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 |
For the quarterly period ended March 31,June 30, 2021
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 May 6,August 9, 2021 was 5,536,493.
5,542,232.
PSYCHEMEDICS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31,JUNE 30, 2021
INDEX
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(UNAUDITED)(UNAUDITED)
| March 31, | December 31, | June 30, | December 31, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| ASSETS | ||||||||||||||||
| Current Assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 2,190 | $ | 2,833 | ||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $51 in 2021 and $37 in 2020 | 4,020 | 3,356 | ||||||||||||||
Cash | $ | 2,651 | $ | 2,833 | ||||||||||||
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 | 1,898 | 914 | 2,575 | 914 | ||||||||||||
| Income tax receivable | 2,519 | 2,495 | 2,539 | 2,495 | ||||||||||||
| Total Current Assets | 10,627 | 9,598 | 11,736 | 9,598 | ||||||||||||
| Fixed assets, net of accumulated amortization and depreciation of $17,609 at March 31, 2021 and $16,937 at December 31, 2020 | 8,616 | 9,231 | ||||||||||||||
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 | 882 | 888 | 849 | 888 | ||||||||||||
| Operating lease right-of-use assets | 4,255 | 4,286 | 4,009 | 4,286 | ||||||||||||
| Total Assets | $ | 24,380 | $ | 24,003 | $ | 24,587 | $ | 24,003 | ||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
| Current Liabilities: | ||||||||||||||||
| Accounts payable | $ | 1,109 | $ | 577 | $ | 1,100 | $ | 577 | ||||||||
| Accrued expenses | 1,567 | 1,801 | 1,890 | 1,801 | ||||||||||||
| Current portion of long-term debt | 691 | 688 | 693 | 688 | ||||||||||||
| Current portion of operating lease liabilities | 963 | 875 | 965 | 875 | ||||||||||||
| Total Current Liabilities | 4,330 | 3,941 | 4,648 | 3,941 | ||||||||||||
| Long-term debt | 3,270 | 3,444 | 3,096 | 3,444 | ||||||||||||
| Deferred tax liabilities, long-term | 211 | 211 | 238 | 211 | ||||||||||||
| Long-term portion of operating lease liabilities | 3,757 | 3,895 | 3,490 | 3,895 | ||||||||||||
| Total Liabilities | 11,568 | 11,491 | 11,472 | 11,491 | ||||||||||||
| 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 6,205 shares issued at March 31, 2021 and December 31, 2020, respectively, and 5,537 shares outstanding at March 31, 2021 and December 31, 2020, respectively | 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 | 33,020 | 32,803 | 33,189 | 32,803 | ||||||||||||
| Accumulated deficit | (8,523 | ) | (8,606 | ) | (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 | ) | (1,634 | ) | (1,634 | ) | (1,634 | ) | ||||||||
| Total Shareholders' Equity | 12,812 | 12,512 | 13,115 | 12,512 | ||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 24,380 | $ | 24,003 | $ | 24,587 | $ | 24,003 | ||||||||
See accompanying notes to condensed consolidated financial statements.
