blood Cells $[l]
Autologous Donor Red Leukocyte Reduced Red Blood Cells $[l]
Leukocyte Reduced Single Donor Platelets $[l]
Leukocyte Reduced Single Donor Platelets, Pediatric Unit $[l]
Allogeneic Red Blood Cells* $[l]
Allogeneic Red Blood Cells, Irradiated $[l]
Allogeneic Red Blood Cells, Irradiated, CMV- $[l]
Allogeneic Leukocyte Reduced Red Blood Cells $[l]
Allogeneic Leukocyte Reduced Red Blood Cells, Irradiated $[l]
Allogeneic Leukocyte Reduced Red Blood Cells, Irradiated, CMV- $[l]
Fresh Frozen Plasma $[l]
Cryoprecipitate $[l]

 

 

 

 

1 Terms represented by this symbol are considered confidential. These confidential terms have been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission (“SEC”) and have been filed separately with the SEC.

 

 

 

 

 

Cryo-Poor Plasma $[l]2
Therapeutic Phlebotomy $[l]
ADDITIONAL SERVICES  
CMV Negative Screening Per Unit $[l]
Irradiation Fee Per Unit $[l]
STAT Distribution Fee Per Order [l]
Courier Services in Addition to Normal Delivery $[l]

(No charge for transfers between USC/Norris Hospitals during normal business hours)

Subject to terms and conditions in Blood Donor Center Management Community Mobile Blood Collections Services Agreement. Pricing in effect thru 04-30-08.

Effective 05-01-07

 

 

 

2 Terms represented by this symbol are considered confidential. These confidential terms have been omitted pursuant to a Confidential Treatment Request filed with the SEC and have been filed separately with the SEC.

 

 

 EX-10 5 ex10-28.htm

Exhibit 10.28

THIRD AMENDMENT TO THE
BLOOD DONOR CENTER MANAGEMENT
COMMUNITY MOBILE BLOOD COLLECTIONS
SERVICES AGREEMENT

This THIRD AMENDMENT (the “THIRD AMENDMENT”) is entered into as May 1, 2009 (the “Amendment Effective Date”) by and between University of Southern California, on behalf of USC University Hospital (“Hospital”), a medical center located at 1500 San Pablo Street, Los Angeles, California 90033 and HemaCare Corporation (“HemaCare”), located at 15350 Sherman Way, Suite 350, Van Nuys, California 91406.

RECITAL

A. USC University Hospital, Inc. (“USCUH”) and HemaCare entered into that certain Blood Donor Center Management and Community Mobile Blood Collections Services Agreement effective May 1, 2004, which was amended by the First Amendment effective May 1, 2006, and further amended by the Second Amendment effective May 1, 2007, which collectively is referred to as the “Agreement”.

B. Pursuant to the Asset Purchase Agreement among USCUH, Tenet Healthsystem Norris, Inc. and the University of Southern California, dated February 9, 2009, Hospital assumed the Agreement from USCUH, effective April 1, 2009.

C. Hospital and HemaCare desire to amend the terms of the Agreement as set forth herein below.

NOW, THEREFORE, the parties hereto, based upon the above recitals and the covenants and conditions set forth herein, agree as follows:

1. TERM AND TERMINATION. Section VI, paragraph A of the Agreement shall be amended and is replaced in its entirety as follows:

This agreement shall commence May 1, 2009 and continue for a term of two (2) years.

2. HEMACARE'S COMPENSATION. For Services rendered on or after May 1, 2009 pursuant to this Agreement, Hospital shall pay HemaCare in accordance with the revised Fee Schedule, Attachment “I,” attached hereto and made part hereof by this reference. At the end of the initial twelve (12) months of this contract term, the parties agree to meet and confer regarding the fees for services rendered during the remainder of the term. Any modifications to the Fee Schedule shall take effect only upon mutual written agreement of both parties and shall apply to services rendered on or after the date of such mutual written agreement.

3. GENERAL. If provisions of this Amendment and the Agreement conflict, the provisions of this Amendment shall prevail. Except as specifically amended herein, all terms and conditions of the Agreement shall remain in full force and effect.

4. LIMITED EXCLUSIVITY. Section V, paragraph E of the Agreement shall be amended and is replaced in its entirety as follows:

1
 

 

It is agreed and acknowledged by the parties that, as an independent contractor, HemaCare retains the right to contract with and provide services to entities and individuals other than Hospital and its patients, and nothing in this Agreement be interpreted as limiting or restricting in any way HemaCare's right to do so. Hospital agrees that HemaCare will be the sole outside provider of the described Blood Donor Center and Community Mobile Blood Drive Program during the term of this Agreement and Hospital agrees not to contract with any other third party to conduct the Services contemplated by this Agreement, unless HemaCare is unable to meet and/or perform its obligations under this Agreement or as otherwise provided herein. Nothing in the foregoing sentence shall prohibit Hospital from purchasing blood products from any vendor at any time. Upon mutual written agreement of both parties HemaCare may open complimentary Donor Centers for benefit of the Hospital.

5. NON-SOLICITATION. Section VIII, paragraph C of the Agreement shall be amended and is replaced in its entirety as follows:

HemaCare and Hospital mutually agree not to solicit each other's employees, except upon written permission. The prohibition period for non-solicitation will extend for twenty-four (24) months post-HemaCare or Hospital employment and for twenty-four (24) months after the termination off this agreement. The penalty for breach will be an amount equal to the employee's annual compensation prior to termination of services with the aggrieved party. Nothing in the foregoing covenant shall restrict either party from entering into employment discussions with an employee of the other party who initiates such discussions.

6. ASSIGNMENT. Section VIII, paragraph F of the Agreement shall be amended and is replaced in its entirety as follows:

Neither party may assign this Agreement, nor the rights and obligations therein, to a third party without the express written consent of the other party; however, either party may assign this Agreement, and its rights and obligations therein, to any individual or entity that purchases all or substantially all of either party's assets or stock, or any entity that succeeds to a merger between either party and another entity or entities, or to any entity controlled by either party, or to any entity controlling either party, or any entity under common control with either party.

7. LIMITATION OF LIABILITY. Section VIII, paragraph K, shall be added and incorporated to the Agreement as follows:

The parties acknowledge and agree that both Hospital and HemaCare shall only be entitled to reasonably foreseeable direct damages, if any, which arise from (i) any indemnification provision under this Agreement, as amended, (ii) any beach of any provision under this Agreement, as amended, and (iii) any breach under Section VIII, paragraph C of the Agreement, as amended, which relates to the non-solicitation of employees and the penalty associated therewith. Except for direct damages as provided in the preceding sentence, to the maximum extent permitted by law, it is the intent of the parties that neither Hospital nor HemaCare shall be responsible for any incidental, consequential, indirect, special, punitive or exemplary damages of any kind, including damages for lost goodwill, lost profits, lost business or other indirect damages based on contract, negligence, tort (including strict liability) or other legal theory, as a result of a breach of any warranty or any other term of this Agreement, and regardless of whether a party was advised or had reason to know of the possibility of such damages in advance.

2
 

 

UNIVERSITY OF SOUTHERN CALIFORNIA, on behalf of USC UNIVERSITY HOSPITAL   HEMACARE CORPORATION
         
/s/ Scott Evans   /s/ John Doumitt
By: Scott Evans, PharmD.   By: John Doumitt
Title: Chief Operating Officer   Title: Chief Executive Officer
Date:     Date:   7/31/09

 

3
 

 

HEMACARE CORPORATION
BLOOD PRODUCTS FEE SCHEDULE
USC UNIVERSITY HOSPITAL
Hospital Services Direct Order Lines
800-826-7962 OR 818-986-3977

COMPONENT FEE PER UNIT
Platelet Pheresis, Leukoreduced $[l]1
    Two (2) free returns per month. Additional returns at $200.00 per unit restocking fee  
Platelet Pheresis, Leukoreduced, Pediatric Unit $[l]
    Special order non-returnable.  
Red Blood Cells $[l]
Leukoreduced Red Blood $[l]
Directed Platelet Pheresis $[l]
Directed Red Blood Cells $[l]
Directed Leukoreduced Red    $[l]
Autologous Red Blood Cells* $[l]
Autologous Leukoreduced Red Blood $[l]
ADDITIONAL SERVICES  
Special Distribution Surcharge $[l]
    Charged for product pick-up or transfer  

NOTE:

*All autologous and directed donor services provided at the HemaCare Blood & Platelet Donor Center and the USC Blood Donor Center.

  EFFECTIVE DATE:  5-1-09 to 4-30-101

 

CONFIDENTIAL INFORMATION

5

 

 

1 Terms represented by this symbol are considered confidential. These confidential terms have been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission (“SEC”) and have been filed separately with the SEC.

 

4
 

 

HCC# 195

Attachment A
BLOOD PRODUCTS FEE SCHEDULE
USC UNIVERSITY HOSPITAL
Hospital Services Direct Order Lines
800-826-7962 OR 818-986-3977

COMPONENT FEE PER UNIT
Platelet Pheresis, Leukoreduced  $[l]2
    Hospital must purchase an average of 300 platelets per month to maintain Depot Status. No restocking fee applies.  
Platelet Pheresis, Leukoreduced, Pediatric Unit $[l]
   Special order non-returnable.  
Red Blood Cells  $[l]
Leukoreduced Red Blood Cells $[l]
Fresh Frozen Plasma $[l]
Cryoprecipitate    $[l]
Cryo-Poor Plasma  $[l]
Directed Platelet Pheresis, Leukoreduced* $[l]
Directed Red Blood Cells* $[l]
Directed Leukoreduced Red Cells* $[l]
Autologous Red Blood Cells* $[l]
Autologous Leukoreduced Red Blood Cells* $[l]
ADDITIONAL SERVICES  
Irradiation $[l]
CMV Negative Screening  $[l]
Shipping & Handling [l]
STAT Delivery [l]
Special Distribution Surcharge $[l]
    Charged for product pick-up or transfer  

NOTE:

All autologous and directed donor services provided at the HemaCare Blood & Platelet Donor Center and the USC Blood Donor Center.

 

  EFFECTIVE DATE:    9110/20101

  

 

CONFIDENTIAL INFORMATION

 

2 Terms represented by this symbol are considered confidential. These confidential terms have been omitted pursuant to a Confidential Treatment Request filed with the SEC and have been filed separately with the SEC.

 

5

 

 EX-10 6 ex10-29.htm

Exhibit 10.29

LETTERHEAD

HEMACARE CORPORATION
THERAPEUTIC APHERESIS SERVICE AGREEMENT

This Agreement is entered into this 30 day of January 2003 (effective date), between HemaCare Corporation ("HemaCare") 21101 Oxnard Street, Woodland Hills, CA 91367, and Kenneth Norris Jr. Cancer Hospital ("Hospitals") located in Los Angeles, California. This Agreement shall continue, month-to-month, from the effective date, and may be terminated by either party upon thirty (30) days prior written notice.

