10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2024
or
☐	Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
	for the transition period from _________ to __________

Commission file number: 1-13738

PSYCHEMEDICS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware	58-1701987
(State or Other Jurisdiction of  Incorporation or Organization)	(I.R.S. Employer Identification No.)
5220 Spring Valley Road Dallas, Texas	75254
(Address of Principal Executive Offices)	(Zip Code)

Registrant's telephone number including area code:   (800) 527-7424

Securities registered pursuant to section 12(b) of the act:

Title of Class	Trading Symbol(s)	Name of each exchange on which registered
Common stock. $0.005 par value	PMD	The Nasdaq Stock Market, LLC.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐
Accelerated filer	☐
Non–accelerated filer	☒
Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

The number of shares of Common Stock of the Registrant, par value $0.005 per share, outstanding at May 10, 2024, was 5,805,611.

PSYCHEMEDICS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024

INDEX

	Page
PART I - FINANCIAL INFORMATION
Item 1 -   Financial Statements (unaudited)
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Shareholders’ Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Factors that May Affect Future Results	11
Results of Operations	12
Liquidity and Capital Resources	12
Item 4 -  Controls and Procedures	13
PART II - OTHER INFORMATION
Item 1 -  Legal Proceedings	13
Item 1A  -  Risk Factors	13
Item 2 -  Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	13
Item 6 - Exhibits	14
Signatures	15

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(UNAUDITED)

	March 31,				December 31,
	2024				2023
ASSETS
Current Assets:
Cash and cash equivalents	$	1,421		$	1,964
Accounts receivable, net of allowance for credit losses of $58 at March 31, 2024, and $64 at December 31, 2023		3,883			3,687
Prepaid expenses and other current assets		870			1,136
Income tax receivable		13			18
Total Current Assets		6,187			6,805
Fixed assets, net of accumulated amortization and depreciation of $23,943 at March 31, 2024, and $23,633 at December 31, 2023		2,759			3,061
Other assets		608			632
Operating lease right-of-use assets		1,598			1,828
Total Assets	$	11,152		$	12,326
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	1,131		$	752
Accrued expenses		1,780			2,604
Equipment financing debt		230			305
Current portion of operating lease liabilities		1,043			1,048
Total Current Liabilities		4,184			4,709
Long-term portion of operating lease liabilities		687			945
Total Liabilities		4,871			5,654
Commitments and Contingencies (Note 6)
Shareholders' Equity:
Preferred stock, $0.005 par value, 873 shares authorized, no shares issued or outstanding
Common stock, $0.005 par value; 50,000 shares authorized; 6,474 and 6,474 shares issued and 5,806 and 5,806 shares outstanding as of March 31, 2024 and December 31, 2023, respectively		32			32
Additional paid-in capital		35,426			35,129
Accumulated deficit		(17,461	)		(16,773	))
Less - Treasury stock, at cost, 668 shares		(10,082	)		(10,082	))
Accumulated other comprehensive loss		(1,634	)		(1,634	))
Total Shareholders' Equity		6,281			6,672
Total Liabilities and Shareholders' Equity	$	11,152		$	12,326

See accompanying notes to unaudited condensed consolidated financial statements.

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PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(UNAUDITED)

	Three Months Ended
	March 31,
	2024			2023
Revenues	$	5,357		$	5,859
Cost of revenues		3,235			3,654
Gross profit		2,122			2,205
Operating expenses:
General & administrative		1,788			1,646
Marketing & selling		692			789
Research & development		209			298
Total Operating expenses		2,689			2,733
Operating loss		(567	)		(528	)
Other income (expense):
Settlement		(2	)		-
Other		(3	)		(5	)
Total other income (expense), net		(5	)		(5	)
Loss before provision for (benefit from) income taxes		(572	)		(533	)
Provision for (benefit from) income taxes		116			(149	)
Net loss	$	(688	)	$	(384	)
Basic and diluted net loss per share	$	(0.12	)	$	(0.07	)
Weighted average common shares outstanding, basic and diluted		5,806			5,685

See accompanying notes to unaudited condensed consolidated financial statements.

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PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except per share amounts)

(UNAUDITED)

	Common Stock, $0.005 par value				Additional										Accumulated
	Common Shares		Common		Paid-In		Treasury Stock					Accumulated			Other
	Outstanding		Stock		Capital		Shares		Cost			Deficit			Comprehensive Loss			Total
BALANCE, December 31, 2023		6,474	$	32	$	35,129		668	$	(10,082	)	$	(16,773	)	$	(1,634	)	$	6,672
Stock-based compensation		-		-		297		-		-			-			-			297
Net loss		-		-		-		-		-			(688	)		-			(688	)
BALANCE, March 31, 2024		6,474	$	32	$	35,426		668	$	(10,082	)	$	(17,461	)	$	(1,634	)	$	6,281

	Common Stock, $0.005 par value				Additional										Accumulated
	Common Shares		Common		Paid-In		Treasury Stock					Accumulated			Other
	Outstanding		Stock		Capital		Shares		Cost			Deficit			Comprehensive Loss			Total
BALANCE, December 31, 2022		6,349	$	32	$	34,275		668	$	(10,082	)	$	(11,820	)	$	(1,634	)	$	10,771
Shares issued – vested		5		-		-		-		-			-			-			-
Stock-based compensation		-		-		177		-		-			-			-			177
Cash dividends ($0.07 per share)		-		-		-		-		-			(398	)		-			(398	)
Net loss		-		-		-		-		-			(384	)		-			(384	)
BALANCE, March 31, 2023		6,354	$	32	$	34,452		668	$	(10,082	)	$	(12,602	)	$	(1,634	)	$	10,166

See accompanying notes to unaudited condensed consolidated financial statements.