3 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(in thousands, except per share amounts)
(UNAUDITED)
| Three Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| March 31, | June 30, | June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Revenues | $ | 5,713 | $ | 7,537 | $ | 6,087 | $ | 3,314 | $ | 11,800 | $ | 10,851 | ||||||||||||
| Cost of revenues | 3,145 | 4,809 | 3,651 | 3,566 | 6,796 | 8,375 | ||||||||||||||||||
| Gross profit | 2,568 | 2,728 | ||||||||||||||||||||||
Gross profit (loss) | 2,436 | (252 | ) | 5,004 | 2,476 | |||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||
| General & administrative | 1,529 | 1,533 | 1,280 | 1,853 | 2,809 | 3,386 | ||||||||||||||||||
| Marketing & selling | 642 | 1,106 | 656 | 856 | 1,298 | 1,962 | ||||||||||||||||||
| Research & development | 280 | 331 | 293 | 345 | 573 | 676 | ||||||||||||||||||
| Total Operating Expenses | 2,451 | 2,970 | 2,229 | 3,054 | 4,680 | 6,024 | ||||||||||||||||||
| Operating income (loss) | 117 | (242 | ) | 207 | (3,306 | ) | 324 | (3,548 | ) | |||||||||||||||
| Other expense | (14 | ) | (73 | ) | 0 | (39 | ) | (14 | ) | (112 | ) | |||||||||||||
| Net income (loss) before provision for (benefit from) income taxes | 103 | (315 | ) | |||||||||||||||||||||
Income (loss) before provision for (benefit from) income taxes | 207 | (3,345 | ) | 310 | (3,660 | ) | ||||||||||||||||||
| Provision for (benefit from) income taxes | 20 | (156 | ) | 73 | (1,295 | ) | 93 | (1,451 | ) | |||||||||||||||
| Net income (loss) | $ | 83 | $ | (159 | ) | $ | 134 | $ | (2,050 | ) | $ | 217 | $ | (2,209 | ) | |||||||||
| Other Comprehensive Income (Loss): | ||||||||||||||||||||||||
| Foreign currency translation | - | (23 | ) | 0 | 13 | 0 | (10 | ) | ||||||||||||||||
| Total comprehensive income (loss) | $ | 83 | $ | (182 | ) | $ | 134 | $ | (2,037 | ) | $ | 217 | $ | (2,219 | ) | |||||||||
| Basic net income (loss) per share | $ | 0.01 | $ | (0.03 | ) | $ | 0.02 | $ | (0.37 | ) | $ | 0.04 | $ | (0.40 | ) | |||||||||
| Diluted net income (loss) per share | $ | 0.01 | $ | (0.03 | ) | $ | 0.02 | $ | (0.37 | ) | $ | 0.04 | $ | (0.40 | ) | |||||||||
| Dividends declared per share | $ | - | $ | 0.18 | $ | 0 | $ | 0 | $ | 0 | $ | 0.18 |
| |||||||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’SHAREHOLDERS’ EQUITY
(in thousands, except per share amounts)
(UNAUDITED)
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 | |||||||||||||||
| Common Stock, $0.005 par value | Accumulated | |||||||||||||||||||||||||||||||
| Common | Additional | Treasury Stock | Other | |||||||||||||||||||||||||||||
Shares Outstanding | Common Stock | Paid-In Capital | Shares | Cost | Accumulated Deficit | Comprehensive Loss | Total | |||||||||||||||||||||||||
| BALANCE, December 31, 2020 | 6,205 | $ | 31 | $ | 32,803 | 668 | $ | (10,082 | ) | $ | (8,606 | ) | $ | (1,634 | ) | $ | 12,512 | |||||||||||||||
| Stock compensation expense | - | - | 217 | - | - | - | - | 217 | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 83 | - | 83 | ||||||||||||||||||||||||
| BALANCE, March 31, 2021 | 6,205 | $ | 31 | $ | 33,020 | 668 | $ | (10,082 | ) | $ | (8,523 | ) | $ | (1,634 | ) | $ | 12,812 | |||||||||||||||
| BALANCE, December 31, 2019 | 6,185 | $ | 31 | $ | 32,249 | 668 | $ | (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 | ) | ||||||||||||||||||||||
| Foreign currency translation, net of taxes | - | - | - | - | - | - | (23 | ) | (23 | ) | ||||||||||||||||||||||
| BALANCE, March 31, 2020 | 6,185 | $ | 31 | $ | 32,412 | 668 | $ | (10,082 | ) | $ | (4,906 | ) | $ | (1,647 | ) | $ | 15,808 | |||||||||||||||
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 statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
| Three Months Ended | Six Months Ended | |||||||||||||||
| March 31, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net income (loss) | $ | 83 | $ | (159 | ) | $ | 217 | $ | (2,209 | ) | ||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
| Depreciation and amortization | 687 | 610 | 1,353 | 1,288 | ||||||||||||
| ROU asset amortization | 224 | 264 | 470 | 493 | ||||||||||||
| Deferred income taxes | - | (55 | ) | 27 | (74 | ) | ||||||||||
| Loss on sale of fixed assets | - | 94 | 0 | 94 | ||||||||||||
