SEC Form PRE 14A filed by Psychemedics Corporation

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Check the appropriate box:

PSYCHEMEDICS CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check all boxes that apply):

[•], 2024

Dear Stockholders:

We cordially invite you to attend the 2024 Annual Meeting of Stockholders of Psychemedics Corporation (the “Company”), which will be held virtually on [•], 2024 at 10:00 a.m. Eastern Time (the “Annual Meeting”).

The accompanying notice and proxy statement contain details concerning the matters to be considered during the Annual Meeting. At the Annual Meeting, you will be asked to consider and vote on the following matters:

If the Transaction Proposals are approved, we will file with the Secretary of State of the State of Delaware certificates of amendment to our amended and restated certificate of incorporation to effectuate the Reverse Stock Split, at which time (the “effective time”) each share of our common stock held by a stockholder of record owning immediately prior to the effective time fewer than the minimum number of shares, which, depending on the Stock Split ratios chosen by the Board, would be between 4,000 and 6,000 shares (the “Minimum Number”) would be converted into the right to receive $2.35 in cash, without interest (the “Cash Payment”), and such stockholders would no longer be our stockholders. Stockholders owning a number of shares of common stock equal to or greater than the Minimum Number immediately prior to the effective time (the “Continuing Stockholders”) would not be entitled to receive any cash for their fractional share interests resulting from the Reverse Stock Split, if any. The Forward Stock Split, which would immediately follow the Reverse Stock Split, would reconvert whole shares and fractional share interests held by the Continuing Stockholders back into the same number of shares of our common stock held by such Continuing Stockholders immediately prior to the effective time. As a result of the Forward Stock Split, the total number of shares of our common stock held by a Continuing Stockholder would not change as a result of the Stock Split.

The Stock Split and the transactions contemplated by the Stock Purchase Agreement are being undertaken as part of our plan to terminate the registration of (or “deregister”) our common stock under Section 12(g) of the Securities Exchange Act of 1934, as amended, and suspend our duty to file periodic reports and other information with the Securities and Exchange Commission (the “SEC”) under Section 13(a) thereunder, and to delist our common stock from The Nasdaq Stock Market. As a result, (i) we would cease to file annual, quarterly, current and other reports and documents with the SEC, and stockholders would cease to receive annual reports and proxy statements required by the SEC, and (ii) our common stock would no longer be listed on The Nasdaq Stock Market. The primary purpose of the Stock Split is to enable us to maintain the number of record holders of our common stock below 300, which is the level at which SEC public reporting is required. As described below, the Board and the Transaction Committee of the Board (the “Transaction Committee”) have determined that the costs of being a public reporting company outweigh the benefits thereof.

The Board recommends that you vote “FOR” approval of all of proposals presented at the Annual Meeting. The accompanying proxy statement and its exhibits explain the various proposals and provide specific information about the Annual Meeting. Please read these materials carefully.

THE TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Your vote is important. Whether or not you plan to attend the Annual Meeting, we urge you to please complete, sign and date the enclosed proxy card and return it in the enclosed envelope. The envelope requires no postage if mailed in the United States. If you attend the Annual Meeting, you may vote at the Annual Meeting, even if you have previously returned your proxy card, as described in the attached proxy statement.

Your prompt attention would be greatly appreciated.

PRELIMINARY PROXY MATERIALS SUBJECT TO COMPLETION

PSYCHEMEDICS CORPORATION

5220 Spring Valley Road

Dallas, Texas 75254

(800) 527-7424

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON [•], 2024

The 2024 Annual Meeting of Stockholders of Psychemedics Corporation (the “Company”) will be held on [•], 2024, at 10:00 a.m. Eastern Time (the “Annual Meeting”). There will be no physical meeting location for the Annual Meeting. The Annual Meeting will be a virtual stockholder meeting, conducted via live audio webcast, through which you can submit questions and vote online. The Annual Meeting can be accessed by visiting [•] and following the instructions. The Annual Meeting will be held for the following purposes, as more fully described in the proxy statement (the “Proxy Statement”):

Copies of the proposed amendments to the Company’s amended and restated certificate of incorporation are attached as Annex A and Annex B to the accompanying proxy statement.

A copy of the Stock Purchase Agreement is attached as Annex C to the accompanying proxy statement.

The Board has fixed the close of business on [•], 2024 as the record date for the determination of stockholders entitled to receive notice of, and to vote at, the Annual Meeting.

YOUR VOTE IS IMPORTANT

YOU ARE URGED TO VOTE, SIGN, DATE, AND RETURN THE ACCOMPANYING ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PAID ENVELOPE ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE EXERCISE BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION, BY EXECUTING A PROXY WITH A LATER DATE, OR BY ATTENDING AND VOTING AT THE VIRTUAL ANNUAL MEETING.

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR OUR ANNUAL MEETING TO BE HELD VIRTUALLY ON [•], 2024: This Proxy Statement, our Annual Report for the fiscal year ended December 31, 2023 and the Proxy Card are available at our website, [•]. To view these materials please have your control number(s) available that appears on your proxy card.

TABLE OF CONTENTS

PRELIMINARY PROXY MATERIALS SUBJECT TO COMPLETION

ABOUT THE ANNUAL MEETING

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Psychemedics Corporation, a Delaware corporation (“we,” “us,” “our,” or the “Company”), with its principal executive offices at 5220 Spring Valley Road, Dallas, Texas 75254, for use at the 2024 Annual Meeting of Stockholders to be held on [•], 2024 and at any adjournment or postponement thereof (the “Annual Meeting”). The enclosed proxy relating to the Annual Meeting is solicited on behalf of the Board. We have retained Alliance Advisors, LLC to assist in the solicitation of proxies for a fee of approximately $15,000, plus reimbursement of related expenses. In addition to solicitation by mail, our directors, officers and employees may solicit proxies on behalf of the Company, without additional compensation, by telephone, facsimile, mail, on the Internet or at the Annual Meeting. We may reimburse banks, brokerage firms, other custodians, nominees and fiduciaries for reasonable expenses incurred in sending proxy materials to beneficial owners of our stock. It is expected that this proxy statement and the accompanying proxy will be mailed to stockholders on or about [•], 2024.

Only stockholders of record at the close of business on [•], 2024 will be entitled to receive notice of, and to vote at, the Annual Meeting. As of that date, there were outstanding and entitled to vote [•] shares of our common stock, $0.005 par value (the “common stock”). Each such stockholder is entitled to one vote for each share of common stock so held and may vote such shares either personally or by proxy.

The Annual Meeting will be held as a virtual meeting only, via a live audio webcast. There will be no physical meeting location for the Annual Meeting. You will be able to attend the meeting online and vote your shares electronically during the meeting by visiting www.proxydocs.com/PMD and entering your control number included in your proxy materials or on your proxy card. You must register by [•], 2024 by 5:00 p.m. Eastern Time to participate in the Annual Meeting. Upon completing your registration, you will receive further instructions by email, including a unique link that will allow you to access the Annual Meeting. Even though the Annual Meeting is being held virtually, stockholders will have the ability to participate in, hear others, and ask questions during the Annual Meeting.

Your vote is important. Even if you plan to attend the Annual Meeting, we urge you to vote by proxy in advance. You may vote your shares by using one of the following methods in advance of the Annual Meeting:

(1)                you may vote by mail by marking your proxy card, and then date, sign and return it in the postage-paid envelope provided; or

(2)                you may vote electronically by accessing the website located at www.proxydocs.com/PMD and following the on-screen instructions; or

(3)                you may vote by using a telephone at (866) 586-3113 and following the voting instructions.

Please have your proxy card in hand when going online. If you instruct the voting of your shares electronically or by telephone, you do not need to return your proxy card.

If your shares are held in “street name” (held in the name of a bank, broker or other holder of record), you will receive instructions from the holder of record. You must follow the instructions of the holder of record in order for your shares to be voted. Telephone and Internet voting also will be offered to stockholders owning shares through certain banks or brokers. If your shares are not registered in your own name and you plan to vote your shares at the Annual Meeting, you should contact your broker or agent to obtain a legal proxy or broker’s proxy card and vote your shares online at the time of the meeting.

The meeting webcast will begin promptly at 10:00 a.m. Eastern Time on [•], 2024. Online check-in will begin promptly at 9:45 a.m. Eastern Time on that date, and you should allow ample time for the online check-in procedures. We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual meeting.

BOARD OF DIRECTORS AND DIRECTOR NOMINEES

The following table sets forth certain information with respect to each of our current directors, who are also nominees for director:

All directors hold office until the next Annual Meeting or until their successors are elected.

Robyn C. Davis has been managing director of Angel Healthcare Investors, LLC, an early-stage investment group focused on medical devices, life sciences and specialty pharmaceutical companies since 2000. Additionally, Ms. Davis is a global Executive Coach at The Leadership Consortium. Prior to Angel Healthcare, Ms. Davis was a director of the merchant banking services practices for Barents Group, LLC, a strategy consultant at Bain & Company and a consultant at Computer Sciences Corporation. She currently serves as a director of Azenta Life Sciences (AZTA:Nasdaq-GS), a provider of life sciences sample management solutions, and Akston Biosciences, an early-stage company developing a novel fusion-protein platform for multiple conditions. Ms. Davis holds a B.A. in International Relations from Tufts University and an M.B.A from Harvard Business School. She holds an Executive Masters Professional Director Certification from the American College of Corporate Directors. As a result of these and other professional experiences, Ms. Davis possesses particular knowledge and experience in value-creation, growth strategy, cost reduction, and leadership development that strengthens the Board’s collective qualifications, skills and experience. Ms. Davis has been a director of the Company since 2021.

Brian Hullinger has served as Chief Executive Officer, President, and as a director of the Company since August, 2023. From 2018 until 2023 he served as Chief Revenue Officer of Cisive, Inc., a risk assessment, administrative support and workforce solutions company. From 2016 to 2018, he served as CEO of E-Verifile.com, Inc. which was sold to Cisive in 2018. From 2012 until 2016 Mr. Hullinger served in various leadership positions with First Advantage Corporation, an information technology company. From 1991 until 2012 he served in various revenue growth roles with Social Solutions, Inc., a management software company, Gelco Expense Management (now doing business as Concur SAP), Norstan Communications, Inc. (now doing business as BlackBox Network Services), a telecommunications equipment provider, and Automatic Data Processing, Inc. (Nasdaq: ADP), a global provider of business outsourcing solutions. As a result of these and other professional experiences, Mr. Hullinger possesses particular knowledge and experience in sales, marketing and corporate leadership that strengthen the Board’s collective qualifications, skills and experience.

Peter H. Kamin is the founder and Managing Partner of 3K Limited Partnership. Prior to the formation of 3K, Mr. Kamin was a founding member and Managing Partner of ValueAct Capital. Mr. Kamin has served on the Board of Directors of Tile Shop Holdings, Inc. (Nasdaq: TTSH), a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories, since 2012, and as Chairman since July 2018. Mr. Kamin previously served on the boards of directors of MAM Software Group, Inc. (formerly Nasdaq: MAM), a leading provider of cloud-based business and on-premise management solutions for the auto parts, tires and vertical distribution industries, from 2012 to October 2019, and IAA, Inc. (NYSE: IAA), a publicly traded multi-channel vehicle marketplace and former subsidiary of KAR Auction Services, Inc from June 2019 until it was sold in March 2023. Mr. Kamin holds a BA from Tufts University and an MBA from Harvard’s Graduate School of Business. Mr. Kamin possesses particular knowledge and experience in capital structures and strategic planning that strengthen the Board’s collective qualifications, skills and experience. Mr. Kamin has served as a member of our Board since 2022.

Darius G. Nevin has served as a member of our Board since 2022 and as Chairman since August 2023. Mr. Nevin has been a member of G3 Capital Partners LLC, an adviser to private equity firms in the fields of security, telecommunications, and recurring services, and of G3 Investment Holdings LLC, an affiliated investment holding company, since 2010. Mr. Nevin has served on the boards of directors of Alarm.com Holdings, Inc. (Nasdaq: ALRM), a provider of interactive security solutions for home and business owners, since 2016, and of Cohealo, Inc., a venture-backed technology and services company that develops products for health systems, also since 2016. Prior to co-founding G3 Capital Partners, LLC, Mr. Nevin served as chief financial officer of Protection One, Inc., a then publicly traded company, from 2001 until June 2010. He served as a director and chairman of the audit committee of WCI Communities, Inc., a then publicly traded community developer and luxury homebuilder, from July 2013 through its acquisition in February 2017. Mr. Nevin earned an A.B. from Harvard College and an M.B.A. from the University of Chicago Booth School of Business. As a result of these and other professional experiences, Mr. Nevin possesses particular knowledge and experience in accounting, finance, financial reporting and capital structures that strengthen the Board’s collective qualifications, skills and experience.

Andrew M. Reynolds has served as Chief Executive Officer of Linxup, LLC, a provider of fleet management software, since August 2023.  He also serves as an independent director for AddSecure, and Idle Smart. From June 2011 until December 2017, Mr. Reynolds served as Senior Vice President of Global Business Development at Fleetmatics, PLC, of Dublin, Ireland (FLTX). From July 2007 until January 2011, Mr. Reynolds served as Senior Vice President of Corporate Development at Art Technology Group (ARTG). From September 2002 until June 2007, Mr. Reynolds served as Vice President of Corporate Development for Hyperion Solutions (HYSL). Mr. Reynolds received an M.B.A. from Cornell University and an A.B. from Dartmouth College. As a result of these and other professional experiences, Mr. Reynolds possesses particular knowledge and experience in sales and marketing, international business and strategic planning that strengthen the Board’s collective qualifications, skills and experience. Mr. Reynolds has served as a member of our Board since 2022.

CORPORATE GOVERNANCE

General

The Company believes that good corporate governance is important to ensure that the Company is managed for the long-term benefit of its stockholders. The Board has responsibility for establishing broad corporate policies and reviewing the overall performance of the Company. The Company’s officers are responsible for day-to-day operations. The Board’s primary responsibility is to oversee the management of the Company and, in so doing, serve the best interests of the Company and its stockholders. The Board selects, evaluates and provides for the succession of executive officers and, subject to stockholder election, directors. It reviews and approves corporate objectives and strategies and evaluates significant policies and proposed major commitments of corporate resources. It participates in decisions that have a potential major economic impact on the Company. Management keeps the directors informed of Company activity through detailed monthly reports and presentations at Board and committee meetings.

The Board has delegated certain of its oversight responsibilities to three principal separate subcommittees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, each of which is comprised solely of independent directors (see “Independence” below). Each of the Audit, Compensation and Nominating and Corporate Governance Committees operates under a special charter pertaining to such committee. Each such charter has been approved by the Board of the Company and is posted on the Investors section of the Company’s web site at www.psychemedics.com. Each committee must review the appropriateness of its charter and perform a self-evaluation at least annually. Mr. Hullinger is the only director who is also an employee of the Company. He is not included in deliberations concerning evaluation of his own compensation at any meetings of the Compensation Committee. All members of the Audit, Compensation and Nominating and Corporate Governance Committees are non-employee directors.

The Company has in place a comprehensive Code of Ethics and Conduct. You may obtain a copy of the Company’s Code of Ethics and Conduct by writing to the Company at Investor Relations, Psychemedics Corporation, 5220 Spring Valley Road, Dallas, Texas 75254, or by viewing the Investors section of the Company’s website at www.psychemedics.com.

Independence

Under the rules of The Nasdaq Stock Market, a majority of the directors and all of the members of the Audit Committee must qualify as independent directors. The Board of the Company conducts an annual review of the independence of the members of the Board and its committees. Our Board has determined that all members of our Board, except Mr. Hullinger, are “independent directors” as defined by The Nasdaq Stock Market Although the Board has not adopted categorical standards of materiality for independence purposes (other than those set forth in Securities and Exchange Commission (“SEC”) Rules and Regulations and The Nasdaq Stock Market listing standards), information provided by the directors, nominees for directors, and the Company did not indicate any relationships (e.g., commercial, industrial, banking, consulting, legal, accounting, charitable, or familial), which would impair the independence of any of the nonemployee directors or nominees.

Corporate Governance Guidelines

Our Board has adopted corporate governance guidelines to assist in the exercise of its duties and responsibilities and to serve the best interests of Psychemedics and our stockholders. The Corporate Governance Guidelines may be viewed on our website under “Investors” at www.psychemedics.com. These guidelines, which provide a framework for the conduct of our Board’s business, provide that:

Certain Relationships and Related Transactions

The Board has adopted a policy whereby the Company’s Audit Committee is responsible for reviewing any proposed related party transaction. The types of transactions covered by the policy include payments for products or services to or indebtedness to or from, related parties, as defined in Item 404(b) of Regulation S-K under the federal securities laws. Other than as set forth below, the Audit Committee has determined that there were no related party transactions with any related party since January 1, 2022 that would require disclosure under Item 404(a) of Regulation S-K.

