UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended |
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Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
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for the transition period from _________ to __________ |
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Commission file number:
(Exact Name of Registrant as Specified in its Charter)
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(I.R.S. Employer Identification No.) |
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Registrant's telephone number including area code: ( |
Securities registered pursuant to section 12(b) of the act:
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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.
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Emerging growth company |
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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 May 10, 2024, was
PSYCHEMEDICS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024
INDEX
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
PSYCHEMEDICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(UNAUDITED)
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March 31, |
December 31, |
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2024 |
2023 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ | $ | ||||||
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Accounts receivable, net of allowance for credit losses of $ |
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Prepaid expenses and other current assets |
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Income tax receivable |
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Total Current Assets |
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Fixed assets, net of accumulated amortization and depreciation of $ 31, 2024, and $ |
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Other assets |
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Operating lease right-of-use assets |
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Total Assets |
$ | $ | ||||||
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current Liabilities: |
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Accounts payable |
$ | $ | ||||||
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Accrued expenses |
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Current portion of operating lease liabilities |
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Total Current Liabilities |
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Long-term portion of operating lease liabilities |
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Total Liabilities |
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Commitments and Contingencies (Note 6) |
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Shareholders' Equity: |
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Preferred stock, $0.005 par value, 873 shares authorized, no shares issued or outstanding |
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Common stock, $ shares issued and December 31, 2023, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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Less - Treasury stock, at cost, |
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Accumulated other comprehensive loss |
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Total Shareholders' Equity |
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Total Liabilities and Shareholders' Equity |
$ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
PSYCHEMEDICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(UNAUDITED)
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Three Months Ended |
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March 31, |
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2024 |
2023 |
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Revenues |
$ | $ | ||||||
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Cost of revenues |
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Gross profit |
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Operating expenses: |
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General & administrative |
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Marketing & selling |
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Research & development |
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Total Operating expenses |
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Operating loss |
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Other income (expense): |
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Settlement |
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Other |
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Total other income (expense), net |
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Loss before provision for (benefit from) income taxes |
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Provision for (benefit from) income taxes |
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Net loss |
$ | ( |
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Basic and diluted net loss per share |
$ | ( |
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| Weighted average common shares outstanding, basic and diluted | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
PSYCHEMEDICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share amounts)
(UNAUDITED)
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Common Stock, $0.005 par value |
Additional |
Accumulated | ||||||||||||||||||||||||||||||
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Common Shares |
Common |
Paid-In |
Treasury Stock |
Accumulated |
Other |
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Outstanding |
Stock |
Capital |
Shares |
Cost |
Deficit |
Comprehensive Loss |
Total |
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BALANCE, December 31, 2023 |
$ | $ | $ | ( |
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Stock-based compensation |
- | - | ||||||||||||||||||||||||||||||
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Net loss |
- | - | ( |
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BALANCE, March 31, 2024 |
$ | $ | $ | ( |
) | $ | ( |
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Common Stock, $0.005 par value |
Additional |
Accumulated | ||||||||||||||||||||||||||||||
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Common Shares |
Common |
Paid-In |
Treasury Stock |
Accumulated |
Other |
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Outstanding |
Stock |
Capital |
Shares |
Cost |
Deficit |
Comprehensive Loss |
Total |
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BALANCE, December 31, 2022 |
$ | $ | $ | ( |
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Shares issued – vested |
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Stock-based compensation |
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Cash dividends ($ |
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Net loss |
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BALANCE, March 31, 2023 |
$ | $ | $ | ( |
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See accompanying notes to unaudited condensed consolidated financial statements.
PSYCHEMEDICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
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Three Months Ended |
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March 31, |
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2024 |
2023 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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ROU asset amortization |
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Deferred income taxes |
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Stock-based compensation |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Income tax receivable |
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Accounts payable |
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Operating lease liabilities |
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Accrued expenses |
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Net cash used in operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of equipment and leasehold improvements |
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Cost of internally developed software |
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Other assets |
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Net cash provided by (used in) investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payments of equipment financing |
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Net cash used in financing activities |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
$ | $ | ||||||
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Supplemental Disclosures of Cash Flow Information: |
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Cash paid for interest |
$ | $ | ||||||
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Cash paid for operating leases |
$ | $ | ||||||
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Right-of-use assets acquired through operating leases |
$ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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 $
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.
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,
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):
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Three Months Ended |
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March 31, |
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2024 |
2023 |
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Stock-based compensation related to: |
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Stock option grants |
$ | $ | ||||||
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Stock unit awards |
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Total stock-based compensation |
$ | $ | ||||||
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):
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Weighted Average |
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Weighted Average |
Remaining |
Aggregate |
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Number of |
Exercise Price |
Contractual Life |
Intrinsic |
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Shares |
Per Share |
(years) |
Value (1) |
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Outstanding, December 31, 2023 |
$ | |||||||||||||||
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Granted |
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Canceled |
( |
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Outstanding, March 31, 2024 |
9.0 | |||||||||||||||
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Exercisable, March 31, 2024 |
$ | |||||||||||||||
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(1) |
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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):
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Number of Shares |
Weighted Average Grant-Date Fair Value Per Share |
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Outstanding & Unvested, December 31, 2023 |
$ | |||||||
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Granted |
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Converted to common stock |
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Cancelled |
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Forfeited |
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Outstanding & Unvested, March 31, 2024 |
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As of March 31, 2024, the unamortized fair value of awards relating to outstanding SUAs and options was $
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:
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March 31 |
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2024 |
2023 |
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Options |
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SUAs |
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Total |
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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 $
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 $
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
9. Revenue
The table below disaggregates our external revenue by major source (in thousands):
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Three Months Ended |
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March 31, |
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2024 |
2023 |
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Testing |
$ | $ | ||||||
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Shipping/Collection (hair) |
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Other |
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Total Revenue |
$ | $ | ||||||
10. Significant Customers
The Company had customers that represented over 10% of revenue during either of the three-month periods ended March 31, 2024, or 2023. We had customers that represented
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.
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.
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.
Information pertaining to legal proceedings can be found in Item 1. Financial Statements and Supplementary Data – Note 6 “Commitments and Contingencies”.
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.
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Certification of Vice President of Finance Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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101.INS |
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Inline XBRL Instance Document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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 | ||
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Date: May 14, 2024 |
By: /s/ Brian Hullinger |
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Brian Hullinger |
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President and Chief Executive Officer (Principal Executive Officer) |
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Date: May 14, 2024 |
By: /s/ Daniella Mehalik |
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Daniella Mehalik |
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Vice President of Finance (Principal Financial and Accounting Officer) |