UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Form 10-Q

 

 

 

[X]Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2020

or

 

[ x]Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
  for the transition period from _________ to __________

 

Commission file number: 1-13738

PSYCHEMEDICS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Delaware  58-1701987
(State or Other Jurisdiction of  (I.R.S. Employer Identification No.)
Incorporation or Organization)   
    
289 Great Road   
Acton, MA  01720
(Address of Principal Executive Offices)  (Zip Code)

 

Registrant's telephone number including area code:         (978) 206-8220

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes __     No X

 

The number of shares of Common Stock of the Registrant, par value $0.005 per share, outstanding at August 8, 2020 was 5,526,493.

 

 

 

 

 

PSYCHEMEDICS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2020

 

INDEX

 

  Page
PART I - FINANCIAL INFORMATION  
   
Item 1 - Financial Statements (unaudited)  
     
  Condensed Consolidated Balance Sheets 3
  Condensed Consolidated Statements of Operations and Comprehensive Income /(Loss) 4
  Condensed Consolidated Statements of Shareholders’ Equity 5
  Condensed Consolidated Statements of Cash Flows 6
  Notes to Condensed Consolidated Financial Statements 7
     
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations  
     
  Overview 16
  Results of Operations 16
  Liquidity and Capital Resources 17
     
Item 4 - Controls and Procedures  
     
PART II - OTHER INFORMATION  
     
Item 1A - Risk Factors 19
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 6 - Exhibits 20
     
Signatures 20

 

 

 

 

 

 

 

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(UNAUDITED)

 

   June 30,  December 31,
   2020  2019
       
ASSETS          
Current Assets:          
Cash  $3,672   $7,283 
Accounts receivable, net of allowance for doubtful accounts of $28 in 2020 and $45 in 2019   2,560    3,780 
Prepaid expenses and other current assets   1,496    1,788 
Income tax receivable   2,026    -- 
           
Total Current Assets   9,754    12,851 
           
Fixed assets, net of accumulated amortization and depreciation of $15,565 in 2020 and $16,197 in 2019   10,374    10,862 
Other assets   920    943 
Operating lease right-of-use assets   4,728    2,875 
           
Total Assets  $25,776   $27,531 
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
           
Current Liabilities:          
Accounts payable  $61   $617 
Accrued expenses   1,649    3,577 
Current portion of long-term debt   683    678 
Current portion of operating lease liabilities   890    963 
           
Total Current Liabilities   3,283    5,835 
           
Long-term debt   3,789    1,951 
Long-term deferred tax liabilities   476    550 
Long-term portion of operating lease liabilities   4,304    2,375 
Total Liabilities   11,852    10,711 
           
Commitments and Contingencies (Note 6)          
           
Shareholders' Equity:          
Preferred stock, $0.005 par value, 873 shares authorized, no shares issued or outstanding   --    -- 
Common stock, $0.005 par value; 50,000 shares authorized Shares issued and outstanding: 6,195 in 2020 and 6,185 in 2019   31    31 
Additional paid-in capital   32,564    32,249 
Accumulated deficit   (6,956)   (3,754)
Less - Treasury stock, at cost, 668 shares   (10,082)   (10,082)
Accumulated other comprehensive loss   (1,633)   (1,624)
           
Total Shareholders' Equity   13,924    16,820 
           
Total Liabilities and Shareholders' Equity  $25,776   $27,531 

 

See accompanying notes to condensed consolidated financial statements

 

 3 

 

 

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)

(in thousands, except per share amounts)

(UNAUDITED)

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2020  2019  2020  2019
             
Revenues  $3,314   $9,289   $10,851   $19,111 
Cost of revenues   3,566    5,120    8,375    10,534 
                     
Gross profit (loss)   (252)   4,169    2,476    8,577 
                     
Operating Expenses:                    
General & administrative   1,853    1,355    3,386    3,270 
Marketing & selling   856    1,088    1,962    2,217 
Research & development   345    400    676    820 
                     
Total Operating Expenses   3,054    2,843    6,024    6,307 
                     
Operating income (loss)   (3,306)   1,326    (3,548)   2,270 
Other income (expense), net   (39)   22    (112)   48 
                     
Income (loss) before provision for (benefit from) income taxes   (3,345)   1,348    (3,660)   2,318 
                     
Provision for (benefit from) income taxes   (1,295)   580    (1,451)   923 
                     
Net income (loss)  $(2,050)  $768   $(2,209)  $1,395 
                     
Other comprehensive income (loss):                    
Foreign currency translation   13    82    (10)   34 
Total comprehensive income (loss)  $(2,037)  $850   $(2,219)  $1,429 
                     
Basic net income (loss) per share  $(0.37)  $0.14   $(0.40)  $0.25 
                     
Diluted net income (loss) per share  $(0.37)  $0.14   $(0.40)  $0.25 
                     
Dividends declared per share  $-   $0.18   $0.18   $0.36 

 

See accompanying notes to condensed consolidated financial statements

 

 4 

 

 

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except per share amounts)

(UNAUDITED)

 

   Common Stock     Treasury Stock         
   Shares  $0.005
par Value
  Paid-In
Capital
  Shares  Cost  Accumulated
Deficit
  Accumulated Other
Comprehensive Loss
  Total
BALANCE, December 31, 2019   6,185   $31   $32,249    668   $(10,082)  $(3,754)  $(1,624)  $16,820 
Shares issued – vested   10    -    -    -    -    -    -    - 
Tax withholding from employee stock plans   -    -    (8)   -    -    -    -    (8)
Stock compensation expense   -    -    323    -    -    -    -    323 
Cash dividends ($0.18 per share)   -    -    -    -    -    (993)   -    (993)
Net loss   -    -    -    -    -    (2,209)   -    (2,209)
Other comprehensive loss   -    -    -    -    -    -    (9)   (9)
BALANCE, June 30, 2020   6,195   $31   $32,564    668   $(10,082)  $(6,956)  $(1,633)  $13,924 
                                         
BALANCE, December 31, 2018   6,175   $31   $31,523    668   $(10,082)  $(1,326)  $(1,399)  $18,747 
Shares issued – vested   10    -    -    -    -    -    -    - 
Tax withholding from employee stock plans   -    -    (33)   -    -    -    -    (33)
Stock compensation expense   -    -    319    -    -    -    -    319 
Cash dividends ($0.36 per share)   -    -    -    -    -    (1,985)   -    (1,985)
Net income   -    -    -    -    -    1,395    -    1,395 
Other comprehensive income   -    -    -    -    -    -    34    34 
BALANCE, June 30, 2019   6,185   $31   $31,809    668   $(10,082)  $(1,916)  $(1,365)  $18,477 

 

See accompanying notes to condensed consolidated financial statements

 

 5 

 

 

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

 

   Six Months Ended
   June 30,
   2020  2019
       
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income (loss)  $(2,209)  $1,395 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation and amortization   1,288    1,501 
ROU asset amortization   493    511 
Deferred income taxes   (74)   (58)
Non-cash interest income   --    36 
Loss on sale of fixed assets   94    -- 
Stock-based compensation   323    319 
Changes in assets and liabilities:          
Accounts receivable   1,220    303 
Other current assets   (1,734)   (633)
Accounts payable   (556)   (428)
Operating lease liabilities   (490)   (511)
Accrued expenses and accrued income taxes   (2,084)   (745)
Net cash provided (used) by operating activities   (3,729)   1,690 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Proceeds from sale of fixed assets   140    -- 
Proceeds from short-term investments   --    3,810 
Purchases of equipment and leasehold improvements   (675)   (165)
Cost of internally developed software   (135)   (191)
Other assets   (7)   14 
Net cash provided (used) by investing activities   (677)   3,468 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of stock, net of tax withholding   (8)   (33)
Proceeds from PPP loan   2,181    -- 
Payments of equipment financing   (338)   (207)
Cash dividends paid   (993)   (1,985)
Net cash provided (used) by financing activities   842    (2,225)
           
Effect of exchange rate changes on cash and cash equivalents   (47)   95 
Net increase (decrease) in cash   (3,611)   3,028 
Cash, beginning of period   7,283    4,069 
Cash, end of period  $3,672   $7,097 
           
Supplemental Disclosures of Cash Flow Information:          
Cash paid for income taxes  $229   $1,499 
Cash paid for interest  $43   $38 
Cash paid for operating leases  $519   $523 
Right-of-use assets acquired through operating leases  $2,346   $1,927 
Purchases of equipment through accounts payable and accrued liabilities  $193   $450 

 

See accompanying notes to condensed consolidated financial statements

 

 6 

 

 

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.Basis of Presentation

 

The interim condensed consolidated financial statements of Psychemedics Corporation (the “Company”) presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019, included in the Company's 2019 Annual Report on Form 10-K (“10-K”), as filed with the SEC.

