10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2023
	or
☐	Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
	for the transition period from _________ to __________

Commission file number: 1-13738

PSYCHEMEDICS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware	58-1701987
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
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 ☒ No ☐

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

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

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

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

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

The number of shares of Common Stock of the Registrant, par value $0.005 per share, outstanding at May 8, 2023 was 5,721,147. 

PSYCHEMEDICS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2023

INDEX

	Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Shareholders’ Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Factors that May Affect Future Results	16
Overview	17
Results of Operations	17
Liquidity and Capital Resources	18
Item 4 - Controls and Procedures	19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings	20
Item 1A - Risk Factors	20
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6 - Exhibits	20
Signatures	21

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(UNAUDITED)

	March 31,			December 31,
	2023			2022
ASSETS
Current Assets:
Cash	$	4,380		$	4,750
Accounts receivable, net of allowance for doubtful accounts of $73 at March 31, 2023, and $87 at December 31, 2022		4,058			3,739
Prepaid expenses and other current assets		1,088			1,136
Income tax receivable		9			339
Total Current Assets		9,535			9,964
Fixed assets, net of accumulated amortization and depreciation of $22,428 at March 31, 2023, and $21,964 at December 31, 2022		4,150			4,573
Other assets		840			823
Net deferred tax assets		850			691
Operating lease right-of-use assets		2,532			2,681
Total Assets	$	17,907		$	18,732
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	785		$	448
Accrued expenses		3,632			3,939
Current portion of long-term debt		297			294
Current portion of operating lease liabilities		1,076			1,037
Total Current Liabilities		5,790			5,718
Long-term debt		230			305
Long-term portion of operating lease liabilities		1,721			1,938
Total Liabilities		7,741			7,961
Commitments and Contingencies (Note 5)
Shareholders' Equity:
Preferred stock, $0.005 par value, 873 shares authorized, no shares issued or outstanding
Common stock, $0.005 par value; 50,000 shares authorized; 6,354 and 6,349 shares issued and 5,686 and 5,681 shares outstanding, respectively		32			32
Additional paid-in capital		34,452			34,275
Accumulated deficit		(12,602	)		(11,820	)
Less - Treasury stock, at cost, 668 shares		(10,082	)		(10,082	)
Accumulated other comprehensive loss		(1,634	)		(1,634	)
Total Shareholders' Equity		10,166			10,771
Total Liabilities and Shareholders' Equity	$	17,907		$	18,732

See accompanying notes to condensed consolidated financial statements.

3

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(UNAUDITED)

	Three Months Ended
	March 31,
	2023			2022
Revenues	$	5,859		$	6,508
Cost of revenues		3,654			4,067
Gross profit		2,205			2,441
Operating Expenses:
General & administrative		1,646			1,327
Marketing & selling		789			806
Research & development		298			318
Total Operating Expenses		2,733			2,451
Operating loss		(528	)		(10	)
Other (expense) income, net		(5	)		66
(Loss) income before (benefit from) provision for income taxes		(533	)		56
(Benefit from) provision for income taxes		(149	)		17
Net (loss) income	$	(384	)	$	39
Basic net (loss) income per share	$	(0.07	)	$	0.01
Diluted net (loss) income per share	$	(0.07	)	$	0.01
Dividends declared per share	$	0.07		$	-

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, $0.005 par value				Additional
	Common Shares		Common		Paid-In		Treasury Stock					Accumulated			Accumulated Other
	Outstanding		Stock		Capital		Shares		Cost			Deficit			Comprehensive Loss			Total
BALANCE, December 31, 2022		6,349	$	32	$	34,275		668	$	( 10,082	)	$	( 11,820	)	$	( 1,634	)	$	10,771
Shares issued – vested		5		-		-		-		-			-			-			-
Stock compensation expense		-		-		177		-		-			-			-			177
Cash dividends declared ($0.07 per share)		-		-		-		-		-			( 398	)		-			( 398	)
Net loss		-		-		-		-		-			( 384	)		-			( 384	)
BALANCE, March 31, 2023		6,354	$	32	$	34,452		668	$	( 10,082	)	$	( 12,602	)	$	( 1,634	)	$	10,166
BALANCE, December 31, 2021		6,257	$	31	$	33,478		668	$	( 10,082	)	$	( 9,550	)	$	( 1,634	)	$	12,243
Shares issued – vested		2		-		-		-		-			-			-			-
Stock compensation expense		-		-		179		-		-			-			-			179
Net income		-		-		-		-		-			39			-			39
BALANCE, March 31, 2022		6,259	$	31	$	33,657		668	$	( 10,082	)	$	( 9,511	)	$	( 1,634	)	$	12,461

See accompanying notes to condensed consolidated financial statements.

5

PSYCHEMEDICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

	Three Months Ended
	March 31,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(384	)	$	39
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		479			628
ROU asset amortization		235			232
Stock-based compensation		177			179
Changes in operating assets and liabilities:
Accounts receivable		(319	)		(588	)
Prepaid expenses and other current assets		48			466
Income tax receivable		330			17
Net deferred tax asset		(159	)		-
Accounts payable		337			(272	)
Operating lease liabilities		(264	)		(213	)
Accrued expenses		(705	)		(143	)
Net cash (used in) provided by operating activities		(225	)		345
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements		(20	)		(10	)
Cost of internally developed software		(21	)		(33	)
Other assets		(32	)		7
Net cash used in investing activities		(73	)		(36	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of equipment financing		(72	)		(174	)
Net cash used in financing activities		(72	)		(174	)
Net (decrease) increase in cash		(370	)		135
Cash, beginning of period		4,750			1,992
Cash, end of period	$	4,380		$	2,127
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	5		$	10
Cash paid for operating leases	$	291		$	269
Right-of-use assets acquired through operating leases	$	86		$	-

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, 2022, included in the Company's 2022 Annual Report on Form 10-K (“10-K”), as filed with the SEC.