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PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

	Three Months Ended
	March 31,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(688	)	$	(384	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		321			479
ROU asset amortization		230			235
Deferred income taxes		-			(159	)
Stock-based compensation		297			177
Changes in operating assets and liabilities:
Accounts receivable		(196	)		(319	)
Prepaid expenses and other current assets		266			48
Income tax receivable		5			330
Accounts payable		379			337
Operating lease liabilities		(263	)		(264	)
Accrued expenses		(824	)		(705	)
Net cash used in operating activities		(473	)		(225	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements		-			(20	)
Cost of internally developed software		(8	)		(21	)
Other assets		13			(32	)
Net cash provided by (used in) investing activities		5			(73	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of equipment financing		(75	)		(72	)
Net cash used in financing activities		(75	)		(72	)
Net decrease in cash and cash equivalents		(543	)		(370	)
Cash and cash equivalents, beginning of period		1,964			4,750
Cash and cash equivalents, end of period	$	1,421		$	4,380
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	4		$	5
Cash paid for operating leases	$	287		$	291
Right-of-use assets acquired through operating leases	$	-		$	86

See accompanying notes to unaudited condensed consolidated financial statements.

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PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.    Basis of Presentation

The interim condensed consolidated financial statements of Psychemedics Corporation (the “Company”) presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission (“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, 2023, included in the Company's 2023 Annual Report on Form 10-K (“10-K”), as filed with the SEC.

The accompanying condensed consolidated financial statements are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of results for these interim periods. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. The condensed consolidated balance sheet as of December 31, 2023, 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 the information and footnotes required for complete annual financial statements. The Company’s comprehensive (loss)/income is equal to its net (loss)/income for all periods presented.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months ended March 31, 2024, may not be indicative of the results that may be expected for the year ending December 31, 2024, 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.    Financial Information

Liquidity and Management’s Plans

At March 31, 2024, our principal sources of liquidity from operations included $1.4 million of cash on hand. As of the date of this report, management currently believes that such funds, together with future operating profits, should be adequate to fund anticipated working capital requirements, including debt obligations, and capital expenditures for at least the next 12 months. However, the terms of our existing equipment financing do not provide for future borrowings, and we have no existing line of credit or other fixed source of capital reserves. Depending upon our results of operations, our future capital needs, and available marketing opportunities, we may be required to seek 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, equipment leasing or a strategic transaction; although there is no assurance that such financings will be available to us on terms we deem acceptable, if at all. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations would be materially adversely affected.

Accounts Receivable

The Company believes its allowance for credit losses related to its accounts receivable remained adequate as of March 31, 2024. We maintain an allowance for credit losses based on management’s assessment of the collectability of our customer accounts by reviewing customer payment patterns and other relevant factors. We review the adequacy of the allowance for credit losses on a quarterly basis and adjust the balance as determined necessary. Write-offs are recorded at the time a customer account is deemed uncollectable.

7

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker, among other provisions. The ASU is effective for fiscal year periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the ASU requires retrospective application to all prior periods presented in the financial statements. We are currently evaluating the standard to determine the impact of adoption to our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. The ASU primarily enhances and expands both the income tax rate reconciliation disclosure and the income taxes paid disclosure. The ASU is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. We are currently evaluating the standard to determine the impact of adoption to our consolidated financial statements and disclosures.

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 March 31, 2024, 513 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):

	Three Months Ended
	March 31,
	2024		2023
Stock-based compensation related to:
Stock option grants	$	131	$	20
Stock unit awards		166		157
Total stock-based compensation	$	297	$	177

There was no income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation arrangements for the three months ended March 31, 2024, and 2023.

A summary of the Company’s stock option activity for the three months ended March 31, 2024, is as follows (in thousands except per share amounts and years):

						Weighted Average
				Weighted Average		Remaining		Aggregate
	Number of			Exercise Price		Contractual Life		Intrinsic
	Shares			Per Share		(years)		Value (1)
Outstanding, December 31, 2023		512		$	6.32		8.7		-
Granted		105			3.40
Canceled		(42	)		15.12
Outstanding, March 31, 2024		575			5.14		9.0		-
Exercisable, March 31, 2024		50		$	15.42		3.9		-

(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.

8

A summary of the Company’s stock unit award (“SUA”) activity for the three months ended March 31, 2024, is as follows (in thousands except per share amounts):

	Number of Shares		Weighted Average Grant-Date Fair Value Per Share
Outstanding & Unvested, December 31, 2023		140	$	5.23
Granted		-
Converted to common stock		-
Cancelled		-
Forfeited		-
Outstanding & Unvested, March 31, 2024		140		5.23

As of March 31, 2024, the unamortized fair value of awards relating to outstanding SUAs and options was $1.0 million, which is expected to be amortized over a weighted average period of 3.9 years.