 

The condensed consolidated balance sheet as of June 30, 2020, the condensed consolidated statements of operations and comprehensive income (loss) for the three-month and six-month periods ended June 30, 2020 and 2019, the condensed consolidated statements of shareholders’ equity for the six-month periods ended June 30, 2020 and 2019 and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2020 and 2019 are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of December 31, 2019 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm, but does not include all of the information and footnotes required for complete annual financial statements.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months and six months ended June 30, 2020 may not be indicative of the results that may be expected for the year ending December 31, 2020, or any other period.

 

Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to Psychemedics Corporation and its consolidated subsidiaries.

 

2.COVID-19 Pandemic

The outbreak of coronavirus (“COVID-19”) which was declared by the World Health Organization to be a pandemic, has, and is expected to continue to impact worldwide economic activity. While our domestic business has been deemed an essential business and we continue to provide services to our customers, COVID-19 has had a significant impact on our entire operations.  Additionally, COVID-19’s effect on the overall economy has had an adverse impact on hiring, which is having a negative impact on our testing volume. Due to COVID-19, the Brazilian government closed all driver license bureaus and extended the renewal period for all drivers licenses, which has, and will continue to have a material adverse impact on expected testing volume in Brazil for the next year.

 

 7 

 

 

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

2.COVID-19 Pandemic (continued)

 

The Coronavirus Aid, Relief and Economic Security Act (“CARES”) Act, enacted on March 27, 2020, was an emergency economic stimulus package that included spending provisions and tax cuts to strengthen the United States economy and to fund a nationwide effort to curtail the effect of COVID-19. The principal impact of the CARES Act was the adoption of the Paycheck Protection Program described below. The CARES Act also provided sweeping tax changes in response to the COVID-19 pandemic, including amendments to certain provisions of the previously enacted Tax Cuts and Jobs Act (“TCJA”). The Company recognized a benefit of $1.3 and $1.5 million for the three and six months ended June 20, 2020, respectively, as a component of income tax expense from continuing operations related to the tax provisions in the CARES Act. Based on the Company's initial assessments, the Company anticipates that the CARES Act will allow the Company to defer the employer portion of its FICA taxes to 2021 and 2022 and allow the Company to fully carryback the anticipated 2020 net operating loss, if any, for a refund of taxes previously paid. The Company continues to review the tax-related provisions of the CARES Act and its potential impact on the Company.

 

Paycheck Protection Program Loan

 

On May 1, 2020, the Company entered into a term loan with Bank of America N.A. under the Paycheck Protection Program (“PPP”) administered by the United States Small Business Administration (“SBA”) under the CARES Act. The principal amount of the loan was $2,181,157, which is evidenced by a promissory note with a maturity date of May 4, 2022. The note bears interest on the unpaid balance at the rate of one percent (1%) per annum. The note contains a deferral period of six months, for which no interest or principal payments are due. The Company is in the process of applying for loan forgiveness with the SBA and expects a final approval by the end of the year.

 

Accounts Receivable

 

We believe our allowance for credit losses related to our accounts receivable remained adequate as of June 30, 2020, due to the essential nature of our customers business, as well as the diversity of our large customer base. While we anticipate there could be an increase in the aging of our accounts receivable, we do not anticipate a significant increase in default risk.

 

Risk and Uncertainties

 

The duration and severity of COVID-19-related potential disruptions involve risks and uncertainties and it is not possible at this time to estimate the full impact on our business and could adversely affect our estimates, results of operations and financial condition.

 

To help mitigate potential effects of the pandemic on the Company, there are several safety measures that have been implemented to ensure the safety of our employees as well as maintaining our staff and business continuity. One of these measures was to split personnel into two-week shifts, with some personnel paid to stay home to minimize and mitigate any disruption. The Company is also providing personal protection equipment and implemented policies at our laboratory including temperature checks and physical distancing.

 

 8 

 

 

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3.Fair Value Measurements

 

The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, which are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the estimated borrowing rate currently available to the Company.

 

4.Stock-Based Compensation

 

The Company’s 2006 Incentive Plan (“the Plan”) provides for cash-based awards or the grant or issuance of stock-based awards. As of June 30, 2020, 231 thousand shares remained available for future grant under the Plan.

 

Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). The compensation cost charged against income is included in cost of revenues and operating expenses as follows (in thousands):

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2020  2019  2020  2019
Share-based compensation related to:                    
Stock option grants  $126   $119   $250   $221 
Restricted Stock Unit awards   34    42    73    98 
Total share-based compensation  $160   $161   $323   $319 

 

There was no income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements for the three-month and six-month periods ended June 30, 2020 and 2019.

 

 9 

 

 

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

4.Stock-Based Compensation (continued)

 

A summary of the Company’s stock option activity for the six months ended June 30, 2020 is as follows (in thousands except per share amounts):

 

   Number of
Shares
  Weighted Average
Exercise Price
Per Share
 

Weighted Average
Remaining
Contractual Life

(in years)

  Aggregate
Intrinsic
Value(1)
Outstanding, December 31, 2019   584   $14.94    7.9   $- 
Granted   -                
Exercised   -                
Forfeited   (3)  $4.37           
Outstanding, June 30, 2020   581   $14.93    7.4   $- 
                     
Exercisable, June 30, 2020   386   $15.62    6.9   $- 

 

(1)Stock options had no aggregate intrinsic value as of December 31, 2019 and June 30, 2020. Intrinsic value is calculated based on the amount by which the closing market value of the Company’s stock exceeded the exercise price of the underlying options, multiplied by the number of shares.

 

A summary of the Company’s stock unit award (“SUA”) activity for the six months ended June 30, 2020 is as follows (in thousands except per share amounts):

 

   Number of Shares  Weighted Average Price per Share (2)  Weighted Average Fair Value (2)
          
Outstanding & Unvested, December 31, 2019   24   $12.84   $311 
Granted   -           
Converted to common stock   (10)  $20.24      
Cancelled   (1)  $20.24      
Forfeited   -           
Outstanding & Unvested, June 30, 2020   13   $11.87   $156 

 

(2)Weighted average price per share is the weighted grant price based on the closing market price of each of the stock grants related to each grant of stock unit awards. The weighted average fair value is the weighted average share price times the number of shares.

 

As of June 30, 2020, 820 thousand shares of common stock were reserved for issuance under the Plan. As of June 30, 2020, the unamortized fair value of awards relating to outstanding SUAs and options was $800 thousand, which is expected to be amortized over a weighted average period of 2.4 years.

 

 

 

 10 

 

 

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

5.Basic and Diluted Net Income Per Share

 

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The number of dilutive common equivalent shares outstanding during the period was determined in accordance with the treasury-stock method. Common equivalent shares consisted of common stock issuable upon the exercise of outstanding options and common stock issuable upon the vesting of outstanding, unvested SUAs. Basic and diluted weighted average common shares outstanding for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2020  2019  2020  2019
Weighted average common shares outstanding, basic   5,523    5,514    5,520    5,510 
Dilutive common equivalent shares   -    9    -    25 
Weighted average common shares outstanding, diluted   5,523    5,523    5,520    5,535 

 

The computation of diluted earnings per share for the three and six month period ended June 30, 2020 excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related options during the period. These stock awards are not included in the computation of diluted income per share because the effect would be antidilutive. For the three and six month periods ended June 30, 2020, the number of antidilutive stock awards excluded from diluted earnings per share was 594 thousand.

 

6.Commitments and Contingencies

 

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. While the ultimate outcome of individual legal claims is inherently unpredictable, we believe that the final resolution of any pending actions will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.

 

 11 

 

 

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

7.Operating Leases

 

The Company has five operating leases for office and laboratory space used to conduct business. The exercise of lease renewal options is at our discretion. There is one lease which contains renewal options to extend the lease terms included in our Right-Of-Use (“ROU”) assets and lease liabilities as they are reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise. As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the lease commencement date in determining the net present value (NPV) of the lease payments.