DESCRIPTION OF SERVICES

HemaCare provides Therapeutic Hemapheresis (TA) and Stem Cell services to Hospitals and health care facilities upon the order of a Hospital staff physician when a physician determines service is clinically indicated.

To address the clinical needs of patients, HemaCare can provide the following services:

4 Therapeutic Plasma Exchange (Plasmapheresis)

4 White cell reduction (Leukapheresis)

4 Platelet reduction (Plateletcytapheresis)

4 Red cell exchange/reduction (Erythrocytapheresis)

4 Peripheral Blood Stem Cell Collection

4 lmmunoadsorption

4 Photopheresis

Professional supervision of apheresis services will be provided by qualified physicians who are on staff at the Hospital and who have completed designated clinical training requirements of HemaCare's Educational Services Department.

I. HEMACARE AGREES TO:

A. Provide TH services seven days a week, 24 hours a day. Response time requires 24-hour prior notice from Hospital for regularly scheduled cases, Emergency services requested with less than 24-hour notice will be provided subject to prior commitment.

B. Stem cell collection to be scheduled with 24-hour prior notice.

 
 

 

B. Stem cell collection to be scheduled with 24-hour prior notice.

C. Provide cell separator instrumentation in compliance with all applicable regulatory standards. HemaCare will be responsible to assure that the stated equipment is maintained in accordance with manufacturer's recommendations. All equipment will be available to the Hospital biomedical department, prior to use, to obtain authorization for use within the Hospital. Documentation of preventative maintenance will be kept at HemaCare's office and will be available for inspection by Hospital upon request.

D. Provide all disposable supplies required for a TA and stem cell procedure and comply with Hospital's regulations for the disposal of such supplies and waste products.

E. Provide all replacement fluids and solutions used in the TA and stem cell procedure, as specified by the physician ordering the procedure.

F. Assure that all nurses will have current state licenses, current CPR certification and annual health clearance as required by Title 22.

G. Assure that all nurses undergo training and will perform services in accordance with HemaCare's Standard Operating Procedures, and are knowledgeable of and comply with patient's rights as defined in the California Administrative Code.

H. Assume sole and exclusive responsibility for payment of all HemaCare staff wages, withholding of all federal and state taxes, unemployment insurance and maintaining worker's compensation coverage in an amount and under such terms as are required by the California Labor Codes.

I. Maintain Standard Operating Procedures governing all activities in compliance with regulatory agencies.

J. Utilize written orientation material when provided by the Hospital to assure that all HemaCare personnel providing direct care to patients are instructed in the Hospital's procedures. HemaCare personnel will comply with Hospital's emergency, fire or other disaster policies.

K. A procedure will be discontinued if a power failure lasts longer than thirty (30) minutes.

L. Maintain professional liability insurance and will deliver to the Hospital a certificate of insurance evidencing the coverage of $2,000,000 per claim and annual aggregation of $5,000,000.

M. Provide equal employment opportunities for all qualified employees and applicants and will not discriminate on the basis of race, color, sex, age, religion, national origin or handicap in providing service under this agreement.

 
 

 

N. Access to all Books and Records by the Secretary of the Department of Health and Human Services or his designee pertaining to the provision of services by HemaCare Corporation under this Agreement and in accordance with Section 952 of the Omnibus Reconciliation Act of 1980.

II. HOSPITAL AGREES TO:

A. Maintain professional and administrative responsibility for the care of its patients except as otherwise defined within this agreement as an obligation of HemaCare.

B. Provide request/order to HemaCare for services 24 hours in advance, except in emergency (life-threatening) situations.

C. Provide verification that Hospital's biological waste disposal system complies with, and is approved by, local, State or Federal agencies.

D. Provide a facility orientation packet to include emergency and internal communication procedures.

E. Provide payment in full to HemaCare within 30 days of receipt of invoice and in accordance with HemaCare's current Therapeutic Apheresis Fee Schedule (attached as Exhibit 1). The Fee Schedule may be amended with 30 days prior written notice to the Hospital.

III. INDEMNIFICATION

A. HemaCare is an independent contractor and not a partner or joint venture with Hospital. HemaCare agrees to indemnify Hospital against, and hold it harmless from, any and all liabilities resulting from negligence in rendering services hereunder by HemaCare, its agents or employees.

B. Hospital agrees to indemnify HemaCare against and hold it harmless from any and all liabilities resulting from negligence in rendering such services by Hospital, its agents or employees.

C. The persons signing this agreement on behalf of their respective parties represent that they have the authority to enter into this agreement.

D. This agreement shall be construed under the laws of the State of California.

 
 

 

For information contact:

Nurit Degani, RN, BS, HP (ASCP) Director of Therapeutic Services

HemaCare Corporation

21101 Oxnard Street

Woodland Hills, CA 91367

818-728-8873 or 818-251-5315

 

For Hospital:   For HemaCare:
     
/s/ Catherine VanWert   /s/ Nurit Degani
     
Catherine VanWert   Nurit Degani
Type or Print Name   Type or Print Name
     
Associate Administrator   Director of Therapeutic Services
Title   Title
     
January 30, 2003   January 28, 2003
Date   Date

 

 
 

Exhibit 1

THERAPEUTIC APHERESIS SERVICES FEE SCHEDULE
KENNETH NORRIS JR. CANCER HOSPITAL

Base Fee Per Procedure:  
  Therapeutic Plasma Exchange $[l]1
  Therapeutic Cytapheresis $[l]
  Autologous Stem Cells Harvesting $[l]
  lmmunoadsorption Column $[l]
  Photopheresis $[l]
Includes all equipment, disposables, saline, anticoagulants, procedure time (up to five hours) on orders received with at least 24 hours notice.
Supplemental Fees:  
  Protein Replacement Fluids (per unit) $[l]
  Initial Patient Set-up $[l]
  Weekend/Holiday Procedure $[l]
  Emergency Procedure (less than 24 hours notice) $[l]
  Extended Procedure Time (over 5 hours) per half hour $[l]
  Filter 20 Micron $[l]
  Catheter Dressing Kit $[l]
Canceled Procedure Fees:  
· Procedure canceled with less than 2 hours notice to HemaCare $[l]
· Procedure canceled before access is achieved:  
     Basic set-up charge $[l]
     RN time (per half hour) $[l]
· lmmunoadsorption Column  
       As above plus Column charge $[l]
· Photopheresis  
       As above plus photopheresis supply charge $[l]
Non-Completion (Aborted Procedure):  
· Procedure terminated alter collection has begun, but prior to completion as ordered.  
       Basic set-up charge $[l]
       RN time (per half hour) $[l]
       Plus additional supplies used.  

Procedure will be charged at full rate if 500 cc (or more) of plasma has been collected.

 

1 Terms represented by this symbol are considered confidential. These confidential terms have been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission (“SEC”) and have been filed separately with the SEC.

 

 
 

 

 EX-10 7 ex10-30.htm

Exhibit 10.30

1st AMENDMENT TO SERVICES AGREEMENT

THIS 1ST AMENDMENT TO SERVICES AGREEMENT (the “Amendment”) is made and entered into between Tenet Healthsystem Norris, Inc., a California corporation, doing business as USC/Kenneth Norris Jr. Cancer Hospital (“Hospital”) and HemaCare Corporation, a California corporation (“HemaCare”).

RECITALS

A. Hospital and HemaCare are parties to that certain Services Agreement effective January 30, 2003 (the “Agreement”) for the provision of Therapeutic Hemapheresis (TA) and Stem Cell services (the “Services”); and

B. Hospital and HemaCare desire to amend certain terms and conditions of the Agreement regarding Term and Termination as set forth herein below.

NOW THEREFORE, in consideration of the foregoing premises and for valuable consideration the receipt of which is acknowledged by the parties, Hospital and Provider agree to amend the Agreement as follows:

1. Deletion of reference to Agreement Term as month-to-month and condition of termination by either party from lead paragraph.

2. Addition of - “III. E. Term.

The extended term of this Agreement (“Extended Term”) shall be two (2) years, commencing on April 1, 2006 through March 31, 2008, and may be renewed for an additional two-year term (“Renewal Term”) upon mutual and written agreement of the parties. Collectively, the Extended Term and the Renewal Term are referred to herein as the “Term”.”

3. Addition of - “III. F. Termination.

Termination Without Cause. At any time during the Term of this Agreement, either party may, in its sole discretion, terminate this Agreement without cause by giving the other party at least 30 days' prior written notice. If such notice is given by Hospital, Hospital may, in its sole discretion, at any time prior to the effective date of such termination, relieve HemaCare of HemaCare's duties hereunder as long as Hospital continues to perform its obligations under this Agreement until the effective date of such termination.”

4. GENERAL. If provisions of this Amendment and the Agreement conflict, the provisions of this Amendment shall prevail. Except as specifically amended herein, all terms and conditions of the Agreement shall remain in full force and effect.

[SIGNATURES FOLLOW ON NEXT PAGE] 

 
 

TENET HEALTHSYSTEM NORRIS, INC.,   HEMACARE CORPORATION,
A CALIFORNIA CORPORATION,   A CALIFORNIA CORPORATION
D/B/A USC/KENNETH NORRIS JR.
CANCER HOSPITAL		      
         
         
By: /s/ Ted Schreck   By: /s/ Judi Irving
Name: Ted Schreck   Name: Judi Irving
Title: Chief Executive Officer   Title: President and CEO
Date: 4/4/06   Date: 3/28/06

 

 

 
 

ADDENDUM TO THE

THERAPEUTIC APHERESIS SERVICES AGREEMENT

 

RECORD RETENTION FOR CELLULAR THERAPY PRODUCT ADMINISTRATION

This ADDENDUM TO THE THERAPEUTIC APHERESIS SERVICES AGREEMENT between HemaCare Corporation/Coral Blood Services and Tenet Healthsystem Norris, Inc., a California corporation, d/b/a USC Kenneth Norris Jr. Cancer Hospital (“Hospital”) specifies the Record Retention requirements for Cellular Therapy Product Administration.

Hospital agrees to create and maintain records as follows:

  Minimum Retention
Record             Time in Years
   
Administration product verification, including: 10
    1. Recipients name and identifier(s).  
    2. Product identifier(s).  
    3. Names and/or identifiers of persons verifying that the product is the product intended for the patient.  
    4. Name and/or identifier of the person administering the product.  
    5. Date and time that product administration was initiated  
   
Records of administration: 10
   1. Date and time that product administration was completed.  
   2. Names and/or identifiers of persons who administered the product.  
   3. Whether any adverse reactions occurred and reference to appropriate documentation of adverse reaction forms.  
   4. Product type.  
   5. Unique product identifier(s).  
   6. Name and identifiers) for the intended recipient, if applicable.  
   7. Date and time of issue.  
   8. Name and affiliation of the person issuing the product.  
   9. Name and affiliation of the person to whom the product was issued.  
   10. Visual inspection before administration.  
   11. All pertinent administration event information, including the patient's vital signs and the time of all recorded events.  