The accompanying condensed consolidated financial statements are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of December 31, 2022, has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm, but does not include all the information and footnotes required for complete annual financial statements. The Company’s comprehensive (loss)/income is equal to its net (loss)/income for all periods presented.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months ended March 31, 2023, may not be indicative of the results that may be expected for the year ending December 31, 2023, or any other period.

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

2. Financial Information

Liquidity and Management’s Plans

At March 31, 2023, the Company’s principal sources of liquidity included approximately $4.4 million of cash. Management currently believes that such funds, together with future operating profits, should be adequate to fund anticipated working capital requirements, including equipment financing obligations, and capital expenditures for at least the next 12 months. Depending upon the Company’s results of operations, its future capital needs and available marketing opportunities, the Company may use various financing sources to raise additional funds. Such sources could include but are not limited to, issuance of common stock, debt financing, lines of credit, or equipment leasing, although there is no assurance that such financings will be available to the Company on terms it deems acceptable, if at all.

7

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2. Financial Information (continued)

Accounts Receivable

The Company believes its allowance for credit losses related to its accounts receivable remained adequate as of March 31, 2023, due to the essential nature of its customers business, as well as the diversity of its large customer base. While the Company anticipates there could be an increase in the aging of its accounts receivable, the Company does not anticipate a significant increase in default risk.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments. The Company has adopted ASU 2016-13 in the first quarter of 2023 utilizing the modified retrospective transition method. Based on the composition of the Company’s investment portfolio, current market conditions, and historical credit loss activity, the adoption of ASU 2016-13 does not have a material impact on the consolidated financial statements.

8

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. Stock-Based Compensation

The Company’s 2006 Incentive Plan (“the Plan”) provides for cash-based awards or the grant or issuance of stock-based awards. As of March 31, 2023, 321 thousand shares remained available for future grant under the Plan.

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

	Three Months Ended
	March 31,
	2023		2022
Stock-based compensation related to:
Stock option grants	$	20	$	53
Stock unit awards		157		126
Total stock-based compensation	$	177	$	179

There was no income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation arrangements for the three ended March 31, 2023, and 2022.

9

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. Stock-Based Compensation (continued)

A summary of the Company’s stock option activity for the three months ended March 31, 2023, is as follows (in thousands except per share amounts and years):

						Weighted Average
				Weighted Average		Remaining		Aggregate
	Number of			Exercise Price		Contractual Life		Intrinsic
	Shares			Per Share		(years)		Value(1)
Outstanding, December 31, 2022		508		$	14.19		5.1	$	25
Canceled		( 64	)	$	14.70
Outstanding, March 31, 2023		444		$	14.09		4.8	$	33
Exercisable, March 31, 2023		402		$	14.67		4.6	$	17

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

A summary of the Company’s stock unit award (“SUA”) activity for the three months ended March 31, 2023, is as follows (in thousands except per share amounts):

	Number of Shares			Weighted Average Grant-Date Fair Value Per Share
Outstanding & Unvested, December 31, 2022		238		$	6.10
Converted to common stock		(5	)	$	6.36
Cancelled		(2	)	$	6.19
Forfeited		(9	)	$	5.90
Outstanding & Unvested, March 31, 2023		222		$	6.10

As of March 31, 2023, 912 thousand shares of common stock were reserved for issuance under the Plan. As of March 31, 2023, the unamortized fair value of awards relating to outstanding SUAs and options was $941 thousand, which is expected to be amortized over a weighted average period of 2.2 years.

10

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

4. Basic and Diluted Net (Loss)/Income Per Share

Basic net (loss)/income per share is computed by dividing net (loss)/income by the weighted average number of common shares outstanding during the period. Diluted net (loss)/income per share is computed by dividing net (loss)/income by the weighted average number of common and dilutive common equivalent shares outstanding during the period when the effect is dilutive. 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 months ended March 31, 2023, and 2022 were as follows (in thousands):

	Three Months Ended
	March 31,
	2023		2022
Weighted average common shares outstanding, basic		5,685		5,590
Dilutive common equivalent shares		-		56
Weighted average common shares outstanding, diluted		5,685		5,646

The computation of diluted earnings per share for the three months ended March 31, 2023, and 2022 excludes the effect of the potential exercise of stock awards, including stock options, when the effect is anti-dilutive. For the three months ended March 31, 2023, and 2022, the number of antidilutive stock awards excluded from diluted earnings per share were 620 thousand and 545 thousand, respectively.

11

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

5. Commitments and Contingencies

From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. Although it is difficult to predict the ultimate outcome of these cases, management believes, that any ultimate liability would not have a material adverse effect on the consolidated statements of operations. However, an unforeseen unfavorable development in any of these cases could have a material adverse effect on the statements of operations or cash flows in the period in which it is recorded. Developments in legal proceedings and other matters that could cause changes in the amounts previously accrued are evaluated each reporting period.

