Back to GetFilings.com
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number 0-15223
HEMACARE CORPORATION
(Exact name of registrant as specified in its charter)
California 95-3280412
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
21101 Oxnard Street
Woodland Hills, California 91367
(Address of principal executive offices) (Zip Code)
(818) 226-1968
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes / / No /X/
As of May 10, 2004, 7,756,060 shares of Common Stock of the registrant
were issued and outstanding.
=============================================================================
HEMACARE CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE THREE MONTHS ENDED
MARCH 31, 2004
Page
Number
------
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2004 (unaudited)
and December 31, 2003.............................................. 1
Consolidated Statements of Income for the three ended
March 31, 2004 and 2003 (unaudited)................................ 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 2004 and 2003 (unaudited)................................ 3
Notes to Unaudited Consolidated Financial Statements............... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 7
Item 3. Qualitative and Quantitative Disclosures About Market Risk......... 17
Item 4. Controls and Procedure............................................. 17
PART II. OTHER INFORMATION
- -------- -----------------
Item 1 Legal Proceedings.................................................. 17
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities.................................................. 17
Item 3. Defaults Upon Senior Securities.................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................ 18
Item 5. Other Information.................................................. 18
Item 6. Exhibits and Reports on Form 8-K................................... 18
SIGNATURES................................................................. 18
i
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEMACARE CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2004 2003
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................ $ 911,000 $ 935,000
Accounts receivable, net of allowance for
doubtful accounts - $395,000 in 2004 and $351,000
in 2003............................................ 3,442,000 3,128,000
Product inventories and supplies..................... 565,000 494,000
Prepaid expenses..................................... 316,000 388,000
Note receivable...................................... - 20,000
------------ ------------
5,234,000 4,965,000
Plant and equipment, net of accumulated
depreciation and amortization of
$3,057,000 in 2004 and $2,919,000 in 2003............ 3,113,000 3,259,000
Deferred income taxes.................................. 13,000 -
Other assets........................................... 54,000 62,000
------------ ------------
Total current assets............... $ 8,414,000 $ 8,286,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 1,515,000 $ 1,686,000
Accrued payroll and payroll taxes.................... 1,341,000 918,000
Other accrued expenses............................... 159,000 243,000
Current obligations under capital leases............. 247,000 229,000
Current obligations under notes payable.............. 209,000 710,000
------------ ------------
Total current liabilities................ 3,471,000 3,786,000
Obligations under capital leases, net
of current portion................................... 891,000 954,000
Notes payable, net of current portion.................. 386,000 124,000
Other long-term liabilities............................ 9,000 11,000
Commitments and contingencies..........................
Shareholders' equity:
Common stock, no par value - 20,000,000 shares
authorized, 7,756,060 isued and outstanding in
2004 and 2003...................................... 13,319,000 13,319,000
Accumulated deficit.................................. ( 9,662,000) (9,908,000)
------------ ------------
Total shareholders' equity............... 3,657,000 3,411,000
------------ ------------
$ 8,414,000 $ 8,286,000
============ ============
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
1
2
HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------------
2004 2003
------------ ------------
Revenues:
Blood products.................... $ 4,845,000 $4,946,000
Blood services.................... 1,891,000 1,985,000
------------ -----------
Total revenue.................... 6,736,000 6,931,000
Operating costs and expenses:
Blood products.................... 4,058,000 4,684,000
Blood services.................... 1,247,000 1,247,000
------------ ----------
Total operating costs and
expenses....................... 5,305,000 5,931,000
------------ -----------
Gross profit...................... 1,431,000 1,000,000
General and administrative
expenses............................ 1,185,000 986,000
------------ -----------
Income before income taxes............. 246,000 14,000
Provision for income taxes............. - 6,000
------------ -----------
Net income.......................... $ 246,000 $ 8,000
============ ===========
Basic and diluted earnings per share... $ 0.03 $ 0.00
============ ===========
Weighted average shares outstanding
- basic............................... 7,756,000 7,751,000
============ ===========
Weighted average shares outstanding
- diluted............................ 7,947,000 7,834,000
============ ===========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
2
3
HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
2004 2003
------------- ---------------
Cash flows from operating activities:
Net income................................................$ 246,000 $ 8,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for bad debts................................ 126,000 -
Use (recognition) of deferred tax assets............... (13,000) 6,000
Depreciation and amortization.......................... 153,000 148,000
Loss of disposal of assets............................. 3,000 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............ (440,000) 610,000
Decrease (increase) in inventories, supplies and
prepaid expenses..................................... 1,000 (173,000)
Decrease in other assets.............................. 8,000 9,000
Decrease in note receivable........................... 20,000 -
Increase (decrease) in accounts payable, accrued
expenses and other liabilitiess...................... 166,000 (25,000)
----------- -----------
Net cash provided by operating activities............. 270,000 583,000
Cash flows from investing activities:
Proceeds from sale of plant and equipment................. 14,000 -
Purchases of plant and equipment, net..................... (24,000) (207,000)
----------- -----------
Net cash used in investing activities..................... (10,000) (207,000)
Cash flows from financing activities:
Principal payments on debt and capitalized leases......... (284,000) (218,000)
----------- -----------
Net cash used in financing activities..................... (284,000) (218,000)
----------- -----------
(Decrease) increase in cash and cash equivalents............ (24,000) 158,000
Cash and cash equivalents at beginning of period............ 935,000 1,048,000
----------- -----------
Cash and cash equivalents at end of period.................. $ 911,000 $1,206,000
=========== ===========
Supplemental disclosure:
Interest paid............................................. $ 31,000 $ 20,000
=========== ===========
Income taxes paid......................................... $ 1,000 $ -
=========== ===========
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
3
4
HemaCare Corporation
Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation and General Information
- ------------------------------------------------------
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements for the three months ended March 31, 2004 and 2003
include all adjustments (consisting of normal recurring accruals) which
management considers necessary to present fairly the financial position of
the Company as of March 31, 2004, the results of its operations for the
three months ended March 31, 2004 and 2003, and its cash flows for the
three months ended March 31, 2004 and 2003 in conformity with accounting
principles generally accepted in the United States. These financial
statements have been prepared consistently with the accounting policies
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003, as filed with the Securities and Exchange Commission on
March 25, 2004 and should be read in conjunction with this Quarterly Report
on Form 10-Q. The results of operations for the three months ended March
31, 2004 are not necessarily indicative of the consolidated results of
operations to be expected for the full fiscal year ending December 31,
2004. Certain information and footnote disclosures normally included in
the financial statements presented in accordance with accounting principles
generally accepted in the United States have been condensed or omitted.