 

As of June 30, 2020, the Company recognized a Right-Of-Use (“ROU”) asset of $4.7 million and an operating lease liability of $5.2 million based on the present value of the minimum rental payments as a result of adoption of ASC Topic 842. The weighted average discount rate used for leases as of June 30, 2020 is 3.9%. The weighted average lease term as of June 30, 2020 is 5.4 years. The operating lease expense for the three and six months ended June 30, 2020 was $257 thousand and $564 thousand, respectively.

 

Maturities and balance sheet presentation of the Company’s lease liabilities for all operating leases as of June 30, 2020 is as follows (in thousands):

 

2020   519 
2021   1,041 
2022   1,028 
2023   1,096 
2024   1,035 
2025   593 
2026   458 
Total Lease Payments   5,770 
Less Interest:   (576)
Present value of lease liabilities  $5,194 
      
   Current operating lease liabilities  $890 
   Long-term operating lease liabilities   4,304 
  Total  $5,194 

 

 12 

 

 

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

8.Debt and Other Financing Arrangements

 

On March 20, 2014, the Company entered into an equipment financing arrangement (“Loan Agreement”) with Banc of America Leasing & Capital, which it amended on August 8, 2014, September 15, 2015, October 30, 2017, and December 2, 2019. The terms of the arrangement are detailed in the 10-K.

 

The weighted average interest rate on outstanding debt under the Loan Agreement was 2.8% and 3.5% for the three and six months ended June 30, 2020. The interest expense was $19 thousand and $44 thousand for the three and six months ended June 30, 2020, respectively. As of June 30, 2020, the weighted average interest rate was 3.3% and there was $2.3 million of outstanding debt related under the loan agreement. The Company was in compliance with all loan covenants as of June 30, 2020.

 

The annual principal repayment requirements for debt obligations as of June 30, 2020 were as follows (in 000’s):

 

2020  $340 
2021   688 
2022   664 
2023   294 
2024   305 
Long-term debt from equipment financing   2,291 
Less current portion of long-term debt   (683)
Long-term debt from equipment financing, net of current portion   1,608 
PPP Loan   2,181 
Total long-term debt, net of current portion  $3,789 

 

1 See note 2. for description of PPP Loan.

 

9.Revenue

 

The table below disaggregates our external revenue by major source (in thousands).  For additional revenue detail relating to geographic breakdown of sales, see Note 10 – “Business Segment Reporting”.

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2020  2019  2020  2019
Testing  $2,941   $8,451   $9,774   $17,474 
Shipping/Collection (hair)   353    777    1,013    1,511 
Other   20    61    64    126 
Total Revenue  $3,314   $9,289   $10,851   $19,111 

 13 

 

 

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

10.Business Segment Reporting

 

The Company manages its operations as one segment, drug testing services. As a result, the financial information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment. All Brazil sales are through one independent distributor. The Company’s revenues by geographic region are as follows (in thousands):

 

   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2020  2019  2020  2019
Consolidated Revenue:                    
United States  $3,125   $6,807   $9,466   $13,867 
Brazil   164    2,358    1,145    5,001 
Other   25    124    240    243 
Total Revenue  $3,314   $9,289   $10,851   $19,111 

 

11.Significant Customers

 

The Company had one customer that represented 11% of revenue for the six months ended June 30, 2020 and one customer that represented 26% of revenue for the six months ended June 30, 2019. The Company had one customer that represented 30% of the total accounts receivable balance as of June 30, 2020 and two customers that represented 13% and 11%, respectively, of the total accounts receivable balance as of December 31, 2019.

 

12.Recently Adopted Accounting Pronouncements

 

There are no recently adopted accounting pronouncements for the quarter.

 

13.Accounting Pronouncements Issued But Not Yet Effective

 

During the quarter there were no recent accounting pronouncements affecting the Company.

 14 

 

Item 2.

 

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

 

FACTORS THAT MAY AFFECT FUTURE RESULTS

 

From time to time, information provided by the Company or statements made by its employees may contain forward-looking information that involves risks and uncertainties. In particular, statements contained in this report that are not historical facts (including but not limited to statements concerning earnings, earnings per share, revenues, cash flows, dividends, future business, growth opportunities, profitability, pricing, new accounts, customer base, market share, test volume, sales and marketing strategies, market demand for drug testing services in Brazil, U.S. and foreign drug testing laws and regulations, including, without limitation, Brazilian professional driver drug testing requirements, required investments in plant, equipment and people and new test development, the effect of the COVID-19 pandemic on our business, including its effects on our business and profitability, and on the well-being and availability of our employees, the continued operation of our testing facilities and loan forgiveness under the PPP program) may be “forward looking” statements. Actual results may differ from those stated in any forward-looking statements. Factors that may cause such differences include but are not limited to risks associated with the severity of the COVID-19 pandemic, and its impact on the Company’s markets, including its impact on the Company’s customers, suppliers and employees, as well as its risk on the United States and worldwide economies, the timing, scope and effectiveness of further governmental, regulatory, fiscal monetary and public health responses to the COVID-19 pandemic, compliance by the Company with repayment forgiveness requirements under the PPP, changes in U.S. and foreign government regulations, including but not limited to FDA regulations, changes in Brazilian laws and regulations and proposed laws and regulations and the implementation of such laws and regulations, currency risks, R&D spending, competition (including, without limitation, competition from other companies pursuing the same growth opportunities), the Company’s ability to maintain its reputation and brand image, the ability of the Company to achieve its business plans, cost controls, leveraging of its global operating platform, risks of information technology system failures and data security breaches, the uncertain global economy, the Company’s ability to attract, develop and retain executives and other qualified employees and independent contractors, including distributors, the Company’s ability to obtain and protect intellectual property rights, litigation risks, general economic conditions With respect to the continued payment of cash dividends, factors include, but are not limited to, all of the factors listed above with respect to the impact of the COVID-19 pandemic on the our business generally, plus cash flows, available surplus, capital expenditure reserves required, debt service obligations, regulatory requirements and other factors that the Board of Directors of the Company may take into account.

 

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements represent the Company’s estimates and assumptions only as of the filing date of this Report. The Company expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the filing date of this Report, in order to reflect changes in circumstances or expectations, or the occurrence of unanticipated events, except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under “Risk Factors” set forth in Part I Item 1A of the 10-K, as well as the risks and uncertainties discussed elsewhere in this Report. The Company qualifies all of its forward-looking statements by these cautionary statements. The Company cautions you that these risks are not exhaustive. The Company operates in a continually changing business environment and new risks emerge from time to time.

 15 

 

 

OVERVIEW

 

Revenue for the second quarter of 2020 was $3.3 million compared to $9.3 million in 2019, a decrease of 64%. The Company reported a net loss of $2.1 million, or $0.37 per diluted share for the three months ended June 30, 2020 versus net income of $0.8 million, or $0.14 per diluted share for the same period in 2019. Revenue and earnings decrease for the quarter were attributed to a reduction of domestic and international sales volume, primarily as a result of the coronavirus pandemic (“COVID-19”). Further contributing to the net loss were higher personnel costs, as the Company maintained personnel to comply with anticipated PPP loan forgiveness. However, the Company was not able to take the PPP loan forgiveness into income during the quarter (the higher personnel costs incurred during the period were not offset by the income from loan forgiveness) as the SBA has not formally forgiven the PPP loan. While we believe we will quality for loan forgiveness, this process will take several months. Revenue for the six months ended June 30, 2020 and 2019 was $10.9 million and $19.1 million, respectively, a decrease of 43%. The Company had a net loss for the six months ended June 30, 2020 of $2.2 million versus net income for the six months ended June 30, 2019 of $1.4 million. The Company declared $0.18 per share of cash dividends to its shareholders in the six months ended June 30, 2020. It is important to note that this dividend was declared in February 2020, following the release of year-end earnings, with no dividends declared thereafter. This compared to dividends declared of $0.36 per share for the six-month period in 2019.

 

As a result of being approached by third parties, our Board of Directors authorized the Company to explore strategic alternatives to enhance shareholder value. As a result of this process, during the quarter, the Company incurred increased legal costs. The Company does not intend to comment further or update the market with any further information on the process unless and until the Board of Directors has approved a specific action. There can be no assurance that this process will result in any definitive agreement, any specific action or change in current strategy.