Settlements

As previously reported in the 10-K, on December 6, 2021, the Company entered into a binding Memorandum of Understanding to settle a purported class action lawsuit related to certain California wage and hour laws. The lawsuit, Enma Sagastume v. Psychemedics Corporation, Case No. 2:20-CV-06624-DSF, is pending in the United States District Court for the Central District of California (the “California Lawsuit”) and is similar to numerous lawsuits filed against employers with operations in California.

The Company has accrued $1.2 million as of March 31, 2023 related to the California Lawsuit, which is included in accrued expenses on the accompanying consolidated balance sheets.

12

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. 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 March 31, 2023, the Company recognized a Right-Of-Use (“ROU”) asset of $2.5 million and an operating lease liability of $2.8 million based on the present value of the minimum rental payments. The weighted average discount rate used for leases as of March 31, 2023, is 3.9%. The weighted average lease term as of March 31, 2023, is 2.9 years. The operating lease expense for the three months ended March 31, 2023, was $262 thousand.

Maturities and balance sheet presentation of the Company’s lease liabilities for all operating leases as of March 31, 2023, is as follows (in thousands):

April 1, 2023, through December 31, 2023	$	876
2024		1,106
2025		564
2026		460
Total lease payments		3,006
Less: interest		(209	)
Present value of lease liabilities	$	2,797
Current operating lease liabilities	$	1,076
Long-term operating lease liabilities		1,721
	$	2,797

13

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7. 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 3.8% for the three months ended March 31, 2023. The interest expense was $5 thousand for the three months ended March 31, 2023. As of March 31, 2023, the weighted average interest rate was 3.8% and there was $526 thousand of outstanding debt related under the Loan Agreement. The Company was in compliance with all loan covenants under the Loan Agreement as of March 31, 2023.

The annual principal repayment requirements for debt obligations as of March 31, 2023, were as follows (in thousands):

April 1, 2023, through December 31, 2023	$	222
2024		305
Long-term debt from equipment financing		527
Less: current portion of long-term debt from equipment financing		(297	)
Long-term debt from equipment financing, net of current portion	$	230

14

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

8. Revenue

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

	Three Months Ended
	March 31,
	2023		2022
Testing	$	4,938	$	5,724
Shipping/Collection (hair)		898		750
Other		23		34
Total Revenue	$	5,859	$	6,508

9. Significant Customers

The Company had no customers that represented over 10% of revenue during either of the three-month periods ended March 31, 2023, or 2022. The Company had one customer that represented 16% and 17% of the total accounts receivable balance as of March 31, 2023, and 2022, respectively.

10. Subsequent Events

On May 9, 2023, the Company declared a cash dividend of $0.07 per share, which will be paid on June 8, 2023, to shareholders of record on May 25, 2023.

15

Item 2.

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

FACTORS THAT MAY AFFECT FUTURE RESULTS

From time to time, information provided by the Company or statements made by its employees may contain forward-looking information that involves risks and uncertainties. In particular, statements contained in this report that are not historical facts (including but not limited to statements concerning earnings, earnings per share, revenues, cash flows, dividends, future business, growth opportunities, profitability, pricing, new accounts, customer base, market share, test volume, sales and marketing strategies, market demand for drug testing services in the U.S. and foreign drug testing laws and regulations, required investments in plant, equipment and people and new test development) may be “forward looking” statements. Actual results may differ from those stated in any forward-looking statements. Factors that may cause such differences include but are not limited to risks associated with the changes in U.S. and foreign government regulations, including but not limited to FDA regulations, R&D spending, competition (including, without limitation, competition from other companies pursuing the same growth opportunities), the Company’s ability to maintain its reputation and brand image, the ability of the Company to achieve its business plans, cost controls, the continued labor shortage, leveraging of its global operating platform, risks of information technology system failures and data security breaches, the uncertain global economy, the Company’s ability to attract, develop and retain executives and other qualified employees and independent contractors, including distributors, the Company’s ability to obtain and protect intellectual property rights, litigation risks, and general economic conditions. With respect to the continued payment of cash dividends, factors include, but are not limited to, all of the factors listed above 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 with these cautionary statements. The Company cautions you that these risks are not exhaustive. The Company operates in a continually changing business environment and new risks emerge from time to time.

16

OVERVIEW

Revenue for the first quarter of 2023 was $5.9 million compared to $6.5 million in the first quarter of 2022, a decrease of 10%. The Company reported net loss of $384 thousand, or ($0.07) per diluted share for the three months ended March 31, 2023, versus net income of $39 thousand, or $0.01 per diluted share for the same period in 2022. Revenue decrease for the quarter was primarily attributed to the continued labor shortage that impacts the Company’s customers. The Company declared a cash dividend of $0.07 per share to its shareholders during the three months ended March 31, 2023.

RESULTS OF OPERATIONS

Revenue decreased 10% for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to a decrease in domestic volumes. The Company’s domestic revenues were impacted by lower volumes from customers experiencing the effects of the continued labor shortage related to hiring.

Gross profit: The Company had a $2.2 million gross profit for the three months ended March 31, 2023, compared to a $2.4 million gross profit for the same period in 2022. Cost of revenues decreased by $0.4 million or 10% for the three months ended March 31, 2023, compared to the same period in 2022. Gross profit percentage remained at 38% for the three months ended March 31, 2023 and 2022.

General and administrative (“G&A”) expenses increased 24% or $0.3 million to $1.6 million for the three months ended March 31, 2023, compared to $1.3 million for the same period in 2022. As a percentage of revenue, G&A expenses were 28% and 20% for the three months ended March 31, 2023, and 2022, respectively. The increase in G&A expenses was driven by a combination of legal fees, personnel costs, accounting and consulting fees, and business insurance premiums.

