10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2019

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
Acton, MA	01720
(Address of Principal Executive Offices)	(Zip Code)

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 X 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 X 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). Yes___ No X

The number of shares of Common Stock of the Registrant, par value $0.005 per share, outstanding at October 20, 2019 was 5,516,931.

1

PSYCHEMEDICS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2019

INDEX

		Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income and Comprehensive Income	4
	Condensed Consolidated Statements of Shareholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
	Overview	15
	Results of Operations	15
	Liquidity and Capital Resources	16
Item 4 - Controls and Procedures		18
PART II - OTHER INFORMATION
Item 1A - Risk Factors		19
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		20
Item 6 - Exhibits		20
Signatures		20

2

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(UNAUDITED)

	September 30,			December 31,
	2019			2018
ASSETS
Current Assets:
Cash and cash equivalents	$	6,492		$	4,069
Marketable securities		-			3,905
Accounts receivable, net of allowance for doubtful accounts of $43 in 2019 and $67 in 2018		5,171			4,829
Prepaid expenses and other current assets		1,824			1,067
Total Current Assets		13,487			13,870
Fixed assets, net of accumulated amortization and depreciation of $15,530 in 2019 and $13,341 in 2018		9,139			10,177
Other assets		944			927
Operating lease right-of-use assets		3,214			-
Total Assets	$	26,784		$	24,974
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	372		$	682
Accrued expenses		2,727			2,962
Current portion of long-term debt		416			416
Current portion of operating lease liabilities		1,171			-
Total Current Liabilities		4,686			4,060
Long-term debt		900			1,212
Deferred tax liabilities, long-term		817			955
Operating lease liabilities, long-term		2,361			-
Total Liabilities		8,764			6,227
Commitments and Contingencies (Note 7)
Shareholders' Equity:
Preferred stock, $0.005 par value, 873 shares authorized, no shares issued or outstanding		-			-
Common stock, $0.005 par value; 50,000 shares authorized Shares issued and outstanding: 6,185 in 2019 and 6,175 in 2018		31			31
Additional paid-in capital		31,999			31,523
Accumulated deficit		(2,232	)		(1,326	)
Less - Treasury stock, at cost, 668 shares		(10,082	)		(10,082	)
Accumulated other comprehensive loss		(1,696	)		(1,399	)
Total Shareholders' Equity		18,020			18,747
Total Liabilities and Shareholders' Equity	$	26,784		$	24,974

See accompanying notes to condensed consolidated financial statements

3

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues	$	9,852		$	11,016		$	28,963		$	32,738
Cost of revenues		5,470			5,658			16,004			16,853
Gross profit		4,382			5,358			12,959			15,885
Operating Expenses:
General & administrative		1,417			1,599			4,687			4,907
Marketing & selling		1,238			1,267			3,455			3,807
Research & development		393			372			1,213			1,089
Total Operating Expenses		3,048			3,238			9,355			9,803
Operating income		1,334			2,120			3,604			6,082
Other income/(expense), net		6			(9	)		54			47
Net income before provision for income taxes		1,340			2,111			3,658			6,129
Provision for income taxes		663			836			1,586			2,426
Net income	$	677		$	1,275		$	2,072		$	3,703
Other Comprehensive Income (Loss):
Foreign currency translation		(330	)		(180	)		(297	)		(1,346	)
Total Comprehensive Income	$	347		$	1,095		$	1,775		$	2,357
Basic net income per share	$	0.12		$	0.23		$	0.38		$	0.67
Diluted net income per share	$	0.12		$	0.23		$	0.37		$	0.67
Dividends declared per share	$	0.18		$	0.18		$	0.54		$	0.51
Weighted average common shares outstanding, basic		5,517			5,507			5,513			5,500
Weighted average common shares outstanding, diluted		5,517			5,555			5,529			5,552

See accompanying notes to condensed consolidated financial statements

4

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except per share amounts)

(UNAUDITED)

	Common Stock							Treasury Stock								Accumulated Other
			$0.005		Paid-In								Accumulated			Comprehensive
	Shares		par Value		Capital			Shares		Cost			Deficit			Income/(Loss)			Total
BALANCE, December 31, 2018		6,175	$	31	$	31,523			668	$	(10,082	)	$	(1,326	)	$	(1,399	)	$	18,747
Shares issued–vested		10		-		-			-		-			-			-			-
Tax withholding related to employee stock vesting		-		-		(33	)		-		-			-			-			(33	)
Stock compensation expense		-		-		509			-		-			-			-			509
Cash dividends ($0.54 per share)		-		-		-			-		-			(2,978	)		-			(2,978	)
Net income		-		-		-			-		-			2,072			-			2,072
Other comprehensive income		-		-		-			-		-			-			(297	)		(297	)
BALANCE, September 30, 2019		6,185	$	31	$	31,999			668	$	(10,082	)	$	(2,232	)	$	(1,696	)	$	18,020
BALANCE, December 31, 2017		6,160	$	31	$	31,022			668	$	(10,082	)	$	(2,113	)	$	(238	)	$	18,620
Shares issued–vested		15		-		-			-		-			-			-			-
Tax withholding related to employee stock vesting		-		-		(93	)		-		-			-			-			(93	)
Stock compensation expense		-		-		436			-		-			-			-			436
Cash dividends ($0.51 per share)		-		-		-			-		-			(2,806	)		-			(2,806	)
Net income		-		-		-			-		-			3,703			-			3,703
Other comprehensive loss		-		-		-			-		-			-			(1,346	)		(1,346	)
BALANCE, September 30, 2018		6,175	$	31	$	31,365			668	$	(10,082	)	$	(1,216	)	$	(1,584	)	$	18,514

See accompanying notes to condensed consolidated financial statements

5

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

	Nine Months Ended
	September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,072		$	3,703
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,219			2,302
Deferred income taxes		(138	)		(152	)
Non-cash interest income		35			-
Stock-based compensation		509			436
Changes in assets and liabilities:
Accounts receivable		(342	)		(3,598	)
Other current assets		(439	)		(147	)
Accounts payable		(335	)		394
Accrued expenses and accrued income taxes		(220	)		1,069
Net cash provided by operating activities		3,361			4,007
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from short-term investments		3,810			-
Purchases of equipment and leasehold improvements		(896	)		(775	)
Cost of internally developed software		(225	)		(268	)
Other assets		(47	)		(96	)
Net cash provided by / (used in) investing activities		2,642			(1,139	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net of tax withholding		(33	)		(93	)
Payments of equipment financing		(312	)		(717	)
Cash dividends paid		(2,978	)		(2,806	)
Net cash used in financing activities		(3,323	)		(3,616	)
Effect of exchange rate changes on cash and cash equivalents		(257	)		(1,401	)
Net increase (decrease) in cash and cash equivalents		2,423			(2,149	)
Cash and cash equivalents, beginning of period		4,069			8,165
Cash and cash equivalents, end of period	$	6,492		$	6,016
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes	$	1,958		$	2,289
Cash paid for interest	$	47		$	83
Cash paid for operating leases	$	841		$	-
Right-of-use assets acquired through operating leases	$	4,382		$	-
Purchases of equipment through accounts payable and accrued liabilities	$	30		$	65

See accompanying notes to condensed consolidated financial statements

6

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The interim condensed consolidated financial statements of Psychemedics Corporation (the “Company”) presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-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, 2018, included in the Company's 2018 Annual Report on Form 10-K (“10-K”), as filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2019 and 2018, the condensed consolidated statements of shareholders’ equity for the nine-month periods ended September 30, 2019 and 2018 and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2019 and 2018 are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of December 31, 2018 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months and nine months ended September 30, 2019 may not be indicative of the results that may be expected for the year ending December 31, 2019, or any other period.

Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to Psychemedics Corporation and its consolidated subsidiaries.

2. Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash equivalents consisted exclusively of cash in the bank and bank certificates of deposits.

3. Marketable Securities

All investments with original maturities of more than 90 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, which matured April 29, 2019.

7

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. Marketable Securities (continued)

The CD had an original cost and current fair value of BRL 15 million (USD $4.0 million). As of September 30, 2019, the Company had no marketable securities.

4. Fair Value Measurements

The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, which are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the estimated borrowing rate currently available to the Company.

5. Stock-Based Compensation

The Company’s 2006 Incentive Plan (“the Plan”) provides for cash-based awards or the grant or issuance of stock-based awards. As of December 31, 2018, 77 thousand shares remained available for future grant under the 2006 Plan. In 2019, an additional 350 thousand shares were approved for grant. There were no other changes to the plan as described in the 10-K. As of September 30, 2019, 221 thousand shares remained available for future grant under the Plan.

Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). The compensation cost charged against income is included in cost of revenues and operating expenses as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Share-based compensation related to:
Stock option grants	$	151	$	102	$	372	$	233
Restricted Stock Unit awards ("RSUs")		39		56		137		203
Total share-based compensation	$	190	$	158	$	509	$	436

There was no income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements for the three-month or nine-month periods ended September 30, 2019 and 2018.

8

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

5. Stock-Based Compensation (continued)

A summary of the Company’s stock option activity for the nine months ended September 30, 2019 is as follows (in 000’s except per share amounts):

			Weighted Average		Weighted Average	Aggregate
	Number of		Exercise Price		Remaining	Intrinsic
	Shares		Per Share		Contractual Life (years)	Value(1)
Outstanding, December 31, 2018		398	$	17.09	8.2	$	493
Granted		192	$	10.60
Exercised		-		-
Forfeited		-		-
Outstanding, September 30, 2019		590	$	14.98	8.1	$	-
Exercisable, September 30, 2019		239	$	14.55	7.2	$	-

(1) The aggregate intrinsic value on this table was calculated based on the amount, if any, by which the closing market value of the Company’s stock on September 30, 2019 ($9.11) exceeded the exercise price of the underlying options, multiplied by the number of shares subject to each option.

A summary of the Company’s stock unit award (“SUA”) activity for the nine months ended September 30, 2019 is as follows (in 000’s except per share amounts):

	Number of Shares			Weighted Average Price per Share (2)		Weighted Average Fair Value (2)
Outstanding & Unvested, December 31, 2018		19		$	18.20	$	343
Granted		18		$	10.60	$	191
Converted to common stock		(10	)
Cancelled		(3	)
Forfeited		-
Outstanding & Unvested, September 30, 2019		24		$	12.84	$	311

(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 September 30, 2019, a total of 835 thousand shares of common stock were reserved for issuance under the Plan. As of September 30, 2019, the unamortized fair value of awards relating to outstanding SUAs and options was $1.4 million, which is expected to be amortized over a weighted average period of 2.9 years.

9

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. Basic and Diluted Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding during the period. 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 months and nine months ended September 30, 2019 and 2018 were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Weighted average common shares outstanding, basic		5,517		5,507		5,513		5,500
Dilutive common equivalent shares		-		48		16		52
Weighted average common shares outstanding, diluted		5,517		5,555		5,529		5,552

The computation of diluted earnings per share for the three and nine month periods ended September 30, 2019 excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related options during the period. These stock awards are not included in the computation of diluted income per share because the effect would be antidilutive. For the three and nine month periods ended September 30, 2019, the number of antidilutive stock awards excluded from the diluted earnings per share was 614 thousand and 357 thousand, respectively.

7. 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.

10

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

8. Operating Leases

The Company has seven operating leases for office and laboratory space used to conduct business (one of which is for a data center). The exercise of lease renewal options is at our discretion and the majority of renewals to extend the lease terms are not 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. The Company includes the renewal period in our lease term. 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.

In July 2019, the Company signed a 5-year lease for a laboratory facility in Culver, City California. The total payments for this lease is $2.8 million with a NPV of $2.5 million. This lease replaces a building in Culver City whose lease expires in January 2020. As of September 30, 2019, the Company recognized a Right-Of-Use (“ROU”) asset of $3.2 million and an operating lease liability of $3.5 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 September 30, 2019 is 4.0%. The weighted average lease term as of September 30, 2019 is 4.2 years. The operating lease expense for the three and nine months ended September 30, 2019 was $0.3 million and $0.8 million, respectively.

Maturities and balance sheet presentation of the Company’s lease liabilities for all operating leases as of September 30, 2019 is as follows (in thousands):

2019	$	273
2020		1,078
2021		644
2022		619
2023		584
2024		582
2025		145
Total Lease Payments		3,925
Less Interest:		(393	)
Present value of lease liabilities	$	3,532
Current operating lease liabilities	$	1,171
Long-term operating lease liabilities		2,361
Total	$	3,532

11

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

9. 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 and October 30, 2018. The terms of the arrangement are detailed in the 10-K.

The weighted average interest rate on outstanding debt under the Loan Agreement was 4.0% and 4.2% for the three and nine months ended September 30, 2019, respectively. The interest expense was $14 thousand and $46 thousand for the three and nine months ended September 30, 2019, respectively. As of September 30, 2019, the interest rate was 3.9% and there was $1.3 million of outstanding debt related under the loan agreement. The Company was in compliance with all loan covenants as of September 30, 2019.

