UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
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:
PSYCHEMEDICS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
| | ||
| (State or Other Jurisdiction of | (I.R.S. Employer Identification No.) | |
| Incorporation or Organization) | ||
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant's telephone number including area code: (
Securities registered pursuant to section 12(b) of the act:
| Title of Class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
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.
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).
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 Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | |
| 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 Exchange Act). Yes
The number of shares of Common Stock of the Registrant, par value $0.005 per share, outstanding at November 10, 2021 was
PSYCHEMEDICS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021
INDEX
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(UNAUDITED)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of at September 30, 2021 and at December 31, 2020 | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Income tax receivable | ||||||||
| Total Current Assets | ||||||||
| Fixed assets, net of accumulated amortization and depreciation of at September 30, 2021 and at December 31, 2020 | ||||||||
| Other assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Long-term debt | ||||||||
| Deferred tax liabilities, long-term | ||||||||
| Long-term portion of operating lease liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 5) | ||||||||
| Shareholders' Equity: | ||||||||
| Preferred stock, par value, shares authorized, shares issued or outstanding | -- | -- | ||||||
| Common stock, par value; shares authorized, shares and shares issued at September 30, 2021, and December 31, 2020, respectively, and shares outstanding and shares outstanding at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Less - Treasury stock, at cost, shares | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Shareholders' Equity | ||||||||
| Total Liabilities and Shareholders' Equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(in thousands, except per share amounts)
(UNAUDITED)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of revenues |
||||||||||||||||
| Gross profit |
||||||||||||||||
| Operating Expenses: |
||||||||||||||||
| General & administrative |
||||||||||||||||
| Marketing & selling |
||||||||||||||||
| Research & development |
||||||||||||||||
| Total Operating Expenses |
||||||||||||||||
| Operating income (loss) |
( |
) | ( |
) | ||||||||||||
| Other Income (Expense): |
||||||||||||||||
| Gain on forgiveness of PPP loan |
-- | -- | ||||||||||||||
| Settlement |
( |
) | -- | ( |
) | -- | ||||||||||
| Other |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total Other Income (Expense) |
( |
) | ( |
) | ||||||||||||
| Income (loss) before provision for (benefit from) income taxes |
( |
) | ( |
) | ||||||||||||
| Provision for (benefit from) income taxes |
( |
) | ( |
) | ||||||||||||
| Net income (loss) |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Other Comprehensive Income (Loss): |
||||||||||||||||
| Foreign currency translation |
-- | -- | -- | ( |
) | |||||||||||
| Total comprehensive income (loss) |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Basic net income (loss) per share |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Diluted net income (loss) per share |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Dividends declared per share |
$ | - | $ | - | $ | - | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share amounts)
(UNAUDITED)
For the Three Months Ended September 30, 2021
| Common Stock, $0.005 par value | Accumulated | |||||||||||||||||||||||||||||||
| Common |
|
Additional | Other | |||||||||||||||||||||||||||||
| Shares |
Common |
Paid-In |
Treasury Stock |
Accumulated |
Comprehensive | |||||||||||||||||||||||||||
| Outstanding |
Stock |
Capital |
Shares |
Cost |
Deficit |
Loss |
Total |
|||||||||||||||||||||||||
| BALANCE, June 30, 2021 |
$ | $ | $ | ) | $ | ) | $ | ) | $ | |||||||||||||||||||||||
| Shares issued – vested |
- | |||||||||||||||||||||||||||||||
| Stock compensation expense |
||||||||||||||||||||||||||||||||
| Repurchase of common stock at cost for employee tax withholding |
) | ) | ||||||||||||||||||||||||||||||
| Net income |
||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2021 |
$ | $ | $ | ) | $ | ) | $ | ) | $ | |||||||||||||||||||||||
For the Nine Months Ended September 30, 2021
| Common Stock, $0.005 par value | Accumulated | |||||||||||||||||||||||||||||||
| Common |
|
Additional | Other | |||||||||||||||||||||||||||||
| Shares |
Common |
Paid-In |
Treasury Stock |
Accumulated |
Comprehensive | |||||||||||||||||||||||||||
| Outstanding |
Stock |
Capital |
Shares |
Cost |
Deficit |
Loss |
Total |
|||||||||||||||||||||||||
| BALANCE, December 31, 2020 |
$ | $ | $ | ) | $ | ) | $ | ) | $ | |||||||||||||||||||||||
| Shares issued – vested |
- | |||||||||||||||||||||||||||||||
| Stock compensation expense |
||||||||||||||||||||||||||||||||
| Repurchase of common stock at cost for employee tax withholding |
) | ) | ||||||||||||||||||||||||||||||
| Net income |
||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2021 |
$ | $ | $ | ) | $ | ) | $ | ) | $ | |||||||||||||||||||||||
For the Three Months Ended September 30, 2020
| Common Stock, $0.005 par value | Accumulated | |||||||||||||||||||||||||||||||
| Common |
|
Additional | Other | |||||||||||||||||||||||||||||
| Shares |
Common |
Paid-In |
Treasury Stock |
Accumulated |
Comprehensive | |||||||||||||||||||||||||||
| Outstanding |
Stock |
Capital |
Shares |
Cost |
Deficit |
Loss |
Total |
|||||||||||||||||||||||||
| BALANCE, June 30, 2020 |
$ | $ | $ | ) | $ | ) | $ | ) | $ | |||||||||||||||||||||||
| Shares issued – vested |
- | |||||||||||||||||||||||||||||||
| Tax withholding from employee stock plans |
- | |||||||||||||||||||||||||||||||
| Stock compensation expense |
||||||||||||||||||||||||||||||||
| Cash dividends ($0.18 per share) |
- | |||||||||||||||||||||||||||||||
| Net loss |
) | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss |
) | ) | ||||||||||||||||||||||||||||||
| BALANCE, September 30, 2020 |
$ | $ | $ | ) | $ | ) | $ | ) | $ | |||||||||||||||||||||||
For the Nine Months Ended September 30, 2020
| Common Stock, $0.005 par value | Accumulated | |||||||||||||||||||||||||||||||
| Common |
|
Additional | Other | |||||||||||||||||||||||||||||
| Shares |
Common |
Paid-In |
Treasury Stock |
Accumulated |
Comprehensive | |||||||||||||||||||||||||||
| Outstanding |
Stock |
Capital |
Shares |
Cost |
Deficit |
Loss |
Total |
|||||||||||||||||||||||||
| BALANCE, December 31, 2019 |
$ | $ | $ | ) | $ | ) | $ | ) | $ | |||||||||||||||||||||||
| Shares issued – vested |
- | |||||||||||||||||||||||||||||||
| Tax withholding from employee stock plans |
) | ) | ||||||||||||||||||||||||||||||
| Stock compensation expense |
||||||||||||||||||||||||||||||||
| Cash dividends ($0.18 per share) |
) | ) | ||||||||||||||||||||||||||||||
| Net loss |
) | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss |
) | ) | ||||||||||||||||||||||||||||||
| BALANCE, September 30, 2020 |
$ | $ | $ | ) | $ | ) | $ | ) | $ | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | $ | ) | |||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Forgiveness of PPP loan | ( | ) | -- | |||||
| Depreciation and amortization | ||||||||
| ROU asset amortization | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Loss on sale of fixed assets | -- | |||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Income tax receivable | -- | |||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from sale of fixed assets | -- | |||||||
| Purchases of equipment and leasehold improvements | ( | ) | ( | ) | ||||
| Cost of internally developed software | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of stock, net of tax withholding | ( | ) | ( | ) | ||||
| Proceeds from PPP Loan | -- | |||||||
| Payments of equipment financing | ( | ) | ( | ) | ||||
| Cash dividends paid | -- | ( | ) | |||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash | -- | ( | ) | |||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for operating leases | $ | $ | ||||||
| Right-of-use assets acquired through operating leases | $ | $ | ||||||
| Purchases of equipment through accounts payable and accrued liabilities | $ | - | $ | |||||
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The interim condensed consolidated financial statements of Psychemedics Corporation (the “Company”) presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, included in the Company's 2020 Annual Report on Form 10-K (“10-K”), as filed with the SEC.
The condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations and comprehensive income/(loss) for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statements of shareholders’ equity for the nine months ended September 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 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, 2020, has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm, but does not include all of the information and footnotes required for complete annual financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three and nine months ended September 30, 2021, may not be indicative of the results that may be expected for the year ending December 31, 2021, or any other period.
Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to Psychemedics Corporation and its wholly-owned consolidated subsidiaries.
2. COVID-19 Pandemic
The outbreak of coronavirus (“COVID-19”) which was declared by the World Health Organization to be a pandemic, has impacted, and is expected to continue to impact worldwide economic activity. While our domestic business was deemed an essential business and we have been able to continue to provide services to our customers, COVID-19 has had a significant impact on our entire operations. COVID-19’s effect on the overall economy has had an adverse impact on hiring; which has had a negative impact on both our domestic and international testing volume.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. COVID-19 Pandemic (continued)
The Coronavirus Aid, Relieve and Economic Security Act (“CARES”) Act, enacted on March 27, 2020, and the Families First Coronavirus Response Act, in each case modified by the Consolidated Appropriations Act enacted in December 2020, was an emergency economic stimulus package that included spending provisions and tax cuts to strengthen the United States economy and to fund a nationwide effort to curtail the effect of COVID-19. The principal impact of the CARES Act and subsequent legislation was the adoption of the Paycheck Protection Program (“PPP”) described below. The CARES Act, together with subsequent legislation, also provided sweeping tax changes in response to the COVID-19 pandemic, including amendments to certain provisions of the previously enacted Tax Cuts and Jobs Act. The Company recognized a benefit of $
Liquidity and Management’s Plans
At September 30, 2021, the Company’s principal sources of liquidity included approximately $
Accounts Receivable
The Company believes its allowance for credit losses related to its accounts receivable remained adequate as of September 30, 2021, due to the essential nature of its customers business, as well as the diversity of its large customer base. While the Company anticipates there could be an increase in the aging of its accounts receivable, the Company does not anticipate a significant increase in default risk.
Risk and Uncertainties
The duration and severity of COVID-19-related potential disruptions involve risks and uncertainties, and it is not possible at this time to estimate the full impact on the Company’s business and could adversely affect our estimates, results of operations and financial condition.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Stock-Based Compensation
The Company’s 2006 Incentive Plan (“the Plan”) provides for cash-based awards or the grant or issuance of stock-based awards. As of December 31, 2020,
Stock-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, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Stock-based compensation related to: | ||||||||||||||||
| Stock option grants | $ | $ | $ | $ | ||||||||||||
| Stock unit awards | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
There was
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Stock-Based Compensation (continued)
A summary of the Company’s stock option activity for the nine months ended September 30, 2021, is as follows (in thousands except per share amounts):
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise Price | Contractual Life | Intrinsic | |||||||||||||
| Shares | Per Share | (years) | Value (1) | |||||||||||||
| Outstanding, December 31, 2020 | $ | $ | - | |||||||||||||
| Granted | - | $ | - | |||||||||||||
| Exercised | - | $ | - | |||||||||||||
| Cancelled | - | $ | - | |||||||||||||
| Forfeited | ) | $ | ||||||||||||||
| Outstanding, September 30, 2021 | $ | $ | ||||||||||||||
| Exercisable, September 30, 2021 | $ | $ | - | |||||||||||||
| (1) | Intrinsic value is calculated based on the amount by which the closing market value of the Company’s stock exceeded the exercise price of the underlying options, multiplied by the number of shares. |
A summary of the Company’s stock unit award (“SUA”) activity for the nine months ended September 30, 2021, is as follows (in thousands except per share amounts):
| Number of Shares | Weighted Average Grant-Date Fair Value Per Share | |||||||
| Outstanding & Unvested, December 31, 2020 | $ | |||||||
| Granted | $ | |||||||
| Converted to common stock | ( | ) | $ | |||||
| Cancelled | ( | ) | $ | |||||
| Forfeited | - | - | ||||||
| Outstanding & Unvested, September 30, 2021 | $ | |||||||
As of September 30, 2021,
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (or loss) by the weighted average number of common and dilutive common equivalent shares outstanding during the period when the effect is dilutive. The number of dilutive common equivalent shares outstanding during the period was determined in accordance with the treasury-stock method. Common equivalent shares consisted of common stock issuable upon the exercise of outstanding options and common stock issuable upon the vesting of outstanding, unvested SUAs. Basic and diluted weighted average common shares outstanding for the three and nine months ended September 30, 2021, and 2020 were as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Weighted average common shares outstanding, basic | ||||||||||||||||
| Dilutive common equivalent shares | - | - | ||||||||||||||
| Weighted average common shares outstanding, diluted | ||||||||||||||||
The computation of diluted earnings (loss) per share for the three and nine months ended September 30, 2021, and 2020 excludes the effect of the potential exercise of stock awards, including stock options, when the effect is anti-dilutive. For the three and nine months ended September 30, 2021, the number of antidilutive stock awards excluded from diluted earnings per share were
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Commitments and Contingencies
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. Although it is difficult to predict the ultimate outcome of these cases, management believes, except as discussed below, that any ultimate liability would not have a material adverse effect on the consolidated statements of operations and comprehensive income/(loss). However, an unforeseen unfavorable development in any of these cases could have a material adverse effect on the statements of operations and comprehensive income/(loss) or cash flows in the period in which it is recorded.
Settlement Agreement and Related Costs
As the Company disclosed in a Current Report on Form 8-K filed on September 23, 2021, on September 23, 2021, the Company entered into a settlement agreement in connection with a contract dispute regarding the Company’s alleged contractual obligations to a customer involving litigation with certain of the customer’s former employees regarding their employment termination (the “Settlement Agreement”). The Settlement Agreement provided that the settlement amount of $
Other Matters
A case is pending in California, in which the plaintiff has made claims involving the California Labor Code. The Company has removed the case to Federal court. The Company is unable to predict the outcome at this stage in the proceedings.
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Operating Leases
The Company has five operating leases for office and laboratory space used to conduct business. The exercise of lease renewal options is at our discretion. There is one lease which contains renewal options to extend the lease terms included in our Right-Of-Use (“ROU”) assets and lease liabilities as they are reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise. As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the lease commencement date in determining the net present value (NPV) of the lease payments.
As of September 30, 2021, the Company recognized a Right-Of-Use (“ROU”) asset of $
Maturities and balance sheet presentation of the Company’s lease liabilities for all operating leases as of September 30, 2021, is as follows (in thousands):
| October 1, 2021, through December 31, 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total Lease Payments | ||||
| Less: Interest expense | ( | ) | ||
| Present value of lease liabilities | $ | |||
| Current operating lease liabilities | $ | |||
| Long-term operating lease liabilities | ||||
| $ |
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. Debt and Other Financing Arrangements
On March 20, 2014, the Company entered into an equipment financing arrangement (“Loan Agreement”) with Banc of America Leasing & Capital, which it amended on August 8, 2014, September 15, 2015, October 30, 2017, and December 2, 2019. The terms of the arrangement are detailed in the 10-K.
The weighted average interest rate on outstanding debt under the Loan Agreement was
On May 1, 2020, the Company entered into a term loan with Bank of America N.A. under the PPP administered by the United States Small Business Administration (“SBA”) under the CARES Act (the “PPP Loan”). The principal amount of the PPP Loan was $
In July 2021, the PPP Loan was 100% forgiven by the SBA. As a result, in July 2021, the Company recorded a gain on the forgiveness of the PPP Loan in the amount of $
The annual principal repayment requirements for debt obligations as of September 30, 2021, were as follows (in thousands):
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Long-term debt from equipment financing | ||||
| Less: Current portion of long-term debt | ( | ) | ||
| Total long-term debt, net of current portion | $ |
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Revenue
The table below disaggregates our external revenue by major source (in thousands). For additional revenue detail relating to geographic breakdown of sales, see Note 9 – “Business Segment Reporting”.