 

 
 

 

 

  Minimum Retention
Record             Time in Years
   
Autologous recipient records, including: Indefinite
    1. Patient identification and diagnosis.  
   2. Medical history and physical examination.  
   3. Informed consent.  
   4. Interpretation of ABO group and Rh type and tests for infectious disease markers.  
   5. Any adverse reaction suspected to be linked to the cellular therapy product administration.  
   6. Outcomes of transplantation, including engraftment data on the HPC transplant recipient.  
   7. Any data required to be maintained by IRB-, IND-, IDEapproved, or other protocol.  
   
Allogeneic recipient records, including: Indefinite
    1. Patient identification and diagnosis.  
   2. Medical history and physical examination.  
   3. Informed consent.  
   4. Interpretation of ABO group and Rh type and tests for infectious disease markers; detection and identification of unexpected red cell antibodies; HLA determinations; and red cell compatibility testing with the intended donor.  
   5. Any adverse reaction suspected to be linked to the product administration.  
   6. Outcomes of transplantation, including engraftment data on the recipient.  

 

THE PARTIES HERETO have executed this Addendum on the 19 day of Sept, 2006.

HOSPITAL   HEMACARE CORPORATION
  CORAL BLOOD SERVICES
     
/s/ Debbie Walsh   /s/ Judi Irving
Debbie Walsh   Judi Irving
Administrator/Chief Operating Officer   Chief \ Executive Officer

 

 

 EX-10 8 ex10-31.htm

Exhibit 10.31

SECOND AMENDED AND RESTATED SERVICES AGREEMENT

THIS SECOND AMENDED AND RESTATED SERVICES AGREEMENT (the “Amendment”) is made and entered into as of the later of April 1, 2008, or the execution of the Agreement by both parties (the “Effective Date”) between, Tenet Healthsystem Norris, Inc., a California corporation, doing business as USC/Kenneth Norris Jr. Cancer Hospital (“Hospital”) and HemaCare Corporation, a California corporation (“HemaCare”).

RECITALS

A. Hospital and HemaCare are parties to that certain Services Agreement effective January 30, 2003, and its subsequent l Amendment To Services Agreement effective April 1, 2006 (the “Prior Agreement”) for the provision of Therapeutic Hemapheresis (TA) and Stem.Cell services (the “Services”); and

B. Hospital and HemaCare desire to mutually extend the term of the Prior Agreement and otherwise to amend and restate the Prior Agreement as set forth herein in such capacity.

Now, THEREFORE, in consideration of the foregoing premises and for valuable consideration the receipt of which is acknowledged by the parties, Hospital and HemaCare agree to amend the Agreement as follows:

1. Section I is deleted, restated and incorporated herein and made a part of the Prior Agreement as follows:

“I. HEMACARE'S RESPONSIBILITY: HemaCare shall be responsible for providing the following:

A. At all times, use best efforts to provide autologous stem cell collection services seven days a week, 24 hours a day. “Regularly” scheduled cases require 24 hours prior notice from Hospital. All cases with less notice shall be deemed to be emergency services, and HemaCare shall use best efforts to provide those services. Hospital agrees that HemaCare shall not be liable for any damages, claims or losses that may result if HemaCare is unable to provide the services within the time periods specified in this section.

B. Supply the collection instrument, disposable kits, and anticoagulants in advance of the scheduled procedure and comply with Hospital's policies and procedures for the disposal of such supplies and waste products. HemaCare's responsibility around supplies and reagents include:

1. Equipment maintenance, monitoring, and corrective actions in the event of failure.

 
 

 

2. Visually examine each supply and reagent used to collect cellular therapy products for evidence of contamination or outdated expirations prior to use.

3. Assign and deliver with procedure supplies a set of unique, numeric or alphanumeric uniform set of numbers and bar codes unless otherwise supplied by the facility.

C. Maintain Standard Operating Procedures governing autologous stem cell collection services in compliance with the appropriate state and federal regulatory agencies, including but not limited to Foundation for the Accreditation of Cellular Therapy, the Joint Commission, and Hospital's Policies and Procedures.

D. Provide a detailed standard operating procedure (the “SOP”) manual relating to the collection process that is readily available to Hospital and Hospital staff upon request that includes:

1. Procedures for preparation, approval, implementation, review, and revision of all procedures.

2. Standardized formats and a system for identifying and naming procedures, worksheets, reports, and forms.

3. Description of equipment and supplies used, a stepwise description of the procedure and/or reference to other SOP's required to perform procedure.

4. Reference section listing appropriate literature.

5. Copies of current versions of orders, worksheets, reports, labels, and forms where applicable.

6. Archived policies and procedures, the inclusive dates of use, and their historical sequence, are maintained for a minimum of ten years from archival or according to governmental or institutional policy, whichever is longer.

E. Ensure that all personnel providing autologous stem cell collection services for HemaCare, pursuant to this Agreement, have appropriate and current state licenses, current CPR certification, and such annual health clearances as may be required by appropriate state and federal regulatory agencies, including but not limited to Hospital's Policies and Procedures.

F. Ensure that all HemaCare personnel providing autologous stem cell collection services pursuant to this Agreement shall have undergone appropriate training, and shall provide services in accordance with HemaCare's Standard Operating Procedures, as may be amended by HemaCare from time to time, will complete the apheresis records and supply the originals as part of the hospital record while keeping a copy for the HemaCare chart, and shall be knowledgeable of and shall comply with such patients' rights as defined by the Hospital and the appropriate state and federal regulatory agencies.

 
 

 

G. The HemaCare's hemapheresis nurse specialist will be responsible for:

1. Obtaining vital signs.

2. Drawing samples for lab tests for CBC, and Chemistries.

3. If available, reviewing results of infectious disease testing done within the prior 30 days to ensure proper labeling of product at the time of collection.

4. Obtaining consent from the patient for the apheresis collection procedure.

Notwithstanding, planned donations will be pre-approved by Hospital's Medical Director overseeing collections and donations.

H. Develop, construct, and maintain a written Quality Management Plan which supports the Hospital's performance improvement, quality control, and any/all other related policies, procedures and initiatives. Quality Management Plan shall comply with FDA, AABB, and FACT-JACIE.

I. Attend Quarterly BMT Committee Meeting and present stem cell collection data and other quality indicators in accordance with Quality Assurance Plan to ensure preparedness for any state, federal regulatory or accrediting body audit/survey.

J. Prepare an annual summary, inclusive of collection procedures, for the Hospital's Governing Board and other relevant Hospital committees.

K. COMPLIANCE OBLIGATIONS. HemaCare and HemaCare staff has received, read, understood, and shall abide by Tenet's Standards of Conduct. The parties to this Agreement shall comply with Tenet's Compliance Program and Tenet's policies and procedures related to the Anti-Kickback Statute and the Stark Law. Tenet's Standards of Conduct, summary of Compliance Program, and policies and procedures are available at:

http://www.tenethealth.com/TenetHealth/OurCompany/EthicsBusinessConduct

Further, the parties to this Agreement certify that they shall not violate the Anti-Kickback Statute and/or the Stark Law.

 
 

 

L. EXCLUSION LISTS SCREENING. HemaCare shall screen all of its current and prospective legal entities, officers, directors, and employees directly assigned to work for Tenet (“Screened Persons”) against (a) the United States Department of Health and Human Services/Office of Inspector General List of Excluded Individuals/Entities (available through the Internet at http://www.oig.hhs.gov), and (b) the General Services Administration's List of Parties Excluded from Federal Programs (available through the Internet at http://www.epls.gov) (collectively, the 'Exclusion Lists”) to ensure that none of the Screened Persons (y) are currently excluded, debarred, suspended, or otherwise ineligible to participate in Federal healthcare programs or in Federal procurement or nonprocurement programs, or (z) have been convicted of a criminal offense that falls within the ambit of 42 U,S.C. § 1320a-7(a), but have not yet been excluded, debarred, suspended, or otherwise declared ineligible (each, an “Ineligible Person”). If, at any time during the term of this Agreement any Screened Person becomes an Ineligible Person or proposed to be an Ineligible Person, HemaCare shall immediately notify Hospital of the same. Screened Persons shall not include any employee, contractor or agent who is not providing services under this Agreement.

M. HemaCare shall secure and maintain at all times during the Term, at HemaCare's sole expense, professional liability insurance covering HemaCare, with a carrier licensed to do business in the State of California and having at least an “A” BEST rating, at the following limits:

$1,000,000 per claim/occurrence and $3,000,000 aggregate

Such insurance shall not be cancelable except upon 30 days' prior written notice to Hospital. Such coverage shall be primary and non-contributory, HemaCare shall annually provide Hospital a certificate of insurance evidencing such coverage and coverage extensions. This coverage shall be either (1) on an occurrence basis or (2) on a claims-made basis. If the coverage is on a claims-made basis, HemaCare hereby agrees that prior to the effective date of termination of HemaCare's current insurance coverage, HemaCare shall purchase, at HemaCare's sole expense, either a replacement policy annually thereafter having a retroactive date no later than the Effective Date or unlimited tail coverage in the above stated amounts for all claims arising out of incidents occurring prior to termination of HemaCare's current coverage or prior to termination of this Agreement, and HemaCare shall provide Hospital a certificate of insurance evidencing such coverage.

2. Section II is deleted, restated and incorporated herein and made a part of the Prior Agreement as follows:

“II. HOSPITAL'S RESPONSIBILITY: Hospital shall be responsible for providing the following:

 
 

 

A. Documented policies and procedures addressing all appropriate clinical aspects of operations and management:

1. Written criteria for donor selection, evaluation, and management by trained medical personnel.

2. Donor evaluation procedures to protect the safety of the cellular product donor.

3. Donor assessment and evaluation for acceptance of patient into their Hematopoietic Progenitor Cell transplant program including a transmission of donor eligibility criteria including hemoglobinopathy assessment in the donor patient profile to HemaCare prior to collection.

4. Central line placement for apheresis access, with its related responsibilities outside of apheresis collection procedures.

5. Use and administration of cytokines, growth factors with all its related responsibilities.

6. Donor and recipient confidentiality.

7. Donor treatment.

8. Screening.

9. Product storage, ownership and disposition.

10. Expiration dates.

11. Release and exceptional release.

12. Biological product deviations.

13. Product tracking and current log which would cross reference the HemaCare collection number and USC/Kenneth Norris Jr. Cancer Hospital's processing number on the product label whenever there are more than one unique identification numbers on the product.

14. Transportation of the product.

15. Outcome data and information on clinical results of cellular product reinfusion including time to engraftment and overall clinical outcome to be used as part of outcome analysis. Information will be presented at the Quarterly BMT Committee meetings. If it is urgent, hospital will immediately contact HemaCare by phone call, email, or fax.