Marketing and selling expenses remained flat at $0.8 million for the three months ended March 31, 2023, and 2022. Total marketing and selling expenses represented 13% and 12% of revenue for the three months ended March 31, 2023, and 2022, respectively.

17

Research and development (“R&D”) expenses remained flat at $0.3 million for the three months ended March 31, 2023, and 2022. R&D expenses represented 5% of revenue for the three months ended March 31, 2023, and 2022.

Provision for income taxes consisted primarily of federal and state income taxes in the United States. We estimate income taxes in each of the jurisdictions in which we operate. During the three months ended March 31, 2023, the Company recorded a tax benefit of $149 thousand (effective tax rate of 28%) and a tax provision of $17 thousand (effective tax rate of 30%) for the comparative period in 2022.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2023, the Company had approximately $4.4 million of cash. The Company's operating activities used net cash of $0.2 million for the three months ended March 31, 2023. Investing activities used $0.1 million of net cash while financing activities used $0.1 million of net cash during the first three months of 2023.

Cash used in operating activities of $0.2 million reflected net loss of $0.4 million adjusted for depreciation and amortization of $0.5 million, ROU asset amortization of $0.2 million and stock-based compensation of $0.2 million. This was also impacted by an increase in operating assets of $0.1 million and a decrease in operating liabilities of $0.6 million.

Cash used in investing activities of $0.1 million is primarily related to internally developed software and equipment purchases. We anticipate spending less than $1.0 million in additional capital purchases for the remainder of 2023.

Cash used in financing activities of $0.1 million is solely related to payments on equipment financing.

Contractual obligations and other commercial commitments as of March 31, 2023, include legal commitments, operating lease commitments, and outstanding debt, described in Notes 5, 6, and 7, respectively of the Notes to Condensed Consolidated Financial Statements.

While management currently believes that its existing funds and cash flow from operations should be adequate to fund the Company’s business for at least the next 12 months, economic conditions could adversely affect the Company’s future operating results and cash flows. Depending upon the Company’s results of operations, its future capital needs and available marketing opportunities, the Company may use various financing sources to raise additional funds. Such sources could include but are not limited to, issuance of common stock or debt financing, lines of credit, or equipment leasing, although there is no assurance that such financings will be available to the Company on terms it deems acceptable, if at all.

18

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 Controller 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 Controller 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.

19

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Information pertaining to legal proceedings can be found in Item 1. Financial Statements and Supplementary Data – Note 5 “Commitments and Contingencies”.

Item 1A. Risk Factors

Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2022, includes a discussion of our risk factors. There have been no material changes in the risk factors described in such report.

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

There were no purchases of treasury stock in the first three months of 2023.

Item 6. Exhibits

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification 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
32.2	Certification 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.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

20

SIGNATURES

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

	Psychemedics Corporation
Date:         May 11, 2023	By:	/s/ Raymond C. Kubacki
	Raymond C. Kubacki
	Chairman and Chief Executive Officer
	(principal executive officer)
Date:         May 11, 2023	By:	/s/ William B. Norris
	William B. Norris
	Controller
	(principal accounting officer)

21

EX-31.1

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:      May 11, 2023	/s/ Raymond C. Kubacki
	Raymond C. Kubacki
	Chairman and Chief Executive Officer
	(principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, William B. Norris, certify that:

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

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

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

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

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

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

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:      May 11, 2023	/s/ William B. Norris
	William B. Norris
	Controller
	(principal accounting officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, 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 March 31, 2023, as filed with the Securities and Exchange Commission on May 11, 2023 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Date:   May 11, 2023	/s/ Raymond C. Kubacki
	Raymond C. Kubacki
	Chairman and Chief Executive Officer
	(principal executive officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, William B. Norris, Controller 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 March 31, 2023, as filed with the Securities and Exchange Commission on May 11, 2023 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Date:   May 11, 2023	/s/ William B. Norris
	William B. Norris
	Controller
	(principal accounting officer)

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2023	May 08, 2023
Document Information [Line Items]
Entity Central Index Key	0000806517
Entity Registrant Name	PSYCHEMEDICS CORP
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2023
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2023
Document Transition Report	false
Entity File Number	1-13738
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	58-1701987
Entity Address, Address Line One	289 Great Road
Entity Address, City or Town	Acton
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	01720
City Area Code	978
Local Phone Number	206-8220
Title of 12(b) Security	Common stock. $0.005 par value
Trading Symbol	PMD
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		5,721,147

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Current Assets:
Cash	$ 4,380	$ 4,750
Accounts receivable, net of allowance for doubtful accounts of $73 at March 31, 2023, and $87 at December 31, 2022	4,058	3,739
Prepaid expenses and other current assets	1,088	1,136
Income tax receivable	9	339
Total Current Assets	9,535	9,964
Fixed assets, net of accumulated amortization and depreciation of $22,428 at March 31, 2023, and $21,964 at December 31, 2022	4,150	4,573
Other assets	840	823
Net deferred tax assets	850	691
Operating lease right-of-use assets	2,532	2,681
Total Assets	17,907	18,732
Current Liabilities:
Accounts payable	785	448
Accrued expenses	3,632	3,939
Current portion of long-term debt	297	294
Current portion of operating lease liabilities	1,076	1,037
Total Current Liabilities	5,790	5,718
Long-term debt	230	305
Long-term portion of operating lease liabilities	1,721	1,938
Total Liabilities	7,741	7,961
Commitments and Contingencies (Note 5)
Shareholders' Equity:
Common stock, $0.005 par value; 50,000 shares authorized; 6,354 and 6,349 shares issued and 5,686 and 5,681 shares outstanding, respectively	32	32
Additional paid-in capital	34,452	34,275
Accumulated deficit	(12,602)	(11,820)
Less - Treasury stock, at cost, 668 shares	(10,082)	(10,082)
Accumulated other comprehensive loss	(1,634)	(1,634)
Total Shareholders' Equity	10,166	10,771
Total Liabilities and Shareholders' Equity	$ 17,907	$ 18,732