 

RESULTS OF OPERATIONS

 

Revenue decreased 64% for the three months ended June 30, 2020 compared to the same period in 2019, primarily due to a 73% decrease in volume resulting from COVID-19, both domestically and internationally. For the same period, domestic revenues decreased $3.7 million (54%) and international revenues decreased $2.3 million (92%). For the six months ended June 2020, revenue decreased 43%, primarily due to a 53% decrease in volume. For the same period, domestic revenues decreased $4.4 million (32%) and international revenues decreased $3.9 million (74%). The Company’s domestic revenues were impacted by the shut-down of the economy due to COVID-19, with some lesser impact in safety sensitive industries. The international revenue decline was primarily from Brazil testing volume. Due to COVID-19, the Brazilian government extended the renewal period for drivers licenses to 18 months, causing a major fall off in volume and revenues from Brazil.

 

Gross profit (loss): The Company had a ($252) thousand gross loss for the three months ended June 30, 2020, compared to a $4.2 million gross profit for the same period in 2019. Direct costs decreased by $1.6 million or 30% for the three months ended June 30, 2019 compared to the same period in 2019. The margin was adversely impacted by lower sales volume as noted above. In addition, to qualify for future forgiveness of the PPP loan, the Company was required to maintain prior levels of personnel, which negatively impacted the margin. Gross profit for the six months ended June 30, 2020 decreased $6.1 million to $2.5 million for the comparable period in 2019. Direct costs decreased by $2.2 million or 20% for the six months ended June 30, 2020 when compared to the same period in 2019. The gross profit margin for the six-month period ended June 30, 2020 was 23% compared to 45% for the comparable period in 2019. The margin was adversely impacted by lower sales volume and continuation of prior year levels of personnel-related expenses as noted above.

 

 16 

 

General and administrative (“G&A”) expenses increased 37% or $0.5 million to $1.9 million for the three months ended June 30, 2020 compared to $1.4 million for the same period in 2019. As a percentage of revenue, G&A expenses were 56% and 15% for the three months ended June 30, 2020 and 2019, respectively. The increase in G&A expenses was driven by two items. The first is that the second quarter of 2019 had a credit for some legal expenses due to an insurance reimbursement. The second relates to a significant amount of legal expenses in the second quarter related to discussions we had regarding potential strategic transactions. As a result of being approached by third parties, our Board of Directors authorized the Company to explore strategic alternatives to enhance shareholder value. As a result of this process, the Company incurred increased legal costs. G&A expenses were $3.4 million and $3.3 million for the six months ended June 30, 2020 and 2019, respectively. As a percentage of revenue, G&A expenses were 31% and 17% for the six months ended June 30, 2020 and 2019, respectively.

 

Marketing and selling expenses decreased 21% or $0.2 million to $0.9 million for the three months ended June 30, 2020 compared to $1.1 million for the same period in 2019. Total marketing and selling expenses represented 26% and 12% of revenue for the three months ended June 30, 2020 and 2019, respectively. Marketing and selling expenses were $2.0 million and $2.2 million for the six months ended June 30, 2020 and 2019, respectively. As a percentage of revenue, marketing and selling expenses were 18% and 12% for the six months ended June 30, 2020 and 2019, respectively.

 

Research and development (“R&D”) expenses for the three months ended June 30, 2020 and 2019 were $0.3 million and $0.4 million, respectively. R&D expenses represented 10% and 4% of revenue for the three months ended June 30, 2020 and 2019, respectively. R&D expenses were $0.7 million and $0.8 million for the six months ended June 30, 2020 and 2019, respectively. R&D expenses represented 6% and 4% of revenue for the six months ended June 30, 2020 and 2019, respectively.

 

Provision for income taxes consists primarily of federal and state income taxes in the United Sates and income taxes in Brazil. We estimate income taxes in each of the jurisdictions in which we operate. During the three months ended June 30, 2020, the Company recorded a tax benefit of $1.3 million (effective tax rate of 39%) and a tax provision of $0.6 million (effective tax rate of 43%) for the comparative period in 2019. During the six months ended June 30, 2020 and 2019 the Company recorded a tax benefit of $1.5 million and a tax provision of $0.9 million for the comparative period in 2019. These provisions represented an effective tax rate of 40% for the six months ended June 30, 2020 and 2019.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At June 30, 2020, the Company had approximately $3.7 million of cash and $6.5 million of working capital. The Company's operating activities used $3.7 million of cash for the six months ended June 30, 2020. Investing activities used $0.7 million of cash while financing activities provided $0.9 million of cash during the first six months of 2020.

 

 17 

 

Cash used by operating activities of $3.7 million reflected net loss of $2.2 million adjusted for depreciation and amortization of $1.3 million, ROU asset amortization of $0.5 million and stock-based compensation of $0.3 million. This was also affected by an increase in current assets of $0.5 million and a decrease in accounts payable and accrued expenses of $2.6 million.

 

Cash used in investing activities of $0.7 million consisted primarily of costs related to leasehold improvements. We anticipate spending $0.3 million to $0.8 million in additional capital purchases for the remainder of 2020.

 

Cash provided by financing activities of $0.9 million primarily included proceeds from the PPP loan of $2.2 million, partially offset by cash dividends paid to shareholders of $1.0 million and payments on equipment financing of $0.3 million.

 

Contractual obligations and other commercial commitments as of June 30, 2020 include operating lease commitments and outstanding debt, described in Notes 7 and 8, respectively of the Notes to Condensed Consolidated Financial Statements.

 

At June 30, 2020, the Company's principal sources of liquidity included an aggregate of approximately $3.7 million of cash.  The Company had $6.5 million and $7.0 million of working capital as of June 30, 2020 and December 31, 2019, respectively. On May 4, 2020, the Company received SBA loan proceeds of approximately $2.2 million through the CARES act. While management currently believes that its existing funds and recently received loan proceeds should be adequate to fund operations for the next 12 months, economic conditions related to COVID-19 are expected to continue to adversely affect the Company’s operating results and cash flows. As a result, the Company has temporarily suspended its quarterly dividend until the economic situation stabilizes.

 

Item 4. Controls and Procedures

 

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

 

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

 

 18 

 

PART II OTHER INFORMATION

 

Item 1A. Risk Factors

 

Risks associated with the Coronavirus (“COVID-19”).

 

The COVID-19 pandemic is expected to continue to materially affect the Company’s operating results during at least the next fiscal quarter and likely longer. In particular, the closing of drivers license bureaus in Brazil in response to COVID-19, along with other risk factors related to our operations in Brazil noted below, are expected to continue to have a material adverse impact on expected testing volume in Brazil for at least the next year. In addition, COVID-19’s effect on the world economy has caused significant increases in unemployment which has historically had a negative impact on our testing volume. COVID-19’s negative impact on the Company’s domestic and foreign-based revenue and operating results in the fiscal first quarter is anticipated to continue into the third quarter, and potentially beyond. However, this risk was mitigated in part by the Company’s recent receipt of proceeds from the CARES Act loan noted above.

 

While the primary COVID-19 related risk to the business is from reduced sales volume, there is also a risk from a disrupted supply chain or personnel availability. The Company has obtained additional supplies to reduce the impact of a disrupted supply chain, and has taken other protective measures to lessen the impact of COVID-19 on our own operations, including the use of personal protective equipment, enhanced cleaning and split shifts at our laboratory, however, there can be no assurance that our own operations will not be adversely impacted by COVID-19.

 

Risks associated with CARES Act PPP loan (“loan”)

 

Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments and covered utilities during the twenty four-week period beginning on the date of loan approval. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest. While we believe we satisfied all eligibility criteria for the loan, and that our receipt of the loan is consistent with the broad objectives of the CARES Act, it is possible that the SBA or another federal agency will determine that we were ineligible to receive the loan, in which event we would be required to repay the loan. In addition, if these events were to transpire, they could have a material adverse effect on our business, results of operations and financial condition.

 

We are subject to numerous political, legal, operational, business and other risks as a result of our international operations which could impact our business in many ways.

 

Although we conduct a majority of our business in the United States, over the last several years, a significant portion of our business has been derived from Brazil. As we have previously disclosed, our international operations increased our exposure to the inherent risks of doing business in international markets, including, without limitation, changes in the local economic environment and local laws and regulations, the Company’s reliance upon one distributor in Brazil and potential competition from third parties doing business in Brazil. Also as previously noted, the Company’s distribution agreement with its Brazilian distributor may be terminated for any reason by either the Company or its distributor following 90 days’ written notice and is non-exclusive to the Company.

