UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-Q
| ☒ | Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the quarterly period ended SeptemberJune 30, 20202021
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: 1-13738
PSYCHEMEDICS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 58-1701987 | |
| (State or Other Jurisdiction of | (I.R.S. Employer Identification No.) | |
| Incorporation or Organization) | ||
| 289 Great Road | ||
| 01720 | ||
Registrant's telephone number including area code:(978) 206-8220
Securities registered pursuant to section 12(b) of the act:
Title of Class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock. $0.005 par value | PMD | The Nasdaq Stock Market, LLC. |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | |
Accelerated filer | ☐ | |
Non–accelerated filer | ☒ | |
Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934)Act). Yes ☐ No ☒
The number of shares of Common Stock of the Registrant, par value $0.005 per share, outstanding at November 3, 2020August 9, 2021 was 5,526,493.5,542,232.
PSYCHEMEDICS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20202021
INDEX
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(UNAUDITED)(UNAUDITED)
| September 30, | December 31, | June 30, | December 31, | |||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| ASSETS | ||||||||||||||||
| Current Assets: | ||||||||||||||||
| Cash | $ | 1,809 | $ | 7,283 | $ | 2,651 | $ | 2,833 | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $40 in 2020 and $45 in 2019 | 3,890 | 3,780 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $65 in 2021 and $37 in 2020 | 3,971 | 3,356 | ||||||||||||||
| Prepaid expenses and other current assets | 1,299 | 1,788 | 2,575 | 914 | ||||||||||||
| Income tax receivable | 1,833 | -- | 2,539 | 2,495 | ||||||||||||
| Total Current Assets | 8,831 | 12,851 | 11,736 | 9,598 | ||||||||||||
| Fixed assets, net of accumulated amortization and depreciation of $16,257 in 2020 and $16,197 in 2019 | 9,746 | 10,862 | ||||||||||||||
Fixed assets, net of accumulated amortization and depreciation of $18,259 at June 30, 2021 and $16,937 at December 31, 2020 | 7,993 | 9,231 | ||||||||||||||
| Other assets | 885 | 943 | 849 | 888 | ||||||||||||
| Deferred tax asset | 10 | -- | ||||||||||||||
| Operating lease right-of-use assets | 4,508 | 2,875 | 4,009 | 4,286 | ||||||||||||
| Total Assets | $ | 23,980 | $ | 27,531 | $ | 24,587 | $ | 24,003 | ||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
| Current Liabilities: | ||||||||||||||||
| Accounts payable | $ | 416 | $ | 617 | $ | 1,100 | $ | 577 | ||||||||
| Accrued expenses | 1,357 | 3,577 | 1,890 | 1,801 | ||||||||||||
| Current portion of long-term debt | 685 | 678 | 693 | 688 | ||||||||||||
| Current portion of operating lease liabilities | 884 | 963 | 965 | 875 | ||||||||||||
| Total Current Liabilities | 3,342 | 5,835 | 4,648 | 3,941 | ||||||||||||
| Long-term debt | 3,617 | 1,951 | 3,096 | 3,444 | ||||||||||||
| Long-term deferred tax liabilities | -- | 550 | ||||||||||||||
Deferred tax liabilities, long-term | 238 | 211 | ||||||||||||||
| Long-term portion of operating lease liabilities | 4,079 | 2,375 | 3,490 | 3,895 | ||||||||||||
| Total Liabilities | 11,038 | 10,711 | 11,472 | 11,491 | ||||||||||||
| Commitments and Contingencies (Note 6) | ||||||||||||||||
Commitments and Contingencies (Note 5) | ||||||||||||||||
| Shareholders' Equity: | ||||||||||||||||
| Preferred stock, $0.005 par value, 873 shares authorized, no shares issued or outstanding | -- | -- | 0 | 0 | ||||||||||||
| Common stock, $0.005 par value; 50,000 shares authorized Shares issued and outstanding: 6,195 in 2020 and 6,185 in 2019 | 31 | 31 | ||||||||||||||
Common stock, $0.005 par value; 50,000 shares authorized, 6,209 shares and 6,205 shares issued at June 30, 2021, and December 31, 2020, respectively, and 5,541 shares outstanding and 5,537 shares outstanding at June 30, 2021 and December 31, 2020, respectively | 31 | 31 | ||||||||||||||
| Additional paid-in capital | 32,690 | 32,249 | 33,189 | 32,803 | ||||||||||||
| Accumulated deficit | (8,063 | ) | (3,754 | ) | (8,389 | ) | (8,606 | ) | ||||||||
| Less - Treasury stock, at cost, 668 shares | (10,082 | ) | (10,082 | ) | (10,082 | ) | (10,082 | ) | ||||||||
| Accumulated other comprehensive loss | (1,634 | ) | (1,624 | ) | (1,634 | ) | (1,634 | ) | ||||||||
| Total Shareholders' Equity | 12,942 | 16,820 | 13,115 | 12,512 | ||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 23,980 | $ | 27,531 | $ | 24,587 | $ | 24,003 | ||||||||
See accompanying notes to condensed consolidated financial statementsstatements.
3 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(in thousands, except per share amounts)
(UNAUDITED)
| Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
| September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| Revenues | $ | 5,174 | $ | 9,852 | $ | 16,025 | $ | 28,963 | $ | 6,087 | $ | 3,314 | $ | 11,800 | $ | 10,851 | ||||||||||||||||
| Cost of revenues | 4,041 | 5,470 | 12,416 | 16,004 | 3,651 | 3,566 | 6,796 | 8,375 | ||||||||||||||||||||||||
| Gross profit | 1,133 | 4,382 | 3,609 | 12,959 | ||||||||||||||||||||||||||||
Gross profit (loss) | 2,436 | (252 | ) | 5,004 | 2,476 | |||||||||||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||||||||||
| General & administrative | 1,341 | 1,417 | 4,727 | 4,687 | 1,280 | 1,853 | 2,809 | 3,386 | ||||||||||||||||||||||||
| Marketing & selling | 896 | 1,238 | 2,858 | 3,455 | 656 | 856 | 1,298 | 1,962 | ||||||||||||||||||||||||
| Research & development | 305 | 393 | 981 | 1,213 | 293 | 345 | 573 | 676 | ||||||||||||||||||||||||
| Total Operating Expenses | 2,542 | 3,048 | 8,566 | 9,355 | 2,229 | 3,054 | 4,680 | 6,024 | ||||||||||||||||||||||||
| Operating income (loss) | (1,409 | ) | 1,334 | (4,957 | ) | 3,604 | 207 | (3,306 | ) | 324 | (3,548 | ) | ||||||||||||||||||||
| Other income (expense), net | (17 | ) | 6 | (129 | ) | 54 | ||||||||||||||||||||||||||
Other expense | 0 | (39 | ) | (14 | ) | (112 | ) | |||||||||||||||||||||||||
| Income (loss) before provision for (benefit from) income taxes | (1,426 | ) | 1,340 | (5,086 | ) | 3,658 | 207 | (3,345 | ) | 310 | (3,660 | ) | ||||||||||||||||||||
| Provision for (benefit from) income taxes | (319 | ) | 663 | (1,770 | ) | 1,586 | 73 | (1,295 | ) | 93 | (1,451 | ) | ||||||||||||||||||||
| Net income (loss) | $ | (1,107 | ) | $ | 677 | $ | (3,316 | ) | $ | 2,072 | $ | 134 | $ | (2,050 | ) | $ | 217 | $ | (2,209 | ) | ||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Other Comprehensive Income (Loss): | ||||||||||||||||||||||||||||||||
| Foreign currency translation | - | (330 | ) | (10 | ) | (297 | ) | 0 | 13 | 0 | (10 | ) | ||||||||||||||||||||
| Total comprehensive income (loss) | $ | (1,107 | ) | $ | 347 | $ | (3,326 | ) | $ | 1,775 | $ | 134 | $ | (2,037 | ) | $ | 217 | $ | (2,219 | ) | ||||||||||||
| Basic net income (loss) per share | $ | (0.20 | ) | $ | 0.12 | $ | (0.60 | ) | $ | 0.38 | $ | 0.02 | $ | (0.37 | ) | $ | 0.04 | $ | (0.40 | ) | ||||||||||||
| Diluted net income (loss) per share | $ | (0.20 | ) | $ | 0.12 | $ | (0.60 | ) | $ | 0.37 | $ | 0.02 | $ | (0.37 | ) | $ | 0.04 | $ | (0.40 | ) | ||||||||||||
| Dividends declared per share | $ | - | $ | 0.18 | $ | 0.18 | $ | 0.54 | $ | 0 | $ | 0 | $ | 0 | $ | 0.18 |
| |||||||||||||||
See accompanying notes to condensed consolidated financial statementsstatements.
