SEC Form PRER14A 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

(Amendment No. 1)

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.

 SUMMARY TERM SHEET

The following summary term sheet, 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 Relating to the Transaction — Effects of the Transaction” beginning on page [•].

Purpose of and Reasons for the Transaction

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

Purpose and Reasons of the Investors for the Transaction

Effects of the Transaction

As a result of the Transaction:

Transaction Committee and Board Recommendations of the Transaction

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

Reservation of Rights

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

Fairness of the Transaction

Position of the Investors as to the Fairness of the Transaction

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

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

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

Determination of Stockholders of Record

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

Effectiveness of the Stock Split

See “Special Factors Relating to the Transaction — Effective Date” on page [•].

Financing for the Stock Split

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

Material U.S. Federal Income Tax Consequences

See “Special Factors Relating to the Transaction — 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 delist our common stock from the Nasdaq Capital Market and 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 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.

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 beneficially owned 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 beneficially owned 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 beneficially owned by our directors and executive officers other than Mr. Kamin (see “Special Factors Relating to the Transaction — 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. As a result of the Transaction, Mr. Kamin will beneficially own approximately 34.5% of our outstanding common stock, compared to 11.4% as of August 13, 2024, based on an assumed Reverse Stock Split ratio of 1-for-5,000.

Mr. Kamin is a member of our Board and the Kamin Parties 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. Pursuant to the terms of the Stock Purchase Agreement, Mr. Kamin has informed us that 3K will be the sole purchaser of the shares of our common stock thereunder. 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 Kamin Parties 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 September 25, 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 $2,965,259 based on an assumed Reverse Stock 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, including $75,000 to be reimbursed to the Investors pursuant to the Stock Purchase Agreement for their legal fees. 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, a deviation from the assumed 1-for-5,000 Reverse Stock Split ratio 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 delist our common stock from the Nasdaq Capital Market and 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 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 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, 3K, the Peter H. Kamin Revocable Trust Dated February 2003 and the Peter H. Kamin Childrens Trust Dated March 1977 entering into a Cooperation Agreement (the “Cooperation Agreement”) in June 2022. As part of the Cooperation Agreement, the Board agreed to nominate Messrs. Kamin and 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 may be willing to fund the transaction’s costs through an equity financing of the Company if the Company and he were able to reach 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 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. The Transaction Committee determined to engage Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (“Mintz”) as its legal advisor because of its experience and expertise in both corporate and securities matters, including transactions similar to the Transaction, and corporate governance and fiduciary matters. It also engaged Mintz because of its familiarity with the Company and its circumstances having served as outside counsel to the Company for its strategic review process and other specific matters. The Transaction Committee determined that there were no relationships that would impair Mintz’s ability to provide fully independent advice to the Transaction Committee.

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. Additionally, the Transaction Committee determined that there were no relationships that would impair Mirus’s ability to provide fully independent advice to the Transaction Committee. 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 consider a financing with Mr. Kamin 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 potential 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 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 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 the Kamin Parties, 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 the Kamin Parties 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. Despite the decline in forecasted revenue reflected in the May Revised Preliminary Forecast compared with the Initial Preliminary Forecast, Mirus’s preliminary valuation figures implied by the above-referenced discounted cash flow analysis increased. The material drivers of this result were that (i) lower sales expectations were partially offset by reductions in cost of sales and other operating expense forecasts and (ii) the Company reduced its forecasts for working capital levels and capital investments. The net impact of these changes was an increase in cash flows in the forecast period, resulting in a higher per share valuation implied by Mirus’s discounted cash flow analysis. The May Revised Preliminary Forecast resulted in a higher price per share range for the above-referenced leveraged buyout analysis compared with the Initial Preliminary Forecast for the same reasons as in the discounted cash flow analysis. The price per share range increased by a relatively lower amount because Mirus lowered its assumption for the amount of debt in the leveraged buyout analysis due to the Company’s less positive outlook and reduced revenue and profitability expectations.