| Stock-based compensation | 217 | 163 | 386 | 323 | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | (664 | ) | 222 | (615 | ) | 1,220 | ||||||||||
| Prepaid expenses and other current assets | (984 | ) | 108 | (1,661 | ) | (190 | ) | |||||||||
| Income tax receivable | (24 | ) | (209 | ) | (44 | ) | (1,544 | ) | ||||||||
| Accounts payable | 525 | 570 | 523 | (556 | ) | |||||||||||
| Operating lease liabilities | (243 | ) | (238 | ) | (508 | ) | (490 | ) | ||||||||
| Accrued expenses | (234 | ) | (1,783 | ) | 89 | (2,084 | ) | |||||||||
| Net cash used in operating activities | (413 | ) | (413 | ) | ||||||||||||
Net cash provided by (used in) operating activities | 237 | (3,729 | ) | |||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
| Proceeds from sale of fixed assets | - | 140 | 0 | 140 | ||||||||||||
| Purchases of equipment and leasehold improvements | (7 | ) | (401 | ) | (14 | ) | (675 | ) | ||||||||
| Cost of internally developed software | (43 | ) | (65 | ) | (70 | ) | (135 | ) | ||||||||
| Other assets | (9 | ) | (7 | ) | 8 | (7 | ) | |||||||||
| Net cash used in investing activities | (59 | ) | (333 | ) | (76 | ) | (677 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from issuance of stock, net of tax withholding | 0 | (8 | ) | |||||||||||||
Proceeds from PPP Loan | 0 | 2,181 | ||||||||||||||
| Payments of equipment financing | (171 | ) | (169 | ) | (343 | ) | (338 | ) | ||||||||
| Cash dividends paid | - | (993 | ) | 0 | (993 | ) | ||||||||||
| Net cash used in financing activities | (171 | ) | (1,162 | ) | ||||||||||||
Net cash (used in) provided by financing activities | (343 | ) | 842 | |||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | - | (44 | ) | |||||||||||||
| Net decrease in cash and cash equivalents | (643 | ) | (1,952 | ) | ||||||||||||
| Cash and cash equivalents, beginning of period | 2,833 | 7,283 | ||||||||||||||
| Cash and cash equivalents, end of period | $ | 2,190 | $ | 5,331 | ||||||||||||
Effect of exchange rate changes on cash | 0 | (47 | ) | |||||||||||||
Net decrease in cash | (182 | ) | (3,611 | ) | ||||||||||||
Cash, beginning of period | 2,833 | 7,283 | ||||||||||||||
Cash, end of period | $ | 2,651 | $ | 3,672 | ||||||||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||||||||||
| Cash paid for income taxes | $ | - | $ | 169 | $ | 0 | $ | 229 | ||||||||
| Cash paid for interest | $ | 14 | $ | 23 | $ | 28 | $ | 43 | ||||||||
| Cash paid for operating leases | $ | 269 | $ | 238 | $ | 575 | $ | 519 | ||||||||
| Right-of-use assets acquired through operating leases | $ | 193 | $ | - | $ | 193 | $ | 2,346 | ||||||||
| Purchases of equipment through accounts payable and accrued liabilities | $ | 7 | $ | 386 | $ | 0 | $ | 193 | ||||||||
See accompanying notes to condensed consolidated financial statements.
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, 2020, included in the Company's 2020 Annual Report on Form 10-K (“10-K”10-K (“10-K”), as filed with the SEC.
The condensed consolidated balance sheet as of March 31,June 30, 2021, the condensed consolidated statements of operations and comprehensive income/(loss) for the three-month periodsthree and six months ended March 31,June 30, 2021 and 2020, the condensed consolidated statements of shareholders’ equity for the three-month periodssix months ended March 31,June 30, 2021 and 2020 and the condensed consolidated statements of cash flows for the three-month periodssix months ended March 31,June 30, 2021 and 2020 are unaudited but, in the opinion of management, include all adjustments consisting of normal recurring adjustments, considered necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of December 31, 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-monthsthree and six months ended March 31,June 30, 2021, may not be indicative of the results that may be expected for the year ending December 31, 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 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 was 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. COVID-19’sCOVID-19’s effect on the overall economy has had an adverse impact on hiring; which has had a negative impact on both our domestic and international volume.
