Published: November 12, 2007
HemaCare Reports Third Quarter Loss
HemaCare Corporation (OTCBB: HEMA) today
announced that third quarter 2007 operations resulted in a net loss of
$5,596,000, or $0.64 per share basic and diluted, compared to net income of
$448,000, or $0.05 per share basic and diluted, for the same period of
2006. Included in the net loss for the quarter are a $4,259,000 non-cash
charge for goodwill impairment associated with HemaCare BioScience, Inc.
("HemaBio"), the Company's Florida-based research blood products operation,
a $622,000 non-cash charge from the increase in the Company's deferred tax
asset valuation reserve to 100%, and a $290,000 operating loss at HemaBio,
which the Company closed on November 5, 2007. The Company generated $9.6
million in revenue during the quarter, up 4% from $9.2 million reported for
the third quarter of 2006.
Revenue was driven by a 4% increase in the Company's blood products
business segment to $7.5 million, which was due to the acquisition of
HemaBio on August 29, 2006. The 2006 third quarter results include only 32
days of HemaBio operations compared to an entire quarter in 2007. Revenue
from the Company's other blood products operation decreased $202,000,
mostly as a result of declining collections at the Company's
California-based mobile whole blood operation. The Company's blood
services revenue increased $75,000, or 4%, during the quarter compared to
the third quarter of 2006, driven by the Company's Mid-Atlantic operations.
The Company reported gross profit of $895,000 in the third quarter of 2007
compared to $1,731,000 for the same period in 2006, a $836,000, or 48%,
decrease. The decrease is the result of a $821,000, or 74%, decrease in
gross profit from the Company's blood products business segment, which is
primarily the result of a $469,000 year over year decline in gross profit
from HemaBio in the quarter to a loss of $290,000, compared to gross profit
of $179,000 recognized in the same period of 2006. Starting in the first
quarter of 2007, and continuing through the second and third quarters,
HemaBio's sales volumes deteriorated and operating costs increased compared
to the same periods in 2006. Although management took action beginning in
the third quarter to reduce costs at HemaBio, such as a 33% staff
reduction, by the end of the third quarter it was not immediately clear how
HemaBio management could return the business to profitability. HemaBio
President and founder, Joseph Mauro, and HemaBio Vice President of Product
Development Valentin Adia, the former owners of HemaBio, resigned on
October 31, 2007. The Board of Directors of both HemaBio and HemaCare
Corporation determined that returning HemaBio to profitability without the
former owners and senior management was not probable and elected to close
the business.
In addition to declining profitability at HemaBio, the gross profit from
the Company's other blood products operations declined $352,000, or 38%, to
$576,000 in the quarter compared to $928,000 for the same period of 2006.
This was the result of a decline in collections at the Company's California
operation from competition for mobile drive sponsors and turnover in
recruitment staff, competition in the California market which restricted
the ability of the Company to pass along cost increases for staff,
supplies, fuel, newly mandated blood tests and regulatory costs, and an
increase in the cost of purchased blood products due to a national decrease
in supply. Gross profit from the Company's Maine blood products operation
improved in the quarter due to higher collection volumes and a decrease in
staff costs.
Gross profit for the Company's blood services segment decreased $15,000, or
2%, from $624,000 in the third quarter of 2006 to $609,000. This was
primarily the result of increases in the cost of clinical supplies used in
therapeutic apheresis procedures and fuel. The gross profit percentage for
the Company's blood services segment declined to 30% during the quarter
compared to 31% for the same quarter in 2006.
General and administrative expenses increased by $4.6 million to $5.9
million in the third quarter of 2007, primarily from a $4.3 million
non-cash charge for goodwill impairment as a result of management's
application of SFAS No. 142, which requires an evaluation of the fair value
of goodwill recognized from previous acquisition activity. In 2006, the
Company acquired all of the outstanding capital stock of HemaBio, for cash,
HemaCare stock, notes and additional cash and stock based on the future
performance of HemaBio. As of September 30, 2007, the Company determined
that the total consideration paid to acquire HemaBio exceeded the fair
value of the assets acquired, less the value of the liabilities acquired,
otherwise known as goodwill, by $4.3 million. Utilizing various fair value
estimation methodologies, management further determined that the fair value
of the HemaBio goodwill as of September 30, 2007 was less than the book
value, and therefore, the Company recognized a goodwill impairment charge.
