-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HR4XuVz7A6MMFvcXUGQNmKTiOb3OLAkfOdwpxNwIaa5Pyy6Gxw256/pIofnf1Chf DgYG8a7fNXyFHifoBQL5Iw== 0000950135-97-003464.txt : 19970815 0000950135-97-003464.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950135-97-003464 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSYCHEMEDICS CORP CENTRAL INDEX KEY: 0000806517 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 581701987 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13738 FILM NUMBER: 97660061 BUSINESS ADDRESS: STREET 1: 1280 MASSACHUSETTS AVENUE STREET 2: SUITE 200 CITY: CAMBRIDGE STATE: MA ZIP: 02138 BUSINESS PHONE: 6178687455 MAIL ADDRESS: STREET 1: 1280 MASSACHUSETTS AVE STREET 2: SUITE 200 CITY: CAMBRIDGE STATE: MA ZIP: 02138 10-Q 1 PSYCHEMEDICS CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE ------ SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended JUNE 30, 1997 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 Issuer as specified in its charter) Delaware 58-1701987 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 1280 Massachusetts Ave., Ste. 200, Cambridge, MA 02138 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code (617-868-7455) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares outstanding of only class of Issuer's Common Stock as of August 8, 1997: Common Stock $.005 par value (21,912,050 shares). 2 PSYCHEMEDICS CORPORATION Part l FINANCIAL INFORMATION Page No. -------- Item 1 Financial Statements Condensed Balance Sheets as of June 30, 1997 and December 31, 1996 3 Condensed Statements of Income for the three and six month periods ended June 30, 1997 and 1996 4-5 Condensed Statements of Cash Flows for the six months ended June 30, 1997 6 Notes to Condensed Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-11 Part II OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders 12 Item 6 Exhibits and Reports on Form 8K 13 Page 2 of 14 3 PSYCHEMEDICS CORPORATION CONDENSED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, 1997 1996 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 745,050 $ 1,462,678 Short-term investments 8,621,623 8,370,727 Receivables 4,131,095 2,657,416 Inventory 429,372 230,777 Prepaid expenses and other current assets 559,510 129,828 ------------ ------------ Total current assets 14,486,650 12,851,426 ------------ ------------ EQUIPMENT AND LEASEHOLD IMPROVEMENTS 5,730,948 4,843,412 Less-accumulated depreciation and amortization 2,686,895 2,399,919 ------------ ------------ 3,044,053 2,443,493 ------------ ------------ OTHER ASSETS - NET 437,009 449,601 ------------ ------------ $ 17,967,712 $ 15,744,520 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 669,391 $ 395,434 Accrued dividend payable -- 437,217 Accrued expenses 233,551 283,719 Accrued income taxes 429,789 283,808 Deferred revenue 921,690 48,525 ------------ ------------ Total current liabilities 2,254,421 1,448,703 ------------ ------------ SHAREHOLDERS' EQUITY: Preferred stock, $.005 par value; authorized 1,000,000 shares; none outstanding -- -- Common stock; $.005 par value; authorized 50,000,000 shares; issued 21,981,400 and 21,758,087 shares in 1997 and 1996, respectively 109,907 108,790 Paid-in capital 21,631,317 20,722,137 Accumulated deficit (5,773,870) (6,281,047) Treasury stock, at cost; 66,381 shares in 1997 and 1996 (254,063) (254,063) ------------ ------------ Total shareholders' equity 15,713,291 14,295,817 ------------ ------------ $ 17,967,712 $ 15,744,520 ============ ============
See accompanying notes to financial statements and management's discussion and analysis of financial condition and results of operations Page 3 of 14 4 PSYCHEMEDICS CORPORATION CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30, ------------------------- 1997 1996 ----------- ----------- REVENUE $ 4,402,203 $ 3,141,313 DIRECT COSTS 1,606,615 1,222,835 ----------- ----------- Gross profit 2,795,588 1,918,478 ----------- ----------- EXPENSES: General and administrative 563,049 559,140 Marketing and selling 1,124,003 525,962 Research and development 110,174 113,259 ----------- ----------- 1,797,226 1,198,361 ----------- ----------- INCOME FROM OPERATIONS 998,362 720,117 OTHER INCOME (EXPENSE) - NET 131,214 84,781 ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAXES 1,129,576 804,898 PROVISION FOR INCOME TAXES 384,056 88,433 ----------- ----------- NET INCOME $ 745,520 $ 716,465 =========== =========== NET INCOME PER COMMON SHARE AND COMMON EQUIVALENT SHARE $ 0.03 $ 0.03 =========== =========== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 22,797,637 22,514,614 =========== ===========
See accompanying notes to financial statements and management's discussion and analysis of financial condition and results of operations Page 4 of 14 5 PSYCHEMEDICS CORPORATION CONDENSED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------- 1997 1996 ----------- ----------- REVENUE 7,655,947 $ 5,815,977 DIRECT COSTS 2,928,487 2,406,843 ----------- ----------- Gross profit 4,727,460 3,409,134 ----------- ----------- EXPENSES: General and administrative 1,095,703 1,092,401 Marketing and selling 1,781,446 1,005,103 Research and development 219,082 203,128 ----------- ----------- 3,096,231 2,300,632 ----------- ----------- INCOME FROM OPERATIONS 1,631,229 1,108,502 OTHER INCOME (EXPENSE) - NET 256,806 150,280 ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAXES 1,888,035 1,258,782 PROVISION FOR INCOME TAXES 505,408 93,033 ----------- ----------- NET INCOME $ 1,382,627 $ 1,165,749 =========== =========== NET INCOME PER COMMON SHARE AND COMMON EQUIVALENT SHARE $ 0.06 $ 0.05 =========== =========== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 22,8O7,787 21,964,568 =========== ===========
