10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2012

or

¨	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 Registrant as Specified in its Charter)

Delaware	58-1701987
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)

125 Nagog Park
Acton, MA	01720
(Address of Principal Executive Offices)	(Zip Code)

Registrant's telephone number including area code: (978) 206-8220

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨	Smaller Reporting Company x
		(Do not check if smaller reporting Company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes £ No S

The number of shares of Common Stock of the Registrant, par value $0.005 per share, outstanding at November 9, 2012 was 5,272,428.

PSYCHEMEDICS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2012

INDEX

		Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
	Condensed Balance Sheets as of September 30, 2012 and December 31, 2011	3
	Condensed Statements of Income and Comprehensive Income for the Three and Nine months Ended September 30, 2012 and 2011	4
	Condensed Statements of Cash Flows for the Nine months Ended September 30, 2012 and 2011	5
	Notes to Condensed Financial Statements	6
Item 2 -     Management's Discussion and Analysis of Financial Condition and Results of Operations
	Overview	10
	Results of Operations	11
	Liquidity and Capital Resources	12
	Critical Accounting Policies and Estimates	14
Item 3 - Quantitative and Qualitative Disclosures About Market Risk		14
Item 4 - Controls and Procedures		14
PART II - OTHER INFORMATION
Item 1A - Risk Factors		15
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		15
Item 6 - Exhibits		15
Signatures		15
Exhibit Index		16

2

PSYCHEMEDICS CORPORATION

CONDENSED BALANCE SHEETS

(UNAUDITED) 

	September 30,			December 31,
	2012			2011
ASSETS
Current Assets:
Cash and cash equivalents	$	3,663,499		$	5,564,233
Accounts receivable, net of allowance for doubtful accounts of $131,218 in 2012 and $169,191 in 2011		5,343,338			4,490,976
Prepaid expenses and other current assets		1,093,408			565,508
Income tax receivable		--			564,083
Deferred tax assets		451,681			315,501
Total Current Assets		10,551,926			11,500,301
Fixed Assets, net of accumulated amortization and depreciation of $4,222,467 in 2012 and $11,026,278 in 2011		3,490,382			2,063,377
Other assets		309,717			237,174
Total Assets	$	14,352,025		$	13,800,852
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	1,266,603		$	961,844
Accrued expenses		984,465			1,321,856
Total Current Liabilities		2,251,068			2,283,700
Deferred tax liabilities, long-term		482,523			482,523
Total Liabilities		2,733,591			2,766,223
Commitments and Contingencies (Note 7)
Shareholders' Equity:
Preferred-stock, $0.005 par value, 872,521 shares authorized, no shares issued or outstanding		--			--
Common stock, $0.005 par value; 50,000,000 shares authorized 5,940,558 shares issued in 2012 and 5,903,552 shares issued 2011		29,703			29,518
Additional paid-in capital		28,338,280			28,095,946
Accumulated deficit		(6,667,760	)		(7,009,046	)
Less - Treasury stock, at cost, 668,130 shares		(10,081,789	)		(10,081,789	)
Total Shareholders' Equity		11,618,434			11,034,629
Total Liabilities and Shareholders' Equity	$	14,352,025		$	13,800,852

See accompanying notes to condensed financial statements

3

PSYCHEMEDICS CORPORATION

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Revenues	$	6,459,775	$	6,315,142	$	19,565,350	$	18,542,666
Cost of revenues		2,742,072		2,371,255		8,079,141		7,243,474
Gross profit		3,717,703		3,943,887		11,486,209		11,299,192
Operating Expenses:
General & administrative		921,891		1,018,967		2,921,880		2,898,426
Marketing & selling		1,067,768		981,197		3,413,388		2,945,492
Research & development		297,090		136,281		679,031		399,785
Total Operating Expenses		2,286,749		2,136,445		7,014,299		6,243,703
Operating income		1,430,954		1,807,442		4,471,910		5,055,489
Interest income		447		773		1,442		4,790
Net income before provision for income taxes		1,431,401		1,808,215		4,473,352		5,060,279
Provision for income taxes		552,920		708,830		1,766,336		2,009,184
Net income and comprehensive income	$	878,481	$	1,099,385	$	2,707,016	$	3,051,095
Basic net income per share	$	0.17	$	0.21	$	0.52	$	0.58
Diluted net income per share	$	0.17	$	0.21	$	0.51	$	0.58
Dividends declared per share	$	0.15	$	0.12	$	0.45	$	0.36
Weighted average common shares outstanding, basic		5,272,428		5,237,603		5,256,240		5,227,699
Weighted average common shares outstanding, diluted		5,289,808		5,240,895		5,266,237		5,234,577

