8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report
Pursuant To Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)   February 8, 2006

PSYCHEMEDICS CORPORATION

(Exact Name of Registrant As Specified In Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

1-13738 (Commission File Number)	58-1701987 (I.R.S. Employer Identification No.)
125 Nagog Park, Acton, Massachusetts (Address of Principal Executive Offices)	01720 (Zip Code)

(978) 206-8220
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	ITEM 2.02    RESULTS OF OPERATIONS AND FINANCIAL CONDITION
	ITEM 9.01    FINANCIAL STATEMENTS AND EXHIBITS.
SIGNATURE
EXHIBIT INDEX
EX-99.1 Press Release dated, 2/8/06

ITEM 2.02    RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     On February 8, 2006, Psychemedics Corporation issued a press release announcing preliminary results for the quarter and year ended December 31, 2005. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

     Limitation on Incorporation by Reference. The information in this Form 8-K and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of any general incorporation language in such filing.

     Cautionary Note Regarding Forward-Looking Statements. Except for historical information contained in the press release attached as an exhibit hereto, the press release contains forward-looking statements which involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. Please refer to the cautionary note in the press release regarding these forward-looking statements.

ITEM 9.01    FINANCIAL STATEMENTS AND EXHIBITS.

          (c)      Exhibits

          The following exhibits are filed herewith:

          99.1    Press Release dated February 8, 2006.

SIGNATURE

     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 hereunto duly authorized.

	PSYCHEMEDICS CORPORATION
Dated: February 23, 2006	By:	/s/ Peter C. Monson
		Peter C. Monson, Vice President and
		Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press release dated February 8, 2006 of Psychemedics Corporation announcing its financial results for the quarter and year ended December 31, 2005.

EX-99.1

EXHIBIT 99.1

NEWS RELEASE

Contact:Peter Monson
Chief Financial Officer
(978) 206-8220
Peterm@psychemedics.com

PSYCHEMEDICS CORPORATION ANNOUNCES YEAR END RESULTS
RECORD REVENUE AND NET INCOME
ANNUAL EARNINGS UP BY 46%

DECLARES QUARTERLY DIVIDEND

Acton, Massachusetts, February 8, 2006 — Psychemedics Corporation (AMEX:PMD) today announced record fourth quarter and year-end financial results for the period ended December 31, 2005. The Company also announced a quarterly dividend of $0.10 per share payable to shareholders of record as of March 10, 2006 to be paid on March 24, 2006.

The Company’s fourth quarter revenue was $5,082,266, an increase of 11% as compared to $4,563,972 in the fourth quarter of 2004. Net income for the most recent quarter was $916,906 or $0.18 per share, up 68% from $545,597 or $0.11 per share for the same period of 2004. Revenue for the year ended December 31, 2005 was $21,388,513, up 13% as compared to $18,937,111 for all of 2004. Net income for the year ended December 31, 2005 was $4,048,513 or $0.78 per share, an increase of 46% over the comparable period last year during which the Company earned $2,763,783 or $0.54 per share.

Raymond C. Kubacki, Chairman and Chief Executive Officer, said, “We are pleased to report that our revenue and our net income for both the fourth quarter and full year 2005 set new records for Psychemedics. Gross profit, operating income and net income margins all experienced dramatic improvements as compared to prior years. We believe that these results are even more significant since they were achieved in a less than robust hiring environment.”

Kubacki continued, “In 2005 we continued to add new accounts at a brisk pace and to demonstrate our ability to produce strong profit margins. With our patented and FDA-cleared hair test and our large and diverse customer base, we feel we are well-

positioned for substantial growth in the future. We are confident that our hair test for drugs of abuse will continue to be the “gold standard” in the industry.”

Kubacki concluded, “The Company’s balance sheet remains strong with over $5.9 million of cash and short-term investments, no long-term debt and approximately $7.8 million of working capital. Our directors share our confidence in the future of Psychemedics as evidenced by the declaration of our 38^th consecutive quarterly dividend. Our goal, as always, is to increase shareholder value and we remain committed to paying a dividend while our Company grows.”

Psychemedics is the world’s largest provider of hair testing for drugs of abuse with thousands of corporations relying on the patented Psychemedics drug testing services. Psychemedics’ clients include over 10% of the Fortune 500, some of the largest police departments in America and six Federal Reserve Banks.