See accompanying notes to financial statements and management's discussion and analysis of financial condition and results of operations Page 5 of 14 6 PSYCHEMEDICS CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,382,627 $ 1,165,749 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 286,976 318,510 Changes in assets and liabilities: Receivables (1,473,679) (966,894) Inventory (198,595) 43,858 Prepaid expenses and other current assets (429,682) (202,664) Accrued income taxes payable 145,981 -- Accounts payable 273,957 (254,898) Accrued expenses (50,168) 74,494 Deferred revenue 873,165 48,525 ----------- ----------- Net cash provided by operating activities 810,582 226,680 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: (Purchases) sales of short-term investments - net (250,896) (1,230,036) (Purchases) of equipment and leasehold improvements (887,536) (259,169) (Increase) decrease in other assets - net 12,592 (15,840) ----------- ----------- Net cash provided by (used in) investing activities (1,125,840) (1,505,045) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net principal payments on obligations under capital leases -- (16,413) Net proceeds from the issuance of common stock including related tax benefits 910,297 2,359,237 Cash dividends paid (1,312,667) -- ----------- ----------- Net cash provided by (used in) financing activities (402,370) 2,342,824 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (717,628) 1,064,459 CASH AND CASH EQUIVALENTS, beginning of period 1,462,678 193,787 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 745,050 $ 1,258,246 =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Accrued dividend payable - 3% stock dividend $ -- $ 4,668,200 =========== ===========
See accompanying notes to financial statements and management's discussion and analysis of financial condition and results of operations Page 6 of 14 7 PSYCHEMEDICS CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS June 30, 1997 1. The financial information furnished herein is unaudited; however, in the opinion of management, it reflects all adjustments which are necessary to fairly state the Company's financial position at June 30, 1997 and the results of its operations and cash flows for the periods ended June 30, 1997 and 1996. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances, and included in the financial statements are certain amounts based on management's estimates and judgments. The financial information herein is not necessarily representative of a full year's operations because levels of sales, capital additions and other factors fluctuate throughout the year. These same considerations apply to all year to year comparisons. See the Company's Annual Report on Form 10-K for the year ended December 31, 1996 for additional information not required by this report (Form 10-Q). 2. Net income per common and common equivalent share is based upon the weighted average number of common and common equivalent shares outstanding as computed using the treasury stock method. 3. On July 3, 1996, the Company distributed a 3% stock dividend to shareholders of record on June 21, 1996. Average shares outstanding and all per share amounts included in the accompanying financial statements and Notes are based on the increased number of shares giving retroactive effect to the stock dividend. 4. On March 4, 1997, the Company declared a $0.02 per share cash dividend which was paid on April 9, 1997, to shareholders of record on March 20, 1997. In addition, on June 2, 1997, the Company declared a $0.02 per share cash dividend which was paid on June 27, 1997 to shareholders of record on June 16, 1997. 5. During the second quarter of 1997, the Company launched a personal drug testing service, "PDT-90" to retail drug stores. Revenues for this product are being recognized on an "as tested" basis rather than on the basis of delivery to retailers. At June 30, 1997, the Company had $922,000 of deferred revenue related to this retail product. In addition, at June 30, 1997, the Company had receivables of $491,000, product inventory of $173,000, and prepaid expenses of $256,000 all related to the retail business. 6. New Accounting Standard In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 Earnings Per Share. SFAS No. 128 establishes standards for computing and presenting Page 7 of 14 8 earnings per share and applies to all publicly held companies. This statement is effective for fiscal years ending after December 15, 1997 and early adoption is not permitted. When adopted, the statement will require restatement of prior years' earnings per share. The Company will adopt this statement for its fiscal year ended December 31, 1997. Pro forma calculations of basis and diluted earnings per share as required by SFAS No. 128 are as follows:
Three Months Ended Six Months Ended 6-30-97 6-30-96 6-30-97 6-30-96 ----------------------------- ----------------------------- BASIC EPS Net income available to common shareholders $ 745,520 $ 716,465 $ 1,375,367 $ 1,165,749 Weighted average common shares outstanding net of treasury shares 21,832,664 21,370,391 21,866,699 20,905,941 ------------ ------------ ------------ ------------ Basic EPS $ 0.03 $ 0.03 $ 0.06 $ 0.06 ============ ============ ============ ============ DILUTED EPS Net income available to common shareholders $ 745,520 $ 716,465 $ 1,375,367 $ 1,165,749 Weighted average common and common equivalent shares outstanding 22,797,637 22,514,614 22,807,787 21,964,568 ------------ ------------ ------------ ------------ Diluted EPS $ 0.03 $ 0.03 $ 0.06 $ 0.05 ============ ============ ============ ============
Page 8 of 14 9 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenue was $4.4 million in the second quarter of 1997 as compared to $3.1 million in the second quarter of 1996 representing an increase of 40%. Revenue for the six month period ended June 30, 1997 was $7.7 million, an increase of 32% over the $5.8 million reported for the comparable period of 1996. The revenue increases were due primarily to increases in volume from both new and existing clients offset by average price decreases of 3% primarily as a result of volume discounts granted to large customers. Gross margin was 64% of sales in the second quarter of 1997 compared to 61% in the year earlier period. Gross margin was 62% for the six months ended June 30, 1997 compared to 59% in the year earlier period. The increases in 1997 were primarily the result of increased efficiencies resulting from increased volume, which more than offset the impact of volume discounts. General and administrative (G&A) expenses remained virtually unchanged at $563,000 and $1,096,000 in the three and six month periods ended June 30, 1997 from the year earlier amount. As a percentage of revenue, G&A expenses declined to 13% from 18% in the second quarter of 1996 because of the higher revenues in 1997. Similarly, G&A expenses as a percentage of revenues declined to 14% from 19% for the six month period ended June 30, 1997 because of higher revenues in 1997. Marketing and selling expenses for the three month period ended June 30, 1997 increased $598,000, to $1,124,000, an increase of 114%. As a percentage of revenues, marketing and selling expenses increased from 17% in the 1996 period to 26% in the second quarter of 1997. Marketing and selling expenses for the six month period ended June 30, 1997 increased $776,000, to $1,781,446, an increase of 77%. As a percentage of revenues, marketing and selling expenses increased from 17% in the 1996 period to 23% in 1997. These increases were primarily due to additions of the Company's sales staff and expanded marketing activities related to both the corporate market and significant additional expenditures made to penetrate the retail home testing market. The Company expects to continue to aggressively promote its drug testing services during the remainder of 1997 and in future years in order to expand its client base. Other income for the three and six month periods ended June 30, 1997 represented primarily interest earned on cash equivalents and short-term investments. The increase in 1997 was primarily due to higher investment balances coupled with increased yields on these investments. Page 9 of 14 10 Net income increased to $745,520 in the first quarter of 1997, an increase of $29,000 or 4% from the year earlier amount. The increase in 1997 was primarily due to increased revenues, and related efficiencies in direct costs derived from increased sales volume offset by increased marketing efforts and an increased effective tax rate. The effective tax rate for the second quarter of 1997 increased significantly over the 1996 rate, reflecting the reduction in net operating loss carryforwards available to offset the provision for income taxes for financial reporting purposes. The Company had total net operating loss carryforwards at December 31, 1996 of approximately $3.6 million available to offset the 1997 and future years' cash payments for income taxes. However, approximately $2.6 million of these loss carryforwards were comprised of deductions from the exercise of certain options and warrants which will increase paid-in capital when tax benefits related to these options and warrants are recognized. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997, the Company had $9.4 million of cash, cash equivalents and short-term investments. The Company's operating activities generated net cash of $811,000 in the six months ended June 30, 1997. Investing activities used $1.1 million in the six month period while financing activities used a net amount of $402,000 during the period. The Company's source of funds in the first six months of 1997 was derived entirely from net cash generated from operations. Operating cash flows increased $810,582 in the first half of 1997, compared to the year earlier period. Net income was higher by $217,000, accounts payable increased in the 1997 period whereas they decreased in the year earlier period, and increases in accrued expenses were higher in 1997 than in 1996, but this was offset by higher increases in accounts receivable in 1997 from the year earlier period