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) shares in Thousands, $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Allowance for doubtful accounts	$ 73	$ 87
Accumulated depreciation and amortization	$ 22,428	$ 21,964
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)	6,354	6,349
Common stock, shares outstanding (in shares)	5,686	5,681
Treasury stock, shares (in shares)	668	668

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenues	$ 5,859	$ 6,508
Cost of revenues	3,654	4,067
Gross profit	2,205	2,441
Operating Expenses:
General & administrative	1,646	1,327
Marketing & selling	789	806
Research & development	298	318
Total Operating Expenses	2,733	2,451
Operating loss	(528)	(10)
Other (expense) income, net	(5)	66
(Loss) income before (benefit from) provision for income taxes	(533)	56
(Benefit from) provision for income taxes	(149)	17
Net (loss) income	$ (384)	$ 39
Basic net (loss) income per share (in dollars per share)	$ (0.07)	$ 0.01
Diluted net (loss) income per share (in dollars per share)	(0.07)	0.01
Dividends declared per share (in dollars per share)	$ 0.07	$ 0

XML

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock, Common [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2021	6,257		668
Balance at Dec. 31, 2021	$ 31	$ 33,478	$ (10,082)	$ (9,550)	$ (1,634)	$ 12,243
Shares issued – vested (in shares)	2		0
Stock compensation expense	$ 0	179	$ 0	0	0	179
Net income (loss)	$ 0	0	$ 0	39	0	39
Shares issued – vested (in shares)	2		0
Balance (in shares) at Mar. 31, 2022	6,259		668
Balance at Mar. 31, 2022	$ 31	33,657	$ (10,082)	(9,511)	(1,634)	12,461
Balance (in shares) at Dec. 31, 2022	6,349		668
Balance at Dec. 31, 2022	$ 32	34,275	$ (10,082)	(11,820)	(1,634)	10,771
Shares issued – vested (in shares)	5		0
Shares issued – vested	$ 0	0	$ 0	0	0	0
Stock compensation expense		177	0	0	0	177
Cash dividends declared	0	0	0	(398)	0	(398)
Net income (loss)	$ 0	0	$ 0	(384)	0	(384)
Shares issued – vested (in shares)	5		0
Balance (in shares) at Mar. 31, 2023	6,354		668
Balance at Mar. 31, 2023	$ 32	$ 34,452	$ (10,082)	$ (12,602)	$ (1,634)	$ 10,166

XML

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

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ (384)	$ 39
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	479	628
ROU asset amortization	235	232
Stock-based compensation	177	179
Changes in operating assets and liabilities:
Accounts receivable	(319)	(588)
Prepaid expenses and other current assets	48	466
Income tax receivable	330	17
Net deferred tax asset	(159)	0
Accounts payable	337	(272)
Operating lease liabilities	(264)	(213)
Accrued expenses	(705)	(143)
Net cash (used in) provided by operating activities	(225)	345
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements	(20)	(10)
Cost of internally developed software	(21)	(33)
Other assets	(32)	7
Net cash used in investing activities	(73)	(36)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of equipment financing	(72)	(174)
Net cash used in financing activities	(72)	(174)
Net (decrease) increase in cash	(370)	135
Cash, beginning of period	4,750	1,992
Cash, end of period	4,380	2,127
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	5	10
Cash paid for operating leases	291	269
Right-of-use assets acquired through operating leases	$ 86	$ 0

XML

Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2023

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, 2022, included in the Company's 2022 Annual Report on Form 10-K (“10-K”), as filed with the SEC.

The accompanying condensed consolidated financial statements are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of December 31, 2022, has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm, but does not include all the information and footnotes required for complete annual financial statements. The Company’s comprehensive (loss)/income is equal to its net (loss)/income for all periods presented.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months ended March 31, 2023, may not be indicative of the results that may be expected for the year ending December 31, 2023, or any other period.

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

XML

Note 2 - Financial Information

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Business Description and Accounting Policies [Text Block]

2. Financial Information

Liquidity and Management’s Plans

At March 31, 2023, the Company’s principal sources of liquidity included approximately $4.4 million of cash. Management currently believes that such funds, together with future operating profits, should be adequate to fund anticipated working capital requirements, including equipment financing obligations, and capital expenditures for at least the next 12 months. Depending upon the Company’s results of operations, its future capital needs and available marketing opportunities, the Company may use various financing sources to raise additional funds. Such sources could include but are not limited to, issuance of common stock, debt financing, lines of credit, or equipment leasing, although there is no assurance that such financings will be available to the Company on terms it deems acceptable, if at all.