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Testing |
$ | $ | $ | $ | ||||||||||||
| Shipping/Collection (hair) |
||||||||||||||||
| Other |
||||||||||||||||
| Total Revenue |
$ | $ | $ | $ | ||||||||||||
9. Business Segment Reporting
The Company manages its operations as
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Consolidated Revenue: |
||||||||||||||||
| United States |
$ | $ | $ | $ | ||||||||||||
| Brazil |
||||||||||||||||
| Other |
||||||||||||||||
| Total Revenue |
$ | $ | $ | $ | ||||||||||||
10. Significant Customers
The Company had
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. Recently Adopted Accounting Pronouncements
December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASU Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASU Topic 740 by clarifying and amending existing guidance. The amendments in this update are effective for interim and annual periods for the Company beginning after December 15, 2020, with early adoption permitted. The Standard may be adopted using the prospective or retrospective transition approach and could be applied to a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year adoption. The Company adopted ASU 2019-12 as of January 1, 2021, with no material impact to the Company’s consolidated financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made by its employees may contain forward-looking information that involves risks and uncertainties. In particular, statements contained in this report that are not historical facts (including but not limited to statements concerning earnings, earnings per share, revenues, cash flows, dividends, future business, growth opportunities, profitability, pricing, new accounts, customer base, market share, test volume, sales and marketing strategies, market demand for drug testing services in Brazil, U.S. and foreign drug testing laws and regulations, including, without limitation, Brazilian professional driver drug testing requirements, required investments in plant, equipment and people and new test development, the effect of the COVID- 19 pandemic on our business, including its effects on our business and profitability, and on the well-being and availability of our employees, and the continued operation of our testing facilities) may be “forward looking” statements. Actual results may differ from those stated in any forward-looking statements. Factors that may cause such differences include but are not limited to risks associated with the severity of the COVID-19 pandemic, and its impact on the Company’s markets, including its impact on the Company’s customers, suppliers and employees, as well as its risk on the United States and worldwide economies, the timing, scope and effectiveness of further governmental, regulatory, fiscal monetary and public health responses to the COVID-19 pandemic, changes in U.S. and foreign government regulations, including but not limited to FDA regulations, changes in Brazilian laws and regulations and proposed laws and regulations and the implementation of such laws and regulations, currency risks, R&D spending, competition (including, without limitation, competition from other companies pursuing the same growth opportunities), the Company’s ability to maintain its reputation and brand image, the ability of the Company to achieve its business plans, cost controls, leveraging of its global operating platform, risks of information technology system failures and data security breaches, the uncertain global economy, the Company’s ability to attract, develop and retain executives and other qualified employees and independent contractors, including distributors, the Company’s ability to obtain and protect intellectual property rights, litigation risks, general economic conditions With respect to the continued payment of cash dividends, factors include, but are not limited to, all of the factors listed above with respect to the impact of the COVID-19 pandemic on the our business generally, plus cash flows, available surplus, capital expenditure reserves required, debt service obligations, regulatory requirements and other factors that the Board of Directors of the Company may take into account.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements represent the Company’s estimates and assumptions only as of the filing date of this Report. The Company expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the filing date of this Report, in order to reflect changes in circumstances or expectations, or the occurrence of unanticipated events, except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under “Risk Factors” set forth in Part I Item 1A of the 10-K, as well as the risks and uncertainties discussed elsewhere in this Report. The Company qualifies all of its forward-looking statements by these cautionary statements. The Company cautions you that these risks are not exhaustive. The Company operates in a continually changing business environment and new risks emerge from time to time.
Revenue for the third quarter of 2021 was $6.7 million compared to $5.2 million in 2020, an increase of 29%. The Company reported net income of $0.7 million, or $0.13 per diluted share for the three months ended September 30, 2021, versus a net loss of $1.1 million, or ($0.20) per diluted share for the same period in 2020. Revenue and earnings increase for the quarter was attributed primarily to an increase of both domestic and international sales volume and a refundable employee retention tax credit. The refundable employee retention tax credit for the three and nine months ended September 30, 2021, was $0.8 million and $2.5 million, respectively. Revenue for the nine months ended September 30, 2021 and 2020 was $18.5 million and $16.0 million, respectively, an increase of 16%. The Company had net income for the nine months ended September 30, 2021, of $1.0 million versus net loss for the nine months ended September 30, 2020, of $3.3 million. During the quarter, the Company had $2.2 million of other income from the gain on debt forgiveness offset by other settlement expense of $2.1 million related to a customer dispute. The Company did not pay any cash dividends to its shareholders during the nine months ended September 30, 2021. The Company paid cash dividends of $0.18 per share during the nine-month period ended September 30, 2020.
As the Company disclosed in its Quarterly Report on Form 10-Q for the second quarter of 2020, and more recently in a Current Report on Form 8-K filed on September 23, 2021, the Company’s Board of Directors authorized the Company to explore shareholder enhancement opportunities, including strategic alternatives, such as the potential sale or merger of the Company, capitalization optimization and dividend strategies. The Company continues to explore such opportunities. There can be no assurances that the shareholder enhancement review process will result in a transaction or other strategic change or outcome. The Company has not set a timetable for the conclusion of its review of strategic alternatives, and it does not intend to comment further unless and until the Board has approved a specific course of action or the Company has otherwise determined that further disclosure is appropriate or required by law. The Company’s Board of Directors has established a Committee to review shareholder enhancement opportunities. The Company has retained JMP Securities LLC, as its financial advisor, and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., as its legal counsel, in connection with its exploration of shareholder enhancement opportunities.
Revenue increased 29% for the three months ended September 30, 2021, compared to the same period in 2020, primarily due to a 27% increase in total volume, as 2020 results were adversely impacted to a greater extent by the COVID-19 outbreak. For the same period, domestic revenues increased $1.4 million (27%) and international revenues increased $0.1 million (71%). For the nine months ended September 2021, revenue increased 15%, primarily due to an increase in domestic volume. For the same period, domestic revenues increased $2.9 million (20%) and international revenues decreased $0.5 million (28%). The Company’s domestic revenues increase was impacted by overall stronger job creation and people returning to the workforce. The international revenue decline was primarily from lower Brazil driver testing volume.
Gross profit (loss): The Company had a $3.1 million gross profit for the three months ended September 30, 2021, compared to a $1.1 million gross profit for the same period in 2020. Cost of revenues decreased by $0.4 million or 11% for the three months ended September 30, 2021, compared to the same period in 2020. The gross margin was beneficially impacted by higher sales volume and the refundable employee retention tax credit as noted above. Gross profit for the nine months ended September 30, 2021, was $8.1 million, an increase of $4.5 million from the comparable period in 2020. Cost of revenues decreased by $2.0 million or 16% for the nine months ended September 30, 2021, when compared to the same period in 2020. The gross profit margin for the nine-month period ended September 30, 2021, was 44% compared to 23% for the comparable period in 2020. The gross margin was positively impacted by higher sales volume and the refundable employee retention tax credit noted above.
General and administrative (“G&A”) expenses remained relatively unchanged at $1.3 million for both the three months ended September 30, 2021 and 2020. As a percentage of revenue, G&A expenses were 20% and 26% for the three months ended September 30, 2021, and 2020, respectively. G&A expenses were $4.1 million and $4.7 million for the nine months ended September 30, 2021, and 2020, respectively. As a percentage of revenue, G&A expenses were 22% and 29% for the nine months ended September 30, 2021, and 2020, respectively.
Marketing and selling expenses decreased 27% or $0.2 million to $0.7 million for the three months ended September 30, 2021, compared to $0.9 million for the same period in 2020. Total marketing and selling expenses represented 10% and 17% of revenue for the three months ended September 30, 2021, and 2020, respectively. Expenses were primarily reduced as a result of lower personnel and related costs (including less travel). Marketing and selling expenses were $2.0 million and $2.9 million for the nine months ended September 30, 2021, and 2020, respectively. As a percentage of revenue, marketing and selling expenses were 11% and 18% for the nine months ended September 30, 2021, and 2020, respectively.
Research and development (“R&D”) expenses for the three months ended September 30, 2021, and 2020 were $0.2 million and $0.3 million, respectively. R&D expenses represented 4% and 6% of revenue for the three months ended September 30, 2021, and 2020, respectively. R&D expenses were $0.8 million and $1.0 million for the nine months ended September 30, 2021, and 2020, respectively. R&D expenses represented 4% and 6% of revenue for the nine months ended September 30, 2021, and 2020, respectively.