4.    Income Taxes

Our effective tax rate for the three months ended March 31, 2024, differs from the statutory rate primarily due to a valuation allowance recorded against our U.S. federal and state deferred tax assets. We recorded a full valuation allowance on our net deferred tax assets based on an assessment of available positive and negative evidence, including being in a three-year cumulative loss position in the U.S., projections of future taxable income, and other quantitative and qualitative information. We intend to maintain a full valuation allowance on our U.S. federal and state net deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of the valuation allowance.

5.    Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options and stock unit awards, that would result in the issuance of incremental shares of common stock.  In computing the basic and diluted net loss per share, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive. 

The following potentially dilutive securities outstanding as of March 31, 2024 and 2023 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

	March 31
	2024		2023
Options		575		402
SUAs		140		222
Total		715		624

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6.    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, that any ultimate liability would not have a material adverse effect on the consolidated statements of operations. However, an unforeseen unfavorable development in any of these cases could have a material adverse effect on the statements of operations or cash flows in the period in which it is recorded. Developments in legal proceedings and other matters that could cause changes in the amounts previously accrued are evaluated each reporting period.

Settlements

As previously reported in the 10-K, as of December 31, 2023, we paid $334 thousand in connection with a previously disclosed contract dispute regarding strategic negotiations with a shipping carrier. The remaining balance of $167 thousand, due on or before December 31, 2024, is included in accrued expenses on the accompanying unaudited condensed consolidated balance sheets.

7.    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 of the lease payments.

As of March 31, 2024, the Company recognized a Right-Of-Use (“ROU”) asset of $1.6 million and an operating lease liability of $1.7 million based on the net present value of the minimum lease payments. The weighted average discount rate used for leases as of March 31, 2024, is 3.9%. The weighted average lease term as of March 31, 2024, is 2.9 years. The operating lease expense for the three months ended March 31, 2024, was $248 thousand.

8.    Debt

On March 20, 2014, the Company entered into an equipment financing arrangement (“Loan Agreement”) with Banc of America Leasing & Capital LLC, 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 3.8% for the three ended March 31, 2024. The interest expense was $4 thousand for the three months ended March 31, 2024. We were not in compliance with the fixed charge coverage ratio as of March 31, 2024. Subsequent to March 31, 2024, we received a waiver from the lender.

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9.    Revenue

The table below disaggregates our external revenue by major source (in thousands):

	Three Months Ended
	March 31,
	2024		2023
Testing	$	4,540	$	4,938
Shipping/Collection (hair)		785		898
Other		32		23
Total Revenue	$	5,357	$	5,859

10.    Significant Customers

The Company had no customers that represented over 10% of revenue during either of the three-month periods ended March 31, 2024, or 2023. We had two customers that represented 31% and 17%, respectively, of the total accounts receivable balance as of March 31, 2024, and one customer that represented 16% of the total accounts receivable balance as of March 31, 2023.

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FACTORS THAT MAY AFFECT FUTURE RESULTS

From time to time, information provided by the Company or statements made by its employees may contain forward-looking information 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 the U.S. and foreign drug testing laws and regulations, required investments in plant, equipment and people and new test development) 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 changes in U.S. and foreign government regulations, FDA regulations, 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, the continued labor shortage, leveraging of its global operating platform, risks of information technology system failures and data security breaches, the uncertain global economy, the Company’s ability to attract, develop and retain executives and other qualified employees and independent contractors, including distributors, the Company’s ability to obtain and protect intellectual property rights, litigation risks, and general economic conditions.

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 disclaims 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 with 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.

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RESULTS OF OPERATIONS

Revenue decreased 9% for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to a decrease in volumes from the Company’s base business. The Company’s revenues were impacted by lower volumes from customers experiencing the effects of the general economic conditions, continued labor shortage related to hiring and changing customer priorities.

Gross profit decreased 4% to $2.1 million for the three months ended March 31, 2024, compared to $2.2 million for the same period in 2023. Cost of revenues decreased by $0.4 million or 11% for the three months ended March 31, 2024, compared to the same period in 2023. Gross profit percentage was 39.6% for the three months ended March 31, 2024, compared to 37.6% the same period in 2023.  The increase was primarily due to cost reduction programs for the three months ended March 31, 2024.

General and administrative (“G&A”) expenses increased 9% or $0.1 million to $1.8 million for the three months ended March 31, 2024, compared to $1.6 million for the same period in 2023. As a percentage of revenue, G&A expenses were 33% and 28% for the three months ended March 31, 2024, and 2023, respectively. The increase in G&A expenses for the three months ended March 31, 2024, was primarily due to higher costs associated with legal, accounting and consulting fees.

Marketing and selling expenses decreased 12% or $0.1 million to $0.7 million for the three months ended March 31, 2024, compared to $0.8 million for the same period in 2023. Total marketing and selling expenses represented 13% of revenue for both the three months ended March 31, 2024, and 2023. The decrease in marketing and selling was primarily driven by lower personnel costs.

Research and development (“R&D”) expenses decreased 30% or $0.1 million to $0.2 million for the three months ended March 31, 2024, compared to $0.3 million for the same period in 2023. R&D expenses represented 4% and 5% of revenue for the three months ended March 31, 2024, and 2023, respectively. The decrease in research and development was primarily driven by lower personnel costs.