4 |
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’SHAREHOLDERS’ EQUITY
(in thousands, except per share amounts)
(UNAUDITED)
| Common | Paid-In | Treasury | Accumulated | Accumulated Other | ||||||||||||||||||||
| Stock | Capital | Stock | Deficit | Comprehensive Loss | Total | |||||||||||||||||||
| BALANCE, December 31, 2019 | $ | 31 | $ | 32,249 | $ | (10,082 | ) | $ | (3,754 | ) | $ | (1,624 | ) | $ | 16,820 | |||||||||
| Stock compensation expense | - | 163 | - | - | - | 163 | ||||||||||||||||||
| Cash dividends ($0.18 per share) | - | - | - | (993 | ) | - | (993 | ) | ||||||||||||||||
| Net loss | - | - | - | (159 | ) | - | (159 | ) | ||||||||||||||||
| Other comprehensive loss | - | - | - | - | (23 | ) | (23 | ) | ||||||||||||||||
| BALANCE, March 31, 2020 | 31 | 32,412 | (10,082 | ) | (4,906 | ) | (1,647 | ) | 15,808 | |||||||||||||||
| Tax withholding from employee stock plans | - | (8 | ) | - | - | - | (8 | ) | ||||||||||||||||
| Stock compensation expense | - | 160 | - | - | - | 160 | ||||||||||||||||||
| Net loss | - | - | - | (2,050 | ) | - | (2,050 | ) | ||||||||||||||||
| Other comprehensive income | - | - | - | - | 14 | 14 | ||||||||||||||||||
| BALANCE, June 30, 2020 | 31 | 32,564 | (10,082 | ) | (6,956 | ) | (1,633 | ) | 13,924 | |||||||||||||||
| Stock compensation expense | - | 126 | - | - | - | 126 | ||||||||||||||||||
| Net loss | - | - | - | (1,107 | ) | - | (1,107 | ) | ||||||||||||||||
| Other comprehensive loss | - | - | - | - | (1 | ) | (1 | ) | ||||||||||||||||
| BALANCE, September 30, 2020 | $ | 31 | $ | 32,690 | $ | (10,082 | ) | $ | (8,063 | ) | $ | (1,634 | ) | $ | 12,942 | |||||||||
| BALANCE, December 31, 2018 | $ | 31 | $ | 31,523 | $ | (10,082 | ) | $ | (1,326 | ) | $ | (1,399 | ) | $ | 18,747 | |||||||||
| Stock compensation expense | - | 158 | - | - | - | 158 | ||||||||||||||||||
| Cash dividends ($0.18 per share) | - | - | - | (991 | ) | - | (991 | ) | ||||||||||||||||
| Net income | - | - | - | 627 | - | 627 | ||||||||||||||||||
| Other comprehensive loss | - | - | - | - | (48 | ) | (48 | ) | ||||||||||||||||
| BALANCE, March 31, 2019 | 31 | 31,681 | (10,082 | ) | (1,690 | ) | (1,447 | ) | 18,493 | |||||||||||||||
| Tax withholding from employee stock plans | - | (33 | ) | - | - | - | (33 | ) | ||||||||||||||||
| Stock compensation expense | - | 161 | - | - | - | 161 | ||||||||||||||||||
| Cash dividends ($0.18 per share) | - | - | - | (994 | ) | - | (994 | ) | ||||||||||||||||
| Net income | - | - | - | 768 | - | 768 | ||||||||||||||||||
| Other comprehensive income | - | - | - | - | 82 | 82 | ||||||||||||||||||
| BALANCE, June 30, 2019 | 31 | 31,809 | (10,082 | ) | (1,916 | ) | (1,365 | ) | 18,477 | |||||||||||||||
| Stock compensation expense | - | 190 | - | - | - | 190 | ||||||||||||||||||
| Cash dividends ($0.18 per share) | - | - | - | (993 | ) | - | (993 | ) | ||||||||||||||||
| Net income | - | - | - | 677 | - | 677 | ||||||||||||||||||
| Other comprehensive loss | - | - | - | - | (331 | ) | (331 | ) | ||||||||||||||||
| BALANCE, September 30, 2019 | $ | 31 | $ | 31,999 | $ | (10,082 | ) | $ | (2,232 | ) | $ | (1,696 | ) | $ | 18,020 | |||||||||
For the Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||
Common Stock, $0.005 par value | Accumulated | |||||||||||||||||||||||||||||||
| Common | Additional | Other | ||||||||||||||||||||||||||||||
Shares | Common | Paid-In | Treasury Stock | Accumulated | Comprehensive | |||||||||||||||||||||||||||
Outstanding | Stock | Capital | Shares | Cost | Deficit | Loss | Total | |||||||||||||||||||||||||
BALANCE, March 31, 2021 | 6,205 | $ | 31 | $ | 33,020 | 668 | $ | (10,082 | ) | $ | (8,523 | ) | $ | (1,634 | ) | $ | 12,812 | |||||||||||||||
Shares issued – vested | 4 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Stock compensation expense | - | 0 | 169 | - | 0 | 0 | 0 | 169 | ||||||||||||||||||||||||
Net income | - | 0 | 0 | - | 0 | 134 | 0 | 134 | ||||||||||||||||||||||||
BALANCE, June 30, 2021 | 6,209 | $ | 31 | $ | 33,189 | 668 | $ | (10,082 | ) | $ | (8,389 | ) | $ | (1,634 | ) | $ | 13,115 | |||||||||||||||
For the Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||
Common Stock, $0.005 par value | Accumulated | |||||||||||||||||||||||||||||||
| Common | Additional | Other | ||||||||||||||||||||||||||||||
Shares | Common | Paid-In | Treasury Stock | Accumulated | Comprehensive | |||||||||||||||||||||||||||
Outstanding | Stock | Capital | Shares | Cost | Deficit | Loss | Total | |||||||||||||||||||||||||
BALANCE, December 31, 2020 | 6,205 | $ | 31 | $ | 32,803 | 668 | $ | (10,082 | ) | $ | (8,606 | ) | $ | (1,634 | ) | $ | 12,512 | |||||||||||||||
Shares issued – vested | 4 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Stock compensation expense | - | 0 | 386 | - | 0 | 0 | 0 | 386 | ||||||||||||||||||||||||
Net income | - | 0 | 0 | - | 0 | 217 | 0 | 217 | ||||||||||||||||||||||||
BALANCE, June 30, 2021 | 6,209 | $ | 31 | $ | 33,189 | 668 | $ | (10,082 | ) | $ | (8,389 | ) | $ | (1,634 | ) | $ | 13,115 | |||||||||||||||
For the Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||
Common Stock, $0.005 par value | Accumulated | |||||||||||||||||||||||||||||||
| Common | Additional | Other | ||||||||||||||||||||||||||||||
Shares | Common | Paid-In | Treasury Stock | Accumulated | Comprehensive | |||||||||||||||||||||||||||
Outstanding | Stock | Capital | Shares | Cost | Deficit | Loss | Total | |||||||||||||||||||||||||
BALANCE, March 31, 2020 | 6,185 | $ | 31 | $ | 32,412 | 668 | $ | (10,082 | ) | $ | (4,906 | ) | $ | (1,647 | ) | $ | 15,808 | |||||||||||||||
Shares issued – vested | 10 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Tax withholding from employee stock plans | - | 0 | (8 | ) | - | 0 | 0 | 0 | (8 | ) | ||||||||||||||||||||||
Stock compensation expense | - | 0 | 160 | - | 0 | 0 | 0 | 160 | ||||||||||||||||||||||||
Net loss | - | 0 | 0 | - | 0 | (2,050 | ) | 0 | (2,050 | ) | ||||||||||||||||||||||
Foreign currency translation, net of taxes | - | 0 | 0 | - | 0 | 0 | 14 | 14 | ||||||||||||||||||||||||
BALANCE, June 30, 2020 | 6,195 | $ | 31 | $ | 32,564 | 668 | $ | (10,082 | ) | $ | (6,956 | ) | $ | (1,633 | ) | $ | 13,924 | |||||||||||||||
For the Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||