On August 12, 2024, in connection with the Transaction, we entered into the Stock Purchase Agreement with Mr. Kamin and certain entities affiliated with Mr. Kamin, pursuant to which, Mr. Kamin and certain entities affiliated with Mr. Kamin have agreed to purchase, subject to the terms and conditions thereof, up to 1,595,744 shares of our common stock at a purchase price of $2.35 per share, for an aggregate purchase price of up to $3,750,000. See “Proposal 6 — Ratification of the Terms and Conditions of the Stock Purchase Agreement and the Transactions Contemplated by the Stock Purchase Agreement” beginning on page [•] for a description of the material terms of the Stock Purchase Agreement.

Board of Directors Meetings and Committees

The Board met thirteen times in fiscal year 2023 (including teleconference meetings). During fiscal year 2023, each of the directors attended at least 75% of the total number of meetings of the Board and the committees of which such director was a member.

The Company encourages all incumbent directors, as well as all nominees for election as director, to attend the annual meetings of stockholders. All of the Company’s directors who were directors at the time attended the Company’s Annual Meeting in August 2023.

Audit Committee

The Audit Committee, whose members currently consist of Messrs. Nevin (Chair), Kamin, and Reynolds, reviews the appropriateness, quality and acceptability of the Company’s accounting policies and the integrity of financial statements reported to the public, and compliance with legal and regulatory requirements. The Board has determined that each member of the Audit Committee is an “independent director” under the rules of The Nasdaq Stock Market governing the qualifications of the members of audit committees, and each member of the Audit Committee satisfies the requirements of The Nasdaq Stock Market regarding competency in financial matters. The Audit Committee Charter is available at the Company’s website, www.psychemedics.com. In addition, the Board has determined that Mr. Nevin, the Chair of the Audit Committee, qualifies as an “Audit Committee Financial Expert” as defined by SEC rules. The responsibilities of the Audit Committee and its activities during fiscal year 2023 are described in the Report of the Audit Committee set forth below in this proxy statement. The Audit Committee held six meetings during 2023 and acted via unanimous written consent on one occasion.

Compensation Committee

The Compensation Committee, whose members currently consist of Mr. Reynolds (Chair), Ms. Davis and Mr. Kamin, held five meetings during 2023 and took two actions by unanimous written consent. The Compensation Committee operates pursuant to a written charter (the “Compensation Committee Charter”) that was adopted by the Board and that complies with applicable Nasdaq Stock Market listing standards. The Compensation Committee Charter is available at the Company’s website, www.psychemedics.com. Under the provisions of the Compensation Committee Charter, the primary functions of the Compensation Committee include determining salaries and bonuses for the Company’s executive officers, individuals to whom stock options and other equity-based awards are granted, and the terms upon which such grants and awards are made, adopting incentive plans, overseeing risks associated with the Company’s compensation policies and practices, evaluating the performance of the Company’s executive officers, reviewing with management compensation disclosures to be included in the Company’s filings with the SEC, and determining director compensation, benefits and overall compensation. The Compensation Committee has the sole discretion and express authority to retain and terminate any compensation consultant, including sole authority to approve the consultant’s fees and other retention terms.

Compensation Committee Interlocks and Insider Participation

None of Ms. Davis or Messrs. Kamin or Reynolds has ever been an officer or employee of the Company or any subsidiary of the Company and no executive officer of the Company serves on the board of directors of any company at which any of the Compensation Committee members is employed.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee, whose members currently consist of Ms. Davis (Chair) and Messrs. Kamin and Reynolds, held five meetings during 2023. The Nominating and Corporate Governance Committee operates pursuant to a written charter (the “Nominating and Corporate Governance Committee Charter”) that was adopted by the Board. The Nominating and Corporate Governance Committee Charter is available at the Company’s website, www.psychemedics.com. Under the provisions of the Nominating and Corporate Governance Committee Charter, the Nominating and Corporate Governance Committee is charged with identifying and screening candidates, consistent with criteria approved by the Board, and making recommendations to the Board as to persons to be nominated by the Board for election thereto by the stockholders or to be chosen by the Board to fill newly created directorships or vacancies on the Board. The Board has determined that each of the members of the Nominating and Corporate Governance Committee is independent as defined in The Nasdaq Stock Market’s listing standards.

The Nominating and Corporate Governance Committee identifies Board candidates through numerous sources, including recommendations from Directors, executive officers and stockholders of the Company. The Nominating and Corporate Governance Committee evaluates identified Board candidates based on the criteria established by and periodically reviewed by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee seeks to identify those individuals most qualified to serve as Board members and will consider many factors with regard to each candidate, including judgment, integrity, diversity, prior experience, the interplay of the candidate’s experience with the experience of other Board members, the extent to which the candidate would be desirable as a member of any committees of the Board, and the candidate’s willingness to devote the time and effort required for Board responsibilities. The Nominating and Corporate Governance Committee does not assign any particular weight or importance to any one of these factors but rather considers them as a whole. Selected candidates are interviewed by members of the Nominating and Corporate Governance Committee and certain other Board members. Based on the foregoing, the Nominating and Corporate Governance Committee makes recommendations to the Board with respect to director nominees. In general, persons recommended by stockholders will be considered on the same basis as candidates from other sources. If a stockholder wishes to recommend a candidate for election as a director at the 2025 Annual Meeting of Stockholders, it must follow the procedures described in “Stockholder Proposals and Nominations for Director” below.

Diversity

We strive to have the members of our Board possess a diverse set of skills and background so as to best provide guidance to the management team and oversight to the Company. The Nominating and Corporate Governance Committee views diversity broadly to include a diversity of experience, skills and viewpoint, as well as diversity of gender and race. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. Skills sought include financial, capital markets, executive leadership, sales and marketing, organizational growth, human resources and strategic planning. We believe our Board has a minimum of one director for each of these skills.

Under The Nasdaq Stock Market’s Board diversity rule, approved by the SEC in August 2021, smaller reporting companies listed on The Nasdaq Stock Market’s U.S. exchange are required, subject to a phase-in period and certain exceptions, to (a) publicly disclose board-level diversity statistics using a standardized matrix and (b) have, or explain why they do not have, at least two directors who are diverse, including at least two directors who identify as female, or at least one diverse director who self-identifies as female and at least one diverse director who self-identifies as an underrepresented minority or LGBTQ+. The new rule is aimed at encouraging a minimum board diversity objective for companies and provide stockholders with consistent, comparable disclosures concerning a company’s current board composition.

Under the phase-in transition rules, the Company is required have, or provide an explanation why it does not have, at least two diverse directors by August 6, 2026. The table below highlights certain information regarding the current composition of our Board, as self-identified by the director.

Current Board Diversity Matrix (as of August 26, 2024)

*One director self-identifies as a Middle Eastern or Northern African.

Board Leadership Structure, Risk Oversight, Executive Sessions of Nonemployee Directors, and Communications Between Stockholders and the Board

Board Leadership Structure

The Company recognizes that different board leadership structures may be appropriate for companies in different situations and believes that no one structure is suitable for all companies. We believe our current board leadership structure, with the roles of Chairman and Chief Executive Officer held by different individuals, is optimal for us.

As noted above, our Board is currently comprised of four independent directors and one employee director. The Board has nominated all of the existing directors to serve for an additional one-year period and until the next annual meeting of stockholders.

As part of an annual self-evaluation, our Board conducts an evaluation in order to determine whether it and its committees are functioning effectively. As part of this annual self-evaluation, the Board evaluates whether the current leadership structure continues to be optimal for Psychemedics and its stockholders. When making recommendations of future Board candidates, our Nominating and Corporate Governance Committee, under the authority vested in it under our Nominating and Corporate Governance Committee Charter, is provided flexibility to modify or continue our leadership structure in the future, as it deems appropriate.

Risk Oversight

Our Board is responsible for overseeing the Company’s risk management process. The Board focuses on Psychemedics’ general risk management strategy, the most significant risks facing Psychemedics, and ensures that appropriate risk mitigation strategies are implemented by management. The Board is also apprised of particular risk management matters in connection with its general oversight and approval of corporate matters.

The Board has delegated to the Audit Committee oversight of Psychemedics’ risk management process. Among its duties, the Audit Committee reviews with management (a) Psychemedics’ policies with respect to risk assessment and management of risks that may be material to Psychemedics, (b) Psychemedics’ system of disclosure controls and system of internal controls over financial reporting and (c) Psychemedics’ compliance with legal and regulatory requirements. The Audit Committee is also responsible for reviewing major legislative and regulatory developments that could materially impact Psychemedics’ contingent liabilities and risks. Our full Board also considers and addresses risk as it performs its responsibilities. All committees report to the full Board as appropriate, including when a matter rises to the level of a material or enterprise level risk.

Psychemedics’ management is responsible for day-to-day risk management. Our Vice President of Finance undertakes primary responsibility for monitoring and testing for company-wide policies and procedures and manages the day-to-day oversight of the risk management strategy for the ongoing business of Psychemedics. This oversight includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational and compliance and reporting levels.

We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing Psychemedics and that our Board leadership structure supports this approach.

Executive Sessions of Nonemployee Directors

The Board holds executive sessions of its nonemployee directors generally at each regularly scheduled meeting. The Chairman of the Audit Committee serves as the chairperson for these executive sessions.

Fees Payable to Our Independent Auditor for 2023 and 2022

The following table presents fees paid to BDO USA, P.C. for services attributable to fiscal years 2023 and 2022:

Report of the Audit Committee

The Audit Committee of the Board is responsible for providing independent, objective oversight of the Company’s accounting functions and internal controls. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. The Audit Committee oversees the financial reporting process on behalf of the Board, reviews financial disclosures and meets privately, outside the presence of management, with the independent auditors to discuss internal accounting control policies and procedures. In fulfilling its oversight responsibilities, the Audit Committee reviews the audited financial statements in the Annual Report on Form 10-K with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee reports on these meetings to the Board. The Audit Committee also selects and appoints the independent auditors, reviews the performance of the independent auditors in the annual audit and in assignments unrelated to the audit, and pre-approves the independent auditors’ services. The Audit Committee operates under a written charter adopted by the Board, a copy of which can be viewed on the Company’s website under “Corporate Governance.”

The Audit Committee has reviewed our audited consolidated financial statements for 2023 with management, and management has represented to the Audit Committee that these financial statements were prepared in accordance with accounting principles generally accepted in the United States. The Audit Committee discussed with management the quality and the sufficiency of the accounting principles employed, including all critical accounting policies used in the preparation of the financial statements and related notes, the reasonableness of judgments made and the clarity of the disclosures included in the statements.

The Audit Committee also reviewed with BDO USA, P.C., the Company’s independent registered public accounting firm for 2023, their judgments as to the quality, not just the acceptability, of accounting principles and such other matters as are required to be discussed with the Audit Committee under the standards of the Public Company Accounting Oversight Board (the “PCAOB”). In addition, the Audit Committee has received the written disclosures and the letter from the independent auditors required by the PCAOB Rule 3526 and has discussed with the independent auditors the independence of the independent auditors. The Audit Committee considered and determined that the provision of non-audit services by BDO USA, P.C. was compatible with maintaining auditor independence. Finally, the Audit Committee discussed with BDO USA, P.C. the matters required to be discussed under the PCAOB Auditing Standard No. 1301, Communications with Audit Committees (AS 1301).

Based on its review and discussions, the Audit Committee recommended to the Board that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Communications Between Stockholders and the Board

Interested parties, including stockholders, may communicate directly with the Chairman of the Audit Committee or the nonemployee directors as a group by writing to those individuals or the group at the following address: Psychemedics Corporation, 5220 Spring Valley Road, Dallas, Texas 75254. If correspondence is received by the Corporate Secretary, it will be forwarded to the appropriate person or persons in accordance with the procedures adopted by a majority of the independent directors of the Board. When reporting a concern, please supply sufficient information so that the matter may be addressed properly. Although you are encouraged to identify yourself to assist Psychemedics in effectively addressing your concern, you may choose to remain anonymous, and Psychemedics will use its reasonable efforts to protect your identity to the extent appropriate or permitted by law.

Director Compensation

Mr. Hullinger receives no additional compensation for serving on the Company’s Board. Prior August 17, 2023, each of the Company’s outside (non-employee) directors received cash compensation of $12,500 per quarter. Effective as of August 17, 2023, the annual cash compensation was reduced to $10,000 per quarter. In addition, prior to August 17, 2023, the respective chairs of the Audit and Compensation Committees and the Lead Independent Director (which is no longer a position) received additional cash compensation for serving in such positions. The position of lead independent director and all such additional fees for serving on committees ceased on August 17, 2023. Each of the outside directors has also been granted from time-to-time equity awards under the Company’s equity compensation plans, most recently in August 2023. For the most recent grant in August 2023, the directors were granted stock unit awards that vested in full on August 17, 2024. Any unvested stock unit awards or options generally terminate upon the cessation of a recipient’s service as a member of the Board, subject to partial or full vesting in the case of termination on account of death or permanent disability. In the event of a change in control of the Company (as defined in the stock unit award agreement evidencing the award) the stock unit awards become fully vested immediately prior to the effective date of such change in control.

The following table shows, for the fiscal year ended December 31, 2023, the compensation paid by the Company or accrued for such year, to the Company’s non-employee directors. The compensation paid to Raymond C. Kubacki for his service as Chairman, Chief Executive Officer and President, and as a consultant, and as of August 17, 2023 to Mr. Hullinger for his service as Chief Executive Officer and President is reported in the Summary Compensation Table under the caption “Executive Compensation” below. 

Director Compensation for Fiscal Year Ended December 31, 2023

* Director Fred J. Weinert retired from the Board on August 17, 2023, but served as a consultant to the Company through the end of November 2023.

PROPOSAL 1

ELECTION OF DIRECTORS

At the Annual Meeting, directors are to be elected to hold office for the ensuing year and until their respective successors are chosen and qualified. The Board has fixed the size of the Board at five and has nominated five persons, all of whom are current directors of the Company, to serve until the next annual meeting of stockholders and until their successors are elected and qualified. If the enclosed proxy, or any proxy that you may download from [•], is duly executed and received in time for the Annual Meeting, and unless authority to do so is withheld, it will be voted to elect as directors the following nominees: Robyn C. Davis, Brian Hullinger, Peter H. Kamin, Darius G. Nevin and Andrew M. Reynolds. In the event that any of the nominees becomes unavailable, then the proxy holders shall have the right: (i) to vote for such substitute, if any, as the present Board may designate; or (ii) to leave a vacancy on the Board.

Each nominee has indicated his or her willingness to serve, if elected. It is the intention of the persons named as proxies to vote for the election of the nominees. If any of the nominees declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election, the persons named as proxies will vote the proxy for such substitutes, if any, as the present Board may designate. We have no reason to believe that any of the nominees will be unable to serve if elected. None of the nominees has been nominated pursuant to any arrangement or understanding with any person.

Vote Required

Directors are elected by a plurality of the votes cast by stockholders entitled to vote at the Annual Meeting. Votes withheld and broker non-votes will not have any effect on this proposal. Accordingly, the nominees receiving the highest number of “FOR” votes at the Annual Meeting will be elected as directors. Proxies solicited by the Board will be voted “FOR” the nominees listed above unless a stockholder has indicated otherwise in the proxy.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE NOMINEES LISTED ABOVE AS STANDING FOR ELECTION AT THE ANNUAL MEETING, TO SERVE UNTIL THE ANNUAL MEETING OF OUR STOCKHOLDERS IN 2025, AS DESCRIBED ABOVE.

EXECUTIVE OFFICERS

The names of our current executive officers and other key employees, who are not also members of our Board, and certain biographical information furnished by them, are set forth below:

Shannon Shoemaker has served as Chief Revenue Officer for the Company since September 2023. From 2018 until 2023 she served in several various leadership positions at Cisive, a global employment screening firm, most recently as Senior Vice President, Marketing and Strategic Alliances. Prior to that, she was a Founding Partner and Vice President at Scout Logic, a background investigation, verification and drug testing company, from 2017 to 2018. From 2012 to 2017 she served as the Vice President of Sales at First Advantage (Nasdaq: FA).