In addition to the goodwill impairment charge, general and administrative
expense increased $329,000, primarily from a $190,000 increase in outside
professional and temporary personnel costs largely to comply with Sarbanes
Oxley requirements, a $57,000 increase in depreciation, a $42,000 increase
in interest expense, and a $26,000 increase in the cost of non-cash
share-based compensation expense.
At the end of 2006, management determined that the Company was more likely
than not to benefit from $622,000 in future tax savings from available net
operating loss carryforwards, and therefore reduced the deferred tax asset
valuation reserve, creating a deferred tax asset on the Company's balance
sheet. The third quarter of 2007 loss represented the third consecutive
quarterly loss for the Company. Therefore, as of September 30, 2007,
management increased the valuation reserve for the Company's deferred tax
assets to 100%, which resulted in the elimination of the deferred tax
asset, and a related charge to the provision for income taxes of $622,000.
For the first nine months of 2007, the Company reported $28.6 million in
revenue, a $2.8 million, or 11%, increase from $25.8 million generated
during the same period of 2006. Blood products revenue increased $2.6
million, or 13%, primarily due to the addition of HemaBio's operations for
three full quarters in 2007. Blood services revenue increased $145,000, or
3%, during the period, due to a 4% increase in procedure volume.
The Company generated a net loss of $6.4 million for the first nine months
of 2007 representing a $7.2 million decrease in profits compared to the
same period of 2006. The decrease was primarily the result of the
recognition of $4.3 million goodwill impairment charge, $622,000 increase
in the Company's deferred tax asset valuation reserve, and $326,000 charge
in severance expense for the Company's former President and Chief Executive
Officer. Excluding these nonrecurring expenses, the Company recorded an
operating loss of $1.1 million, which primarily was the result of
decreasing gross profit from the Company's blood products business segment.
"We are very disappointed with these results," said Jay Steffenhagen,
Interim Chief Executive Officer of HemaCare Corporation. "It is
unfortunate that our investment in the acquisition of HemaBio has not
produced the kind of profits that we and the operating management felt were
possible. We did not come to our conclusion about HemaBio without a great
deal of thought and analysis. The decline in revenue since the beginning
of the year was especially concerning, and it appeared the HemaBio
management team would have difficulty returning to profitable operations.
Although we continued to search for a pathway to profitability, the
resignations of HemaBio's President and Vice President of Business
Development, who understood the business and developed many of the
relationships with HemaBio's specimen vendors and customers, put the future
of the Company at significant risk. As a result, it was decided the best
course of action was to close the business." Mr. Steffenhagen concluded by
stating, "With the closure of HemaBio, management is now removed from the
distractions and losses caused by this faltering business, and can focus
its energies on improving the operations and profitability of HemaCare
itself. Management has already put into motion several initiatives to
increase collection volumes and reduce costs at the Company's California
blood products operation, which we believe will produce positive results."
About HemaCare Corporation
Founded in 1978, HemaCare is a provider of blood products and services to
the healthcare industry in the U. S. HemaCare is licensed by the FDA and
accredited by the AABB. The Company focuses on providing cost effective,
high quality solutions to organizations with a need for blood-related
products and services.
This press release contains "forward-looking statements" under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995
(Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended). Statements herein that
are not historical facts are forward-looking statements pursuant to the
safe harbor provisions referenced above. You may also identify
forward-looking statements by use of the words "anticipates," "expects,"
"intends," "plans" and similar expressions. These forward-looking
statements include, but are not limited to, the ability of management to
improve the operations and profitability of the remaining business, and the
success of management's initiatives to increase collection volumes and
reduce costs at the Company's California blood products operation.