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, (“CAA”), 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 benefit of $0.8 million and $1.6 million for the three and six months ended March 31,June 30, 2021, as a reduction to cost of revenues and operating expenses related to the employee retention credit which was a tax provision in the CARES Act and subsequent legislation. Additionally, the CARES Act allowed the Company to fully carryback the 2020 net operating loss, for a refund of corporate income taxes previously paid. See Item 2: “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.
Liquidity and Management’sManagement’s Plans
At March 31,June 30, 2021, the Company’s principal sources of liquidity included approximately $2.2$2.7 million of cash on hand.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 debtequipment financing obligations, and capital expenditures for at least the next 12 months. DependingFurthermore, depending upon the Company’s results of operations, its future capital needs and available marketing opportunities, the Company may 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 Company on terms it deems acceptable, if at all.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accounts Receivable
Accounts Receivable
We believe ourThe Company believes its allowance for credit losses related to ourits accounts receivable remained adequate as of March 31,June 30, 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.Stock-Based Compensation
The Company’s 2006 Incentive Plan (“the Plan”) provides for cash-based awards or the grant or issuance of share-basedstock-based awards. As of MarchDecember 31, 2020, 45 thousand shares were then available for future grant under the Plan. At the 2021 42 Annual Meeting, an additional 350 thousand shares were approved for future grant under the Plan. As of June 30, 2022, 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 | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Share-based compensation related to: | ||||||||
| Stock option grants | $ | 145 | $ | 124 | ||||
| Restricted Stock Unit awards | 72 | 39 | ||||||
| Total share-based compensation | $ | 217 | $ | 163 | ||||
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 operations and comprehensive income/(loss) for share-basedstock-based compensation arrangements for the three-three and six months ended March 31,June 30, 2021, and 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 threesix months ended March 31,June 30, 2021, is as follows (in thousands except per share amounts):
| Weighted Average | Weighted Average | |||||||||||||||||||||||||||||||
| Weighted Average | Remaining | Aggregate | Weighted Average | Remaining | Aggregate | |||||||||||||||||||||||||||
| Number of | Exercise Price | Contractual Life | Intrinsic | Number of | Exercise Price | Contractual Life | Intrinsic | |||||||||||||||||||||||||
| Shares | Per Share | (years) | Value(1) | Shares | Per Share | (years) | Value (1) | |||||||||||||||||||||||||
| Outstanding, December 31, 2020 | 604 | $ | 14.31 | 7.0 | $ | - | 604 | $ | 14.31 | 7.0 | $ | 0 | ||||||||||||||||||||
| Granted | - | 0 | 0 | |||||||||||||||||||||||||||||
| Exercised | - | $ | - | 0 | 0 | $ | - | |||||||||||||||||||||||||
| Forfeited | (29 | ) | $ | 3.47 | ( 29 | ) | $ | 3.47 | ||||||||||||||||||||||||
| Outstanding, March 31, 2021 | 575 | $ | 14.26 | 6.8 | $ | - | ||||||||||||||||||||||||||
Outstanding, June 30, 2021 | 575 | $ | 14.23 | 6.6 | $ | 98 | ||||||||||||||||||||||||||
| Exercisable, March 31, 2021 | 424 | $ | 14.55 | 6.4 | $ | 72 | ||||||||||||||||||||||||||
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 threesix months ended March 31,June 30, 2021, is as follows (in thousands except per share amounts):
Number of Shares | Weighted Average Price per Share (2) | Weighted Average Fair Value (2) | ||||||||||
| Outstanding & Unvested, December 31, 2020 | 166 | $ | 4.50 | $ | 745 | |||||||
