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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Risks and Uncertainties [Policy Text Block]

Risks and Uncertainties

The Company is subject to a number of risks and uncertainties similar to those of other companies, such as those associated with the continued expansion of the Company’s sales and marketing network, technological developments, intellectual property protection, 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 expansion of testing facilities used by the Company, government regulation (including, but

not

limited to, Food and Drug Administration regulations, Brazilian laws, proposed laws and regulations, and delays in implementation of laws and regulations), competition and general economic conditions.

Use of Estimates, Policy [Policy Text Block]

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates, including those related to bad debts, long-lived asset lives, income tax valuation and share based compensation, 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. Actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash Equivalents

All highly liquid investments with original maturities of

days or less are considered cash equivalents. These consist of certificates of deposit (CD’s). There was

$4.6

million of CD’s as of

December 31, 2017.

As of

December 31, 2018,

there were

investments classified as cash equivalents.

Marketable Securities, Policy [Policy Text Block]

Marketable Securities

All investments with original maturities of more than

days are considered marketable securities. As of

December 31, 2018,

the company had

one

held-to-maturity security (a CD with Bank of America in Brazil) with a maturity of

180

days, ending on

April 29, 2019.

The CD had an original cost and current fair value of BRL

million (USD

$4.0

million). As of

December 31, 2017,

there were

investments classified as marketable securities.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

The Company follows the provisions of Accounting Standards Codification (ASC)

820,

Fair Value Measurements and Disclosures

(“ASC

820”

), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements and expands disclosures regarding fair value measurements. Fair value is defined under ASC

820

as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC

820

must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on

three

levels of inputs, of which the

first

two

are considered observable and the last unobservable, that

may

be used to measure fair value which are the following:

Level

– Quoted prices in active markets for identical assets or liabilities.

Level

– Inputs other than Level

that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data

Level

– Unobservable inputs that are supported by little or

market activity and that are significant to the fair value

A financial instrument’s level is based on the lowest level of any input that is significant to the fair value measurement.

The Company had

one

marketable security (a CD) as of

December 31, 2018

which was classified as Level

with a fair market value of

$4.0

million. As of

December 31, 2017,

the company had CD’s (cash equivalents) which was classified as Level

with a fair market value of

$4.5

million.

Inventory, Policy [Policy Text Block]

Inventory

Some materials used in the provision of services to our customers are included in prepaid expenses and recorded to cost of revenues upon use. Most consumables such as chemicals and antibodies are expensed as purchased.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property & equipment are stated at cost. Depreciation and amortization are provided over the estimated useful lives of the assets, using the straight-line method. Repair and maintenance costs are expensed as incurred. The estimated useful lives of the assets are:

Computer software (years)	3	to	5
Office furniture and equipment (years)	3	to	7
Laboratory equipment (years)	5	to	7
Leasehold improvements		Lesser of estimated useful life or lease term

The Company recorded depreciation and amortization related to property and equipment and capitalized software of

$3.0

million,

$2.8

million, and

$2.3

million in

2018,

2017

and

2016

respectively. All equipment was placed in service as of

December 31, 2018.

Research, Development, and Computer Software, Policy [Policy Text Block]

Capitalized Software Development Costs

We capitalize costs related to significant software projects developed or obtained for internal use, including costs incurred in a cloud computing arrangement. Costs incurred during the preliminary project work stage or conceptual stage, such as determining the performance requirements, system requirements and data conversion, are expensed as incurred. Costs incurred in the application development phase, such as coding, testing for new software and upgrades that result in additional functionality, are capitalized and are amortized using the straight-line method over the useful life of the software for

years. Costs incurred during the post-implementation/operation stage, including training costs and maintenance costs, are expensed as incurred. In accordance with Company policy, during the years ended

December 31, 2018

and

2017,

we capitalized internally developed software costs of

$299

thousand and

$511

thousand, respectively. Amortization expense related to software development costs was

$525

thousand,

$418

thousand and

$435

thousand in

2018,

2017,

and

2016,

respectively. Determining whether particular costs incurred are more properly attributable to the preliminary or conceptual stage, and thus expensed, or to the application development phase, and thus capitalized and amortized, depends on subjective judgments about the nature of the development work, and our judgments in this regard

may

differ from those made by other companies. General and administrative costs related to developing or obtaining such software is expensed as incurred.