Provision for (benefit from) 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 March 31, 2024, the Company recorded a tax provision of $0.1 million (effective tax rate of 20.2%) and a tax benefit of $149 thousand (effective tax rate of 28%) for the comparable period in 2023.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2024, the Company had approximately $1.4 million of cash and cash equivalents. The Company's operating activities used net cash of $0.5 million for the three months ended March 31, 2024. Investing activities used $5 thousand of net cash while financing activities used $75 thousand of net cash for the three months ended March 31, 2024.

Cash used in operating activities of $0.5 million reflected net loss of $0.7 million adjusted for depreciation and amortization of $0.3 million, ROU asset amortization of $0.2 million and stock-based compensation of $0.3 million offset by a net change in operating assets and liabilities of $0.8 million.

Cash used in investing activities of $5 thousand was primarily related to the cost of internally developed software.

Cash used in financing activities of $75 thousand  was primarily related to payments on equipment debt financing.

Contractual obligations and other commercial commitments as of March 31, 2024, included legal settlement commitments, operating lease commitments, and outstanding debt, described in Notes 6, 7, and 8, respectively of the Notes to Condensed Consolidated Financial Statements.

While management currently believes that its existing funds and cash flow from operations should be adequate to fund the Company’s business for at least the next 12 months, adverse economic conditions could negatively affect the Company’s future 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.

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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 the Company’s Vice President of Finance performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act. Based upon that evaluation, the Chief Executive Officer and the Vice President of Finance concluded as of the evaluation date, that the Company’s disclosure controls and procedures were effective for ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that its disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the Company’s principal executive and principal financial officers, to allow timely decisions regarding required disclosure.

There has been no significant change in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Information pertaining to legal proceedings can be found in Item 1. Financial Statements and Supplementary Data – Note 6 “Commitments and Contingencies”.

Item 1A. Risk Factors

Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2023, includes a discussion of our risk factors. There have been no material changes in the risk factors described in such report.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

There were no purchases of treasury stock in the first three months of 2024.

13

Item 6. Exhibits      

10.1	Ninth Amendment to Lease dated March 29, 2024, with Mitchell H. Hersch, et.al. California — Supersedes the Eighth amendment in its entirety
31.1	Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Vice President of Finance Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

14

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PSYCHEMEDICS CORPORATION
Date:   May 14, 2024	By: /s/ Brian Hullinger
	Brian Hullinger
	President and Chief Executive Officer (Principal Executive Officer)

Date:   May 14, 2024	By: /s/ Daniella Mehalik
	Daniella Mehalik
	Vice President of Finance (Principal Financial and Accounting Officer)

15

EX-10.1

Exhibit 10.1   

NINTH AMENDMENT TO LEASE

This NINTH AMENDMENT TO LEASE (the "Amendment") is made and entered into as of the 29 day of March 2024, by and between UPLANDER LLC(“Lessor") and PSYCHEMEDICS CORPORATION, a Delaware corporation ("Lessee"), with respect to that Standard Industrial Lease dated October 6, 1992, and amended January 1, 1993, December 16, 1994, December 31, 1997, May 24, 2005, November 22, 2011, October 13, 2015, June 26, 2020 and March 20, 2022 (as amended, the “Lease"), pursuant to which Lessee leases from Lessor those certain premises located at 5830 Uplander Way, Los Angeles County, California and 5832 Uplander Way, Los Angeles County, California (collectively the "Premises"). Unless otherwise defined herein, all capitalized terms used in this Amendment shall have the same meanings as are ascribed to such terms in the Lease. Lessor and Lessee hereby acknowledge the following:

RECITALS

A.    Lessee herewith exercises the Option to Extend Term provided in the Eighth Amendment to Lease dated March 20, 2022.Said Lease Extension shall commence January 1, 2025 and shall terminate December 31, 2026.

B.    Lessor and Lessee desire to modify the Lease as provided herein.

C.    Except as amended and modified, all terms of the Lease, as amended, shall remain in full force and effect.

NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, and other good and valuable consideration, receipt of which is hereby acknowledged, Lessor and Lessee agree as follows:

AGREEMENT

1.    Rent Adjustment. Commencing January 1, 2025 and thereafter annually on each subsequent January 1^st, the Base Monthly Rental shall be readjusted by a percentage equal to the increase in the Consumer Price Index (U.S. Department of Labor for all Urban Consumers, Los Angeles-Anaheim-Riverside California {1967=100) hereinafter 'C.P.I. Index") for the previous calendar year period of January 1^st through December 31^st; provided, however, notwithstanding the C.P.I. Index, the Base Monthly Rental for calendar year 2025 and for each subsequent calendar year shall increase by no less than two percent (2%) nor more than four percent (4%) per year. If the Bureau of Labor Statistics discontinues publication of the C.P.I. Index, publishes the C.P.I. Index less frequently, or alters the C.P.I. Index in a material manner, then Lessor, in its sole discretion, may adopt a substitute index or procedure which reasonably reflects and monitors consumer prices.

1

2.    Security Deposit. At such time that the rent is adjusted in accordance with Paragraph 2 above, the security deposit then in effect will be adjusted in a like amount.

3.    Incorporation. Except as otherwise expressly set forth herein, and to the extent necessary to give effect to the provisions hereof, all terms and conditions of the Lease shall remain unmodified and in full force and effect.