Daniella Mehalik has served as Vice President of Finance of the Company since November 2023. From 2021 until 2023 she served as Controller at Neubase Therapeutics, Inc. From 2019 until 2021 she served as Controller at DxTx Medical, Inc. From 2018 to 2019 she served as Audit Team Leader at Arconic Corporation (NYSE: ARNC). She holds both a Bachelor of Science and a Master of Science (in Accounting) from Carlow University.

EXECUTIVE COMPENSATION

Overview of Compensation Program

The Compensation Committee of the Board has responsibility for establishing, implementing and continually monitoring adherence to the Company’s compensation philosophy. The Compensation Committee ensures that the total compensation paid to the executive officers is fair, reasonable and competitive.

Throughout this proxy statement, the two individuals who served as the Company’s Chief Executive Officer at various times during fiscal 2023, as well as those individuals who were the Company’s two most highly compensated executive officers other than the Chief Executive Officer, plus two additional individuals who were formerly named executive officers, but were no longer employed as of December 31, 2023, are included in the Summary Compensation Table below and are referred to as the “named executive officers”.

Compensation Philosophy and Objectives

The Compensation Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual performance goals by the Company, and which aligns executives’ interests with those of the stockholders by rewarding performance with the ultimate objective of improving stockholder value. The Compensation Committee evaluates both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of similarly sized public companies. To that end, the Compensation Committee believes executive compensation packages provided by the Company to its executives, including the named executive officers, should include both cash and stock-based compensation and that its executives’ performance should be rewarded as measured against established goals.

Role of Executive Officers in Compensation Decisions

The Compensation Committee makes all compensation decisions for the Chief Executive Officer but takes into account his recommendations when making compensation decisions with respect to the other executive officers.

The Chief Executive Officer annually reviews the performance of each other executive officer. The conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual award amounts, are presented to the Compensation Committee. The Compensation Committee can exercise its discretion in modifying any recommended adjustments or awards to executives.

Setting Executive Compensation

Based on the foregoing objectives, the Compensation Committee has structured the Company’s annual and long-term incentive-based cash and non-cash executive compensation to motivate executives to achieve the business goals set by the Company and reward the executives for achieving such goals.

In making compensation decisions, the Compensation Committee compares each element of total compensation against what the Compensation Committee believes to be the average amount paid to similarly situated executives at comparably sized publicly-traded and privately-held companies.

A significant percentage of total compensation is allocated to incentives as a result of the philosophy mentioned above. The Compensation Committee determines the appropriate level and mix of incentive compensation. Income from such incentive compensation is realized as a result of the performance of the Company or the individual, depending on the type of award, compared to established goals. A significant portion of its total compensation payable to executive officers is in the form of cash bonus awards tied to achievement of performance goals and to the award of restricted stock units or stock options that would become vested over a period of time.

2023 Executive Compensation Components

For the fiscal year ended December 31, 2023, the principal components of compensation for named executive officers were:

Base Salary

Base salary ranges for named executive officers are determined by the Compensation Committee for each executive based on his or her position and responsibility, a market competitive assessment of similar roles at other companies and a comparison of salaries paid to peers within the Company. Salary levels are typically considered annually as part of the Company’s performance review process as well as upon a promotion or other change in job responsibility. Merit based increases to salaries of executive officers are based on the Compensation Committee’s assessment of the individual’s performance.

Incentive Cash Bonus Compensation

The Company typically provides its named executive officers with the opportunity to earn cash incentive bonuses. For most years, bonuses are determined based on a combination of qualitative and quantitative, company and individual measures, the details of which are established annually in the form of business objectives. The business objectives may vary for each executive based upon his or her responsibilities and may include financial and/or strategic measures. The Compensation Committee typically retains the discretion to amend the bonus program including the ability to increase or decrease any bonus payment and make changes to any financial and/or strategic measures.

Long-Term Equity Incentive Compensation

It is the philosophy of the Company to provide executives with incentives to receive equity in the Company and, thus, align their financial interests with those of the Company’s stockholders. The Company’s 2006 Incentive Plan provides long-term rewards and incentives to the Company’s named executive officers, as well as other participants.

Stock Unit Awards.

Stock unit awards (“Awards”) represent a right to receive shares of the Company’s common stock in varying amounts subject to satisfaction of certain time-based vesting requirements. The amount of stock unit awards granted to the named executive officers typically varies based upon their levels of responsibility, their individual performance and the Company’s performance for the year preceding the year of grant. Each of the units provides for vesting over the four-year period following the date of grant and are convertible into shares of common stock of the Company upon vesting.

Stock Options.

Stock options (“Option Awards”) represent a right to acquire shares of the Company’s common stock in varying amounts at a strike price equal to the closing price on the date of grant, subject to satisfaction of certain time-based or performance-based vesting requirements. The number of Option Awards granted to the executive officers typically varies based upon their levels of responsibility and their individual performance. The time-based Option Awards provide for vesting over the two-year period following the date of grant.

Retirement and Other Benefits

The Company maintains a 401(k) plan for the benefit of all employees who have satisfied minimum age requirements. Employees have the opportunity to contribute to the plan on a before tax basis, subject to limits prescribed under the Internal Revenue Code. All employee contributions and any Company matching contributions are 100% vested on the date of contribution. The Company does not maintain any separate non-qualified retirement plans.

Perquisites and Other Personal Benefits

Any perquisites or other personal benefits that the Company offers to its executive officers are below the threshold limit ($10,000 per executive, per annum) for reporting under SEC rules.

Tax and Accounting Implications

As part of its role, the Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that the Company may not deduct compensation of more than $1,000,000 per year to named executive officers. The Company believes that all compensation paid to its executive officers is, or will be when paid, fully deductible for federal income tax purposes.

Summary of Cash and Certain Other Compensation

The following tables show the total compensation earned by the named executive officers during the years ended December 31, 2023 and 2022, and outstanding equity awards held by the named executive officers as of December 31, 2023.

Summary Compensation Table

Employment Contracts

On July 12, 2023, the Company entered into an employment agreement with Mr. Hullinger, President and Chief Executive Officer and a member of the Board. The employment agreement is terminable by either party at any time, as provided below. The employment agreement provided that Mr. Hullinger would receive an annual salary of $375,000 and consideration for discretionary bonuses including a guaranteed bonus for 2023 in the amount of $71,315 which has been paid. Mr. Hullinger was also paid a signing bonus of $25,000.

Mr. Hullinger’s employment agreement prohibits him from competing with the Company for a period of twelve months following the termination of his employment for any reason. The employment agreement provides Mr. Hullinger with certain other benefits, including the opportunity to participate in our stock plans, fringe benefit plans and other employment benefits.

Under the terms of his employment agreement, if (i) if the Company terminates Mr. Hullinger’s employment without Cause (as defined in the agreement), or (ii) Mr. Hullinger terminates his employment for Good Reason (as defined in the agreement), then the Company is required to pay Mr. Hullinger a lump sum amount equal to one times his then current annual salary and continuation of health insurance coverage for up to 12 months. If such termination takes place within three months prior to or twelve months following a Corporate Event (as defined in the agreement) then Mr. Hullinger’s time-based equity awards will also be accelerated.

On September 1, 2023, the Company entered into an employment agreement with Ms. Shoemaker, Chief Revenue Officer. The employment agreement is terminable by either party at any time, as provided below. The employment agreement provided that Ms. Shoemaker would receive an annual salary of $250,000 and consideration for discretionary bonuses. A pro-rated bonus for 2023 in the amount of $12,500 was guaranteed and paid.

Ms. Shoemaker’s employment agreement prohibits her from competing with the Company for a period of twelve months following the termination of her employment for any reason. The employment agreement provides Ms. Shoemaker with certain other benefits, including the opportunity to participate in our stock plans, fringe benefit plans and other employment benefits.

Under the terms of her employment agreement, if (i) if the Company terminates Ms. Shoemaker’s employment without Cause (as defined in the agreement), or (ii) Ms. Shoemaker terminates her employment for Good Reason (as defined in the agreement), then the Company is required to pay Ms. Shoemaker a lump sum amount equal to one-half of her then current annual salary and continuation of health insurance coverage for up to 6 months. If such termination takes place within three months prior to or twelve months following a Corporate Event (as defined in the agreement) then Ms. Shoemaker’s time-based equity awards will also be accelerated.

Outstanding Equity Awards at Fiscal Year-End

Potential Payments upon Termination and Change in Control

Under the terms of Brian Hullinger’s employment agreement, if (i) the Company terminates Mr. Hullinger’s employment without Cause (as defined in the agreement), (ii) Mr. Hullinger terminates his employment with the Company for Good Reason (as defined in the agreement), in either case within a period of three months prior to or twelve months following a Corporate Event (as defined in the agreement), including a change in control, then the Company is required to pay Mr. Hullinger a lump sum amount equal to one times his then annual compensation. Additionally, he would also be entitled to extended health insurance benefits for a period of up to twelve months and acceleration of any time-vested stock options.

Under the terms of Shannon Shoemaker’s employment agreement, if (i) the Company terminates Ms. Shoemaker’s employment without Cause (as defined in the agreement), (ii) Ms. Shoemaker terminates her employment with the Company for Good Reason (as defined in the agreement), in either case within a period of three months prior to or twelve months following a Change in Control (as defined in the agreement), then the Company is required to pay Ms. Shoemaker a lump sum amount equal to one-half of her then annual compensation. Additionally, she would also be entitled to extended health insurance benefits for a period of up to six months and acceleration of any time-vested stock options.

Equity Compensation Plan Information

The following table provides information as of December 31, 2023, with respect to shares of the Company’s common stock that were issuable under the Company’s 2006 Incentive Plan (the “2006 Incentive Plan”).

Pay Versus Performance

The following table illustrates certain information about executive compensation for the Company’s Chief Executive Officer and other named executive officers (“NEO’s”) as well as certain performance measures against which compensation information can be compared. This disclosure has been prepared in accordance with Item 402(v) of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and does not necessarily reflect value actually realized by our named executive officers or how our Compensation Committee evaluates compensation decisions in light of Company or individual performance.

In accordance with SEC rules, the following table sets forth information concerning compensation actually paid (“CAP”). The disclosure and calculating of CAP is required by the SEC’s rules. Neither CAP nor the amount reported in the Summary Compensation Table (“SCT”) reflect the amount of compensation actually paid, earned or received during the applicable year. Per SEC rules, CAP was calculated by adjusting SCT Total values for the applicable year as described in the footnotes to the following table.

PRINCIPAL STOCKHOLDERS AND

STOCKHOLDINGS OF MANAGEMENT

The following table shows, as of August 27, 2024, the number of shares beneficially owned (i) by those stockholders who are known to the Company to own beneficially more than five percent of the outstanding common stock of the Company, (including their addresses) (ii) by each director and nominee for director of the Company, (iii) by each named executive officer, and (iv) by all directors and executive officers as a group.

* Denotes ownership of less than 1%.

PROPOSAL 2

ADVISORY VOTE ON EXECUTIVE COMPENSATION

We are seeking the approval of our stockholders of an advisory resolution regarding the compensation of our named executive officers, as disclosed in this proxy statement under the section titled “Executive Compensation.” While this stockholder vote on executive compensation is only an advisory vote that is not binding on us or our Board, we value the opinions of our stockholders and will consider the outcome of the vote when making future compensation decisions.

As described more fully in the Executive Compensation section, the primary objective of our executive compensation program is to attract, retain and reward executive officers who contribute to our long-term success. We believe this requires a competitive compensation structure as compared to companies of a similar size in the same or similar industries in the region. Additionally, we seek to align a significant portion of executive officer compensation to the achievement of specified Company performance goals. Incentive cash bonuses are included to drive executive performance by having pay at risk so that a significant portion of potential annual cash compensation is tied to earnings targets. We also include restricted stock awards and stock options with time and performance-based vesting provisions that are designed to align executive incentives with long-term stockholder interests.

We urge stockholders to read the Executive Compensation section above, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and the related compensation tables and narrative above which provide detailed information on the compensation of our named executive officers.

The 2023 fiscal year demonstrated our commitment to these principles and illustrated how our program responds to business challenges and the marketplace.

We offer minimal “perquisites” benefits, no tax gross ups, two-year vesting for all executive equity awards and an independent compensation committee.

In light of the above, the Compensation Committee and the Board believe that the policies and procedures articulated in the Executive Compensation section above are effective in helping us to achieve our goals and that the compensation of our named executive officers reported in this proxy statement has supported and contributed to our prospects.

For the reasons discussed above, we are asking our stockholders to indicate their support for our named executive officer compensation as described in this proxy statement by voting “FOR” the following resolution. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement.

“RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in Psychemedics Corporation’s Proxy Statement for the 2024 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission.”

Vote Required

The non-binding approval of the compensation of the named executive officers by the stockholders requires the approval of a majority of the votes cast by the stockholders entitled to vote on this proposal at the Annual Meeting. Abstentions and broker non-votes will not be treated as votes cast for this purpose and will not affect the outcome of the vote.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THIS RESOLUTION.

PROPOSAL 3

RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

The audit committee, which consists entirely of independent directors, has selected Whitley Penn LLP (“Whitley Penn”) as our independent registered public accounting firm for the fiscal year ending December 31, 2024. On June 12, 2024 we filed a Current Report on Form 8-K to report that our audit committee had approved the engagement of Whitley Penn as our independent registered public accounting firm, replacing BDO USA, P.C (“BDO”), our prior independent registered public accounting firm. Stockholder ratification of the appointment of Whitley Penn as our independent registered public accounting firm is not required by our amended and restated bylaws or otherwise. However, our Board is submitting the appointment of Whitley Penn to our stockholders for ratification as a matter of corporate practice. If our stockholders fail to ratify the appointment, the audit committee may reconsider the appointment of Whitley Penn. Even if the appointment is ratified, the audit committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders. Representatives of Whitley Penn are expected to be present at the Annual Meeting.

Change of Independent Public Accountants: The audit committee conducted a comprehensive, competitive process to determine the Company’s independent registered public accounting firm for the Company’s fiscal year ending December 31, 2024. On June 6, 2024, the Audit Committee approved the dismissal of BDO, which became effective on June 6, 2024. On June 12, 2024, the audit committee approved the engagement of Whitley Penn as our independent registered public accounting firm for the Company’s fiscal year ending December 31, 2024.

The reports of BDO on the Company’s consolidated financial statements for the years ended December 31, 2022 and 2023, did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal years ended December 31, 2022 and 2023, there were no disagreements (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) between the Company and BDO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of BDO, would have caused BDO to make reference to the subject matter of the disagreements in connection with BDO’s report on the Company’s consolidated financial statements for such fiscal years, and there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K).

During the two most recent fiscal years ended December 31, 2022 and 2023, neither the Company nor anyone acting on its behalf has consulted with Whitley Penn regarding: (i) the application of accounting principles to a specified transaction, either completed or proposed, or (ii) the type of audit opinion that might be rendered on the Company’s financial statements, and either a written report was provided to the Company or oral advice was provided that Whitley Penn concluded was an important factor considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue; or (iii) any matter that was either the subject of a disagreement or a reportable event, as each term is defined in Items 304(a)(1)(iv) or (v) of Regulation S-K, respectively.

Vote Required

The affirmative vote of a majority of the votes cast by the stockholders entitled to vote on this proposal at the Annual Meeting is required to ratify the appointment of Whitley Penn LLP. Abstentions will not be treated as votes cast for this purpose and will not affect the outcome of the vote. Please see Voting Procedure section below, with respect to broker non-votes on this proposal.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF WHITLEY PENN LLP.

TERMS OF THE TRANSACTION

The following summary, together with the “Questions and Answers” section that follows, highlights certain information about the Transaction (as defined below), but may not contain all of the information that is important to you. For a more complete description of the Transaction, including the Stock Split and the Stock Purchase Agreement (each as defined below) and the transactions contemplated thereby, we urge you to carefully read this proxy statement and all of its annexes before you vote. For your convenience, we have directed your attention to the location in this proxy statement where you can find a more complete discussion of the items listed below.

The Transaction

See “Special Factors — Effects of the Transaction” beginning on page [•].

Purpose of and Reasons for the Transaction

The primary purpose of the Transaction is to enable the Company to maintain the number of record holders of its common stock below 300, which is the level at which SEC public reporting is required. After the completion of the Transaction, we intend to cease registration of our common stock under the Exchange Act. As a result, effective on and following the termination of the registration of our common stock under the Exchange Act, the Company would no longer be subject to the reporting requirements under the Exchange Act, or other requirements applicable to a public company, including requirements under the Sarbanes-Oxley Act and the listing standards of a national stock exchange. Our common stock also would cease to be listed on the Nasdaq Capital Market and would not be eligible for listing on the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market.