The annual principal repayment requirements for debt obligations as of September 30, 2019 were as follows (in 000’s):

2019	$	104
2020		416
2021		416
2022		380
Total long-term debt		1,316
Less current portion of long-term debt		(416	)
Total long-term debt, net of current portion	$	900

10. 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 11 – “Business Segment Reporting”.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Testing	$	9,069	$	10,125	$	26,543	$	30,022
Shipping/Collection (hair)		714		803		2,225		2,438
Other		69		88		195		278
Total Revenue	$	9,852	$	11,016	$	28,963	$	32,738

12

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11. Business 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. All Brazil sales are through one independent distributor, which is the only customer greater than 10% of sales. The Company’s revenues by geographic region are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Consolidated Revenue:
United States	$	7,102	$	7,535	$	20,969	$	22,392
Brazil		2,619		3,383		7,620		10,011
Other		131		98		374		335
Total Revenue	$	9,852	$	11,016	$	28,963	$	32,738

12. Significant Customers

The Company had one customer that represented 27% and 26% of revenue for the three and nine months ended September 30, 2019, respectively. The Company had one customer that represented 31% of revenue for the three and nine months ended September 30, 2018. The Company had two customers that represented 17% and 13% of the total accounts receivable balance as of September 30, 2019 and one customer that represented 20% of the total accounts receivable balance as of December 31, 2018.

13. Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, which was subsequently amended by ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). which introduced the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard established a right-of-use ("ROU") model that requires a lessee to record a lease asset and liability on the balance sheet for all leases with terms longer than 12 months. The standard became effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company adopted Topic 842 as of January 1, 2019 (see Note 8 – Operating Leases).

In August 2018, the SEC issued Release No. 33-10532 that amended and clarified certain financial reporting requirements. The principal change to our financial reporting is the inclusion of the annual disclosure requirement of changes in stockholders’ equity to interim periods. We adopted this rule for the quarter ended March 31, 2019.

13

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14. Accounting Pronouncements Issued But Not Yet Effective

In 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 2018-02 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.

In 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 2018-15 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 2018-15 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.

15. Subsequent Events

On October 22, 2019, the Company declared a quarterly dividend of $0.18 per share for a total of $993 thousand, which will be paid on November 15, 2019 to shareholders of record on November 5, 2019.

14

Item 2. 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 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 earnings, earnings per share, revenues, operating cash flows, profitability, margins, pricing, dividends, future business, growth opportunities, new accounts, customer base, test volume, sales and marketing strategy, business strategy, general and administrative expenses, marketing and selling expenses, research and development expenses, anticipated operating results, foreign drug testing laws and regulations and the enforcement of such laws and regulations, including effective dates of such laws and regulations, investments in plant, property, equipment and leasehold improvements, strategies with respect to governmental agencies and regulations, cost savings, capital expenditures, liquidity of investments, our relationship with our Brazilian distributor and market demand for drug testing services in Brazil 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 employee hiring practices of the Company’s principal customers, development of markets for new products and services offered by the Company, costs associated with capacity expansion, government regulation (including, but not limited to, Food and Drug Administration regulations and foreign government regulation including Brazilian commercial drivers license drug test laws and regulations), risks associated with the delay in the implementation of new regulations, risks associated with foreign currency fluctuations, 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, and general economic conditions. With respect to the continued payment of cash dividends, factors include, but are not limited to, available surplus, cash flow, capital expenditure reserves required, debt service obligations, 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2018, 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.

15

OVERVIEW

Revenue for the third quarter of 2019 was $9.9 million compared to $11.0 million for the comparable period in 2018, a decrease of 11%. The Company reported net income of $0.7 million, or $0.12 per diluted share for the three months ended September 30, 2019 versus $1.3 million, or $0.23 per diluted share for the same period in 2018, a decrease of 47%. The decrease in net income was primarily a result of lower international revenue. Revenue for the nine months ended 2019 was $29.0 million compared to $32.7 million in 2018, a decrease of 12%. Net income for the nine months ended September 30, 2019 was $2.1 million, or $0.37 per diluted share versus $3.7 million, or $0.67 per diluted share for the same period in 2018, a decrease of 44%. The Company declared $0.54 per share of cash dividends to its shareholders in the nine months ended September 30, 2019 and 2018. The Company has paid 92 consecutive quarterly cash dividends.

RESULTS OF OPERATIONS

Revenue decline of 11% for the three months ended September 30, 2019 was primarily due to a 12% decrease in volume. Revenues from domestic business decreased 6%. Revenues from international business decreased 21%. Revenue for the nine months ended September 2019 was $29.0 million compared to $32.7 million for the comparable period in 2018, a decrease of 12%. This was primarily due to a 10% decrease in volume and a 2% negative impact from foreign currency exchange.

Gross profit was $4.4 million for the three months ended September 30, 2019, compared to $5.4 million for the same period in 2018, a decrease of $1.0 million, or 18%. Direct costs decreased by $0.2 million or 3% for the three months ended September 30, 2019, compared to the same period in 2018. The gross profit margin was 44% for the three months ended September 30, 2019 versus 49% for the comparable period in 2018. The decrease in margin for the three months was primarily driven by the impact from lower revenue and from an increase in Brazil sales taxes as a result of a new distributor agreement (discussed below). Gross profit was $13.0 million for the nine months ended September 30, 2019, compared to $15.9 million for the same period in 2018, a decrease of $2.9 million, or 18%. Direct costs decreased by $0.9 million or 5% for the nine months ended September 30, 2019 when compared to the same period in 2018. The gross profit margin for the nine month period ended September 30, 2019 was 45% compared to 49% for the comparable period in 2018. The decrease in margin for the nine months was primarily driven by the impact from lower revenue.

General and administrative (“G&A”) expenses decreased 11% to $1.4 million for the three months ended September 30, 2019 from $1.6 million for the same period in 2018. As a percentage of revenue, G&A expenses were 14% and 15% for the three months ended September 30, 2019 and 2018, respectively. General and administrative expenses decreased 4% to $4.7 million for the nine months ended September 30, 2019 from $4.9 million for the same period in 2018. As a percentage of revenue, G&A expenses were 16% and 15% for the nine months ended September 30, 2019 and 2018, respectively.

Marketing and selling expenses decreased 2% to $1.2 million for the three months ended September 30, 2019 compared to $1.3 million for the same period in 2018. As a percentage of revenue, marketing and selling expenses were 13% and 12% for the three months ended September 30, 2019 and 2018, respectively. Marketing and selling expenses decreased 9% to $3.5 million for the nine months ended September 30, 2019 from $3.8 million for the same period in 2018. As a percentage of revenue, marketing and selling expenses were 12% for the nine months ended September 30, 2019 and 2018.

16

Research and development (“R&D”) expenses were $0.4 million for the three months ended September 30, 2019 and 2018. As a percentage of revenue, R&D expenses were 4% and 3% for the three months ended September 30, 2019 and 2018, respectively. R&D expenses increased 11% to $1.2 million for the nine months ended September 30, 2019 compared to $1.1 million for the comparable period of 2018. As a percentage of revenue, R&D expenses were 4% and 3% for the nine months ended September 30, 2019 and 2018, respectively.