4.    Counterparts. This Amendment may be executed in one or more counterpart copies, and each of which, so executed, irrespective of the date of execution and delivery, shall be deemed to be an original, and all such counterparts together shall constitute one and the same instrument. The signature pages of one or more of the counterpart copies may be removed from such counterpart copies and be attached to the same copy of this Amendment, which, with all signatures attached, shall be deemed to be an original Agreement.

IN WITNESS WHEREOF, the parties hereto have entered into this Ninth Amendment as of the date first set forth above.

LESSOR		LESSEE
UPLANDER LLC		PSYCHEMEDICS CORPORATION,
		a Delaware corporation
By:	/s/ Mitchell H. Hersch	By:	/s/ Brian Hullinger
	MITCHELL H. HERSCH		Brian Hullinger
	MANAGER		CEO

2

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Brian Hullinger, 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:   May 14, 2024	By:	/s/ Brian Hullinger
		Brian Hullinger
		President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Daniella Mehalik, 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:   May 14, 2024	By:	/s/ Daniella Mehalik
		Daniella Mehalik
		Vice President of Finance (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, as filed with the Securities and Exchange Commission on May 14, 2024 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Date:   May 14, 2024	By:	/s/ Brian Hullinger
		Brian Hullinger
		President and Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, as filed with the Securities and Exchange Commission on May 14, 2024 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Date:   May 14, 2024	By:	/s/ Daniella Mehalik
		Daniella Mehalik
		Vice President of Finance (Principal Financial and Accounting Officer)

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2024	May 10, 2024
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2024
Document Transition Report	false
Entity File Number	1-13738
Entity Registrant Name	PSYCHEMEDICS CORPORATION
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	58-1701987
Entity Address, Address Line One	5220 Spring Valley Road
Entity Address, City or Town	Dallas
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75254
City Area Code	800
Local Phone Number	527-7424
Title of 12(b) Security	Common stock. $0.005 par value
Trading Symbol	PMD
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		5,805,611
Entity Central Index Key	0000806517
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2024
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Current Assets:
Cash	$ 1,421	$ 1,964
Accounts receivable, net of allowance for doubtful accounts of $52 at June 30, 2023, and $87 at December 31, 2022	3,883	3,687
Prepaid expenses and other current assets	870	1,136
Income tax receivable	13	18
Total Current Assets	6,187	6,805
Fixed assets, net of accumulated amortization and depreciation of $22,877 at June 30, 2023, and $21,964 at December 31, 2022	2,759	3,061
Other assets	608	632
Operating lease right-of-use assets	1,598	1,828
Total Assets	11,152	12,326
Current Liabilities:
Accounts payable	1,131	752
Accrued expenses	1,780	2,604
Equipment financing debt	230	305
Current portion of operating lease liabilities	1,043	1,048
Total Current Liabilities	4,184	4,709
Long-term portion of operating lease liabilities	687	945
Total Liabilities	4,871	5,654
Commitments and Contingencies
Shareholders' Equity:
Common stock, $0.005 par value; 50,000 shares authorized; 6,411 and 6,349 shares issued and 5,743 and 5,681 shares outstanding, respectively	32	32
Additional paid-in capital	35,426	35,129
Accumulated deficit	(17,461)	(16,773)
Less - Treasury stock, at cost, 668 shares	(10,082)	(10,082)
Accumulated other comprehensive loss	(1,634)	(1,634)
Total Shareholders' Equity	6,281	6,672
Total Liabilities and Shareholders' Equity	$ 11,152	$ 12,326

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) shares in Thousands, $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Accounts Receivable, Allowance for Credit Loss, Current	$ 58	$ 64
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	$ 23,943	$ 23,633
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)	6,474	6,474
Common stock, shares outstanding (in shares)	5,806	5,806
Treasury stock, shares (in shares)	668	668

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Revenues	$ 5,357	$ 5,859
Cost of revenues	3,235	3,654
Gross profit	2,122	2,205
Operating expenses:
General & administrative	1,788	1,646
Marketing & selling	692	789
Research & development	209	298
Total operating expenses	2,689	2,733
Operating (loss) income	(567)	(528)
Other (expense) income:
Settlement	(2)	0
Other	(3)	(5)
Total other (expense) income	(5)	(5)
(Loss) income before (benefit from) provision for income taxes	(572)	(533)
(Benefit from) provision for income taxes	116	(149)
Net loss	$ (688)	$ (384)
Basic net (loss) income per share (in dollars per share)	$ (0.12)	$ (0.07)
Weighted average common shares outstanding, basic and diluted (in shares)	5,806	5,685

XML

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock, Common [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2022	6,349		668
Balance at Dec. 31, 2022	$ 32	$ 34,275	$ (10,082)	$ (11,820)	$ (1,634)	$ 10,771
Stock compensation expense	0	177	0	0	0	177
Net (loss) income	$ 0	0	$ 0	(384)	0	(384)
Shares issued – vested (in shares)	5		0
Shares issued – vested	$ 0	0	$ 0	0	0	0
Cash dividends	$ 0	0	$ 0	(398)	0	(398)
Balance (in shares) at Mar. 31, 2023	6,354		668
Balance at Mar. 31, 2023	$ 32	34,452	$ (10,082)	(12,602)	(1,634)	10,166
Balance (in shares) at Dec. 31, 2023	6,474		668
Balance at Dec. 31, 2023	$ 32	35,129	$ (10,082)	(16,773)	(1,634)	6,672
Stock compensation expense	0	297	0	0	0	297
Net (loss) income	$ 0	0	$ 0	(688)	0	(688)
Balance (in shares) at Mar. 31, 2024	6,474		668
Balance at Mar. 31, 2024	$ 32	$ 35,426	$ (10,082)	$ (17,461)	$ (1,634)	$ 6,281