 

 19 

 

International operations also require us to devote significant management resources to implement our controls and systems in foreign markets, to comply with the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws in non-U.S. jurisdictions and to overcome challenges based on differing languages and cultures.

 

Except as noted above, there have been no material changes in our risk factors from those disclosed in the 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no purchases of treasury stock in the first six months of 2020.

 

Item 6. Exhibits

 

31.1Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2Certification of Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase

 

 

SIGNATURES

 

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

 

    Psychemedics Corporation
       
Date: August 13, 2020 By: /s/ Raymond C. Kubacki
      Raymond C. Kubacki
      Chairman and Chief Executive Officer
      (principal executive officer)
       
Date: August 13, 2020 By: /s/ Neil L. Lerner
      Neil L. Lerner
      Vice President - Finance
      (principal accounting officer)

 

 

20

 

 

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

 

I, Raymond C. Kubacki, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Psychemedics Corporation (“the registrant”);

 

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

 

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: August 13, 2020 /s/ Raymond C. Kubacki
    Raymond C. Kubacki
  Chairman and Chief Executive Officer
    (principal executive officer)

 

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

 

I, Neil Lerner, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Psychemedics Corporation (“the registrant”);

 

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

 

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: August 13, 2020 /s/ Neil Lerner
  Neil Lerner
  Vice President - Finance
  (principal accounting officer)

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

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

 

 

(1)The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, as filed with the Securities and Exchange Commission on August 13, 2020 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

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

 

 

 

Date: August 13, 2020 /s/ Raymond C. Kubacki
    Raymond C. Kubacki
  Chairman and Chief Executive Officer
    (principal executive officer)

 

 

Exhibit 32.2

 

 

CERTIFICATION PURSUANT TO

U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

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

 

 

(1)The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, as filed with the Securities and Exchange Commission on August 13, 2020 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

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

 

 

Date: August 13, 2020 /s/ Neil Lerner
  Neil Lerner
  Vice President - Finance
  (principal accounting officer)

 

 

v3.20.2
Document And Entity Information - shares
6 Months Ended
Jun. 30, 2020
Aug. 08, 2020
Document Information [Line Items]    
Entity Registrant Name PSYCHEMEDICS CORP  
Entity Central Index Key 0000806517  
Trading Symbol pmd  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Current Reporting Status Yes  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Interactive Data Current Yes  
Entity Common Stock, Shares Outstanding (in shares)   5,526,493
Entity Shell Company false  
Document Type 10-Q  
Document Period End Date Jun. 30, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Title of 12(b) Security Common stock. $0.005 par value  
v3.20.2
Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Current Assets:    
Cash $ 3,672 $ 7,283
Accounts receivable, net of allowance for doubtful accounts of $28 in 2020 and $45 in 2019 2,560 3,780
Prepaid expenses and other current assets 1,496 1,788
Income tax receivable 2,026
Total Current Assets 9,754 12,851
Fixed assets, net of accumulated amortization and depreciation of $15,565 in 2020 and $16,197 in 2019 10,374 10,862
Other assets 920 943
Operating lease right-of-use assets 4,728 2,875
Total Assets 25,776 27,531
Current Liabilities:    
Accounts payable 61 617
Accrued expenses 1,649 3,577
Current portion of long-term debt 683 678
Current operating lease liabilities 890 963
Total Current Liabilities 3,283 5,835
Long-term debt 3,789 1,951
Long-term deferred tax liabilities 476 550
Long-term portion of operating lease liabilities 4,304 2,375
Total Liabilities 11,852 10,711
Commitments and Contingencies (Note 6)
Shareholders' Equity:    
Preferred stock, $0.005 par value, 873 shares authorized, no shares issued or outstanding
Common stock, $0.005 par value; 50,000 shares authorized Shares issued and outstanding: 6,195 in 2020 and 6,185 in 2019 31 31
Additional paid-in capital 32,564 32,249
Accumulated deficit (6,956) (3,754)
Less - Treasury stock, at cost, 668 shares (10,082) (10,082)
Accumulated other comprehensive loss (1,633) (1,624)
Total Shareholders' Equity 13,924 16,820
Total Liabilities and Shareholders' Equity $ 25,776 $ 27,531
v3.20.2
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)
shares in Thousands, $ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Allowance for doubtful accounts $ 28 $ 45
Accumulated amortization and depreciation $ 15,565 $ 16,197
Preferred stock, par value (in dollars per share) $ 0.005 $ 0.005
Preferred stock, shares authorized (in shares) 873 873
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.005 $ 0.005
Common stock, shares authorized (in shares) 50,000 50,000
Common stock, shares issued (in shares) 6,195 6,185
Common stock, shares outstanding (in shares) 6,195 6,185
Treasury stock, shares (in shares) 668 668
v3.20.2
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenues $ 3,314 $ 9,289 $ 10,851 $ 19,111
Cost of revenues 3,566 5,120 8,375 10,534
Gross profit (loss) (252) 4,169 2,476 8,577
Operating Expenses:        
General & administrative 1,853 1,355 3,386 3,270
Marketing & selling 856 1,088 1,962 2,217
Research & development 345 400 676 820
Total Operating Expenses 3,054 2,843 6,024 6,307
Operating income (loss) (3,306) 1,326 (3,548) 2,270
Other income (expense), net (39) 22 (112) 48
Income (loss) before provision for (benefit from) income taxes (3,345) 1,348 (3,660) 2,318
Provision for (benefit from) income taxes (1,295) 580 (1,451) 923
Net income (loss) (2,050) 768 (2,209) 1,395
Other comprehensive income (loss):        
Foreign currency translation 13 82 (10) 34
Total comprehensive income (loss) $ (2,037) $ 850 $ (2,219) $ 1,429
Basic net income (loss) per share (in dollars per share) $ (0.37) $ 0.14 $ (0.40) $ 0.25
Diluted net income (loss) per share (in dollars per share) (0.37) 0.14 (0.40) 0.25
Dividends declared per share (in dollars per share) $ 0.18 $ 0.18 $ 0.36
v3.20.2
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock [Member]
Retained Earnings [Member]
AOCI Attributable to Parent [Member]
Total
Balance (in shares) at Dec. 31, 2018 6,175   668      
Balance at Dec. 31, 2018 $ 31 $ 31,523 $ (10,082) $ (1,326) $ (1,399) $ 18,747
Shares issued – vested (in shares) 10        
Shares issued – vested
Tax withholding from employee stock plans (33) (33)
Stock compensation expense 319 319
Cash dividends (1,985) (1,985)
Net income (loss)       1,395   1,395
Other comprehensive income (loss) 34 34
Balance (in shares) at Jun. 30, 2019 6,185   668      
Balance at Jun. 30, 2019 $ 31 31,809 $ (10,082) (1,916) (1,365) 18,477
Balance (in shares) at Dec. 31, 2019 6,185   668      
Balance at Dec. 31, 2019 $ 31 32,249 $ (10,082) (3,754) (1,624) 16,820
Shares issued – vested (in shares) 10        
Shares issued – vested
Tax withholding from employee stock plans (8) (8)
Stock compensation expense   323       323
Cash dividends (993) (993)
Net income (loss) (2,209) (2,209)
Other comprehensive income (loss) (9) (9)
Balance (in shares) at Jun. 30, 2020 6,195   668      
Balance at Jun. 30, 2020 $ 31 $ 32,564 $ (10,082) $ (6,956) $ (1,633) $ 13,924
v3.20.2
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) (Parentheticals) - $ / shares
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dividends declared per share (in dollars per share) $ 0.18 $ 0.18 $ 0.36
v3.20.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income (loss) $ (2,209) $ 1,395
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 1,288 1,501
ROU asset amortization 493 511
Deferred income taxes (74) (58)
Non-cash interest income 36
Loss on sale of fixed assets 94
Stock-based compensation 323 319
Changes in assets and liabilities:    
Accounts receivable 1,220 303
Other current assets (1,734) (633)
Accounts payable (556) (428)
Operating lease liabilities (490) (511)
Accrued expenses and accrued income taxes (2,084) (745)
Net cash provided (used) by operating activities (3,729) 1,690
CASH FLOWS FROM INVESTING ACTIVITIES:    
Proceeds from sale of fixed assets 140
Proceeds from short-term investments 3,810
Purchases of equipment and leasehold improvements (675) (165)
Cost of internally developed software (135) (191)
Other assets (7) 14
Net cash provided (used) by investing activities (677) 3,468
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from issuance of stock, net of tax withholding (8) (33)
Proceeds from PPP loan 2,181
Payments of equipment financing (338) (207)
Cash dividends paid (993) (1,985)
Net cash provided (used) by financing activities 842 (2,225)
Effect of exchange rate changes on cash and cash equivalents (47) 95
Net increase (decrease) in cash (3,611) 3,028
Cash, beginning of period 7,283 4,069
Cash, end of period 3,672 7,097
Supplemental Disclosures of Cash Flow Information:    
Cash paid for income taxes 229 1,499
Cash paid for interest 43 38
Cash paid for operating leases 519 523
Right-of-use assets acquired through operating leases 2,346 1,927
Purchases of equipment through accounts payable and accrued liabilities $ 193 $ 450
v3.20.2
Note 1 - Basis of Presentation
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
1.
Basis of Presentation
 
The interim condensed consolidated financial statements of Psychemedics Corporation (the “Company”) presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form
10
-Q and do
not
include all the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended
December 31, 2019,
included in the Company's
2019
Annual Report on Form
10
-K (
“10
-K”), as filed with the SEC.
 