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 the Kamin Parties 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 Relating to the Transaction — 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 17, 2024, Sullivan sent to Mintz a revised draft of the Stock Purchase Agreement. Among other terms, the revised draft Stock Purchase Agreement (i) provided that the Kamin Parties’ obligations to consummate the transactions contemplated by the Stock Purchase Agreement were subject to additional closing conditions, including the absence of certain transaction-related legal challenges; (ii) included a right of the Kamin Parties to terminate the Stock Purchase Agreement upon a material breach by the Company of the terms of the Stock Purchase Agreement; (iii) provided for the delivery by Mintz of a legal opinion concerning certain transaction-related matters; (iv) removed a provision that aligned the scope of the Kamin Parties’ transaction-related indemnification rights under the Stock Purchase Agreement with those held by Mr. Kamin in his capacity as a director of the Company under the Company’s organizational documents and Mr. Kamin’s existing director indemnification agreement; (v) added covenants pertaining to the filing of the Company’s proxy statement in connection with the Transaction and the conduct of the Company’s stockholder meeting to approve Transaction-related proposals; and (vi) provided that the Stock Purchase Agreement would be governed by New York law, rather than Delaware law.

On July 19, 2024, representatives of Mintz and Sullivan held a meeting to discuss the draft Stock Purchase Agreement.

On July 22, 2024, Mintz sent to Sullivan a revised draft of the Stock Purchase Agreement. The revised Stock Purchase Agreement draft reflected certain discussion points from the meeting on July 19, 2024, including (i) removing the Kamin Parties’ proposed closing condition relating to transaction-related legal challenges, (ii) agreeing to the Kamin Parties’ position with respect to the scope of the Kamin Parties’ transaction-related indemnification rights, (iii) retaining the Kamin Parties’ proposed covenants pertaining to the filing of the Company’s proxy statement in connection with the Transaction and the conduct of the Company’s stockholder meeting to approve Transaction-related proposals and (iv) providing for Delaware governing law.

On July 26, 2024, Sullivan sent to Mintz a revised draft of the Stock Purchase Agreement. Among limited revisions, the revised Stock Purchase Agreement restored the Kamin Parties’ proposed closing condition relating to certain transaction-related legal challenges.

Between July 26, 2024 and August 12, 2024, the Transaction Committee and Mr. Kamin, through their respective representatives at Mintz and Sullivan, finalized the terms of the Stock Purchase Agreement and the exhibits thereto, including the terms of Mintz’s legal opinion to be provided at the closing of the transactions contemplated by the Stock Purchase Agreement.

Between July 17, 2024 and August 12, 2024, the Transaction Committee held regular update meetings with Mintz and Mirus to discuss the negotiation of the Stock Purchase Agreement, including the Kamin Parties’ proposed revisions to the Stock Purchase Agreement and the Transaction Committee’s responses to such revisions.

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 the other Kamin Parties. 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

Effects 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 September 25, 2024 we expect that as a result of the Reverse Stock Split the number of our stockholders of record would be reduced from approximately 213 to approximately 39 (based on an assumed Reverse Stock Split ratio of 1-for-5,000) and we estimate that there are approximately 7,288 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:

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 beneficially owned 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 beneficially owned 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 beneficially owned by our directors and executive officers other than Mr. Kamin (see “Special Factors Relating to the Transaction — 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 September 25, 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. As a result of the Transaction, Mr. Kamin will beneficially own approximately 34.5% of our outstanding common stock, compared to 11.4% as of August 13, 2024, based on an assumed Reverse Stock Split ratio of 1-for-5,000.

See “Special Factors Relating to the Transaction — 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 $845,000 as a result of the Transaction. Our Continuing Stockholders, including our affiliated stockholders, will be the beneficiaries of these savings. See “Special Factors Relating to the Transaction — 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 Kamin Parties 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 Relating to the Transaction — 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 $845,000 (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 and Current 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 Relating to the Transaction — 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 Relating to the Transaction — 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:

See “Special Factors Relating to the Transaction — 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 beneficially owned 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 beneficially owned by them (781,418 shares) “FOR” the Transaction Proposals (see “Special Factors Relating to the Transaction — 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.