The Transaction Committee and the Board has determined that the costs of being an SEC reporting company outweigh the benefits and, thus, it is no longer in the best interests of our stockholders, including our unaffiliated stockholders (consisting of stockholders other than our executive officers, directors and stockholders who own more than 10% of our outstanding common stock), for us to remain an SEC reporting company.

The principal reasons for the Board approving the proposed “going dark” transaction and recommending that stockholders approve each of the Transaction Proposals are as follows: (1) the Company’s public cost structure is disproportionate to the sales level of its business; (2) the Company’s revenues have declined in recent years, making our public company cost structure even more unsustainable; (3) the Company currently realizes none of the traditional benefits of public company status; (4) public company status requires significant management time and limits operational flexibility; (5) our common stock has limited trading volume and liquidity for small stockholdings and the Transaction will allow our smallest stockholders with the ability to liquidate their holdings in the Company and receive a fair price in cash for their shares, without incurring brokerage commissions; and (6) the Board decision to approve the proposed “going dark” transaction and its specific terms was the result of an independent and rigorous process to determine the best course for all the Company’s stockholders.

See “Special Factors — Purpose of and Reasons for the Transaction” beginning on page [•].

Effects of the Transaction

As a result of the Transaction:

Transaction Committee and Board Recommendations of the Transaction

 ​

See “Special Factors — Fairness of the Transaction” beginning on page [•].

Reservation of Rights

The Board has reserved the right to abandon the proposed Transaction at any time if it believes the Transaction is no longer in the best interests of our stockholders, whether prior to or following the Annual Meeting and the Company may terminate the transactions contemplated by the Stock Purchase Agreement upon written notice to the Investors prior to the Closing Date.

See “Special Factors — Background of the Transaction” beginning on page [•] and “Special Factors — Fairness of the Transaction” beginning on page [•].

Fairness of the Transaction

The Transaction Committee and the Board fully considered and reviewed the terms, purpose, alternatives, effects and disadvantages of the Transaction, and each has determined that the Transaction, taken as a whole, is procedurally and substantively fair to, and in the best interests of, the unaffiliated Cashed Out Stockholders as well as the unaffiliated Continuing Stockholders.

The Transaction Committee and the Board considered a number of factors in reaching their determinations, including:

Nonetheless, the Board believes that it is prudent to recognize that, between the date of this proxy statement and the date that the Stock Split will become effective, factual circumstances could possibly change such that it might not be appropriate or desirable to effect the Stock Split at that time or on the terms currently proposed. Such factual circumstances could include a superior offer to our stockholders, a material change in our business or litigation affecting our ability to proceed with the Stock Split. In addition, if the Board determines the Reverse Stock Split would not have the intended effect of reducing the record holders of the Company’s common stock to below 300, it would strongly consider changing the split ratio to a higher number. While unlikely, this could occur as a result of stockholders buying additional shares of our common stock in the open market prior to the Reverse Stock Split becoming effective.

See “Special Factors — Fairness of the Transaction” beginning on page [•] and “Special Factors — Fairness Opinion of Financial Advisor” beginning on page [•].

Advantages of the Transaction

If the transactions contemplated by the Stock Purchase Agreement are consummated and the Stock Split occurs, there will be certain advantages to stockholders, including the following:

 ​

See “Special Factors — Purpose of and Reasons for the Transaction” beginning on page [•] and “Special Factors — Fairness of the Transaction” beginning on page [•].

Disadvantages of the Transaction

If the transactions contemplated by the Stock Purchase Agreement are consummated and the Stock Split occurs, there will be certain disadvantages to stockholders, including the following:

 ​

See “Special Factors — Fairness of the Transaction Proposals  — Disadvantages of the Transaction Proposals” beginning on page [•].

The Stock Purchase Agreement and Funding of the Reverse Stock Split

Potential Conflicts of Interests of Officers, Directors, and Certain Affiliated Persons

 ​

See “Special Factors — Potential Conflicts of Interests of Officers, Directors, and Certain Affiliated Persons” beginning on page [•].

Vote Required for Approval of the Transaction Proposals at the Annual Meeting

See “Special Factors — Stockholder Approval” beginning on page [•].

Treatment of Beneficial Holders (Stockholders Holding Shares in “Street Name”)

See “Special Factors — Effects of the Transaction” beginning on page [•].

Determination of Stockholders of Record

 ​

See “Special Factors — Effects of the Transaction” beginning on page [•].

Effectiveness of the Stock Split

​ 

See “Special Factors — Effective Date” on page [•].

Financing for the Stock Split

See “Special Factors — Source of Funds and Expenses” beginning on page [•].

Recent Market Prices of the Company’s Common Stock

See “Information About the Company — Market Price of Common Stock” beginning on page [•].

No Appraisal or Dissenters’ Rights

 ​

See “Special Factors — No Appraisal or Dissenters’ Rights” beginning on page [•].

Material U.S. Federal Income Tax Consequences

Generally, a Cashed Out Stockholder who receives cash for a fractional share as a result of the Stock Split will recognize capital gain or loss for U.S. federal income tax purposes. A Continuing Stockholder who does not receive cash for a fractional share as a result of the Stock Split generally will not recognize any gain or loss for U.S. federal income tax purposes.

 ​

See “Special Factors — Material U.S. Federal Income Tax Consequences” beginning on page [•].

QUESTIONS AND ANSWERS ABOUT THE TRANSACTION

Following are some commonly asked questions that may be raised by our stockholders and answers to each of those questions.

What proposals am I being asked to vote on relating to the Transaction?

Our stockholders will consider and vote on three proposals relating to the Transaction:

What is the purpose of the Stock Split?

The primary purpose of the Stock Split is to enable us to maintain the number of record holders of our common stock below 300, which is the level at which SEC public reporting is required. After the Stock Split, we intend to cease registration of our common stock under the Exchange Act. As a result, effective on and following the termination of the registration of our common stock under the Exchange Act, we would no longer be subject to the reporting requirements under the Exchange Act, or other requirements applicable to a public company, including requirements under the Sarbanes-Oxley Act and the listing standards of a national stock exchange. Our common stock also would cease to be listed on the Nasdaq Capital Market and would not be eligible for listing on the New York Stock Exchange or The Nasdaq Stock Market.

 ​

What does the deregistration of our common stock mean?

Effective on and following the termination of the registration of our common stock under the Exchange Act, we will no longer have to file annual, quarterly and other reports with the SEC, and our executive officers, directors and 10% stockholders will no longer be required to file reports relating to their transactions in our common stock. Persons acquiring 5% of our common stock will no longer be required to report their beneficial ownership under the Exchange Act. In addition, we will take action to delist our common stock from the Nasdaq Capital Market and we will no longer be subject to its rules. Any trading in our common stock after the Stock Split and deregistration under the Exchange Act will only occur in privately negotiated sales and potentially on the OTC Pink Market, if one or more brokers chooses to make a market for our common stock there and complies with applicable regulatory requirements; however, there can be no assurances regarding any such trading.

What is the OTC Pink Market?

The Pink Open Market is the lowest tier of the three marketplaces for trading on the OTC securities market, which is a broker platform for trading securities operated by the OTC Markets Group Inc. There are no financial standards or disclosure requirements. For more information about the OTC Markets Group, see www.otcmarkets.com. To be traded there, a broker dealer would need to submit a Form 211 with the Financial Industry Regulatory Authority (FINRA), and obtain FINRA approval for trading in our common stock. If such trading in our common stock were to develop there, we would expect it to occur at the Pink-No Information tier. For more information about The Pink Open Market, see www.otcmarkets.com/corporate-services/information-for-pink-companies. There can be no assurance that any trading market will emerge following the deregistration and delisting of our common stock, or, if it does, how long it might last.

What will I receive in the Stock Split?

If you own fewer than the Minimum Number immediately prior to the effective time of the Stock Split, you will receive $2.35 in cash, without interest, from us for each pre-Reverse Stock Split share that you own. If you own a number of shares of our common stock equal to or greater than the Minimum Number immediately prior to the effective time of the Stock Split, you will not receive any cash payment for your shares in connection with the Stock Split and will continue to hold immediately following the Stock Split the same number of shares of our common stock as you held before the Stock Split.

Who is the Filing Person?

The Company is the filing person for purposes of this proxy statement.

What potential conflicts of interest are posed by the Transaction?

Our directors and executive officers may have interests in the Transaction that are different from your interests as a stockholder in the Company, and have relationships that may present conflicts of interest. As of August 27, 2024, approximately 13.4% of the issued and outstanding shares of our common stock was held by our directors and executive officers. The directors and executive officers have indicated that they intend to vote all of the shares of our common stock held by them (781,418 shares) “FOR” the Transaction Proposals.

Upon the issuance of shares of common stock pursuant to the Stock Purchase Agreement and the effectiveness of the Stock Split, the ownership percentage of our shares of common stock held by our directors and executive officers other than Mr. Kamin and his affiliated entities (see “Special Factors — Potential Conflicts of Interests of Officers, Directors, and Certain Affiliated Persons” beginning on page [•]) will decrease by a nominal amount. However, such ownership percentage may increase or decrease depending on purchases, sales and other transfers of our shares of common stock by our stockholders prior to the effective time of the Stock Split and the number of “street name” shares that are actually cashed out in the Reverse Stock Split.

Mr. Kamin is a member of our Board and Mr. Kamin and certain entities affiliated with Mr. Kamin are parties to the Stock Purchase Agreement, which provides for the issuance of up to 1,595,744 shares of our common stock at a purchase price of $2.35 per share. We intend that payments to Cashed Out Stockholders and the costs of the Transaction will be paid from funds received in connection with the transactions contemplated by the Stock Purchase Agreement. In connection with the Transaction, the Board instituted appropriate corporate governance measures, including the formation of an independent Transaction Committee consisting of Ms. Davis and Mr. Reynolds, each an independent and disinterested director of the Company. The members of the Transaction Committee did not have any relationships that would represent a conflict of interest with respect to a potential transaction with Mr. Kamin. Neither Mr. Kamin nor Mr. Nevin participated in any meetings of the Transaction Committee or in any substantive discussions of the Board regarding the Transaction.

Why is the Company proposing to carry out a Forward Stock Split following the Reverse Stock Split?

The Forward Stock Split is not necessary for us to reduce the number of holders of record of our shares of common stock and to deregister our shares of common stock under the Exchange Act. However, we have determined that it is in the best interests of our stockholders to effect the Forward Stock Split to avoid an unusually high stock price after the Stock Split, to facilitate trading of the shares held by Continuing Stockholders either in private transactions or potentially on the OTC Pink Market, to mitigate any loss of liquidity in our shares of common stock that may result from the Reverse Stock Split and to avoid the administrative burden and cost associated with cashing out fractional shares of Continuing Stockholders.

What if I hold fewer than the Minimum Number and hold all of my shares in “street name”?

If you hold fewer than the Minimum Number and hold your shares of our common stock in “street name,” your broker, bank or other nominee is considered the stockholder of record with respect to those shares and not you. It is possible that the bank, broker or other nominee also holds shares for other beneficial owners of our common stock and that it may hold a total number of shares of our common stock equal to or greater than the Minimum Number. Therefore, depending upon their procedures, they may not be obligated to treat the Stock Split as affecting beneficial holders’ shares. We intend to treat stockholders holding our common stock in “street name” in the same manner as record holders. Prior to the Stock Split, we will conduct an inquiry of all brokers, banks and other nominees that hold shares of our common stock in “street name,” ask them to provide us with information on how many shares held by beneficial holders will be cashed out, and request that they effect the Stock Split for those beneficial holders. However, these banks, brokers and other nominees may have different procedures than registered stockholders for processing the Stock Split. Accordingly, if you hold your shares of common stock in “street name,” we encourage you to contact your bank, broker or other nominee.

What happens if I own beneficially a total number of shares of common stock equal to or greater than the Minimum Number of shares or more shares of common stock, but I hold fewer than the Minimum Number of record in my name and fewer than the Minimum Number with my broker in “street name”?

We may not have the information to compare your holdings in two or more different brokerage firms. As a result, if you hold a number of shares of common stock equal to or greater than the Minimum Number, you may nevertheless have your shares cashed out if you hold them in a combination of accounts in several brokerage firms. If you are in this situation and desire to remain a stockholder of the Company after the Reverse Stock Split, we recommend that you combine your holdings in one brokerage account or become a record holder prior to the effective time of the Reverse Stock Split. You should be able to determine whether your shares will be cashed out by examining your brokerage account statements to see if you hold a number of shares of common stock equal to or greater than the Minimum Number in any one account. To determine the Reverse Stock Split’s effect on any shares you hold in “street name” (and possible payment of the cash consideration), you should contact your broker, bank or other nominee.

If I own fewer than the Minimum Number, is there any way I can continue to be a stockholder of the Company after the Reverse Stock Split?

If you own fewer than the Minimum Number before the Reverse Stock Split, the only way you can continue to be a stockholder of the Company after the Reverse Stock Split is to purchase, prior to the effective time of the Reverse Stock Split, sufficient additional shares to cause you to own the Minimum Number at the effective time of the Reverse Stock Split. However, given the historically limited liquidity in our stock, we cannot assure you that any shares will be available for purchase and thus there is a risk that you may not be able to purchase sufficient shares to achieve or exceed the Minimum Number. In this instance, you would no longer remain a stockholder after the effective time of the Reverse Stock Split.

Is there anything I can do if I own a number of shares of common stock equal to or greater than the Minimum Number, but would like to take advantage of the opportunity to receive cash for my shares as a result of the Reverse Stock Split?

If you own a number of shares of common stock equal to or greater than the Minimum Number before the effective time of the Reverse Stock Split, you can only receive cash for all of your shares if, prior to the effective time of the Reverse Stock Split, you reduce your stock ownership to fewer than the Minimum Number by selling or otherwise transferring shares. However, we cannot assure you that any purchaser for your shares will be available.

Could the Stock Split not happen?

Yes. The Stock Split cannot occur without the requisite approval by the stockholders of the Transaction Proposals at the Annual Meeting. Further, even if such approval is obtained, the Board has reserved the right not to proceed with the Stock Split if it believes it is no longer in the best interests of the stockholders. See “What vote is required to approve the Transaction Proposals?” and “If the Stock Split is approved by the stockholders, can the Board determine not to proceed with the Stock Split?”

What are the material terms of the Stock Purchase Agreement?

See “Proposal 6 — Ratification of the Terms and Conditions of the Stock Purchase Agreement and the Transactions Contemplated by the Stock Purchase Agreement” beginning on page [•]

for a description of the material terms of the Stock Purchase Agreement.

Will my shares be voted if I do not vote?

If your shares are registered in your name or if you have stock certificates, they will not be counted if you do not vote in accordance with the procedures described in “About the Annual Meeting”.

If your shares are held in “street name” by your broker, bank or other nominee and you do not provide voting instructions to the bank, broker or other nominee that holds your shares as described in “About the Annual Meeting”, the bank, broker or other nominee that holds your shares has the authority to vote your unvoted shares only on the ratification of the appointment of our independent registered public accounting firm (Proposal 3 of this proxy statement) without receiving instructions from you. Therefore, we encourage you to provide voting instructions to your bank, broker or other nominee. This ensures your shares will be voted at the annual meeting and in the manner you desire. A “broker non-vote” will occur if your broker cannot vote your shares on a particular matter because it has not received instructions from you and does not have discretionary voting authority on that matter or because your broker chooses not to vote on a matter for which it does have discretionary voting authority. Brokerage firms do not have authority to vote customers’ unvoted shares held by the firms in “street name” for any of the Transaction-related proposals (Proposals 4, 5 and 6) or Proposal 1 or Proposal 2. 

What vote is required to approve the Transaction Proposals?

Once a quorum has been established, (i) the affirmative vote of a majority of the outstanding shares of our common stock entitled to vote at the Annual Meeting is required for the adoption of the Reverse Stock Split Proposal and, accordingly, to proceed with the Transaction, and (ii) the affirmative of a majority of the shares cast (represented in person or by proxy) and entitled to vote at the Annual Meeting is required for the adoption of the Forward Stock Split Proposal and the Stock Purchase Agreement Proposal. In order for the Transaction to be approved, a majority of all outstanding shares of our common stock entitled to vote at the Annual Meeting must give a “FOR” vote for the Reverse Stock Split Proposal and the affirmative of a majority of the shares cast (represented in person or by proxy) and entitled to vote at the Annual Meeting must give a “FOR” vote for the Stock Purchase Agreement Proposal. Approval of each Transaction Proposal is not also subject to a “FOR” vote from a separate majority of such outstanding shares held by unaffiliated stockholders. Abstentions and broker non-votes, if any, will be treated as votes against the Reverse Stock Split Proposal. Abstentions and broker non-votes, if any, will have no effect on the Forward Stock Split Proposal or the Stock Purchase Agreement Proposal.

