<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, 1999
[ ] 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., Suite 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
10, 1999: Common Stock $.005 par value (21,955,026 shares).
<PAGE> 2
PSYCHEMEDICS CORPORATION
PAGE NO.
--------
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets as of March 31, 1999
and December 31, 1998 3
Condensed Statements of Income for the three
month periods ended March 31, 1999 and 1998 4
Condensed Statements of Cash Flows for the
three month periods ended March 31, 1999 and 1998 5
Notes to Condensed Financial Statements 6-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 12
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
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PSYCHEMEDICS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 450,136 $ 724,738
Short-term investments 7,728,895 9,088,436
Accounts receivable, net 3,938,974 3,075,619
Inventories 482,463 510,016
Prepaid expenses and other current assets 813,527 723,388
----------- ------------
Total current assets 13,413,995 14,122,197
----------- ------------
PROPERTY AND EQUIPMENT:
Equipment and leasehold improvements, at cost 8,221,085 8,131,365
Less-Accumulated depreciation and amortization (4,264,362) (3,949,128)
----------- ------------
3,956,723 4,182,237
----------- ------------
OTHER ASSETS - NET 418,935 434,925
----------- ------------
$17,789,653 $ 18,739,359
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 493,228 $ 675,072
Accrued expenses 790,288 745,111
Deferred revenue 1,281,747 1,436,667
----------- ------------
Total current liabilities 2,565,263 2,856,850
----------- ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.005 par value; 1,000,000
shares authorized; none outstanding -- --
Common stock; $.005 par value; 50,000,000
shares authorized; issued 22,607,290
shares in 1999 and 1998 113,036 113,036
Paid-in capital 24,403,949 24,403,949
Accumulated deficit (5,899,759) (5,585,453)
Less - Treasury stock, at cost; 609,064 and 533,664
shares in 1999 and 1998, respectively (2,984,218) (2,645,232)
Less - Receivable from officer (408,618) (403,791)
----------- ------------
Total shareholders' equity 15,224,390 15,882,509
----------- ------------
$17,789,653 $ 18,739,359
=========== ============
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
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PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUE $ 4,680,257 $ 4,121,903
DIRECT COSTS 1,943,099 1,694,888
----------- -----------
Gross profit 2,737,158 2,427,015
----------- -----------
EXPENSES:
General and administrative 759,759 607,966
Marketing and selling 991,574 768,022
Research and development 141,061 106,993
----------- -----------
1,892,394 1,482,981
----------- -----------
OPERATING INCOME 844,764 944,034
OTHER INCOME 116,655 136,384
----------- -----------
NET INCOME BEFORE INCOME TAXES 961,419 1,080,418
PROVISION FOR INCOME TAXES 394,180 439,140
----------- -----------
NET INCOME $ 567,239 $ 641,278
=========== ===========
BASIC NET INCOME PER SHARE $ 0.03 $ 0.03
=========== ===========
DILUTED NET INCOME PER SHARE $ 0.03 $ 0.03
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 22,047,703 22,210,334
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING, ASSUMING DILUTION 22,279,304 22,693,908
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
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PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 567,239 $ 641,278
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 331,224 223,929
Changes in assets and liabilities:
Receivables (868,182) 691,311
Inventories 27,553 9,489
Prepaid expenses and other current assets (90,139) (202,587)
Accounts payable (181,844) 451,232
Accrued expenses 45,177 394,797
Deferred revenue (154,920) 211,810
---------- ----------
Net cash (used in) provided by operating activities (323,892) 2,421,259
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities (purchases) of short-term investments - net 1,359,541 (219,236)
Purchases of property and equipment (89,720) (624,364)
Increase in other assets - net -- (39,609)
---------- ----------
Net cash provided by (used in) investing activities 1,269,821 (883,209)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (881,545) (442,605)
Acquisition of treasury stock (338,986) --
Net proceeds from the issuance of common stock -- 69,092
---------- ----------
Net cash used in financing activities 1,220,531) (373,513)
---------- ----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (274,602) 1,164,537
---------- ----------
CASH AND CASH EQUIVALENTS, beginning of period 724,738 585,142
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 450,136 $1,749,679
========== ==========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
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PSYCHEMEDICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
1. Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain information
and footnote disclosure required for complete financial statements are not
included herein. It is recommended that these financial statements be read in
conjunction with the financial statements and related notes of Psychemedics
Corporation (the "Company") as reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1998. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of financial position, results of operations, and cash
flows at the dates and for the periods presented have been included. The balance
sheet presented as of December 31, 1998 has been derived from the financial
statements that have been audited by the Company's independent public
accountants. The results of operations for the three months ended March 31, 1999
may not be indicative of the results that may be expected for the year ending
December 31, 1999, or any other period.
