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 13, 2007

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):

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

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

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

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

TABLE OF CONTENTS

EX-99.1 Press release dated February 13, 2007

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     On February 13, 2007, Psychemedics Corporation issued a press release announcing preliminary results for the quarter and year ended December 31, 2006. 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.

          (d) Exhibits

          The following exhibits are filed herewith:

          99.1 Press Release dated February 13, 2007.

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 14, 2007
	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 13, 2007 of Psychemedics Corporation announcing its financial results for the quarter and year ended December 31, 2006.

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 21%

DECLARES QUARTERLY DIVIDEND

Acton, Massachusetts, February 13, 2007 — Psychemedics Corporation (AMEX:PMD) today announced record fourth quarter and year-end financial results for the period ended December 31, 2006. The Company also announced a quarterly dividend of $0.125 per share payable to shareholders of record as of March 9, 2007 to be paid on March 23, 2007. This will be the Company’s 42^nd consecutive quarterly dividend.

The Company’s fourth quarter revenue was $5,797,012, an increase of 14% as compared to $5,082,266 in the fourth quarter of 2005. Net income for the most recent quarter was $1,175,963 or $0.22 per share, up 28% from $916,906 or $0.18 per share for the same period of 2005. Revenue for the year ended December 31, 2006 was $23,425,090, up 10% as compared to $21,388,513 for all of 2005. Net income for the year ended December 31, 2006 was $4,902,201 or $0.94 per share, an increase of 21% over the comparable period last year during which the Company earned $4,048,513 or $0.78 per share.

Raymond C. Kubacki, Chairman and Chief Executive Officer, said, “We are pleased to report that Psychemedics has once again set new records for revenue and net income for both the fourth quarter and full year. We have now reported record revenue for the past two consecutive years and record net income for the past three consecutive years. Gross profit, operating income and net income margins all experienced dramatic improvements as compared to prior years. We recorded a considerable increase of 10% in our revenue for the year despite a lukewarm job market and a tough quarterly comparison for the first quarter of 2006 due to Wynn Las Vegas’ major start-up hiring

effort that resulted in over 11,000 tests during the first quarter of 2005. Our revenue also included the recognition of some deferred revenue pertaining to prior sales of our PDT 90 product, which we continue to sell to parents who are concerned about drug abuse by their children. This revenue accounted for 1 percentage point of the 10% increase in revenue.”

Kubacki continued, “In 2006 we continued to add new customers 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 approximately $7.9 million of cash and short-term investments, no long-term debt and over $10.5 million of working capital. Our directors share our confidence in the future of Psychemedics and remain committed to rewarding shareholders and sharing the financial success of the Company with them as we grow.”

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 14% over the prior year quarter to $5,797,012

• Record Revenue for 2006, an increase of 10% over 2005 to $23,425,090

• Record Pretax Income for the fourth quarter of $1,894,963, up 30% from the prior year quarter

• Record Pretax Income for 2006 of $7,857,201, up 22% from 2005

• Record Net Income for the fourth quarter of $1,175,963, or $0.22 per diluted share, up 28% from the prior year quarter

• Record Net Income for 2006 of $4,902,201, or $0.94 per diluted share, up 21% from 2005

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,
	2006		2005		2004
REVENUE	$	23,425,090	$	21,388,513	$	18,937,111
COST OF REVENUE		9,369,257		8,812,186		8,489,198
Gross profit		14,055,833		12,576,327		10,447,913
OPERATING EXPENSES:
General and administrative		3,278,826		3,122,579		3,189,870
Marketing and selling		2,769,310		2,791,670		2,597,571
Research and development		444,532		335,769		329,419
		6,492,668		6,250,018		6,116,860
Income from operations		7,563,165		6,326,309		4,331,053
OTHER INCOME
Interest income		294,036		120,954		33,980
Other income		—		1,250		13,750
		294,036		122,204		47,730
INCOME BEFORE PROVISION FOR INCOME TAXES		7,857,201		6,448,513		4,378,783
PROVISION FOR INCOME TAXES		2,955,000		2,400,000		1,615,000
NET INCOME	$	4,902,201	$	4,048,513	$	2,763,783
BASIC NET INCOME PER SHARE	$	0.95	$	0.79	$	0.54
DILUTED NET INCOME PER SHARE	$	0.94	$	0.78	$	0.54
DIVIDENDS DECLARED PER SHARE	$	0.475	$	0.36	$	0.32
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC		5,170,258		5,156,686		5,126,907
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, DILUTED		5,240,155		5,167,215		5,132,087

PSYCHEMEDICS CORPORATION

BALANCE SHEETS

	December 31,
	2006			2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,180,235		$	3,352,519
Short-term investments		3,683,192			2,550,000
Accounts receivable, net of allowance for doubtful accounts of $333,281 in 2006 and $461,282 in 2005		3,196,384			3,272,278
Prepaid expenses and other current assets		506,161			387,426
Deferred tax assets		412,486			520,152
Total current assets		11,978,458			10,082,375
PROPERTY AND EQUIPMENT:
Computer software		1,205,840			1,205,840
Office furniture and equipment		2,021,991			1,902,052
Laboratory equipment		6,254,228			6,117,128
Leasehold improvements		894,659			894,659
		10,376,718			10,119,679
Less — Accumulated depreciation and amortization		(9,630,190	)		(9,342,747	)
		746,528			776,932
DEFERRED TAX ASSETS		183,555			245,889
OTHER ASSETS		39,830			39,830
	$	12,948,371		$	11,145,026
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	499,420		$	367,535
Accrued expenses		553,043			1,292,257
Deferred revenue		392,403			590,670
Total current liabilities		1,444,866			2,250,462
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, 5,756,044 shares issued in 2006 and 5,750,894 shares issued in 2005		28,780			28,754
Paid-in capital		25,609,800			25,446,781
Accumulated deficit		(5,012,384	)		(7,458,280	)
Less — Treasury stock, at cost; 583,797 shares in 2006 and 2005		(9,122,691	)		(9,122,691	)
Total shareholders’ equity		11,503,505			8,894,564
	$	12,948,371		$	11,145,026