What will happen if the Transaction Approvals are approved by the Company’s stockholders?

Assuming that we continue to have fewer than 300 record holders of our common stock after the Reverse Stock Split, we will file applicable forms with the SEC to deregister our shares of common stock under the federal securities laws and to delist our shares from the Nasdaq Capital Market. Upon the effectiveness of those filings, we would no longer be subject to the reporting and related requirements under the federal securities laws that are applicable to public companies and Nasdaq Capital Market rules applicable to listed companies. We will also no longer be subject to the provisions of the Sarbanes-Oxley Act and other regulations applicable to public reporting companies. In addition, Cashed Out Stockholders will no longer have a continuing interest as our stockholders and will not share in any future increase in our value. Our common stock also would cease to be listed on the Nasdaq Capital Market and would not be eligible for listing on the New York Stock Exchange or The Nasdaq Stock Market. Any trading in our common stock after the Stock Split and deregistration under the Exchange Act will only occur in privately negotiated sales and potentially on the OTC Pink Market, if one or more brokers chooses to make a market for our common stock there and complies with applicable regulatory requirements; however, there can be no assurances regarding any such trading.

What will happen if the Transaction Proposals are not approved?

Though the number of record holders of our common stock is currently below 300, which would enable us to file the applicable forms to deregister and delist our common stock without the Stock Split, our Board’s current view is that implementation of the Stock Split as part of the deregistration/delisting of our common stock is in the best interests of the Company’s stockholders because it reduces the risk of the Company becoming re-subject to the public reporting requirements if the Company’s ownership were to reach 300 or more record holders in the future. However, if the Transaction Proposals are not approved by our stockholders, the Board would need to reconsider whether it would be in the best interests of the stockholders to proceed with the deregistration/delisting of our common stock without the Reverse Stock Split, if the Company were eligible to do so at such time (i.e., if the number of record holders of our common stock continued to be below 300). If the Board determines not to proceed with the deregistration/delisting of our common stock, we will continue to operate our business as presently conducted.

If the Transaction Proposals are approved by the stockholders, can the Board determine not to proceed with the Stock Split?

If the Transaction Proposals are approved by the stockholders, the Board may determine not to implement the Reverse Stock Split and complete the Transaction if it believes that proceeding with the Stock Split is not in the best interests of the stockholders. If the Board determines not to proceed with the Transaction, we will continue to operate our business as presently conducted, and we may also terminate the transactions contemplated by the Stock Purchase Agreement upon written notice to the Investors prior to the Closing Date.

What are the federal income tax consequences of the Stock Split to me?

If you are not subject to any special rules that may be applicable to you under federal tax laws, then generally, a Cashed Out Stockholder that receives cash for a fractional share as a result of the Stock Split will recognize a capital gain or loss for United States federal income tax purposes. A Continuing Stockholder will not recognize any gain or loss for United States federal income tax purposes. We urge you to consult with your personal tax advisor with regard to the tax consequences to you of the Stock Split.

Should I send in my certificates now?

No. After the Stock Split is completed, we will send instructions on how to receive any cash payment to which you may be entitled.

What is the total cost of the Transaction to the Company?

Since we do not know how many record and beneficial holders of our common stock will be Cashed Out Stockholders, we do not know the exact cost of the Reverse Stock Split. However, based on information that we have received as of July 12, 2024 from our transfer agent, Computershare, and from Mediant Communications, Say Technologies and Broadridge Corporate Issuer Services, a division of Broadridge Financial Solutions, Inc., with regard to the size of holdings of those stockholders who may hold shares in “street name,” we believe that our total cash requirement to cash out fractional shares in the Reverse Stock Split will be approximately $2,850,501 based on an assumed Reverse Split ratio of 1-for-5,000. We estimate that our total legal, accounting, and financial advisory fees and other costs to effect the Transaction will be approximately $700,000. Our total Transaction-related expenses could be larger or smaller depending on, among other things, the number of fractional shares that will be outstanding after the Stock Split as a result of purchases, sales and other transfers of our shares of common stock by our stockholders, or an increase in the costs and expenses of the Transaction.

Am I entitled to appraisal rights in connection with the Transaction?

No. Under Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws, no appraisal or dissenters’ rights are available to our stockholders who vote against (or abstain from voting on) the Transaction Proposals.

SPECIAL FACTORS RELATING TO THE TRANSACTION

Purpose of and Reasons for the Transaction

The primary purpose of the Transaction is to enable the Company to maintain the number of record holders of its common stock below 300, which is the level at which SEC public reporting is required. After the completion of the Transaction, we intend to cease registration of our common stock under the Exchange Act. As a result, effective on and following the termination of the registration of our common stock under the Exchange Act, the Company would no longer be subject to the reporting requirements under the Exchange Act, or other requirements applicable to a public company, including requirements under the Sarbanes-Oxley Act and the listing standards of a national stock exchange. Our common stock also would cease to be listed on the Nasdaq Capital Market and would not be eligible for listing on the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market.

The Transaction Committee and the Board has determined that the costs of being an SEC reporting company outweigh the benefits and, thus, it is no longer in the best interests of our stockholders, including our unaffiliated stockholders (consisting of stockholders other than our executive officers, directors and stockholders who own more than 10% of our outstanding common stock), for us to remain an SEC reporting company.

The principal reasons for the Board approving the proposed “going dark” transaction and recommending that stockholders approve each of the proposals herein relating to the Transaction are as follows:

Our estimated total costs in different expense categories should we remain an SEC reporting company are described in greater detail below:

We ultimately expect to realize recurring annual cost savings of approximately $844,788 across the above expense categories. These estimated savings primarily reflect, among other things: (1) a reduction in fees to our registered independent public accounting firm and other accounting professional services of approximately $589,085 for audits, the review of our SEC periodic reports and related expenses; (2) a reduction in legal fees associated with securities law compliance of approximately $132,555; and (3) the net reduction in costs and expenses associated with filing our annual, periodic and current reports and other documents, such as proxy statements and Section 16 filings with the SEC, the annual listing fees to the Nasdaq Stock Market, and printing, mailing and other costs of the annual report to stockholders, proxy statements and other miscellaneous costs of approximately $123,149.

We believe the projected fiscal $844,788 costs are indicative of our annual costs going forward if we remained an SEC reporting company. Please note, however, that the annual costs are only estimates and the actual costs we realize may be higher or lower than the estimates set forth in the table above. Likewise, our projected annual cost savings are only estimates, and those cost savings could be higher or lower than the amounts set forth above. Following the Stock Split, we intend to continue to have our financial statements audited by a public accounting firm. However, the scope of these procedures would be reduced, given the lack of public company reporting requirements. In addition, there will be a more limited need for legal counsel if we no longer file reports with the SEC. Some estimates were more subjective, such as savings in transfer agent’s fees because of a reduction in the number of stockholder accounts to be handled, a reduction in printing and other related costs of distributions to stockholders, and a reduction in our investor relations website costs.

Background of the Transaction

The following chronology summarizes the key events that led to the signing of the Stock Purchase Agreement and the announcement of the Transaction. This chronology does not catalogue every interaction of or among members of the Company’s Board and the Transaction Committee, members of the Company’s management, the Company’s financial or legal advisors, 3K Limited Partnership and its affiliates and legal advisors, or any other person.

The clinical laboratory industry in which the Company operates is intensely competitive, both in terms of price and service. Many of the Company’s competitors are larger clinical laboratory providers that, through large-scale automated testing, are able to realize cost efficiencies that enable them to offer lower pricing to their customers. Additionally, our larger competitors have greater financial resources than we do, enabling them to offer a range of products and services broader than our offerings and pursue research and development initiatives that may allow them to compete more effectively in our evolving industry. Our financial results, like those of our competitors, are impacted by a number of factors, principally the extent to which we can gain new customers and the lengthy lead time often associated with executing new customer contracts, competitive pricing, our customers’ budgets and hiring practices, general economic conditions, demand for drug testing and government regulations affecting testing for drugs of abuse.

The Board and the Company’s senior management continuously review and evaluate the Company’s business and strategies with the aim of increasing stockholder value. These considerations have included various internally focused initiatives, such as investing in new customer acquisition and R&D efforts designed to achieve scale for profitability and growth, the appointment of new management and a refresh of the Board. They have also involved conducting a review of strategic alternatives to identify whether third parties would have any interest in pursuing a potential sale or merger of the Company. As described below, the latter was conducted with the assistance of an investment banker and involved outreach to numerous parties without success.

As a small company in the drug testing industry, the Company must achieve improved cost efficiencies in order to be able to reinvest such savings to strengthen its sales and customer teams to drive more sales of its existing service offerings and to support its R&D for new service offerings. The latter is critical to driving long-term stockholder value. However, a major impediment to rightsizing the Company’s cost structure to its business is the costs associated with the Company complying with the rules applicable to a public reporting company and its common stock being listed on the Nasdaq Stock Market.

The following describes the background to the Transaction − the material events leading to the Board’s decision that the Company would be a stronger company and better able to enhance stockholder value over the long-term if it was no longer a Nasdaq-listed and public reporting company and that taking such steps would be in the best interests of all of the Company’s stockholders.

In mid-2019, the Board commenced a process to review and explore strategic opportunities with a goal of seeking greater value for the Company’s stockholders. The Company hired a nationally recognized investment banking firm to explore stockholder enhancement opportunities, including strategic alternatives, such as the potential sale or merger of the Company, capitalization optimization and dividend strategies. The Company first publicly announced this process in August 2020 and publicly reiterated its commitment to this process in September 2021. The Company’s financial advisors conducted outreach to at least 11 potential parties, both strategic and financial entities, to gauge any interest in a potential transaction with the Company.

In January 2020, a publicly traded laboratory services company (“Strategic Party”) that had been approached by the Company’s financial advisor in 2019 delivered to the Company a preliminary, non-binding indication of interest to acquire the Company for $12.00 per share in cash. The Company expended considerable effort and expense to develop and negotiate the terms of a transaction with Strategic Party, including the terms of a definitive agreement. However, following extensive discussions that continued through October 2020, Strategic Party abruptly informed the Company that it was no longer interested in a potential transaction with the Company at such time, without explanation. Thereafter, while still being interested in considering potential strategic alternatives and periodically conducting selected outreach through its financial advisor, the Company refocused its efforts on improving and growing as a stand-alone business.

In June 2021, Strategic Party reconnected with the Company and requested to renew discussions about a potential transaction. Strategic Party did not submit a new preliminary, non- binding indication of interest, but it reaffirmed that its interest remained at its previously proposed acquisition price. Despite having incurred significant legal and other expenses in connection with the prior unsuccessful negotiations with Strategic Party, the Company renewed discussions with Strategic Party, which were overseen by a formal transaction committee comprised of independent directors. Concurrently, the Company’s financial advisor recontacted another strategic party about a potential transaction with the Company, but such party expressed no interest in transacting with the Company on terms comparable to the preliminary terms then being proposed by Strategic Party. In April 2022, Strategic Party abruptly informed the Company that it was no longer interested in exploring a transaction, without explanation.

During the Company’s strategic process described above, in September 2021, Mr. Kamin contacted the Board to express concern about the Company’s performance, corporate governance and a perceived lack of transparency in its strategic alternatives process. At the time, Mr. Kamin and his affiliates beneficially owned approximately 8.4% of the Company’s outstanding common stock. Mr. Kamin expressed his concerns publicly in a Schedule 13D amendment filed by Mr. Kamin with the SEC on September 23, 2021. Subsequently, the Board and Mr. Kamin discussed the foregoing concerns and possible leadership changes at the Company, which discussions led to the Company and certain entities affiliated with Mr. Kamin entering into a Cooperation Agreement (the “Cooperation Agreement”) in June 2022. As part of the Cooperation Agreement, the Board agreed to nominate Mr. Kamin and Darius Nevin as new independent directors for election to the Board at the Company’s 2022 Annual Meeting of Stockholders. Messrs. Kamin and Nevin were elected to the Board by the Company’s stockholders at the 2022 Annual Meeting and were subsequently reelected at the 2023 Annual Meeting. These additions continued the Board refresh process that began in March 2021 with the appointment of Robyn Davis, a new independent director with substantial experience in value creation, growth strategy and cost-reduction as a venture investor, former consultant and a member of other boards of directors.

Subsequently, the Company took the following additional steps to further refresh the Board and the Company’s managerial team. In May 2022, it recruited Andrew M. Reynolds to join the Board, as an additional independent director with senior executive-level experience in strategic planning, corporate development and sales and marketing. In August 2023, the Company hired Brian Hullinger as its Chief Executive Officer, a senior executive with extensive experience leading companies in growth initiatives, sales and marketing and client retention, and Mr. Hullinger also joined the Board as a director.

Throughout 2022, while the Company was pursuing a potential transaction with Strategic Party, the Board continued to work with its advisors to identify other potential strategic opportunities. In late 2022, the Company held discussions with a private equity firm about whether it would be interested in acquiring the Company. This private equity firm never submitted any written preliminary, non-binding indication of interest, but it did indicate verbally an interest in acquiring the Company at $7.00 per share in cash. However, these discussions never progressed beyond preliminary stages and ultimately concluded in late 2022 when the parties were unable to reach agreement on the financial and other terms of a potential transaction. Since such time, the Company has not received any expressions of interest with respect to a potential strategic transaction.

In late 2023, in view of the Company’s lack of success in attracting interest in a sale transaction and as the Company continued to pursue its organic growth strategy with particular attention on increased cost efficiencies, the Board determined to reconsider its public company reporting status. In particular, the Board weighed the disproportionate costs of the Company being Nasdaq-listed and subject to the public reporting requirements, and the attendant time required of management to comply with such requirements, against the perceived lack of benefits from such status for the Company and its stockholders. On November 8, 2023, at the request of the Board and management, a representative from Mintz made a presentation to the Board about the structure of a potential “going dark” transaction in conjunction with a reverse stock split and certain factors for the Board to consider when evaluating whether to pursue such a transaction. Mintz reviewed the Board’s fiduciary duties in evaluating such a potential course of action.

On December 20, 2023, the Board held a meeting at which it discussed, among topics, the potential “going dark” transaction by means of a reverse stock split, including whether such a transaction would be in the best interests of the Company’s stockholders. The Board discussed the means of funding the cost of such a transaction, and the Board weighed various options, including using the Company’s cash on hand and seeking an external financing source. During this discussion, Mr. Kamin indicated he and certain of his affiliates would be willing to fund the transaction’s costs through an equity financing of the Company, subject to the Company and him reaching agreement on acceptable financing terms. The Board discussed the need for appropriate corporate governance measures to protect the independence of the Board process in evaluating any financing transaction involving Mr. Kamin or alternatives. The Board resolved to establish an independent Transaction Committee (the “Transaction Committee”) with the mandate and authority to consider the potential benefits and costs of a “going dark” transaction to the Company’s stockholders and the Company, develop the terms of such a “going dark” proposal, including the appropriate reverse stock split ratio and cash-out value for fractional shares, and to make a recommendation to the Board with respect thereto. The Board appointed Ms. Davis and Mr. Reynolds, each an independent and disinterested director of the Company, to serve on the Transaction Committee. The members of the Transaction Committee did not have any relationships that would represent a conflict of interest with respect to a potential transaction with Mr. Kamin. In connection with its mandate, the Transaction Committee was subject to no restrictions and was expressly authorized to hire financial and legal advisors as it saw fit.

Between December 2023 and March 2024, the Transaction Committee and its advisors, together with the Company’s management, evaluated the potential costs and structure of a “going dark” transaction. During this time, the Company’s management prepared a preliminary forecast for internal discussion purposes only (the “Initial Preliminary Forecast”), which once finalized would be used as the basis for a discounted cash flow valuation analysis, among other valuation methodologies, it being understood that any financial forecast to be used by any financial advisor of the Company for purposes of its fairness opinion would need to be approved by the Transaction Committee and the Board. Company valuations were a necessary factor to estimate a potential per-share cash out price and thereby an estimated cost of a reverse stock split needed to implement a potential “going dark” transaction.

In early 2024, the Transaction Committee engaged Mirus Securities, Inc. (“Mirus”), an investment banking firm, to assist in evaluating a “going dark” transaction. The Transaction Committee hired Mirus because of its experience in similar transactions and its professional reputation as an independent financial advisor. Such engagement was formalized on March 12, 2024.