2. Basic and Diluted Net Income Per Share
In accordance with Statement of Financial Accounting Standard ("SFAS") No. 128,
Earnings Per Share, basic net income per share is computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Diluted net income per share was computed by dividing net income by the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. The number of dilutive common equivalent shares
outstanding during the period has been determined in accordance with the
treasury-stock method. Common equivalent shares consist of common stock issuable
upon the exercise of outstanding options.
Basic and diluted weighted average common shares outstanding are as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Weighted average common shares outstanding 22,047,703 22,210,334
Dilutive common equivalent shares 231,601 483,574
---------- ----------
Weighted average common shares outstanding,
assuming dilution 22,279,304 22,693,908
========== ==========
</TABLE>
For the three months ended March 31, 1999 and 1998, options to purchase 832,406
and 462,116 common shares, respectively, were outstanding but not included in
the diluted weighted average common share calculation as the effect would have
been antidilutive.
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3. Revenue Recognition
Except as provided below, revenues from the Company's services are recognized
upon reporting of drug test results to the customer. Revenues related to sample
collection kits not returned for processing by customers are recognized when the
likelihood of the Company performing any service obligation is deemed remote. At
March 31, 1999 and December 31, 1998, the Company had deferred revenue balances
of approximately $1,282,000 and $1,437,000, respectively, reflecting payments
for its personal drug testing service received prior to the performance of the
related test.
4. Comprehensive Income
The Company's comprehensive income for the three month periods ended March 31,
1999 and 1998 was the same as reported net income.
5. Segment Reporting
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, in the fiscal year ended December 31, 1998. SFAS No.
131 establishes standards for reporting information regarding operating segments
in annual financial statements and requires selected information for those
segments to be presented in interim financial reports issued to stockholders.
SFAS No. 131 also establishes standards for related disclosures about products
and services and geographic areas. To date, the Company has managed its
operations as one segment, drug testing services. As a result, the financial
information disclosed herein materially represents all of the financial
information related to the Company's principal operating segment. Substantially
all of the Company's revenues are generated in the United States. All of the
Company's assets are located in the United States.
6. New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires computer
software costs associated with internal use software to be charged to operations
as incurred until certain capitalization criteria have been met. The Company
adopted SOP 98-1 beginning January 1, 1998. SOP 98-1 had no effect upon
adoption. As of March 31, 1999 and December 31, 1998, $1,205,540 of software
development costs have been capitalized. During the three month periods ended
March 31, 1999 and 1998, $59,966 and $10,427, respectively, of related
amortization was charged to operations.
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In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities, which requires that all nongovernmental entities charge to
operations the costs of start-up activities, including organizational costs, as
those costs are incurred. The Company has historically recorded all such costs
as charges to operations in the period incurred.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
is effective for all periods beginning after June 15, 1999 and establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
Adoption of SFAS No. 133 is not expected to have a material impact on the
Company's financial position or results of operations.
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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 which involves risks and
uncertainties. In particular, statements contained in this report which are not
historical facts (including but not limited to the Company's expectations
regarding revenues, business strategy, anticipated operating results, cash
dividends and anticipated cash requirements) may be "forward looking"
statements. The Company's 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 continued expansion of the
Company's sales and marketing network, development of markets for new products
and services offered by the Company, the economic health of principal customers
of the Company, financial and operational risks associated with possible
expansion of testing facilities used by the Company, government regulation
(including, but not limited to, Food and Drug Administration regulations),
competition, Year 2000 issues and general economic conditions.
OVERVIEW
--------
Psychemedics Corporation was incorporated in 1986. The Company utilizes a
patented hair analysis method involving radioimmunoassay technology to analyze
human hair to detect abused substances. The founder of the Company has granted
to the Company an exclusive license to all his rights in this hair analysis
technology, including his rights to the drug extraction method.
RESULTS OF OPERATIONS
---------------------
Revenue was $4,680,257 in the first quarter of 1999 as compared to $4,121,903 in
the first quarter of 1998, representing an increase of 14%. The revenue increase
was due primarily to increases in volume from both new and existing clients.
Gross margin was 58% of sales in the first quarter of 1999 as compared to 59% of
sales for the first quarter of 1998. The slight decrease in gross margin was due
largely to the addition of production capacity during the latter part of 1998,
in anticipation of future increases in sample volume.
