<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 SEPTEMBER 30, 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 registrant 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)
Registrant's telephone number, including area code (617-868-7455)
Check whether the registrant (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
November 11, 1996: Common Stock $.005 par value (21,616,498 shares).
Page 1
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PSYCHEMEDICS CORPORATION
INDEX
Part I FINANCIAL INFORMATION Page No.
-------
Item 1 Financial Statements
Condensed Balance Sheets as of September 30, 1996
and December 31, 1995 3
Condensed Statements of Income for the three
and nine month periods ended September 30, 1996
and 1995 4-5
Condensed Statements of Cash Flows for the
nine month periods ended September 30, 1996
and 1995 6
Notes to Condensed Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
Page 2
<PAGE> 3
<TABLE>
PSYCHEMEDICS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 676,535 $ 193,787
Short-term investments 7,814,139 5,279,596
Receivables 2,713,053 1,722,770
Laboratory supplies 254,981 253,216
Prepaid expenses and other current assets 212,216 72,247
----------- -----------
Total current assets 11,670,924 7,521,616
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS 4,650,275 4,106,980
Less-accumulated depreciation and amortization 2,316,919 1,864,398
----------- -----------
2,333,356 2,242,582
----------- -----------
OTHER ASSETS - NET 452,833 453,295
----------- -----------
$14,457,113 $10,217,493
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital leases $ - $ 16,459
Accounts payable 315,658 466,412
Accrued expenses 342,719 250,916
----------- -----------
Total current liabilities 658,377 733,787
----------- -----------
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 21,615,468 and 20,279,280
shares in 1996 and 1995, respectively 108,093 101,441
Paid-in capital 20,386,767 17,972,819
Accumulated deficit (6,442,061) (8,336,491)
Treasury stock, at cost; 66,335 shares in 1996
and 1995 (254,063) (254,063)
----------- -----------
Total shareholders' equity 13,798,736 9,483,706
----------- -----------
$14,457,113 $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 14
<PAGE> 4
<TABLE>
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
REVENUE $ 3,146,808 $ 2,667,417
DIRECT COSTS 1,279,929 1,201,607
----------- -----------
Gross profit 1,866,879 1,465,810
----------- -----------
EXPENSES:
General and administrative 545,324 475,115
Marketing and selling 481,825 508,833
Research and development 101,866 114,306
----------- -----------
1,129,015 1,098,254
----------- -----------
INCOME FROM OPERATIONS 737,864 367,556
OTHER INCOME (EXPENSE) - NET 94,695 92,835
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 832,559 460,391
PROVISION FOR INCOME TAXES 100,560 30,000
NET INCOME $ 731,999 $ 430,391
=========== ===========
NET INCOME PER COMMON SHARE
AND COMMON EQUIVALENT SHARE $ 0.03 $ 0.02
=========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON SHARE EQUIVALENTS OUTSTANDING 22,720,866 21,637,380
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations
PAGE 4 OF 14
<PAGE> 5
<TABLE>
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
REVENUE $ 8,962,785 $ 7,735,816
DIRECT COSTS 3,686,773 3,446,607
----------- -----------
Gross profit 5,276,012 4,289,209
----------- -----------
EXPENSES:
General and administrative 1,637,725 1,388,205
Marketing and selling 1,486,929 1,254,695
Research and development 304,991 325,965
----------- -----------
3,429,645 2,968,865
----------- -----------
INCOME FROM OPERATIONS 1,846,367 1,320,344
OTHER INCOME (EXPENSE) - NET 244,975 268,866
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,091,342 1,589,210
PROVISION FOR INCOME TAXES 193,593 104,300
----------- -----------
NET INCOME $ 1,897,749 $ 1,484,910
=========== ===========
NET INCOME PER COMMON SHARE
AND COMMON EQUIVALENT SHARE $ 0.09 $ 0.07
=========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON SHARE EQUIVALENTS OUTSTANDING 22,204,630 20,860,213
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations
Page 5 of 14
<PAGE> 6
<TABLE>
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,893,749 $ 1,484,910
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 472,521 411,916
Changes in assets and liabilities:
Receivables (990,283) (284,328)
Laboratory supplies (1,765) (93,020)
Prepaid expenses and other current assets (139,969) (74,897)
Accounts payable (150,754) 48,408
Accrued expenses 92,487 61,966
----------- -----------
Net cash provided by operating activities 1,175,986 1,554,955
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments - net (2,534,543) (89,538)
Purchases of equipment and leasehold improvements (543,295) (813,945)
Increase in other assets - net (19,538) (44,473)
----------- -----------
Net cash used in investing activities (3,097,376) (947,956)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net principal payments on obligations under
capital leases (16,459) (113,616)
Net proceeds from the issuance of
common stock 2,420,596 1,005,198
Net cash used to repurchase common stock - (1,634,179)
----------- -----------
Net cash (used in) provided by financing activities 2,404,137 (742,597)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 482,747 (135,598)
CASH AND CASH EQUIVALENTS, beginning of period 193,787 544,776
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 676,534 $ 409,178
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations
Page 6 of 14
<PAGE> 7
PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 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 September 30, 1996 and the results of
its operations and cash flows for the periods ended September 30, 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 equivalent shares is based upon the weighted
average number of common and common equivalent shares outstanding as computed
using the treasury stock method.
3. For comparative purposes certain prior year expenses have been reclassified
between direct costs, general and administrative expenses, and selling and
marketing expenses to conform with current year presentation.
4. On June 11, 1996, the Company declared a 3 % stock dividend distributed to
shareholders on July 3, 1996. The effect of this transaction has been reflected
in all periods presented on this Form 10-Q.