Accounts Receivable

The Company believes its allowance for credit losses related to its accounts receivable remained adequate as of March 31, 2023, due to the essential nature of its customers business, as well as the diversity of its large customer base. While the Company anticipates there could be an increase in the aging of its accounts receivable, the Company does not anticipate a significant increase in default risk.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments. The Company has adopted ASU 2016-13 in the first quarter of 2023 utilizing the modified retrospective transition method. Based on the composition of the Company’s investment portfolio, current market conditions, and historical credit loss activity, the adoption of ASU 2016-13 does not have a material impact on the consolidated financial statements.

XML

Note 3 - Stock-based Compensation

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

3. Stock-Based Compensation

The Company’s 2006 Incentive Plan (“the Plan”) provides for cash-based awards or the grant or issuance of stock-based awards. As of March 31, 2023, 321 thousand shares remained available for future grant under the Plan.

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

	Three Months Ended
	March 31,
	2023		2022
Stock-based compensation related to:
Stock option grants	$	20	$	53
Stock unit awards		157		126
Total stock-based compensation	$	177	$	179

There was no income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation arrangements for the three ended March 31, 2023, and 2022.

A summary of the Company’s stock option activity for the three months ended March 31, 2023, is as follows (in thousands except per share amounts and years):

						Weighted Average
				Weighted Average		Remaining		Aggregate
	Number of			Exercise Price		Contractual Life		Intrinsic
	Shares			Per Share		(years)		Value(1)
Outstanding, December 31, 2022		508		$	14.19		5.1	$	25
Canceled		( 64	)	$	14.70
Outstanding, March 31, 2023		444		$	14.09		4.8	$	33
Exercisable, March 31, 2023		402		$	14.67		4.6	$	17

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

A summary of the Company’s stock unit award (“SUA”) activity for the three months ended March 31, 2023, is as follows (in thousands except per share amounts):

	Number of Shares			Weighted Average Grant-Date Fair Value Per Share
Outstanding & Unvested, December 31, 2022		238		$	6.10
Converted to common stock		(5	)	$	6.36
Cancelled		(2	)	$	6.19
Forfeited		(9	)	$	5.90
Outstanding & Unvested, March 31, 2023		222		$	6.10

As of March 31, 2023, 912 thousand shares of common stock were reserved for issuance under the Plan. As of March 31, 2023, the unamortized fair value of awards relating to outstanding SUAs and options was $941 thousand, which is expected to be amortized over a weighted average period of 2.2 years.

XML

Note 4 - Basic and Diluted Net (Loss)/Income Per Share

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Earnings Per Share [Text Block]

4. Basic and Diluted Net (Loss)/Income Per Share

Basic net (loss)/income per share is computed by dividing net (loss)/income by the weighted average number of common shares outstanding during the period. Diluted net (loss)/income per share is computed by dividing net (loss)/income by the weighted average number of common and dilutive common equivalent shares outstanding during the period when the effect is dilutive. 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 months ended March 31, 2023, and 2022 were as follows (in thousands):

	Three Months Ended
	March 31,
	2023		2022
Weighted average common shares outstanding, basic		5,685		5,590
Dilutive common equivalent shares		-		56
Weighted average common shares outstanding, diluted		5,685		5,646

The computation of diluted earnings per share for the three months ended March 31, 2023, and 2022 excludes the effect of the potential exercise of stock awards, including stock options, when the effect is anti-dilutive. For the three months ended March 31, 2023, and 2022, the number of antidilutive stock awards excluded from diluted earnings per share were 620 thousand and 545 thousand, respectively.

XML

Note 5 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

5. Commitments and Contingencies

From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. Although it is difficult to predict the ultimate outcome of these cases, management believes, that any ultimate liability would not have a material adverse effect on the consolidated statements of operations. However, an unforeseen unfavorable development in any of these cases could have a material adverse effect on the statements of operations or cash flows in the period in which it is recorded. Developments in legal proceedings and other matters that could cause changes in the amounts previously accrued are evaluated each reporting period.

Settlements

As previously reported in the 10-K, on December 6, 2021, the Company entered into a binding Memorandum of Understanding to settle a purported class action lawsuit related to certain California wage and hour laws. The lawsuit, Enma Sagastume v. Psychemedics Corporation, Case No. 2:20-CV-06624-DSF, is pending in the United States District Court for the Central District of California (the “California Lawsuit”) and is similar to numerous lawsuits filed against employers with operations in California.

The Company has accrued $1.2 million as of March 31, 2023 related to the California Lawsuit, which is included in accrued expenses on the accompanying consolidated balance sheets.

XML

Note 6 - Operating Leases

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

6. 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 March 31, 2023, the Company recognized a Right-Of-Use (“ROU”) asset of $2.5 million and an operating lease liability of $2.8 million based on the present value of the minimum rental payments. The weighted average discount rate used for leases as of March 31, 2023, is 3.9%. The weighted average lease term as of March 31, 2023, is 2.9 years. The operating lease expense for the three months ended March 31, 2023, was $262 thousand.

Maturities and balance sheet presentation of the Company’s lease liabilities for all operating leases as of March 31, 2023, is as follows (in thousands):

April 1, 2023, through December 31, 2023	$	876
2024		1,106
2025		564
2026		460
Total lease payments		3,006
Less: interest		(209	)
Present value of lease liabilities	$	2,797
Current operating lease liabilities	$	1,076
Long-term operating lease liabilities		1,721
	$	2,797

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Note 7 - Debt and Other Financing Arrangements

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Debt Disclosure [Text Block]

7. 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 3.8% for the three months ended March 31, 2023. The interest expense was $5 thousand for the three months ended March 31, 2023. As of March 31, 2023, the weighted average interest rate was 3.8% and there was $526 thousand of outstanding debt related under the Loan Agreement. The Company was in compliance with all loan covenants under the Loan Agreement as of March 31, 2023.