 
 

 

16. Information regarding adverse events associated with reinfusion of cellular products. If it is urgent, hospital will immediately contact HemaCare by phone call, email, or fax.

B. Processes for assessing quality of cellular therapy products to ensure their safety, viability, and integrity and to document the products meet predetermined release specifications. Results of all such assessments shall become part of the permanent record of the product processed.

C. Required communicable disease testing using FDA approved testing materials and shall be responsible for proper notification of reactive results of infectious disease tests to the patient's physician and local and state authorities.

D. The management of cellular therapy products with positive microbial culture results. A positive bacterial culture must be addressed by phone call and email immediately as soon as Hospital determines it is from the collection process and not a contaminant from their lab manipulation.

E. A mechanism to ensure continuous operations in the event that the electronic record system ceases to function, including a plan for data backup, and a mechanism to ensure compliance with applicable laws.

F. Policies and procedures for the development and implementation of written agreements with third parties whose services impact the cellular therapy product.

G. Reviewing records applying to the non-collection aspects of cellular therapy products, including investigation of reported adverse reaction. This will be done in accordance with the Blood Bank's Standard Operating Procedures for blood and/or cellular products.

H. Will obtain the necessary laboratory results prior to collection as required by AABB standards.

I. Provide applicable physician training and continuing education (CME) in the area of donor/patient related issues, as the facility medical director deems necessary.

J. The physician directing the stem cell collection procedure is the hospital attending physician who is writing orders and supervising the collection of the Hematopoietic Progenitor Cells. The Bone Marrow Medical Transplant Director of the clinical transplant services or his/her designate may serve as the physician supervising the collection.

 
 

 

K. Provide a qualified, licensed physician who is experienced in the use of pharmacologic and biologic agents and management of complications, as well as a physician at the procurement site who can:

1. Confirm that the donor's medical status permits procurement and document that the donor's health status is acceptable.

2. Oversee placement and maintenance of central venous catheter devices.

3. Oversee administration of growth factor/pharmacologic agents.

4. Provide patient/donor education, a general explanation of the indications for and results of cellular therapy, potential risks, complications, as well as risks and side effects of growth factors, where applicable, risks of anesthesia when required, and discuss alternative methods of stem cell procurement and alternative treatment approaches.

5. Write and sign physician orders for collection of Hematopoietic Progenitor Cell products.

6. Provide acceptable end points and the range of expected results, where applicable.

L. Supply all medications and fluids that are required for the stem cell collection, and provide the qualified hospital staff to administer any medications that are peripheral to the actual apheresis/collection procedure, except for materials described in Section I.B. herein,

M. There shall be documentation of facility cleaning and sanitation, environmental conditions, and inspection of environmental control systems to ensure adequate conditions for proper operations. Records of all cleaning and sanitation activities performed to prevent product contamination shall be maintained ten (10) years after their creation.

N. A reasonable process for product tracking that allows tracking from the donor to the recipient or final distribution and from the recipient, or final disposition, to the donor.

3. Section III. E. Term is deleted, restated and incorporated herein and made a part of the Prior Agreement as follows:

“III. E. Term.

 
 

 

The term of this Agreement (“Term”) shall be two (2) year(s) commencing on the Effective Date. If the parties continue to abide by the terms and conditions of this Agreement without having executed a renewal or extension of this Agreement or advised the other party of such party's intent not to renew or extend this Agreement, then this Agreement shall automatically be extended on a month-to-month basis for up to six (6) months. During the term of the Agreement or any extension of this Agreement, HemaCare may change the payment rates with at least 30 day written notice of the proposed changes.”

4. Section III. G. ARBITRATION is added and incorporated herein and made a part of the Prior Agreement as follows:

“III. G. ARBITRATION.

Any dispute or controversy arising under, out of or in connection with, or in relation to this Agreement, or any amendment hereof, or the breath hereof shall be determined and settled by final and binding arbitration in the county in which the Hospital is located in accordance with the Commercial Rules of Arbitration (“Rules”) of the Judicial Arbitration and Mediation Services (“JAMS”) before one arbitrator applying the laws of the State. The parties shall attempt to mutually select the arbitrator. In the event they are unable to mutually agree, the arbitrator shall be selected by the procedures prescribed by the JAMS Rules. Any award rendered by the arbitrator shall be final and binding upon each of the parties, and judgment thereof may be entered in any court having jurisdiction thereof. The costs shall be borne equally by both parties.”

5. Section IV. Is added and incorporated herein and made a part of the Prior Agreement as follows:

“IV. HEMACARE AND HOSPITAL RESPONSIBILITIES: HemaCare and Hospital shall both be responsible for providing:

A. Consents: HemaCare R.N. will supply and obtain the consent for autologous stem cell collections, which will be included in the patient's hospital chart as well as in the HemaCare chart, which is the property of HemaCare. Hospital will supply and obtain written consents for all other related medical procedures that are required by Hospital policy and Hospital will store and maintain said written consents in the applicable records and files.

B. The Quality Management Plan shall comply with the standards required in AABB or FACT-JACIE current editions.

C. Personnel training and competency assessment relating to their fields of expertise.

 
 

D. Deviations, adverse events, and complaints as applicable to the appropriate facility from which they arise, with resulting corrective action.

E. A process for documentation and review of outcome analysis and product.

F. The storage of supplies and reagents at the appropriate temperature in a secure, sanitary, and orderly location and manner.

G. All supplies and reagents coming into contact with autologous stem cell products during collection, processing, storage, or transportation shall be sterile and shall be of appropriate grade for the intended use. Cleaning and sanitation of equipment is the responsibility of the proprietor or authorized user.

H. The HemaCare R.N. will obtain lab samples as required and submit said samples to the appropriate Hospital personnel for Hospital processing.

I. Both Hospital and HemaCare shall comply with the current edition of FDA CFR, State of California, AABB Standards for Cellular Therapy for accreditation, and FACT-JACIE.

6. GENERAL. If provisions of this Amendment and the Prior Agreement conflict, the provisions of this Amendment shall prevail. Except as specifically amended herein, all terms and conditions of the Prior Agreement shall remain in full force and effect.

  TENET HEALTHSYSTEM NORRIS, INC.,
  A CALIFORNIA CORPORATION,
  D/B/A USC/KENNETH NORRIS JR. CANCER HOSPITAL
     
  By: /s/ Debbie Walsh
  Name: Debbie Walsh
  Title: President/Chief Executive Officer
  Date: 7/16/08
     
  HEMACARE CORPORATION,
  A CALIFORNIA CORPORATION
     
  By: /s/ Bob Chilton
  Name: Bob Chilton
  Title: EVP + CFO
  Date: 7/16/08

 

 

 

 

 EX-10 9 ex10-32.htm

Exhibit 10.32

 

THIRD AMENDMENT TO SERVICES AGREEMENT

 

THIS THIRD AMENDMENT TO SERVICES AGREEMENT (the “Amendment”) is made and entered into as of the later of November 1, 2009, or the execution of the Agreement by both parties (the “Effective Date”) between, the University of Southern California, on behalf of its USC Norris Cancer Hospital (“Hospital”) and HemaCare Corporation, a California corporation (“HemaCare”).

R E C I T A L S

A. Hospital and HemaCare are parties to that certain Services Agreement effective January 30, 2003, and its subsequent 1st Amendment To Services Agreement effective April 1, 2006, and its subsequent 2nd Amendment to Services Agreement effective July 16, 2008 (the “Agreement”) for the provision of Therapeutic Hemapheresis (TA) and Stem Cell services (the “Services”); and

B. Addendum dated September 19, 2006 has been deleted and replaced in its entirety;

C. The University of Southern California purchased the hospital from Tenet Healthsystem Norris, Inc. and assumed Tenet Healthsystem Norris, Inc.'s duties and obligations under the Agreement; and HemaCare acknowledges that University of Southern California, on behalf of its USC Norris Cancer Hospital is the surviving entity subsequent to the acquisition of Tenet HealthSystem Norris, Inc., a California corporation, doing business as USC/Kenneth Norris Jr. Cancer Hospital, which materialized April 1, 2009.

D. Hospital and HemaCare desire to amend certain terms and conditions of the Agreement regarding HemaCare's responsibility, Hospital's responsibilities and the shared responsibilities as set forth herein below.

E. GENERAL. If provisions of this Amendment and the Agreement conflict, the provisions of this Amendment shall prevail. Except as specifically amended herein, all terms and conditions of the Agreement shall remain in full force and effect.

NOW THEREFORE, in consideration of the foregoing premises and for valuable consideration, the receipt of which is acknowledged by the parties, Hospital and HemaCare agree to amend the Agreement as follows:

I. HEMACARE'S RESPONSIBILITY: Section I.G.4 of the Second Amendment is hereby deleted from the Agreement in its entirety, which that states the following:

“4. Obtaining consent from the patient for the apheresis collection procedure.”

II. HOSPITAL'S RESPONSIBILITY: Section II.K of the Second Amendment is hereby amended to add the following to the Agreement:

7. Obtain consent from the patient for the apheresis collection procedure.

 
 

 

III. HEMACARE AND HOSPITAL RESPONSIBILITIES: Section IV.A of the Second Amendment is hereby deleted and replaced in its entirety in the Agreement as follows:

A. Consents: Hospital will supply and obtain the consent for autologous stem cell collections, which will be included in the patient's hospital chart. HemaCare RN will insure consent is present in the patient's hospital chart prior to starting the apheresis procedure. The Hospital will supply and obtain consents for all other related medical procedures that are required by Hospital policy.

IV. TERM: Section III.E is hereby deleted, amended and restated and made part of the Agreement as follows:

The term of the Agreement shall be two (2) years from the Effective Date. If the parties continue to abide by the terms and conditions of this Agreement without having executed a renewal or extension of this Agreement or advised the other party of such party's intent not to renew or extend this Agreement, then this Agreement shall automatically be extended on a month-to-month basis for up to six (6) months. During the term of this Agreement or any extension of this Agreement, HemaCare may change the payment rates with at least thirty (30) days written notice of the proposed change to Hospital.

V. Section III.H. LIMITATION OF LIABILITY. is added and incorporated herein and made part of the Agreement as follows:

“III.H. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, TO THE MAXIMUM EXTENT PERMITTED BY LAW, IN NO EVENT WILL EITHER PARTY BE RESPONSIBLE FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL, PUNITIVE, OR EXEMPLARY DAMAGES OF ANY KIND, INCLUDING DAMAGES FOR LOST GOODWILL, LOST PROFITS, LOST BUSINESS OR OTHER INDIRECT ECONOMIC DAMAGES, WHETHER SUCH CLAIM IS BASED ON CONTRACT, NEGLIGENCE, TORT (INCLUDING STRICT LIABILITY) OR OTHER LEGAL THEORY, AS A RESULT OF A BREACH OF ANY WARRANTY OR ANY OTHER TERM OF THIS AGREEMENT, AND REGARDLESS OF WHETHER A PARTY WAS ADVISED OR HAD REASON TO KNOW OF THE POSSIBILITY OF SUCH DAMAGES IN ADVANCE.”