Other Income (Expense) of $75 thousand consisted primarily of income resulting from the forgiveness by the SBA, during the quarter, of the Company’s PPP Loan of $2.2 million (see Note 7 of the Notes to Condensed Consolidated Financial Statements) offset in part by the loss incurred as a result of the Company’s settlement with a customer of $2.1 million (see Note 5 of the Notes to Condensed Consolidated Financial Statements).
Provision for income taxes consisted primarily of federal and state income taxes in the United States. We estimate income taxes in each of the jurisdictions in which we operate. During the three months ended September 30, 2021, the Company recorded a tax provision of $186 thousand (effective tax rate of 20%) and a tax benefit of $0.3 million (effective tax rate of 22%) for the comparative period in 2020. During the nine months ended September 30, 2021, the Company recorded a tax provision of $280 thousand (effective tax rate of 23%) and a tax benefit of $1.8 million (effective tax rate of 35%) or the comparative period in 2020.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2021, the Company had approximately $2.0 million of cash and $6.3 million of working capital. The Company's operating activities used $0.2 million of cash for the nine months ended September 30, 2021. Investing activities used $0.2 million of cash while financing activities used $0.5 million of cash during the first nine months of 2021.
Cash used by operating activities of $0.2 million reflected net income of $1.0 million adjusted for depreciation and amortization of $2.1 million, ROU asset amortization of $0.6 million and stock-based compensation of $0.6 million. This was also affected by an increase in current assets of $2.9 million and an increase in accounts payable and accrued expenses of $0.6 million.
Cash used in investing activities of $0.2 million consisted of $0.1 million related to internally developed software and $0.1 million related to purchases of property, plant, and equipment. We anticipate spending less than $0.5 million in additional capital purchases for the remainder of 2021.
Cash used in financing activities of $0.5 million consisted entirely of payments on equipment financing.
Contractual obligations and other commercial commitments as of September 30, 2021, included a settlement agreement, operating lease commitments, and outstanding debt, described in Notes 5, 6, and 7, respectively of the Notes to Condensed Consolidated Financial Statements.
On May 4, 2020, the Company borrowed approximately $2.2 million from Bank of America, N.A., pursuant to the PPP, established under the CARES Act. In July 2021, the SBA approved the forgiveness of the full amount of the PPP Loan, which included principal and interest of $2.2 million.
While management currently believes that its existing funds and quarterly cash flow from operations should be adequate to fund the Company’s business for at least the next 12 months, economic conditions related to COVID-19 are expected to continue to adversely affect the Company’s operating results and cash flows. Depending upon the Company’s results of operations, its future capital needs and available marketing opportunities, the Company may use various financing sources to raise additional funds. Such sources could include but are not limited to, issuance of common stock or debt financing, lines of credit, or equipment leasing, although there is no assurance that such financings will be available to the Company on terms it deems acceptable, if at all.
Item 4. Controls and Procedures
As of the end of the period covered by this report (the “evaluation date”) the Company’s management under the supervision and with the participation of the Company’s Chief Executive Officer and Vice President, Controller, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act. Based upon that evaluation, the Chief Executive Officer and Vice President, Controller concluded as of the evaluation date, that the Company’s disclosure controls and procedures were effective for ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that its disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the Company’s principal executive and principal financial officers, to allow timely decisions regarding required disclosure.
There has been no significant change in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
The information set forth in Item 1 of Part I of this Quarterly Report on Form 10-Q in Note 5, “Commitment and Contingencies,” is incorporated herein by reference.
Item 1A. of the 10-K includes a discussion of our risk factors, which included a risk related to the PPP Loan. In July 2021, the PPP Loan was 100% forgiven by the SBA (see Note 7 – “Debt and Other Financing Arrangements” of the Notes to Condensed Consolidated Financial Statements). Except as provided in the preceding sentence, there have been no material changes in the risk factors described in the 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no purchases of treasury stock in the first nine months of 2021.
On November 12, 2021, the Company entered into standard indemnification agreements with each member of its Board of Directors and each of its executive officers. Under these indemnification agreements, the Company agrees to indemnify these individuals to the fullest extent permitted by law and public policy for claims arising in their capacity as a director, officer or employee of the Company or any of its subsidiaries. Each of these individuals is only entitled to indemnification to the extent he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, he had no reasonable basis to believe that his conduct was unlawful. Subject to the applicable provisions of the Delaware General Corporation Law, the Company will reimburse each individual for expenses covered by the indemnification agreement within twenty days of the individual’s request for such payment. The foregoing indemnification is consistent with, and supplemental to, the Company’s existing indemnifications obligations as set forth in the Company’s Bylaws.
* Management compensation plan or arrangement
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: November 15, 2021 | By: | /s/ Raymond C. Kubacki | |
| Raymond C. Kubacki | |||
| Chairman and Chief Executive Officer | |||
| (principal executive officer) | |||
| Date: November 15, 2021 | By: | /s/ Andrew P. Limbek | |
| Andrew P. Limbek | |||
| Vice President, Controller | |||
| (principal accounting officer) | |||
22
Exhibit 10.1
August 10, 2021
CONFIDENTIAL
Andrew Limbek
c/o Psychemedics Corporation
289 Great Road
Acton, MA 01720
Dear Andrew:
This letter sets forth the agreements we have made regarding your employment with Psychemedics Corporation (the “Company”). Definitions not defined in the text below shall have the meanings set forth in Paragraph 15.
| 1. | If at any time after September 1, 2021 and prior to the date which is five (5) years following the date hereof, your employment is terminated by the Company without Cause, or you voluntarily terminate your employment for Good Reason, in either case at the time of, or within twelve (12) months following, a Change of Control of the Company, then you will continue to be paid monthly an amount equal to your Average Monthly Total Compensation for the twelve full months preceding the date of such termination (“Termination Pay”) for a period of twelve (12) months from the date of such termination. Your Termination Pay will be subject to normal deductions for taxes, benefit plan contributions, other payroll deductions and any amount due the Company as a result of cash advances. The Company agrees to continue to make health insurance available to you, under such health insurance plan as the Company has in effect, for so long as you are receiving Termination Pay and so long as you contribute such portion of the premiums for such insurance as is required of employees under such plan. You agree, however, that if you obtain health insurance coverage through another employer while you are eligible to receive health insurance under this Agreement, the Company shall no longer be required to make health insurance available to you under this Agreement. You agree to give the Company at least fourteen (14) days prior written notice of the termination of your employment in the event of your voluntary termination without Good Reason. You shall not be entitled to Termination Pay as a result of termination by reason of your death or Disability following a Change of Control of the Company. | |
| 2. | Notwithstanding any other provision of this Agreement, the Termination Pay contemplated to be paid to you under certain circumstances set forth in this Agreement shall only be paid in consideration of the execution and delivery by you of a release reasonably satisfactory to the Company waiving all claims you, your heirs, or legal representatives have or may have against the Company or any of its shareholders, officers, directors, employees or agents with respect to your employment or the termination thereof, or any other claim. |
Andrew Limbek
August 10, 2021
Page 2
| 3. | You acknowledge that as the Company’s Vice President, Controller, you are in possession of specialized information concerning the total operations, conduct, management, and strategy of the Company, as well as proprietary information concerning the Company’s products and services and that the applicability of your knowledge of these matters is applicable to all geographic areas in which the Company does business. You further acknowledge that the Company has a legitimate business interest in protecting its hair testing business from unfair competition. | |
| 4. |
In addition to any other confidentiality obligations you may have as an employee of the Company, you shall not, without the prior and express written approval of the Company, either during or subsequent to the term of your employment, disclose or use or enable another to disclose or use any secret, private or confidential information, trade secret or other proprietary knowledge of the Company, or its subsidiaries, divisions, employees or agents. Upon termination of your employment with the Company, you shall deliver to the Company all equipment, records and copies of records, notes, data, memoranda, prototypes, designs, customer lists and other information which is embodied in physical media and documents belonging to the Company which are then in your possession. You agree that all such information and documents shall be the property of the Company and that the obligations set forth in this paragraph shall survive termination of your employment. |
|
| 5. |
You agree that in addition to any other covenant not to compete with the Company following termination of your employment to which you may be bound, if you or the Company shall terminate your employment in such a manner as to entitle you to Termination Pay under paragraph 1 above, you shall not, for so long as you are entitled to receive such Termination Pay:
(a) directly or indirectly own, manage, operate or control, or participate in the ownership, management, operation or control of, or become associated in any capacity with any business enterprise, firm, corporation or company related to the field of testing for the detection of drug use, anywhere in the United States, which is in competition with the business of the Company, or directly or indirectly accept employment with or render services on behalf of a competitor of the Company, or any other third party, anywhere in the United States, in any capacity which may reasonably be considered to be useful to the competitor or such other third party to become a competitor, without receiving the Company’s prior written approval; or |
Andrew Limbek
August 10, 2021
Page 3
| (b) induce or attempt to induce any employee, officer, consultant, or agent of the Company to leave the employ thereof or in any way interfere with the relationship between the Company and any employee, officer, consultant, or agent thereof; hire directly or through another entity any person who was an employee of the Company at any time during the six (6) months prior to the date such person is to be so hired; or induce or attempt to induce any customer, client, supplier, licensee, or other business relation of the Company to cease doing business with the Company or in any way interfere with the relationship between any such customer, client, supplier, licensee, or business relation and the Company (including, without limitation, making any negative statements or communications concerning the Company). | ||
| 6. | You agree that your obligations under paragraphs 4 and 5 are special, unique, and extraordinary and that any breach by you of such obligations shall be deemed material and shall be deemed to cause irreparable injury not properly compensable by damages in an action at law, and the rights and remedies of the Company under paragraphs 4 and 5 may, therefore, be enforced both at law and in equity, by injunction or otherwise. For purposes of paragraphs 4 and 5, the term “Company” shall include any and all subsidiaries or divisions of the Company. | |
| 7. | The five-year period set forth in paragraph 1 above may be extended only with the mutual written agreement of the parties. | |
| 8. | If at any time a controversy between you and the Company arises as to the meaning or operation of this Agreement, such controversy shall be submitted to arbitration by either party in Boston, Massachusetts, before an arbitrator to be named by the President of the Boston Branch of the American Arbitration Association, provided however, that the Company shall also have the rights set forth in paragraph 6 above. Such arbitration proceedings shall be conducted in accordance with the rules and procedures then in effect of the American Arbitration Association. The decision of the arbitrator shall be binding upon the parties and judgment on any award made by the arbitrator may be entered in any court having jurisdiction thereof. The costs of the arbitrator shall be borne equally by you and the Company. Each party will bear her or its own legal costs. | |
| 9. | This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts without reference to principles of conflict of laws. |
Andrew Limbek
August 10, 2021
Page 4
| 10. | This Agreement contains the entire agreement of the parties in respect of this transaction, other than any existing nondisclosure or confidentiality agreement s you may have with the Company. No amendment or modification of any provision of this Agreement will be valid unless in writing signed by both parties. Any waiver must be in writing and signed by you or an authorized officer of the Company, as the case may be. | |
| 11. |
This Agreement shall be binding upon and inure to the benefit of: (a) the Company, and any successors or assigns of the Company, whether by way of a merger or consolidation, or liquidation of the Company, or by way of the Company selling all or substantially all of the assets and business of the Company to a successor entity; and, subject to the Company's right to terminate your employment at any time, the Company agrees to require any successor entity to expressly assume or unconditionally guarantee the Company's obligations under this Agreement (unless such obligations are assumed by operation of law); and (b) you and your heirs, executors and administrators. |
|
| 12. |
Any notice or other communication required hereunder shall be in writing, shall be deemed to have been given and received when delivered in person, or, if mailed, shall be deemed to have been given when deposited in the United States mail, first class, registered or certified, return receipt requested, with proper postage prepaid, and shall be deemed to have been received on the third business day thereafter, and shall be addressed as follows:
If to the Company, addressed to:
Psychemedics Corporation 289 Great Road Suite 200 Acton, MA 01720 Attn: President
If to you, addressed to:
Andrew Limbek c/o Psychemedics Corporation 289 Great Road Suite 200 Acton, MA 01720
or such other address as to which any party hereto may have notified the other in writing. |
Andrew Limbek
August 10, 2021
Page 5
| 13. |
Section 409A.
(a) Anything in this Agreement to the contrary notwithstanding, if at the time of your separation from service within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”), following a Change in Control of the Company, you are a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that you become entitled to under this Agreement would be considered deferred compensation subject to the twenty percent (20%) additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (i) six (6) months and one (1) day after your separation from service, or (ii) your death.
(b) This Agreement is intended to be in compliance with the provisions of Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with said Section. The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.
(c) Solely for the purposes of Section 409A of the Code, each installment payment of Termination Pay shall be considered a separate payment.
(d) The Company makes no representation or warranty and shall have no liability to you or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, said Section. |
Andrew Limbek
August 10, 2021
Page 6
| 14. |
Compliance with Massachusetts Non Competition Agreement Act. This Agreement is intended to comply with, and shall be construed so as to be consistent with the provisions of the Massachusetts Noncompetition Agreement Act. You acknowledge that:
(a) In exchange for your covenants set forth in this Agreement, you are entitled to receive consideration that is in addition to anything of value to which you would otherwise already have been entitled prior to executing this Agreement;
(b) You have been and are hereby advised of the right to consult an attorney prior to executing this Agreement; and
(c) You were provided a draft of this Agreement for review not later than Ten (10) business days prior to the effective date of this agreement. |
|
| 15. |
Definitions.
(a) “Average Monthly Total Compensation” for any period shall mean one twelfth of the aggregate base salary earned by you during such period, plus one-twelfth of the most recent annual cash bonus paid to you during such period.
(b) “Cause” shall mean: (i) theft or embezzlement, or attempted theft or embezzlement, by you of money or property of the Company, your perpetration or attempted perpetration of fraud, or your participation in a fraud or attempted fraud upon the Company; (ii) your unauthorized appropriation of, or attempt to misappropriate, any tangible or intangible assets or property of the Company, or your appropriation of, or attempt to appropriate, a business opportunity of the Company, including but not limited to attempting to secure or securing any profit for yourself or any of your family members or personal associates in connection with any transaction entered into on behalf of the Company; (iii) any act or acts of disloyalty, misconduct, or moral turpitude by you, including but not limited to violation of the Company’s sexual harassment or non-harassment policy, any of which the Board of Directors of the Company determines in good faith has been or is likely to be materially injurious to the interest, property, operations, business, or reputation of the Company, or its directors, employees or shareholders; (iv) any act or omission constituting gross negligence in connection with the performance of your duties on behalf of the Company which is materially injurious to the interest, property, operations, business, or reputation of the Company; (v) your conviction of a crime other than minor traffic violations or other similar minor offenses (including pleading guilty or entering a plea of no contest), or your indictment for a felony or its equivalent, or your being charged with a violent crime, a crime involving moral turpitude, or any other crime for which imprisonment is a possible punishment; (vi) your willful refusal or material failure (other than by reason of Disability) to carry out reasonable and lawful instructions and directives from the Board of Directors and your failure to cure or correct such refusal or failure within ten (10) days after receiving written notice from the Board of Directors describing such refusal or failure; or (vii) the material breach by you of your obligations under paragraphs 4 or 5 hereof or under any other confidentiality, non-compete, non-solicitation, non-disparagement or similar agreement with the Company. |
Andrew Limbek
August 10, 2021
Page 7
|
(c) “Change in Control of the Company” shall mean
(i) any person or group as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) shall own more than 30% of the then outstanding shares of the outstanding Common Stock of the Company; or
(ii) the consummation of a reorganization, merger or consolidation or sale or disposition of all or substantially all of the assets of the Company (a “Business Combination”), unless, in each case following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of the Common Stock of the Company immediately before the consummation of such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of the transaction owns the Company or all or substantially all of the assets of the Company either directly or indirectly through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Common Stock of the Company; and (B) no person or group (as defined in Section 13(d) of the Exchange Act) of the Company or the corporation resulting from the Business Combination) beneficially owns, directly or indirectly, more than 30% of the then outstanding shares of the common stock of the corporation resulting from the Business Combination or of the combined voting power of the then outstanding voting securities of the corporation; or
|
Andrew Limbek
August 10, 2021
Page 8
|
(iii) Individuals who, as of the date of this Agreement, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided, however, that any individual's becoming a director after the date of this Agreement whose election, or nomination for election by the stockholders of the Company, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered as though the individual were a member of the Incumbent Board, but excluding, for this purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.