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 affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements. Estimates also affect the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at various financial institutions.
Deposits not exceeding $100,000 for each institution are insured by the
Federal Deposit Insurance Corporation. At March 31, 2004 and December 31,
2003, the Company had uninsured cash and cash equivalents of $701,000 and
$719,000, respectively.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Note 2 - Line of Credit and Notes Payable
- -----------------------------------------
The Company has a working capital line of credit with Comerica Bank -
California. The amount the Company may borrow is the lesser of: 75% of
eligible accounts receivable less amounts outstanding on the notes payable
discussed below, or $2 million. Interest is payable monthly at a rate of
prime plus 0.5%; as of March 31, 2004 the rate paid by the Company was
4.5%. As of March 31, 2004, the Company's net borrowing on this line of
credit was $300,000, and the Company had unused availability of $1,700,000.
The Company has entered into an amendment to the credit agreement with
Comerica Bank to extend the term of the line of credit to June 30, 2005,
4
5
and to revise the financial covenants to levels more favorable to the
Company. As of March 31, 2004, the Company was in compliance with all of
the revised covenants.
In addition, the Company has various other equipment notes payable with
Comerica Bank - California. As of March 31, 2004, the total amount
outstanding under these notes was $203,000 and requires monthly principal
payments of approximately $14,000 plus interest at a weighted average fixed
rate of 6.5%. Of the total amount borrowed under these notes, $148,000 is
included in current obligations under notes payable on the balance sheet.
All of the Comerica loans are collateralized by substantially all of the
Company's assets and are cross-defaulted. They also require the maintenance
of certain financial covenants that among other things require minimum
levels of profitability and prohibit the payment of dividends or stock
repurchases.
Additionally, the Company has another note payable with One Source
Financial. As of March 31, 2004, the balance on this note was $65,000,
which is due in full on January 25, 2006. The note requires quarterly
payments of approximately $10,000 including interest at the rate of 8.5%
and is secured by certain fixed assets. Of the total amount of this note
outstanding, $35,000 is included in current obligations under notes payable
on the balance sheet.
The Company also has a note payable with AICCO, Inc. related to financing
certain insurance premiums. As of March 31, 2004, the balance due on this
note was $26,000, all of which is included in current obligations under
notes payable on the balance sheet. The note requires monthly payments of
approximately $13,000, including interest at a rate of 3.4%.
In December 2003 the Company entered into a capital lease transaction with
Gambro BCT to finance the acquisition of equipment used in the Company's
apheresis activities. The total value of the equipment financed through
this capital lease was $932,000. The lease has a five year term and a
fixed interest of 7.5%. The lease is secured by all of the equipment
purchased through the lease financing.
Note 3 - Shareholders' Equity
- -----------------------------
The Company has elected to adopt SFAS 123, "Accounting for Stock-Based
Compensation," for disclosure purposes only and applies the provision of
APB Opinion No. 25. The Company did not recognize any compensation expense
related to the issuance of stock options in 2004 or 2003. Had compensation
expense for all options granted to employees and directors been recognized
in accordance with SFAS 123, the Company's net income (loss) per share
would have been as follows:
Three months ended
March 31,
-------------------------
2004 2003
----------- ----------
Net income as reported.................... $ 246,000 $ 8,000
Deduct: Total stock-based employee
compensation expense determined under
fair market value based method for all
awards net of related tax effects........ (40,000) (28,000)
----------- ----------
Pro forma net income (loss):............. $ 206,000 $ (20,000)
=========== ==========
Net income per share - basic and diluted
As reported........................... $ 0.03 $ 0.00
Pro forma............................. $ 0.03 $ (0.00)
5
6
Note 4 - Earnings per Share
- ---------------------------
The following table provides the calculation methodology for the numerator
and denominator for diluted earnings per share:
Three months ended
March 31,
-------------------------
2004 2003
---------- -----------
Net income............................... $ 246,000 $ 8,000
=========== ===========
Shares outstanding....................... 7,756,060 7,751,000
Net effect of diluted options and
warrants............................... 191,000 83,000
----------- -----------
Dilutive shares outstanding.............. 7,947,060 7,834,000
=========== ===========
Options and warrants outstanding for 1,639,000 shares and 1,794,000 for the
three months ended March 31, 2003 and 2004, respectively, have been
excluded from the above calculation because their effect would have been
anti-dilutive.
