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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-Q/A

                                 AMENDMENT NO. 1

(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).




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Item 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

                             RESULTS OF OPERATIONS
                             ---------------------

Revenue was $3.3 million in the first quarter of 1997 as compared to $2.7
million in the first quarter of 1996 representing an increase of 22%. The
increase was due primarily to increases in volume from both new and existing
clients of 25% offset by average price decreases of 3% primarily as the result
of volume discounts granted to large customers.

Gross margin was 59% of sales in the first quarter of 1997 compared to 56% in
the year earlier period. The increase in 1997 was primarily the result of
increased efficiencies resulting from increased volume.

General and administrative (G&A) expenses remained virtually unchanged at
$533,000 in the three month period ended March 31, 1997 from the year earlier
amount. As a percentage of revenue, G&A expenses declined to 16% from 20% in the
first quarter of 1996 because of the higher revenues in 1997.

Marketing and selling expenses for the three month period ended March 31, 1997
increased $178,000, to $657,000, an increase of 37%. As a percentage of
revenues, marketing and selling expenses increased from 18% in the 1996 period
to 20% in the first quarter of 1997. The increase was primarily due to additions
to the Company's sales staff and expanded marketing activities related to both
the corporate and retail home testing market. The Company expects to continue to
aggressively promote its drug testing services during the remainder of 1997 and
in the future years in order to expand its client base.

Other income for the three month period ended March 31, 1997 represented
primarily interest earned on cash equivalents and short-term investments. The
increase in 1997 was primarily due to higher investment balances coupled with
increased yields on these investments.

Net income increased to $637,000 in the first quarter of 1997, an increase of
$188,000, or 42% from the year earlier amount. The increase in 1997 was
primarily due to increased revenues, and related efficiencies in direct costs
derived from increased sales volume. The effective tax rate for the first
quarter of 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. The Company had total net operating loss
carryforwards at December 31, 1996 of approximately $3.6 million available to
offset the 1997 and future years' cash payments for income taxes, however,
approximately $2.6 million of these loss carryforwards were 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.

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                         LIQUIDITY AND CAPITAL RESOURCES
                         -------------------------------

At March 31, 1997, the Company had $10 million of cash, cash equivalents and
short-term investments. The Company's operating activities generated net cash of
$300,000 in the first quarter of 1997. Investing activities used $1.2 million in
the quarter while financing activities generated a net amount of $49,000 during
the quarter.

The Company's source of funds in the first quarter of 1997 was derived
approximately 62% from financing activities, the major item being the receipt of
proceeds from the exercise of stock options, and approximately 48% from net cash
generated from operations. Operating cash flows increased $225,000 in the first
quarter of 1997, compared to the year earlier period. Net income was higher by
$188,000, the increase in receivables was $47,000 less and increases in accounts
payable were higher in the 1997 period but this was offset by higher reductions
in accrued expenses in 1997 from the year earlier period. The non-cash effect of
depreciation and amortization in the 1997 and 1996 periods was $136,000 and
$160,000, respectively.

Capital expenditures in the first quarter of 1997 were $241,000. The
expenditures primarily consisted of new equipment, including laboratory and
computer equipment. The Company currently plans to make additional capital
expenditures of approximately $360,000 in 1997, primarily in connection with the
purchase of 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.

On July 3, 1996, the Company distributed a 3% stock dividend to shareholders of
record on June 21, 1996. The shares issued in the stock dividend represented
shares which the Company acquired in a stock repurchase program authorized in
1994. This transaction resulted in an increase of $4.67 million the accumulated
deficit (633,000 shares distributed at a fair market value of $7.37 per share).
Treasury stock was reduced by $2.42 million as a result of this distribution.
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.
   
During the quarter ended March 31, 1997, the Company distributed $436,000 in
cash dividends to its shareholders. The Company has distributed an additional
$1,758,000 in cash dividends since March 31, 1997 and prior to the filing of
this Amendment No. 1.
    
   
At March 31, 1997, the Company's principal sources of liquidity included $10
million of cash, cash equivalents and short-term investments. Management
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
    

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available marketing opportunities, the Company may use various financing sources
to raise additional funds. Such sources could include joint ventures, issuances
of common stock or debt financing. At March 31, 1997, the Company had no
long-term debt.

                     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 principal customers, business strategy, anticipated operating results
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, competition and general
economic conditions.







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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: January 27, 1998                 By: /s/ Raymond C. Kubacki, Jr.
                                           -----------------------------------
                                       Raymond C. Kubacki, Jr.
                                       President and Chief Executive Officer
    



   
Date: January 27, 1998                 By: /s/ Bruce M. Stillwell
                                           -----------------------------------
                                       Bruce M. Stillwell
                                       Vice President, Treasurer & Controller
    







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