XML

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) (Parentheticals)	3 Months Ended
	Mar. 31, 2023 $ / shares
Common Stock, Dividends, Declared (in dollars per share)	$ 0.07

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (688)	$ (384)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	321	479
ROU asset amortization	230	235
Deferred income taxes	0	(159)
Stock-based compensation	297	177
Changes in operating assets and liabilities:
Accounts receivable	(196)	(319)
Prepaid expenses and other current assets	266	48
Income tax receivable	5	330
Accounts payable	379	337
Operating lease liabilities	(263)	(264)
Accrued expenses	(824)	(705)
Net cash provided by (used in) operating activities	(473)	(225)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements	0	(20)
Cost of internally developed software	(8)	(21)
Other assets	13	(32)
Net cash provided by (used in) investing activities	5	(73)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of equipment financing	(75)	(72)
Net cash used in financing activities	(75)	(72)
Net decrease in cash and cash equivalents	(543)	(370)
Cash and cash equivalents, beginning of period	1,964	4,750
Cash and cash equivalents, end of period	1,421	4,380
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	4	5
Cash paid for operating leases	287	291
Right-of-use assets acquired through operating leases	$ 0	$ 86

XML

Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2024

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, 2023, included in the Company's 2023 Annual Report on Form 10-K (“10-K”), as filed with the SEC.

The accompanying condensed consolidated financial statements are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of results for these interim periods. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. The condensed consolidated balance sheet as of December 31, 2023, 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 the information and footnotes required for complete annual financial statements. The Company’s comprehensive (loss)/income is equal to its net (loss)/income for all periods presented.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months ended March 31, 2024, may not be indicative of the results that may be expected for the year ending December 31, 2024, 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.

XML

Note 2 - Financial Information

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Business Description and Accounting Policies [Text Block]

2.    Financial Information

Liquidity and Management’s Plans

At March 31, 2024, our principal sources of liquidity from operations included $1.4 million of cash on hand. As of the date of this report, management currently believes that such funds, together with future operating profits, should be adequate to fund anticipated working capital requirements, including debt obligations, and capital expenditures for at least the next 12 months. However, the terms of our existing equipment financing do not provide for future borrowings, and we have no existing line of credit or other fixed source of capital reserves. Depending upon our results of operations, our future capital needs, and available marketing opportunities, we may be required to seek 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, equipment leasing or a strategic transaction; although there is no assurance that such financings will be available to us on terms we deem acceptable, if at all. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations would be materially adversely affected.

Accounts Receivable

The Company believes its allowance for credit losses related to its accounts receivable remained adequate as of March 31, 2024. We maintain an allowance for credit losses based on management’s assessment of the collectability of our customer accounts by reviewing customer payment patterns and other relevant factors. We review the adequacy of the allowance for credit losses on a quarterly basis and adjust the balance as determined necessary. Write-offs are recorded at the time a customer account is deemed uncollectable.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker, among other provisions. The ASU is effective for fiscal year periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the ASU requires retrospective application to all prior periods presented in the financial statements. We are currently evaluating the standard to determine the impact of adoption to our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. The ASU primarily enhances and expands both the income tax rate reconciliation disclosure and the income taxes paid disclosure. The ASU is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. We are currently evaluating the standard to determine the impact of adoption to our consolidated financial statements and disclosures.

XML

Note 4 - Stock-based Compensation

3 Months Ended

Mar. 31, 2024

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 March 31, 2024, 513 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):

	Three Months Ended
	March 31,
	2024		2023
Stock-based compensation related to:
Stock option grants	$	131	$	20
Stock unit awards		166		157
Total stock-based compensation	$	297	$	177

There was no income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation arrangements for the three months ended March 31, 2024, and 2023.

A summary of the Company’s stock option activity for the three months ended March 31, 2024, is as follows (in thousands except per share amounts and years):

						Weighted Average
				Weighted Average		Remaining		Aggregate
	Number of			Exercise Price		Contractual Life		Intrinsic
	Shares			Per Share		(years)		Value (1)
Outstanding, December 31, 2023		512		$	6.32		8.7		-
Granted		105			3.40
Canceled		(42	)		15.12
Outstanding, March 31, 2024		575			5.14		9.0		-
Exercisable, March 31, 2024		50		$	15.42		3.9		-

(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 three months ended March 31, 2024, is as follows (in thousands except per share amounts):

	Number of Shares		Weighted Average Grant-Date Fair Value Per Share
Outstanding & Unvested, December 31, 2023		140	$	5.23
Granted		-
Converted to common stock		-
Cancelled		-
Forfeited		-
Outstanding & Unvested, March 31, 2024		140		5.23

As of March 31, 2024, the unamortized fair value of awards relating to outstanding SUAs and options was $1.0 million, which is expected to be amortized over a weighted average period of 3.9 years.