Note 5 - Provision for Income Taxes
- -----------------------------------
The Company has substantial net operating losses from prior periods that
will be available in 2004 to eliminate any federal tax liability. The
Company has recognized income in each of the last two quarters, and as a
result, and to the degree that the Company incurs any state tax liability,
the Company will reduce the valuation reserve against its deferred tax
assets to reflect some potential future benefit from the future utilization
of the Company's net operating losses. The Company will continue to
evaluate the deferred tax asset valuation reserve each quarter based on the
reportable income for each quarter. The Company estimates that $13,000 in
state taxes has been incurred as a result of reportable income during the
first quarter of 2004. Therefore, the Company reduced the valuation reserve
by $13,000, thus eliminating any recognition of income taxes in the quarter.
Note 6 - Business Segments
- --------------------------
HemaCare operates two business segments as follows:
- Blood Products - Collection, processing and distribution of blood
products and donor testing.
- Blood Services - Therapeutic apheresis and stem cell collection
procedures and other therapeutic services to patients.
Management uses more than one measure to evaluate segment performance.
However, the dominant measurements are consistent with HemaCare's
consolidated financial statements, which present revenue from external
customers and operating income for each segment.
Note 7 - Exit and Disposal Activities
- -------------------------------------
As the result of an evaluation of the overall operations of the Company,
management implemented a plan to cease operations at several donor centers,
as well as the mobile operations associated with these centers, in the
third and fourth quarters of 2003. Costs associated with the closures are
reflected in the Company's third and fourth quarter results in accordance
with generally accepted accounting principles.
6
7
During the first quarter of 2004, management completed the implementation
of this plan by closing the donor center in Chapel Hill, North Carolina.
All of the costs associated with the closure of this center are reflected
in the Company's first quarter results in accordance with generally
accepted accounting principles.
As a result of the implementation of management's plan to close the donor
center as described above, the Company incurred or anticipates will incur
certain expenses associated with closing this center. These expenses total
$11,000 and include vehicle transportation expenses, equipment lease
cancellation costs and other associated costs. All of the these costs were
recorded as operating expense. Of the $11,000 provision recorded in the
first quarter of 2004, $2,000 was utilized during the quarter and $9,000
remains outstanding as of March 31, 2004.
Note 8 - Subsequent Events
- --------------------------
In February 2004, the Company received notice from Gambro BCT ("Gambro"),
one of the Company's largest suppliers, that the California Board of
Equalization was conducting an audit of Gambro's sales tax records. Gambro
communicated to the Company that preliminary results of this audit
indicated that the Company is likely to receive a refund of previously paid
sales taxes. The amount of the potential refund has not yet been
determined; however, preliminary indications are that the amount could be
material. The Company will record the benefit of this refund, if any, as
soon as the amount can be reasonably estimated and is certain.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
financial statements and the related notes provided under "Item 1-Financial
Statements" above.
The matters discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Quarterly Report
on Form 10-Q that are not historical are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may also be identified by the use of words such as "anticipate,"
"believe," "continue," "estimate," "expect," "intend," "may," "project,"
"will" and similar expressions, as they relate to the Company, its
management and its industry. Investors and prospective investors are
cautioned that these forward-looking statements are not guarantees of
future performance and involve risks and uncertainties. Actual results
could differ from those described in this report because of numerous
factors, many of which are beyond the Company's control. These factors
include, without limitation, those described below under the heading "Risk
Factors Affecting our Business." The Company does not undertake to update
its forward-looking statements to reflect later events and circumstances or
actual outcomes.
General
- -------
HemaCare Corporation ("HemaCare" or the "Company") collects, processes and
distributes blood products to hospitals in the United States.
Additionally, the Company provides blood related services, principally
therapeutic apheresis procedures, stem cell collection and other blood
treatments to patients with a variety of disorders. Blood related services
are usually provided on an "in-patient" basis under contract with the
hospital as an outside purchased service.
The Company has operated in Southern California since 1979. In 1998, the
Company expanded operations to include portions of the eastern U.S. In
2003, new management completed a comprehensive evaluation of the Company's
operations, and at the conclusion of this review developed a restructuring
plan to reduce the number of geographic areas served, reduce the overhead
costs associated with supporting the organization, and improve the
collection capability in the geographic areas still served by the Company.
Management's strategy is to return the Company to a profitable foundation
before exploring opportunities for growth in other geographic areas or into
new lines of business. The implementation of this plan started in the
third quarter of 2003, and continued into early 2004. As of the end of the
first quarter of 2004, the implementation of the restructuring plan is
complete, and management is now focused on improving the profitability of
7
8
the remaining operations including growth within existing geographic
markets, expanding therapeutic apheresis market share and exploring new
customer opportunities such as research companies.
