<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended MARCH 31, 1996
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 Issuer as specified in its charter)
Delaware 58-1701987
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
1280 Massachusetts Ave., Ste. 200, Cambridge, MA 02138
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (617-868-7455)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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
--- ---
Number of shares outstanding of only class of Issuer's Common Stock as of May
13, 1996: Common Stock $.005 par value (21,412,600 shares).
Page 1 of 11
<PAGE> 2
PSYCHEMEDICS CORPORATION
Part I FINANCIAL INFORMATION Page No.
-------
Item 1 Financial Statements
Condensed Balance Sheets as of March 31, 1996
and December 31, 1995 3
Condensed Statements of Operations for the
three month periods ended March 31, 1996 and 1995 4
Condensed Statements of Cash Flows for the
three month periods ended March 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8K 9
Page 2 of 11
<PAGE> 3
PSYCHEMEDICS CORPORATION
<TABLE>
CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,698,880 $ 193,787
Short-term investments 4,558,157 5,279,596
Receivables 2,035,956 1,722,770
Laboratory supplies 240,009 253,216
Prepaid expenses and other current assets 245,052 72,247
----------- -----------
Total current assets 9,778,054 7,521,616
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS 4,254,259 4,106,980
Less-accumulated depreciation and amortization 2,009,021 1,864,398
----------- -----------
2,245,238 2,242,582
----------- -----------
OTHER ASSETS - NET 451,309 453,295
----------- -----------
$12,474,601 $10,217,493
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital leases $ 1,535 $ 16,459
Accounts payable 412,097 466,412
Accrued expenses 244,448 250,232
----------- -----------
Total current liabilities 658,080 733,103
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, $.005 par value; authorized 1,000,000
shares; none outstanding - -
Common stock; $.005 par value; authorized 50,000,000
shares; issued 21,226,955 and 20,288,280
shares in 1996 and 1995, respectively 106,135 101,441
Paid-in capital 17,606,186 15,728,033
Accumulated deficit (3,219,007) (3,668,291)
Treasury stock, at cost; 699,387 shares
in 1996 and 1995 (2,676,793) (2,676,793)
----------- -----------
Total shareholders' equity 11,816,521 9,484,390
----------- -----------
$12,474,601 $10,217,493
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
Page 3 of 11
<PAGE> 4
PSYCHEMEDICS CORPORATION
<TABLE>
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------------
1996 1995
------------ -----------
<S> <C> <C>
REVENUE $ 2,674,665 $ 2,321,157
DIRECT COSTS 1,184,008 1,072,644
------------ -----------
Gross profit 1,490,657 1,248,513
------------ -----------
EXPENSES:
General and administrative 533,261 421,579
Marketing and selling 479,142 384,305
Research and development 89,867 104,010
------------ -----------
1,102,270 909,894
------------ -----------
INCOME FROM OPERATIONS 388,387 338,619
OTHER INCOME (EXPENSE) - NET 65,497 91,361
------------ -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 453,884 429,980
PROVISION FOR INCOME TAXES 4,600 26,000
----------- -----------
NET INCOME $ 449,284 $ 403,980
=========== ===========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.02 $ 0.02
=========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON SHARE EQUIVALENTS OUTSTANDING 21,586,984 20,706,058
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
Page 4 of 11
<PAGE> 5
PSYCHEMEDICS CORPORATION
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
1996 1995
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 449,284 $ 403,980
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 159,623 138,300
Changes in assets and liabilities:
Receivables (313,186) (106,112)
Laboratory supplies 13,207 67,181
Prepaid expenses and other current assets (172,805) (155,202)
Accounts payable (54,315) 149,449
Accrued expenses (5,784) 63,582
---------- ---------
Net cash provided by operating activies 76,024 561,178
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of short-term investments - net 721,439 32,027
Purchases of equipment and leasehold improvements (147,279) (258,815)
Increase in other assets - net (13,014) (18,357)
---------- ---------
Net cash provided by (used in) investing activities 561,146 (245,145)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net principal payments on obligations under
capital leases (14,924) (37,105)
Net proceeds from the issuance of common stock 1,882,847 46,550
Net cash used in stock repurchases - (426,519)
---------- ---------
Net cash provided by (used in) financing activities 1,867,923 (417,074)
---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,505,093 (101,041)
CASH AND CASH EQUIVALENTS, beginning of period 193,787 544,776
---------- ---------
CASH AND CASH EQUIVALENTS, end of period $2,698,880 $ 443,735
========== =========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
Page 5 of 11
<PAGE> 6
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1996
1. The financial information furnished herein is unaudited; however, in the
opinion of management, it reflects all adjustments which are necessary to fairly
state the Company's financial position at March 31, 1996 and the results of its
operations and cash flows for the periods ended March 31, 1996 and 1995. The
financial statements have been prepared in conformity with generally accepted
accounting principles appropriate in the circumstances, and included in the
financial statements are certain amounts based on management's estimates and
judgments.
The financial information herein is not necessarily representative of a full
year's operations because levels of sales, capital additions and other factors
fluctuate throughout the year. These same considerations apply to all year to
year comparisons. See the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995 for additional information not required by this report
(Form 10-Q).