Provision for income taxes consists primarily of federal and state income taxes in the United Sates and income taxes in Brazil. We estimate income taxes in each of the jurisdictions in which we operate. During the three months ended September 30, 2019 and 2018, the Company recorded tax provisions of $0.7 million and $0.8 million, respectively. These provisions represented effective tax rates of 49% for the three months ended September 30, 2019 and 40% for the comparable period of 2018. During the nine months ended September 30, 2019 and 2018, the Company recorded tax provisions of $1.6 and $2.4 million, respectively. These provisions represented effective tax rates of 43% for the nine months ended September 30, 2019 and 40% for the comparable period of 2018. The Company currently expects the year-end tax rate to be approximately 43%. This rate can fluctuate significantly based on the mix of business and pre-tax income, as Brazil taxes are based on revenue.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2019, the Company had approximately $6.5 million of cash and cash equivalents and $8.8 million of working capital. The Company's operating activities generated net cash of $3.4 million for the nine months ended September 30, 2019. Investing activities provided $2.6 million of cash while financing activities used $3.3 million of cash during the first nine months of 2019.

Cash provided by operating activities of $3.4 million reflected net income of $2.1 million adjusted for depreciation and amortization of $2.2 million, stock-based compensation of $0.5 million and a decrease of deferred income taxes of $0.1 million. This was affected by an increase in current assets of $0.8 million and a decrease in current liabilities of $0.6 million.

Cash provided by investing activities of $2.6 million reflected the sale of marketable securities of $3.8 million, purchases of equipment and leasehold improvements of $0.9 million and cost of internally developed software of $0.2 million. We anticipate spending approximately $0.5 million in additional equipment purchases for the remainder of 2019. Additionally, approximately $2.2 to $2.7 million will be spent on leasehold improvements. These improvements relate to a transition the Company is making from one facility in Culver City to a new facility in Culver City.

Cash used by financing activities of $3.3 million included cash dividends to shareholders of $3.0 million and $0.3 million from long-term debt payments.

17

Contractual obligations and other commercial commitments as of September 30, 2019 include operating lease commitments and outstanding debt, described in Notes 8 and 9, respectively of the Notes to Condensed Consolidated Financial Statements.

At September 30, 2019, the Company's principal sources of liquidity included an aggregate of approximately $6.5 million of cash and cash equivalents. The Company had $8.8 million and $9.8 million of working capital as of September 30, 2019 and December 31, 2018, respectively. The new lease accounting standard negatively impacted the working capital amount by $1.2 million. Management currently believes that such funds should be adequate to fund anticipated working capital and capital equipment requirements for the next 12 months.   Depending upon the Company's results of operations and capital needs, the Company may use various financing sources to raise additional funds.

New Brazilian Distributor Agreement

In September 2019, the Company entered into a new distribution agreement in Brazil with its existing independent distributor in Brazil and a related entity. As previously disclosed, in 2018, a majority interest in Psychemedics Brasil was acquired by Instituto Hermes Pardini S.A. (IHP). Under the new agreement, the Company’s existing distributor was appointed as a non-exclusive distributor to sell, promote and distribute Psychemedics’ hair drug testing services for an indefinite term. The agreement may be terminated for any reason by either Psychemedics or the distributor following 90 days’ written notice. IHP and its controlled companies are restricted to distributing only Psychemedics’ hair drug tests and the hair drug tests of one other IHP Company. The agreement provides for Psychemedics’ hair drug tests to be marketed, sold, and reported in Brazil under the Psychemedics Corporation brand name, with all related materials so identified. This agreement also allows the Company to pursue other distribution opportunities in Brazil.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (the “evaluation date”) the Company’s management under the supervision and with the participation of the Company’s Chief Executive Officer and Vice President of Finance, 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 - Finance 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.

18

PART II OTHER INFORMATION

Item 1A. Risk Factors

We are subject to numerous political, legal, operational and other risks as a result of our international operations which could impact our business in many ways.

Although we conduct a majority of our business in the United States, a significant portion of our business is derived from Brazil. Our international operations increase our exposure to the inherent risks of doing business in international markets. Depending on the market, these risks include without limitation:

• changes in the local economic environment or local laws or regulations

• political instability, social changes, local market practices and changes

• intellectual property legal protections and remedies

• trade regulations

• foreign currency exchange rate fluctuations

• attracting and retaining qualified employees and independent contractors including distributors

• export and import and exchange controls

• weak legal systems which may affect our ability to enforce contractual rights

• the Company reliance on one distributor in Brazil

As the Company has previously disclosed, there are greater challenges and uncertainties in a new, large and developing market, such as Brazil.

Under the Company’s new distribution agreement with its Brazilian distributor (see Part I, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – New Brazilian Distributor Agreement), the distribution agreement may be terminated for any reason by either the Company or its distributor following 90 days’ written notice. Although the agreement permits Psychemedics to pursue other distribution policies in Brazil, any significant decrease in our sales to our distributor in Brazil absent a suitable replacement would have a materially adverse impact on our business.

International operations also require us to devote significant management resources to implement our controls and systems in new markets, to comply with the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws in non-U.S. jurisdictions and to overcome challenges based on differing languages and cultures.

Except as noted above, there have been no material changes in our risk factors from those disclosed in our 2018 Annual Report on Form 10-K.

19

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no purchases of treasury stock in the first nine months of 2019.

Item 6. Exhibits

10.13.2	Lease dated July 29, 2019 with Culver City/Hannum, LLC with respect to 5750 Hannum premises in Culver City, CA
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase

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: October 24, 2019	By: /s/ Raymond C. Kubacki
	Raymond C. Kubacki
	Chairman and Chief Executive Officer
	(principal executive officer)
Date: October 24, 2019	By: /s/ Neil L. Lerner
	Neil L. Lerner
	Vice President - Finance
	(principal accounting officer)

20

EX-10.13.2

Exhibit 10.13.2

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Raymond C. Kubacki, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Psychemedics Corporation (“the registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 24, 2019	/s/ Raymond C. Kubacki
	Raymond C. Kubacki
	Chairman and Chief Executive Officer
	(principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Neil Lerner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Psychemedics Corporation (“the registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 24, 2019	/s/ Neil Lerner
	Neil Lerner
	Vice President - Finance
	(principal accounting officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Raymond C. Kubacki, Chairman and Chief Executive Officer of Psychemedics Corporation (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as the principal executive officer of the Company, that:

(1) The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on October 24, 2019 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 24, 2019	/s/ Raymond C. Kubacki
	Raymond C. Kubacki
	Chairman and Chief Executive Officer
	(principal executive officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Neil Lerner, Vice President - Finance of Psychemedics Corporation (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as the principal accounting officer of the Company, that:

(1) The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on October 24, 2019 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 24, 2019	/s/ Neil Lerner
	Neil Lerner
	Vice President - Finance
	(principal accounting officer)

XML

Note 5 - Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Share-based Payment Arrangement, Cost by Plan [Table Text Block]