Although most blood suppliers are organized as not-for-profit, tax-exempt
organizations, all suppliers charge fees for blood products to cover their
costs of operations. The Company believes that it is the only investor-
owned and taxable organization operating as a blood supplier with
significant operations in the U.S.
Results of Operations
- ---------------------
Three months ended March 31, 2004 compared to the three months ended March
31, 2003
Overview
In the third and fourth quarters of 2003, management implemented a plan to
cease operations at several donor centers, as well as the mobile operations
associated with these centers. The operations management chose to close
were under performing or required excessive overhead resources to support,
in comparison with other operations of the Company. All of the costs
associated with these closures were reflected in the Company's third and
fourth quarter 2003 results in accordance with generally accepted
accounting principles.
During the first quarter of 2004, management closed the donor center in
Chapel Hill, North Carolina. All of the costs associated with the closure
of this center are reflected in the Company's first quarter results in
accordance with generally accepted accounting principles.
As a result of the successful implementation of management's restructuring
plan, the gross profit for the Company's blood products segment
significantly improved.
Revenues for the quarter ended March 31, 2004 were $6,736,000, which
represents a decline in revenue of $195,000, or 2.8%, from $6,931,000
generated during the same period in 2003. Blood products revenue decreased
$101,000, or 2.0%, as a result of the elimination of revenue generated by
operations closed in the third and fourth quarters of 2003. Blood services
revenue decreased $94,000, or 4.7%, as a result in a decrease in the number
of therapeutic apheresis procedures performed.
For the three months ended March 31, 2004, the Company generated $246,000
of net income compared with net income of $8,000 for the same period in
2003. The increase in net income of $238,000, is mainly due to i) the
elimination of expenses associated with operating non-performing donor
centers closed in late 2003, ii) increased sales volume at all the ongoing
donor centers, and iii) increases in product pricing.
Blood Products
For this business segment, the following table summaries the revenues,
gross profit and sales volumes associated with donor centers operated by
the Company, and donor centers closed in 2003:
For the three month period ended March 31, 2004
(Revenues and Gross Profit in Thousands)
Ongoing Centers Closed Centers California Mobiles
------------------ ------------------ ------------------
2004 2003 2004 2003 2004 2003
-------- -------- -------- -------- -------- --------
Revenues $ 4,780 $ 4,102 $ 65 $ 844 $ 4,845 $ 4,946
Gross Profit $ 787 $ 456 $ - $ (194) $ 787 $ 262
Gross Profit % 16.5% 11.1% - (23.0%) 16.2% 5.3%
Units Sold:
Single Donor
Platelets 4,242 3,538 80 1,222 4,322 4,760
Whole Blood 11,802 11,358 0 1,937 11,802 13,295
8
9
For the three months ended March 31, 2004, revenues from ongoing donor
centers increased by $678,000, or 16.5%, to $4,780,000 from $4,102,000 in
the same period of 2003. This increase in revenues was due to an increase
in both platelet and whole blood product sales during the quarter.
Platelet volumes increased nearly 20% during the first quarter of 2004
compared with the same period last year. Whole blood volumes increased
3.9% during this same period. All of the Company's ongoing donor centers
generated increased revenue compared with the same period in 2003.
Revenues from the closed donor centers declined by $779,000 from $844,000,
which offset the growth in revenues from the ongoing centers.
For the three months ended March 31, 2004, gross profit for ongoing donor
centers increased by $331,000 to $787,000 compared with the first quarter
of 2003. The gross profit percentage also increased to 16.5% in 2004 from
11.1% in 2003. This improvement in gross profit is the result of i)
increases in product prices and, ii) increased operational efficiencies
realized from higher volumes.
In the second quarter of 2004, the donor center management contract between
the Company and Presbyterian Intercommunity Hospital, located in Whittier,
California, will terminate. The Company recorded revenues of $555,000 as a
result of this contract in 2003, and $165,000 in the first quarter of 2004.
Blood Services
Revenues from blood services decreased by $94,000, or 4.7%, to $1,891,000
in the first quarter of 2004 from $1,985,000 in the same period of 2003.
The decrease was mainly due to a 15.7% decrease in the number of
therapeutic apheresis procedures performed from 1,649 procedures performed
to 1,390 procedures primarily due to a reduction in the New York market,
and the closure of the Company's operations in Illinois, North Carolina,
Pennsylvania and Tennessee in 2003.
Gross profit for the blood services segment decreased $94,000, or 12.7%,
from $738,000 generated in the first quarter of 2003 to $644,000 generated
during the same period in 2004. This decline is primarily the direct
result of lower blood services revenue in 2004 compared with 2003, and
fewer high margin procedures.
General and Administrative Expenses
General and administrative expenses increased by $199,000, or 20.2%, to
$1,185,000 in the first quarter of 2004 from $986,000 in the same period of
2003. This increase was primarily due to a $69,000 increase in insurance
expenses, and a $124,000 increase in bad debt expense compared with the
first quarter of 2003.
The Company has experienced a significant increase in professional
liability insurance costs and other forms of insurance over the past year.