The condensed consolidated balance sheet as of
June 30, 2020,
the condensed consolidated statements of operations and comprehensive income (loss) for the
three
-month and
six
-month periods ended
June 30, 2020
and
2019,
the condensed consolidated statements of shareholders' equity for the
six
-month periods ended
June 30, 2020
and
2019
and the condensed consolidated statements of cash flows for the
six
-month periods ended
June 30, 2020
and
2019
are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of
December 31, 2019
has been derived from the Company's annual financial statements that were audited by an independent registered public accounting firm, but does
not
include all of the information and footnotes required for complete annual financial statements.
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the
three
months and
six
months ended
June 30, 2020
may
not
be indicative of the results that
may
be expected for the year ending
December 31, 2020,
or any other period.
 
Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to Psychemedics Corporation and its consolidated subsidiaries.
v3.20.2
Note 2 - COVID-19 Pandemic
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Effect of Covid-19 Pandemic [Text Block]
2.
COVID-
19
Pandemic
The outbreak of coronavirus (“COVID-
19”
) which was declared by the World Health Organization to be a pandemic, has, and is expected to continue to impact worldwide economic activity. While our domestic business has been deemed an essential business and we continue to provide services to our customers, COVID-
19
has had a significant impact on our entire operations.  Additionally, COVID-
19's
effect on the overall economy has had an adverse impact on hiring, which is having a negative impact on our testing volume. Due to COVID-
19,
the Brazilian government closed all driver license bureaus and extended the renewal period for all drivers licenses, which has, and will continue to have a material adverse impact on expected testing volume in Brazil for the next year.
 
The Coronavirus Aid, Relief and Economic Security Act (“CARES”) Act, enacted on
March 27, 2020,
was an emergency economic stimulus package that included spending provisions and tax cuts to strengthen the United States economy and to fund a nationwide effort to curtail the effect of COVID-
19.
The principal impact of the CARES Act was the adoption of the Paycheck Protection Program described below. The CARES Act also provided sweeping tax changes in response to the COVID-
19
pandemic, including amendments to certain provisions of the previously enacted Tax Cuts and Jobs Act (“TCJA”). The Company recognized a benefit of
$1.3
and
$1.5
million for the
three
and
six
months ended
June 20, 2020,
respectively, as a component of income tax expense from continuing operations related to the tax provisions in the CARES Act. Based on the Company's initial assessments, the Company anticipates that the CARES Act will allow the Company to defer the employer portion of its FICA taxes to
2021
and
2022
and allow the Company to fully carryback the anticipated
2020
net operating loss, if any, for a refund of taxes previously paid. The Company continues to review the tax-related provisions of the CARES Act and its potential impact on the Company.
 
Paycheck Protection Program Loan
 
On
May 1, 2020,
the Company entered into a term loan with Bank of America N.A. under the Paycheck Protection Program (“PPP”) administered by the United States Small Business Administration (“SBA”) under the CARES Act. The principal amount of the loan was
$2,181,157,
which is evidenced by a promissory note with a maturity date of
May 4, 2022. 
The note bears interest on the unpaid balance at the rate of
one
percent (
1%
) per annum. The note contains a deferral period of
six
months, for which
no
interest or principal payments are due. The Company is in the process of applying for loan forgiveness with the SBA and expects a final approval by the end of the year.
 
Accounts Receivable
 
We believe our allowance for credit losses related to our accounts receivable remained adequate as of
June 30, 2020,
due to the essential nature of our customers business, as well as the diversity of our large customer base. While we anticipate there could be an increase in the aging of our accounts receivable, we do
not
anticipate a significant increase in default risk.
 
Risk and Uncertainties
 
The duration and severity of COVID-
19
-related potential disruptions involve risks and uncertainties and it is
not
possible at this time to estimate the full impact on our business and could adversely affect our estimates, results of operations and financial condition.
 
To help mitigate potential effects of the pandemic on the Company, there are several safety measures that have been implemented to ensure the safety of our employees as well as maintaining our staff and business continuity. One of these measures was to split personnel into
two
-week shifts, with some personnel paid to stay home to minimize and mitigate any disruption. The Company is also providing personal protection equipment and implemented policies at our laboratory including temperature checks and physical distancing.
v3.20.2
Note 3 - Fair Value Measurements
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Fair Value Disclosures [Text Block]
3.
Fair Value Measurements
 
The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, which are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company's long-term debt approximates fair value as the interest rate on the debt approximates the estimated borrowing rate currently available to the Company.
v3.20.2
Note 4 - Stock-based Compensation
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]
4.
Stock-Based Compensation
 
The Company's
2006
Incentive Plan (“the Plan”) provides for cash-based awards or the grant or issuance of stock-based awards. As of
June 30, 2020,
231
thousand shares remained available for future grant under the Plan.
 
Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). The compensation cost charged against income is included in cost of revenues and operating expenses as follows (in thousands):
 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2020   2019   2020   2019
Share-based compensation related to:                                
Stock option grants   $
126
    $
119
    $
250
    $
221
 
Restricted Stock Unit awards    
34
     
42
     
73
     
98
 
Total share-based compensation   $
160
    $
161
    $
323
    $
319
 
 
There was
no
income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements for the
three
-month and
six
-month periods ended
June 30, 2020
and
2019.
 
A summary of the Company's stock option activity for the
six
months ended
June 30, 2020
is as follows (in thousands except per share amounts):
 
    Number of
Shares
  Weighted Average
Exercise Price
Per Share
 
Weighted Average
Remaining
Contractual Life
(in years)
  Aggregate
Intrinsic
Value
(1)
Outstanding, December 31, 2019    
584
    $
14.94
     
7.9
    $
-
 
Granted    
-
     
 
     
 
     
 
 
Exercised    
-
     
 
     
 
     
 
 
Forfeited    
(3
)   $
4.37
     
 
     
 
 
Outstanding, June 30, 2020    
581
    $
14.93
     
7.4
    $
-
 
                                 
Exercisable, June 30, 2020    
386
    $
15.62
     
6.9
    $
-
 
 
(
1
)
Stock options had
no
aggregate intrinsic value as of
December 31, 2019
and
June 30, 2020.
Intrinsic value is calculated based on the amount by which the closing market value of the Company's stock exceeded the exercise price of the underlying options, multiplied by the number of shares.
 
A summary of the Company's stock unit award (“SUA”) activity for the
six
months ended
June 30, 2020
is as follows (in thousands except per share amounts):
 
    Number of Shares   Weighted Average Price per Share
(2)
  Weighted Average Fair Value
(2)
             
Outstanding & Unvested, December 31, 2019    
24
    $
12.84
    $
311
 
Granted    
-
     
 
     
 
 
Converted to common stock    
(10
)   $
20.24
     
 
 
Cancelled    
(1
)   $
20.24
     
 
 
Forfeited    
-
     
 
     
 
 
Outstanding & Unvested, June 30, 2020    
13
    $
11.87
    $
156
 
 
(
2
)
Weighted average price per share is the weighted grant price based on the closing market price of each of the stock grants related to each grant of stock unit awards. The weighted average fair value is the weighted average share price times the number of shares.
 
