<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, 2000
- --- 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, 2000: Common Stock $.005 par value (21,203,876 shares).
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PSYCHEMEDICS CORPORATION
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C>
Item 1 Financial Statements
Condensed Balance Sheets as of March 31, 2000
and December 31, 1999 3
Condensed Statements of Income for the three
month periods ended March 31, 2000 and 1999 4
Condensed Statements of Cash Flows for the
three month periods ended March 31, 2000 and 1999 5
Notes to Condensed Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 11
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
</TABLE>
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PSYCHEMEDICS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,200,521 $ 899,387
Short-term investments 3,923,024 4,938,463
Accounts receivable, net 2,576,231 3,219,510
Inventories 457,266 449,103
Prepaid expenses and other current assets 693,707 557,276
Deferred tax asset 337,752 337,752
------------ ------------
Total current assets 9,188,501 10,401,491
------------ ------------
PROPERTY AND EQUIPMENT:
Equipment and leasehold improvements, at cost 8,924,567 8,572,486
Less-Accumulated depreciation and amortization (5,470,332) (5,154,037)
------------ ------------
3,454,235 3,418,449
------------ ------------
OTHER ASSETS - NET 374,478 370,965
------------ ------------
$ 13,017,214 $ 14,190,905
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 599,885 $ 512,580
Accrued expenses 905,662 842,790
Deferred revenue 731,188 862,088
------------ ------------
Total current liabilities 2,236,735 2,217,458
------------ ------------
DEFERRED TAX LIABILITY 167,520 167,520
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 22,612,440
shares in 2000 and 1999 113,062 113,062
Paid-in capital 24,419,985 24,414,985
Accumulated deficit (7,045,021) (6,746,157)
Less - Treasury stock, at cost; 1,354,764 and 1,172,464
shares in 2000 and 1999, respectively (6,480,491) (5,580,293)
Less - Receivable from officer (394,576) (395,670)
------------ ------------
Total shareholders' equity 10,612,959 11,805,927
------------ ------------
$ 13,017,214 $ 14,190,905
============ ============
</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,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUE $ 4,682,027 $ 4,680,257
DIRECT COSTS 2,150,186 1,943,099
----------- -----------
Gross profit 2,531,841 2,737,158
----------- -----------
EXPENSES:
General and administrative 783,760 759,759
Marketing and selling 980,766 991,574
Research and development 106,916 141,061
----------- -----------
1,871,442 1,892,394
----------- -----------
OPERATING INCOME 660,399 844,764
OTHER INCOME 280,345 116,655
----------- -----------
NET INCOME BEFORE INCOME TAXES 940,744 961,419
PROVISION FOR INCOME TAXES 386,000 394,180
----------- -----------
NET INCOME $ 554,744 $ 567,239
=========== ===========
BASIC NET INCOME PER SHARE $ 0.03 $ 0.03
=========== ===========
DILUTED NET INCOME PER SHARE $ 0.03 $ 0.03
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 21,353,569 22,047,703
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING, ASSUMING DILUTION 21,621,912 22,279,304
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
Page 4
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PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
ENDED MARCH 31,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 554,744 $ 567,239
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 332,285 331,224
Compensation expense related to issuance of
stock options 5,000
Changes in assets and liabilities:
Receivables 643,279 (863,355)
Inventories (8,163) 27,553
Prepaid expenses and other current assets (136,431) (90,139)
Accounts payable 87,305 (181,844)
Accrued expenses 62,872 45,177
Deferred revenue (130,900) (154,920)
----------- -----------
Net cash (used in) provided by operating activities 1,409,991 (319,065)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of short-term investments - net 1,015,439 1,359,541
Purchases of property and equipment (352,081) (89,720)
Increase in other assets - net (19,503) --
----------- -----------
Net cash provided by (used in) investing activities 643,855 1,269,821
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (853,608) (881,545)
Proceeds from the receivable from officer 1,094 (4,827)
Acquisition of treasury stock (900,198) (338,986)
----------- -----------
Net cash used in financing activities (1,752,712) (1,225,358)
----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 301,134 (274,602)
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of period 899,387 724,738
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,200,521 $ 450,136
=========== ===========
</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, 2000
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, 1999. 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, 1999 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, 2000
may not be indicative of the results that may be expected for the year ending
December 31, 2000, 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:
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
2000 1999
----------- -----------
Weighted average common shares outstanding 21,353,569 22,047,703
Dilutive common equivalent shares 268,343 231,601
---------- -----------
Weighted average common shares outstanding,
assuming dilution 21,621,912 22,279,304
========== ==========
For the three months ended March 31, 2000 and 1999, options to purchase 834,370
and 832,406 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.
