Psychemedics(PMD) - 2024 Q4 - Annual Report

Part I Business Psychemedics Corporation provides patented hair sample drug testing services, delisting from Nasdaq in 2024 to become a private entity while continuing R&D - The company's core business is providing drug detection services by analyzing hair samples using a patented technology that digests hair to release trapped substances, followed by a proprietary enzyme immunoassay (EIA)[18] - In November 2024, the company executed a 1-for-5,000 reverse stock split followed by a 5,000-for-1 forward stock split. This transaction led to the cash-out of 876,238 shares for $2.1 million and the company's subsequent delisting from Nasdaq and deregistration with the SEC[21][22] - The company holds twelve U.S. patents, including patents for its hair digestion method and its Solid Phase Multi-Analyte Assay. It also relies on trade secrets to protect its technology[42][43] - R&D expenses were $749 thousand in 2024, a decrease from $1.1 million in 2023. 2024 R&D achievements include developing a ketamine EIA test and getting three manuscripts accepted for publication[67][68] Revenue by Geographic Region | Region | 2024 Revenue | 2023 Revenue | | :--- | :--- | :--- | | United States | 5% of consolidated revenues | 4% of consolidated revenues | Risk Factors The company faces intense competition, economic sensitivity, and significant risks from its recent delisting, which reduces liquidity and public information - The company faces intense competition from larger clinical laboratories, which can lead to price competition that may negatively impact net revenues and profitability[71][72] - Operational results are vulnerable to customers' hiring practices, which are tied to general economic conditions. A failure to retain existing customers or attract new ones could materially impact business growth[74][76] - The company has delisted its common stock from Nasdaq and deregistered with the SEC. This will result in significantly less public information, reduced stock liquidity as it trades on the OTC market, and no further access to public capital markets[102][103] - Cybersecurity breaches pose a significant risk. While no material incidents have occurred, the company acknowledges its limited resources for mitigating these risks and the potential for system compromises to disrupt business operations and harm its reputation[78][79] Unresolved Staff Comments The company reports no unresolved staff comments - There are no unresolved staff comments[104] Cybersecurity Psychemedics' cybersecurity program, managed by the VPIT & CISO, aligns with CIS 18 guidelines and reports to the Board, despite limited resources and no material incidents - The cybersecurity program is overseen by the VPIT & CISO and is aligned with industry standards, specifically the CIS Critical Security Controls ("CIS 18") guidelines[106] - The VPIT & CISO reports on the information security program's health and status to the Board of Directors at least twice annually[108] - The company has not experienced any known material cybersecurity incidents in the past year but acknowledges having limited resources dedicated to this area[106] Properties The company leases its principal executive office in Dallas, its primary laboratory in Culver City, and an additional office in Las Vegas - The company leases its corporate office in Dallas, TX (lease through March 2025), its laboratory in Culver City, CA (lease through December 2026), and another office in Las Vegas, NV (lease through April 2025)[109][110] Legal Proceedings Information regarding legal proceedings is detailed in Note 9 - "Commitments and Contingencies" within the Consolidated Financial Statements - Details on legal proceedings are located in Item 8, Financial Statements and Supplementary Data, Note 9[111] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[112] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock delisted from NASDAQ in December 2024, now trades on the OTC Market, and the company repurchased shares as part of its 'going dark' transaction - The company's stock was voluntarily delisted from NASDAQ on December 12, 2024, and commenced trading on the OTC Market under the new symbol "PMDI" on December 13, 2024[115] - As part of the delisting transaction, the company