2. Net income per common and common share equivalents is based upon the weighted
average number of common and common share equivalents outstanding as computed
using the treasury stock method.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
REVENUE
Revenue for the first quarter of 1996 was $2,674,665, an increase of 15% over
the $2,321,157 reported for the first quarter of 1995. The revenue increase
results primarily from the addition of new customers and expanding volume from
the Company's existing customer base.
Page 6 of 11
<PAGE> 7
DIRECT COSTS AND EXPENSES
<TABLE>
The following table sets forth the direct costs of revenue, general and
administrative expenses, marketing and selling expenses and research and
development expenses as a percentage of revenue.
<CAPTION>
Three Months
Ended March 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Direct costs 44% 46%
General and administrative 20% 18%
Marketing and selling 18% 17%
Research and development 3% 4%
</TABLE>
Direct Costs
Direct costs were $1,184,008 and $1,072,644 for the three month periods ended
March 31, 1996 and 1995, respectively. The increase in direct costs in 1996 is
attributable to the increase in revenue for the period. Direct costs as a
percentage of revenue for the three month period ended March 31, 1996 were less
than the comparable period in 1995. The decrease of direct costs as a percentage
of revenue in 1996 resulted primarily from laboratory efficiencies.
General and Administrative Expenses
General and Administrative expenses were $533,261 and $421,579 for the three
month periods ended March 31, 1996 and 1995, respectively. The increase in
general and administrative expenses in 1996 as compared to the same period in
1995 is due primarily to the higher costs incurred by the Company as a result of
additional personnel and increased legal expenses.
Marketing and Selling Expenses
Marketing and selling expenses were $479,142 and $384,305 for the three month
periods ended March 31, 1996 and 1995, respectively. Marketing and selling
expenses increased in 1996 as compared to 1995 due primarily to the Company's
increased marketing activities.
Page 7 of 11
<PAGE> 8
Other Income - Net
Other income for the three month periods ended March 31, 1996 and 1995
represents primarily interest income from investments and cash equivalents which
has been partially offset by interest expense related to equipment capital
leases. The decrease in other income for the three month period ended March 31,
1996 is due primarily to a decrease in yields on investments.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash and investment balances at March 31, 1996 amounted to
$7,257,037. Cash generated from operations in the first quarter of 1996 was
$76,024. The Company received $1,882,847 of net proceeds from the exercise of
warrants and stock options during the first quarter of 1996.
Management believes that the proceeds from such transactions, together with
future operating profits, should be adequate to fund anticipated working capital
requirements. 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 capital.
Working capital at March 31, 1996 amounted to $9,119,974 as compared to
$6,788,513 at December 31, 1995.
The Company's capital expenditures were $147,279 in first quarter of 1996.
Capital expenditures for 1996 are expected to be approximately $600,000 and are
expected to be funded through cash generated from operations and from existing
cash reserves.
In December 1994, the Company's Board of Directors authorized the repurchase of
up to one million shares of the Company's common stock. This program is a direct
result of the Company's solid financial condition and cash-generating
capability, and it was authorized after evaluating various alternatives to
enhance long-term share owner value. As of March 31, 1996, the Company had
purchased 699,387 shares of common stock for $2,676,793.
Page 8 of 11
<PAGE> 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11. Calculation of Shares used in Determining Income Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
Page 9 of 11
<PAGE> 10
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 13, 1996 By: /s/ Raymond C. Kubacki, Jr.
----------------------------------
Raymond C. Kubacki, Jr.
President and Chief Executive Officer
Date: May 13, 1996 By: /s/ Bruce M. Stillwell
----------------------------------
Bruce M. Stillwell
Vice President, Controller & Treasurer
Page 10 of 11
<PAGE> 1
<TABLE>
EXHIBIT 11
CALCULATION OF SHARES USED IN DETERMINING INCOME PER SHARE
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1996 1995
--------------------------
<S> <C> <C>
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING DURING PERIOD 20,441,490 19,517,590
EFFECT OF COMMON STOCK EQUIVALENTS
COMPUTED IN ACCORDANCE WITH THE
TREASURY STOCK METHOD 1,145,494 1,188,468
---------- ----------
21,586,984 20,706,058
---------- ----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806517
<NAME> PSYCHEMEDICS CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,698,880
<SECURITIES> 4,558,157
<RECEIVABLES> 2,035,956
<ALLOWANCES> 0
<INVENTORY> 240,009
<CURRENT-ASSETS> 9,778,054
<PP&E> 4,254,259
<DEPRECIATION> 2,009,021
<TOTAL-ASSETS> 12,474,601
<CURRENT-LIABILITIES> 658,080
<BONDS> 0
<COMMON> 106,135
0
0
<OTHER-SE> 12,368,466
<TOTAL-LIABILITY-AND-EQUITY> 12,474,601
<SALES> 2,674,665
<TOTAL-REVENUES> 2,674,665
<CGS> 1,184,008
<TOTAL-COSTS> 2,286,278
<OTHER-EXPENSES> 65,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 453,884
<INCOME-TAX> 4,600
<INCOME-CONTINUING> 449,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 449,284
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