VI. Section III.I PARKING is added and incorporated herein and made part of the Agreement as follows:

III.I HemaCare and HemaCare personnel will be responsible for its own parking expense while on Hospital campus at all times.

 
 

 

UNIVERSITY OF SOUTHERN CALIFORNIA,
ON BEHALF OF ITS USC NORRIS CANCER HOSPITAL
   
By: /s/ Scott Evans
Name: Scott Evans
Title: Chief Operating Officer
Date:  
   
   
HEMACARE CORPORATION
   
By: /s/ Pete van der Wal
Name: Pete van der Wal
Title: CEO
Date: 6/30/10

 

 

 

 EX-10 10 ex10-33.htm

Exhibit 10.33

 

SOFTWARE LICENSE AND SUPPORT SERVICES

AGREEMENT

THIS SOFTWARE LICENSE AND SUPPORT SERVICES AGREEMENT (the “Agreement”) is entered into as of February 14, 2011 (“Reference Date”) by and between HemaCare Corporation, ("Customer"), having offices located at 15350 Sherman Way, Suite 350, Van Nuys, CA 91406 USA and Haemonetics Corporation® d/b/a Haemonetics Software Solutions ("Vendor"), a Massachusetts corporation, having offices located at 4925 Robert J. Mathews Parkway, Suite 100, ElDorado Hills, California 95762.

 

SECTION 1
Definitions

 

As used in this Agreement, all terms not otherwise defined herein shall have the meanings indicated below:

1.1 Affiliate. Any person or entity controlling, controlled by, or under common control with Customer and any Affiliate of an Affiliate i.e., any person or entity controlling, controlled by or under common control with an Affiliate. As used herein, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through ownership of voting securities, by contract, or otherwise.

1.2 Customer. Customer shall have the meaning set forth above.

1.3 Designated Environment. The computer system encompassing all software, operating systems, databases, hardware and telecommunications equipment on which the ElDorado Donor Software is installed and that allows the ElDorado Donor Software to operate and be accessed by the Customer. The Designated Environment includes a secondary computer system that can operate as a back-up system in the event that the primary system becomes inoperable.

1.4 Documentation. All materials and documentation, whether in hard copy, magnetic media or machine readable form, regarding the capabilities, operation, installation or use of the Software including, without limitation, the user manuals, as amended and updated by Vendor from time to time.

1.5 Enhancement. Any subsequent release, version, modification, correction, update or upgrade of the Software which is provided to Customer by Vendor not separately priced or marketed by Vendor under the terms of this Agreement. Such Enhancements not separately priced or marketed by Vendor shall be provided to Customer at no charge as long as Customer continues to pay the Maintenance Fees.

1.6 Limited. As used in Paragraph 2.1, License (s) shall be subject to all restrictions stated in this Agreement and to any other restrictions at law.

1.7 Non-Exclusive. As used in Paragraph 2.1, Vendor is not precluded from granting the rights granted to Customer herein to other third parties.

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1.8 Non- Transferable. As used in Paragraph 2.1 , Customer may not assign or otherwise convey the license(s) granted herein to other parties without Vendor’s written consent.

1.9 Number of Units Collected Successfully. The original unit collected shall be counted and it will count as one (1) successful collection. A successful collection does not include units that have a quantity or quality making them unsuitable for processing.

1.10 Organic Growth. Growth in the Customer’s current scope of business in existence as of the Reference Date and covered by this Agreement will be deemed Organic Growth as it applies solely to the ElDorado Donor Software. Organic growth does not include growth as the result of a merger, acquisition or takeover of another company.

1.11 Perpetual. As used in Paragraph 2.1. License(s) granted herein will not expire so long as the Software is being used in accordance with the terms of this Agreement.

1.12 First Productive Use. Use of the system commencing on the date at which the Software is used in the system for support of day to day, blood center collection and manufacturing operations.

1.13 Software. The ElDorado Donor Software plus all Enhancements and the Documentation.

1.14 Source Code. Both machine readable and human readable copies of the Software consisting of instructions to be executed upon a computer in the language used by its programmers (i.e., prior to compilation or assembly) in a form in which the program logic of the Software is deductible by a human being, fully commented, and including all available related flow diagrams and all other documentation and manuals which would allow persons who are experienced computer programmers but who are unfamiliar with the Software to properly effect modifications and support for the Software.

SECTION 2
Software License Terms And Conditions

2.1 Grant of License. Subject to the terms and conditions herein, Vendor hereby grants to Customer
a Limited, Perpetual, Non-Exclusive and Non-Transferable (except as provided in Section 11.5 hereof), license to (a) copy onto, access, and use the Software in the Designated Environment(s) for Customer’s own internal information processing services and computing needs as expressly permitted by this Agreement, and (b) to use Documentation in connection with the use of the Software. Such Software may be used by Customer and such other entities as are expressly permitted by the Agreement. This license transfers to Customer neither title nor any proprietary or intellectual property rights to the Software, Documentation, or any copyrights, patents, or trademarks, embodied or used in connection therewith, except for the rights expressly granted herein.

The license will include multiple instances of the Software to allow for production, validation and training environments and to allow for the Customer’s two separate facilities (West Coast and East Coast) to run separate production, validation and training environments.

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2.2 Back-up Copies. Customer is entitled to make five (5) machine-readable copies of the Software for backup or archival purposes, or for use on a back-up Designated Environment when primary Designated Environment is inoperable. Customer may not copy the Software, except as permitted by this Agreement. All copies of the Software will be subject to all terms and conditions of this Agreement. Whenever Customer is permitted to copy or reproduce all or any part of the Software, all titles, trademark symbols, copyright symbols and legends, and other proprietary markings must be reproduced.

2.3 Expansion. Customer may operate the Software at additional locations without expanding this license agreement provided that such expansion activities are limited to Organic Growth. Customer has the option to expand the license granted pursuant to Paragraph (2.1) to include use of the Software at additional sites added to the Customer's current business though acquisition of another company upon Vendor’s receipt of additional license fees and written consent, which shall not be unreasonably withheld. If the acquired company holds a license for ElDorado Donor or SafeTrace Software, this provision shall not apply.

2.4 License Restrictions. Customer agrees that it will not itself, or through any parent, subsidiary, Affiliate, agent or other third party:

(a) sell, lease, license or sublicense the Software or the Documentation provided, however, Customer may assign all of its rights and obligations hereunder to a third party

(b) decompile, disassemble, or reverse engineer the Software, in whole or in part;

(c) allow access to the Software by any user not located at the licensed sites other than Customer's employees who use such Software (excluding third party software);

(d) write or develop any derivative software or any other software program based upon the Software or any confidential information of Vendor;

(e) provide, disclose, divulge or make available to, or permit use of the Software by any third party without Vendor’s prior written consent.

Notwithstanding the foregoing, it is expressly understood that, upon payment of appropriate Site and User ID fees, or appropriate transaction fees, Customer may allow access to the Software to Customer’s non-employee hospital customers who contract with Customer to purchase blood products and blood services from Customer. No other form of access or services is authorized to be performed by or for third parties.

2.5 Limited Warranty. Vendor warrants that for a period of ninety (90) days from the date of First Productive Use (the “Warranty Period”)

(i) the Software will remain in compliance with all applicable federal and state statues, laws, regulations and rules.

(ii) the Software will perform in substantial accordance with the Documentation ;

(iii) the Software will be free from defects in materials and workmanship under normal use;

(iv) to the best of Vendor’s knowledge, the Software does not contain any protective features, contamination, computer viruses, time locks, time-bombs, or back-doors or other disabling features

If during the Warranty Period the Software does not perform as warranted, Customer’s exclusive remedy and Vendor’s sole liability shall be that Vendor shall, at its option, use commercially reasonable efforts to correct the Software, replace such Software free of charge or, if neither of the foregoing is commercially practicable, terminate this Agreement and refund to Customer ONE HUNDRED NINETY THOUSAND DOLLARS ($190,000).

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The warranty set forth above is made to and for the benefit of Customer only.

The warranty will apply only if:

(a) the Software has been properly installed and used at all times and in accordance with the Documentation;

(b) no modification, alteration or addition has been made to the Software by persons other than Vendor or Vendor's authorized representative;

(c) Customer has not requested modifications, alterations or additions to the Software that cause it to deviate from the Documentation; and

(d) the Software has not been (i) subject to accident, unusual physical, electrical or electromagnetic stress, neglect, misuse, failure of electric power, air conditioning or humidity control, or (ii) operated with other media not meeting or not maintained in accordance with the manufacturer's specifications.

2.6 No Other Warranties. Except as set forth specifically in this Agreement, Vendor makes no other warranties, whether express, implied, or statutory regarding or relating to the Software or the Documentation, or any materials or services furnished or provided to Customer under this Agreement. Vendor specifically disclaims all implied warranties of merchantability and fitness for a particular purpose with respect to the Software, Documentation and said other materials and services, and with respect to the use of any of the foregoing.

2.7 Intended Use. The Software is a Medical Device subject to government regulation specifically including regulation by the United States Food and Drug Administration (FDA). The Software is intended to be used in accordance with the intended use for which the Software received premarket clearance.

(a) ElDorado DonorTM is intended for use in facilities that manage donors and blood products. including: donor and blood collection management, eligibility and blood loss calculation, posting of deferrals, recording the manufacture of components, recording the results of testing, management of special collection requests for patients, and tracking the status and final disposition of blood components, related blood products and supply items, and their distribution.

(b) Customer’s use of the Software is also subject to government regulation. By entering into this agreement, Customer represents and warrants that it will comply with all government regulations that are applicable to Customer’s use of the Software. In addition, Customer represents and warrants that it will perform competent clinical intervention, decision making, traceability, and auditing procedures. The Software must be installed and validated on the Designated Environment, and used, monitored, and maintained as detailed in the Software’s Documentation and its labeling, specifically including operator user manuals and the other documents related to the proper installation and user training. Customer agrees that whenever it makes claims for the performance of the Software it will do so in a manner consistent with its intended use.

2.8 Reporting Requirements. Customer agrees to notify Vendor promptly when it becomes aware of any problems with the performance of the Software and/or any complaints from any source about the Software. When requested by Vendor, Customer will provide a written report detailing the facts related to any such problem or complaint. Customer also agrees to cooperate with Vendor in any investigation undertaken by Vendor related to a reported problem or complaint specifically including the development of information for Vendor’s complaint files and Vendor’s compliance with FDA’s Medical Device Reporting (MDR) regulations applicable

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AGREEMENT

to the Software. Customer will also notify Vendor prior to filing any MDR that relates to or discusses the Software of any other regulatory report related to the Software. Customer agrees to promptly notify Vendor at any time the Customer is undergoing a government inspection, including but not limited to, inspection by FDA, that could include government review of the use and/or performance of the Software, and to promptly provide Vendor with copies of any documents related to such inspection, including but not limited to any Form FDA 483 or report of deficiencies noted in the inspection, and the Customer’s response to each. Customer also agrees to give Vendor notice of any adverse regulatory action taken by FDA or any other governmental authority which includes any allegations or claims related to the Software. In the event of any such adverse regulatory action, Customer agrees to provide Vendor with copies of any Warning Letter or other document issued by FDA or any other governmental authority that contains allegations or claims related to the Software.