In addition, during the fourth quarter of 2003 and the first quarter of
2004, the Company wrote off receivable balances at a greater rate than
experienced in previous quarters. Most of these write offs pertain to
receivables associated with the closed donor centers. Until the Company
experiences a decrease in the level of receivable write offs, management
has decided to maintain the allowance for doubtful accounts at the same
percentage of gross receivables recognized as of the end of 2003.
Accordingly, the Company recognized additional bad debt expense in the
first quarter of 2004 of $126,000. This amount is $124,000 more than the
bad debt expense recognized by the Company in the first quarter of 2003.
Income Taxes
The Company has sufficient net operating loss carryforward to avoid any
federal income tax expense for the first quarter of 2004. Therefore, no
provision for federal income taxes was recorded for the quarter. However,
in recent years the State of California has had a moratorium on the full
utilization of prior period operating losses against current period income.
Although this moratorium is scheduled to expire in 2004, management
believes it is likely the moratorium will be extended in order to provide
additional revenue to the state at a time of severe budget deficits. Since
the Company recorded net income of $246,000, management estimates that a
provision for state income tax is appropriate at the rate of 5.3%, which
takes into consideration state apportionment factors and the California
operating loss moratorium issue. During the first quarter of 2004, the
9
10
Company recorded an adjustment to the deferred tax asset valuation reserve
of $13,000, which eliminated any provision for income taxes from the
statement of income. This adjustment represents less than 1% of the total
deferred tax asset. Management believes a small adjustment is appropriate
considering the Company has recorded net income in each of the last two
fiscal quarters, thereby constituting evidence that the Company may derive
some future benefit from the deferred tax asset.
Critical Accounting Policies and Estimates
- -------------------------------------------
Use of Estimates
The Company's discussion and analysis of its 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 affect the reported amounts of assets, liabilities, revenues
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.
Allowance for Doubtful Accounts
The Company makes ongoing estimates relating to the collectibility of
accounts receivable and maintain 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 future 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 was appropriate, the Company would record
a credit or a charge to general and administrative expense in the period in
which such a determination is made.
Income Taxes
As part of the process of preparing the financial statements, the Company
is required to estimate income taxes in each of the jurisdictions that the
Company operates. This process involves estimating actual 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. Management must then assess the likelihood
that the deferred tax assets will be recovered from future taxable income,
and to the extent management believes that recovery 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 income.
Significant management judgment is required in determining the provision
for income taxes, deferred tax asset and liabilities and any valuation
allowance recorded against net deferred tax assets. Management continually
evaluates if the deferred tax asset is likely to be realized. If
management determines that the deferred tax asset is not likely to be
realized, a write-down of that asset would be required and would be
reflected in the provision for taxes in the accompanying period.
Liquidity and Capital Resources
As of March 31, 2004, the Company cash and cash equivalents equaled
$911,000 and working capital of $1,763,000.
10
11
The Company has a working capital line of credit with Comerica Bank -
California. The amount the Company may borrow is the lesser of: 75% of
eligible accounts receivable, less amounts outstanding on the notes payable
discussed below, or $2 million. Interest is payable monthly at a rate of
prime plus 0.5%; as of March 31, 2004 the rate paid by the Company was
4.5%. As of March 31, 2004, the Company's net borrowing on this line of
credit was $300,000, and the unused portion of the Company's line of credit
was $1,700,000. The Company has entered into an amendment to the credit
agreement with Comerica Bank which extends the term of the line of credit
to June 30, 2005, and to revise the financial covenants to levels more
favorable to the Company. As of March 31, 2004, the Company was in
compliance with all of the revised covenants.
In addition, the Company has various other equipment notes payable with
Comerica Bank - California. As of March 31, 2004, the total amount
outstanding under these notes was $203,000 and requires monthly principal
payments of approximately $14,000 plus interest at a weighted average fixed
rate of 6.5%. Of the total amount borrowed under these notes, $148,000 is
included in current obligations under notes payable on the balance sheet.
All of the Comerica loans are collateralized by substantially all of the
Company's assets and are cross-defaulted. They also require the maintenance
of certain financial covenants that among other things require minimum
levels of profitability and prohibit the payment of dividends or stock
repurchases.
Additionally, the Company has another note payable with One Source
Financial. As of March 31, 2004, the balance on this note was $65,000. The
note requires quarterly payments of approximately $10,000 including
interest at the rate of 8.5% and is secured by certain fixed assets. Of the
total amount of this note outstanding, $35,000 is included in current
obligations under notes payable on the balance sheet.
The Company also has a note payable with AICCO, Inc. related to financing
certain insurance premiums. As of March 31, 2004, the balance due on this
note was $26,000, all of which is included in current obligations under
notes payable on the balance sheet. The note requires monthly payments of
approximately $13,000, including interest at a rate of 3.4%.
Finally, in December 2003 the Company entered into a capital lease
transaction with Gambro BCT to finance the acquisition of equipment used in
the Company's apheresis activities. The total value of the equipment
financed through this capital lease was $932,000. The lease has a five
year term and a fixed interest rate of 7.5%. The lease is secured by all
of the equipment purchased through the lease financing.
The following table summarizes our contractual obligations by year (in
thousands).