Common Stock, $0.005 par value | Accumulated | |||||||||||||||||||||||||||||||
| Common | Additional | Other | ||||||||||||||||||||||||||||||
Shares | Common | Paid-In | Treasury Stock | Accumulated | Comprehensive | |||||||||||||||||||||||||||
Outstanding | Stock | Capital | Shares | Cost | Deficit | Loss | Total | |||||||||||||||||||||||||
BALANCE, December 31, 2019 | 6,185 | $ | 31 | $ | 32,249 | 668 | $ | (10,082 | ) | $ | (3,754 | ) | $ | (1,624 | ) | $ | 16,820 | |||||||||||||||
Shares issued – vested | 10 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Tax withholding from employee stock plans | - | 0 | (8 | ) | - | 0 | 0 | 0 | (8 | ) | ||||||||||||||||||||||
Stock compensation expense | - | 0 | 323 | - | 0 | 0 | 0 | 323 | ||||||||||||||||||||||||
Cash dividends ($0.18 per share) | - | 0 | 0 | - | 0 | (993 | ) | 0 | (993 | ) | ||||||||||||||||||||||
Net loss | - | 0 | 0 | - | 0 | (2,209 | ) | 0 | (2,209 | ) | ||||||||||||||||||||||
Foreign currency translation, net of taxes | - | 0 | 0 | - | 0 | 0 | (9 | ) | (9 | ) | ||||||||||||||||||||||
BALANCE, June 30, 2020 | 6,195 | $ | 31 | $ | 32,564 | 668 | $ | (10,082 | ) | $ | (6,956 | ) | $ | (1,633 | ) | $ | 13,924 | |||||||||||||||
See accompanying notes to condensed consolidated financial statementsstatements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
| Nine Months Ended | Six Months Ended | |||||||||||||||
| September 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net income (loss) | $ | (3,316 | ) | $ | 2,072 | $ | 217 | $ | (2,209 | ) | ||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
| Depreciation and amortization | 1,995 | 2,219 | 1,353 | 1,288 | ||||||||||||
| ROU asset amortization | 713 | -- | 470 | 493 | ||||||||||||
| Deferred income taxes | (560 | ) | (138 | ) | 27 | (74 | ) | |||||||||
| Non-cash interest income | -- | 35 | ||||||||||||||
| Loss on sale of fixed assets | 94 | -- | 0 | 94 | ||||||||||||
| Stock-based compensation | 449 | 509 | 386 | 323 | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | (110 | ) | (342 | ) | (615 | ) | 1,220 | |||||||||
| Other current assets | (1,344 | ) | (439 | ) | ||||||||||||
Prepaid expenses and other current assets | (1,661 | ) | (190 | ) | ||||||||||||
Income tax receivable | (44 | ) | (1,544 | ) | ||||||||||||
| Accounts payable | (204 | ) | (335 | ) | 523 | (556 | ) | |||||||||
| Operating lease liabilities | (721 | ) | -- | (508 | ) | (490 | ) | |||||||||
| Accrued expenses | (2,219 | ) | (220 | ) | 89 | (2,084 | ) | |||||||||
| Net cash provided by (used in) operating activities | (5,223 | ) | 3,361 | 237 | (3,729 | ) | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
| Proceeds from sale of fixed assets | 140 | -- | 0 | 140 | ||||||||||||
| Proceeds from short-term investments | -- | 3,810 | ||||||||||||||
| Purchases of equipment and leasehold improvements | (880 | ) | (896 | ) | (14 | ) | (675 | ) | ||||||||
| Cost of internally developed software | (184 | ) | (225 | ) | (70 | ) | (135 | ) | ||||||||
| Other assets | 10 | (47 | ) | 8 | (7 | ) | ||||||||||
| Net cash provided by (used in) investing activities | (914 | ) | 2,642 | |||||||||||||
Net cash used in investing activities | (76 | ) | (677 | ) | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Proceeds from issuance of stock, net of tax withholding | (8 | ) | (33 | ) | 0 | (8 | ) | |||||||||
| Proceeds from PPP loan | 2,181 | -- | ||||||||||||||
Proceeds from PPP Loan | 0 | 2,181 | ||||||||||||||
| Payments of equipment financing | (507 | ) | (312 | ) | (343 | ) | (338 | ) | ||||||||
| Cash dividends paid | (993 | ) | (2,978 | ) | 0 | (993 | ) | |||||||||
| Net cash provided by (used in) financing activities | 673 | (3,323 | ) | |||||||||||||
Net cash (used in) provided by financing activities | (343 | ) | 842 | |||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (10 | ) | (257 | ) | ||||||||||||
| Net increase (decrease) in cash | (5,474 | ) | 2,423 | |||||||||||||
Effect of exchange rate changes on cash | 0 | (47 | ) | |||||||||||||
Net decrease in cash | (182 | ) | (3,611 | ) | ||||||||||||
| Cash, beginning of period | 7,283 | 4,069 | 2,833 | 7,283 | ||||||||||||
| Cash, end of period | $ | 1,809 | $ | 6,492 | $ | 2,651 | $ | 3,672 | ||||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||||||||||
| Cash paid for income taxes | $ | 236 | $ | 1,958 | $ | 0 | $ | 229 | ||||||||
| Cash paid for interest | $ | 60 | $ | 47 | $ | 28 | $ | 43 | ||||||||
| Cash paid for operating leases | $ | 800 | $ | 841 | $ | 575 | $ | 519 | ||||||||
| Right-of-use assets acquired through operating leases | $ | 2,346 | $ | 4,382 | $ | 193 | $ | 2,346 | ||||||||
| Purchases of equipment through accounts payable and accrued liabilities | $ | 3 | $ | 30 | $ | 0 | $ | 193 | ||||||||
See accompanying notes to condensed consolidated financial statementsstatements.
6 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.Basis of Presentation
The interim condensed consolidated financial statements of Psychemedics Corporation (the “Company”) presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019, 2020, included in the Company's 20192020 Annual Report on Form 10-K (“10-K”10-K (“10-K”), as filed with the SEC.
The condensed consolidated balance sheet as of SeptemberJune 30, 2020, 2021, the condensed consolidated statements of operations and comprehensive income income/(loss) for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2020 2021 and 2019,2020, the condensed consolidated statements of shareholders’ equity for the nine-month periodssix months ended SeptemberJune 30, 2020 2021 and 20192020 and the condensed consolidated statements of cash flows for the nine-month periodssix months ended SeptemberJune 30, 2020 2021 and 20192020 are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of December 31, 2019 2020, has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm, but does not include all of the information and footnotes required for complete annual financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months and ninesix months ended SeptemberJune 30, 2020 2021, may not be indicative of the results that may be expected for the year ending December 31, 2020, 2021, or any other period.
Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to Psychemedics Corporation and its wholly-owned consolidated subsidiaries.
2. COVID-19 COVID-19 Pandemic
The outbreak of coronavirus (“COVID-19”COVID-19”) which was declared by the World Health Organization to be a pandemic, has impacted, and is expected to continue to impact worldwide economic activity. While our domestic business has beenwas deemed an essential business and we have been able to continue to provide services to our customers, COVID-19COVID-19 has had a significant impact on our entire operations. Additionally, COVID-19’sCOVID-19’s effect on the overall economy has had an adverse impact on hiring,hiring; which is havinghas had a negative impact on both our testingdomestic and international volume. Due to COVID-19, the Brazilian government closed all driver license bureaus and extended the renewal period for all drivers licenses, which has, and will continue to have a material adverse impact on expected testing volume in Brazil for the next year.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. COVID-19 Pandemic (continued)
The Coronavirus Aid, Relieve and Economic Security Act (“CARES”) Act, enacted on March 27, 2020, and the Families First Coronavirus Response Act (“FFCRA”), in each case
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. COVID-19 Pandemic (continued)
modified by the Consolidated Appropriations Act (“CAA”) enacted in December 2020, was an emergency economic stimulus package that included spending provisions and tax cuts to strengthen the United States economy and to fund a nationwide effort to curtail the effect of COVID-19.COVID-19. The principal impact of the CARES Act and subsequent legislation was the adoption of the Paycheck Protection Program (“PPP”) described below. The CARES Act, together with subsequent legislation, also provided sweeping tax changes in response to the COVID-19COVID-19 pandemic, including amendments to certain provisions of the previously enacted Tax Cuts and Jobs Act (“TCJA”). The Company recognized a provisionbenefit of $0.1$0.8 million and a benefit of $1.3$1.6 million for the three and ninesix months ended SeptemberJune 30, 2020, respectively, 2021, as a componentreduction to cost of income tax expense from continuing operationsrevenues and operating expenses related to the employee retention credit which was a tax provisionsprovision in the CARES Act. Based on the Company's initial assessments, the Company anticipates thatAct and subsequent legislation. Additionally, the CARES Act will allow the Company to defer the employer portion of its FICA taxes to 2021 and 2022 and allowallowed the Company to fully carryback the anticipated 2020 net operating loss, if any, for a refund of corporate income taxes previously paid. The Company continues to review the tax-related provisionsSee Item 2: “Management’s Discussion and Analysis of the CARES ActFinancial Condition and its potential impact on the Company.Results of Operations – Liquidity and Capital Resources”.
Paycheck Protection Program LoanLiquidity and Management’s Plans
On May 1, 2020,At June 30, 2021, the Company’s principal sources of liquidity included approximately $2.7 million of cash. Management currently believes that such funds, together with future operating profits, which are expected to be positively impacted by employee retention credit provisions of the CAA, and the effect of the full forgiveness of the PPP loan (the “PPP Loan” – see Note 12 – “Subsequent Events”), should be adequate to fund anticipated working capital requirements, including equipment financing obligations, and capital expenditures for at least the next 12 months. Furthermore, depending upon the Company’s results of operations, its future capital needs and available marketing opportunities, the Company entered into a term loan with Bankmay use various financing sources to raise additional funds. Such sources could include but are not limited to, issuance of America N.A. undercommon stock, debt financing, lines of credit, or equipment leasing, although there is no assurance that such financings will be available to the Paycheck Protection Program (“PPP”) administered by the United States Small Business Administration (“SBA”) under the CARES Act. The principal amount of the loan was $2,181,157, which is evidenced by a promissory note with a maturity date of May 4, 2022. The note bears interestCompany on the unpaid balanceterms it deems acceptable, if at the rate of one percent (1%) per annum. The note contains a deferral period of six months, for which no interest or principal payments are due. The Company is in the process of applying for loan forgiveness with the SBA and expects a final approval by the end of fiscal 2020 or in the first quarter of 2021.all.
Accounts Receivable
We believe ourThe Company believes its allowance for credit losses related to ourits accounts receivable remained adequate as of SeptemberJune 30, 2020, 2021, due to the essential nature of ourits customers business, as well as the diversity of ourits large customer base. While we anticipatethe Company anticipates there could be an increase in the aging of ourits accounts receivable, we do the Company does not anticipate a significant increase in default risk.
Risk and Uncertainties
The duration and severity of COVID-19-relatedCOVID-19-related potential disruptions involve risks and uncertainties, and it is not possible at this time to estimate the full impact on ourthe Company’s business and could adversely affect our estimates, results of operations and financial condition.
To help mitigate potential effects of the pandemic on the Company, there are several safety measures that have been implemented to ensure the safety of our employees as well as maintaining our staff and business continuity. The Company is providing personal protection equipment and implemented policies at our laboratory including temperature checks and physical distancing.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Fair Value MeasurementsStock-Based Compensation
The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, which are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the estimated borrowing rate currently available to the Company.
The Company’s 2006 Incentive Plan (“the Plan”) provides for cash-based awards or the grant or issuance of stock-based awards. As of SeptemberDecember 31, 2020, 45 thousand shares were then available for future grant under the Plan. At the 2021 Annual Meeting, an additional 350 thousand shares were approved for future grant under the Plan. As of June 30, 2020, 2312022, 276 thousand shares remained available for future grant under the Plan.
Share-basedStock-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). The compensation cost charged against income is included in cost of revenues and operating expenses as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Share-based compensation related to: | ||||||||||||||||
| Stock option grants | $ | 102 | $ | 151 | $ | 353 | $ | 372 | ||||||||
| Restricted Stock Unit awards | 24 | 39 | 96 | 137 | ||||||||||||
| Total share-based compensation | $ | 126 | $ | 190 | $ | 449 | $ | 509 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Stock-based compensation related to: | ||||||||||||||||
Stock option grants | $ | 77 | $ | 126 | $ | 221 | $ | 250 | ||||||||
Stock unit awards | 92 | 34 | 165 | 73 | ||||||||||||
Total stock-based compensation | $ | 169 | $ | 160 | $ | 386 | $ | 323 | ||||||||
There was no0 income tax benefit recognized in the condensed consolidated statements of incomeoperations and comprehensive income/(loss) for share-basedstock-based compensation arrangements for the three-monththree and nine-month periodssix months ended SeptemberJune 30, 2020 2021, and 2019.2020.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3.Stock-Based Compensation (continued)
A summary of the Company’s stock option activity for the ninesix months ended SeptemberJune 30, 2020 2021, is as follows (in thousands except per share amounts):
| Weighted Average | Weighted Average | Aggregate | Weighted Average | |||||||||||||||||||||||||||||
| Number of | Exercise Price | Remaining | Intrinsic | Weighted Average | Remaining | Aggregate | ||||||||||||||||||||||||||
| Shares | Per Share | Contractual Life (years) | Value(1) | Number of | Exercise Price | Contractual Life | Intrinsic | |||||||||||||||||||||||||
| Outstanding, December 31, 2019 | 584 | $ | 14.94 | 7.9 | $ | - | ||||||||||||||||||||||||||