2.9 Software Changes. Customer agrees that it will not make any change or modification to the Software without prior written consent from Vendor. Customer acknowledges that Vendor has a regulatory obligation to evaluate each change or modification in light of government requirements applicable to such actions and, if requested by Vendor, Customer will cooperate in evaluating the significance of any proposed change or modification on the safety or effectiveness of the Software.

2.10 Recalls, Corrective and Preventative Actions. Customer agrees to cooperate with Vendor at Vendor’s expense in the event of any request by a government authority for a recall or any corrective or preventative action that relates to the Software and/or its use by the Customer or the Affiliates. Customer agrees to take prompt action when requested by Vendor to conduct any such action and when requested to make a report in connection with a recall or any corrective or preventative action that relates to the Software. In the event of any request by a government authority for a recall or any corrective or preventative action that relates to the Software and/or its use by the Customer or its Affiliates, Vendor agrees to (i) promptly notify Customer of any such event; (ii) take such corrective or preventative action relating to the Software as promptly as possible and at no expense to Customer; (iii) use its best efforts to facilitate Customer’s access to any Customer data stored or maintained by the Software or by Vendor so as to minimize disruptions to Customer’s business: and (iv) make commercially reasonable efforts to facilitate a workaround for Customer so as to minimize disruptions to Customer’s business.

SECTION 3
Source Code Escrow

3.1 Source Code Escrow. The parties agree that the Vendor will deposit and thereafter maintain with the escrow agent copies of the Source Code for the most current release of the Software and the last previous release of the Software if the Customer elects the Escrow option as priced on Schedule B. So long as Customer is receiving support services, Vendor will deposit a copy of the Source Code for each Enhancement delivered to Customer no later than thirty (30) days after delivery of the Enhancement to Customer. Escrow Agent shall return to Vendor the Source Code for the oldest release of the Software if and when more than two full releases of the Source Code have been deposited.

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AGREEMENT

3.2 Release to Customer. The escrow agent shall deliver all copies of the Source Code for the Software to Customer (upon compliance with the release procedures set forth in the escrow agreement in the following circumstances:

(a) Vendor fails or refuses to provide maintenance and support services to Customer for the Software in breach of its obligations under the provisions of this agreement relating to support services (which breach has continued for a period of forty-eight (48) hours following written notice thereof by Customer to Vendor, provided however if more than forty-eight (48) hours are reasonably required to remedy such material breach then Vendor shall have an additional period of time to remedy such breach provided Vendor immediately implements such remedy and continuously prosecutes the same to completion);

(b) Vendor discontinues offering to provide support or maintenance for the Software; or

(c) Vendor dissolves or ceases to conduct business in the ordinary course or becomes insolvent, files or becomes insolvent or bankrupt, makes an assignment for the benefit of creditors, has a trustee or receiver appointed to take custody of its assets, or files or has filed against it a petition in bankruptcy or for reorganization under any state or federal bankruptcy or insolvency law.

3.3 Use of Source Code by Customer. In the event Customer acquires the Source Code from the escrow, Customer may use the Source Code solely to maintain, support and enhance (and for these purposes alone to modify) the Software for its authorized use, subject to all of the terms and conditions of the Agreement, including, without limitation, Sections 2 and 7 hereof. Customer acknowledges that Software is a Medical Device regulated by the FDA and as such modifications to Source Code must be made in accordance with applicable FDA Quality System Regulations include 510(k) requirements.

SECTION 4
Maintenance And Support

4.1 Software Maintenance and Support. Payment of the appropriate fees per the payment terms
defined in the attached Maintenance and Support Services Schedule which is herby incorporated and made a part of this Agreement as Schedule B, entitles Customer to receive Software Maintenance and Support Services as described in the attached Haemonetics Client Support Manual which is hereby incorporated and made a part of this Agreement as Exhibit C, as reasonably modified from time to time, for the two (2) most current releases of the applicable Vendor application Software. The Software Maintenance and Support Services shall also include corrections to the Software and any Documentation due to defects in the Software or Documentation, as applicable, improvements to the functionality of the Software made after delivery of the Software and modifications or additions to the Software, but not otherwise separately priced or marketed as a separate Software application by Vendor. All Software provided shall be subject to all the terms and conditions of the Vendor Software License in Section 2.

The Software Maintenance and Support Services do not apply to third-party software or hardware. Vendor and Customer agree to comply with Vendor’s maintenance and support procedures as contained in the attached Haemonetics Client Support Manual and as may be reasonably modified from time to time.

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AGREEMENT

4.2 Extended Support Services. Customer may also purchase supplemental support (“Extended Support Services”) as described in the Haemonetics Client Support Manual (as then in effect) at any time during the period of the Agreement.

4.3 Term And Termination. The Software Maintenance & Support Services shall commence on the Reference Date and will continue through March 15, 2015 (the “Initial Term”) and shall automatically renew at the end of the Initial Term for a renewal term of five (5) years beginning March 16, 2015, and ending on March 15, 2020. Thereafter, the Software Maintenance and Support Services will automatically renew for one (1) year renewal terms unless Customer notifies Vendor of its intention not to renew at least sixty (60) days prior to the end of the renewal term then in effect. Termination of the Software Maintenance and Support Services upon failure to renew will not affect the license of the Software.

Upon termination of this Agreement, the Software Maintenance and Support Services shall terminate and such termination shall not entitle Customer to a refund of any portion of the fees paid for Software Maintenance and Support Services prior to the date of termination.

SECTION 5

Professional Services

5.1 Services. Vendor shall perform for Customer the consulting services (the "Services") specified in the attached Implementation Service Plan (the “Implementation Plan”) attached hereto as Schedule C and governed by this Agreement. In the event of a conflict between any term of this Agreement and an Implementation Plan, the terms of the Implementation Plan shall prevail. Changes in the scope of the Services and any resulting changes in fees or delivery schedules shall be made only in writing, executed by authorized representatives of both parties. If any Implementation Plan requires Vendor to procure third party products for the Customer, including hardware or software, Vendor shall use all available and reasonable efforts to do so pursuant to terms and conditions set forth in the applicable Implementation Plan.

5.2 Customer's Responsibilities. In connection with Vendor's provision of the Services, Customer shall perform those tasks and assume these responsibilities specified herein and in the applicable Implementation Plan ("Customer Responsibilities"). The Implementation Plan contains any assumptions related to the Services. To the extent that the assumptions described in the Implementation Plan are not met by Customer or are inaccurate, the cost and schedule of the Services may be impacted. Customer agrees to negotiate in good faith to develop a mutually acceptable work-around plan, and, if necessary, a mutually acceptable revised schedule of fees and services within thirty (30) days of the discovery of such incorrect assumptions. Customer understands that Vendor’s performance is dependent on Customer's timely and effective satisfaction of Customer Responsibilities hereunder and timely decisions and approvals by Customer. Customer understands that Vendor is relying upon the information that Customer provides and Customer represents that such information to the best of its knowledge is true, accurate and complete. Because of the importance of such information to this Agreement, Customer agrees to release Vendor and its personnel from any liability and costs relating to Vendor’s Services under this Agreement attributable to any false, inaccurate or incomplete information provided by Customer unless Vendor knew that such information was inaccurate. It shall be the responsibility of Customer and Customer's management to make implementation decisions, if any, and to determine further courses or action with respect to any applicable matters addressed in Vendor’s Services for Customer. To the extent Customer or Customer's personnel do not perform the Customer Responsibilities (as defined in this Section 5.2); Vendor may be authorized in writing by Customer to perform those Services. Additional implementation assistance will be billed monthly as incurred at Vendor’s standard hourly rate.

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5.3 Work Product. If any Implementation Plan provides for a deliverable work product by Vendor, upon payment, Customer shall have a perpetual, non-transferable, paid-up right and license to use and copy the deliverable items, subject to the terms of Section 7. All works of authorship, inventions (whether or not patentable), knowledge, ideas, concepts, techniques, know-how, methods, processes, systems and devices, excluding any confidential or proprietary information of Customer, (collectively "intellectual property"), authored, created or conceived by Vendor in connection with its performance of the Services or otherwise shall be solely owned by Vendor (the "Vendor Intellectual Property"). Customer shall not own or have any interest or license in or to such Vendor Intellectual Property, whether by assignment, license, any "work made for hire" or similar doctrine, or otherwise, except as set forth in this Section 5.3. The parties will cooperate with each other and execute such documents as may be appropriate to achieve the intent of the preceding sentence.

5.4 Warranty. Vendor represents, warrants and covenants that its Services will be performed in a professional, timely and workmanlike manner in accordance with applicable professional standards and in accordance with the terms of the Implementation Plan and agrees to re-perform at Vendor’s sole cost and expense any work not in compliance with this warranty brought to its attention within ninety (90) days after that work is performed. Vendor does not warrant that any work product will be compatible with future versions or updates of any Vendor or third-party Software. Vendor does not warrant, nor will Vendor be responsible for the performance of any third party product that is not included in the Software. Customer's sole and exclusive rights and remedies with respect to any such third party product, including rights and remedies in the event a third party product gives rise to an infringement claim, are against the third party and not against Vendor. Vendor agrees to assign to Customer any assignable warranties Vendor may receive from any such third party. If Vendor re-performs any work at Customer’s request as to which Vendor has already met its obligations under this Section 5.4., Customer agrees to pay Vendor on a time and materials basis at Vendor's standard rates to be invoiced monthly as incurred.

SECTION 6
Payment And Fees

6.1 Payment for Software Licensing. Customer shall pay the Vendor the sum of ONE DOLLAR ($1.00) for the ElDorado Software and Options as listed on the Medical Device Purchase Agreement (MDPA-Schedule A).

6.2 Payment for Implementation Services. Customer shall pay Vendor for Implementation Services per the Implementation Services Plan, Schedule C, which includes the Training and Go-Live Assistance commencing on the earlier of the Kick-Off Date and nine (9) months from the Reference Date of this Agreement to be invoiced monthly as incurred. Additional Implementation Services may be added upon request and with written approval from the Customer.

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6.3 Payment for Maintenance and Support. Customer has pre-paid for Maintenance and Support Services through March 15, 2015. Commencing on March 16, 2015 Customer will pay Vendor an annual Maintenance & Support Fee to be invoiced monthly based on the number of units collected successfully in the prior year at a rate of EIGHTY-SIX CENTS ($0.86) per unit collected by Customer’s sites using the ElDorado Donor Software.