and an increase in inventory in 1997. The increase in deferred revenue relates to shipments of retail product made to retail outlets which will be recognized as revenue after the samples have been submitted for testing. The non-cash effect of depreciation and amortization in the 1997 and 1996 periods was $287,000 and $319,000, respectively. Capital expenditures in the first six months of 1997 were $888,000. The expenditures primarily consisted of new equipment, including laboratory and computer equipment. The Company currently plans to make additional capital expenditures of approximately $200,000 in 1997, primarily in connection with the purchase of additional laboratory and computer equipment. The Company believes that within the next two years it may be required to expand its existing laboratory or develop a second laboratory, the cost of which is currently believed to range from $2 million to $4 million. On July 3, 1996, the Company distributed a 3% stock dividend to shareholders of record on June 21, 1996. The shares issued in the stock dividend represented shares which the Company acquired in a stock repurchase program authorized in 1994. This transaction resulted in an increase of $4.67 million in the accumulated deficit (633,000 shares distributed at a fair market value of $7.37 per share). Treasury stock was reduced by $2.42 million as a result of this distribution. Average shares outstanding and all per share amounts included in the accompanying financial statements and Notes are based on the increased number of shares giving retroactive effect to the stock dividend. Page 10 of 14 11 During the quarter ended June 30, 1997, the Company distributed $874,000 in cash dividends to its shareholders. The Company does not have a definitive plan to pay cash dividends, but reviews the matter on a quarterly basis depending on the results of operations and cash needs on both a short-term and long-term basis. At June 30, 1997, the Company's principal sources of liquidity included $9.4 million of cash, cash equivalents and short-term investments. Management currently believes that such funds, together with cash generated from operations, should be adequate to fund anticipated working capital requirements and capital expenditures in the near term. 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 joint ventures, issuances of common stock or debt financing. At June 30, 1997, the Company had no long-term debt. 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 which involves risks and uncertainties. In particular, statements contained in this report which are not historical facts (including but not limited to the Company's expectations regarding principal customers, business strategy, anticipated operating results and anticipated cash requirements) may be "forward looking" statements. The Company's 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 continued expansion of the Company's sales and marketing network, development of markets for new products and services offered by the Company, the economic health of principal customers of the Company, financial and operational risks associated with possible expansion of testing facilities used by the Company, government regulation, competition and general economic conditions. Page 11 of 14 12 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of Psychemedics Corporation was held on May 8, 1997 for the purpose of electing a board of directors, approving the appointment of auditors, and approving an amendment to the Company's 1989 Employee Stock Option Plan. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's solicitations. All of management's nominees for directors, as listed in the proxy statement, were elected with the following vote:
Number of Shares ---------------- Election of Directors. For Withheld Authority --- ------------------ Werner A. Baumgartner, Ph.D. 17,406,890 321,702 Raymond C. Kubacki, Jr. 17,406,890 321,702 A. Clinton Allen 17,406,890 321,602 Donald F. Flynn 17,406,746 321,846 John J. Melk 17,406,746 321,846 Fred J. Weinert 17,406,746 321,846
Amendment of the Company's 1989 Employee Stock Option Plan.
Number of Shares ---------------- For 16,241,952 Against 1,438,137 Abstain 48,503 Delivered - not voted 309
Selection of Arthur Andersen LLP as auditors of the Company.
Number of Shares ---------------- For 17,395,065 Against 316,961 Abstain 16,566 Delivered - not voted 309
Page 12 of 14 13 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 27. Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. Page 13 of 14 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Psychemedics Corporation Date: August 13, 1997 By:/s/ Raymond C. Kubacki, Jr. ----------------------------------- Raymond C. Kubacki, Jr. President and Chief Executive Officer Date: August 13, 1997 By:/s/ Bruce M. Stillwell ----------------------------------- Bruce M. Stillwell Vice President, Treasurer & Controller Page 14 of 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 3-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 745,050 8,621,623 4,131,095 0 429,372 14,486,650 5,730,948 2,686,895 17,967,712 2,254,421 0 0 0 109,907 15,603,384 17,967,712 0 4,402,203 0 1,606,615 1,797,226 0 0 1,129,576 384,056 0 0 0 0 745,520 0.03 0.03
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