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 14, 2008

PSYCHEMEDICS CORPORATION

(Exact Name of Registrant As Specified In Its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

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

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     On February 14, 2008, Psychemedics Corporation issued a press release announcing preliminary results for the quarter and year ended December 31, 2007. 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 14, 2008.

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 15, 2008
	By:	/s/ Jennifer Chmieleski Jennifer Chmieleski
		Vice President and Controller

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press release dated February 14, 2008 of Psychemedics Corporation announcing its financial results for the quarter and year ended December 31, 2007.

EX-99.1

Exhibit 99.1

NEWS RELEASE

Contact:	Jennifer Chmieleski
	Vice President and Controller
	(978) 206-8220
	Jenniferc@psychemedics.com

PSYCHEMEDICS CORPORATION ANNOUNCES YEAR END RESULTS
RECORD ANNUAL AND QUARTERLY REVENUE

DECLARES QUARTERLY DIVIDEND

Acton, Massachusetts, February 14, 2008 — Psychemedics Corporation (AMEX:PMD) today announced fourth quarter and year-end financial results for the period ended December 31, 2007, which included record revenues for both the quarterly and full-year periods. The Company also announced a quarterly dividend of $0.15 per share payable to shareholders of record as of March 7, 2008 to be paid on March 21, 2008. This will be the Company’s 46th consecutive quarterly dividend.

The Company’s revenue for the year ended December 31, 2007 was $24,568,824, up 5% as compared to $23,425,090 for all of 2006. Net income for the year ended December 31, 2007 was $4,483,687 or $0.85 per share, a decrease of 9% over the comparable period last year during which the Company earned $4,902,201 or $0.94 per share. Revenue for the fourth quarter was $5,891,412, an increase of 2% as compared to $5,797,012 in the fourth quarter of 2006. Net income was $906,817 or $0.17 per share, down 23% from $1,175,963 or $0.22 per share for the same period of 2006.

Raymond C. Kubacki, Chairman and Chief Executive Officer, said, “We are pleased to report that Psychemedics has once again set new records for revenue for both the fourth quarter and full year, despite a very challenging hiring environment. Our revenue increase, however, was below historical trends caused by a decline in our base business (accounts over one year), largely influenced by a major auto-related client who was off 84% from its spike in hiring in 2006. Our new business continues to remain healthy.”

Kubacki continued, “While our earnings did not match last year’s record results due to increased general and administrative expenses and extra R&D expenses, we continue to show very strong operating margins. Our gross margin remained at 60% for 2007 and 2006, while our pre-tax margin continued to be above 30%, despite higher than anticipated legal and accounting expenses and increased R&D. Our 2007 net income was also unfavorably impacted by a three percentage point increase in our effective tax rate, resulting in lower net income and earnings per share. It is important to note that the fourth quarter is seasonably low and, therefore fluctuations in revenue, expenses and/or tax rates have a disproportionate impact on the results.

“We continue to see significant opportunities for further growth. To capitalize on these prospects, we have already in 2008 added a Director of Marketing who will establish and manage our lead generation initiative, thereby increasing our sales team’s productivity. In 2007, we added two regional sales professionals and anticipate further additions in 2008.”

Kubacki concluded, “The Company’s balance sheet remains strong with approximately $10.0 million of cash and short-term investments, no long-term debt and over $12.8 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. Therefore we are pleased to declare our 46^th consecutive quarterly dividend.”

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 2007, an increase of 5% over 2006 to $24,568,824

• Record Revenue for the fourth quarter, an increase of 2% over the prior year quarter to $5,891,412

• Pretax Income for 2007 of $7,555,687, down 4% from 2006

• Pretax Income for the fourth quarter of $1,596,017, down 16% from the prior year quarter

• Net Income for 2007 of $4,483,687, or $0.85 per diluted share, down 9% from 2006

• Net Income for the fourth quarter of $906,817, or $0.17 per diluted share, down 23% from the prior year quarter

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

	Three months ended				Twelve months ended
	Dec 31		Dec 31		Dec 31		Dec 31
	2007		2006		2007		2006
REVENUE	$	5,891,412	$	5,797,012	$	24,568,824	$	23,425,090
COST OF REVENUE		2,496,674		2,397,481		9,892,226		9,369,257
Gross profit		3,394,738		3,399,531		14,676,598		14,055,833
OPERATING EXPENSES:
General and administrative		978,962		812,431		3,948,642		3,278,826
Marketing and selling		822,833		682,328		3,099,909		2,769,310
Research and development		111,526		103,870		489,007		444,532
		1,913,321		1,598,629		7,537,558		6,492,668
Income from operations		1,481,417		1,800,902		7,139,040		7,563,165
Interest income		114,600		94,061		416,647		294,036
INCOME BEFORE PROVISION FOR INCOME TAXES		1,596,017		1,894,963		7,555,687		7,857,201
PROVISION FOR INCOME TAXES		689,200		719,000		3,072,000		2,955,000
NET INCOME	$	906,817	$	1,175,963	$	4,483,687	$	4,902,201
BASIC NET INCOME PER SHARE	$	0.17	$	0.23	$	0.86	$	0.95
DILUTED NET INCOME PER SHARE	$	0.17	$	0.22	$	0.85	$	0.94
DIVIDENDS DECLARED PER SHARE	$	0.15	$	0.125	$	0.60	$	0.475
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC		5,220,326		5,172,247		5,205,032		5,170,258
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, DILUTED		5,303,474		5,248,503		5,301,620		5,240,155

PSYCHEMEDICS CORPORATION
BALANCE SHEETS

	December 31,
	2007			2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,096,734		$	4,180,235
Short-term investments		3,875,000			3,683,192
Accounts receivable, net of allowance for doubtful accounts of $235,337 in 2007 and $333,281 in 2006		3,555,342			3,196,384
Prepaid expenses and other current assets		498,919			506,161
Deferred tax assets		429,472			412,486
Total current assets		14,455,467			11,978,458
PROPERTY AND EQUIPMENT:
Computer software		1,205,840			1,205,840
Office furniture and equipment		2,146,269			2,021,991
Laboratory equipment		6,545,889			6,254,228
Leasehold improvements		894,659			894,659
		10,792,657			10,376,718
Less — Accumulated depreciation and amortization		(9,977,315	)		(9,630,190	)
		815,342			746,528
DEFERRED TAX ASSETS		231,346			183,555
OTHER ASSETS		58,613			39,830
	$	15,560,768		$	12,948,371
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	488,640		$	499,420
Accrued expenses		951,242			553,043
Deferred revenue		242,955			392,403
Total current liabilities		1,682,837			1,444,866
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, 5,811,982,shares issued in 2007 and 5,756,044 shares issued in 2006		29,060			28,780
Paid-in capital		26,539,764			25,609,800
Accumulated deficit		(3,527,269	)		(5,012,384	)
Less — Treasury stock, at cost; 586,197 shares in 2007 and 583,797 shares in 2006		(9,163,624	)		(9,122,691	)
Total shareholders’ equity		13,877,931			11,503,505
	$	15,560,768		$	12,948,371