<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, 1997
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, 1997: Common Stock $.005 par value (21,887,648 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, 1997
and December 31, 1996 3
Condensed Statements of Income for the
three month periods ended March 31, 1997 and 1996 4
Condensed Statements of Cash Flows for the
three month periods ended March 31, 1997 and 1996 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
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 587,371 $ 1,462,678
Short-term investments 9,368,079 8,370,727
Receivables 2,924,022 2,657,416
Inventory 370,113 230,777
Prepaid expenses and other current assets 339,779 129,828
----------- -----------
Total current assets 13,589,364 12,851,426
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS 5,084,261 4,843,412
Less-accumulated depreciation and amortization 2,536,206 2,399,919
----------- -----------
2,548,055 2,443,493
----------- -----------
OTHER ASSETS - NET 437,123 449,601
----------- -----------
$16,574,542 $15,744,520
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 498,646 $ 395,434
Accrued dividend payable 437,846 437,217
Accrued expenses 250,853 332,244
Accrued income taxes 405,160 283,808
----------- -----------
Total current liabilities 1,592,505 1,448,703
----------- -----------
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 21,954,029 and 21,758,087
shares in 1997 and 1996, respectively 109,767 108,790
Paid-in capital 21,207,371 20,722,137
Accumulated deficit (6,081,038) (6,281,047)
Treasury stock, at cost; 66,381 shares in 1997
and 1996 (254,063) (254,063)
----------- -----------
Total shareholders' equity 14,982,037 14,295,817
----------- -----------
$16,574,542 $15,744,520
=========== ===========
</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
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUE $ 3,253,743 $ 2,674,665
DIRECT COSTS 1,321,872 1,184,008
----------- -----------
Gross profit 1,931,871 1,490,657
----------- -----------
EXPENSES:
General and administrative 532,653 533,261
Marketing and selling 657,443 479,142
Research and development 108,908 89,867
----------- -----------
1,299,004 1,102,270
----------- -----------
INCOME FROM OPERATIONS 632,867 388,387
OTHER INCOME (EXPENSE) - NET 125,592 65,497
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 758,459 453,884
PROVISION FOR INCOME TAXES 121,352 4,600
=========== ===========
NET INCOME $ 637,107 $ 449,284
=========== ===========
NET INCOME PER COMMON SHARE
AND COMMON EQUIVALENT SHARE $ 0.03 $ 0.02
=========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON SHARE EQUIVALENTS OUTSTANDING 22,755,427 22,234,593
=========== ===========
</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
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
1997 1996
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 637,107 $ 449,284
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 136,287 159,623
Changes in assets and liabilities:
Receivables (266,606) (313,186)
Inventory (139,336) 13,207
Prepaid expenses and other current assets (209,951) (172,805)
Accrued income taxes payable 121,352 2,600
Accounts payable 103,212 (54,315)
Accrued dividend payable 629 -
Accrued expenses (81,391) (8,384)
------------ ----------
Net cash provided by operating activities 301,303 76,024
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) sales of short-term investments - net (997,352) 721,439
Purchases of equipment and leasehold improvements (240,849) (147,279)
(Increase) decrease in other assets - net 12,478 (13,014)
------------ ----------
Net cash provided by (used in) investing activities (1,225,723) 561,146
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net principal payments on obligations under
capital leases - (14,924)
Net proceeds from the issuance of
common stock 485,581 1,882,847
Cash dividends paid (436,468) -
------------ ----------
Net cash provided by financing activities 49,113 1,867,923
------------ ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (875,307) 2,505,093
CASH AND CASH EQUIVALENTS, beginning of period 1,462,678 193,787
------------ ----------
CASH AND CASH EQUIVALENTS, end of period $ 587,371 $2,698,880
============ ==========
</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, 1997
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, 1997 and the results of its
operations and cash flows for the periods ended March 31, 1997 and 1996. 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-K for the year
ended December 31, 1996 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. On July 3, 1996, the Company distributed a 3% stock dividend to shareholders
of record on June 21, 1996. Average shares outstanding and all per share amounts
included in the accompanying financial statements and Notes are based on the
increased number of shares giving retroactive effect to the stock dividend.
4. On March 4, 1997, the Company declared a $0.02 per share cash dividend
payable on April 9, 1997, to shareholders of record on March 20, 1997. This
transaction resulted in an increase of $437,097 to both accrued dividends
payable and accumulated deficit at March 31, 1997.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
---------------------
REVENUE
Revenue for the first quarter of 1997 was $3,253,743, an increase of 22% over
the $2,674,665 reported for the first quarter of 1996. The revenue increase
results primarily from the addition of new customers.