The Transaction Committee determined to engage Mintz as its legal advisor because of its experience and expertise in both corporate and securities matters, including transactions similar to the Transaction, and corporate governance and fiduciary matters. It also engaged Mintz because of its familiarity with the Company and its circumstances having served as outside counsel to the Company for its strategic review process and other specific matters. The Transaction Committee determined that there were no relationships that would impair Mintz’s ability to provide fully independent advice to the Transaction Committee.  

Recommendation of the Transaction Committee.   Based on the foregoing analyses, including a consideration of the disadvantages of the Transaction, the Transaction Committee (which is comprised of two independent non-employee directors of the Board) 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 participating members of the Board (consisting of the members of the Transaction Committee and Mr. Hullinger, the Company’s chief executive officer and a Board member) 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. The remaining two members of the Board, Messrs. Kamin and Nevin, recused themselves from the Board vote regarding the Transaction.

Position of the Investors as to the Fairness of the Transaction 

Under the SEC rules governing “going-private” transactions, each of the Investors is an affiliate of the Company who may be engaged directly or indirectly in the Stock Split and, therefore, required to express their beliefs as to the fairness of the Transaction to the Unaffiliated Cashed Out Stockholders. The Investors are making the statements included in this section solely for purposes of complying with the requirements of Rule 13e-3 and related rules and regulations under the Exchange Act. However, the view of the Investors as to the fairness of the Transaction should not be construed as a recommendation to any stockholders of the Company as to how that stockholder should vote on the Transaction Proposals at the Annual Meeting. The Investors have interests in the Transaction that are different from, and in addition to, the unaffiliated stockholders of the Company.

The Investors believe the interests of the stockholders of the Company were represented by the Transaction Committee, which reviewed, evaluated and negotiated the terms and conditions of the Transaction, including the terms and conditions of the issuance and sale of shares of the Company’s common stock to the Investors pursuant to the Stock Purchase Agreement to fund the Cash Payment, with the assistance of its legal counsel and financial advisor.

The Investors did not participate in the deliberation of the Transaction Committee or the Board regarding, nor did they receive advice from the Transaction Committee’s legal counsel or financial advisor as to, the fairness of the Transaction to the Unaffiliated Cashed Out Stockholders. Messrs. Kamin and Nevin, directors of the Company who were affiliated with the Investors, were excluded from all Board deliberations relating to the approval of the Stock Purchase Agreement, as discussed in the section of this proxy statement entitled “Special Factors Relating to the Transaction — Background of the Transaction”. The Investors have not performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the Transaction to the unaffiliated stockholders. Based on, among other things, the factors considered by, and the analysis and resulting conclusions of, the Board and the Transaction Committee discussed in the section of this proxy statement entitled “Special Factors Relating to the Transaction — Purpose and Reasons for the Transaction” and “— Fairness of the Transaction” (which analysis and resulting conclusions the Investors adopt), the Investors believe that the Transaction is substantively fair to the Unaffiliated Cashed Out Stockholders. In particular, the Investors considered the following:

The Investors further believe that the Transaction is procedurally fair to the unaffiliated stockholders of the Company based upon, among other things, the following factors:

The Investors also considered a variety of disadvantages of the Transaction, including:

Because the Investors consider the Company to be a viable going concern, the Investors believe that the liquidation value of the Company’s common stock is irrelevant to a determination as to whether the Transaction is fair to the Unaffiliated Cashed Out Stockholders. Accordingly, the Investors did not consider the liquidation value of the Company’s assets and did not perform a liquidation analysis.