Other Assets [Policy Text Block]

Other Assets

Other assets primarily consist of capitalized legal costs relating to patent applications. The Company amortizes these costs over the lesser of the legal life or estimated useful life of the patent from the date of grant of the applicable patent. The typical life is

twenty

years. As of

December 31, 2018

and

2017,

the Company had capitalized legal costs relating to outstanding patent applications of

$737

thousand and

$711

thousand, respectively. Amortization expense was

$38

thousand,

$37

thousand, and

$36

thousand in

2018,

2017

and

2016,

respectively. The amount of amortization related to patent applications is expected to remain below

$50

thousand per year for the next

five

years.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company is in the business of performing drug testing services and reporting the results thereof. The Company’s services are primarily drug and alcohol testing for its customers for an agreed-upon fee per unit tested. The revenues are recognized when the drug test is performed and reported to the customer.

January 1, 2018,

the Company adopted Topic

606

using the modified retrospective method. The adoption of Topic

606

did

not

have a material effect on the Company’s financial position or results of operations.

Revenue is recognized when control of the services is transferred to our customers, in an amount that reflects the consideration (

none

of which is variable) the Company expects to be entitled to in exchange for those services. The Company typically invoices customers monthly for services provided and payments are generally due within

days of the invoice date.

The table below disaggregates our external revenue by major source (in thousands). For additional revenue detail relating to geographic breakdown of sales, see Note

– “Business Segment Reporting”.

	Year Ended December 31,
	2018		2017		2016
Consolidated Revenue:
Testing	$	39,174	$	36,310	$	35,855
Shipping / Collection (hair)		3,159		3,018		2,687
Other		341		374		438
Total Revenue	$	42,674	$	39,701	$	38,980

Testing Revenue

Drug and alcohol tests for drugs of abuse using hair, performed in the Company’s forensic laboratory in California, represents our primary service. Sales to customers are initiated through sales agreements, most of which have standard terms. Most tests are identified through a chain of custody form (“CCF”) and can therefore be uniquely tracked. Revenue is recognized when performance obligations under the terms of the contract with a customer are satisfied; generally, this occurs with the transfer of control of our service, which occurs at a specific point-in-time. The specific point-in-time is the completion of the test and availability of test results to the customer. Most tests are completed the same day that the hair specimen is received.

Substantially all tests are completed within a few days. As the tests are performed in a forensic laboratory, the exact date and time of each test completion is available and used in the timing of recognition of revenue.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services. Sales taxes the Company pays concurrent with revenue-producing activities are excluded from revenue.

Shipping and Hair Collection Revenue

Shipping revenue represents the amount billed to customers related to shipping of the hair specimen and CCF (“sample”) to the Company’s laboratory. Collection revenue represents the amount billed to customers related to the collection of the hair specimen. This collection is done by

third

parties who have contracted with the Company. Shipping and hair collection revenue is recognized when performance obligations under the terms of the contract with a customer are satisfied; generally, this occurs with the transfer of control of the Company’s service, which occurs at a specific point-in-time. The specific point-in-time is the completion of the test (associated with the shipping or hair collection charge) and availability of test results to the customer.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services. As the Company controls the service before transferring to the customer, it is considered a principal in the transaction, and therefore records revenues on gross basis, with shipping and hair collection costs in costs of revenues.

Other Revenue

Other revenue represents several items including; urine testing performed by other labs, medical review officer charges, legal/testifying services, and other miscellaneous charges. The total of all of these items is approximately

of sales. The amounts are generally billed to customers as services are performed, which occurs at a specific point-in-time.