As of
June 30, 2020,
820
thousand shares of common stock were reserved for issuance under the Plan. As of
June 30, 2020,
the unamortized fair value of awards relating to outstanding SUAs and options was
$800
thousand, which is expected to be amortized over a weighted average period of
2.4
years.
v3.20.2
Note 5 - Basic and Diluted Net Income Per Share
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Earnings Per Share [Text Block]
5.
Basic and Diluted Net Income Per Share
 
Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The number of dilutive common equivalent shares outstanding during the period was determined in accordance with the treasury-stock method. Common equivalent shares consisted of common stock issuable upon the exercise of outstanding options and common stock issuable upon the vesting of outstanding, unvested SUAs. Basic and diluted weighted average common shares outstanding for the
three
and
six
months ended
June 30, 2020
and
2019
were as follows (in thousands):
 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2020   2019   2020   2019
Weighted average common shares outstanding, basic    
5,523
     
5,514
     
5,520
     
5,510
 
Dilutive common equivalent shares    
-
     
9
     
-
     
25
 
Weighted average common shares outstanding, diluted    
5,523
     
5,523
     
5,520
     
5,535
 
 
The computation of diluted earnings per share for the
three
and
six
month period ended
June 30, 2020
excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related options during the period. These stock awards are
not
included in the computation of diluted income per share because the effect would be antidilutive. For the
three
and
six
month periods ended
June 30, 2020,
the number of antidilutive stock awards excluded from diluted earnings per share was
594
thousand.
v3.20.2
Note 6 - Commitments and Contingencies
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]
6.
Commitments and Contingencies
 
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. While the ultimate outcome of individual legal claims is inherently unpredictable, we believe that the final resolution of any pending actions will
not
have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
v3.20.2
Note 7 - Operating Leases
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Lessee, Operating Leases [Text Block]
7.
Operating Leases
 
The Company has
five
operating leases for office and laboratory space used to conduct business. The exercise of lease renewal options is at our discretion. There is
one
lease which contains renewal options to extend the lease terms included in our Right-Of-Use (“ROU”) assets and lease liabilities as they are reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise. As most of the Company's leases do
not
provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the lease commencement date in determining the net present value (NPV) of the lease payments.
 
As of
June 30, 2020,
the Company recognized a Right-Of-Use (“ROU”) asset of
$4.7
million and an operating lease liability of
$5.2
million based on the present value of the minimum rental payments as a result of adoption of ASC Topic
842.
The weighted average discount rate used for leases as of
June 30, 2020
is
3.9%.
The weighted average lease term as of
June 30, 2020
is
5.4
years. The operating lease expense for the
three
and
six
months ended
June 30, 2020
was
$257
thousand and
$564
thousand, respectively.
 
Maturities and balance sheet presentation of the Company's lease liabilities for all operating leases as of
June 30, 2020
is as follows (in thousands):
 
2020    
519
 
2021    
1,041
 
2022    
1,028
 
2023    
1,096
 
2024    
1,035
 
2025    
593
 
2026    
458
 
Total Lease Payments    
5,770
 
Less Interest:    
(576
)
Present value of lease liabilities   $
5,194
 
         
   Current operating lease liabilities   $
890
 
   Long-term operating lease liabilities    
4,304
 
  Total   $
5,194
 
v3.20.2
Note 8 - Debt and Other Financing Arrangements
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Debt Disclosure [Text Block]
8.
Debt and Other Financing Arrangements
 
On
March 20, 2014,
the Company entered into an equipment financing arrangement (“Loan Agreement”) with Banc of America Leasing & Capital, which it amended on
August 8, 2014,
September 15, 2015,
October 30, 2017,
and
December 2, 2019.
The terms of the arrangement are detailed in the
10
-K.
 
The weighted average interest rate on outstanding debt under the Loan Agreement was
2.8%
and
3.5%
for the
three
and
six
months ended
June 30, 2020.
The interest expense was
$19
thousand and
$44
thousand for the
three
and
six
months ended
June 30, 2020,
respectively. As of
June 30, 2020,
the weighted average interest rate was
3.3%
and there was
$2.3
million of outstanding debt related under the loan agreement. The Company was in compliance with all loan covenants as of
June 30, 2020.
 
The annual principal repayment requirements for debt obligations as of
June 30, 2020
were as follows (in
000's
):
 
2020   $
340
 
2021    
688
 
2022    
664
 
2023    
294
 
2024    
305
 
Long-term debt from equipment financing    
2,291
 
Less current portion of long-term debt    
(683
)
Long-term debt from equipment financing, net of current portion    
1,608
 
PPP Loan    
2,181
 
Total long-term debt, net of current portion   $
3,789
 
 
1
See note
2.
for description of PPP Loan.
v3.20.2
Note 9 - Revenue
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]
9.
Revenue
 
The table below disaggregates our external revenue by major source (in thousands).  For additional revenue detail relating to geographic breakdown of sales, see Note
10
– “Business Segment Reporting”.
 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2020   2019   2020   2019
Testing   $
2,941
    $
8,451
    $
9,774
    $
17,474
 
Shipping/Collection (hair)    
353
     
777
     
1,013
     
1,511
 
Other    
20
     
61
     
64
     
126
 
Total Revenue   $
3,314
    $
9,289
    $
10,851
    $
19,111
 
v3.20.2
Note 10 - Business Segment Reporting
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]
10.
Business Segment Reporting
 
The Company manages its operations as
one
segment, drug testing services. As a result, the financial information disclosed herein materially represents all of the financial information related to the Company's principal operating segment. All Brazil sales are through
one
independent distributor. The Company's revenues by geographic region are as follows (in thousands):
 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2020   2019   2020   2019
Consolidated Revenue:                                
United States   $
3,125
    $
6,807
    $
9,466
    $
13,867
 
Brazil    
164
     
2,358
     
1,145
     
5,001
 
Other    
25
     
124
     
240
     
243
 
Total Revenue   $
3,314
    $
9,289
    $
10,851
    $
19,111
 
v3.20.2
Note 11 - Significant Customers
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Concentration Risk Disclosure [Text Block]
11.
Significant Customers
 
The Company had
one
customer that represented
11%
of revenue for the
six
months ended
June 30, 2020
and
one
customer that represented
26%
of revenue for the
six
months ended
June 30, 2019.
The Company had
one
customer that represented
30%
of the total accounts receivable balance as of
June 30, 2020
and
two
customers that represented
13%
and
11%,
respectively, of the total accounts receivable balance as of
December 31, 2019.
v3.20.2
Note 12 - Recently Adopted Accounting Pronouncements
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Accounting Standards Update and Change in Accounting Principle [Text Block]
12.
Recently Adopted Accounting Pronouncements
 
There are
no
recently adopted accounting pronouncements for the quarter.
v3.20.2
Note 13 - Accounting Pronouncements Issued But Not Yet Effective
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Description of New Accounting Pronouncements Not yet Adopted [Text Block]
13.
Accounting Pronouncements Issued But
Not
Yet Effective
 
During the quarter there were
no
recent accounting pronouncements affecting the Company.
v3.20.2
Note 4 - Stock-based Compensation (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Share-based Payment Arrangement, Cost by Plan [Table Text Block]
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2020   2019   2020   2019
Share-based compensation related to:                                
Stock option grants   $
126
    $
119
    $
250
    $
221
 
Restricted Stock Unit awards    
34
     
42
     
73
     
98
 
Total share-based compensation   $
160
    $
161
    $
323
    $
319
 
Share-based Payment Arrangement, Option, Activity [Table Text Block]
    Number of
Shares
  Weighted Average
Exercise Price
Per Share
 
Weighted Average
Remaining
Contractual Life
(in years)
  Aggregate
Intrinsic
Value
(1)
Outstanding, December 31, 2019    
584
    $
14.94
     
7.9
    $
-
 
Granted    
-
     
 
     
 
     
 
 
Exercised    
-
     
 
     
 
     
 
 
Forfeited    
(3
)   $
4.37
     
 
     
 
 
Outstanding, June 30, 2020    
581
    $
14.93
     
7.4
    $
-
 
                                 
Exercisable, June 30, 2020    
386
    $
15.62
     
6.9
    $
-
 
Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]
    Number of Shares   Weighted Average Price per Share
(2)
  Weighted Average Fair Value
(2)
             
Outstanding & Unvested, December 31, 2019    
24
    $
12.84
    $
311
 
Granted    
-
     
 
     
 
 
Converted to common stock    
(10
)   $
20.24
     
 
 
Cancelled    
(1
)   $
20.24
     
 
 