The Investors did not consider the net book value, which is an accounting concept, for purposes of determining the fairness of the Cash Payment to the Unaffiliated Cashed Out Stockholders because, in the Investors’ view, net book value is indicative of neither the Company’s market value nor its value as a going concern, but rather is an indicator of historical costs.

While the Investors considered the trading history of the Company’s common stock and noted that at various times this trading history reflected prices above the purchase price, the Investors concluded that these factors were not dispositive in determining present value. In the Investors’ judgment, the historical trading prices for the Company Common Stock are not indicative of the value of the Company Common Stock as of the date of the Transaction in light of the Company’s current business operations.

Except as disclosed in “— Background of the Transaction”, the Investors are not aware of any firm offers made by third parties to acquire the Company during the past two years and did not solicit any such offers. In any event, the Investors have no current intention of selling the Company’s common stock beneficially owned by them and, therefore, in reaching their conclusion as to fairness, did not consider the possibility that any such offers might be made.

The foregoing discussion of the information and factors considered and given weight by the Investors in connection with the fairness of the Transaction is not intended to be exhaustive but is believed to include all material factors considered by them. The Investors did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their conclusion as to the fairness of the Transaction. Rather, the Investors reached their position as to the fairness of the Transaction after considering all of the foregoing as a whole. The Investors believe these factors provide a reasonable basis upon which to form their position regarding the fairness of the Transaction to the unaffiliated stockholders. This position should not, however, be construed as a recommendation to any stockholder of the Company to approve the Transaction Proposals. The Investors make no recommendation as to how stockholders of the Company should vote their shares of common stock on such proposals.

Based on the Investors’ knowledge and analysis of available information regarding the Company, the Transaction Committee and the Board, as well as discussions with members of the Company’s senior management regarding the Company and its business and the factors considered by, and findings of, the Transaction Committee and the Board and discussed in the section of this proxy statement entitled “Special Factors Relating to the Transaction — Fairness of the Transaction; Recommendation of the Transaction Committee; Recommendation of the Board of Directors,” the Investors believe that the Transaction is fair to the unaffiliated stockholders.

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 stockholders of the Company, excluding affiliated stockholders 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.

Procedures and Assumptions

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 Final 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 stockholders of the Company, excluding affiliated stockholders 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 stockholder as of August 9, 2024 was Independent Director Peter Kamin with a beneficial ownership stake of 11.2% (including 3K, the Peter H. Kamin Revocable Trust dated February 2003 and the Peter H. Kamin Childrens Trust dated March 1997). 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 and the issuance of common stock pursuant to the Stock Purchase Agreement, based on an assumed Reverse Stock Split ratio of 1-for-5,000. As of August 9, 2024, insiders other than Mr. Kamin, 3K, the Peter H. Kamin Revocable Trust dated February 2003 and the Peter H. Kamin Childrens Trust dated March 1997 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 stockholders. 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 stockholders. 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 stockholders’ 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 and any party to the Stock Split, including Peter Kamin and the other Kamin Parties.

Summaries of Preliminary Valuation Analyses Performed by Mirus

At the request of the Transaction Committee, Mirus twice prepared and presented to the Transaction Committee preliminary valuation analyses in connection with the Stock Split. Both presentations were preliminary and subject to receipt by Mirus of a final Board-approved management forecast to be used by Mirus in conducting its final fairness opinion analysis described above.

On April 10, 2024, Mirus presented to the Transaction Committee its first preliminary valuation analysis in connection with the Stock Split, which was based on Company financial information made available to Mirus as of April 9, 2024 (including the Initial Preliminary Forecast) and market data as of April 8, 2024. Based on this information and the Initial Preliminary Forecast, Mirus’s analysis indicated a preliminary valuation range of the Company’s common stock of $2.29 to $2.94 per share (discounted cash flow analysis) and $2.95 to $3.82 per share (leveraged buyout analysis).