| Granted | 3 | $ | 6.40 | $ | 19 | |||||||
| Converted to common stock | - | - | $ | - | ||||||||
| Cancelled | - | - | $ | - | ||||||||
| Forfeited | - | - | $ | - | ||||||||
| Outstanding & Unvested, March 31, 2021 | 169 | $ | 4.54 | $ | 768 | |||||||
Number of Shares | Weighted Average Price per Share (2) | Weighted Average Fair Value (2) | ||||||||||
Outstanding & Unvested, December 31, 2020 | 166 | $ | 4.50 | $ | 747 | |||||||
Granted | 119 | $ | 6.55 | $ | 779 | |||||||
Converted to common stock | (4 | ) | $ | 10.60 | $ | (42 | ) | |||||
Cancelled | 0 | 0 | $ | 0 | ||||||||
Forfeited | 0 | 0 | $ | 0 | ||||||||
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 March 31,June 30, 2021, a total of 790901 thousand shares of common stock were reserved for issuance under the Plan. As of March 31,June 30, 2021, the unamortized fair value of awards relating to outstanding SUAs and options was $966 thousand,$1.6 million, which is expected to be amortized over a weighted average period of 2.93.3 years.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 six months ended March 31, 2021and June 30, 2021, and 2020 were as follows (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Weighted average common shares outstanding, basic | 5,537 | 5,517 | ||||||
| Dilutive common equivalent shares | 107 | - | ||||||
| Weighted average common shares outstanding, diluted | 5,644 | 5,517 | ||||||
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 six months ended March 31, 2021and June 30, 2021, and 2020 excludes the effect of the potential exercise of stock awards, including stock options, when the effect is anti-dilutive. For the three and six months ended March 31,June 30, 2021, the number of anti-dilutiveantidilutive stock awards excluded from diluted earnings (loss) per share was approximately 568550 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 and there are no renewalsdiscretion. 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 not 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 March 31,June 30, 2021, the Company recognized a Right-Of-Use (“ROU”) asset of $4.3$4.0 million and an operating lease liability of $4.7$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 March 31,June 30, 2021, is 3.9%. The weighted average lease term as of March 31,June 30, 2021, is 4.84.5 years. The operating lease expense for the three and six months ended March 31,June 30, 2021, and 2020 was $268$269 thousand and $306$538 thousand, respectively.
Maturities and balance sheet presentation of the Company’s lease liabilities for all operating leases as of March 31, 2021isJune 30, 2021, is as follows (in thousands):
| 2021 | $ | 828 | ||||||
July 1, 2021, through December 31, 2021 | 532 | |||||||
| 2022 | 1,129 | 1,117 | ||||||
| 2023 | 1,120 | 1,118 | ||||||
| 2024 | 1,034 | 1,034 | ||||||
| 2025 | 592 | 592 | ||||||
| 2026 | 460 | 460 | ||||||
| Total Lease Payments | 5,163 | 4,853 | ||||||
| Less: Interest expense | (443 | ) | (398 | ) | ||||
| Present value of lease liabilities | $ | 4,720 | $ | 4,455 | ||||
| Current operating lease liabilities | $ | 963 | $ | 965 | ||||
| Long-term operating lease liabilities | 3,757 | 3,490 | ||||||
| $ | 4,720 | $ | 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 Form 10-K for the year ended December 31, 2020.10-K.
The weighted average interest rate on outstanding debt under the Loan Agreement was 3.2%3.4% and 3.4% for the three and six months ended March 31,June 30, 2021. The interest expense was $14$13 thousand and $25$27 thousand for the three and six months ended March 31,June 30, 2021, and 2020, respectively. As of March 31,June 30, 2021, the weighted average interest rate was 2.2%3.1% and there was $1.8$1.6 million of outstanding debt related under the loan agreement. The Company was in compliance with all loan covenants as of March 31,June 30, 2021.