General and administrative ("G&A") expenses were $759,759 for the three months
ended March 31, 1999 versus $607,966 for the three months ended March 31, 1998,
representing an increase of 25%. As a percentage of revenue, G&A expenses
increased to 16% in the first quarter of 1999 from 15% in the first quarter of
1998, due primarily to greater personnel costs from additions to staff and
401(k) retirement plan expenses, and increased professional fees for legal and
accounting services. Costs related to the implementation of a new billing system
also contributed to the increase.
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Marketing and selling expenses for the three month period ended March 31, 1999
increased $223,552, to $991,574, an increase of 29%. This increase was primarily
due to increased customer service costs pertaining to a sweep of the of one of
the Company's larger customers plants (testing of all union employees) and
expanded marketing activities related to the corporate market. Total marketing
and selling expenses represented 21% of revenues in the first quarter of 1999
versus 19% of revenues in the first quarter of 1998. The Company expects to
continue to aggressively promote its drug testing services during the remainder
of 1999 and in future years in order to expand its client base.
Other income for the three month period ended March 31, 1999 represented
primarily interest earned on cash equivalents and short-term investments. The
decrease in 1999 was primarily due to lower average investment balances coupled
with decreased yields on these investments.
During the three months ended March 31, 1999 and March 31, 1998, the Company
recorded tax provisions of $394,180 and $439,140, respectively, reflecting an
effective tax rate of 41%.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At March 31, 1999, the Company had $8.2 million of cash, cash equivalents and
short-term investments. The Company's operating activities used net cash of
$323,892 in the three months ended March 31, 1999. Investing activities provided
$1,269,821 in the three month period while financing activities used a net
amount of $1,220,531 during the period.
Operating cash flows decreased $2,745,151 in the first three months of 1999,
compared to the year earlier period. This was primarily due to a significant
increase in accounts receivable resulting from seasonal fluctuations, as well as
a decrease in accounts payable and deferred revenue. The non-cash effect of
depreciation and amortization in the 1999 and 1998 periods was $331,224 and
$223,929, respectively.
Capital expenditures in the first three months of 1999 were $89,720. The
expenditures primarily consisted of new equipment, including laboratory and
computer equipment. The Company believes that within the next two years it may
be required to expand its existing laboratory or develop a second laboratory,
the cost of which is currently believed to range from $2 million to $4 million.
During the three month period ended March 31, 1999, the Company distributed
$881,545 in cash dividends to its shareholders. In addition, on May 6, 1999, the
Company declared a cash dividend of $0.04 per share payable on June 29, 1999 to
holders of record on June 15, 1999.
During the three month period ended March 31, 1999, the Company repurchased a
total of 75,400 shares for treasury at an aggregate cost of $338,986.
At March 31, 1999, the Company's principal sources of liquidity included an
aggregate of $8.2 million of cash, cash equivalents and short-term investments.
Management currently believes that such funds, together with cash generated from
operations,
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should be adequate to fund anticipated working capital requirements and capital
expenditures in the near term. 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 potentially include joint ventures, issuances of common stock or
debt financing. At March 31, 1999, the Company had no long-term debt.
IMPACT OF YEAR 2000 ISSUE
-------------------------
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Some of the Company's computer
programs or hardware and equipment that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Over the past two years, the Company has made substantial modifications and
improvements to all of its operational and financial software. An integral part
of this process has been to ensure that all newly purchased and internally
developed software is Year 2000 compliant. The Company has completed a
preliminary evaluation of all of the existing software used in its internal
systems and operations and now expects that it will be Year 2000 compliant by
the end of the third quarter of 1999, and that the cost to bring such software
into compliance will not exceed $20,000. The Company is still evaluating various
hardware and equipment components used in its laboratory operations and also
expects to be Year 2000 compliant in this area by the end of the third quarter
of 1999, at an estimated additional cost of less than $100,000. The Company
believes that although these costs are not material to its business, if these
efforts are not completed on time, or if the cost of updating or replacing the
Company's information systems greatly exceeds the Company's current estimates,
the Year 2000 issue could have a material adverse impact on the Company's
business, financial condition or results of operations.
The Company also intends to determine the extent to which the Company may be
vulnerable to any failures by its major suppliers, customers or service
providers to remedy their own Year 2000 issues, and is in the process of
initiating formal communications with these parties. At this time the Company is
unable to estimate the nature or extent of any potential adverse impact
resulting from the failure of third party suppliers, customers or service
providers to achieve Year 2000 compliance, although the Company does not
currently anticipate that it will experience any material shipment delays from
its major product suppliers or any material payment delays from its major
customers due to Year 2000 issues. However, there can be no assurance that these
third parties will not experience Year 2000 problems or that any problems would
not have a material effect on the Company's business. Because the cost and
timing of Year 2000 compliance by third parties such as suppliers, customers and
service providers is not within the Company's control, no assurance can be given
with respect to the cost or timing of such efforts or any potential adverse
effects on the Company of any failure by these third parties to achieve Year
2000 compliance.