Practical Expedients and Exemptions

The Company generally expenses sales commissions when incurred because the amortization period is

one

year or less. These costs are recorded within marketing and selling expense.

Research and Development Expense, Policy [Policy Text Block]

Research and Development Expenses

The Company expenses all research and development costs as incurred.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company accounts for income taxes using the liability method pursuant to ASC

740,

“Income Taxes”

. Under this method, the Company recognizes deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. The Company evaluates uncertain tax positions annually and considers whether the amounts recorded for income taxes are adequate to address the Company’s tax risk profile. The Company analyzes the potential tax liabilities of specific transactions and tax positions based on management’s judgment as to the expected outcome.

Inventory, Cash Flow Policy [Policy Text Block]

Concentration of Credit Risk and Off-Balance Sheet Risk

The Company has

significant off-balance-sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash and accounts receivable. The Company’s policy is to place its cash in high quality financial institutions. At time, these deposits

may

exceed or be exempt from federally insured limits. The Company does

not

believe significant credit risk exists with respect to these institutions. Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom the Company makes substantial sales. To reduce risk, the Company routinely assesses the financial strength of its customers and, as a consequence, believes that its accounts receivable credit risk exposure is limited. The Company maintains an allowance for potential credit losses but historically has

not

experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. The Company does

not

require collateral.

Major Customers, Policy [Policy Text Block]

Significant Customers

The Company had

one

customer, Psychemedics Brasil (an independent distributor in Brazil) that represented

31%,

33%

and

34%

of total revenue for the years ended

December 31, 2018,

2017

and

2016,

respectively. The Company had

one

customer that accounted for

20%

and

23%

of the total accounts receivable balance as of

December 31, 2018

and

2017

respectively.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income

The Company’s comprehensive income was

$3.4

million and

$5.9

million for the years ended

December 31, 2018

and

2017,

respectively, and includes the effect of foreign currency translation. Comprehensive income was the same as net income for the year ended

December 31, 2016.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

The Company accounts for equity awards in accordance with ASC

718,

“

Compensation — Stock Compensation”

(”ASC

718”

). ASC

718

requires employee equity awards to be accounted for under the fair value method. It also requires the measurement of compensation cost at fair value on the date of grant and recognition of compensation expense over the service period for awards expected to vest. Accordingly, share-based compensation is measured at the grant date based on the fair value of the award. The Company uses the straight-line method to recognize share-based compensation over the service period of the award, which is generally equal to the vesting period. The Company uses the simplified approach to calculate the expected exercise date of options, which is

one

of the components used to determine the fair value of the options. This approach is used due to the small number of recipients receiving stock options

not

providing a reasonable basis for estimating expected term. In

2016,

the Company adopted ASU

2016

09,

Improvements to Employee Share-Based Payment Accounting

, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. As a result, we recognize the impact of forfeitures when they occur with

adjustment for estimated forfeitures and recognize excess tax benefits as a reduction of income tax expense regardless of whether the benefit reduces income taxes payable.

Stock compensation expense by income statement account is as follows (in thousands):

	Year Ended December 31,
	2018		2017		2016
Cost of revenues	$	62	$	71	$	88
General & administrative		436		398		420
Marketing and selling		29		55		116
Research and development		67		58		47
Total stock compensation	$	594	$	582	$	671

See Note

for additional information relating to the Company’s stock plan.

Earnings Per Share, Policy [Policy Text Block]

Basic and Diluted Net Income per Share

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. The number of dilutive common stock equivalents outstanding during the period has been determined in accordance with the treasury-stock method. Common equivalent shares consist of common stock issuable upon the exercise of outstanding options and the unvested portion of stock unit awards (“SUAs”).