During the first quarter of 2000 and the first quarter of 1999, the Company
recorded $109,000 and $230,000, respectively, of revenue related to sample
collection kits that were sold for which the Company's obligation to provide
service was deemed remote. At March 31, 2000 and December 31, 1999, the Company
had deferred revenue balances of approximately $731,000 and $862,000,
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,
2000 and 1999 was the same as reported net income.
5. Computer Software Costs
As of March 31, 2000 and December 31, 1999, $1,205,540 of software development
costs have been capitalized. During the three month periods ended March 31, 2000
and 1999, $60,294 and $59,966, respectively, of related amortization was charged
to operations.
6. New Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No.
137, Accounting for Derivative Financial Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, which defers the
effective date of SFAS No. 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires entities to
recognize all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. The Company
does not anticipate the adoption of these statements to have a material impact
on its financial position or results of operations. As of March 31, 2000, the
Company did not have any derivatives or other financial instruments as defined
by SFAS No. 119, Disclosures about Derivative Financial Instruments and Fair
Value of Financial Instruments.
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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 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 $4,682,027 in the first quarter of 2000, which was essentially
unchanged from $4,680,257 in the first quarter of 1999. An increase in new
customers in the first quarter of 2000 was offset by lower volume from existing
customers. Gross margin was 54% of sales in the first quarter of 2000 as
compared to 58% of sales for the first quarter of 1999. The decrease in gross
margin was due to higher direct costs in the first quarter of 2000 in
anticipation of higher volume.
General and administrative ("G&A") expenses were $783,760 for the three months
ended March 31, 2000 versus $759,759 for the three months ended March 31, 1999,
representing an increase of $24,001 or 3%. Professional fees from legal services
and facilities-related expenses (rent, taxes, telephone) experienced small
increases, while all other G&A expenses remained relatively constant. As a
percentage of revenue, G&A expenses increased to 17% in the first quarter of
2000 from 16% in the first quarter of 1999.
Marketing and selling expenses for the three month period ended March 31, 2000
decreased $10,808, to $980,766, a decrease of 1%. Expenses pertaining to
additions
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to the sales force and expanded marketing activities related to the corporate
market were offset by decreased customer service costs in the first quarter of
2000, as compared to the first quarter of 1999. Customer service costs during
the first quarter of 1999 were elevated due to the Company's assistance in the
testing of all employees at one of the Company's larger customers. Total
marketing and selling expenses represented 21% of revenues in both the first
quarter of 2000 and the first quarter of 1999. The Company expects to continue
to aggressively promote its drug testing services during the remainder of 2000
and in future years in order to expand its client base.
Other income for the three month period ended March 31, 2000 included a $200,000
legal settlement from a breach of contract dispute with a third party
administrator. The remainder of other income represented interest earned on cash
equivalents and short-term investments. Although the yields on investment
balances increased in the first quarter of 2000 as compared to the first quarter
of 1999, interest income decreased due to lower average investment balances.
During the three months ended March 31, 2000 and March 31, 1999, the Company
recorded tax provisions of $386,000 and $394,180, respectively, reflecting an
effective tax rate of 41%.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had $5.1 million of cash, cash equivalents and
short-term investments. The Company's operating activities generated net cash of
$1,409,991 in the three months ended March 31, 2000. Investing activities
provided $643,855 in the three month period while financing activities used a
net amount of $1,752,712 during the period.