6.4 Escrow Payment. If Customer selects the Escrow Services Option, Customer shall pay Vendor all charges and fees associated with the Escrow arrangement. The current annual Escrow fees are as follows: ONE THOUSAND FIVE HUNDRED DOLLARS ($1500.00) on the first year commencing on the Reference Date of this Agreement and on the anniversary of said Reference Date for subsequent years Customer shall pay Vendor ONE THOUSAND TWO HUNDRED DOLLARS ($1200.00). Vendor will provide Customer with no less than thirty (30) days notice in the event of any increases in the Escrow Fees quoted herein.

6.5 Additional Expenses. Vendor agrees to abide by its Travel and Expense Reimbursement Guidelines which is hereby attached and incorporated by this reference as Exhibit D. Notwithstanding the guidelines, additional expenses in excess of Ten Thousand Dollars ($10,000) must be authorized in writing by Customer. Additionally, Customer is responsible only for Vendor’s travel related expenses for the members of the project team actively working on the project. Vendor is responsible for travel for the Vendor’s account manager, sales & marketing staff and other individuals who are not members of the project team. Customer shall reimburse Vendor for such expenses no more than forty-five (45) calendar days after Vendor invoices Customer together with evidence of expenses. Vendor agrees to abide by its Travel and Expense Reimbursement Guidelines in effect when such expenses are incurred. In the event of any dispute with regard to a portion of an invoice, the undisputed portion shall be paid as provided herein.

6.6 Taxes. Customer shall, in addition to the amounts payable under this Agreement, pay all sales, use, value-added or other taxes, federal or state or otherwise, however designated which are levied or imposed by reason of the transaction contemplated herein, except in the event that the Vendor delivers a physical copy of the Software or the Documentation without prior written consent of the Customer, then Vendor shall be responsible for the payment of any and all sales and use taxes relating to the Software, pursuant to the foregoing Section 6.1 of this agreement.

6.7 Invoices. Vendor shall submit invoices in accordance with the amounts and payment terms stipulated herein and in the attached Schedules. Expenses described in Paragraphs 6.3 and 6.5 will be submitted monthly as incurred. All payments stated hereunder shall be due and payable within forty-five (45) calendar days of Vendor’s invoice date. Vendor shall charge a one and one-half percent (1.5%) finance charge to be calculated monthly with respect to all outstanding undisputed amounts not paid within forty-five (45) calendar days following the date of Vendor’s invoice(s) but in no event shall finance charges exceed the maximum allowed by law. In event of any dispute with regard to a portion of an invoice, the undisputed portion shall be satisfied as provided herein. Vendor may refuse to perform services without any liabilities incurred by Vendor, pending satisfaction of any undisputed outstanding amounts.

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6.8 Increases. Twelve (12) months after the monthly maintenance fee commences on March 16, 2015, and at successive twelve (12) month intervals, Vendor may increase the monthly maintenance and support fees once annually commencing on the anniversary of the first invoice provided that such increases rate shall not exceed three percent (3%) of the previous year’s maintenance and/or support fees and Customer is provided with sixty (60) days notice of any such increase.

6.9 Price Restrictions. All prices quoted in this Agreement and its attached Schedules shall apply to the Customer’s facilities (a total of 2), and their respective remote fixed sites, mobile and contract collection operations. Additional licenses for other facilities added by acquisition of another company shall be negotiated with the Vendor.

SECTION 7
Intellectual Property Rights and Indemnity

7.1 Title. Vendor represents and warrants that:

(a). it is the sole owner of the Software, or that it holds contractual marketing rights to the Software, and has full power and authority to grant the rights herein granted without the consent of any other person and

(b). the Software does not infringe upon or violate any patent, copyright, trademark, trade secret or any other proprietary right of any third party.

7.2 Indemnity. Vendor shall, at its expense, defend or settle any third party claim, action or allegation brought against Customer that the Software infringes any U.S. patent, copyright, trade secret or other proprietary right of any third party and shall pay any final judgments awarded or settlements entered into; provided that Customer gives prompt written notice to Vendor of any such claim, action or allegation of infringement and gives Vendor the authority to proceed as contemplated herein. Additionally, Vendor will indemnify, defend and hold Customer harmless as a result of Vendor or Vendor's employees, agents, contractors, or subcontractors’ gross negligence, wrongful acts or omissions, as well as any material breach by Vendor of this Agreement. Vendor will have the exclusive right to defend any such claim, action or allegation and make settlements thereof at its own discretion, and Customer may not settle or compromise such claim, action or allegation, except with prior written consent of Vendor. Customer shall give such assistance and information as Vendor may reasonably require to settle or oppose such claims. Vendor will reimburse Customer for reasonable costs incurred by Customer in opposing such claim. In the event any such infringement, claim, action or allegation is brought or threatened, Vendor may, at its sole option and expense:

(a) procure for Customer the right to continue Use of the Software or infringing part thereof; or

(b) modify or amend the Software or infringing part thereof, or replace the Software or infringing part thereof with other Software having substantially equivalent capabilities;

(c) if neither of the foregoing is commercially practicable, terminate this Agreement and refund to Customer ONE HUNDRED NINETY THOUSAND DOLLARS ($190,000) less one forty-eight (1/48) thereof for each month or portion thereof from the date of First Productive Use.

The foregoing obligations shall not apply to the extent the infringement arises as a result of modifications to the Software made by any party other than Vendor or Vendor's authorized representative. The foregoing obligations shall not apply to third party Software.

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7.3 Exclusions. Vendor shall have no liability for any infringement to the extent arising from (a) the use of other than the then current, commercially available version of the Software; (b) the use of the Software other than as set forth in its accompanying Documentation; (c) the modification of the Software unless such modification was made or authorized by Vendor, when such infringement would not have occurred but for such modification; or (d) the combination or use of the Software with other software, hardware or other products not approved by Vendor in advance if such infringement would have been avoided by the use of the Software not in such combination. Section 7.2 and 7.3 state Vendor’s entire obligation with respect to any claim regarding the intellectual property rights of any third party.

7.4 By Customer. Customer shall indemnify, hold harmless and defend Vendor from and against any and all claims, liabilities, damages and expenses (including reasonable attorneys' fees) incurred by Vendor as a result of Customer’s negligence, wrongful acts or omissions and any breach by Customer of this Agreement. Vendor shall promptly notify Customer in writing of any such claim and promptly tender to Customer the control and defense and settlement of such claim at Customer's expense and with Customer's reasonable choice of counsel. Vendor shall cooperate with Customer, at Customer's expense, in defending or settling such claim and Vendor may join in defense with counsel of its choice at its own expense.

SECTION 8
Confidentiality

8.1 Confidential Information. Each party agrees not to use any material or information of the other party (including any material or information of Customer's Affiliates) which is marked "Confidential" or, in the case of orally conveyed information, which is confirmed in writing within thirty (30) days of conveyance to be confidential except as may be necessary to further the performance of this Agreement; provided, however, that the following types of information shall always be considered Confidential Information (whether or not marked as "Confidential"): inventions, financial information, marketing and business plans, the Software, other Software products and systems and Personal Privacy Information including information covered by HIPAA.

8.2 Nondisclosure. Each party agrees to

(a) hold the Confidential Information of the other party in strict confidence,

(b) not to make the Confidential Information available for any purpose other than as specified in this Agreement, and

(c) to take reasonable steps to ensure that the Confidential Information is not disclosed or distributed by employees, agents or consultants (who have access to the same only because of and on a "need-to-know" basis) to third parties in violation of the provisions of this Agreement.

Each party shall obtain from each employee, agent and consultant permitted access to the other party's Confidential Information, and Customer shall obtain from each third party allowed access to the Software pursuant to Paragraphs (2.1) and (2.4), an appropriate nondisclosure agreement. Nothing contained herein shall preclude Customer, its Affiliates or any third party allowed access to the Software pursuant to Paragraphs (2.1) and (2.4) from operating the Software in the ordinary course of business for its intended purpose and for the use licensed hereunder in the presence of third parties or from providing copies of the output and reports of the Software to such third parties.

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8.3 Reproduction. Except as expressly permitted herein, neither party shall copy, duplicate or recreate the other party's Confidential Information, in whole or in part, without the express written consent of such party. Each party agrees to include the disclosing party's proprietary and confidential notices upon all copies of the Confidential Information made pursuant to this provision.

8.4 Exclusions. Notwithstanding the provisions of this Section 8, Confidential Information shall not include information which

(a) is, at the time disclosed, known or thereafter becomes known or available to the general public through no act or omission of the receiving party which is in violation of such party' obligations under this Agreement,

(b) was in the receiving party's lawful possession prior to such access to or the disclosure of the same and had not been obtained by the receiving party either directly or indirectly from the disclosing party,

(c) is disclosed to the receiving party by a third party having the right to make such disclosure, or

(d) is independently developed by the receiving party without reference to the disclosing party's Confidential Information.

8.5 Disclosure Required by Law. In the event either party receives a subpoena or other validly issued administrative or judicial process requesting Confidential Information of the other party, it shall provide prompt notice to the other of such receipt. The party receiving the subpoena shall thereafter be entitled to comply with such subpoena or other process to the extent required by law, subject to taking reasonable steps to implement an appropriate protective (secrecy) order, non-disclosure agreement, and/or assertion of a trade secret/protected status for the information as may be permitted by the applicable law. Customer will immediately notify Vendor of any request for confidential information pursuant to this paragraph.

8.6 Personal Privacy Information. Vendor acknowledges and agrees that Customer's and Affiliates' Confidential Information includes all medical and other personal or private information of Customer and its Affiliates and any of the Customers, insured, patients, physicians, employees or otherwise of Customer and its Affiliates, used or gained by Vendor during the performance of this Agreement or in any other manner ("Personal Privacy Information"). Vendor's obligations with respect to the Personal Privacy Information are not subject to the exclusions set forth in Paragraph (8.4) and are not limited in duration or in any other way.

8.7 Return of Confidential Information. Upon termination of this Agreement or upon demand therefore, each party agrees to promptly return to the other party all Confidential Information of the other party, including all copies thereof in any form, and to certify to the other party in writing that it has not retained any copies thereof.

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8.8 Equitable Remedies. The parties agree that a breach of the restrictions and obligations of this Section 8 will cause the disclosing party substantial and continuing damage, the value of which will be difficult or impossible to ascertain, and other irreparable harm for which the payment of damages alone will be inadequate. Therefore, in addition to any other remedy which the disclosing party may have under this Agreement or at law or in equity, in the event of such a breach or threatened breach by the receiving party of the restrictions and obligations of this Section 8, the disclosing party shall be entitled, after notifying the receiving party in writing of the breach or threatened breach, to both temporary and permanent injunctive relief to correct such breach or threatened breach, if possible, and to prevent further breaches of the restrictions and obligations in question.

