Note 4 - Discontinued Operations

9 Months Ended

Sep. 30, 2011

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Note 4 - Discontinued Operations

On July 11, 2011, the Company completed the sale of its red blood cell collection operation assets in California and Maine to The American National Red Cross. The financial results related to the red blood cell collection operations are shown as discontinued operations on the statement of operations for the periods ended September 30, 2011 and September 30, 2010.

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.

When the Company acquired HemaBio, two former HemaBio investors, Dr. Lawrence Feldman and Dr. Karen Raben, each held a $250,000 note from HemaBio.  Both of these notes require four equal annual installments of $62,500, plus accrued interest, commencing August 29, 2007, until paid and pay interest at 7% annually, and are secured by all of the assets of HemaBio.

HemaBio failed to pay the first installments due to Drs. Feldman and Raben on August 29, 2007 of $160,000, which included $35,000 in accrued interest.  Under the terms of the promissory notes between HemaBio and Drs. Feldman and Raben, failure to pay any of the scheduled payments when due causes the entire unpaid balance, including unpaid interest, to become immediately due and payable, and causes the stated interest rate on both notes to increase to 10% per annum.  Therefore, 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 $12,000 and $37,000 for the three and nine months ended September 30, 2011.

As of September 30, 2011, HemaBio’s default on the notes to Drs. Feldman and Raben remains unresolved.

In accordance with GAAP, the results of operations of HemaBio, along with an estimate of all closure related costs were recorded in 2007.

When the Board of Directors of HemaBio authorized the execution of the Assignment, 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 Assignment process does not stay any legal action the creditors might choose to force HemaBio to pay claims.

Therefore, management concluded that given the liabilities remain outstanding throughout the Assignment, it was appropriate to keep these liabilities on the books of HemaBio as outstanding until such time as the Assignee pays these claims, or the claimants rights to pursue claims expires pursuant to 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 until November 2011 at the earliest. Therefore, management concluded that none of the claims against HemaBio can be removed as of September 30, 2011.

The following is the breakdown of the assets held for sale and liabilities related to assets held for sale for discontinued operations as of September 30, 2011 and December 31, 2010.

Discontinued Operations
	September 30,		December 31,
	2011		2010
Assets held for sale
Cash and cash equivalents	$	270,000	$	210,000
Inventory		-		40,000
Fixed assets (net of accumulated depreciation
of $0 on September 30, 2011 and $1,134,000 on December 31, 2010)		-		213,000
	$	270,000	$	463,000
Liabilities related to assets held for sale
Accounts payable	$	833,000	$	774,000
Accrued payroll and payroll taxes		603,000		603,000
Accrued interest		254,000		217,000
Notes payable		500,000		500,000
Total liabilities related to assets held for sale	$	2,190,000	$	2,094,000

The following are the components of income from discontinued operations.

	Three Months Ended					Nine Months Ended
	September 30,			September 30,		September 30,			September 30,
	2011			2010		2011			2010
Revenue	$	326,000		$	3,349,000	$	6,152,000		$	11,782,000
Operating expenses		709,000			2,675,000		6,120,000			9,848,000
Gross (loss) profit		(383,000	)		674,000		32,000			1,934,000
General and administrative expenses		1,329,000			21,000		1,459,000			289,000
(Loss) income from operations		(1,712,000	)		653,000		(1,427,000	)		1,645,000
Gain on sale of assets		2,802,000			-		2,802,000			-
Income from discontinued operations		1,090,000			653,000		1,375,000			1,645,000
Provision for income tax		-			-		-			-
Income from discontinued operations, net of tax	$	1,090,000		$	653,000	$	1,375,000		$	1,645,000