During April 2024, the Transaction Committee met twice with Mirus, members of senior management and Mintz to discuss some of the basic substantive and procedural fairness factors that would need to be considered in order to evaluate whether a “going dark” transaction would be in the best interests of all stockholders, including that: (1) any reverse stock split used to implement a “going dark” transaction would need to be large enough to ensure that the resulting number of Company stockholders would not be likely to rebound thereafter to cause the Company to become subject to the SEC’s reporting requirements again; (2) the amount to be paid by the Company to those stockholders below the split ratio (i.e., the cash-out amount for fractional shares) should be supported by a fairness opinion from Mirus relying on traditional valuation methodologies, and (3) the per-share price at which the Company would complete a financing with Mr. Kamin and his affiliated entities or any other financing source would at least equal the cash-out amount to be paid to stockholders for fractional shares and all terms of the financing would be determined by arm’s length negotiations between the parties. As part of such discussions, based on the Initial Preliminary Forecast, Mirus indicated that a preliminary valuation range would be $2.29 to $2.94 per share (discounted cash flow analysis) and $2.95 to $3.82 per share (leveraged buyout analysis), respectively, subject to receipt of a final Board- approved management forecast to be used in conducting its fairness opinion analysis.

On May 1, 2024, the members of the Transaction Committee held a telephone call with Mr. Kamin during which the Transaction Committee provided Mr. Kamin with an estimate of the cost of a potential “going dark” transaction and the required financing. The Transaction Committee requested that Mr. Kamin provide for the Transaction Committee’s consideration a term sheet setting forth proposed terms for a common stock financing of the Company, the proceeds of which would be used to fund the cash-out.

Later on May 1, 2024, Mr. Kamin delivered to the Transaction Committee a preliminary, non-binding term sheet (the “May 1 Term Sheet”) outlining the terms of a potential financing of the Company to fund the Company’s proposed “going dark” transaction. The May 1 Term Sheet provided for, among other terms, (1) the issuance and sale to Mr. Kamin and certain of his affiliates of up to $4,000,000 in Company preferred stock in a private placement transaction at a per share price of $2.75; (2) a continuous right of Mr. Kamin to designate two directors to be nominated to the Board; (3) registration rights in respect of the shares issued in the financing; and (4) reimbursement by the Company of Mr. Kamin’s expenses incurred in connection with the financing. The $2.75 price represented an approximately 6% premium of over the closing price of the Company’s common stock on April 30, 2024.

On May 3, 2024, the Transaction Committee and representatives from Mintz held a telephonic meeting to discuss the May 1 Term Sheet. The Transaction Committee determined that it would be in the best interests of all of the Company’s stockholders if the newly issued shares in the financing were common stock and were not any type of security that was senior to the existing common stock outstanding. After consultation with Mirus, on May 6, 2024, the Transaction Committee made a counterproposal to Mr. Kamin consisting of (1) a common stock financing at $3.00 per share for up to $4,500,000, of which $4,000,000 would be used to fund the Company’s proposed going dark transaction, with the remaining $500,000 to be used for a working capital and other general corporate purposes; (2) no continuous governance rights; (3) registration rights in respect of the shares issued in the financing; and (4) reimbursement of Mr. Kamin’s expenses incurred in connection with the financing, up to $50,000 (the “May 6 Term Sheet”).

On May 8, 2024, Mr. Kamin delivered to the Transaction Committee a revised term sheet consisting of (1) a common stock financing consistent with the May 6 Term Sheet, but at a per share price of $2.85; (2) a continuous right of Mr. Kamin to designate two directors to be nominated to the Board, as well as an additional right to designate the chairman of the Board; (3) an agreement by the Company to not increase the size of the Board beyond five directors; and (4) reimbursement of Mr. Kamin’s expenses incurred in connection with the financing, up to $50,000 (the “May 8 Term Sheet”).

On May 9, 2024, the Transaction Committee and representatives from Mintz held a telephonic meeting to discuss the May 8 Term Sheet. After consultation with Mirus, on May 10, 2024, the Transaction Committee communicated to Mr. Kamin a revised proposal consisting of (1) a common stock financing consistent with the May 6 Term Sheet, but at a per share price of $2.90, a price that the Transaction Committee concluded was consistent with, among other factors, the initial guidance provided by Mirus regarding its financial analysis; (2) a continuous right of Mr. Kamin to designate two directors to be nominated to the Board, but no right to designate the Board chair; (3) an agreement by the Company to not increase the size of the Board beyond five directors; and (4) an agreement to reimburse Mr. Kamin’s expenses incurred in connection with the financing, up to $75,000 (the “May 10 Proposal”).

On May 10, 2024, Mr. Kamin confirmed to the Transaction Committee his agreement on a per share price of $2.90 for the proposed financing.

On May 13, 2024, Mintz and Sullivan & Worcester LLP (“Sullivan”), outside legal counsel to Mr. Kamin and his affiliated entities, held a telephone call to discuss the terms of the proposed financing. From May 13, 2024 to June 11, 2024, the Transaction Committee and Mr. Kamin, through their representatives at Mintz and Sullivan, negotiated the terms of the potential financing. During these negotiations, Mr. Kamin requested that the Company indemnify Mr. Kamin and his affiliates from claims arising from the financing. Mr. Kamin agreed to abandon his request for a right to designate the Board chair. During this same period, the Transaction Committee held several meetings with representatives of Mintz and Mirus to discuss the terms of the proposed financing.

In late May 2024, management updated the Initial Preliminary Forecast to reflect certain changes in the Company’s business since the date of the Initial Preliminary Forecast (such updated forecast, the “May Revised Preliminary Forecast”). Such changes consisted primarily of declines in sales by certain existing customers and slower than expected new customer acquisition, together with corresponding cost reductions, during the first half of fiscal 2024. The foregoing was the result of new and specific direct feedback from customers and customer prospects to senior management. The May Revised Preliminary Forecast was for internal discussion purposes only, it being understood that any financial forecast to be used by Mirus for purposes of its fairness opinion would need to be approved by the Transaction Committee and the Board.

On May 17, 2024, the full Board held a regularly scheduled meeting, during which management provided the Board with a customary business update, which included a discussion of developments in the Company’s business and financial condition.

On May 23, 2024, the Transaction Committee held a telephonic meeting with Mr. Kamin to discuss the terms of the proposed financing. Mr. Kamin indicated that a change in valuation for the financing may be warranted based on the business update presented to the Board at the May 17, 2024 Board meeting.

On June 5, 2024, the Transaction Committee held a telephonic meeting with representatives of Mintz and Mirus and management to discuss the May Revised Preliminary Forecast. As part of such discussion, based on the May Revised Preliminary Forecast, Mirus indicated a preliminary valuation would be $2.47 to $3.12 per share (discounted cash flow analysis) and $2.96 to $3.88 per share (leveraged buyout analysis), respectively, subject to receipt of a final Board-approved management forecast to be used in conducting its fairness opinion analysis.

On June 7, 2024, the Company’s management sent to the full Board a revised 2024 budget, consistent with the May Revised Preliminary Forecast.

On June 11, 2024, Mintz communicated to Sullivan that, notwithstanding the changes reflected in the Company’s revised 2024 budget, the Transaction Committee continued to believe that $2.90 remained a fair and appropriate per-share price for the proposed financing. Such determination was based on the Transaction Committee’s assessment of the Company’s financial performance and the revised 2024 budget, as well as preliminary guidance from Mirus regarding its financial analysis, taking into account the May Revised Preliminary Forecast. Mintz also conveyed the Transaction Committee’s agreement to provide limited indemnification in connection with the proposed financing.

On June 12, 2024, Sullivan communicated to Mintz that Mr. Kamin was not interested in proceeding with the proposed financing on the terms offered by the Transaction Committee. The next day, Mr. Kamin reiterated to the Transaction Committee that $2.90 was no longer acceptable based on the Company’s recent financial performance and the revised 2024 budget provided to the Board on June 7, 2024.

On June 14, 2024, Mr. Reynolds and Mr. Kamin held a telephone call to discuss the terms of the financing.

On June 17, 2024, Mr. Kamin communicated to the Transaction Committee revised terms for the proposed financing, consisting of a common stock financing at $2.30 per share and indemnification of Mr. Kamin and his affiliates in respect of claims arising from the financing (the “June 17 Proposal”). The terms of the financing, including the governance rights to be granted to Mr. Kamin as described above, would otherwise be consistent with the May 10 Proposal.

Between June 17, 2024 and June 19, 2024, the Transaction Committee considered the terms of the June 17 Proposal and consulted with Mintz and Mirus concerning the same.

On June 19, 2024, the Transaction Committee communicated to Mr. Kamin a revised per-share proposal of $2.60 for the financing.

On June 20, 2024, Mr. Kamin communicated to the Transaction Committee a revised proposal for the financing, consisting of a common stock financing at $2.35 per share.

In late June 2024, management further updated its financial forecast to reflect certain changes in the Company’s financial business since the date of the May Revised Preliminary Forecast (such updated forecast, the “June Forecast”). The June Forecast primarily reflected the loss of a customer and declines in sales by certain existing customers during the first half of fiscal 2024, together with corresponding cost reductions, that had not been reflected in the May Revised Preliminary Forecast. The foregoing was the result of new and specific direct feedback from customers to senior management. Management proposed that the June Forecast be the forecast to be approved by the Transaction Committee and the Board for use by Mirus in connection with its fairness opinion analysis. As described below and in “Special Factors — Fairness Opinion of Financial Advisor”, Mirus used the June Forecast to determine the valuation ranges of $1.62 to $2.02 per share (discounted cash flow) and $2.20 to $2.85 per share (leveraged buy-out analysis), respectively.

Thereafter and through July 6, 2024, the Transaction Committee and the participating members of the Board, together with representatives of management, Mirus and Mintz, discussed the June Forecast and the range of values calculated by Mirus in its preliminary discounted cash flow valuation based on the June Forecast, subject to its final opinion being rendered. The June Forecast was adopted by the participating members of the Board during this period and, at the Transaction Committee’s and the Board’s direction, was used and relied upon by Mirus as the basis for the rendering of its fairness opinion and performing the financial analyses described in “—Opinion of Financial Advisor”, it being understood that the June Forecast was the only forecast to be used by Mirus for such purpose, as any prior draft management forecast provided to Mirus for purposes of its preliminary analyses and prior discussions with the Transaction Committee were preliminary only. The Transaction Committee determined that $2.35 per share was within the range of values the Transaction Committee considered fair and reasonable for the cash-out payment and the financing based on, among other factors, the Company’s financial performance, the June Forecast and Mirus’ preliminary financial analyses based in part on the June Forecast.

On July 6, 2024, the Transaction Committee communicated to Mr. Kamin its agreement with a common stock financing at $2.35 per share. On July 7, 2024, Mr. Kamin communicated to the Transaction Committee his acceptance of such proposal, and the parties confirmed the same in a telephone call on July 8, 2024.

On July 13, 2024, Mintz sent to Sullivan an initial draft of the Stock Purchase Agreement, consistent with the principal terms agreed to between the Transaction Committee and Mr. Kamin and containing other terms customary for similar transactions. On July 12, 2024, Sullivan sent to Mintz a revised draft of the Stock Purchase Agreement. Between July 12, 2024 and August 12, 2024, the Transaction Committee and Mr. Kamin, through their respective representatives at Mintz and Sullivan, negotiated the terms of the Stock Purchase Agreement. During such period, the Transaction Committee held regular update meetings with Mintz and Mirus with respect to the progress of such negotiations.

On August 12, 2024, the Transaction Committee held a telephonic meeting with representatives from Mirus, Mintz and management. The purpose of the meeting was to formally review the specific terms of a proposed transaction for recommendation to the Board. Mintz provided a detailed presentation regarding such terms and related consideration, including reviewing the fiduciary duties of the Board in evaluating such a course of action. Mirus then reviewed with the Transaction Committee its financial analyses, based on the June Forecast, of the price to be paid in respect of fractional shares in the Transaction. Representatives of Mirus then rendered to the Transaction Committee an oral opinion that, as of August 12, 2024, and subject to the assumptions, qualifications, and limitations set forth therein, that the Cash Payment is fair, from a financial point of view, to the common stockholders of the Company, excluding affiliated shareholders including Mr. Kamin and entities affiliated with him. The oral opinion of Mirus was subsequently confirmed by the delivery of a written opinion delivered after the meeting, dated August 12, 2024. The Transaction Committee then unanimously resolved to recommend that the Board approve the Transaction.

On August 12, 2024, following the meeting of the Transaction Committee, the Board held a telephonic meeting with representatives from Mirus, Mintz and management. Messrs. Kamin and Nevin recused themselves from the meeting and did not attend the meeting. The purpose of the meeting was to consider the recommendation of the Transaction Committee. The Board reviewed in detail the recommendation made by the Transaction Committee, including the considerations of the proposal to the Company and its stockholders and other relevant factors, as well as the determination by Mirus that the cash-out price of $2.35 for fractional shares was fair from a financial point of view to the Company’s unaffiliated stockholders. Mintz reiterated the Board fiduciary duties in evaluating such a course of action. Based on all the factors which had been considered by the Board and the information considered by and the recommendation of the Transaction Committee, although not relying upon any one factor but considering all factors as a whole, the Board specifically adopted the recommendations of the Transaction Committee and all factors that the Transaction Committee took into account in making its recommendations to the Board. The Board determined the Transaction would be substantively and procedurally fair to, and in the best interests of, all of the Company’s stockholders, including the unaffiliated stockholders who would be cashed-out in the Transaction and unaffiliated stockholders who would continue as owners of the Company, and the participating members of the Board approved the Transaction, including the cash-out price of $2.35, and recommended that the Transaction be presented to the Company’s stockholders for approval and that such stockholders approve the Transaction. The Board also retained the right to abandon the Transaction, either before or after the vote of stockholders, if the Board determined that the Transaction was no longer in the best interests of the Company and its stockholders.

On the afternoon of August 12, 2024, following the meeting of the Board, the Company and the other parties to the Stock Purchase Agreement executed the Stock Purchase Agreement.

After the closing of Nasdaq trading on August 12, 2024, the Company issued a press release announcing its intention to pursue the Transaction and its entry into the Stock Purchase Agreement.

Alternatives to the Transaction

As described in “— Background of the Transaction”, the Company has, for a number of years, reviewed and explored strategic alternatives with a goal of seeking greater value for the Company’s stockholders, including to identify whether third parties would have any interest in a potential sale or merger of the Company. Notwithstanding these efforts, the Company has been unsuccessful in attracting interest in such a strategic transaction. Based on its knowledge of industry participants, extensive past outreach and the Company’s current financial performance, the Board believed continuing to search for strategic alternatives for the Company in its current state was not likely to enhance stockholder value at this time. As the Company continued to pursue its organic growth strategy with particular attention on increased cost efficiencies, the Board determined to reconsider its public company reporting status and established the Transaction Committee to considered benefits and costs of a “going dark” transaction, develop the terms of such transaction and make a recommendation to the Board. Accordingly, as described above, in making their determination to proceed with the Transaction, the Transaction Committee and the Board considered other methods of effecting a deregistration transaction, as well as maintaining the status quo. When considering the various alternatives to the Transaction, the primary focus was the level of assurance that the selected alternative would result in the Company maintaining fewer than 300 record owners of its common stock, thus allowing us to achieve our objective, the time frame within which such alternative could reasonably be expected to be achieved, relative to the other alternatives under consideration, as well as the potential costs of the alternative transactions.

The Transaction Committee and the Board also considered maintaining the status quo. In that case, the Company would continue to incur the significant expenses of being an SEC reporting company without enjoying what it believes to be the benefits traditionally associated with SEC reporting company status, including, but not limited to, raising capital in the public markets, stock liquidity, business credibility and the ability to use its common stock as currency for acquisitions. However, the Transaction Committee and the Board believed that becoming a private company would be in the best interests of the Company’s stockholders and rejected this alternative.

After carefully reviewing all of the alternatives, for the reasons discussed above, the Transaction Committee recommended, and the participating members of the Board approved, the Stock Split and the Stock Purchase Agreement (including the transactions contemplated thereby) as the most expeditious and economical way of changing our status from that of a reporting company to that of a non-reporting company.