See accompanying notes to condensed financial statements

4

PSYCHEMEDICS CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,707,016		$	3,051,095
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		419,541			258,708
Stock-based compensation		337,078			304,408
Deferred income taxes		(136,180	)		(122,322	)
Changes in operating assets and liabilities:
Accounts receivable		(852,362	)		(2,291,612	)
Prepaid expenses, other current assets, and income tax receivable		36,183			(135,247	)
Accounts payable		304,759			(405,903	)
Accrued expenses		(337,391	)		138,616
Deferred revenue		-			(16,605	)
Net cash provided by operating activities		2,478,644			781,138
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of short-term investments		-			(13,198,341	)
Sales of short-term investments		-			15,216,793
Purchases of equipment and leasehold improvements		(1,837,200	)		(912,620	)
Other assets		(81,889	)		(113,939	)
Net cash (used in) provided by investing activities		(1,919,089	)		991,893
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from issuance of stock, net of tax withholding		(94,559	)		(86,992	)
Acquisition of treasury stock		-			(22,391	)
Cash dividends paid		(2,365,730	)		(1,882,611	)
Net cash used in financing activities		(2,460,289	)		(1,991,994	)
Net decrease in cash		(1,900,734	)		(218,963	)
Cash and Cash Equivalents, beginning of period		5,564,233			3,720,488
Cash and Cash Equivalents, end of period	$	3,663,499		$	3,501,525
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes	$	1,208,800		$	1,729,000

See accompanying notes to condensed financial statements

5

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. Interim Financial Statements

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnote disclosure required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the financial statements and related notes of Psychemedics Corporation (“the Company,” “our Company,” “our” or “we”) as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 9, 2012. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations, and cash flows at the dates and for the periods presented have been included. The results of operations for the nine months ended September 30, 2012 may not be indicative of the results that may be expected for the year ending December 31, 2012, or any other period.

2. Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash equivalents consist of cash savings and a bank money market account.

3. Stock-Based Compensation

2006 Equity Incentive Plan

The Company’s 2006 Incentive Plan provides for the grant or issuance to officers, directors, employees and consultants of options with terms of up to ten years, restricted stock, stock unit awards (SUA’s), issuances of stock bonuses or other stock-based awards, covering up to 500,000 shares of common stock.

The Company granted stock unit awards (SUAs) covering 65,000 shares of common stock on May 22, 2012. There were no previously granted awards that terminated during the first nine months of 2012. The SUAs vest over a period of two years for non-employee board members and four years for employees and are convertible into an equivalent number of shares of the Company’s common stock provided that the director or employee receiving the award remains continuously employed throughout the vesting period. The Company records compensation expense related to the SUAs on a straight-line basis over the vesting term of the SUAs. Employees are issued shares upon vesting, net of tax withholdings, unless the employee chooses to receive shares and pay for the associated employment taxes. No other types of equity-based awards have been granted or issued under the 2006 Incentive Plan.

6

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

3. Stock-Based Compensation (continued)

A summary of activity for SUAs under the Company’s 2006 Incentive Plan for the nine months ended September 30, 2012 is as follows:

	Number of Shares			Aggregate Intrinsic Value (1)
				(000s)
Unvested, December 31, 2011		119,100
Granted		65,000
Shares withheld for taxes		(9,619	)
Converted to common stock		(37,006	)
Unvested, September 30, 2012		137,475		$	1,659
Available for grant, September 30, 2012		220,069

(1) The aggregate intrinsic value on this table was calculated based on the closing market value of the Company’s stock on September 30, 2012 ($12.07).