(d) “Disability” shall mean your inability because of physical or mental incapacity to perform your usual duties at the Company for a period of one hundred eighty (180) days in any consecutive twelve (12) month period.
(e) “Good Reason” shall mean: (i) reduction in your base salary below $170,000 or such higher base salary as is in effect immediately prior to such reduction; or (ii) a material decrease in your duties or responsibilities. |
Andrew Limbek
August 10, 2021
Page 9
If this letter correctly sets forth our understanding and agreement, please indicate your acceptance by signing both copies of this letter and returning one copy.
| Very truly yours, | ||
| PSYCHEMEDICS CORPORATION | ||
| By: | /s/ Raymond C. Kubacki | |
| Raymond C. Kubacki, President | ||
| Agreed to: August 10, 2021 | ||
| /s/ Andrew P. Limbek | ||
| Andrew Limbek |
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: November 15, 2021 | /s/ Raymond C. Kubacki | |
| Raymond C. Kubacki | ||
| Chairman and Chief Executive Officer | ||
| (principal executive officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew P. Limbek, 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: November 15, 2021 | /s/ Andrew P. Limbek | |
| Andrew P. Limbek | ||
| Vice President, Controller | ||
| (principal accounting officer) |
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:
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1. |
The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, as filed with the Securities and Exchange Commission on November 15, 2021 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: November 15, 2021 |
/s/ Raymond C. Kubacki |
|
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Raymond C. Kubacki |
||
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Chairman and Chief Executive Officer |
||
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(principal executive officer) |
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, Andrew P. Limbek, Vice President, Controller 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:
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1. |
The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, as filed with the Securities and Exchange Commission on November 15, 2021 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: November 15, 2021 |
/s/ Andrew P. Limbek |
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Andrew P. Limbek |
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Vice President, Controller |
||
|
(principal accounting officer) |
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) shares in Thousands, $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Allowance for doubtful accounts | $ 84 | $ 37 |
| Accumulated amortization and depreciation | $ 19,024 | $ 16,937 |
| 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) | 6,210 | 6,205 |
| Common stock, shares outstanding (in shares) | 5,542 | 5,537 |
| Treasury stock, shares (in shares) | 668 | 668 |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Revenues | $ 6,673,000 | $ 5,174,000 | $ 18,473,000 | $ 16,025,000 |
| Cost of revenues | 3,598,000 | 4,041,000 | 10,394,000 | 12,416,000 |
| Gross profit | 3,075,000 | 1,133,000 | 8,079,000 | 3,609,000 |
| Operating Expenses: | ||||
| General & administrative | 1,329,000 | 1,341,000 | 4,138,000 | 4,727,000 |
| Marketing & selling | 652,000 | 896,000 | 1,950,000 | 2,858,000 |
| Research & development | 244,000 | 305,000 | 817,000 | 981,000 |
| Total Operating Expenses | 2,225,000 | 2,542,000 | 6,905,000 | 8,566,000 |
| Operating income (loss) | 850,000 | (1,409,000) | 1,174,000 | (4,957,000) |
| Other Income (Expense): | ||||
| Forgiveness of PPP loan | (2,181,000) | (2,181,000) | ||
| Settlement | (2,075,000) | (2,075,000) | ||
| Other | (31,000) | (17,000) | (44,000) | (129,000) |
| Total Other Income (Expense) | 75,000 | (17,000) | 62,000 | (129,000) |
| Income (loss) before provision for (benefit from) income taxes | 925,000 | (1,426,000) | 1,236,000 | (5,086,000) |
| Provision for (benefit from) income taxes | 186,000 | (319,000) | 280,000 | (1,770,000) |
| Net income (loss) | 739,000 | (1,107,000) | 956,000 | (3,316,000) |
| Other Comprehensive Income (Loss): | ||||
| Foreign currency translation | (10,000) | |||
| Total comprehensive income (loss) | $ 739,000 | $ (1,107,000) | $ 956,000 | $ (3,326,000) |
| Basic net income (loss) per share (in dollars per share) | $ 0.13 | $ (0.20) | $ 0.17 | $ (0.60) |
| Diluted net income (loss) per share (in dollars per share) | $ 0.13 | $ (0.20) | $ 0.17 | (0.60) |
| Dividends declared, per share (in dollars per share) | $ 0.18 | |||
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) (Parentheticals) |
9 Months Ended |
|---|---|
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Sep. 30, 2020
$ / shares
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| Dividends declared, per share (in dollars per share) | $ 0.18 |
Note 1 - Basis of Presentation |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| 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 (“SEC”) 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, 2020, included in the Company's 2020 Annual Report on Form 10-K (“10-K”), as filed with the SEC.
The condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations and comprehensive income/(loss) for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statements of shareholders’ equity for the nine months ended September 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 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, 2020, has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm, but does not include all of the information and footnotes required for complete annual financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three and nine months ended September 30, 2021, may not be indicative of the results that may be expected for the year ending December 31, 2021, or any other period.
Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to Psychemedics Corporation and its wholly-owned consolidated subsidiaries. |
Note 2 - COVID-19 Pandemic |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Effect of Covid-19 Pandemic [Text Block] |
2. COVID-19 Pandemic
The outbreak of coronavirus (“COVID-19”) which was declared by the World Health Organization to be a pandemic, has impacted, and is expected to continue to impact worldwide economic activity. While our domestic business was deemed an essential business and we have been able to continue to provide services to our customers, COVID-19 has had a significant impact on our entire operations. COVID-19’s effect on the overall economy has had an adverse impact on hiring; which has had a negative impact on both our domestic and international testing volume.
The Coronavirus Aid, Relieve and Economic Security Act (“CARES”) Act, enacted on March 27, 2020, and the Families First Coronavirus Response Act, in each case modified by the Consolidated Appropriations Act enacted in December 2020, was an emergency economic stimulus package that included spending provisions and tax cuts to strengthen the United States economy and to fund a nationwide effort to curtail the effect of COVID-19. The principal impact of the CARES Act and subsequent legislation was the adoption of the Paycheck Protection Program (“PPP”) described below. The CARES Act, together with subsequent legislation, also provided sweeping tax changes in response to the COVID-19 pandemic, including amendments to certain provisions of the previously enacted Tax Cuts and Jobs Act. The Company recognized a benefit of $0.8 million and $2.5 million for the three and nine months ended September 30, 2021, as a reduction to cost of revenues and operating expenses related to the employee retention credit which was a tax provision in the CARES Act and subsequent legislation. Additionally, the CARES Act allowed the Company to fully carryback the 2020 net operating loss, for a refund of corporate income taxes previously paid. See Item 2: “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.
Liquidity and Management’s Plans
At September 30, 2021, the Company’s principal sources of liquidity included approximately $2.0 million of cash. Management currently believes that such funds, together with future operating profits should be adequate to fund anticipated working capital requirements, including equipment financing obligations, and capital expenditures for at least the next 12 months. Depending upon the Company’s results of operations, its future capital needs and available marketing opportunities, the Company may use various financing sources to raise additional funds. Such sources could include but are not limited to, issuance of common stock, debt financing, lines of credit, or equipment leasing, although there is no assurance that such financings will be available to the Company on terms it deems acceptable, if at all.
Accounts Receivable
The Company believes its allowance for credit losses related to its accounts receivable remained adequate as of September 30, 2021, due to the essential nature of its customers business, as well as the diversity of its large customer base. While the Company anticipates there could be an increase in the aging of its accounts receivable, the Company does not anticipate a significant increase in default risk.
Risk and Uncertainties
The duration and severity of COVID-19-related potential disruptions involve risks and uncertainties, and it is not possible at this time to estimate the full impact on the Company’s business and could adversely affect our estimates, results of operations and financial condition.