Shares | Per Share | (years) | Value (1) | |||||||||||||||||||||||||||||
Outstanding, December 31, 2020 | 604 | $ | 14.31 | 7.0 | $ | 0 | ||||||||||||||||||||||||||
| Granted | - | 0 | 0 | |||||||||||||||||||||||||||||
| Exercised | - | 0 | 0 | $ | - | |||||||||||||||||||||||||||
| Forfeited | (3 | ) | $ | 4.37 | ( 29 | ) | $ | 3.47 | ||||||||||||||||||||||||
| Outstanding, September 30, 2020 | 581 | $ | 14.93 | 7.1 | $ | - | ||||||||||||||||||||||||||
Outstanding, June 30, 2021 | 575 | $ | 14.23 | 6.6 | $ | 98 | ||||||||||||||||||||||||||
| Exercisable, September 30, 2020 | 396 | $ | 15.49 | 6.6 | $ | - | ||||||||||||||||||||||||||
Exercisable, June 30, 2021 | 464 | $ | 15.12 | 6.2 | $ | 0 | ||||||||||||||||||||||||||
(1) | Intrinsic value is calculated based on the amount by which the closing market value of the Company’s stock exceeded the exercise price of the underlying options, multiplied by the number of shares. |
A summary of the Company’s stock unit award (“SUA”) activity for the ninesix months ended SeptemberJune 30, 2020 2021, is as follows (in thousands except per share amounts):
| Number of Shares | Weighted Average Price per Share (2) | Weighted Average Fair Value (2) | Number of Shares | Weighted Average Price per Share (2) | Weighted Average Fair Value (2) | |||||||||||||||||||
| Outstanding & Unvested, December 31, 2019 | 24 | $ | 12.84 | $ | 311 | |||||||||||||||||||
Outstanding & Unvested, December 31, 2020 | 166 | $ | 4.50 | $ | 747 | |||||||||||||||||||
| Granted | - | 119 | $ | 6.55 | $ | 779 | ||||||||||||||||||
| Converted to common stock | (10 | ) | $ | 20.24 | (4 | ) | $ | 10.60 | $ | (42 | ) | |||||||||||||
| Cancelled | (1 | ) | $ | 20.24 | 0 | 0 | $ | 0 | ||||||||||||||||
| Forfeited | - | 0 | 0 | $ | 0 | |||||||||||||||||||
| Outstanding & Unvested, September 30, 2020 | 13 | $ | 11.87 | $ | 156 | |||||||||||||||||||
Outstanding & Unvested, June 30, 2021 | 281 | $ | 5.28 | $ | 1,484 | |||||||||||||||||||
(2) | Weighted average price per share is the weighted grant price based on the closing market price of each of the stock grants related to each grant of stock unit awards. The weighted average fair value is the weighted average share price times the number of shares. |
As of SeptemberJune 30, 2020, 8202021, 901 thousand shares of common stock were reserved for issuance under the Plan. As of SeptemberJune 30, 2020, 2021, the unamortized fair value of awards relating to outstanding SUAs and options was $674 thousand,$1.6 million, which is expected to be amortized over a weighted average period of 2.23.3 years.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. 4.Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (or loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (or loss) by the weighted average number of common and dilutive common equivalent shares outstanding during the period when the effect is dilutive. The number of dilutive common equivalent shares outstanding during the period was determined in accordance with the treasury-stock method. Common equivalent shares consisted of common stock issuable upon the exercise of outstanding options and common stock issuable upon the vesting of outstanding, unvested SUAs. Basic and diluted weighted average common shares outstanding for the three and ninesix months ended SeptemberJune 30, 2020 2021, and 20192020 were as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Weighted average common shares outstanding, basic | 5,526 | 5,517 | 5,522 | 5,513 | ||||||||||||
| Dilutive common equivalent shares | - | - | - | 16 | ||||||||||||
| Weighted average common shares outstanding, diluted | 5,526 | 5,517 | 5,522 | 5,529 | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Weighted average common shares outstanding, basic | 5,539 | 5,523 | 5,538 | 5,520 | ||||||||||||
Dilutive common equivalent shares | 88 | 0 | 83 | 0 | ||||||||||||
Weighted average common shares outstanding, diluted | 5,627 | 5,523 | 5,621 | 5,520 | ||||||||||||
The computation of diluted earnings (loss) per share for the three and nine month periodsix months ended SeptemberJune 30, 2020 2021, and 20192020 excludes the effect of the potential exercise of stock awards, including stock options, when the effect is anti-dilutive. For the three and nine month periodssix months ended SeptemberJune 30, 2020, 2021, the number of antidilutive stock awards excluded from diluted earnings (loss) per share was 594550 thousand.
5.Commitments and Contingencies
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. While the ultimate outcome of individual legal claims is inherently unpredictable, we believe that the final resolution of any pending actions will not have a material adverse effect on our results of operations, financial position, liquidity, or capital resources.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6.Operating Leases
The Company has five operating leases for office and laboratory space used to conduct business. The exercise of lease renewal options is at our discretion. There is one lease which contains renewal options to extend the lease terms included in our Right-Of-Use (“ROU”) assets and lease liabilities as they are reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise. As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the lease commencement date in determining the net present value (NPV) of the lease payments.
As of SeptemberJune 30, 2020, 2021, the Company recognized a Right-Of-Use (“ROU”) asset of $4.5$4.0 million and an operating lease liability of $5.0$4.5 million based on the present value of the minimum rental payments as a result of adoption of ASC Topic 842. The weighted average discount rate used for leases as of SeptemberJune 30, 2020 2021, is 3.9%. The weighted average lease term as of SeptemberJune 30, 2020 2021, is 5.24.5 years. The operating lease expense for the three and ninesix months ended SeptemberJune 30, 2020 2021, was $288$269 thousand and $853$538 thousand, respectively.
Maturities and balance sheet presentation of the Company’s lease liabilities for all operating leases as of SeptemberJune 30, 2020 2021, is as follows (in thousands):
| 2020 | 238 | |||||||
| 2021 | 1,041 | |||||||
July 1, 2021, through December 31, 2021 | 532 | |||||||
| 2022 | 1,028 | 1,117 | ||||||
| 2023 | 1,096 | 1,118 | ||||||
| 2024 | 1,035 | 1,034 | ||||||
| 2025 | 593 | 592 | ||||||
| 2026 | 458 | 460 | ||||||
| Total Lease Payments | 5,489 | 4,853 | ||||||
| Less Interest: | (526 | ) | ||||||
Less: Interest expense | (398 | ) | ||||||
| Present value of lease liabilities | $ | 4,963 | $ | 4,455 | ||||
| Current operating lease liabilities | $ | 884 | $ | 965 | ||||
| Long-term operating lease liabilities | 4,079 | 3,490 | ||||||
| Total | $ | 4,963 | ||||||
| $ | 4,455 | |||||||
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7.Debt and Other Financing Arrangements
On March 20, 2014, the Company entered into an equipment financing arrangement (“Loan Agreement”) with Banc of America Leasing & Capital, which it amended on August 8, 2014, September 15, 2015, October 30, 2017, and December 2, 2019. The terms of the arrangement are detailed in the 10-K.10-K.
The weighted average interest rate on outstanding debt under the Loan Agreement was 3.3%3.4% and 3.4% for the three and ninesix months ended SeptemberJune 30, 2020. 2021. The interest expense was $16$13 thousand and $60$27 thousand for the three and ninesix months ended SeptemberJune 30, 2020, 2021, respectively. As of SeptemberJune 30, 2020, 2021, the weighted average interest rate was 2.6%3.1% and there was $2.1$1.6 million of outstanding debt related under the loan agreement. As of September 30, 2020, theThe Company was not in compliance with these covenants. Subsequent to September 30, 2020, the Company amended its debt arrangement to waive the non-compliance and amend certainall loan covenants through the quarter ended as of June 30, 2021.
On May 1, 2020, the Company entered into a term loan with Bank of America N.A. under the PPP administered by the United States Small Business Administration (“SBA”) under the CARES Act. The principal amount of the loan was $2,181,157, which was evidenced by a promissory note with a maturity date of May 4, 2022. The note bore interest on the unpaid balance at the rate of one percent (1%) per annum. In July 2021, the PPP Loan was 100% forgiven by the SBA (see Note 12 – “Subsequent Events” and the Company’s Current Report on Form 8-K filed on July 20, 2021).