Effects of the Transaction

Effect of the Transaction on the Company. The Stock Split is designed to maintain the number of our stockholders of record below 300, which will allow us to cease our reporting obligations with the SEC. In determining whether the number of our stockholders of record remains below 300 for regulatory purposes, we will count stockholders of record in accordance with Rule 12g5-1 under the Exchange Act. Rule 12g5-1 provides, with certain exceptions, that in determining whether issuers, including the Company, are subject to the registration provisions of the Exchange Act, securities are considered to be “held of record” by each person who is identified as the owner of such securities on the respective records of security holders maintained by or on behalf of the issuers. However, institutional custodians such as Cede & Co. and other commercial depositories are not considered a single holder of record for purposes of these provisions. Rather, Cede & Co.’s and these depositories’ accounts are treated as the record holder of our shares. Based on information available to us as of July 12, 2024 we expect that as a result of the Reverse Stock Split the number of our stockholders of record would be reduced from approximately 214 to approximately 39 (based on an assumed Reverse Split ratio of 1-for-5,000) and we estimate that there are approximately 7,446 beneficial holders in “street name” who own fewer than the Minimum Number and whose shares would be cashed out in the Reverse Stock Split.

We also believe the Transaction will have the following additional effects:

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The number of shares held by a stockholder of record in two or more separate but identical record holder accounts will be combined to determine the number of shares of our common stock owned by that holder and, accordingly, whether the holder will be a Cashed Out Stockholder or a Continuing Stockholder.

Shares held by record holders in joint accounts, such as by a husband and wife, and shares held in similar capacities will be treated separately and will not be combined with individual accounts in determining whether a holder will be a Cashed Out Stockholder or a Continuing Stockholder.

We intend to treat stockholders holding our common stock in “street name” in the same manner as record holders. Prior to the effective date of the Reverse Stock Split, we will conduct an inquiry of all brokers, banks and other nominees that hold shares of our common stock in “street name,” ask them to provide us with information on how many fractional shares will be cashed out, and request that they effect the Stock Split for their beneficial holders. However, these banks, brokers and other nominees may have different procedures than registered stockholders for processing the Stock Split. As a result, a stockholder owning a number of shares of our common stock equal to or greater than the Minimum Number may nevertheless have those shares cashed out if the stockholder holds shares in a combination of  “street name” accounts and record holder accounts, or holds shares in separate accounts in several brokerage firms. If you are in this situation and desire to remain a stockholder of the Company after the Reverse Stock Split, you may consolidate your holdings into one brokerage account or record holder account prior to the effective date. Conversely, if you hold an account with less than the Minimum Number in “street name” and want to ensure that your shares are cashed out, you may want to change the manner in which your shares are held from “street name” into a record holder account in your own name so that you will be a record owner of the shares.

Examples of the effect of the Stock Split on both Cashed Out Stockholders and Continuing Stockholders are set forth below under the caption “Effects of the Transaction — Examples.”

Effect of the Transaction on Unaffiliated Stockholders Who Own a Number of Shares of Common Stock Equal to or Greater than the Minimum Number or More.   For those unaffiliated stockholders who own a number of shares of common stock equal to or greater than the Minimum Number, the Transaction may have the following effects:

Effect of the Transaction on Affiliated Stockholders.   As of August 27, 2024, approximately 13.4% of the issued and outstanding shares of our common stock was held by our directors and executive officers. Our directors and executive officers have indicated that they intend to vote all of the shares of our common stock held by them (781,418 shares) “FOR” the Transaction Proposals.

Upon the issuance of shares of common stock pursuant to the Stock Purchase Agreement and the effectiveness of the Stock Split, the ownership percentage of our shares of common stock held by our directors and executive officers other than Mr. Kamin and his affiliated entities (see “Special Factors — Potential Conflicts of Interests of Officers, Directors, and Certain Affiliated Persons” beginning on page [•]) will decrease by a nominal amount. The decrease in the ownership percentage of our shares of common stock held by our officers and directors is based on record holder information that we received as of July 12, 2024 from our transfer agent, Computershare, and a share range analyses we received from Mediant Communications, Say Technologies and Broadridge Corporate Issuer Services, a division of Broadridge Financial Solutions, Inc., reflecting the distribution of the accounts of our stockholders who hold shares in “street name” according to predefined ranges based on share amount. However, such ownership percentage may increase or decrease depending on purchases, sales and other transfers of our shares of common stock by our stockholders prior to the effective time of the Stock Split and the number of  “street name” shares that are actually cashed out in the Reverse Stock Split. The ownership percentage of our shares of common stock held by our officers and directors and the ownership percentage of the Continuing Stockholders will proportionally increase or decrease as a result of such purchases, sales and other transfers of our shares of common stock by our stockholders prior to the effective time of the Reverse Stock Split, and depending on the number of  “street name” shares that are actually cashed out in the Reverse Stock Split.

In addition, our directors and executive officers may have interests in the Transaction that are different from your interests as a stockholder in the Company, and have relationships that may present conflicts of interest, including holding options to purchase shares of our common stock that will remain outstanding following the Stock Split and will not be affected by the Reverse Stock Split.

See “Special Factors — Potential Conflicts of Interests of Officers, Directors, and Certain Affiliated Persons.”

As we noted above, we ultimately expect to realize recurring annual cost savings of approximately $900,000 as a result of the Transaction. Our Continuing Stockholders, including our affiliated stockholders, will be the beneficiaries of these savings. See “Special Factors — Purpose of and Reasons for the Transaction.”

Examples.   The effect of the Stock Split on both Cashed Out Stockholders and Continuing Stockholders may be illustrated, in part, by the following examples, which assume a 1-for 4,000 reverse stock split and a 4,000 for-1 forward stock split:

Reservation of Rights

The Board has reserved the right to abandon the Transaction at any time if it believes that the Transaction is no longer in the best interests of our stockholders, whether prior to or following the Annual Meeting, and the Company may terminate the transactions contemplated by the Stock Purchase Agreement upon written notice to the Investors prior to the Closing Date.

Nasdaq Capital Market Listing; OTC Pink Market

Our common stock is currently listed on the Nasdaq Capital Market. To obtain the cost savings we anticipate by no longer preparing and filing annual, periodic and current reports with the SEC, our common stock will need to be delisted from the Nasdaq Capital Market. Any trading in our common stock after the Stock Split and deregistration under the Exchange Act will only occur in privately negotiated sales and potentially on the OTC Pink Market, if one or more brokers chooses to make a market for our common stock there and complies with applicable regulatory requirements.

The Pink Open Market is the lowest tier of the three marketplaces for trading of OTC securities, which is a broker platform for trading securities operated the OTC Markets Group Inc. There are no financial standards or disclosure requirements. For more information about the OTC Markets Group, see https://www.otcmarkets.com/. To be traded there, a broker dealer would need to submit a Form 211 with the Financial Industry Regulatory Authority (FINRA), and obtain FINRA approval for trading in the common stock. If such trading in our common stock were to develop there, we would expect it to occur at the Pink-No Information tier. For more information about The Pink Open Market, see www.otcmarkets.com/corporate-services/information-for-pink-companies.

The OTC Pink Market is not a stock exchange and we do not have the ability to list on, or control whether our shares are quoted on the OTC Pink Market. The price may be more or less than the current price on the Nasdaq Capital Market. In addition, the spread between the bid and asked prices of our common stock may be wider than on the Nasdaq Capital Market and the liquidity of our shares may be lower. There is no assurance, however, that there will be any OTC Pink Market quotations after the Stock Split or that, if such quotations begin, they will continue for any length of time.

Fairness of the Transaction

The Transaction Committee and the Board fully considered and reviewed the terms, purpose, alternatives and effects of the proposed Transaction, and each has determined that the Transaction is procedurally and substantively fair to all stockholders of the Company, including the unaffiliated stockholders who will receive cash consideration in the Stock Split and unaffiliated stockholders who will continue as owners of the Company.

The participating members of the Board have unanimously approved the Transaction and recommend that stockholders vote “FOR” approval of the Transaction Proposals. In order for the Transaction to be approved, a majority of all stockholders must give a “FOR” vote for the Reverse Stock Split Proposal and the affirmative of a majority of the shares cast (represented in person or by proxy) and entitled to vote at the Annual Meeting must give a “FOR” vote for the Stock Purchase Agreement Proposal.

Substantive Fairness. The Transaction Committee and the Board considered, among other things, the factors listed below, as well as the alternatives to the Transaction as noted above in “Special Factors — Alternatives to the Transaction,” in reaching their conclusions as to the substantive fairness of the Transaction to our stockholders, including both unaffiliated Cashed Out Stockholders and unaffiliated Continuing Stockholders. The Transaction Committee and the Board did not assign specific weight to any factors they considered, nor did they apply them in a formulaic fashion, although they particularly noted the opportunity in the Reverse Stock Split for stockholders to receive a fair price in cash for their shares, without incurring brokerage commissions, as well as the significant anticipated cost and time savings for the Company resulting from the Transaction, which will benefit Continuing Stockholders. The discussion below is not meant to be exhaustive, but we believe it addresses all material factors considered by the Transaction Committee and the Board in their determinations.

Future Cost and Time Savings.    By eliminating costs associated with our public reporting and other related obligations, the Company ultimately expects to realize recurring annual cost savings of approximately $900,000 (inclusive of anticipated savings resulting from our recent change in auditors). In addition, the Transaction Committee and the Board noted that the Company would eliminate the substantial time and effort currently spent by the Company’s management and employees to prepare and review the reports it files with the SEC under the Exchange Act and the Sarbanes-Oxley Act, and after the Stock Split, management and our other employees will be able to reallocate this time and effort to other areas of our businesses and operations.

Opportunity to Liquidate Shares of Common Stock.   The Transaction Committee and Board considered the opportunity the Reverse Stock Split presents for stockholders owning fewer than the Minimum Number to liquidate their holdings in the Company and receive a fair price in cash for their shares, without incurring brokerage commissions.

Limited Liquidity for the Company’s Common Stock.   The Transaction Committee and the Board noted that the trading volume in our common stock has been, and continues to be, relatively limited. The average daily trading volume of the stock from January 2, 2024 to August 12, 2024 (the trading day prior to the announcement of the approval of the Stock Split by the Company) was approximately 7,349 shares per day. Accordingly, the Stock Split provides a large number of our record holders and beneficial holders with the opportunity to liquidate their holdings in a relatively limited trading market and receive a fair price in cash for their shares, without incurring brokerage commissions.

Historical Prices.   The Transaction Committee and the Board considered both the historical market prices and recent trading activity and current market prices of our common stock.

Opinion of the Financial Advisor.   The Transaction Committee and the Board considered a valuation report dated August 12, 2024 and fairness opinion rendered by Mirus to the Transaction Committee to the effect that, as of the date of such opinion and based upon and subject to certain matters stated therein, the $2.35 per share in cash to be paid to the Cashed Out Stockholders in the Stock Split is fair, from a financial point of view, to all unaffiliated stockholders. For more information about the opinion, you should read the discussion below under “Special Factors — Fairness Opinion of Financial Advisor” and the fairness opinion of Mirus, which is attached as Annex D to this proxy statement and is being provided with the express permission of Mirus. Each of the valuation report and the fairness opinion of Mirus is available for inspection and copying at our principal executive offices at 5220 Spring Valley Road, Dallas, Texas 75254.

Valuation Report.   In determining the cash amount to be paid to Cashed Out Stockholders in the Reverse Stock Split, the Transaction Committee and the Board considered the valuations of the Company’s common stock presented in Mirus’ valuation report. The analysis of the Company’s historical trading prices, premiums paid, selected publicly traded companies analysis, selected precedent transaction analysis, discounted cash flow analysis and buyout methods used by Mirus to assess the fairness of the $2.35 per share to be paid to Cashed Out Stockholders and to our unaffiliated Continuing Stockholders are described in more detail below under “Special Factors — Fairness Opinion of Financial Advisor.” The Transaction Committee and the Board have relied upon Mirus’ valuation report and Mirus’ fairness opinion to the effect that the $2.35 per share in cash to be paid is fair, from a financial point of view, to all unaffiliated stockholders, and the Transaction Committee and the Board have adopted such analyses.

Net Book Value and Liquidation Value.   The Transaction Committee and the Board determined that liquidation value had no relevance in light of the fact that we will remain as a continuing business and the Reverse Stock Split will not result in a change of control of the Company. Additionally, liquidation value was not used because the book value of the Company’s assets do not necessarily reflect the value of its anticipated future cash flows. Additionally, no recent appraisals were conducted on the Company’s material assets, and fair market value may vary significantly from book value.

No Firm Offers.   Except as described in “–Background of the Transaction”, the Transaction Committee and the Board are not aware of any firm offers during the past two years by any unaffiliated person for the merger or consolidation of the Company, the sale or other transfer of all or any substantial part of the assets of the Company, or a purchase of our shares of common stock or other securities that would enable the holder to exercise control of the Company.

Disadvantages of the Transaction   

The Transaction Committee and the Board also considered the disadvantages of the Transaction, including that:

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See “Special Factors — Effects of the Transaction”.

Procedural Fairness.   No unaffiliated representative acting solely on behalf of our unaffiliated stockholders for the purpose of negotiating the terms of the Transaction was retained by the Company, nor were special provisions made to grant unaffiliated stockholders access to our corporate files or to obtain counsel or appraisal services. The Board established the Transaction Committee to consider and evaluate whether such a deregistration/delisting transaction, or so-called “going dark” transaction, would be in the best interests of the Company’s stockholders, and, if so, to develop the specific terms of such a transaction and make a recommendation to the Board. The Board believes that the Transaction Committee, whose members are each independent within the meaning of Rule 4200 of the Nasdaq Marketplace Rules and Section 10A-3(b) of the Exchange Act, was sufficient to protect the interests of unaffiliated stockholders. In addition, the Transaction Committee and the Board took note of the fact that the interests of unaffiliated stockholders inherently varied depending upon whether any particular unaffiliated stockholder held a number of shares of common stock equal to or greater than the Minimum Number or held fewer than the Minimum Number. Although there was no third party that acted independently on behalf of the unaffiliated stockholders, the independent members of the Transaction Committee set out to protect unaffiliated stockholders by making a recommendation regarding the Transaction that they deemed fair to the unaffiliated stockholders and by receiving from Mirus a fairness opinion addressed to the Transaction Committee regarding the fairness of the cash-out price, from a financial point of view, to the unaffiliated stockholders.

The Transaction Committee and the Board believe this proxy statement, along with our other filings with the SEC, provide a great deal of information for unaffiliated stockholders to make an informed decision as to the Transaction, and that no special provision for the review of our files was necessary. The Transaction Committee and the Board noted, though, that subject to certain conditions, Delaware law already provides stockholders with the right to review our books and records.

The Transaction Committee and the Board determined not to condition the approval by the Company’s stockholders of the Transaction Proposals on approval by a majority of the shares of common stock outstanding as of the record date held by unaffiliated stockholders. The Transaction Committee and the Board noted that affiliated and unaffiliated stockholders will be treated equally in the Transaction; however, because the number of shares owned by a stockholder is a factor considered in determining affiliate status, as a practical matter, the stock of affiliated stockholders will not be cashed out in the Reverse Stock Split. If separate approval of unaffiliated stockholders were required, our affiliated stockholders would receive lesser voting rights than unaffiliated stockholders solely on the basis of their affiliate status even though they will receive no additional benefits or different treatment in the Transaction, and any such requirement would prevent a majority of the outstanding shares of our common stock from participating in the consideration of the Transaction. As of August 27, 2024 approximately 13.4% of the issued and outstanding shares of our common stock was held by our directors and executive officers. Our directors and executive officers have indicated that they intend to vote all of the shares of our common stock held by them (781,418 shares) “FOR” the Transaction Proposals (see “Special Factors — Potential Conflicts of Interests of Officers, Directors, and Certain Affiliated Persons”). Furthermore, a separate vote of the majority of the shares of common stock outstanding as of the record date held by unaffiliated stockholders is not required under Delaware law. Finally, stockholders can increase, divide, or otherwise adjust their existing holdings at any time prior to the effective date of the Reverse Stock Split, so as to retain some or all of their shares of common stock, or to receive cash for some or all of their shares, as they see fit.

The Transaction Committee and the Board also noted that there will be no material change in the percentage ownership of the executive officers and directors (other than Mr. Kamin, who is an Investor under the Stock Purchase Agreement).

The Company intends to treat stockholders holding common stock in “street name” in the same manner as stockholders whose shares are registered in their own names, and will ask banks, brokers and nominees holding these shares to provide us with information on how many fractional shares will be cashed out, and request that they effect the Stock Split for their beneficial holders.

Recommendation of the Transaction Committee.   Based on the foregoing analyses, including a consideration of the disadvantages of the Transaction, the Transaction Committee determined that the Transaction is procedurally and substantively fair to, and in the best interests of, all stockholders, including the unaffiliated stockholders, regardless of whether a stockholder receives cash or continues to be a stockholder following the Stock Split, and that the $2.35 per-share cash amount constitutes fair consideration for those stockholders holding less than the Minimum Number. As a result, the Transaction Committee unanimously recommended the Transaction to the Board.