The annual principal repayment requirements for debt obligations as of March 31, 2023, were as follows (in thousands):

April 1, 2023, through December 31, 2023	$	222
2024		305
Long-term debt from equipment financing		527
Less: current portion of long-term debt from equipment financing		(297	)
Long-term debt from equipment financing, net of current portion	$	230

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Note 8 - Revenue

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

8. Revenue

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

	Three Months Ended
	March 31,
	2023		2022
Testing	$	4,938	$	5,724
Shipping/Collection (hair)		898		750
Other		23		34
Total Revenue	$	5,859	$	6,508

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Note 9 - Significant Customers

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

9. Significant Customers

The Company had no customers that represented over 10% of revenue during either of the three-month periods ended March 31, 2023, or 2022. The Company had one customer that represented 16% and 17% of the total accounts receivable balance as of March 31, 2023, and 2022, respectively.

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Note 10 - Subsequent Events

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Subsequent Events [Text Block]

10. Subsequent Events

On May 9, 2023, the Company declared a cash dividend of $0.07 per share, which will be paid on June 8, 2023, to shareholders of record on May 25, 2023.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Liquidity and Management's Plan [Policy Text Block]

Liquidity and Management’s Plans

At March 31, 2023, the Company’s principal sources of liquidity included approximately $4.4 million of cash. Management currently believes that such funds, together with future operating profits, should be adequate to fund anticipated working capital requirements, including equipment financing obligations, and capital expenditures for at least the next 12 months. Depending upon the Company’s results of operations, its future capital needs and available marketing opportunities, the Company may use various financing sources to raise additional funds. Such sources could include but are not limited to, issuance of common stock, debt financing, lines of credit, or equipment leasing, although there is no assurance that such financings will be available to the Company on terms it deems acceptable, if at all.

Accounts Receivable [Policy Text Block]

Accounts Receivable

The Company believes its allowance for credit losses related to its accounts receivable remained adequate as of March 31, 2023, due to the essential nature of its customers business, as well as the diversity of its large customer base. While the Company anticipates there could be an increase in the aging of its accounts receivable, the Company does not anticipate a significant increase in default risk.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments. The Company has adopted ASU 2016-13 in the first quarter of 2023 utilizing the modified retrospective transition method. Based on the composition of the Company’s investment portfolio, current market conditions, and historical credit loss activity, the adoption of ASU 2016-13 does not have a material impact on the consolidated financial statements.

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Note 3 - Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2023

Notes Tables

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

	Three Months Ended
	March 31,
	2023		2022
Stock-based compensation related to:
Stock option grants	$	20	$	53
Stock unit awards		157		126
Total stock-based compensation	$	177	$	179

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

						Weighted Average
				Weighted Average		Remaining		Aggregate
	Number of			Exercise Price		Contractual Life		Intrinsic
	Shares			Per Share		(years)		Value(1)
Outstanding, December 31, 2022		508		$	14.19		5.1	$	25
Canceled		( 64	)	$	14.70
Outstanding, March 31, 2023		444		$	14.09		4.8	$	33
Exercisable, March 31, 2023		402		$	14.67		4.6	$	17

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

	Number of Shares			Weighted Average Grant-Date Fair Value Per Share
Outstanding & Unvested, December 31, 2022		238		$	6.10
Converted to common stock		(5	)	$	6.36
Cancelled		(2	)	$	6.19
Forfeited		(9	)	$	5.90
Outstanding & Unvested, March 31, 2023		222		$	6.10

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Note 4 - Basic and Diluted Net (Loss)/Income Per Share (Tables)

3 Months Ended

Mar. 31, 2023

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended
	March 31,
	2023		2022
Weighted average common shares outstanding, basic		5,685		5,590
Dilutive common equivalent shares		-		56
Weighted average common shares outstanding, diluted		5,685		5,646

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Note 6 - Operating Leases (Tables)

3 Months Ended

Mar. 31, 2023

Notes Tables

Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block]

April 1, 2023, through December 31, 2023	$	876
2024		1,106
2025		564
2026		460
Total lease payments		3,006
Less: interest		(209	)
Present value of lease liabilities	$	2,797
Current operating lease liabilities	$	1,076
Long-term operating lease liabilities		1,721
	$	2,797

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Note 7 - Debt and Other Financing Arrangements (Tables)

3 Months Ended

Mar. 31, 2023

Notes Tables

Schedule of Long-Term Debt Instruments [Table Text Block]

April 1, 2023, through December 31, 2023	$	222
2024		305
Long-term debt from equipment financing		527
Less: current portion of long-term debt from equipment financing		(297	)
Long-term debt from equipment financing, net of current portion	$	230

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Note 8 - Revenue (Tables)

3 Months Ended

Mar. 31, 2023

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended
	March 31,
	2023		2022
Testing	$	4,938	$	5,724
Shipping/Collection (hair)		898		750
Other		23		34
Total Revenue	$	5,859	$	6,508

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Note 2 - Financial Information (Details Textual) $ in Millions	Mar. 31, 2023 USD ($)
Cash	$ 4.4

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Note 3 - Stock-based Compensation (Details Textual) - Incentive Plan 2006 [Member] shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($) shares
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Available for Grant (in shares)	321
Common Stock, Capital Shares Reserved for Future Issuance (in shares)	912
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $	$ 941
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)	2 years 2 months 12 days