Operating cash flows increased $1,729,056 in the first three months of 2000,
compared to the year earlier period. This was primarily due to a significant
decrease in accounts receivable resulting from improved cash collections during
the first quarter of 2000, which was offset to a lesser extent by an increase in
accounts payable and deferred revenue. The non-cash effect of depreciation and
amortization in the 2000 and 1999 periods was $332,285 and $331,224,
respectively.
Capital expenditures in the first three months of 2000 were $352,081. 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, 2000, the Company distributed
$853,608 in cash dividends to its shareholders. In addition, on May 10, 2000,
the Company declared a cash dividend of $0.04 per share payable on June 21, 2000
to holders of record on June 7, 2000.
During the three month period ended March 31, 2000, the Company repurchased a
total of 182,300 shares for treasury at an aggregate cost of $900,198.
At March 31, 2000, the Company's principal sources of liquidity included an
aggregate of $5.1 million of cash, cash equivalents and short-term investments.
Management
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currently believes that such funds, together with cash generated from
operations, 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, 2000, the Company had no long-term debt.
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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, 2000, 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.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See Exhibit Index included at Page 13 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, 2000 By: /s/ Raymond C. Kubacki, Jr.
----------------------------------------
Raymond C. Kubacki, Jr.
President and Chief Executive Officer
Date: May 12, 2000 By: /s/ Peter C. Monson
----------------------------------------
Peter C. Monson
Vice President, Treasurer &
Chief Financial Officer
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PSYCHEMEDICS CORPORATION
FORM 10-Q
MARCH 31, 2000
EXHIBIT INDEX
10.1 November 12, 1999 Second Amendment To Promissory Note
dated November 12, 1997
10.2 January 6, 2000 Third Amendment To Promissory Note
dated January 6, 1997
27. Financial Data Schedule
Page 13
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EXHIBIT 10.1
SECOND AMENDMENT TO PROMISSORY NOTE
SECOND AMENDMENT TO PROMISSORY NOTE dated as of the 12th day of November,
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
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, Kubacki and the entered into a First Amendment to the Note on
November 12, 1998; and
WHEREAS, the Company has agreed to extend the repayment of $196,991,76 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, 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 November 12, 2000,
the principal sum of ONE HUNDRED NINETY-SIX THOUSAND NINE HUNDRED
NINETY-ONE AND 76/100 DOLLARS ($196,991.76), 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 5.82% 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."
1
<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 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.
2
<PAGE> 1
EXHIBIT 10.2
THIRD AMENDMENT TO PROMISSORY NOTE
THIRD AMENDMENT TO PROMISSORY NOTE dated as of the 6th day of January,
2000 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, the due date of the Note was extended pursuant to a First
Amendment to the Note dated January 6, 1998 and a Second Amendment to the Note
dated January 6, 1999; and
WHEREAS, the principal amount outstanding as of the date hereof under the
Note, as amended, is $198,838.02; 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 previously 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, 2001,
the principal sum of ONE HUNDRED NINETY-EIGHT THOUSAND EIGHT HUNDRED
THIRTY-EIGHT DOLLARS AND 02/100 ($198,838.02), 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 6.13 % 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."
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<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 Third 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,200,521
<SECURITIES> 3,923,024
<RECEIVABLES> 2,576,231
<ALLOWANCES> 0
<INVENTORY> 457,266
<CURRENT-ASSETS> 9,188,501
<PP&E> 8,924,567
<DEPRECIATION> 5,470,332
<TOTAL-ASSETS> 13,017,214
<CURRENT-LIABILITIES> 2,241,735
<BONDS> 0
113,062
0
<COMMON> 0
<OTHER-SE> 10,494,897
<TOTAL-LIABILITY-AND-EQUITY> 13,017,214
<SALES> 4,682,027
<TOTAL-REVENUES> 4,682,027
<CGS> 2,150,186
<TOTAL-COSTS> 2,150,186
<OTHER-EXPENSES> 1,871,442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 940,744
<INCOME-TAX> 386,000
<INCOME-CONTINUING> 554,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 554,744
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