Basic and diluted weighted average common shares outstanding are as follows (in thousands):

	2018		2017		2016
Weighted average common shares outstanding, basic		5,502		5,480		5,447
Dilutive common equivalent shares		45		60		28
Weighted average common shares outstanding, assuming dilution		5,547		5,540		5,475

For the year ended

December 31, 2018,

options to purchase

thousand common shares were outstanding but

not

included in the dilutive common equivalent share calculation as their effect would have been anti-dilutive. There were

options to purchase shares that were anti-dilutive for the years ended

December 31, 2017

and

2016.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Financial Instruments

Financial instruments include cash, CD’s (classified as either cash equivalents or marketable securities based on their attributes), accounts receivable and accounts payable. Estimated fair values of these financial instruments approximate carrying values due to their short-term nature. The Company has

one

outstanding equipment loan which has an interest rate of the

-day LIBOR rate +

1.75%.

As there is a market interest rate, the carrying amount is fair value.

Basis of Presentation and Consolidation, Policy [Policy Text Block]

Basis of Preparation and Consolidation

The consolidated financial statements, include the financial statements of the Company and its subsidiaries have been prepared using accounting principles generally accepted in the United States (“U.S. GAAP”). The financial statements of the Company and its subsidiary companies have been consolidated on a line-by-line basis by adding together like items of assets, liabilities, income and expenses. All intercompany transactions and balances have been eliminated.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation

To the extent sales are made through our Brazil subsidiary, such sales are transacted in Brazilian Real and translated into US dollars. Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the consolidated balance sheet date. Results of operations and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities that are in the functional currency is included as a component of shareholders’ equity in accumulated other comprehensive income (loss). The total change in foreign currency translation adjustment for the year ended

December 31, 2018

and

2017

was a loss of

$1.2

million and

$0.2

million, respectively. This amounted to a

$0.9

million and

$0.2

million after tax impact.

Segment Reporting, Policy [Policy Text Block]

Segment Reporting

The Company manages its operations as

one

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. See Note

for geographic breakdown of revenue.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

March 4, 2019,

the Company declared a quarterly dividend of

$0.18

per share for a total of

$991

thousand, with a payment date of

March 25, 2019

to shareholders of record on

March 14, 2019.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

February 2016,

the FASB issued ASU

2016

02,

Leases

, which was subsequently amended in

2018

by ASU

2018

10,

ASU

2018

and ASU

2018

(collectively, Topic

842

). which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than

months. The new standard will become effective for fiscal years beginning after

December 15, 2018

and interim periods within those fiscal years, with early adoption permitted. The Company will elect an optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption and will

not

restate prior periods. The Company expects to elect certain practical expedients permitted under the transition guidance. The Company is substantially complete with the evaluation of the effect that the adoption of this ASU will have on the financial statements. The Company believes that most of its operating lease commitments (which primarily consists of leased facilities) will be subject to the new standard. In connection with the adoption of ASC

842,

the Company expects to recognize additional right-of-use assets and operating lease liabilities of approximately

$1.6

million as of

January 1, 2019.

February 2018,

the FASB issued ASU

2018

02,

“Income Statement – Reporting Comprehensive Income” (Topic

220

) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from the Tax Cuts and Jobs Act (Tax Reform Act) that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. ASU

2018

02,

however, does

not

change the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. ASU

2018

will be effective for the Company’s fiscal year

2020,

with the option to early adopt prior to the effective date. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The Company is currently evaluating the impacts the adoption of this accounting guidance will have on its consolidated financial statements.

August 2018,

the FASB issued ASU

2018

15,

“Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. The FASB issued ASU

2018

to align the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. ASU

2018

will be effective for the Company’s fiscal year

2020,

with the option to early adopt prior to the effective date. The Company is currently evaluating the impact that this updated standard will have on its consolidated financial statements.

August 2018,

the SEC issued Release

No.

10532

that amends and clarifies certain financial reporting requirements. The principal change to our financial reporting will be the inclusion of the annual disclosure requirement of changes in stockholders’ equity in Rule

of Regulation S-

to interim periods. We will adopt this new rule beginning with our financial reporting for the quarter ended

March 31, 2019.

Upon adoption, we will include our Consolidated Statements of Stockholders’ Equity with each quarterly filing on Form

-Q.