repurchased 876,238 shares for $2.1 million ($2.35 per share) from stockholders holding fewer than 5,000 shares[119] Quarterly Stock Price and Dividends | Fiscal Year/Quarter | High | Low | Dividends per Share | | :--- | :--- | :--- | :--- | | 2024 | | | | | First Quarter | $3.95 | $2.86 | $ - | | Second Quarter | $2.94 | $2.24 | $ - | | Third Quarter | $2.51 | $1.64 | $ - | | Fourth Quarter | $3.25 | $1.11 | $ - | | 2023 | | | | | First Quarter | $6.75 | $4.87 | $0.07 | | Second Quarter | $5.63 | $4.51 | $0.07 | | Third Quarter | $5.15 | $3.51 | $ - | | Fourth Quarter | $3.97 | $2.06 | $ - | Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Revenues decreased by 11% in 2024 to $19.7 million, but the net loss significantly improved to $1.9 million due to a 21% reduction in operating expenses, with current liquidity deemed sufficient Financial Performance Comparison (in thousands) | Metric | 2024 | 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $19,685 | $22,098 | $(2,413) | -11% | | Gross Profit | $7,101 | $8,413 | $(1,312) | -16% | | Operating Loss | $(1,893) | $(2,921) | $1,028 | -35% | | Net Loss | $(1,861) | $(4,154) | $2,293 | -55% | | Net Loss per Share | $(0.32) | $(0.72) | | | - The 11% revenue decrease was driven by a 12% decline in domestic revenues, attributed to higher employee retention and reduced hiring at client companies. This was partially offset by a 22% increase in international revenues from strategic partnership expansions[125] - Total operating expenses decreased by 21% ($2.3 million) in 2024, primarily due to lower personnel costs across G&A (-21%), Marketing & Selling (-15%), and R&D (-35%)[125][126][127] - The company's cash position decreased from $2.0 million at year-end 2023 to $1.4 million at year-end 2024. Operating activities provided $929 thousand in cash in 2024, a significant improvement from using $1.5 million in 2023[130][131] - The "going dark" transaction provided $2.6 million in net funding, with $2.1 million used for share cash-outs and $500 thousand for working capital. Management believes current liquidity is adequate for at least the next 12 months[136][175] Quantitative and Qualitative Disclosures About Market Risk This section is not required for the company - Disclosure is not required[140] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2024 and 2023, including balance sheets, statements of operations, and detailed notes on key financial events Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $8,318 | $12,326 | | Cash | $1,417 | $1,964 | | Total Current Assets | $4,938 | $6,805 | | Total Liabilities | $3,188 | $5,654 | | Total Current Liabilities | $2,711 | $4,709 | | Total Shareholders' Equity | $5,130 | $6,672 | Consolidated Statements of Operations (in thousands) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Revenues | $19,685 | $22,098 | | Gross Profit | $7,101 | $8,413 | | Operating Loss | $(1,893) | $(2,921) | | Net Loss | $(1,861) | $(4,154) | | Basic and Diluted EPS | $(0.32) | $(0.72) | - The company completed a reverse/forward stock split and repurchased 876,238 shares for $2.6 million. It also issued 1,089,004 shares to 3K Limited Partnership, an affiliate of a director, for a net financing of $1.9 million after a true-up repurchase. This was part of the transaction to go private[170][171][164] - The company recorded a full valuation allowance of $2.7 million against its net deferred tax assets of $3.2 million as of December 31, 2024, due to a three-year cumulative loss position, resulting in no net deferred tax assets[217][218] - In 2023, the company paid $1.2 million to settle the Enma Sagastume lawsuit. It also settled a contract dispute with a shipping carrier, paying the final $167 thousand balance in 2024[236][237] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company changed its independent registered public accounting firm from BDO USA, P.C. to Whitley Penn LLP in June 2024, with no reported disagreements - The company changed its independent registered public accounting firm, dismissing BDO USA, P.C. on June 6, 2024, and appointing Whitley Penn LLP on June 12, 2024[250] - There were no disagreements with the former auditor, BDO, on any accounting or auditing matters[250] Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes reported - Management concluded that both disclosure controls and procedures, and internal control over financial reporting, were effective as of December 31, 2024[251][254] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of 2024[255] Other Information This item is not applicable - This item is not applicable[256] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - This item is not applicable[257] Part III Directors, Executive Officers and Corporate Governance The company's leadership includes new CEO Brian Hullinger and a Board of Directors with an Audit Committee Financial Expert, operating under a code of ethics Executive Officers and Directors (as of March 24, 2024) | Name | Age | Position | | :--- | :--- | :--- | | Brian Hullinger | 57 | Chief Executive Officer, President, Director | | Shannon Shoemaker | 39 | Chief Revenue Officer | | Daniella Mehalik | 35 | Vice President of Finance; Treasurer | | Robyn C. Davis | 63 | Director | | Peter H. Kamin | 63 | Director | | Darius G. Nevin | 67 | Chairperson of the Board and Director | | Andrew M. Reynolds | 57 | Director | - The Audit Committee is chaired by Darius G. Nevin, who the Board has determined qualifies as an "Audit Committee Financial Expert"[271] - The company has a code of ethics applicable to all employees and directors, satisfying Item 406 of Regulation S-K[270] Executive Compensation Non-employee directors received $40,000 in 2024, while CEO Brian Hullinger's total compensation was $446,418, with employment agreements including severance provisions Director Compensation for Fiscal Year 2024 | Name | Fees Earned or Paid in Cash | Total | | :--- | :--- | :--- | | Robyn C. Davis | $40,000 | $40,000 | | Peter H. Kamin | $40,000 | $40,000 | | Darius G. Nevin | $40,000 | $40,000 | | Andrew M. Reynolds | $40,000 | $40,000 | Summary Compensation Table (2024) | Name and Position | Salary | Bonus | Option Awards | Total | | :--- | :--- | :--- | :--- | :--- | | Brian Hullinger (CEO) | $375,000 | $71,417 | - | $446,418 | | Shannon Shoemaker (CRO) | $250,000 | $12,603 | - | $262,603 | | Daniella Mehalik (VP Finance) | $205,000 | $10,106 | $149,450 | $364,556 | - CEO Brian Hullinger's employment agreement provides for a lump sum payment of one times his annual salary and 12 months of health coverage if terminated without cause or if he resigns for good reason[291] - As of December 31, 2024, 527,227 securities remained available for future issuance under the company's equity compensation plans approved by security holders[302] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 24, 2025, Peter H. Kamin beneficially owns 28.4% of shares, and all executive officers and directors as a group own 31.4% Security Ownership of Certain Beneficial Owners (as of March 24, 2025) | Name | Beneficial Ownership | Percentage Owned | | :--- | :--- | :--- | | Peter H. Kamin | 1,736,741 | 28.4% | | R. Adam Lindsay / Powell Anderson | 984,256 | 16.1% | | All Current Executive Officers and Directors (7 persons) | 1,948,422 | 31.4% | Certain Relationships and Related Transactions, and Director Independence Four of five directors are independent, and the Audit Committee reviews related party transactions, with no disclosable transactions in fiscal 2024 - Four of the five company directors are non-employee, independent directors[305] - The Audit Committee is responsible for reviewing related party transactions. No such transactions requiring disclosure occurred in fiscal 2024[307] Principal Accounting Fees and Services Total accounting fees decreased to $418,132 in 2024 from $570,281 in 2023, primarily for audit services from both current and former auditors Accounting Fees (Fiscal Years 2024 & 2023) | Fee Category | 2024 | 2023 | | :--- | :--- | :--- | | Audit Fees | $296,069 | $491,753 | | Audit-Related Fees | $20,600 | $25,346 | | Tax Fees | $101,463 | $53,182 | | Total | $418,132 | $570,281 | Part IV Exhibits and Financial Statement Schedules Required financial statements are in Part II, Item 8, with other schedules omitted and an Exhibit Index referenced - Financial statements are located in Part II, Item 8. Other schedules are omitted, and an Exhibit Index is included elsewhere in the report[310][311] Form 10-K Summary No Form 10-K summary is provided - No Form 10-K summary is provided[312]