On June 5, 2024, Mirus presented to the Transaction Committee its revised preliminary financial analysis in connection with the Stock Split, which was based on Company financial information made available to Mirus as of June 4, 2024 (including the May Revised Preliminary Forecast) and market data as of May 31, 2024. Based on this information and the May Revised Forecast, Mirus’s analysis indicated a preliminary valuation range of the Company’s common stock of $2.47 to $3.12 per share (discounted cash flow analysis) and $2.96 to $3.88 per share (leveraged buyout analysis), respectively.

In preparing the foregoing preliminary valuation analyses, Mirus followed procedures that were materially the same as those described above under the subheading “—Procedures and Assumptions” in connection with Mirus’ rendering of its fairness opinion. Such preliminary valuation analyses employed included not only the discounted cash flow and leveraged buyout analyses referenced above, but also the following extrinsic valuation methods: analysis of the Company’s historical trading prices and multiples, premia paid, selected publicly traded companies analysis and selected precedent transaction analysis. The preliminary valuation ranges derived from these latter valuation methods are not summarized above because they are substantially the same as those described in the final fairness opinion analysis described above. The Transaction Committee limited Mirus’s scope of work for each preliminary valuation analysis to the financial aspects of the Stock Split and the fairness, from a financial point of view, of the Cash Payment to the common stockholders of the Company, excluding affiliated stockholders, including Peter Kamin and the Kamin Parties. The Transaction Committee did not authorize Mirus to evaluate factors beyond the foregoing.

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

PSYCHEMEDICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

The June Forecast reflects the following assumptions and estimates: (i) consolidated revenue growth rates ranging from -5% in 2024 to 9% in 2026 reflecting the Company’s management’s assumptions and estimates for future growth; (ii) assumed growth of Cost of Sales ranging from -6% in 2024 to 7% in 2026; (iii) assumed growth of Operating Cost ranging from -21% in 2024 to 4% in 2026; (iv) tax and other reconciling items ranging from $24 thousand benefit in 2024 to $137 thousand expense in 2026; (v) capital expenditures from $161 thousand in 2024 to $152 thousand in 2026 which primarily consists of capitalized software development costs, laboratory equipment, and leasehold improvements and is consistent with historical trends of the business; and (vi) changes in net working capital increasing from a $2.4 million source of cash in 2024 to a $4.2 million source of cash in 2026 consistent with the Company’s management’s growth expectations for the business.

Preliminary Financial Forecast Information

Initial Preliminary Forecast

The following tables summarize the Initial Preliminary Forecast, which constitutes the preliminary financial forecast prepared by our management and considered by the Transaction Committee, the Board and Mirus in connection with their preliminary analysis of the Transaction:

PSYCHEMEDICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

PSYCHEMEDICS CORPORATION
CONSOLIDATED BALANCE SHEETS

PSYCHEMEDICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

The Initial Preliminary Forecast reflects the following assumptions and estimates: (i) consolidated revenue growth rates ranging from 1% in 2024 to 10% in 2026 reflecting the Company’s management’s assumptions and estimates for future growth; (ii) assumed growth of Cost of Sales ranging from -1% in 2024 to 8% in 2026; (iii) assumed growth of Operating Cost ranging from -16% in 2024 to 4% in 2026; (iv) tax and other reconciling items ranging from $196 thousand benefit in 2024 to $341 thousand expense in 2026; (v) capital expenditures from $411 thousand in 2024 to $292 thousand in 2026 which primarily consists of capitalized software development costs, laboratory equipment, and leasehold improvements and is consistent with historical trends of the business; and (vi) changes in net working capital increasing from a $1.7 million source of cash in 2024 to a $3.2 million source of cash in 2026 consistent with the Company’s management’s growth expectations for the business.

May Revised Preliminary Forecast

The following tables summarize the May Revised Preliminary Forecast, which constitutes the preliminary financial forecast prepared by our management and considered by the Transaction Committee, the Board and Mirus in connection with their preliminary analysis of the Transaction:

PSYCHEMEDICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

PSYCHEMEDICS CORPORATION
CONSOLIDATED BALANCE SHEETS