SECTION 9
Insurance

9.1 Insurance. Vendor shall maintain in effect at all times during the term of this Agreement, insurance with a carrier with an A.M. Best rating of A XIII or better. Such insurance shall include, without limitation, worker's compensation in statutory amounts, products/completed operations liability, commercial general liability and automobile liability insurance in amounts not less than $1 million per occurrence and $2 million annual aggregate for all applicable claims against all applicable losses, claims, demands, proceedings, damages, costs, charges and expenses for injuries or damage to any person or property arising out of or in connection with this Agreement that are the result of the fault of Vendor or its employees, agents or subcontractors. Vendor shall, on or before the Effective Date and thereafter upon Customer’s reasonable request, provide Customer with certified copies of the involved insurance policy or policies, including but not limited to all applicable endorsements evidencing such coverage, which shall also state that Insurers will endeavor to provide Customer a minimum of thirty (30) calendar days' prior written notice of any proposed cancellation or expiration with-out renewal. The terms of this Section 9.1 shall not be deemed to limit the liability of Vendor hereunder, or to limit any rights Customer may have including, without limitation, rights of indemnity or contribution.

SECTION 10
Term and Termination

10.1 Term and Termination. This Agreement shall commence on the Reference Date and shall continue in full force and effect thereafter unless and/or until this Agreement is terminated pursuant to this Section 10. Either party will have the right to terminate this Agreement during the term:

(a) Upon cessation of business by Customer or Vendor or any successor to whom the Software has been legitimately transferred.

(b) If either party makes an assignment on behalf of creditors, or a receiver, trustee in bankruptcy or similar officer is appointed to take charge of all or any part of its property or business and/or either party is adjudicated bankrupt.

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(c) If either party violates a material provision of this Agreement and such violation remains uncured for a period of thirty (30) calendar days after the non-violating party provides the other with written notice of such breach specifying the violation in reasonable detail. Failure of Customer to pay any undisputed amounts owed to Vendor shall be deemed a violation of a “material” provision. Any such termination will become effective after sixty (60) business days without any further notice to Customer.

(d) Customer attempts to use, copy, or convey the Software in any manner contrary with this agreement and the license granted hereunder or in derogation of Vendor’s proprietary rights in the Software.

10.2 Effect of Termination. Upon termination, cancellation or expiration of this Agreement, Customer shall, without request by Vendor, immediately return all copies of the Software to Vendor along with all papers, materials and property of Vendor held by Customer. Customer further agrees that in the event of termination, all fees or charges currently due shall immediately become due and payable. No fees, costs or payments will accrue after the termination of this Agreement. The Vendor shall in the event of termination due to fault of Vendor per provision (a), (b) or (c) of Section 10.1, the Vendor will refund to Customer ONE HUNDRED NINETY THOUSAND DOLLARS ($190,000) less one forty-eight (1/48) thereof for each month or portion thereof from the date of First Productive Use. In addition, each Party will assist the other in the orderly termination of this Agreement and in the transfer of all property, tangible and intangible, as may be necessary for the orderly, non-disrupted business continuation of each Party. Upon termination of this Agreement Vendor’s obligations shall cease.

SECTION 11
General Terms

11.1 Delivery of Software. The Software and Documentation will be delivered electronically to Customer. Vendor shall not deliver a physical copy of the Software or the documentation to the Customer. In the event that the Vendor delivers a physical copy of the Software or the documentation without prior written consent of the Customer, then Vendor shall be responsible for the payment of any and all sales and use taxes relating to the Software, notwithstanding anything in this agreement to the contrary. Customer will provide the necessary conduit for the prompt transfer of said Software.

11.2 Notices. All notices, demands or consents required or permitted hereunder shall be in writing and shall be delivered, sent by facsimile, or mailed to the respective Party at the address first set forth above or at such other address as shall have been given to the other Party in writing for the purposes of this section. Such notices and other communications shall be deemed effective upon the earliest to occur of (a) actual delivery, (b) five days after mailing, addressed and postage pre-paid, as aforesaid, or (c) two days after transmission by facsimile.

11.3 Modification. This Agreement can only be modified by a written agreement duly signed by the persons authorized to sign agreements on behalf of Vendor and Customer.

11.4 Severability of Provisions. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or be impaired thereby.

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SOFTWARE LICENSE AND SUPPORT SERVICES

 

AGREEMENT

11.5 Assignment. Neither this Software License nor any rights under this Agreement may be assigned or otherwise transferred, in whole or in part, whether voluntary or by operation of law, without the prior written consent of the other party which will not be unreasonably withheld. Subject to the foregoing, this Agreement will be binding upon and will inure to the benefit of the parties and their respective successors and assigns. Either party may assign this Agreement in connection with a sale of all or substantially all of its assets related to this Agreement, whether by merger, acquisition, operation of law or otherwise.

11.6 Force Majeure. Neither party shall be deemed to have breached this Agreement by reason of any delay or failure in its performance arising from events beyond its control. Such events shall include by way of example, but not limitation, acts of God, acts of terrorism, acts of war, riot, epidemic, fire, flood or other disaster, act of government, including governmental regulations superimposed after the fact air traffic control caused delays, strikes or lockouts, telecommunications failure, power failure, or failure of the Customer’s computer equipment or non-Vendor Software.

11.7 Construction. This Agreement shall not be construed against any party or its representatives for any role in drafting this Agreement or any portion hereof. The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement.

11.8 Relationship of Parties. The Parties shall at all times hereunder be independent contractors and nothing in this Agreement shall be construed to create any franchise, joint venture, trust or commercial partnership or any other partnership relationship for any purpose whatsoever.

11.9 Governing Law: Arbitration. This Agreement shall be governed by the laws of State of California, USA, excluding its conflict of law provisions. Any dispute arising out of this Agreement shall be resolved by binding Arbitration in accordance with the rules of the American Arbitration Association. Notwithstanding the foregoing, in the event that a party seeks either temporary or permanent injunctive relief, the arbitration provisions contained herein shall not apply.

11.10 Survival Sections. The following Sections of this Agreement will survive termination: Sections 7, 8 and 11 in their entirety.

11.11 LIMITATION ON LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO EACH OTHER OR TO ANY THIRD PARTY FOR ANY CONSEQUENTIAL, INDIRECT, INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES, EVEN IF THE PARTY TO BE CHARGED HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT FOR VENDOR’S INDEMNIFICATION OBLIGATIONS UNDER SECTION 7.2 (WHICH OBLIGATIONS SHALL NOT BE LIMITED), IN NO EVENT WILL VENDOR'S TOTAL LIABILITY UNDER ANY OR ALL PROVISIONS OF THIS AGREEMENT FOR ALL CAUSES OF ACTION ON A CUMULATIVE BASIS EXCEED ONE HUNDRED NINETY THOUSAND DOLLARS ($190,000).

11.12 Risk Allocation. The provisions of Paragraphs 2.5, 2.6, and 11.11 allocate risks under this Agreement between Customer and Vendor. Vendor's pricing reflects this allocation of risks and limitation of liability.

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AGREEMENT

11.13 Other Representations. No employee, agent, representative or Affiliate of Vendor has authority to bind Vendor to any oral representations or warranty concerning the Software. Any written representation or warranty not expressly contained in this Agreement will not be enforceable.

11.14 Complete Understanding. This Agreement (including Schedules and Attachments thereto, if any, each of which is incorporated by reference) contains the entire agreement of the Parties with respect to the subject matter of this Agreement and supersedes all previous communications, representations, understandings and agreements, either oral or written, between the parties with respect to said subject matter.

{intentionally left blank}

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective the day and year first above written.

 

 

 

HemaCare Corporation Haemonetics Corporation
   
Signature: /s/ Pete van der Wal Signature: /s/ Thomas F. Marcinek
   
Name (Printed):  Pete van der Wal Name (Printed): Thomas F. Marcinek
   
Title: President, CEO Title: President, HSS
   
Date: February 14, 2011 Date: 2/18/11

 

 

17
 

Incorporated Documents

 

 

Medical Device Purchase Agreement/Schedule A

 

Maintenance and Support Service Agreement/Schedule B

 

Implementation Services Schedule/Schedule C

 

Preferred Beneficiary Acceptance Form/Exhibit A

 

Price Quote/Exhibit B

 

Client Support Manual/Exhibit C

 

Haemonetics Travel Policy/Exhibit D

 

 

 

 

18

 

EX-23 11 ex23-1.htm

 

Exhibit 23.1

CONSENT OF STONEFIELD JOSEPHSON, INC.,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Form S-8 pertaining to the 2006 Equity Incentive Plan (No. 333-135663 and 333-166928), 2004 Stock Purchase Plan (No. 333-116405 and 333-153072) and 1996 Stock Incentive Plan (No. 333-132603, 333-18601 and 333-114013), of HemaCare Corporation of our audit report dated March 23, 2010, with respect to the consolidated financial statements of HemaCare Corporation for the year ended December 31, 2009 included in the Annual Report (Form 10-K) .

/s/ Stonefield Josephson, Inc.

CERTIFIED PUBLIC ACCOUNTANTS

Irvine, California
March 21, 2011

 EX-23 12 ex23-2.htm

Exhibit 23.2

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT

We consent to the incorporation by reference in the Registration Statements of HemaCare Corporation on Form S-8 (File Nos. 333-135663, 333-166928, 333-116405, 333-153072, 333-132603, 333-18601 and 333-114013) of our report dated March 21, 2011, with respect to our audit of the consolidated financial statements of HemaCare Corporation as of December 31, 2010 and for the year then ended, which report is included in this Annual Report on Form 10-K of HemaCare Corporation for the year ended December 31, 2010.

/s/ Marcum LLP

Marcum LLP
Irvine, California
March 21, 2011

 

 EX-31 13 ex31-1.htm

EXHIBIT 31.1

 

Certification of Principal Executive Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Pete van der Wal, certify that:

1. I have reviewed this annual report on Form 10-K of HemaCare Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   March 22, 2011

/s/ Pete van der Wal

Pete van der Wal

Chief Executive Officer

 

 

 EX-31 14 ex31-2.htm

 

EXHIBIT 31.2

 

Certification of Principal Financial Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Lisa Bacerra, certify that:

1. I have reviewed this annual report on Form 10-K of HemaCare Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   March 22, 2011

/s/ Lisa Bacerra

Lisa Bacerra

Chief Financial Officer

 EX-32 15 ex32-1.htm

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Annual Report on Form 10-K for the Year Ended December 31, 2010 (the "Report") by HemaCare Corporation ("Registrant"), the undersigned hereby certifies that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.

 

 

Date:   March 22, 2011

/s/ Pete van der Wal

Pete van der Wal

Chief Executive Officer
(Principal Executive Officer)

 

 

Date:   March 22, 2011

/s/ Lisa Bacerra

Lisa Bacerra

Chief Financial Officer
(Principal Financial Officer)

 

 

 

A signed original of this written statement required by Section 906 has been provided to HemaCare Corporation and will be retained by HemaCare Corporation and furnished to the Securities and Exchange Commission or its staff upon request.