Financial Highlights:

• Record Revenue for the fourth quarter, an increase of 11% over the prior year quarter to $5,082,266

• Record Revenue for 2005, an increase of 13% over 2004 to $21,388,513

• Record Pretax Income for the fourth quarter of $1,461,906, up 66% from the prior year quarter

• Record Pretax Income for 2005 of $6,448,513, up 47% from 2004

• Record Net Income for the fourth quarter of $916,906, or $0.18 per diluted share, up 68% from the prior year quarter

• Record Net Income for 2005 of $4,048,513, or $0.78 per diluted share, up 46% from 2004

The Psychemedics web site is www.drugtestwithhair.com

Cautionary Statement for purposes of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995: From time to time, information provided by Psychemedics may contain forward-looking information that involves risks and uncertainties. In particular, statements contained in this release that are not historical facts (including but not limited to statements concerning earnings, earnings per share, revenues, dividends, future business, new accounts, customer base, market share, test volume and sales and marketing strategies) may be “forward looking” statements. 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 expansion of the Company’s sales and marketing network, development of markets for new products and services offered, the economic health of principal customers of the Company, government regulation, including but not limited to FDA regulations, competition and general economic conditions and other factors disclosed in the Company’s filings with the Securities and Exchange Commission.

PSYCHEMEDICS CORPORATION
STATEMENTS OF INCOME

	Years Ended December 31,
	2005		2004		2003
REVENUE	$	21,388,513	$	18,937,111	$	15,995,256
COST OF REVENUE		8,812,186		8,489,198		7,625,173
Gross profit		12,576,327		10,447,913		8,370,083
OPERATING EXPENSES:
General and administrative		3,122,579		3,189,870		3,307,441
Marketing and selling		2,791,670		2,597,571		2,819,023
Research and development		335,769		329,419		305,683
		6,250,018		6,116,860		6,432,147
Income from operations		6,326,309		4,331,053		1,937,936
OTHER INCOME
Interest income		120,954		33,980		41,130
Other income		1,250		13,750		—
		122,204		47,730		41,130
INCOME BEFORE PROVISION FOR INCOME TAXES		6,448,513		4,378,783		1,979,066
PROVISION FOR INCOME TAXES		2,400,000		1,615,000		760,796
NET INCOME	$	4,048,513	$	2,763,783	$	1,218,270
BASIC NET INCOME PER SHARE	$	0.79	$	0.54	$	0.23
DILUTED NET INCOME PER SHARE	$	0.78	$	0.54	$	0.23
DIVIDENDS DECLARED PER SHARE	$	0.36	$	0.32	$	0.32
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC		5,156,686		5,126,907		5,193,128
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, DILUTED		5,167,215		5,132,087		5,198,209

PSYCHEMEDICS CORPORATION
BALANCE SHEETS

	December 31,
	2005			2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,352,519		$	3,260,178
Short-term investments		2,550,000			—
Accounts receivable, net of allowance for doubtful accounts of $461,282 in 2005 and $483,230 in 2004		3,272,278			3,289,863
Prepaid expenses and other current assets		387,426			246,372
Deferred tax assets		520,152			529,752
Total current assets		10,082,375			7,326,165
PROPERTY AND EQUIPMENT:
Computer software		1,205,840			1,205,840
Office furniture and equipment		1,902,052			1,856,576
Laboratory equipment		6,117,128			5,966,727
Leasehold improvements		894,659			931,688
		10,119,679			9,960,831
Less — Accumulated depreciation and amortization		(9,342,747	)		(9,099,472	)
		776,932			861,359
DEFERRED TAX ASSETS		245,889			166,583
OTHER ASSETS		39,830			79,529
	$	11,145,026		$	8,433,636
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	367,535		$	554,214
Accrued expenses		1,292,257			1,157,740
Deferred revenue		590,670			487,633
Total current liabilities		2,250,462			2,199,587
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.005 par value; 872,521 shares authorized and none outstanding		—			—
Common stock, $0.005 par value; 50,000,000 shares authorized, 5,750,894 shares issued in 2005 and 5,710,704 shares issued in 2004		28,754			28,554
Paid-in capital		25,446,781			24,978,039
Accumulated deficit		(7,458,280	)		(9,649,853	)
Less — Treasury stock, at cost; 583,797 shares in 2005 and 2004		(9,122,691	)		(9,122,691	)
Total shareholders’ equity		8,894,564			6,234,049
	$	11,145,026		$	8,433,636