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Note 3 - Stock-based Compensation - Compensation Cost (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Share-based compensation	$ 177	$ 179
Share-Based Payment Arrangement, Option [Member]
Share-based compensation	20	53
Stock Unit Awards [Member]
Share-based compensation	$ 157	$ 126

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Note 3 - Stock-based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended	12 Months Ended
		Mar. 31, 2023	Dec. 31, 2022
Outstanding (in shares)		508
Outstanding, weighted average exercise price (in dollars per share)		$ 14.19
Outstanding, weighted average remaining contractual life (Year)		4 years 9 months 18 days	5 years 1 month 6 days
Outstanding, aggregate intrinsic value	[1]	$ 33	$ 25
Canceled (in shares)		(64)
Canceled (in dollars per share)		$ 14.70
Outstanding (in shares)		444	508
Outstanding, weighted average exercise price (in dollars per share)		$ 14.09	$ 14.19
Exercisable (in shares)		402
Exercisable, weighted average exercise price (in dollars per share)		$ 14.67
Exercisable, weighted average remaining contractual life (Year)		4 years 7 months 6 days
Exercisable, aggregate intrinsic value	[1]	$ 17

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

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Note 3 - Stock-based Compensation - Nonvested Award Activity (Details) - Stock Unit Award [Member] shares in Thousands	3 Months Ended
	Mar. 31, 2023 $ / shares shares
Outstanding & Unvested at beginning of period (in shares) | shares	238
Outstanding & Unvested, beginning of period, weighted average price per share (in dollars per share) | $ / shares	$ 6.10
Converted to common stock (in shares) | shares	(5)
Converted to common stock, weighted average price per share (in dollars per share) | $ / shares	$ 6.36
Cancelled (in shares) | shares	(2)
Cancelled, weighted average price per share (in dollars per share) | $ / shares	$ 6.19
Forfeited (in shares) | shares	(9)
Forfeited, weighted average price per share (in dollars per share) | $ / shares	$ 5.90
Outstanding & Unvested at end of period (in shares) | shares	222
Outstanding & Unvested, end of period, weighted average price per share (in dollars per share) | $ / shares	$ 6.10

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Note 4 - Basic and Diluted Net (Loss)/Income Per Share (Details Textual) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)	620	545

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Note 4 - Basic and Diluted Net (Loss)/Income Per Share - Basic and Diluted Weighted Average Common Shares Outstanding (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Weighted average common shares outstanding, basic (in shares)	5,685	5,590
Dilutive common equivalent shares (in shares)	0	56
Weighted average common shares outstanding, diluted (in shares)	5,685	5,646

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Note 5 - Commitments and Contingencies (Details Textual) $ in Millions	Mar. 31, 2023 USD ($)
Enma Sagastume v. Psychemedics Corporation [Member]
Loss Contingency Accrual	$ 1.2

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Note 6 - Operating Leases (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Operating Lease, Right-of-Use Asset	$ 2,532	$ 2,681
Operating Lease, Liability	$ 2,797
Operating Lease, Weighted Average Discount Rate, Percent	3.90%
Operating Lease, Weighted Average Remaining Lease Term (Year)	2 years 10 months 24 days
Operating Lease, Expense	$ 262

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Note 6 - Operating Leases - Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
April 1, 2023, through December 31, 2023	$ 876
2024	1,106
2025	564
2026	460
Total lease payments	3,006
Less: interest	(209)
Present value of lease liabilities	2,797
Current operating lease liabilities	1,076	$ 1,037
Long-term operating lease liabilities	1,721	$ 1,938
Operating Lease, Liability	$ 2,797

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Note 7 - Debt and Other Financing Arrangements (Details Textual) - Banc of America Leasing and Capital [Member] - Equipment Loan Arrangement [Member] - Line of Credit [Member] $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($)
Debt, Weighted Average Interest Rate	3.80%
Interest Expense	$ 5
Long-Term Debt, Weighted Average Interest Rate, at Point in Time	3.80%
Long-Term Debt	$ 526

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Note 7 - Debt and Other Financing Arrangements - Schedule of Debt Repayments (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Less: current portion of long-term debt from equipment financing	$ (297)	$ (294)
Long-term debt from equipment financing, net of current portion	230	$ 305
Equipment Loan Arrangement [Member]
April 1, 2023, through December 31, 2023	222
2024	305
Long-term debt from equipment financing	527
Less: current portion of long-term debt from equipment financing	(297)
Long-term debt from equipment financing, net of current portion	$ 230

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Note 8 - Revenue - Revenue by Major Source (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenues	$ 5,859	$ 6,508
Testing [Member]
Revenues	4,938	5,724
Shipping/Collection (Hair) [Member]
Revenues	898	750
Other Revenue [Member]
Revenues	$ 23	$ 34

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Note 9 - Significant Customers (Details Textual) - Customer Concentration Risk [Member]	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenue Benchmark [Member]
Number of Major Customers	0	0
Accounts Receivable [Member]
Number of Major Customers	0	1
Accounts Receivable [Member] | Customer One [Member]
Concentration Risk, Percentage	16.00%	17.00%

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Note 10 - Subsequent Events (Details Textual) - $ / shares		3 Months Ended
	May 09, 2023	Mar. 31, 2023
Common Stock, Dividends, Per Share, Declared (in dollars per share)		$ 0.07
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared (in dollars per share)	$ 0.07