The annual principal repayment requirements for debt obligations as of SeptemberJune 30, 2020 2021, were as follows (in thousands):
| 2020 | $ | 170 | ||||||
| 2021 | 688 | $ | 345 | |||||
| 2022 | 664 | 664 | ||||||
| 2023 | 294 | 294 | ||||||
| 2024 | 305 | 305 | ||||||
| Long-term debt from equipment financing | 2,121 | 1,608 | ||||||
| Less current portion of long-term debt | (685 | ) | ||||||
Less: Current portion of long-term debt | (693 | ) | ||||||
| Long-term debt from equipment financing, net of current portion | 1,436 | 915 | ||||||
| PPP Loan | 2,181 | 2,181 | ||||||
| Total long-term debt, net of current portion | $ | 3,617 | $ | 3,096 | ||||
1 See note 2. for description of PPP Loan.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. 8.Revenue
The table below disaggregates our external revenue by major source (in thousands). For additional revenue detail relating to geographic breakdown of sales, see Note 109 – “Business Segment Reporting”.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Testing | $ | 4,590 | $ | 9,069 | $ | 14,363 | $ | 26,543 | ||||||||
| Shipping/Collection (hair) | 562 | 714 | 1,576 | 2,225 | ||||||||||||
| Other | 22 | 69 | 86 | 195 | ||||||||||||
| Total Revenue | $ | 5,174 | $ | 9,852 | $ | 16,025 | $ | 28,963 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Testing | $ | 5,367 | $ | 2,941 | $ | 10,416 | $ | 9,774 | ||||||||
Shipping/Collection (hair) | 680 | 353 | 1,295 | 1,013 | ||||||||||||
Other | 40 | 20 | 89 | 64 | ||||||||||||
Total Revenue | $ | 6,087 | $ | 3,314 | $ | 11,800 | $ | 10,851 | ||||||||
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. 9.Business Segment Reporting
The Company manages its operations as one1 segment, drug testing services. As a result, the financial information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment. All Brazil sales are through one1 independent distributor. The Company’s revenues by geographic region are as follows (in thousands):
| Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
| September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| Consolidated Revenue: | ||||||||||||||||||||||||||||||||
| United States | $ | 4,977 | $ | 7,102 | $ | 14,441 | $ | 20,969 | $ | 5,609 | $ | 3,125 | $ | 11,002 | $ | 9,466 | ||||||||||||||||
| Brazil | 62 | 2,619 | 1,207 | 7,620 | 320 | 164 | 460 | 1,145 | ||||||||||||||||||||||||
| Other | 135 | 131 | 377 | 374 | 158 | 25 | 338 | 240 | ||||||||||||||||||||||||
| Total Revenue | $ | 5,174 | $ | 9,852 | $ | 16,025 | $ | 28,963 | $ | 6,087 | $ | 3,314 | $ | 11,800 | $ | 10,851 | ||||||||||||||||
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10.Significant Customers
The Company had no0 customers that represented over 10% of revenue during the ninesix months ended SeptemberJune 30, 2020. One2021. The Company had 1 customer that represented 26%11% of revenue for the ninesix months ended SeptemberJune 30, 2019. 2020. The Company had one1 customer that represented 24%12% of the total accounts receivable balance as of SeptemberJune 30, 2020 and two2021. The Company had 0 customers that represented 13% and 11%, respectively,greater than 10% of the total accounts receivable balance as of December 31, 2019.
2020.
12. 11.Recently Adopted Accounting Pronouncements
There are no recently adopted accounting pronouncements for the quarter.
13. Accounting Pronouncements Issued But Not Yet Effective
In December 2019, the Financial Accounting Standards Board (“FASB”)FASB issued ASU 2019-12,2019-12, “Income Taxes (Topic 740)740): Simplifying the Accounting for Income Taxes”, which is intended to. The amendments in this update simplify the accounting for income taxes. This ASU removestaxes by removing certain exceptions to the general principles in ASU Topic 740 and clarifies and amends existing guidance to740. The amendments also improve consistent application.application of and simplify U.S. GAAP for other areas of ASU Topic 740 by clarifying and amending existing guidance. The new standard will amendments in this update are effective for interim and annual periods for the Company beginning after December 15, 2020, with early adoption permitted. The Standard may be effectiveadopted using the prospective or retrospective transition approach and could be applied to a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year adoption. The Company adopted ASU 2019-12 as of January 1, 2021. As of September 30, 2020,2021, with no material impact to the Company is continuing to evaluate Company’s consolidated financial statements.
12.Subsequent Events
In July 2021, the potential impact this ASU may have on its financial positionoutstanding principal and results of operations upon adoption.accrued interest for the PPP Loan was forgiven in full by the SBA.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made by its employees may contain forward-looking information that involves risks and uncertainties. In particular, statements contained in this report that are not historical facts (including but not limited to statements concerning earnings, earnings per share, revenues, cash flows, dividends, future business, growth opportunities, profitability, pricing, new accounts, customer base, market share, test volume, sales and marketing strategies, market demand for drug testing services in Brazil, U.S. and foreign drug testing laws and regulations, including, without limitation, Brazilian professional driver drug testing requirements, required investments in plant, equipment and people and new test development, the effect of the COVID-19COVID- 19 pandemic on our business, including its effects on our business and profitability, and on the well-being and availability of our employees, and the continued operation of our testing facilities and loan forgiveness under the PPP program)facilities) may be “forward looking” statements. Actual results may differ from those stated in any forward-looking statements. Factors that may cause such differences include but are not limited to risks associated with the severity of the COVID-19 pandemic, and its impact on the Company’s markets, including its impact on the Company’s customers, suppliers and employees, as well as its risk on the United States and worldwide economies, the timing, scope and effectiveness of further governmental, regulatory, fiscal monetary and public health responses to the COVID-19 pandemic, compliance by the Company with repayment forgiveness requirements under the PPP, changes in U.S. and foreign government regulations, including but not limited to FDA regulations, changes in Brazilian laws and regulations and proposed laws and regulations and the implementation of such laws and regulations, currency risks, R&D spending, competition (including, without limitation, competition from other companies pursuing the same growth opportunities), the Company’s ability to maintain its reputation and brand image, the ability of the Company to achieve its business plans, cost controls, leveraging of its global operating platform, risks of information technology system failures and data security breaches, the uncertain global economy, the Company’s ability to attract, develop and retain executives and other qualified employees and independent contractors, including distributors, the Company’s ability to obtain and protect intellectual property rights, litigation risks, general economic conditions With respect to the continued payment of cash dividends, factors include, but are not limited to, all of the factors listed above with respect to the impact of the COVID-19 pandemic on the our business generally, plus cash flows, available surplus, capital expenditure reserves required, debt service obligations, regulatory requirements and other factors that the Board of Directors of the Company may take into account.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements represent the Company’s estimates and assumptions only as of the filing date of this Report. The Company expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the filing date of this Report, in order to reflect changes in circumstances or expectations, or the occurrence of unanticipated events, except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under “Risk Factors” set forth in Part I Item 1A of the 10-K, as well as the risks and uncertainties discussed elsewhere in this Report. The Company qualifies all of its forward-looking statements by these cautionary statements. The Company cautions you that these risks are not exhaustive. The Company operates in a continually changing business environment and new risks emerge from time to time.