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Share-based compensation related to:
Stock option grants	$	151	$	102	$	372	$	233
Restricted Stock Unit awards ("RSUs")		39		56		137		203
Total share-based compensation	$	190	$	158	$	509	$	436

Share-based Payment Arrangement, Option, Activity [Table Text Block]

			Weighted Average		Weighted Average	Aggregate
	Number of		Exercise Price		Remaining	Intrinsic
	Shares		Per Share		Contractual Life (years)	Value (1)
Outstanding, December 31, 2018		398	$	17.09	8.2	$	493
Granted		192	$	10.60
Exercised		-		-
Forfeited		-		-
Outstanding, September 30, 2019		590	$	14.98	8.1	$	-
Exercisable, September 30, 2019		239	$	14.55	7.2	$	-

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

	Number of Shares			Weighted Average Price per Share (2)		Weighted Average Fair Value (2)
Outstanding & Unvested, December 31, 2018		19		$	18.20	$	343
Granted		18		$	10.60	$	191
Converted to common stock		(10	)
Cancelled		(3	)
Forfeited		-
Outstanding & Unvested, September 30, 2019		24		$	12.84	$	311

XML

Note 10 - Revenue (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Testing	$	9,069	$	10,125	$	26,543	$	30,022
Shipping/Collection (hair)		714		803		2,225		2,438
Other		69		88		195		278
Total Revenue	$	9,852	$	11,016	$	28,963	$	32,738

XML

Note 11 - Business Segment Reporting - Assets By Geographic Segment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues	$ 9,852	$ 11,016	$ 28,963	$ 32,738
UNITED STATES
Revenues	7,102	7,535	20,969	22,392
BRAZIL
Revenues	2,619	3,383	7,620	10,011
Other Foreign Countries [Member]
Revenues	$ 131	$ 98	$ 374	$ 335

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Current Assets:
Cash and cash equivalents	$ 6,492	$ 4,069
Marketable securities	0	3,905
Accounts receivable, net of allowance for doubtful accounts of $43 in 2019 and $67 in 2018	5,171	4,829
Prepaid expenses and other current assets	1,824	1,067
Total Current Assets	13,487	13,870
Fixed assets, net of accumulated amortization and depreciation of $15,530 in 2019 and $13,341 in 2018	9,139	10,177
Other assets	944	927
Operating lease right-of-use assets	3,214
Total Assets	26,784	24,974
Current Liabilities:
Accounts payable	372	682
Accrued expenses	2,727	2,962
Current portion of long-term debt	416	416
Current operating lease liabilities	1,171
Total Current Liabilities	4,686	4,060
Long-term debt	900	1,212
Deferred tax liabilities, long-term	817	955
Operating lease liabilities, long-term	2,361
Total Liabilities	8,764	6,227
Commitments and Contingencies (Note 7)
Shareholders' Equity:
Preferred stock, $0.005 par value, 873 shares authorized, no shares issued or outstanding
Common stock, $0.005 par value; 50,000 shares authorized Shares issued and outstanding: 6,185 in 2019 and 6,175 in 2018	31	31
Additional paid-in capital	31,999	31,523
Accumulated deficit	(2,232)	(1,326)
Less - Treasury stock, at cost, 668 shares	(10,082)	(10,082)
Accumulated other comprehensive loss	(1,696)	(1,399)
Total Shareholders' Equity	18,020	18,747
Total Liabilities and Shareholders' Equity	$ 26,784	$ 24,974

XML

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Dividends declared per share (in dollars per share)	$ 0.18	$ 0.18	$ 0.54	$ 0.51

XML

Note 4 - Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

4. Fair Value Measurements

The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, which are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the estimated borrowing rate currently available to the Company.

XML

Note 8 - Operating Leases

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

8. Operating Leases

The Company has

seven

operating leases for office and laboratory space used to conduct business (

one

of which is for a data center). The exercise of lease renewal options is at our discretion and the majority of renewals to extend the lease terms are

not

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. The Company includes the renewal period in our lease term. 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.

In

July 2019,

the Company signed a

5

-year lease for a laboratory facility in Culver, City California. The total payments for this lease is

$2.8

million with a NPV of

$2.5

million. This lease replaces a building in Culver City whose lease expires in

January 2020.

As of

September 30, 2019,

the Company recognized a Right-Of-Use (“ROU”) asset of

$3.2

million and an operating lease liability of

$3.5

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

September 30, 2019

is

4.0%.

The weighted average lease term as of

September 30, 2019

is

4.2

years. The operating lease expense for the

three

and

nine

months ended

September 30, 2019

was

$0.3

million and

$0.8

million, respectively.

Maturities and balance sheet presentation of the Company’s lease liabilities for all operating leases as of

September 30, 2019

is as follows (in thousands):

2019	$	273
2020		1,078
2021		644
2022		619
2023		584
2024		582
2025		145
Total Lease Payments		3,925
Less Interest:		(393	)
Present value of lease liabilities	$	3,532
Current operating lease liabilities	$	1,171
Long-term operating lease liabilities		2,361
Total	$	3,532

XML

Note 12 - Significant Customers

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

12. Significant Customers

The Company had

one

customer that represented

27%

and

26%

of revenue for the

three

and

nine

months ended

September 30, 2019,

respectively. The Company had

one

customer that represented

31%

of revenue for the

three

and

nine

months ended

September 30, 2018.

The Company had

two

customers that represented

17%

and

13%

of the total accounts receivable balance as of

September 30, 2019

and

one

customer that represented

20%

of the total accounts receivable balance as of

December 31, 2018.

XML

Note 8 - Operating Leases (Details Textual) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Jul. 31, 2019	Dec. 31, 2018
Lessee, Operating Lease, Liability, Payments, Due, Total	$ 3,925	$ 3,925
Operating Lease, Liability, Total	3,532	3,532
Operating Lease, Right-of-Use Asset	$ 3,214	$ 3,214
Operating Lease, Weighted Average Discount Rate, Percent	4.00%	4.00%
Operating Lease, Weighted Average Remaining Lease Term	4 years 73 days	4 years 73 days
Operating Lease, Expense	$ 300	$ 800
Laboratory Facility in Culver City, CA [Member]
Lessee, Operating Lease, Term of Contract			5 years
Lessee, Operating Lease, Liability, Payments, Due, Total			$ 2,800
Operating Lease, Liability, Total			$ 2,500

XML

Note 5 - Stock-based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		9 Months Ended	12 Months Ended
		Sep. 30, 2019	Dec. 31, 2018
Outstanding (in shares)		398
Granted (in shares)		192
Exercised (in shares)
Forfeited (in shares)
Outstanding (in shares)		590	398
Exercisable (in shares)		239
Outstanding, weighted average exercise price (in dollars per share)		$ 17.09
Granted, weighted average exercise price (in dollars per share)		10.60
Exercised, weighted average exercise price (in dollars per share)
Forfeited, weighted average exercise price (in dollars per share)
Outstanding, weighted average exercise price (in dollars per share)		14.98	$ 17.09
Exercisable, weighted average exercise price (in dollars per share)		$ 14.55
Outstanding, weighted average remaining contractual life (Year)	[1]	8 years 36 days	8 years 73 days
Exercisable, weighted average remaining contractual life (Year)	[1]	7 years 73 days
Outstanding, aggregate intrinsic value	[1]		$ 493
Exercisable, aggregate intrinsic value	[1]

[1] The aggregate intrinsic value on this table was calculated based on the amount, if any, by which the closing market value of the Company's stock on September 30, 2019 ($9.11) exceeded the exercise price of the underlying options, multiplied by the number of shares subject to each option.