Forfeited    
-
     
 
     
 
 
Outstanding & Unvested, June 30, 2020    
13
    $
11.87
    $
156
 
v3.20.2
Note 5 - Basic and Diluted Net Income Per Share (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2020   2019   2020   2019
Weighted average common shares outstanding, basic    
5,523
     
5,514
     
5,520
     
5,510
 
Dilutive common equivalent shares    
-
     
9
     
-
     
25
 
Weighted average common shares outstanding, diluted    
5,523
     
5,523
     
5,520
     
5,535
 
v3.20.2
Note 7 - Operating Leases (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Lessee, Operating Lease, Liability, Maturity [Table Text Block]
2020    
519
 
2021    
1,041
 
2022    
1,028
 
2023    
1,096
 
2024    
1,035
 
2025    
593
 
2026    
458
 
Total Lease Payments    
5,770
 
Less Interest:    
(576
)
Present value of lease liabilities   $
5,194
 
         
   Current operating lease liabilities   $
890
 
   Long-term operating lease liabilities    
4,304
 
  Total   $
5,194
 
v3.20.2
Note 8 - Debt and Other Financing Arrangements (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Schedule of Long-term Debt Instruments [Table Text Block]
2020   $
340
 
2021    
688
 
2022    
664
 
2023    
294
 
2024    
305
 
Long-term debt from equipment financing    
2,291
 
Less current portion of long-term debt    
(683
)
Long-term debt from equipment financing, net of current portion    
1,608
 
PPP Loan    
2,181
 
Total long-term debt, net of current portion   $
3,789
 
v3.20.2
Note 9 - Revenue (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Disaggregation of Revenue [Table Text Block]
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2020   2019   2020   2019
Testing   $
2,941
    $
8,451
    $
9,774
    $
17,474
 
Shipping/Collection (hair)    
353
     
777
     
1,013
     
1,511
 
Other    
20
     
61
     
64
     
126
 
Total Revenue   $
3,314
    $
9,289
    $
10,851
    $
19,111
 
v3.20.2
Note 10 - Business Segment Reporting (Tables)
6 Months Ended
Jun. 30, 2020
Notes Tables  
Revenue from External Customers by Geographic Areas [Table Text Block]
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2020   2019   2020   2019
Consolidated Revenue:                                
United States   $
3,125
    $
6,807
    $
9,466
    $
13,867
 
Brazil    
164
     
2,358
     
1,145
     
5,001
 
Other    
25
     
124
     
240
     
243
 
Total Revenue   $
3,314
    $
9,289
    $
10,851
    $
19,111
 
v3.20.2
Note 2 - COVID-19 Pandemic (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
May 01, 2020
Jun. 30, 2020
Jun. 30, 2020
Jun. 30, 2019
Income Tax Benefit CARES Act   $ 1,300,000 $ 1,500,000  
Proceeds from Issuance of Long-term Debt, Total     $ 2,181,000
Paycheck Protection Program CARES Act [Member]        
Proceeds from Issuance of Long-term Debt, Total $ 2,181,157      
v3.20.2
Note 4 - Stock-based Compensation (Details Textual) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value [1]    
Incentive Plan 2006 [Member]          
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares) 231   231    
Share-based Payment Arrangement, Expense, Tax Benefit $ 0 $ 0 $ 0 $ 0  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value $ 0   $ 0   $ 0
Common Stock, Capital Shares Reserved for Future Issuance (in shares) 820   820    
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total $ 800   $ 800    
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)     2 years 146 days    
[1] Stock options had no aggregate intrinsic value as of December 31, 2019 and June 30, 2020. Intrinsic value is calculated based on the amount by which the closing market value of the Company's stock exceeded the exercise price of the underlying options, multiplied by the number of shares.
v3.20.2
Note 4 - Stock-based Compensation - Compensation Cost (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Share-based compensation $ 160 $ 161 $ 323 $ 319
Share-based Payment Arrangement, Option [Member]        
Share-based compensation 126 119 250 221
Restricted Stock Units (RSUs) [Member]        
Share-based compensation $ 34 $ 42 $ 73 $ 98
v3.20.2
Note 4 - Stock-based Compensation - Stock Option Activity (Details) - USD ($)
shares in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Outstanding (in shares) 584  
Outstanding, weighted average exercise price (in dollars per share) $ 14.94  
Outstanding, weighted average remaining contractual life (Year) 7 years 146 days 7 years 328 days
Outstanding, aggregate intrinsic value [1]
Granted (in shares)  
Granted, weighted average exercise price (in dollars per share)  
Exercised (in shares)  
Exercised, weighted average exercise price (in dollars per share)  
Forfeited (in shares) (3)  
Forfeited, weighted average exercise price (in dollars per share) $ 4.37  
Outstanding (in shares) 581 584
Outstanding, weighted average exercise price (in dollars per share) $ 14.93 $ 14.94
Exercisable (in shares) 386  
Exercisable, weighted average exercise price (in dollars per share) $ 15.62  
Exercisable, weighted average remaining contractual life (Year) 6 years 328 days  
Exercisable, aggregate intrinsic value [1]  
[1] Stock options had no aggregate intrinsic value as of December 31, 2019 and June 30, 2020. Intrinsic value is calculated based on the amount by which the closing market value of the Company's stock exceeded the exercise price of the underlying options, multiplied by the number of shares.
v3.20.2
Note 4 - Stock-based Compensation - Nonvested Award Activity (Details) - Stock Unit Award [Member]
$ / shares in Units, shares in Thousands, $ in Thousands
6 Months Ended
Jun. 30, 2020
USD ($)
$ / shares
shares
Outstanding & Unvested at beginning of period (in shares) | shares 24
Outstanding & Unvested at beginning of period, weighted average price per share (in dollars per share) | $ / shares $ 12.84 [1]
Outstanding & Unvested at beginning of period, weighted average fair value | $ $ 311
Granted (in shares) | shares
Granted, weighted average price per share (in dollars per share) | $ / shares [1]
Granted, weighted average fair value | $
Converted to common stock (in shares) | shares (10)
Converted to common stock, weighted average price per share (in dollars per share) | $ / shares $ 20.24 [1]
Converted to common stock, weighted average fair value | $
Cancelled (in shares) | shares (1)
Cancelled, weighted average price per share (in dollars per share) | $ / shares $ 20.24 [1]
Cancelled, weighted average fair value | $
Forfeited (in shares) | shares
Forfeited, weighted average price per share (in dollars per share) | $ / shares [1]
Forfeited, weighted average fair value | $
Outstanding & Unvested at end of period (in shares) | shares 13
Outstanding & Unvested at end of period, weighted average price per share (in dollars per share) | $ / shares $ 11.87 [1]
Outstanding & Unvested at end of period, weighted average fair value | $ $ 156
[1] Weighted average price per share is the weighted grant price based on the closing market price of each of the stock grants related to each grant of stock unit awards. The weighted average fair value is the weighted average share price times the number of shares.
v3.20.2
Note 5 - Basic and Diluted Net Income Per Share (Details Textual) - shares
shares in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2020
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) 594 594
v3.20.2
Note 5 - Basic and Diluted Net Income Per Share - Basic and Diluted Weighted Average Common Shares Outstanding (Details) - shares
shares in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Weighted average common shares outstanding, basic (in shares) 5,523 5,514 5,520 5,510
Dilutive common equivalent shares (in shares) 9 25
Weighted average common shares outstanding, diluted (in shares) 5,523 5,523 5,520 5,535
v3.20.2
Note 7 - Operating Leases (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2020
Dec. 31, 2019
Operating Lease, Right-of-Use Asset $ 4,728 $ 4,728 $ 2,875
Operating Lease, Liability, Total $ 5,194 $ 5,194  
Operating Lease, Weighted Average Discount Rate, Percent 3.90% 3.90%  
Operating Lease, Weighted Average Remaining Lease Term (Year) 5 years 146 days 5 years 146 days  
Operating Lease, Expense $ 257 $ 564  
v3.20.2
Note 7 - Operating Leases - Maturities of Lease Liabilities (Details) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
2020 $ 519  
2021 1,041  
2022 1,028  
2023 1,096  
2024 1,035  
2025 593  
2026 458  
Total Lease Payments 5,770  
Less Interest: (576)  
Present value of lease liabilities 5,194  
Current operating lease liabilities 890 $ 963
Long-term operating lease liabilities 4,304 $ 2,375
Total $ 5,194