Revenue for the thirdsecond quarter of 20202021 was $5.2$6.1 million compared to $9.9$3.3 million in 2019, a decrease2020, an increase of 47%85%. The Company reported a net lossincome of $1.1$0.1 million, or $0.20$0.02 per diluted share for the three months ended SeptemberJune 30, 20202021, versus a net incomeloss of $0.7$2.1 million, or $0.12($0.37) per diluted share for the same period in 2019.2020. Revenue and earnings decreaseincrease for the quarter werewas attributed primarily to a reductionan increase of internationalboth domestic and domesticinternational sales volume primarily asand a resultrefundable employee retention tax credit. The refundable employee retention tax credit for the three and six months ended June 30, 2021, was $0.8 million and $1.6 million, respectively. Revenue for the six months ended June 30, 2021, and 2020 was $11.8 million and $10.9 million, respectively, an increase of the coronavirus pandemic (“COVID-19”)8%. Further contributing to the net loss were higher personnel costs, as the Company maintained personnel through July 2020 to comply with anticipated PPP loan forgiveness. The Company has applied for loan forgiveness and expects to receive such forgiveness in the fourth quarter of 2020 or the first quarter of 2021. The Company’s revenueshad net income for the quarter were 56% above the second quarter in 2020. The Company’ssix months ended June 30, 2021, of $0.2 million versus net loss for the quarter was $0.9 million less than the net loss incurred in the second quarter of 2020, attributable to both the higher revenue and also cost reductions. Revenue for the ninesix months ended September 30, 2020 and 2019 was $16.0 million and $29.0 million, respectively, a decrease of 45%. The Company had a net loss for the nine months ended SeptemberJune 30, 2020, of $3.3 million versus net income for the nine months ended September 30, 2019 of $2.1$2.2 million. The Company declared $0.18 per share ofdid not pay any cash dividends to its shareholders in the ninesix months ended SeptemberJune 30, 2020. It2021. This is important to note that this dividend was declared in February 2020, following the release of year-end earnings, with no dividends declared thereafter. This compared to cash dividends declaredpaid of $0.54$0.18 per share forduring the comparable nine-monthsix-month period in 2019.ended June 30, 2020.
Revenue decreased 47%increased 84% for the three months ended SeptemberJune 30, 20202021, compared to the same period in 2019,2020, primarily due to a 62%95% increase in total volume, as 2020 results were adversely impacted by the COVID-19 outbreak, offset by a 11% decrease in volumeaverage revenue per sample resulting from COVID-19, both domestically and internationally.a greater mix of international volumes. For the same period, domestic revenues decreased $2.1increased $2.5 million (30%(80%) and international revenues decreased $2.6increased $0.3 million (93%(153%). For the ninesix months ended September 2020,June 2021, revenue decreased 45%increased 9%, primarily due to a 56% decreasean increase in domestic volume. For the same period, domestic revenues decreased $6.5increased $1.5 million (31%(16%) and international revenues decreased $6.4$0.6 million (80%(42%). The Company’s domestic revenues wereincrease was impacted by overall stronger job creation and people returning to the shut-down of the economy due to COVID-19, with some lesser impact in safety sensitive industries.workforce. The international revenue decline was primarily from lower Brazil testing volume. Due to COVID-19, the Brazilian government extended the renewal period for drivers licenses to 18 months, causing a major fall off in volume and revenues from Brazil.
Gross profit (loss): The Company had a $2.4 million gross profit of $1.1 million for the three months ended SeptemberJune 30, 2020,2021, compared to $4.4 milliona ($252) thousand gross loss for the same period in 2019. Direct costs decreased2020. Cost of revenues increased by $1.4$0.1 million or 26%2% for the three months ended SeptemberJune 30, 20202021, compared to the same period in 2019.2020. The gross profit margin for the three-month period ended September 30, 2020 was 22% compared to 44% for the comparable period in 2019. The margin was adverselybeneficially impacted by lowerhigher sales volume and the refundable employee retention tax credit as noted above. In addition, to qualify for future forgiveness of the PPP loan, the Company was required to maintain prior levels of personnel through July, which negatively impacted the margin. Gross profit for the ninesix months ended SeptemberJune 30, 2020 decreased $9.42021, was $5.0 million, to $3.6an increase of $2.5 million from the comparable period in 2019. Direct costs2020. Cost of revenues decreased by $3.6$1.6 million or 22%19% for the ninesix months ended SeptemberJune 30, 20202021, when compared to the same period in 2019.2020. The gross profit margin for the nine-monthsix-month period ended SeptemberJune 30, 20202021, was 23%42% compared to 45%23% for the comparable period in 2019.2020. The gross margin was adverselypositively impacted by lowerhigher sales volume and continuation of prior year levels of personnel-related expenses asthe refundable employee retention tax credit noted above.
General and administrative (“G&A”) (“G&A”) expenses decreased 5%31% or $0.1$0.6 million to $1.3 million for the three months ended SeptemberJune 30, 20202021, compared to $1.4$1.9 million for the same period in 2019.2020. As a percentage of revenue, G&A expenses were 26%21% and 14%56% for the three months ended SeptemberJune 30, 2021, and 2020, respectively. The decrease in G&A expenses was primarily driven by the absence of certain non-recurring legal fees incurred in 2020 and 2019, respectively.in addition salary reductions in 2021. G&A expenses were $4.7$2.8 million and $3.4 million for the ninesix months ended SeptemberJune 30, 2021, and 2020, and 2019.respectively. As a percentage of revenue, G&A expenses were 29%24% and 16%31% for the ninesix months ended SeptemberJune 30, 2021, and 2020, and 2019, respectively.
Marketing and selling expenses decreased 28%23% or $0.3$0.2 million to $0.9$0.7 million for the three months ended SeptemberJune 30, 20202021, compared to $1.2$0.9 million for the same period in 2019.2020. Total marketing and selling expenses represented 17%11% and 13%26% of revenue for the three months ended SeptemberJune 30, 20202021, and 2019,2020, respectively. Expenses were primarily reduced from personnel and related costs (including less travel). Marketing and selling expenses were $2.9$1.3 million and $3.5$2.0 million for the ninesix months ended SeptemberJune 30, 20202021, and 2019,2020, respectively. As a percentage of revenue, marketing and selling expenses were 18%11% and 12%18% for the ninesix months ended SeptemberJune 30, 20202021, and 2019,2020, respectively.
Research and development (“ (“R&D”&D”)expenses for the three months ended SeptemberJune 30, 20202021, and 20192020 were $0.3 million and $0.4$0.3 million, respectively. R&D expenses represented 6%5% and 4%10% of revenue for the three months ended SeptemberJune 30, 20202021, and 2019,2020, respectively. R&D expenses were $1.0$0.6 million and $1.2$0.7 million for the ninesix months ended SeptemberJune 30, 20202021, and 2019,2020, respectively. R&D expenses represented 6%5% and 4%6% of revenue for the ninesix months ended SeptemberJune 30, 20202021, and 2019,2020, respectively.
Provision for income taxestaxes: consistsOur provision for income taxes consisted primarily of federal and state income taxes in the United Sates and income taxes in Brazil.States. We estimate income taxes in each of the jurisdictions in which we operate. During the three months ended SeptemberJune 30, 2020,2021, the Company recorded a tax provision of $73 thousand (effective tax rate of 35%) and a tax benefit of $0.3$1.3 million (effective tax rate of 22%) and a tax provision of $0.7 million (effective tax rate of 49%39%) for the comparative period in 2019. The Company has calculated its income tax benefit under the current IRS guidance provided in Notice 2020-32 disallowing a tax deduction for covered expenses funded by amounts associated with the PPP loan forgiveness. If Congress clarifies legislation allowing for the covered expenses to be deductible for income tax purposes, there will be a $0.3 million benefit on the amounts recorded through the third quarter of 2020. During the ninesix months ended SeptemberJune 30, 2020 and 20192021, the Company recorded a tax benefitprovision of $1.8 million$93 thousand (effective tax rate of 30%) and a tax provisionbenefit of $1.6$1.5 million for(effective tax rate of 40%) or the comparative period in 2019. These provisions represented an effective tax rate of 35% and 43% for the nine months ended September 30, 2020 and 2019, respectively.2020.