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) shares in Thousands, $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Allowance for doubtful accounts	$ 43	$ 67
Accumulated amortization and depreciation	$ 15,530	$ 13,341
Preferred stock, par value (in dollars per share)	$ 0.005	$ 0.005
Preferred stock, shares authorized (in shares)	873	873
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.005	$ 0.005
Common stock, shares authorized (in shares)	50,000	50,000
Common stock, shares issued (in shares)	6,185	6,175
Common stock, shares outstanding (in shares)	6,185	6,175
Treasury stock, shares (in shares)	668	668

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 2,072	$ 3,703
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,219	2,302
Deferred income taxes	(138)	(152)
Non-cash interest income	35
Stock-based compensation	509	436
Changes in assets and liabilities:
Accounts receivable	(342)	(3,598)
Other current assets	(439)	(147)
Accounts payable	(335)	394
Accrued expenses and accrued income taxes	(220)	1,069
Net cash provided by operating activities	3,361	4,007
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from short-term investments	3,810
Purchases of equipment and leasehold improvements	(896)	(775)
Cost of internally developed software	(225)	(268)
Other assets	(47)	(96)
Net cash provided by / (used in) investing activities	2,642	(1,139)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net of tax withholding	(33)	(93)
Payments of equipment financing	(312)	(717)
Cash dividends paid	(2,978)	(2,806)
Net cash used in financing activities	(3,323)	(3,616)
Effect of exchange rate changes on cash and cash equivalents	(257)	(1,401)
Net increase (decrease) in cash and cash equivalents	2,423	(2,149)
Cash and cash equivalents, beginning of period	4,069	8,165
Cash and cash equivalents, end of period	6,492	6,016
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes	1,958	2,289
Cash paid for interest	47	83
Cash paid for operating leases	841
Right-of-use assets acquired through operating leases	4,382
Purchases of equipment through accounts payable and accrued liabilities	$ 30	$ 65

XML

Note 11 - Business Segment Reporting

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

11. Business 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. All Brazil sales are through

one

independent distributor, which is the only customer greater than

10%

of sales. The Company’s revenues by geographic region are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Consolidated Revenue:
United States	$	7,102	$	7,535	$	20,969	$	22,392
Brazil		2,619		3,383		7,620		10,011
Other		131		98		374		335
Total Revenue	$	9,852	$	11,016	$	28,963	$	32,738

XML

Note 3 - Marketable Securities

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

3. Marketable Securities

All investments with original maturities of more than

90

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, which matured

April 29, 2019.

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

15

million (USD

$4.0

million). As of

September 30, 2019,

the Company had

no

marketable securities.

XML

Note 7 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

7. 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.

XML

Note 8 - Operating Leases - Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
2019	$ 273
2020	1,078
2021	644
2022	619
2023	584
2024	582
2025	145
Total Lease Payments	3,925
Less Interest:	(393)
Present value of lease liabilities	3,532
Current operating lease liabilities	1,171
Long-term operating lease liabilities	2,361
Total	$ 3,532

XML

Note 5 - Stock-based Compensation - Nonvested Award Activity (Details) - Stock Unit Award [Member] - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		9 Months Ended
		Sep. 30, 2019	Dec. 31, 2018
Outstanding & Unvested at beginning of period (in shares)		19
Outstanding & Unvested at beginning of period, weighted average price per share (in dollars per share)	[1]	$ 18.20
Outstanding & Unvested at beginning of period, weighted average fair value	[1]	$ 311	$ 343
Granted (in shares)		18
Granted, weighted average price per share (in dollars per share)	[1]	$ 10.60
Granted, weighted average fair value	[1]	$ 191
Converted to common stock (in shares)		(10)
Converted to common stock, weighted average price per share (in dollars per share)
Converted to common stock, weighted average fair value
Cancelled (in shares)		(3)
Cancelled, weighted average price per share (in dollars per share)
Cancelled, weighted average fair value
Forfeited (in shares)
Forfeited, weighted average price per share (in dollars per share)
Forfeited, weighted average fair value
Outstanding & Unvested at end of period (in shares)		24
Outstanding & Unvested at end of period, weighted average price per share (in dollars per share)	[1]	$ 12.84

[1] 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.

XML

Note 15 - Subsequent Events

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Subsequent Events [Text Block]

15. Subsequent Events

On

October 22, 2019

,

the Company declared a quarterly dividend of

$0.18

per share for a total of

$993

thousand, which will be paid on

November 15, 2019

to shareholders of record on

November 5, 2019.

XML

Note 9 - Debt and Other Financing Arrangements (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

2019	$	104
2020		416
2021		416
2022		380
Total long-term debt		1,316
Less current portion of long-term debt		(416	)
Total long-term debt, net of current portion	$	900

XML

Note 12 - Significant Customers (Details Textual) - Customer Concentration Risk [Member]	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Revenue Benchmark [Member]
Number of Major Customers	1	1	1	1
Revenue Benchmark [Member] | Customer One [Member]
Concentration Risk, Percentage	27.00%	31.00%	26.00%	31.00%
Accounts Receivable [Member]
Number of Major Customers			2		1
Accounts Receivable [Member] | Customer One [Member]
Concentration Risk, Percentage			17.00%		20.00%
Accounts Receivable [Member] | Customer Two [Member]
Concentration Risk, Percentage			13.00%

XML

Note 2 - Cash and Cash Equivalents

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Cash and Cash Equivalents Disclosure [Text Block]

2. Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of

90

days or less to be cash equivalents. Cash equivalents consisted exclusively of cash in the bank and bank certificates of deposits.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Oct. 20, 2019
Document Information [Line Items]
Entity Registrant Name	PSYCHEMEDICS CORP
Entity Central Index Key	0000806517
Trading Symbol	pmd
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		5,516,931
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Title of 12(b) Security	Common stock. $0.005 par value