Page 6 of 11
<PAGE> 7
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.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
1997 1996
---- ----
<S> <C> <C>
Direct costs 41% 44%
General and administrative 16% 20%
Marketing and selling 20% 18%
Research and development 3% 3%
</TABLE>
Direct Costs
Direct costs were $1,321,872 and $1,184,008 for the three month periods ended
March 31, 1997 and 1996, respectively. The increase in direct costs in 1997 is
attributable to the increase in the volume of samples tested during the period.
Direct costs as a percentage of revenue for the three month period ended March
31, 1997 were less than the comparable period in 1996. The decrease of direct
costs as a percentage of revenue in 1996 resulted primarily from increased
efficiencies derived from increased sales volume.
General and Administrative Expenses
General and Administrative expenses remained virtually unchanged at $532,653 for
the three month period ended March 31, 1997 as compared to $533,261 in 1996. As
a percentage of revenues, General and Administrative expenses decreased due to
increases in revenues in 1997.
Marketing and Selling Expenses
Marketing and selling expenses were $657,443 and $479,142 for the three month
periods ended March 31, 1997 and 1996, respectively. Marketing and selling
expenses increased in 1997 as compared to 1996 due primarily to the Company's
increased sales staff and expanded marketing activities related to both the
corporate and retail home testing market.
Page 7 of 11
<PAGE> 8
Other Income - Net
Other income for the three month periods ended March 31, 1997 and 1996
represents primarily interest income from investments and cash equivalents. The
increase in other income for the three month period ended March 31, 1997 is due
primarily to increased investment balances coupled with increased yields on
these investments.
Provision for Income Taxes
The effective tax rate for 1997 increased over the 1996 rate reflecting the
reduction in net operating loss carryforwards available to offset the provision
for income taxes for financial reporting purposes. As of December 31, 1996, the
Company had available approximately $3,586,000 of net operating loss
carryforwards to offset the 1997 and future years cash payments for income
taxes, however, approximately $2,648,000 of these loss carryforwards are
comprised of deductions from the exercise of certain options and warrants which
will increase paid-in capital when tax benefits related to these options and
warrants are recognized.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash and investment balances at March 31, 1997 amounted to
$9,955,450. Cash generated from operations in the first quarter of 1997 was
$301,303. The Company received $485,581 of net proceeds from the exercise of
stock options during the first quarter of 1997.
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, 1997 amounted to $11,996,859 as compared to
$11,402,723 at December 31, 1996.
The Company's capital expenditures were $240,849 in first quarter of 1997.
Capital expenditures for 1997 are expected to be approximately $750,000 and are
expected to be funded through cash generated from operations and from existing
cash reserves.
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, 1997 By: /s/ Raymond C. Kubacki, Jr.
---------------------------------
Raymond C. Kubacki, Jr.
President and Chief Executive Officer
Date: May 13, 1997 By: /s/ Bruce M. Stillwell
---------------------------------
Bruce M. Stillwell
Vice President, Treasurer & Controller
Page 10 of 11
<PAGE> 1
EXHIBIT 11
CALCULATION OF SHARES USED IN DETERMINING INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1997 1996
-------------------------------
<S> <C> <C>
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING DURING PERIOD 21,832,664 21,054,734
EFFECT ON COMMON STOCK EQUIVALENTS
COMPUTED IN ACCORDANCE WITH THE
TREASURY STOCK METHOD 922,763 1,179,859
---------- ----------
22,755,427 22,234,593
---------- ----------
</TABLE>
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 587,371
<SECURITIES> 9,368,079
<RECEIVABLES> 2,924,022
<ALLOWANCES> 0
<INVENTORY> 370,113
<CURRENT-ASSETS> 13,589,364
<PP&E> 5,084,261
<DEPRECIATION> 2,536,206
<TOTAL-ASSETS> 16,574,542
<CURRENT-LIABILITIES> 1,592,505
<BONDS> 0
0
0
<COMMON> 109,767
<OTHER-SE> 14,872,270
<TOTAL-LIABILITY-AND-EQUITY> 16,574,542
<SALES> 3,253,743
<TOTAL-REVENUES> 0
<CGS> 1,321,872
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,299,004
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 758,459
<INCOME-TAX> 121,352
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 637,107
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