The annual principal repayment requirements for debt obligations as of March 31, 2021were as follows (in thousands):
| 2021 | $ | 517 | ||
| 2022 | 664 | |||
| 2023 | 294 | |||
| 2024 | 305 | |||
| Long-term debt from equipment financing | 1,780 | |||
| Less: Current portion of long-term debt | (691 | ) | ||
| Long-term debt from equipment financing, net of current portion | 1,089 | |||
| PPP Loan | 2,181 | |||
| Total long-term debt, net of current portion | $ | 3,270 |
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 iswas evidenced by a promissory note with a maturity date of May 4, 2022. The note bearsbore interest on the unpaid balance at the rate of one percent (1%(1%) per annum. The Company is in In July 2021, the process of applying for loan forgiveness withPPP Loan was 100% forgiven by the SBA (see Note 12 – “Subsequent Events” and expects a final approval in 2021.the Company’s Current Report on Form 8-K filed on July 20, 2021).
The annual principal repayment requirements for debt obligations as of June 30, 2021, were as follows (in thousands):
2021 | $ | 345 | ||
2022 | 664 | |||
2023 | 294 | |||
2024 | 305 | |||
Long-term debt from equipment financing | 1,608 | |||
Less: Current portion of long-term debt | (693 | ) | ||
Long-term debt from equipment financing, net of current portion | 915 | |||
PPP Loan | 2,181 | |||
Total long-term debt, net of current portion | $ | 3,096 |
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 9 – “Business Segment Reporting”.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Testing | $ | 5,049 | $ | 6,833 | ||||
| Shipping/Collection (hair) | 615 | 660 | ||||||
| Other | 49 | 44 | ||||||
| Total Revenue | $ | 5,713 | $ | 7,537 | ||||
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 | ||||||||
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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Consolidated Revenue: | ||||||||||||||||
United States | $ | 5,609 | $ | 3,125 | $ | 11,002 | $ | 9,466 | ||||||||
Brazil | 320 | 164 | 460 | 1,145 | ||||||||||||
Other | 158 | 25 | 338 | 240 | ||||||||||||
Total Revenue | $ | 6,087 | $ | 3,314 | $ | 11,800 | $ | 10,851 | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Consolidated Revenue: | ||||||||
| United States | $ | 5,393 | $ | 6,341 | ||||
| Brazil | 140 | 1,063 | ||||||
| Other | 180 | 133 | ||||||
| Total revenue | $ | 5,713 | $ | 7,537 | ||||
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 threesix months ended March 31,June 30, 2021. OneThe Company had 1 customer that represented 14%11% of revenue for the threesix months ended March 31,June 30, 2020. The Company had one1 customer that represented 15%12% of the total accounts receivable balance as of March 31,June 30, 2021. The Company had no0 customers that represented greater than 10% of the total accounts receivable balance as of December 31, 2020.
11.Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12,2019-12, “Income Taxes (Topic 740)740): Simplifying the Accounting for Income Taxes”. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASU Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASU Topic 740 by clarifying and amending existing guidance. The 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 adopted 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 2019-122019-12 as of January 1, 2021, with no material impact to the Company’s consolidated financial statements.
12.Subsequent Events
In July 2021, the outstanding principal and 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- 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, for the year ended December 31, 2020, 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 firstsecond quarter of 2021 was $5.7$6.1 million compared to $7.5$3.3 million in 2020, a decreasean increase of 24%85%. The Company reported a net income of $0.1 million, or $0.01$0.02 per diluted share for the three months ended March 31,June 30, 2021, versus a net loss of $0.2$2.1 million, or ($0.03)0.37) per diluted share for the same period in 2020. Revenue decreaseand earnings increase for the quarter werewas attributed primarily to a reductionan increase of internationalboth domestic and domesticinternational sales volume primarily asand a result of the coronavirus pandemic (“COVID-19”) and slower new job creation. Earnings increase was primarily driven by a refundable employee retention tax credit. Under the provisions of the CARES Act, we became entitled to aThe refundable retention tax credit against a certain amount of payroll taxes otherwise payable by us as an employer, subject to certain criteria. Accordingly, we recorded a $0.8 million 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 8%. The Company had net income for the six months ended June 30, 2021, of $0.2 million versus net loss for the six months ended June 30, 2020, of $2.2 million. The Company did not pay any cash dividends to its shareholders in the six months ended June 30, 2021. This is compared to cash dividends paid of $0.18 per share during the three monthssix-month period ended March 31, 2021, which is included in cost of revenues and operating expenses in the statements of operations and comprehensive income/(loss).June 30, 2020.