Total 2005 2006 2007 2008 2009
------- ------- ------ ------ ------ ------
Operating leases $ 704 $ 290 $ 259 $ 155 $ - $ -
Capitalized leases 1,327 320 309 291 222 185
Notes payable 595 209 386 - - -
------- ------- ------ ------ ------ ------
Totals $ 2,626 $ 819 $ 954 $ 446 $ 222 $ 185
======= ======= ====== ====== ====== ======
For the three months ended on March 31, 2004, net cash provided by
operating activities was $270,000, compared to $583,000 for the three
months ended March 31, 2003. The decrease of $313,000 is primarily due to
an increase in accounts receivable balances of $440,000 since the end of
2003, whereas in the first three months of 2003, accounts receivable
balances actually decreased $610,000. Although this represents a
substantial swing from last year to this year, the days sales outstanding
statistic as of the end of the first quarter of 2004 stood at 47 days,
which compares favorably to 57 days outstanding as of the end of the first
quarter of 2003. Therefore, management remains confident that recent
efforts to accelerate collections has produced positive results for the
Company's cash flow. Offsetting the change in account receivable balances
during the first quarter of 2004 compared with the same period in 2003 were
i) an increase in net income of $238,000, ii) an increase in the provision
for bad debts of $126,000, iii) a decrease in the change in inventories,
supplies and prepaid expenses of $174,000, and iv) an increase in the
change in accounts payable, accrued expenses and other liabilities of
11
12
$189,000. The increase in the provision for bad debts was the result of
recent increases in receivable write offs that reduced the allowance for
doubtful accounts below levels maintained in recent years as a percent of
gross receivables. Unless and until the rate of receivable write offs
decreases, management has decided to continue to maintain a consistent
percentage of gross receivables in the allowance for doubtful accounts.
The decrease in the change in inventories, supplies and prepaid expenses is
mostly the result of smaller build up of inventory during the first quarter
of 2004 than experienced in the first quarter of 2003. Finally, the
increase in the change in accounts payable, accrued expenses and other
liabilities in the first quarter of 2004 compared with the first quarter of
2003 is primarily due to an increase in accrued payroll in 2004.
For the three months ended on March 31, 2004, net cash used in investing
activities was $10,000, compared with $207,000 for the same period in 2003.
The decrease of $197,000 is primarily due to the Company's investments in
new vehicles and leasehold improvement expenditures during the first
quarter of 2003. The Company did not make similar investments in plant or
equipment during the first quarter of 2004.
For the three months ended March 31, 2004, net cash used in financing
activities is $284,000 compared with net cash used of $218,000 for the
three months ended March 31, 2003. The difference in the cash used for
financing activities is primarily due to management's decision to use a
portion of the cash generated by operations to reduce debt rather than on
the acquisition of plant and equipment as was done during the first quarter
of 2003.
Management anticipates that cash on hand and available borrowing on the
bank line of credit 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. The Company has
entered into an amendment to the credit agreement with Comerica Bank that
extends the term of the line of credit to June 30, 2005.
The Company's primary sources of liquidity include our cash on hand,
available borrowing on the line of credit 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. Liquidity also depends on maintaining
compliance with the various loan covenants. From time to time the Company
has failed to comply with some or all of these covenants. The Company has
obtained waivers from the bank for each of these covenant violations. If
in the future the Company is unable to comply with a loan covenant and the
bank does not issue a waiver, the Company's liquidity could be materially
affected.
Risk Factors Affecting the Company
- ----------------------------------
Short and long-term success is subject to many factors that are beyond
management's control. Shareholders and prospective shareholders in the
Company should consider carefully the following risk factors, in addition
to other information contained in this report. This Quarterly Report on
Form 10-Q contains forward-looking statements. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various risks and uncertainties, including those described below.
Operating Risk
The Company recently completed a plan to eliminate underperforming
facilities to improve the profitability of the Company. The future of the
Company now depends on generating sufficient operating profit from the
remaining facilities to cover overhead expenses. The remaining facilities
have not always been consistently profitable. Therefore, the Company is at
risk if management is unable to execute an operating plan that will produce
consistent profits from the remaining facilities.
Potential Loss of Lines of Credit
In December 2002, the Company replaced the then existing lines of credit
with a new $2.0 million working capital line of credit that requires the
Company maintain certain financial covenants including profitability each
quarter. The Company has entered into an amendment to the credit agreement
with Comerica Bank that extends the term of the line of credit to June 30,
2005, and to revise the financial covenants to levels more favorable to the
Company. As of March 31, 2004, the Company was in compliance with the
revised covenants. Maintaining compliance is dependent, among other
12
13
things, on achieving the required profitability. The Company generated
losses of $591,000 and $4,679,000 for 2002 and 2003, respectively.
Continued losses would violate the terms of the credit line. While in the
past the bank granted covenant violation waivers when needed, the Company
cannot assure that the bank will continue to grant waivers in the future.
Failure to obtain such waivers when, and if, needed could result in
acceleration of payment obligations under the credit agreement and severely
reduce liquidity. In addition, the existing credit agreement expires June
30, 2005. Management will make efforts to replace this facility or
negotiate an extension of the existing line of credit; however, the Company
cannot assure that alternative financing will be available or that the
existing line of credit can be extended on terms acceptable to the Company.
Failure to replace this facility will adversely impact liquidity and could
deprive the Company of the working capital needed to continue to operate.