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Note 3 - Share-based Compensation |
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| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Payment Arrangement [Text Block] |
3. 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, 2020, 45 thousand shares were then available for future grant under the Plan. At the 2021 Annual Meeting, an additional 350 thousand shares were approved for future grant under the Plan. As of September 30, 2021, 277 thousand shares remained available for future grant under the Plan.
Stock-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):
There was no income tax benefit recognized in the condensed consolidated statements of operations and comprehensive income/(loss) for stock-based compensation arrangements for the three and nine months ended September 30, 2021 and 2020.
A summary of the Company’s stock option activity for the nine months ended September 30, 2021, is as follows (in thousands except per share amounts):
A summary of the Company’s stock unit award (“SUA”) activity for the nine months ended September 30, 2021, is as follows (in thousands except per share amounts):
As of September 30, 2021, 899 thousand shares of common stock were reserved for issuance under the Plan. As of September 30, 2021, 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 3.1 years.
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Note 4 - Basic and Diluted Net Income (Loss) Per Share |
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Text Block] |
4. Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (or loss) by the weighted average number of common and dilutive common equivalent shares outstanding during the period when the effect is dilutive. The number of dilutive common equivalent shares outstanding during the period was determined in accordance with the treasury-stock method. Common equivalent shares consisted of common stock issuable upon the exercise of outstanding options and common stock issuable upon the vesting of outstanding, unvested SUAs. Basic and diluted weighted average common shares outstanding for the three and nine months ended September 30, 2021, and 2020 were as follows (in thousands):
The computation of diluted earnings (loss) per share for the three and nine months ended September 30, 2021, and 2020 excludes the effect of the potential exercise of stock awards, including stock options, when the effect is anti-dilutive. For the three and nine months ended September 30, 2021, the number of antidilutive stock awards excluded from diluted earnings per share were 545 thousand and 547 thousand, respectively.
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Note 5 - Commitments and Contingencies |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Commitments and Contingencies Disclosure [Text Block] |
5. Commitments and Contingencies
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. Although it is difficult to predict the ultimate outcome of these cases, management believes, except as discussed below, that any ultimate liability would not have a material adverse effect on the consolidated statements of operations and comprehensive income/(loss). However, an unforeseen unfavorable development in any of these cases could have a material adverse effect on the statements of operations and comprehensive income/(loss) or cash flows in the period in which it is recorded.
Settlement Agreement and Related Costs
As the Company disclosed in a Current Report on Form 8-K filed on September 23, 2021, on September 23, 2021, the Company entered into a settlement agreement in connection with a contract dispute regarding the Company’s alleged contractual obligations to a customer involving litigation with certain of the customer’s former employees regarding their employment termination (the “Settlement Agreement”). The Settlement Agreement provided that the settlement amount of $2.1 million would be paid in three equal installments of $692 thousand each on September 30, October 29, and November 30, 2021. The parties agreed that following payment of the final installment they would file with the Court a Stipulation of Dismissal with Prejudice. The Company has recorded the settlement amount of $2.1 million as other expense in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2021.
Other Matters
A case is pending in California, in which the plaintiff has made claims involving the California Labor Code. The Company has removed the case to Federal court. The Company is unable to predict the outcome at this stage in the proceedings.
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Note 6 - Operating Leases |
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lessee, Operating Leases [Text Block] |
6. Operating Leases
The Company has five operating leases for office and laboratory space used to conduct business. The exercise of lease renewal options is at our discretion. There is one lease which contains renewal options to extend the lease terms included in our Right-Of-Use (“ROU”) assets and lease liabilities as they are reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise. As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the lease commencement date in determining the net present value (NPV) of the lease payments.
As of September 30, 2021, the Company recognized a Right-Of-Use (“ROU”) asset of $3.8 million and an operating lease liability of $4.2 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, 2021, is 3.9%. The weighted average lease term as of September 30, 2021, is 4.3 years. The operating lease expense for the three and nine months ended September 30, 2021, was $269 thousand and $807 thousand, respectively.
Maturities and balance sheet presentation of the Company’s lease liabilities for all operating leases as of September 30, 2021, is as follows (in thousands):
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Note 7 - Debt and Other Financing Arrangements |
9 Months Ended | |||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Text Block] |
7. Debt and Other Financing Arrangements
On March 20, 2014, the Company entered into an equipment financing arrangement (“Loan Agreement”) with Banc of America Leasing & Capital, which it amended on August 8, 2014, September 15, 2015, October 30, 2017, and December 2, 2019. The terms of the arrangement are detailed in the 10-K.
The weighted average interest rate on outstanding debt under the Loan Agreement was 3.5% and 3.4% for the three and nine months ended September 30, 2021. The interest expense was $12 thousand and $38 thousand for the three and nine months ended September 30, 2021, respectively. As of September 30, 2021, the weighted average interest rate was 3.1% and there was $1.4 million of outstanding debt related under the loan agreement. The Company was in compliance with all loan covenants under the Loan Agreement as of September 30, 2021.
On May 1, 2020, the Company entered into a term loan with Bank of America N.A. under the PPP administered by the United States Small Business Administration (“SBA”) under the CARES Act (the “PPP Loan”). The principal amount of the PPP Loan was $2.1 million, which was evidenced by a promissory note with a maturity date of May 4, 2022. The note bore interest on the unpaid balance at the rate of one percent (1%) per annum.
In July 2021, the PPP Loan was 100% forgiven by the SBA. As a result, in July 2021, the Company recorded a gain on the forgiveness of the PPP Loan in the amount of $2.1 million.
The annual principal repayment requirements for debt obligations as of September 30, 2021, were as follows (in thousands):
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Note 8 - Revenue |
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| Revenue from Contract with Customer [Text Block] |
8. Revenue
The table below disaggregates our external revenue by major source (in thousands). For additional revenue detail relating to geographic breakdown of sales, see Note 9 – “Business Segment Reporting”.
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Note 9 - Business Segment Reporting |
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting Disclosure [Text Block] |
9. 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 independent distributor. The Company’s revenues by geographic region are as follows (in thousands):
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Note 10 - Significant Customers |
9 Months Ended |
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Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Concentration Risk Disclosure [Text Block] |
10. Significant Customers
The Company had no customers that represented over 10% of revenue during either of the nine-month periods ended September 30, 2021 or 2020. The Company had customer that represented 11% of the total accounts receivable balance as of September 30, 2021. The Company had no customers that represented greater than 10% of the total accounts receivable balance as of December 31, 2020.
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Note 11 - Recently Adopted Accounting Pronouncements |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Accounting Standards Update and Change in Accounting Principle [Text Block] |
11. Recently Adopted Accounting Pronouncements
December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASU Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASU Topic 740 by clarifying and amending existing guidance. The amendments in this update are effective for interim and annual periods for the Company beginning after December 15, 2020, with early adoption permitted. The Standard may be adopted using the prospective or retrospective transition approach and could be applied to a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year adoption. The Company adopted ASU 2019-12 as of January 1, 2021, with no material impact to the Company’s consolidated financial statements.