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Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates. The Company does not use derivative
financial instruments for speculative or trading purposes.
Interest Rate Sensitivity. The Company maintains a short-term investment
portfolio consisting principally of securities issued by the U.S. Government
with an average maturity of less than six months. These held-to-maturity
securities are subject to interest rate risk and will fall in value if market
rates increase. If market interest rates were to increase immediately and
uniformly by 10 percent from levels at March 31, 1999, the fair value of the
portfolio would decline by an immaterial amount. The Company has the ability to
hold its fixed income investments until maturity, and therefore the Company
would not expect its operating results or cash flows to be affected to any
significant degree by the effect of a sudden change in market interest rates on
its securities portfolio.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See Exhibit Index included at Page 14 of this Report
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
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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 12, 1999 By: /s/ Raymond C. Kubacki, Jr.
--------------------------------------
Raymond C. Kubacki, Jr.
President and Chief Executive Officer
Date: May 12, 1999 By: /s/ Peter C. Monson
--------------------------------------
Peter C. Monson
Vice President, Treasurer & Controller
Page 13
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PSYCHEMEDICS CORPORATION
FORM 10-Q
MARCH 31, 1999
EXHIBIT INDEX
Page No.
--------
10.1 November 12, 1998 First Amendment To Promissory Note
dated November 12, 1997 15-16
10.2 January 6, 1999 Second Amendment To Promissory Note
dated January 6, 1997 17-18
27. Financial Data Schedule 19
Page 14
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO PROMISSORY NOTE
----------------------------------
FIRST AMENDMENT TO PROMISSORY NOTE dated as of the 12th day of November,
1998 by and between RAYMOND C. KUBACKI, JR. ( "Kubacki") and PSYCHEMEDICS
CORPORATION (the "Company").
WHEREAS, Kubacki and the Company entered into a Promissory Note dated
November 12, 1997, (the "Note") in the original principal amount of Two Hundred
Eleven Thousand Two Hundred Thirty-two Dollars ($211,232.00); and
WHEREAS, the Company has agreed to extend the repayment of $199,500.00 of
the principal balance of the Note; and
WHEREAS, Kubacki's obligations under the Note are secured by a pledge of
shares of Common Stock of the Company pursuant to a Pledge Agreement dated
November 12, 1997 (the "Pledge Agreement");
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. AMENDMENT. (a) The Note is hereby amended by deleting the first three
paragraphs thereof and inserting in lieu thereof the following:
"FOR VALUE RECEIVED, the undersigned RAYMOND C. KUBACKI, JR. hereby
promises to pay to the order of PSYCHEMEDICS CORPORATION, a Delaware
corporation (the "Company"), in accordance with and subject to the terms
and conditions set forth herein, on or before November 12, 1999, the
principal sum of ONE HUNDRED NINETY-NINE THOUSAND FIVE HUNDRED DOLLARS
($199,500), or so much thereof as may from time to time be outstanding, and
to pay interest on the unpaid portion of such principal amount at the rate
of 4.82 % PER ANNUM until such principal amount and all accrued unpaid
interest thereon shall have been paid.
Interest accrued on the unpaid balance of principal from time to time
outstanding shall be payable together with payment of principal. Each
payment made under this Note shall be applied first to interest then due
and then to principal.
This Note is secured by a pledge of certain shares of Common Stock of
the Company owned by the undersigned more particularly described in the
Pledge Agreement dated November 12, 1997 (the "Pledge Agreement") by and
between the undersigned and the Company. The Pledge Agreement is intended
to provide additional security to the Company for the obligations of the
undersigned under this Note and is not intended to limit in any way the
obligations of the undersigned under this Note which is a full recourse
obligation of the undersigned."
(b) All references in the Pledge Agreement to the Note shall be deemed to
refer to the Note, as modified and amended hereby.
2. RATIFICATION. (a) The terms and provisions of the Note, as modified
and amended hereby, are hereby ratified and confirmed by Kubacki in all respects
and the
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Note shall remain in full force and effect in accordance with its terms as so
modified and amended.
(b) The obligations of Kubacki to repay to the Company all indebtedness
under the Note, as modified and amended hereby, and to pay and perform all of
its other obligations to the Company are and will continue to be secured by the
Pledge Agreement and the Company is and will continue to be entitled to the
benefit of all of the rights and remedies thereunder.