Revenue: RevenueDecreased 24%increased 84% for the three months ended March 31,June 30, 2021, compared to the same period in 2020, primarily due to a 36% decrease95% increase in total volume, resulting fromas 2020 results were adversely impacted by the COVID-19 both domestically and internationally,outbreak, offset by a 12% increase11% decrease in average revenue per sample.sample resulting from a greater mix of international volumes. For the same period, domestic revenues decreased $0.9increased $2.5 million (15%(80%) and international revenues increased $0.3 million (153%). For the six months ended June 2021, revenue increased 9%, primarily due to an increase in domestic volume. For the same period, domestic revenues increased $1.5 million (16%) and international revenues decreased $0.9$0.6 million (73%(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. In March 2020, we experienced a material decline in testing volumes due to COVID-19. During third quarter of 2020, we began to experience a recovery in base testing volume, which continued in the fourth quarter of 2020 and first quarter of 2021. For the first quarter of 2021, our domestic testing volume was 14% below comparable period in 2020.workforce. The international revenue decline was primarily from lower Brazil testing volume. The decline was expected due to the continued declining economic Brazilian market.
Gross profit (loss):The Company had a $2.4 million gross profit of $2.6 million for the three months ended March 31,June 30, 2021, compared to $2.7 milliona ($252) thousand gross loss for the same period in 2020. Direct costs decreasedCost of revenues increased by $1.7$0.1 million or 35%2% for the three months ended March 31,June 30, 2021, compared to the same period in 2020. The gross margin was beneficially impacted by higher sales volume and the refundable employee retention tax credit as noted above. Gross profit for the six months ended June 30, 2021, was $5.0 million, an increase of $2.5 million from the comparable period in 2020. Cost of revenues decreased by $1.6 million or 19% for the six months ended June 30, 2021, when compared to the same period in 2020. The gross profit margin for the three-monthsix-month period ended March 31,June 30, 2021, was 45%,42% compared to 36%23% for the comparable period in 2020. The increase in gross profit margin was due topositively impacted by higher sales volume and the refundable employee retention tax credits and lower personnel related costs offset by lower sales volume ascredit noted above.
General and administrative (“(“G&A”&A”) expenses:expenses No changedecreased 31% or $0.6 million to $1.3 million for the three months ended March 31,June 30, 2021, compared to $1.9 million for the same period in 2020. The Company hadAs a percentage of revenue, G&A expenses of $1.5 millionwere 21% and 56% for the three months ended March 31,June 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 in addition salary reductions in 2021. G&A expenses were $2.8 million and $3.4 million for the six months ended June 30, 2021, and 2020, respectively. As a percentage of revenue, G&A expenses were 27%24% and 20%31% for the threesix months ended March 31, 2021andJune 30, 2021, and 2020, respectively.
Marketing and selling expenses:expenses Decreased 42%decreased 23% or $0.5$0.2 million to $0.6$0.7 million for the three months ended March 31, 2021comparedJune 30, 2021, compared to $1.1$0.9 million for the same period in 2020. Total marketing and selling expenses represented 11% and 15%26% of revenue for the three months ended March 31, 2021andJune 30, 2021, and 2020, respectively. Expenses were primarily reduced from personnel and related costs (including less travel). Marketing and selling expenses were $1.3 million and $2.0 million for the six months ended June 30, 2021, and 2020, respectively. As a percentage of revenue, marketing and selling expenses were 11% and 18% for the six months ended June 30, 2021, and 2020, respectively.