LIQUIDITY AND CAPITAL RESOURCES
At SeptemberJune 30, 2020,2021, the Company had approximately $1.8$2.7 million of cash and $5.5$7.1 million of working capital. This includes $1.8 million of income tax receivables which the Company expects to receive by the end of the second quarter of 2021. The Company's operating activities used $5.2provided $0.2 million of cash for the ninesix months ended SeptemberJune 30, 2020.2021. Investing activities used $0.9$0.1 million of cash while financing activities provided $0.7used $0.3 million of cash during the first ninesix months of 2020.2021.
Cash usedprovided by operating activities of $5.2$0.2 million reflected net lossincome of $3.3$0.2 million adjusted for depreciation and amortization of $2.0$1.4 million, ROU asset amortization of $0.7 million, deferred income taxes of $0.6$0.4 million and stock-based compensation of $0.4 million. This was also affected by an increase in current assets of $1.5$2.3 million and a decreasean increase in accounts payable operating lease liabilities and accrued expenses of $3.1$0.1 million.
Cash used in investing activities of $0.9$0.1 million consisted primarily of costs related to leasehold improvements.internally developed software. We anticipate spending less than $0.3$0.8 million in additional capital purchases for the remainder of 2020.2021.
Cash provided byused in financing activities of $0.7$0.3 million primarily included proceeds from the PPP loanconsisted entirely of $2.2 million, partially offset by cash dividends paid to shareholders of $1.0 million and payments on equipment financing of $0.5 million.financing.
Contractual obligations and other commercial commitments as of SeptemberJune 30, 2020 include2021, included operating lease commitments and outstanding debt, described in Notes 76 and 8,7, respectively of the Notes to Condensed Consolidated Financial Statements.
At September 30, 2020, the Company's principal sources of liquidity included $5.5 million of working capital, including $1.8 million of cash. The Company expects to receive income tax refunds of $0.4 million in the fourth quarter of 2020 and at least $1.3 million in the first half of 2021. There was $7.0 million of working capital as of December 31, 2019. On May 4, 2020, the Company received SBA loan proceeds ofborrowed approximately $2.2 million throughfrom Bank of America, N.A., pursuant to the PPP, established under the CARES act. Act. In July 2021, the SBA approved the forgiveness of the full amount of the PPP Loan, which included principal and interest of $2.2 million.
While management currently believes that its existing funds and recently received loan proceedsquarterly cash flow from operations should be adequate to fund operationsthe Company’s business for at least the next 12 months, economic conditions related to COVID-19 are expected to continue to adversely affect the Company’s operating results and cash flows. As a result,Depending upon the Company’s results of operations, its future capital needs and available marketing opportunities, the Company has temporarily suspended its quarterly dividend untilmay use various financing sources to raise additional funds. Such sources could include but are not limited to, issuance of common stock or debt financing, lines of credit, or equipment leasing, although there is no assurance that such financings will be available to the economic situation stabilizes.Company on terms it deems acceptable, if at all.
Item 4. Controls and Procedures
As of the end of the period covered by this report (the “evaluation date”) the Company’s management under the supervision and with the participation of the Company’s Chief Executive Officer and Vice President, of Finance,Controller, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act. Based upon that evaluation, the Chief Executive Officer and Vice President, - FinanceController concluded as of the evaluation date, that the Company’s disclosure controls and procedures were effective for ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that its disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the Company’s principal executive and principal financial officers, to allow timely decisions regarding required disclosure.
There has been no significant change in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
Risks associated withItem 1A. of the Coronavirus (“COVID-19”).
The COVID-19 pandemic is expected to continue to materially affect the Company’s operating results during at least the next fiscal quarter and likely longer. In particular, the closing10-K includes a discussion of drivers license bureaus in Brazil in response to COVID-19, along with otherour risk factors, which included a risk related to our operations in Brazil noted below, are expectedthe PPP Loan. In July 2021, the PPP Loan was 100% forgiven by the SBA (see Note 7 – “Debt and Other Financing Arrangements” and Note 12 – “Subsequent Events” of the Notes to continue to have a material adverse impact on expected testing volume in Brazil for at least the next year. In addition, COVID-19’s effect on the world economy has caused significant increases in unemployment which has historically had a negative impact on our testing volume. COVID-19’s negative impact on the Company’s domestic and foreign-based revenue and operating resultsCondensed Consolidated Financial Statements). Except as provided in the fiscal first quarter is anticipated to continue into the third quarter, and potentially beyond. However, this risk was mitigated in part by the Company’s recent receipt of proceeds from the CARES Act loan noted above.
While the primary COVID-19 related risk to the business is from reduced sales volume, there is also a risk from a disrupted supply chain or personnel availability. The Company has obtained additional supplies to reduce the impact of a disrupted supply chain, and has taken other protective measures to lessen the impact of COVID-19 on our own operations, including the use of personal protective equipment, enhanced cleaning and social distancing at our laboratory, however, there can be no assurance that our own operations will not be adversely impacted by COVID-19.
Risks associated with CARES Act PPP loan (“loan”)
Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments and covered utilities during the twenty four-week period beginning on the date of loan approval. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest. While we believe we satisfied all eligibility criteria for the loan, and that our receipt of the loan is consistent with the broad objectives of the CARES Act, it is possible that the SBA or another federal agency will determine that we were ineligible to receive the loan, in which event we would be required to repay the loan. In addition, if these events were to transpire, they could have a material adverse effect on our business, results of operations and financial condition.
We are subject to numerous political, legal, operational, business and other risks as a result of our international operations which could impact our business in many ways.
Although we currently conduct most of our business in the United States, over a period of several years until 2020, a significant portion of our business had been derived from Brazil. As we have previously disclosed, our international operations increased our exposure to the inherent risks of doing business in international markets, including, without limitation, changes in the local economic environment and local laws and regulations, the Company’s reliance upon one distributor in Brazil and potential competition from third parties doing business in Brazil. Also as previously noted, the Company’s distribution agreement with its Brazilian distributor may be terminated for any reason by either the Company or its distributor following 90 days’ written notice and is non-exclusive to the Company.
Except as noted above,preceding sentence, there have been no material changes in ourthe risk factors from those discloseddescribed in the 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no purchases of treasury stock in the first ninesix months of 2020.2021.
On August 10, 2021, the Company entered into a change in control severance agreement with Andrew Limbek, Vice President, Controller of the Company. Mr. Limbek’s agreement is for a five year term commencing on September 1, 2021. It provides that if, during the five-year term, the Company terminates Mr. Limbek’s employment for any reason other than for Cause (as defined in the agreement), death or disability (as defined in the agreement) or if Mr. Limbek terminates his employment for Good Reason (as defined below), in either case, within twelve months following a Change in Control (as defined in the agreement), he will be entitled to receive Termination Pay (as defined below) for a period of twelve months from the date of such termination. Termination Pay includes average monthly base salary and cash bonus compensation paid or accrued during the twelve month period preceding such termination. Good Reason includes a reduction in Mr. Limbek’s base salary then in effect, or a material decrease in his duties or responsibilities. The agreement also prohibits Mr. Limbek from working for a competitor of the Company or from soliciting employees of the Company during the period he is eligible to receive Termination Pay under the agreement.
The foregoing summary of the change in control severance agreement with Mr. Limbek does not purport to be complete and is qualified in its entirety by reference to his change in control severance agreement which will be filed as an exhibit to the Company’s third quarter report on Form 10-Q.
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | Certification of Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| Cover Page Interactive Data File (formatted as Inline XBRL | |
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.
| Psychemedics Corporation | |||
| Date: | By: | /s/ Raymond C. Kubacki | |
| Raymond C. Kubacki | |||
| Chairman and Chief Executive Officer | |||
| (principal executive officer) | |||
| Date: | By: | /s/ | |
| Andrew P. Limbek | |||
| Vice President, | |||
| (principal accounting officer) | |||
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