XML

Note 4 - Income Taxes

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

4.    Income Taxes

Our effective tax rate for the three months ended March 31, 2024, differs from the statutory rate primarily due to a valuation allowance recorded against our U.S. federal and state deferred tax assets. We recorded a full valuation allowance on our net deferred tax assets based on an assessment of available positive and negative evidence, including being in a three-year cumulative loss position in the U.S., projections of future taxable income, and other quantitative and qualitative information. We intend to maintain a full valuation allowance on our U.S. federal and state net deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of the valuation allowance.

XML

Note 5 - Net Loss Per Share

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Earnings Per Share [Text Block]

5.    Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options and stock unit awards, that would result in the issuance of incremental shares of common stock.  In computing the basic and diluted net loss per share, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive. 

The following potentially dilutive securities outstanding as of March 31, 2024 and 2023 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

	March 31
	2024		2023
Options		575		402
SUAs		140		222
Total		715		624

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Note 6 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

6.    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, that any ultimate liability would not have a material adverse effect on the consolidated statements of operations. However, an unforeseen unfavorable development in any of these cases could have a material adverse effect on the statements of operations or cash flows in the period in which it is recorded. Developments in legal proceedings and other matters that could cause changes in the amounts previously accrued are evaluated each reporting period.

Settlements

As previously reported in the 10-K, as of December 31, 2023, we paid $334 thousand in connection with a previously disclosed contract dispute regarding strategic negotiations with a shipping carrier. The remaining balance of $167 thousand, due on or before December 31, 2024, is included in accrued expenses on the accompanying unaudited condensed consolidated balance sheets.

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Note 7 - Operating Leases

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

7.    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 of the lease payments.

As of March 31, 2024, the Company recognized a Right-Of-Use (“ROU”) asset of $1.6 million and an operating lease liability of $1.7 million based on the net present value of the minimum lease payments. The weighted average discount rate used for leases as of March 31, 2024, is 3.9%. The weighted average lease term as of March 31, 2024, is 2.9 years. The operating lease expense for the three months ended March 31, 2024, was $248 thousand.

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Note 8 - Debt

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Debt Disclosure [Text Block]

8.    Debt

On March 20, 2014, the Company entered into an equipment financing arrangement (“Loan Agreement”) with Banc of America Leasing & Capital LLC, 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 3.8% for the three ended March 31, 2024. The interest expense was $4 thousand for the three months ended March 31, 2024. We were not in compliance with the fixed charge coverage ratio as of March 31, 2024. Subsequent to March 31, 2024, we received a waiver from the lender.

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Note 9 - Revenue

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

9.    Revenue

The table below disaggregates our external revenue by major source (in thousands):

	Three Months Ended
	March 31,
	2024		2023
Testing	$	4,540	$	4,938
Shipping/Collection (hair)		785		898
Other		32		23
Total Revenue	$	5,357	$	5,859

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Note 10 - Significant Customers

3 Months Ended

Mar. 31, 2024

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 three-month periods ended March 31, 2024, or 2023. We had two customers that represented 31% and 17%, respectively, of the total accounts receivable balance as of March 31, 2024, and one customer that represented 16% of the total accounts receivable balance as of March 31, 2023.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2024

Accounting Policies [Abstract]

Liquidity and Management's Plan [Policy Text Block]

Liquidity and Management’s Plans

At March 31, 2024, our principal sources of liquidity from operations included $1.4 million of cash on hand. As of the date of this report, management currently believes that such funds, together with future operating profits, should be adequate to fund anticipated working capital requirements, including debt obligations, and capital expenditures for at least the next 12 months. However, the terms of our existing equipment financing do not provide for future borrowings, and we have no existing line of credit or other fixed source of capital reserves. Depending upon our results of operations, our future capital needs, and available marketing opportunities, we may be required to seek 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, equipment leasing or a strategic transaction; although there is no assurance that such financings will be available to us on terms we deem acceptable, if at all. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations would be materially adversely affected.

Accounts Receivable [Policy Text Block]

Accounts Receivable

The Company believes its allowance for credit losses related to its accounts receivable remained adequate as of March 31, 2024. We maintain an allowance for credit losses based on management’s assessment of the collectability of our customer accounts by reviewing customer payment patterns and other relevant factors. We review the adequacy of the allowance for credit losses on a quarterly basis and adjust the balance as determined necessary. Write-offs are recorded at the time a customer account is deemed uncollectable.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker, among other provisions. The ASU is effective for fiscal year periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the ASU requires retrospective application to all prior periods presented in the financial statements. We are currently evaluating the standard to determine the impact of adoption to our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. The ASU primarily enhances and expands both the income tax rate reconciliation disclosure and the income taxes paid disclosure. The ASU is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. We are currently evaluating the standard to determine the impact of adoption to our consolidated financial statements and disclosures.