Research and development (“(“R&D”&D”) expenses:expenses Forfor the three months ended March 31, 2021andJune 30, 2021, and 2020 were $0.3 million and $0.3 million, respectively. R&D expenses represented 5% and 4%10% of revenue for the three months ended March 31, 2021andJune 30, 2021, and 2020, respectively. R&D expenses were $0.6 million and $0.7 million for the six months ended June 30, 2021, and 2020, respectively. R&D expenses represented 5% and 6% of revenue for the six months ended June 30, 2021, and 2020, respectively.
Provision for income taxes: Our provision for income taxes consisted primarily of federal and state income taxes in the United Sates.States. We estimate income taxes in each of the jurisdictions in which we operate. During the three months ended March 31,June 30, 2021, the Company recorded a tax provision of $20$73 thousand (effective tax rate of 20%35%). and a tax benefit of $1.3 million (effective tax rate of 39%) for the comparative period in 2020. During the threesix months ended March 31, 2020,June 30, 2021, the Company recorded a tax provision of $93 thousand (effective tax rate of 30%) and a tax benefit of $156 thousand (tax benefit$1.5 million (effective tax rate of 50%40%). or the comparative period in 2020.
LIQUIDITY AND CAPITAL RESOURCES
At March 31,June 30, 2021, the Company had approximately $2.2$2.7 million of cash and cash equivalents and $6.3$7.1 million of working capital. This includes $2.5 million of income tax receivables which the Company expects to receive by the end of the fourth quarter of 2021. The Company's operating activities used $0.4provided $0.2 million of cash for the threesix months ended March 31,June 30, 2021. Investing activities used $0.1 million of cash while financing activities used $0.2$0.3 million of cash during the threefirst six months ended March 31,of 2021.
Cash used inprovided by operating activitiesof $0.4$0.2 million reflected net income of approximately $0.1$0.2 million adjusted for depreciation and amortization of $0.7$1.4 million, ROU asset amortization of $0.2$0.4 million and stock-based compensation of $0.2$0.4 million. This was also affected by an increase in current assets of $1.7$2.3 million and was partially offset by an increase in accounts payable operating lease liabilities and accrued expenses of $0.05$0.1 million.
Cash used in investing activities of $0.1 million consisted primarily of costs related to internally developed software. We anticipate spending less than $1.0$0.8 million in additional capital purchases for the remainder of 2021.
Cash used in financing activitiesof $0.2$0.3 million consisted entirely of payments on equipment financing.
Contractual obligations and other commercial commitments as of March 31,June 30, 2021, includeincluded operating lease commitments and outstanding debt, described in Notes 6 and 7, respectively of the Notes to Condensed Consolidated Financial Statements.
At March 31, 2021, the Company's principal sources of liquidity included $6.5 million of working capital, including $2.2 million of cash on hand. There was $5.7 million of working capital as of December 31, 2020. On May 4, 2020, the Company borrowed approximately $2.2 million from Bank of America, N.A., pursuant to the PPP, established under the CARES Act. The PPP Loan is subject to forgiveness underIn July 2021, the PPP uponSBA approved the Company’s request to the extent that the proceeds are used to pay expenses permitted by the PPP.
On November 6, 2020, the Company applied for forgiveness of the entire amount due on the loan. The application and recommendation from Bank of America, N.A., has been provided to the SBA. Notwithstanding our application for loan forgiveness, we are unable to predict the actualfull amount of loan forgiveness the SBA will approve. The decision from the SBA is expected in second quarter of 2021. As of March 31, 2021, we had approximately $2.2 million outstanding under the PPP Loan.Loan, which included principal and interest of $2.2 million.
While management currently believes that its existing funds and quarterly cash flow from operations should be adequate to fund the 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 in an effortmay use various financing sources to prioritizeraise 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 Company’s liquidity and balance sheet.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, 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, Controller 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.
Item 1A. of our Annual Report on Formthe 10-K for the year ended December 31, 2020 includes a discussion of our risk factors. Therefactors, which included a risk related to the 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 Condensed Consolidated Financial Statements). Except as provided in the preceding sentence, there have been no material changes in the risk factors described in such report.the 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no purchases of treasury stock in the first threesix months of 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.
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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 | |
| Andrew P. Limbek | |||
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