XML

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2017	6,160		668
Balance at Dec. 31, 2017	$ 31	$ 31,022	$ (10,082)	$ (2,113)	$ (238)	$ 18,620
Shares issued–vested (in shares)	15
Shares issued–vested
Tax withholding related to employee stock vesting		(93)				(93)
Stock compensation expense		436				436
Cash dividends				(2,806)		(2,806)
Net income				3,703		3,703
Other comprehensive income (loss)					(1,346)	(1,346)
Balance (in shares) at Sep. 30, 2018	6,175		668
Balance at Sep. 30, 2018	$ 31	31,365	$ (10,082)	(1,216)	(1,584)	18,514
Balance (in shares) at Dec. 31, 2018	6,175		668
Balance at Dec. 31, 2018	$ 31	31,523	$ (10,082)	(1,326)	(1,399)	18,747
Shares issued–vested (in shares)	10
Shares issued–vested
Tax withholding related to employee stock vesting		(33)				(33)
Stock compensation expense		509				509
Cash dividends				(2,978)		(2,978)
Net income				2,072		2,072
Other comprehensive income (loss)					(297)	(297)
Balance (in shares) at Sep. 30, 2019	6,185		668
Balance at Sep. 30, 2019	$ 31	$ 31,999	$ (10,082)	$ (2,232)	$ (1,696)	$ 18,020

XML

Note 9 - Debt and Other Financing Arrangements - Schedule of Debt Repayments (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
2019	$ 104
2020	416
2021	416
2022	380
Total long-term debt	1,316
Less current portion of long-term debt	(416)	$ (416)
Total long-term debt, net of current portion	$ 900	$ 1,212

XML

Note 6 - Basic and Diluted Net Income Per Share - Basic and Diluted Weighted Average Common Shares Outstanding (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Weighted average common shares outstanding, basic (in shares)	5,517	5,507	5,513	5,500
Dilutive common equivalent shares (in shares)		48	16	52
Weighted average common shares outstanding, diluted (in shares)	5,517	5,555	5,529	5,552

XML

Note 5 - Stock-based Compensation - Compensation Cost (Details) - Selling, General and Administrative Expenses [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based compensation	$ 190	$ 158	$ 509	$ 436
Share-based Payment Arrangement, Option [Member]
Share-based compensation	151	102	372	233
Restricted Stock Units (RSUs) [Member]
Share-based compensation	$ 39	$ 56	$ 137	$ 203

XML

Note 5 - Stock-based Compensation

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

5. Stock-Based Compensation

The Company’s

2006

Incentive Plan (“the Plan”) provides for cash-based awards or the grant or issuance of stock-based awards. As of

December 31, 2018,

77

thousand shares remained available for future grant under the

2006

Plan. In

2019,

an additional

350

thousand shares were approved for grant. There were

no

other changes to the plan as described in the

10

-K. As of

September 30, 2019,

221

thousand shares remained available for future grant under the Plan.

Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). The compensation cost charged against income is included in cost of revenues and operating expenses as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Share-based compensation related to:
Stock option grants	$	151	$	102	$	372	$	233
Restricted Stock Unit awards ("RSUs")		39		56		137		203
Total share-based compensation	$	190	$	158	$	509	$	436

There was

no

income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements for the

three

-month or

nine

-month periods ended

September 30, 2019

and

2018.

A summary of the Company’s stock option activity for the

nine

months ended

September 30, 2019

is as follows (in

000’s

except per share amounts):

			Weighted Average		Weighted Average	Aggregate
	Number of		Exercise Price		Remaining	Intrinsic
	Shares		Per Share		Contractual Life (years)	Value (1)
Outstanding, December 31, 2018		398	$	17.09	8.2	$	493
Granted		192	$	10.60
Exercised		-		-
Forfeited		-		-
Outstanding, September 30, 2019		590	$	14.98	8.1	$	-
Exercisable, September 30, 2019		239	$	14.55	7.2	$	-

( 1 ) The aggregate intrinsic value on this table was calculated based on the amount, if any, by which the closing market value of the Company’s stock on September 30, 2019 ( $9.11 ) exceeded the exercise price of the underlying options, multiplied by the number of shares subject to each option.

A summary of the Company’s stock unit award (“SUA”) activity for the

nine

months ended

September 30, 2019

is as follows (in

000’s

except per share amounts):

	Number of Shares			Weighted Average Price per Share (2)		Weighted Average Fair Value (2)
Outstanding & Unvested, December 31, 2018		19		$	18.20	$	343
Granted		18		$	10.60	$	191
Converted to common stock		(10	)
Cancelled		(3	)
Forfeited		-
Outstanding & Unvested, September 30, 2019		24		$	12.84	$	311

( 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

September 30, 2019,

a total of

835

thousand shares of common stock were reserved for issuance under the Plan. As of

September 30, 2019,

the unamortized fair value of awards relating to outstanding SUAs and options was

$1.4

million, which is expected to be amortized over a weighted average period of

2.9

years.

XML

Note 9 - Debt and Other Financing Arrangements

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Debt Disclosure [Text Block]

9. 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

and

October 30, 2018.

The terms of the arrangement are detailed in the

10

-K.

The weighted average interest rate on outstanding debt under the Loan Agreement was

4.0%

and

4.2%

for the

three

and

nine

months ended

September 30, 2019,

respectively. The interest expense was

$14

thousand and

$46

thousand for the

three

and

nine

months ended

September 30, 2019,

respectively. As of

September 30, 2019,

the interest rate was

3.9%

and there was

$1.3

million of outstanding debt related under the loan agreement. The Company was in compliance with all loan covenants as of

September 30, 2019.

The annual principal repayment requirements for debt obligations as of

September 30, 2019

were as follows (in

000’s

):

2019	$	104
2020		416
2021		416
2022		380
Total long-term debt		1,316
Less current portion of long-term debt		(416	)
Total long-term debt, net of current portion	$	900

XML

Note 13 - Recently Adopted Accounting Pronouncements

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

13. Recently Adopted Accounting Pronouncements

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases, which was subsequently amended by ASU

2018

-

10,

ASU

2018

-

11,

ASU

2018

-

20

and ASU

2019

-

01

(collectively, Topic

842

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

12

months. The standard became effective for fiscal years beginning after

December 15, 2018

and interim periods within those fiscal years. The Company adopted Topic

842

as of

January 1, 2019 (

see Note

8

– Operating Leases).

In

August 2018,

the SEC issued Release

No.

33

-

10532

that amended and clarified certain financial reporting requirements. The principal change to our financial reporting is the inclusion of the annual disclosure requirement of changes in stockholders’ equity to interim periods. We adopted this rule for the quarter ended

March 31, 2019.