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Note 4 - Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2024

Notes Tables

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

	Three Months Ended
	March 31,
	2024		2023
Stock-based compensation related to:
Stock option grants	$	131	$	20
Stock unit awards		166		157
Total stock-based compensation	$	297	$	177

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

						Weighted Average
				Weighted Average		Remaining		Aggregate
	Number of			Exercise Price		Contractual Life		Intrinsic
	Shares			Per Share		(years)		Value (1)
Outstanding, December 31, 2023		512		$	6.32		8.7		-
Granted		105			3.40
Canceled		(42	)		15.12
Outstanding, March 31, 2024		575			5.14		9.0		-
Exercisable, March 31, 2024		50		$	15.42		3.9		-

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

	Number of Shares		Weighted Average Grant-Date Fair Value Per Share
Outstanding & Unvested, December 31, 2023		140	$	5.23
Granted		-
Converted to common stock		-
Cancelled		-
Forfeited		-
Outstanding & Unvested, March 31, 2024		140		5.23

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Note 5 - Net Loss Per Share (Tables)

3 Months Ended

Mar. 31, 2024

Notes Tables

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	March 31
	2024		2023
Options		575		402
SUAs		140		222
Total		715		624

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Note 9 - Revenue (Tables)

3 Months Ended

Mar. 31, 2024

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended
	March 31,
	2024		2023
Testing	$	4,540	$	4,938
Shipping/Collection (hair)		785		898
Other		32		23
Total Revenue	$	5,357	$	5,859

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Note 2 - Financial Information (Details Textual) $ in Millions	Mar. 31, 2024 USD ($)
Cash	$ 1.4

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Note 4 - Stock-based Compensation (Details Textual) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2024 USD ($) shares
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)	3 years 10 months 24 days
Incentive Plan 2006 [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Available for Grant (in shares) | shares	513
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total | $	$ 1

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Note 4 - Stock-based Compensation - Compensation Cost (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Share-based compensation	$ 297	$ 177
Share-Based Payment Arrangement, Option [Member]
Share-based compensation	131	20
Stock Unit Awards [Member]
Share-based compensation	$ 166	$ 157

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Note 4 - Stock-based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended	12 Months Ended
		Mar. 31, 2024	Dec. 31, 2023
Outstanding (in shares)		512
Outstanding, weighted average exercise price (in dollars per share)		$ 6.32
Outstanding, weighted average remaining contractual life (Year)			8 years 8 months 12 days
Outstanding, aggregate intrinsic value	[1]	$ 0	$ 0
Granted, shares (in shares)		105
Granted, weighted average exercise price per share (in dollars per share)		$ 3.4
Canceled, shares (in shares)		(42)
Canceled, weighted average exercise price per share (in dollars per share)		$ 15.12
Outstanding, shares (in shares)		575	512
Outstanding, weighted average exercise price per share (in dollars per share)		$ 5.14	$ 6.32
Exercisable, shares (in shares)		50
Exercisable, weighted average exercise price per share (in dollars per share)		$ 15.42
Exercisable, weighted average remaining contractual life (Year)		3 years 10 months 24 days
Exercisable, aggregate intrinsic value	[1]	$ 0

[1] Intrinsic value is calculated based on the amount by which the closing market value of the Company’s stock exceeded the exercise price of the underlying options, multiplied by the number of shares.

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Note 4 - Stock-based Compensation - Nonvested Award Activity (Details) - Stock Unit Award [Member] shares in Thousands	3 Months Ended
	Mar. 31, 2024 $ / shares shares
Outstanding & Unvested at beginning of period (in shares)	140
Outstanding & Unvested, beginning of period, weighted average price per share (in dollars per share) | $ / shares	$ 5.23
Granted (in shares)	0
Converted to common stock (in shares)	0
Cancelled (in shares)	0
Forfeited (in shares)	0
Outstanding & Unvested at end of period (in shares)	140
Outstanding & Unvested, end of period, weighted average price per share (in dollars per share) | $ / shares	$ 5.23

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Note 5 - Net Loss Per Share - Anti-dilutive Securities (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Anti-dilutive securites (in shares)	715	624
Share-Based Payment Arrangement, Option [Member]
Anti-dilutive securites (in shares)	575	402
Stock Unit Awards [Member]
Anti-dilutive securites (in shares)	140	222

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Note 6 - Commitments and Contingencies (Details Textual) - Negotiations With Shipping Carrier [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2024	Dec. 31, 2023
Payments for Legal Settlements		$ 334
Forecast [Member]
Payments for Legal Settlements	$ 167

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Note 7 - Operating Leases (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Dec. 31, 2023
Operating Lease, Right-of-Use Asset	$ 1,598	$ 1,828
Operating Lease, Liability, Total	$ 1,700
Operating Lease, Weighted Average Discount Rate, Percent	3.90%
Operating Lease, Weighted Average Remaining Lease Term (Year)	2 years 10 months 24 days
Operating Lease, Expense	$ 248

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Note 8 - Debt (Details Textual) - Line of Credit [Member] - Equipment Loan Arrangement [Member] - Banc of America Leasing and Capital [Member] $ in Thousands	3 Months Ended
	Mar. 31, 2024 USD ($)
Long-Term Debt, Weighted Average Interest Rate, over Time	3.80%
Interest Expense	$ 4

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Note 9 - Revenue - Revenue by Major Source (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Revenues	$ 5,357	$ 5,859
Testing [Member]
Revenues	4,540	4,938
Shipping/Collection (Hair) [Member]
Revenues	785	898
Other Revenue [Member]
Revenues	$ 32	$ 23

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Note 10 - Significant Customers (Details Textual) - Customer Concentration Risk [Member]	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Revenue Benchmark [Member]
Number of Major Customers	0
Accounts Receivable [Member]
Number of Major Customers		2
Accounts Receivable [Member] | Customer One [Member]
Concentration Risk, Percentage	31.00%	16.00%
Accounts Receivable [Member] | Customer Two [Member]
Concentration Risk, Percentage	17.00%