Potential Inability to Meet Future Capital Needs
Currently, the Company believes it has sufficient cash available through
its cash on hand, bank credit facilities and funds from operations to
finance its operations for the next six months. However, the Company
incurred a $4,679,000 loss during 2003. While the Company generated
$246,000 in net income during the first quarter of 2004, there is no
assurance this performance will be sustainable and the Company may need to
raise additional capital in the debt or equity markets. 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.
Market Prices for Blood Do Not Necessarily Reflect Costs
The Company depends on competitive pricing to obtain and maintain sales.
As costs increase, the Company may not be able to raise prices
commensurately if competitors do not. Some competitors have greater
resources than the Company to sustain periods of unprofitable sales. Cost
increases may therefore have a direct negative effect on profits and a
material adverse affect on the business.
Declining Blood Donations
The business depends on the availability of donated blood. Only a small
percentage of the population donates blood, and new regulations intended to
reduce the risk of introducing infectious diseases in the blood supply have
decreased the pool of potential donors. If the level of donor
participation declines, the Company may not be able to achieve
profitability or reduce costs sufficiently to maintain profitability in
blood products.
Increasing Costs
The costs of collecting, processing and testing blood have risen
significantly in recent years and will likely continue to increase. These
cost increases are related to new and improved testing procedures to assure
that blood is free of infectious disease, increased regulatory requirements
related to blood safety, and increased costs associated with recruiting
blood donors. New testing protocols have required the Company to outsource
much of the required testing. Competition, and in some cases multi-year
contractual arrangements, may limit the Company's ability to pass these
increased costs to customers. In this circumstance, the increased costs
could reduce profitability and could have a material adverse effect on the
business and results of operations.
Impact of Reimbursement Rates
Reimbursement rates for blood products and services provided to Medicaid
and Medicare patients impact the fees that the Company is able to negotiate
with hospitals. Decreases in reimbursement rates or increases which do not
keep pace with higher costs, may impact the Company's profitability.
Increasing Reliance on Outside Laboratories
The Company maintains laboratories that are licensed and accredited to test
blood products for purity, potency and quality. The Company also utilizes
outside laboratories for a variety of tests. As other new testing and
processing technologies are introduced, the Company has increased its
reliance on outside laboratories. In using outside laboratories the
13
14
Company will have less control over testing costs. In addition, because
laboratory facilities competent in these new technologies are scarce, the
loss of an outside laboratory because of competition for capacity would
have a material adverse effect on the business.
Targeted Donor Base Involves Higher Collection Costs
Part of the Company's current operations involves conducting blood drives
for organizations that provide a relatively small number of donors. Blood
drives directed at smaller donor sites lack the efficiencies associated
with larger blood drives. As a result, collection costs might be higher
than the competition and may affect profitability and growth plans.
Access to Insurance
The Company currently maintains insurance coverage consistent with the
industry; however, if the Company experiences losses or the risks
associated with the blood products industry increase in the future,
insurance may become more expensive or unavailable. The Company also
cannot give assurance that as the business expands, or 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 exceed available insurance coverage, or changes in
insurance policies, such as premium increases or the imposition of large
deductibles or co-insurance requirements, could materially and adversely
affect the business.
Not-For-Profit Status Gives Advantages to Our Competitors
HemaCare Corporation 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 Adverse Affect from Changes in the Healthcare Industry
In the U.S., a fundamental change is occurring in the healthcare system.
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. A national hospital chain has announced
plans to sell 19 of its facilities in California, many of which are
customers of the Company. In addition, there has been significant
consolidation among healthcare providers as providers seek 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, the
Company could be adversely affected by customer attrition as a result of
consolidation or closure of hospital facilities.
Future Technological Developments Could Jeopardize Business
As a result of the risks posed by blood-borne diseases, many companies are
currently seeking to develop synthetic substitutes for human blood
products. HemaCare's business consists of collecting, processing and
distributing human blood and blood products. The introduction and
acceptance in the market of synthetic blood substitutes would cause
material adverse harm to the business.
Operations Depend on Obtaining the Services of Qualified Medical
Professionals
The Company is highly dependent upon obtaining the services of qualified
medical professionals. In particular, operations depend on the services of
registered nurses and other medical technolgists. Nationwide, the demand
for these professionals exceeds the supply and competition for their
services is strong. This shortage could be
14
15
aggravated in the event of a war or other international conflict. If the
Company is unable to attract and retain a staff of qualified medical
professionals, operations would be adversely affected.
Heavily Regulated Industry
The business of collecting, processing and distributing blood and blood
products are all 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 of
products, facilities and procedures, and regarding the purity and quality
of blood products. In addition, state and federal laws include anti-
kickback and self-referral prohibitions and other regulations that affect
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, and believes it is currently in compliance; however, the
possibility cannot be eliminated that interpretations of existing laws and
regulations will result in a finding that the Company has not complied with
significant existing regulations. Such a finding could materially harm the
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. Some of these changes could require costly
compliance efforts or expensive outsourcing of functions which could make
some of the Company's operations prohibitively expensive or impossible to
continue.