Page 7
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
---------------------
REVENUE
Revenue for the third quarter of 1996 was $3,146,808, an increase of 18% over
the $2,667,417 reported for the third quarter of 1995. Revenue for the nine
month period ended September 30, 1996 was $8,962,785 an increase of 16% over the
$7,735,816 reported for the comparable period of 1995. The revenue increases
result primarily from the addition of new customers and expanding volume from
the Company's existing customer base.
<TABLE>
DIRECT COSTS AND EXPENSES
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.
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Direct costs 41% 45% 41% 45%
General and administrative 17% 18% 18% 18%
Marketing and selling 15% 19% 17% 16%
Research and development 3% 4% 3% 4%
</TABLE>
Direct Costs
Direct costs were $1,279,929, $1,201,607, $3,686,773 and $3,446,607 for the
three and nine month periods ended September 30, 1996 and 1995, respectively.
Direct costs as a percentage of revenue were lower for the three and nine month
periods ended September 30, 1996 as compared to the comparable periods in 1995
primarily due to efficiencies realized from increased sales volume.
Page 8
<PAGE> 9
General and Administrative Expenses
General and Administrative expenses were $545,324, $475,115, $1,637,725, and
$1,388,204 for the three and nine month periods ended September 30, 1996 and
1995, respectively. The increase in general and administrative expenses in the
1996 periods as compared to the same periods in 1995 is primarily due to
expansion of the Company's management staff and increased bad debt expense.
Marketing and Selling Expenses
Marketing and selling expenses were $481,825, $508,833, $1,486,929, and
$1,254,695 for the three and nine month periods ended September 30, 1996 and
1995, respectively. Marketing and selling expenses were relatively flat for the
three month periods ended September 30, 1996 and 1995, and increased for the
nine month period in 1996 as compared to 1995 due to increased sales staff and
customer service support.
Other Income (Expense) - Net
Other income for the three and nine month periods ended September 30, 1996 and
1995 results primarily from interest income from the Company's invested cash
balances. Other income was relatively flat for the three month period ended
September 30, 1996, and decreased for the nine month period in 1996 as compared
to 1995 as a result of slightly higher invested balances offset by lower yields.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash and investment balances at September 30, 1996 amounted to
$8,490,674. Cash generated from operations in the first nine months of 1996 was
$1,175,986. The Company also received $61,000 and $2,420,237 of net proceeds
from the exercise of warrants and stock options during the three and nine month
periods ended September 30, 1996.
Management believes that cash generated from operations, together with proceeds
from such warrants and option exercises, 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 September 30, 1996 amounted to $11,012,547 as compared to
$6,787,829 at December 31, 1995.
Page 9
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The Company's capital expenditures were $543,295 for the first nine months of
1996. Capital expenditures for 1996 are expected to be approximately $650,000
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 shareholder value. The Company had purchased a total of
699,387 shares of common stock for $2,676,793. No treasury shares have been
purchased since June 20, 1996.
On June 11, 1996, the Company declared a 3% stock dividend distributed to
shareholders on July 3, 1996. The shares issued in the stock dividend
represented shares which the Company acquired in the stock repurchase program.
This transaction resulted in an increase in accumulated deficit of $4,668,200
(632,976 shares distributed at a fair market value of $7.375 per share at June
21, 1996, the record date). Treasury stock was reduced by $2,422,730 as a result
of this distribution. As of September 30, 1996, 66,335 shares remain in treasury
stock. The effect of this transaction has been reflected in all periods
presented in this Form 10-Q.
Page 10
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The Exhibits filed as part of this Form 10-Q are listed on the
Exhibit Index immediately preceding such Exhibits, which Exhibit
Index is incorporated herein by reference.
(b) Reports on Form 8-K - None.
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<PAGE> 12
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: November 11, 1996 By:/s/Raymond C. Kubacki, Jr.
-------------------------------
Raymond C. Kubacki, Jr.
President and Chief Executive Officer
Date: November 11, 1996 By:/s/Bruce M. Stillwell
-------------------------------
Bruce M. Stillwell
Vice President, Treasurer & Controller
Page 12
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PSYCHEMEDICS CORPORATION
10-Q
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------ -----------
11 Calculation of shares used in determining
net income per share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
<TABLE>
CALCULATION OF SHARES USED IN DETERMINING INCOME PER SHARE
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
1996 1995 1996 1995
---------------------- -----------------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING DURING PERIOD 21,615,468 19,782,101 21,144,176 19,561,651
EFFECT OF COMMON STOCK EQUIVALENTS
COMPUTED IN ACCORDANCE WITH THE
TREASURY STOCK METHOD 1,105,398 1,855,279 1,060,454 1,298,562
---------- ---------- ---------- ----------
22,720,866 21,637,380 22,204,630 20,860,213
---------- ---------- ---------- ----------
</TABLE>
Page 14 of 14
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 676,535
<SECURITIES> 7,814,139
<RECEIVABLES> 2,713,053
<ALLOWANCES> 0
<INVENTORY> 254,981
<CURRENT-ASSETS> 11,670,924
<PP&E> 4,650,275
<DEPRECIATION> 2,316,919
<TOTAL-ASSETS> 14,457,113
<CURRENT-LIABILITIES> 658,377
<BONDS> [BLANK]
<COMMON> 108,093
0
0
<OTHER-SE> 13,690,643
<TOTAL-LIABILITY-AND-EQUITY> 14,457,113
<SALES> 8,962,785
<TOTAL-REVENUES> 8,962,785
<CGS> 3,686,773
<TOTAL-COSTS> 3,686,773
<OTHER-EXPENSES> 3,429,645
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,846,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,897,749
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