(c) Nothing herein is intended or shall be construed so as to discharge,
release, terminate, or otherwise limit or modify any indebtedness, obligations,
or liabilities of Kubacki or any collateral security therefor.
3. MISCELLANEOUS. This First Amendment to Promissory Note shall be
governed by the laws of the Commonwealth of Massachusetts, shall be construed as
a sealed instrument, and shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and assigns.
Executed as a sealed instrument as of the date set forth above.
PSYCHEMEDICS CORPORATION
By: /s/ Peter Monson
-----------------------------------
Peter Monson, Vice President
/s/ Raymond C. Kubacki, Jr.
------------------------------------
Raymond C. Kubacki, Jr.
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EXHIBIT 10.2
SECOND AMENDMENT TO PROMISSORY NOTE
-----------------------------------
SECOND AMENDMENT TO PROMISSORY NOTE dated as of the 6th day of January,
1999 by and between RAYMOND C. KUBACKI, JR. ("Kubacki") and PSYCHEMEDICS
CORPORATION (the "Company").
WHEREAS, Kubacki and the Company entered into a Promissory Note dated
January 6, 1997, (the "Note") in the original principal amount of Two Hundred
Nine Thousand Eight Hundred Ninety-two Dollars ($209,892.00); and
WHEREAS, Kubacki and the Company entered into a First Amendment to the Note
on January 6, 1998; and
WHEREAS, the principal amount outstanding as of the date hereof under the
Note, as amended, is $203,201.86; and
WHEREAS, Kubacki's obligations under the Note as amended are secured by a
pledge of shares of Common Stock of the Company pursuant to a Pledge Agreement
dated January 6, 1997 (the "Pledge Agreement");
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. AMENDMENT. (a) The Note as amended is hereby further amended by
deleting the first three paragraphs thereof and inserting in lieu thereof the
following:
"FOR VALUE RECEIVED, the undersigned RAYMOND C. KUBACKI, JR. hereby
promises to pay to the order of PSYCHEMEDICS CORPORATION, a Delaware
corporation (the "Company"), in accordance with and subject to the terms
and conditions set forth herein, on or before January 6, 2000, the
principal sum of TWO HUNDRED THREE THOUSAND TWO HUNDRED ONE DOLLARS AND
86/100 ($203,201.86), or so much thereof as may from time to time be
outstanding, and to pay interest on the unpaid portion of such principal
amount at the rate of 4.82 % PER ANNUM until such principal amount and all
accrued unpaid interest thereon shall have been paid.
Interest accrued on the unpaid balance of principal from time to time
outstanding shall be payable together with payment of principal. Each
payment made under this Note shall be applied first to interest then due
and then to principal.
This Note is secured by a pledge of certain shares of Common Stock of
the Company owned by the undersigned more particularly described in the
Pledge Agreement dated January 6, 1997 (the "Pledge Agreement") by and
between the undersigned and the Company. The Pledge Agreement is intended
to provide additional security to the Company for the obligations of the
undersigned under this Note and is not intended to limit in any way the
obligations of the undersigned under this Note which is a full recourse
obligation of the undersigned."
Page 17
<PAGE> 2
(b) All references in the Pledge Agreement to the Note shall be deemed to
refer to the Note, as modified and amended hereby.
2. RATIFICATION. (a) The terms and provisions of the Note, as modified
and amended hereby, are hereby ratified and confirmed by Kubacki in all respects
and the Note shall remain in full force and effect in accordance with its terms
as so modified and amended.
(b) The obligations of Kubacki to repay to the Company all indebtedness
under the Note, as modified and amended hereby, and to pay and perform all of
its other obligations to the Company are and will continue to be secured by the
Pledge Agreement and the Company is and will continue to be entitled to the
benefit of all of the rights and remedies thereunder.
(c) Nothing herein is intended or shall be construed so as to discharge,
release, terminate, or otherwise limit or modify any indebtedness, obligations,
or liabilities of Kubacki or any collateral security therefor.
3. MISCELLANEOUS. This Second Amendment to Promissory Note shall be
governed by the laws of the Commonwealth of Massachusetts, shall be construed as
a sealed instrument, and shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and assigns.
Executed as a sealed instrument as of the date set forth above.
PSYCHEMEDICS CORPORATION
By: /s/ Peter Monson
-----------------------------------
Peter Monson, Vice President
/s/ Raymond C. Kubacki, Jr.
-----------------------------------
Raymond C. Kubacki, Jr.
Page 18
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0
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