Forward-looking statements are inherently subject to risks and
uncertainties some of which cannot be predicted or quantified. Such risks
and uncertainties include, without limitation, the Company has reported
losses for three consecutive quarters and may not return to profitability,
the Company is in default under the Comerica credit agreement and HemaBio
notes which could result in acceleration of note obligations which the
Company has insufficient resources to satisfy, its ability to continue to
control general and administrative expenses as a percent of sales; the need
to successfully complete its operating plan to improve profits; the
potential loss of the Company's lines of credit; the potential inability of
the Company to meet future capital needs; changing demand for blood
products could affect profitability; market prices might not rise as costs
increase; competition may cause a loss of customers and an increase in
costs; operations depend on obtaining the services of qualified medical
professionals and competition for their services is strong; declining blood
donations; the Company's dependence on reimbursement rates of third party
payors; targeted partner blood drives involve higher collection costs;
reliance on relatively few vendors for significant supplies and services
could affect the Company's ability to operate; limited access to insurance;
the competitive advantage enjoyed by not-for-profit companies; potential
changes in the healthcare industry; future technology for blood collection
and blood replacement; the impact of heavy regulation in the Company's
industry; potential liability for undetected blood pathogens and other
product safety and liability concerns; environmental risks associated with
biohazardous substances; the threat of business interruption due to
terrorism and the security measures taken in response to terrorism; the
provisions of the Company's charter documents that might delay or prevent
an acquisition or sale of the Company; lack of liquidity and market risk
associated with OTC Bulletin Board stocks; strategy to acquire companies
may result in unsuitable acquisitions or failure to successfully integrate
acquired companies, which could lead to reduced profitability; volatility
in stock price; potential dilution that could result from future sales of
the Company's common stock; and the other risks and uncertainties discussed
from time to time in the documents HemaCare files with the Securities and
Exchange Commission. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Consequently,
future events and actual results could differ materially from those set
forth in, contemplated by, or underlined in the forward-looking statements
contained herein. The Company undertakes no obligation to update any of
these forward-looking statements to reflect actual results or events or
circumstances after the date hereof.
HemaCare Corporation
Condensed Consolidated Data
(Unaudited)
Three Months Ended Nine Months
September 30, Ended September 30,
2007 2006 2007 2006
------------ ----------- ------------ ------------
Statements of
(Operations) Income
Revenues $ 9,561,000 $ 9,177,000 $ 28,563,000 $ 25,797,000
Gross profit 895,000 1,731,000 3,347,000 4,869,000
------------ ----------- ------------ ------------
General and
administrative
expenses(1) 5,864,000 1,276,000 9,069,000 3,943,000
------------ ----------- ------------ ------------
(Loss) income before
income taxes (4,969,000) 455,000 (5,722,000) 926,000
Provision for
income taxes(2) 627,000 7,000 634,000 33,000
============ =========== ============ ============
Net (loss) income $ (5,596,000) $ 448,000 $ (6,356,000) $ 893,000
============ =========== ============ ============
Basic (loss)
earnings per share $ (0.64) $ 0.05 $ (0.76) $ 0.11
============ =========== ============ ============
Diluted (loss)
earnings per share $ (0.64) $ 0.05 $ (0.76) $ 0.10
============ =========== ============ ============
Weighted average
shares outstanding
- basic 8,682,000 8,298,000 8,357,000 8,162,000
============ =========== ============ ============
Weighted average
shares outstanding
- diluted 8,682,000 9,104,000 8,357,000 8,981,000
============ =========== ============ ============
(1) Includes nonrecurring charge of $4,259,000 for goodwill impairment in
the three month and nine month periods ended September 30, 2007, and
nonrecurring charge of $326,000 for severance expense for former
President and CEO in the nine month period ended September 30, 2007.
(2) Includes charge from the increase in deferred tax asset valuation
reserve to 100% in the three month and nine month periods ended
September 30, 2007 of $622,000.
September 30, December 31,
2007 2006
------------ ------------
Balance Sheets
Assets
Cash and cash equivalents $ 517,000 $ 1,136,000
Other current assets 7,275,000 9,392,000
Non-current assets 5,375,000 8,519,000
------------ ------------
Total assets $ 13,167,000 $ 19,047,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities $ 8,240,000 $ 8,280,000
Long-term liabilities 519,000 914,000
Shareholders' equity 4,408,000 9,853,000
------------ ------------
Total liabilities and
shareholders' equity $ 13,167,000 $ 19,047,000
============ ============
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