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Note 3 - Share-based Compensation (Tables) |
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| Share-based Payment Arrangement, Option, Activity [Table Text Block] |
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| Schedule of Nonvested Restricted Stock Units Activity [Table Text Block] |
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Note 4 - Basic and Diluted Net Income (Loss) Per Share (Tables) |
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| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 6 - Operating Leases (Tables) |
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| Lessee, Operating Lease, Liability, Maturity [Table Text Block] |
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Note 7 - Debt and Other Financing Arrangements (Tables) |
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| Schedule of Long-term Debt Instruments [Table Text Block] |
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Note 8 - Revenue (Tables) |
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| Disaggregation of Revenue [Table Text Block] |
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Note 9 - Business Segment Reporting (Tables) |
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| Revenue from External Customers by Geographic Areas [Table Text Block] |
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Note 2 - COVID-19 Pandemic (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2021 |
Dec. 31, 2020 |
|
| Income Tax Benefit CARES Act | $ 800 | $ 2,500 | |
| Cash and Cash Equivalents, at Carrying Value, Ending Balance | $ 1,968 | $ 1,968 | $ 2,833 |
Note 3 - Share-based Compensation (Details Textual) - USD ($) shares in Thousands |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Dec. 31, 2020 |
|
| Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year) | 3 years 1 month 6 days | ||||
| Incentive Plan 2006 [Member] | |||||
| Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares) | 277 | 277 | 45 | ||
| Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized (in shares) | 350 | ||||
| Share-based Payment Arrangement, Expense, Tax Benefit | $ 0 | $ 0 | $ 0 | $ 0 | |
| Common Stock, Capital Shares Reserved for Future Issuance (in shares) | 899 | 899 | |||
| Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total | $ 1,400 | $ 1,400 | |||
Note 3 - Share-based Compensation - Compensation Cost (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Share-based compensation | $ 178 | $ 126 | $ 564 | $ 449 |
| Share-based Payment Arrangement, Option [Member] | ||||
| Share-based compensation | 53 | 102 | 275 | 353 |
| Restricted Stock Units (RSUs) [Member] | ||||
| Share-based compensation | $ 125 | $ 24 | $ 289 | $ 96 |
Note 3 - Share-based Compensation - Nonvested Award Activity (Details) - Stock Unit Award [Member] shares in Thousands |
9 Months Ended |
|---|---|
|
Sep. 30, 2021
$ / shares
shares
| |
| Outstanding & Unvested at beginning of period (in shares) | shares | 166 |
| Outstanding & Unvested at beginning of period, weighted average price per share (in dollars per share) | $ / shares | $ 4.50 |
| Granted (in shares) | shares | 119 |
| Granted, weighted average price per share (in dollars per share) | $ / shares | $ 6.55 |
| Converted to common stock (in shares) | shares | (6) |
| Converted to common stock, weighted average price per share (in dollars per share) | $ / shares | $ 11.55 |
| Cancelled (in shares) | shares | (1) |
| Cancelled, weighted average price per share (in dollars per share) | $ / shares | $ 13.36 |
| Outstanding & Unvested at end of period (in shares) | shares | 278 |
| Outstanding & Unvested at end of period, weighted average price per share (in dollars per share) | $ / shares | $ 5.28 |
Note 4 - Basic and Diluted Net Income (Loss) Per Share (Details Textual) - shares shares in Thousands |
3 Months Ended | 9 Months Ended |
|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2021 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 545 | 547 |
Note 4 - Basic and Diluted Net Income (Loss) Per Share - Basic and Diluted Weighted Average Common Shares Outstanding (Details) - shares shares in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Weighted average common shares outstanding, basic (in shares) | 5,542 | 5,526 | 5,542 | 5,522 |
| Dilutive common equivalent shares (in shares) | 84 | 72 | ||
| Weighted average common shares outstanding, diluted (in shares) | 5,626 | 5,526 | 5,614 | 5,522 |
Note 5 - Commitments and Contingencies (Details Textual) - Settlement Agreement [Member] - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Nov. 30, 2021 |
Oct. 29, 2021 |
Sep. 30, 2021 |
Sep. 23, 2021 |
Sep. 30, 2021 |
Sep. 30, 2021 |
|
| Litigation Settlement, Amount Awarded to Other Party | $ 2,100 | |||||
| Payments for Legal Settlements | $ 692 | |||||
| Payments for Legal Settlements | $ 692 | |||||
| Forecast [Member] | ||||||
| Payments for Legal Settlements | $ 692 | |||||
| Payments for Legal Settlements | $ 692 | |||||
| Subsequent Event [Member] | ||||||
| Payments for Legal Settlements | $ 692 | |||||
| Payments for Legal Settlements | $ 692 | |||||
| Other Expense [Member] | ||||||
| Litigation Settlement, Amount Awarded to Other Party | $ 2,100 | $ 2,100 |
Note 6 - Operating Leases (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2021 |
Dec. 31, 2020 |
|
| Operating Lease, Right-of-Use Asset | $ 3,782 | $ 3,782 | $ 4,286 |
| Operating Lease, Liability, Total | $ 4,209 | $ 4,209 | |
| Operating Lease, Weighted Average Discount Rate, Percent | 3.90% | 3.90% | |
| Operating Lease, Weighted Average Remaining Lease Term (Year) | 4 years 3 months 18 days | 4 years 3 months 18 days | |
| Operating Lease, Expense | $ 269 | $ 807 |
Note 6 - Operating Leases - Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| October 1, 2021, through December 31, 2021 | $ 243 | |
| 2022 | 1,117 | |
| 2023 | 1,118 | |
| 2024 | 1,034 | |
| 2025 | 544 | |
| 2026 | 509 | |
| Total Lease Payments | 4,565 | |
| Less: Interest expense | (356) | |
| Present value of lease liabilities | 4,209 | |
| Current operating lease liabilities | 975 | $ 875 |
| Long-term operating lease liabilities | 3,234 | $ 3,895 |
| Operating Lease, Liability, Total | $ 4,209 |
Note 7 - Debt and Other Financing Arrangements (Details Textual) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|---|
May 01, 2020 |
Jul. 31, 2021 |
Sep. 30, 2021 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Proceeds from Issuance of Long-term Debt, Total | $ 2,181,000 | ||||
| Gain (Loss) on Extinguishment of Debt, Total | $ 2.1 | $ 2,181,000 | $ 2,181,000 | ||
| Paycheck Protection Program CARES Act [Member] | |||||
| Proceeds from Issuance of Long-term Debt, Total | $ 2.1 | ||||
| Line of Credit [Member] | Equipment Loan Arrangement [Member] | Banc of America Leasing and Capital [Member] | |||||
| Long-term Debt, Weighted Average Interest Rate, over Time | 3.50% | 3.40% | |||
| Interest Expense, Total | $ 12,000 | $ 38,000 | |||
| Long-term Debt, Weighted Average Interest Rate, at Point in Time | 3.10% | 3.10% | |||
| Long-term Debt, Total | $ 1,400,000 | $ 1,400,000 | |||
Note 7 - Debt and Other Financing Arrangements - Schedule of Debt Repayments (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Less: Current portion of long-term debt | $ (696) | $ (688) |
| Total long-term debt, net of current portion | 740 | $ 3,444 |
| Equipment Loan Arrangement [Member] | ||
| 2021 | 173 | |
| 2022 | 664 | |
| 2023 | 294 | |
| 2024 | 305 | |
| Long-term debt from equipment financing | 1,436 | |
| Less: Current portion of long-term debt | $ (696) |
Note 8 - Revenue - Revenue by Major Source (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Revenues | $ 6,673 | $ 5,174 | $ 18,473 | $ 16,025 |
| Testing [Member] | ||||
| Revenues | 5,859 | 4,590 | 16,275 | 14,363 |
| Shipping/Collection (Hair) [Member] | ||||
| Revenues | 774 | 562 | 2,069 | 1,576 |
| Other Revenue [Member] | ||||
| Revenues | $ 40 | $ 22 | $ 129 | $ 86 |
Note 9 - Business Segment Reporting (Details Textual) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Number of Operating Segments | 1 | |
| Customer Concentration Risk [Member] | Revenue Benchmark [Member] | ||
| Number of Major Customers | 0 | 0 |
| Customer Concentration Risk [Member] | Revenue Benchmark [Member] | BRAZIL | ||
| Number of Major Customers | 1 | |
Note 9 - Business Segment Reporting - Revenue by Major Source (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Revenues | $ 6,673 | $ 5,174 | $ 18,473 | $ 16,025 |
| UNITED STATES | ||||
| Revenues | 6,338 | 4,977 | 17,340 | 14,441 |
| BRAZIL | ||||
| Revenues | 180 | 62 | 639 | 1,207 |
| Other Foreign Countries [Member] | ||||
| Revenues | $ 155 | $ 135 | $ 494 | $ 377 |
Note 10 - Significant Customers (Details Textual) - Customer Concentration Risk [Member] |
9 Months Ended | 12 Months Ended | |
|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Dec. 31, 2020 |
|
| Revenue Benchmark [Member] | |||
| Number of Major Customers | 0 | 0 | |
| Accounts Receivable [Member] | |||
| Number of Major Customers | 1 | 0 | |
| Accounts Receivable [Member] | Customer One [Member] | |||
| Concentration Risk, Percentage | 11.00% | ||