Recommendation of the Board of Directors.   At a meeting held on August 12, 2024, the Board unanimously determined that the Transaction is procedurally and substantively fair to, and in the best interests of, the Company’s stockholders, including all unaffiliated stockholders, and the participating members of the Board unanimously approved the Transaction and recommend that you vote “FOR” approval of the Transaction Proposals. In reaching its determination and recommendation, the Board considered and specifically adopted the recommendations of the Transaction Committee and the factors that the Transaction Committee took into account in making its recommendation to the Board.

Fairness Opinion of Financial Advisor

The preparation of the Fairness Opinion was a complex process and is not necessarily susceptible to partial analysis or summary description. Nevertheless, the following is a brief summary of the Fairness Opinion, subject to the assumptions, qualifications, and limitations set forth therein, that the Cash Payment is fair, from a financial point of view, to the common shareholders of the Company, excluding affiliated shareholders including Independent Director Peter Kamin and entities affiliated with him. Mirus was not requested to opine as to, and its opinion does not address:

Furthermore, no opinion, counsel, or interpretation was intended with respect to matters that require legal, regulatory, accounting, insurance, tax, or other similar professional advice.

In connection with its opinion, Mirus made such reviews, analyses, and inquiries as it deemed necessary and appropriate under the circumstances. Among other things, Mirus has:

In rendering its opinion, Mirus relied upon and assumed, without independent verification, the accuracy and completeness of all data, material, and financial, legal, tax, operating and other information (including, without limitation, the financial statements and related notes thereto of the Company) furnished or otherwise made available to them, discussed with them or reviewed by them, and did not assume responsibility for such information. Mirus did not assume any responsibility to perform, and did not perform, an independent evaluation, physical inspection, or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company, and was not furnished with any such valuations or appraisals. Additionally, Mirus did not undertake any independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims, or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation or any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject. Mirus also assumed that the Stock Split will be consummated in a timely manner and in accordance with applicable corporate law. Mirus also assumed in its opinion that the Proxy Statement will be identical in all material respects to the latest available draft reviewed by Mirus and that the Stock Split will be consummated in accordance with the terms set forth in the Proxy Statement without waiver, modification, or amendment of any material term, condition, or agreement; and that all governmental, regulatory, and other consents and approvals necessary for the consummation of the Stock Split will be obtained without any material adverse effect on the Company or on the contemplated benefits of the Stock Split.

With respect to the data and discussions relating to the business prospects and financial outlook of the Company, Mirus assumed that the financial analyses and forecasts provided to it were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company, and that the Company will perform substantially in accordance with such financial analyses and forecasts. Mirus further relied on the assurances of members of senior management of the Company that they are unaware of any facts that would make such business prospects and financial outlooks incomplete or misleading.

Mirus’s Fairness Opinion was necessarily based on financial, economic, market, and other conditions as in effect on, and the information made available to it as of, the date of its Fairness Opinion. Mirus did not undertake, and is under no obligation, to update, revise, reaffirm, or withdraw its opinion, or otherwise comment on or consider events occurring after the date of its Fairness Opinion.

Summary of Financial Analyses Performed by Mirus

Among other things, Mirus based its analyses on the June Forecast, which was produced entirely by the Company’s management without any input from Mirus and is provided in the section below entitled “Financial Forecast”.

The key inputs used in calculating implied Enterprise Values, Equity Values, and Equity Values per Share are as follows:

In arriving at its opinion, in addition to reviewing the matters listed above, Mirus used the following approaches to evaluate the fairness, from a financial point of view, of the Cash Payment to the common shareholders of the Company, excluding affiliated shareholders including Independent Director Peter Kamin and entities affiliated with him:

Mirus calculated the Company’s implied equity market value by multiplying the recent common stock price of $1.65 per share as of August 9, 2024 by the common shares outstanding of 5,805,611 and determined the implied equity market value to be $9.6 million. Then Mirus calculated the implied enterprise value of the Company, defined as current equity market value plus book value of debt minus cash and equivalents (as of May 31, 2024), to be approximately $8.8 million.

No company or transaction used in the analyses described below is identical to the Company or the Stock Split. Accordingly, an analysis of the results thereof necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the Stock Split or the public trading or other values of us or companies to which they are being compared. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using selected acquisition or company data.

Historical Trading Price Approach

Because the Company’s common stock is publicly traded, Mirus considered the per share value ascribed to it by public markets. Accordingly, Mirus analyzed the Company’s historical common stock prices, trading volume, and ownership. On August 9, 2024, the Company’s common stock closed at a price of $1.65 per share. Over the three months ending August 9, 2024, the volume-weighted average price was approximately $2.26 per share, with an intraday range of $1.63 to $2.69 per share. The Company is not actively followed by security analysts. The largest shareholder as of August 9, 2024 was Independent Director Peter Kamin with a stake of 11.2% (including entities affiliated with him). The Company estimates the stake of Mr. Kamin and his affiliates will increase to approximately 34.5% of common stock as a result of the Stock Split. As of August 9, 2024, insiders other than Mr. Kamin and his affiliates owned approximately 10% of common shares outstanding, Institutions owned approximately 24%, and others owned approximately 55%. In performing its valuation, Mirus considered the Company’s publicly traded price per share as one indication of value among several others analyzed and described in this Proxy Statement.

Comparable Public Companies Approach

This analysis provides an indication of value expressed as a multiple of revenue of comparable publicly traded companies. Mirus also considered the value of these companies as a multiple of their earnings before interest, taxes, depreciation and amortization (EBITDA), though their use in the analyses of Psychemedics was limited due to the Company’s history of negative EBITDA. Neither Mirus nor management were able to identify any public companies that provide an exact set of products and services that the Company provides and at a similar scale. Thus, the comparable companies were selected by Mirus from a broader sector of publicly traded companies, including Laboratory Services, Testing and Diagnostics. Mirus recognized that many of the selected comparable public companies are of significantly greater scale than Psychemedics, but opted to include them to enhance the overlap of business operations between the comparable public companies and Psychemedics. Mirus considered that the subset of microcap, sub-$100 million TTM revenue diagnostics companies’ profitability and valuation metrics were more similar to the Company’s than were the larger companies. Mirus analyzed, among other things, the Enterprise Value to Revenue multiples of Psychemedics relative to the companies, as identified below, that Mirus considered to be reasonably comparable.

In its analysis, Mirus derived and compared Enterprise Value to TTM Revenue multiples for the Company and a range of multiples for the selected companies with less than $100 million TTM Revenue. Mirus multiplied the Company’s TTM Revenue by the range of selected comparable company Enterprise Value to Revenue multiples to derive the Company’s implied enterprise value. Mirus then added the Company’s cash balance as of May 31, 2024 and subtracted the Company’s debt balance as of May 31, 2024 to calculate the Company’s implied equity value. Mirus then divided the Company’s implied equity value by the number of common stock shares outstanding to calculate the Company’s implied equity value per share. The table below summarizes the results of this analysis:

The Cash Payment of $2.35 per share implies an Enterprise Value to TTM Revenue multiple of 0.6x, which is in the first quartile of the selected comparable public company multiples and falls between the low and the median for those public companies with less than $100 million in revenue.

Selected Precedent Transactions Approach

Using publicly available information, Mirus reviewed the purchase prices and Enterprise Value to Revenue multiples paid in the following selected mergers and acquisitions involving target companies doing business in Laboratory Services, Testing and Diagnostics that were announced since January 1, 2022. The table below lists the transactions analyzed:

Mirus noted that the comparability of the Stock Split to any of these selected transactions is limited, given their differing natures. All but one of the selected transactions are transactions in which 100% of the target was acquired (and the other was a majority acquisition as well), rather than a partial cash-out of a minority group of shareholders. Additionally, Mirus noted that the relevance of these historical transactions to current valuation may be limited due to changing market conditions, as several transactions occurred over two years ago and it has not been publicly confirmed yet whether several of the announced acquisitions have since closed. Mirus noted that the number of relevant transactions with available data was relatively small, there was a wide range of transaction multiples, and there was no clear connection between the size and profitability of the targets and the implied multiples.

Mirus multiplied the Company’s TTM Revenue by the range of selected transaction Enterprise Value to Revenue multiples to derive the Company’s implied enterprise value. Mirus then added the Company’s cash balance as of May 31, 2024 and subtracted the Company’s debt balance as of May 31, 2024 to calculate the Company’s implied equity value. Mirus then divided the Company’s implied equity value by the number of common stock equity shares outstanding to calculate the Company’s implied equity value per share. The table below summarizes the results of this analysis:

The Cash Payment of $2.35 per share implies an Enterprise Value to TTM Revenue multiple of 0.6x, which is in the first quartile of the selected precedent transaction multiples.

Precedent Premia Paid Approach

Using publicly available information, Mirus reviewed the premia paid on equity across 284 US-based merger and acquisition and going dark reverse stock split transactions that have closed since January 1, 2019. The analysis compares the price paid per share relative to the closing price level as of the day prior to announcement, as of 1-week prior to announcement, and as of 30-days prior to announcement. The analysis excluded transactions with value greater than $250 million, outlier transactions with 30-day prior premiums either above 300% or below negative 20%, and merger and acquisition transactions in which less than 75% of business was acquired. There were a limited number of recent going dark reverse stock split precedents, and a premia paid analysis utilizing just these transactions would put weight on a small number of companies that have varying transactional circumstances, market capitalizations, profitability, ownership distributions, profitability and future growth opportunities. For this reason, Mirus aggregated the going dark reverse stock split premia paid precedents with the broader merger and acquisition premia paid precedents. Sectors, sizes, and profitability of the target companies were not considered. Mirus also noted that the merger and acquisition transactions are transactions in which over 75% of the target was acquired, rather than a partial cash-out of a minority group of shareholders. For these reasons, Mirus noted that the comparability of the Stock Split to the sample of premia paid transactions may be limited. The table below summarizes the premia paid in precedent transactions relative to different time periods:

Mirus added the range of premia to the Company’s corresponding trailing stock price to determine the Company’s implied equity value per share. The table below summarizes the results of this analysis:

The Cash Payment of $2.35 per share implies a premium of 42% (third quartile) relative to the Company’s 1-day prior stock price ($1.65), a premium of 18% (second quartile) relative to the Company’s 1-week prior stock price ($2.00), and a discount of 3% (first quartile) relative to the Company’s 30-days prior stock price ($2.43).

Discounted Cash Flow Approach

Using certain forecasted financial information provided by the Company’s senior management for July 2024 through December 2026, Mirus calculated the discounted present value of the Company’s cash flows. Mirus’s estimate of the appropriate discount rate was based on Mirus’s estimate of the Company’s current cost of capital. Mirus’s estimate of the appropriate terminal valuation was based on a range of Enterprise Value to Adjusted TTM EBITDA multiples. This analysis resulted in a range of equity values per share indicated in the table below:

Inherent in any discounted cash flow analysis is the use of several assumptions, including the accuracy of management’s forecasts, the terminal year valuation, and the discount rate applied to the projected cash flows. Variations in any of these assumptions or judgments could significantly alter the results of a discounted present value analysis.

The Cash Payment of $2.35 per share exceeds the equity value per share implied by the discounted cash flow analysis.

Buyout Approach

Using certain forecasted financial information provided by the Company’s senior management for July 2024 through December 2026, Mirus estimated the value which could be paid by an investor in a buyout transaction for the Company. Mirus’s analysis was based on the assumptions that the Company would achieve its forecasted financial results including savings from no longer being a reporting company, a range of internal rate of return (“IRR”) equity investors would require for their investment, and that sufficient debt financing would be available to consummate a buyout transaction with $2.0 million in new senior debt. Mirus’s estimate of the appropriate IRR was based on an estimate of the Company’s current cost of equity plus a premium given the assumed increase in net leverage. Mirus’s estimate of the appropriate terminal valuation was based on a range of Enterprise Value to Adjusted TTM EBITDA multiples. Estimated transaction costs were also included. This analysis resulted in a range of equity values per share indicated in the table below:

Inherent in any buyout analysis is the use of several assumptions, including the accuracy of management’s forecasts, the returns required by equity investors, amount and cost of debt financing and ultimate valuation upon exit. Variations in any of these assumptions or judgments could significantly alter the results of a buyout analysis.

The Cash Payment of $2.35 per share is within the equity value per share range implied by the buyout analysis.

Liquidation Approach

A liquidation approach was considered but ultimately not used as the book value of the Company’s assets do not necessarily reflect the value of its anticipated future cash flows. Additionally, no recent appraisals were conducted on the Company’s material assets, and fair market value may vary significantly from book value.

Miscellaneous

Mirus Securities, Inc. (“Mirus”), a Financial Industry Regulatory Authority (“FINRA”) member, is actively engaged in the investment banking business and regularly undertakes the valuation of investment securities in connection with mergers and acquisitions, private placements and similar transactions. Mirus will receive fees of $225,000 from the Company for rendering of the Fairness Opinion and related advisory services. Mirus’s fees are not contingent upon the shareholders’ approval of the Stock Split. In addition, the Company has agreed to reimburse Mirus for its reasonable and documented out-of-pocket expenses incurred in connection with Mirus’s services and to indemnify Mirus and related persons against certain liabilities arising out of its engagement, including liabilities arising under Federal securities laws. Mirus may provide financial or other services to the Company in the future and in connection with any such services Mirus may receive compensation.

Other than with respect to the Stock Split, there are no material relationships that existed during the two years prior to the date of this opinion or that are mutually understood to be contemplated in which any compensation was received or is intended to be received as a result of the relationship between Mirus any party to the Stock Split.

Financial Forecast Information

The Company does not, as a matter of general practice, publicly disclose financial projections, due to the unpredictability of the underlying assumptions and estimates inherent in preparing financial projections. However, the Company has elected to provide the unaudited prospective financial information set forth above in order to provide its stockholders access to selected non-public unaudited prospective financial information that was prepared in connection with the evaluation of the Reverse Stock Split and was provided to Mirus in order for it to prepare its financial analyses and oral opinion, which was subsequently confirmed in writing via a written opinion, dated August 12, 2024 and delivered to the Transaction Committee. The June Forecast was reasonably prepared on bases reflecting the best then-currently available estimates and judgments of the management of the Company as to the matters covered thereby. You should note that the prospective financial information constitutes forward-looking statements, and that the prospective financial information was not prepared with a view toward public disclosure. Inclusion of this information should not be regarded as an indication that any of the Company or any of its respective affiliates, officers, employees, directors, advisors or other representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results or is indicative of guidance that the Company would provide should the Reverse Stock Split not be consummated. No person has made or makes any representation to any stockholder or other person regarding the Company’s ultimate performance compared to the June Forecast or that forecasted results set forth in the June Forecast will be achieved. The Company has made no representation concerning the June Forecast or any financial forecast. Readers of this information statement are cautioned not to place undue reliance on the prospective financial information. See “Cautionary Statement Regarding Forward-Looking Statements.”

The June Forecast was prepared for Mirus’ use and is subjective in many respects. While presented with numeric specificity, the June Forecast reflects numerous estimates and assumptions of the Company’s management with respect to operating expense, capital expenditures, industry performance, general business, economic, regulatory, market and financial conditions and matters specific to the Company’s business, many of which are beyond the Company’s control. As a result, there can be no assurance that the financial results included in the June Forecast will be realized or that actual results will not be significantly higher or lower than estimated. Since the June Forecast covers multiple years, such information by its nature becomes less predictive with each successive year. A number of important factors with respect to the Company’s business and the industry in which it participates may affect actual results and result in the June Forecast not being achieved. For a description of some of these factors, the Company’s stockholders are urged to review the Company’s most recent SEC filings as well as “Cautionary Statement Regarding Forward-Looking Statements.” Economic and business environments can and do change quickly which adds a significant level of unpredictability and execution risk. These factors create significant uncertainty as to whether the results portrayed in the June Forecast will be achieved. The June Forecast was not prepared with a view toward complying with United States generally accepted accounting principles (“GAAP”), the published guidelines of the SEC regarding projections or the use of non-GAAP financial measures or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of the June Forecast. Neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the June Forecast, nor have they expressed any opinion or any other form of assurance on such information or its achievability. Furthermore, the June Forecast does not take into account any circumstances or events occurring after the date of its preparation and the Company does not intend to make publicly available any update or other revision to the June Forecast.

The following table summarizes the June Forecast, which constitutes the financial forecast prepared by our management and considered by the Transaction Committee, the Board and Mirus in connection with their analysis of the Transaction:

PSYCHEMEDICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

PSYCHEMEDICS CORPORATION
CONSOLIDATED BALANCE SHEETS