Product Safety and Product Liability
Blood products carry the risk of transmitting infectious diseases,
including hepatitis, HIV and Creutzfeldt-Jakob Disease. HemaCare carefully
screens donors, uses highly qualified testing service providers to test its
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
could exceed insurance coverage and materially and adversely affect the
Company's financial condition. Furthermore, healthcare regulations are
constantly changing and certain changes could require costly compliance or
make some of our operations impossible to continue.
Environmental Risks
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.
Business Interruption Due to Terrorism and Increased Security Measures In
Response to Terrorism
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. The 2001 response to terrorist activities slowed or stopped
transportation, mail, financial and other services for a period of time.
Further delays or stoppages in transportation of perishable blood products
and interruptions of mail, financial or other services could have a
material adverse effect 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 the 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 affected
by terrorist activities and potential activities. The U.S. economy in
general is adversely affected by terrorist
15
16
activities, and potential activities, and any economic downturn could
adversely impact the Company's results of operations, impair its ability to
raise capital or otherwise adversely affect its ability to grow its
business.
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
for 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 our 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 our 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, could
materially adversely affect the shareholders' ability to realize a premium
over the then-prevailing market price for the common stock in connection
with such a transaction. For a description of the Rights Plan see the
Company's Current Report on Form 8-K filed with the SEC on March 5, 1998.
Stocks Traded on the OTC Bulletin Board are Subject to Greater Market Risks
than Those of Exchange-Traded and NASDAQ Stocks
HemaCare's common stock was delisted from the NASDAQ Small Cap Market on
October 29, 1998 because of the failure to maintain NASDAQ's requirement of
a minimum bid price of $1.00. Since November 2, 1998 the common stock has
traded on the OTC Bulletin Board, an electronic, screen-based trading
system operated by the National Association of Securities Dealers, Inc.
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 a national
securities exchange. As a result, an investor may find it difficult to
dispose of our common stock or to obtain accurate quotations as to its
price.
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 the 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.
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 could further reduce the market
price of the common stock.
Lack of Dividend Payments
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,
16
17
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
The Company has $1,733,000 of debt, which includes $1,433,000 of notes
payable and capitalized leases with fixed interest rates. The remaining
$300,000 of debt represents advances on our working capital line of credit
at an interest rate linked to the prime interest rate. Accordingly,
interest rate expense will fluctuate with rate changes in the U.S. If
interest rates were to increase or decrease by 1% for the year, our
interest expense would increase or decrease by approximately $3,000.
Item 4. Controls and Procedures
- -------------------------------
The Company's chief executive officer and the principal financial officer,
with the participation of the Company's management, carried out an
evaluation of the effectiveness of the Company's disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that
evaluation, the chief executive officer and the principal financial officer
believe that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures are effective in making known
to them material information relating to the Company (including its
consolidated subsidiaries required to be included in this report).
Disclosure controls and procedures, no matter how well designed and
implemented, can provide only reasonable assurance of achieving an entity's
disclosure objectives. The likelihood of achieving such objections is
affected by limitations inherent in disclosure controls and procedures.
These include the fact that human judgment in decision-making can be faulty
and that breakdowns in internal control can occur because of human failures
such as simple errors, mistakes or intentional circumvention of the
established process.
There was no change in the Company's internal controls over financial
reporting, known to the chief executive officer or the principal financial
officer, that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. 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. See disclosure in Form 10-K for the year ended
December 31, 2003.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities
- -------------------------------------------------------------------
None.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
None.
17
18
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None
Item 5. Other Information
- -------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a. Exhibits
10.1 First Modification to Loan and Security Agreement
between HemaCare Corporation and Coral Blood
Services, Inc., as borrower, and Comerica Bank dated
March 22, 2004
11 Net Income per Common and Common Equivalent Share
31.1 Certification Pursuant to Rule 15d-14(a) Under the
Securities Exchange Act
31.2 Certification Pursuant to Rule 15d-14(a) Under the
Securities Exchange Act
32 Certification Pursuant to 18 U.S.C. 1350 and Rule
15d-14(a) Under the Securities Exchange Act
b. Reports on Form 8-K
On April 9, 2004, the Company filed a Current Report on
Form 8-K disclosing under Item 4 (Changes in Registrant's
Certifying Accountant) the dismissal of Ernst & Young, LLP
as the Company's independent accountants, and the
appointment of Stonefield Josephson, Inc. as the Company's
new independent accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date May 14, 2004 HEMACARE CORPORATION
---------------- ------------------------------
(Registrant)
/s/ Judi Iriving
-------------------------------
Judi Irving, Chief Executive
Officer
/s/ Robert S. Chilton
-------------------------------
Robert S. Chilton, Chief
Financial Officer
18
19
INDEX TO EXHIBITS
Page
Exhibit Number
- ------- --------
10.1 First Modification to Loan and Security Agreement 20
between HemaCare Corporation and Coral Blood
Services, Inc., as borrower, and Comerica Bank dated
March 22, 2004
11 Net Income per Common and Common Equivalent Share 22
31.1 Certification Pursuant to Rule 15d-14(a) Under the
Securities Exchange Act 23
31.2 Certification Pursuant to Rule 15d-14(a) Under the 24
Securities Exchange Act
32 Certification Pursuant to 18 U.S.C. 1350 and Rule 25
15d-14(a) Under the Securities Exchange Act
19
20