XML

Note 6 - Basic and Diluted Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Weighted average common shares outstanding, basic		5,517		5,507		5,513		5,500
Dilutive common equivalent shares		-		48		16		52
Weighted average common shares outstanding, diluted		5,517		5,555		5,529		5,552

XML

Note 11 - Business Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Consolidated Revenue:
United States	$	7,102	$	7,535	$	20,969	$	22,392
Brazil		2,619		3,383		7,620		10,011
Other		131		98		374		335
Total Revenue	$	9,852	$	11,016	$	28,963	$	32,738

XML

Note 11 - Business Segment Reporting (Details Textual)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Number of Operating Segments			1
Customer Concentration Risk [Member] | Revenue Benchmark [Member]
Number of Major Customers	1	1	1	1
Customer Concentration Risk [Member] | Revenue Benchmark [Member] | BRAZIL
Number of Major Customers			1
Concentration Risk, Percentage			10.00%

XML

Note 3 - Marketable Securities (Details Textual) $ in Thousands, R$ in Millions	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2018 BRL (R$)
Marketable Securities, Current, Total	$ 0	$ 3,905
Certificates of Deposit [Member]
Marketable Securities, Current, Total		$ 4,000	R$ 15

XML

Note 14 - Accounting Pronouncements Issued But Not Yet Effective

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Description of New Accounting Pronouncements Not yet Adopted [Text Block]

14. Accounting Pronouncements Issued But Not Yet Effective

In

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

-

02

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.

In

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

-

15

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

-

15

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.

XML

Note 8 - Operating Leases (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

2019	$	273
2020		1,078
2021		644
2022		619
2023		584
2024		582
2025		145
Total Lease Payments		3,925
Less Interest:		(393	)
Present value of lease liabilities	$	3,532
Current operating lease liabilities	$	1,171
Long-term operating lease liabilities		2,361
Total	$	3,532

XML

Note 15 - Subsequent Events (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
	Oct. 22, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Common Stock, Dividends, Per Share, Declared		$ 0.18	$ 0.18	$ 0.54	$ 0.51
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared	$ 0.18
Dividends, Total	$ 993
Dividends Payable, Date Declared	Oct. 22, 2019
Dividends Payable, Date of Record	Nov. 15, 2019

XML

Note 10 - Revenue - Revenue by Major Source (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues	$ 9,852	$ 11,016	$ 28,963	$ 32,738
Testing [Member]
Revenues	9,069	10,125	26,543	30,022
Shipping/Collection (Hair) [Member]
Revenues	714	803	2,225	2,438
Other Revenue [Member]
Revenues	$ 69	$ 88	$ 195	$ 278

XML

Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues	$ 9,852	$ 11,016	$ 28,963	$ 32,738
Cost of revenues	5,470	5,658	16,004	16,853
Gross profit	4,382	5,358	12,959	15,885
Operating Expenses:
General & administrative	1,417	1,599	4,687	4,907
Marketing & selling	1,238	1,267	3,455	3,807
Research & development	393	372	1,213	1,089
Total Operating Expenses	3,048	3,238	9,355	9,803
Operating income	1,334	2,120	3,604	6,082
Other income/(expense), net	6	(9)	54	47
Net income before provision for income taxes	1,340	2,111	3,658	6,129
Provision for income taxes	663	836	1,586	2,426
Net income	677	1,275	2,072	3,703
Other Comprehensive Income (Loss):
Foreign currency translation	(330)	(180)	(297)	(1,346)
Total Comprehensive Income	$ 347	$ 1,095	$ 1,775	$ 2,357
Basic net income per share (in dollars per share)	$ 0.12	$ 0.23	$ 0.38	$ 0.67
Diluted net income per share (in dollars per share)	0.12	0.23	0.37	0.67
Dividends declared per share (in dollars per share)	$ 0.18	$ 0.18	$ 0.54	$ 0.51
Weighted average common shares outstanding, basic (in shares)	5,517	5,507	5,513	5,500
Weighted average common shares outstanding, diluted (in shares)	5,517	5,555	5,529	5,552

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Note 1 - Basis of Presentation

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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 for quarterly reports on Form

10

-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, 2018,

included in the Company's

2018

Annual Report on Form

10

-K (

“10

-K”), as filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet as of

September 30, 2019,

the condensed consolidated statements of income and comprehensive income for the

three

-month and

nine

-month periods ended

September 30, 2019

and

2018,

the condensed consolidated statements of shareholders’ equity for the

nine

-month periods ended

September 30, 2019

and

2018

and the condensed consolidated statements of cash flows for the

nine

-month periods ended

September 30, 2019

and

2018

are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of

December 31, 2018

has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm but does

not

include all of the information and footnotes required for complete annual financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the

three

months and

nine

months ended

September 30, 2019

may

not

be indicative of the results that

may

be expected for the year ending

December 31, 2019,

or any other period.

Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to Psychemedics Corporation and its consolidated subsidiaries.

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Note 6 - Basic and Diluted Net Income Per Share (Details Textual) - shares shares in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	614	357

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Note 5 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended		9 Months Ended		12 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Jan. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	[1]			8 years 36 days		8 years 73 days
Incentive Plan 2006 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant		221		221		77	350
Share-based Payment Arrangement, Expense, Tax Benefit		$ 0	$ 0	$ 0	$ 0
Share Price		$ 9.11		$ 9.11
Common Stock, Capital Shares Reserved for Future Issuance		835		835
Share-based Payment Arrangement, Nonvested Award, Option, Cost Not yet Recognized, Amount		$ 1,400		$ 1,400
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term				2 years 328 days

[1] The aggregate intrinsic value on this table was calculated based on the amount, if any, by which the closing market value of the Company's stock on September 30, 2019 ($9.11) exceeded the exercise price of the underlying options, multiplied by the number of shares subject to each option.

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Note 9 - Debt and Other Financing Arrangements (Details Textual) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2019 USD ($)
Long-term Debt, Total	$ 1,316	$ 1,316
Loan Agreement [Member]
Long-term Debt, Weighted Average Interest Rate, over Time	4.00%	4.20%
Interest Expense, Total	$ 14	$ 46
Debt Instrument, Interest Rate, Effective Percentage	3.90%	3.90%
Long-term Debt, Total	$ 1,300	$ 1,300

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Note 6 - Basic and Diluted Net Income Per Share

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

6. Basic and Diluted Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding during the period. 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

months and

nine

months ended

September 30, 2019

and

2018

were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Weighted average common shares outstanding, basic		5,517		5,507		5,513		5,500
Dilutive common equivalent shares		-		48		16		52
Weighted average common shares outstanding, diluted		5,517		5,555		5,529		5,552

The computation of diluted earnings per share for the

three

and

nine

month periods ended

September 30, 2019

excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related options during the period. These stock awards are

not

included in the computation of diluted income per share because the effect would be antidilutive. For the

three

and

nine

month periods ended

September 30, 2019,

the number of antidilutive stock awards excluded from the diluted earnings per share was

614

thousand and

357

thousand, respectively.

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Note 10 - Revenue

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

10. 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

11

– “Business Segment Reporting”.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Testing	$	9,069	$	10,125	$	26,543	$	30,022
Shipping/Collection (hair)		714		803		2,225		2,438
Other		69		88		195		278
Total Revenue	$	9,852	$	11,016	$	28,963	$	32,738