Expired Plans

As of September 30, 2012, the Company also had outstanding an aggregate of 199,838 options to acquire common stock under plans that had previously expired. A summary of stock option activity for the Company’s expired stock option plans for the nine months ended September 30, 2012 is as follows:

	Number of Shares			Weighted Average Exercise Price Per Share	Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value (2)
							(000	s)
Outstanding, December 31, 2011	221,239		$	13.62
Granted	-			-
Exercised	-			-	-
Terminated/Expired	(21,401	)	$	13.66
Outstanding, September 30, 2012	199,838		$	13.62	2.4 years	$	60
Exercisable, September 30, 2012	199,838		$	13.62	2.4 years	$	60
Available for grant, September 30, 2012	-

(2) The aggregate intrinsic value on this table was calculated based on the amount, if any, by which the closing market value of the Company’s stock on the September 30, 2012 ($12.07) exceeded the exercise price of the underlying options, multiplied by the number of shares subject to each option.

7

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

3. Stock-Based Compensation (continued)

All Stock-Based Compensation Plans

As of September 30, 2012, a total of 557,382 shares of common stock were reserved for issuance under the various stock option and stock-based plans. As of September 30, 2012, the unamortized fair value of awards relating to outstanding SUAs and options was $1.1 million, which is expected to be amortized over a weighted average period of 3.0 years.

4. Basic and Diluted Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The number of dilutive common equivalent shares outstanding during the period has been determined in accordance with the treasury-stock method. Common equivalent shares consist of common stock issuable upon the exercise of outstanding options and common stock issuable upon the vesting of outstanding, unvested SUAs.

Basic and diluted weighted average common shares outstanding are as follows:

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2012		2011		2012		2011
	(in thousands)
Weighted average common shares		5,272		5,238		5,256		5,228
Common equivalent shares		18		3		10		7
Weighted average common shares outstanding, assuming dilution		5,290		5,241		5,266		5,235

For the three months ended September 30, 2012 and 2011, options to purchase 231 thousand and 269 thousand common shares, respectively, were outstanding but not included in the diluted weighted average common share calculation as the effect would have been antidilutive. The amounts for the nine month period ended September 30, 2012 and 2011 were 264 thousand and 265 thousand common shares, respectively.

8

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

5. Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, provides guidance for using fair value to measure assets and liabilities. It also responds to investors’ requests for expanded information about the extent to which companies’ measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances.

It establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy prioritizes the inputs in three broad levels as follows:

· Level 1 inputs are unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities.

· Level 2 inputs are quoted prices for similar assets and liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

· Level 3 inputs are prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level of any input that is significant to the fair value measurement.

The financial assets of the Company measured at fair value on a recurring basis are cash and cash equivalents. The Company’s cash equivalents are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices that are accessible at the measurement date for identical assets and liabilities. The cash equivalents were $3.7 million as of September 30, 2012 and $5.6 million as of December 31, 2011.

6. Subsequent Events

On November 5, 2012, the Company declared a quarterly dividend of $0.15 per share for a total of $791 thousand, which will be paid on November 28, 2012 to shareholders of record on November 15, 2012.

7. Commitments and Contingencies

The Company is subject to legal proceedings and claims, which arise in the ordinary course of its business. The Company believes that based upon information available to the Company at this time, the expected outcome of these matters would not have a material impact on the Company’s results of operations or financial condition.

8. Fixed Asset Disposals

During the quarter, primarily in connection with the transition of the Company’s RIAH technology to EIA technology, the Company disposed of approximately $7.2 million of fixed assets.  These assets had a net book value of zero at the time of disposal.

9

Item 2.

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

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 earnings, earnings per share, revenues, operating cash flows, dividends, future business, growth opportunities, new accounts, customer base, test volume, sales and marketing strategy, business strategy, general and administrative expenses, marketing and selling expenses, research and development expenses, anticipated operating results, strategies with respect to governmental agencies and regulations, cost savings, capital expenditures, liquidity of investments 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 expansion of the Company’s sales and marketing team, employee hiring practices of the Company’s principal customers, development of markets for new products and services offered by the Company, the economic health of principal customers of the Company, global credit market volatility, financial and operational risks associated with possible expansion of testing facilities used by the Company, government regulation (including, but not limited to, Food and Drug Administration regulations), competition and general economic conditions. With respect to the continued payment of cash dividends, factors include, but are not limited to, available surplus, cash flow, capital expenditure reserves required, and other factors that the Board of Directors of the Company may take into account.

OVERVIEW

Psychemedics Corporation was incorporated in 1986. The Company is the world’s largest provider of hair testing for drugs of abuse, utilizing a patented hair analysis method involving immunoassay technology and confirmation by mass spectrometry to analyze human hair to detect abused substances. The Company’s customers include Fortune 500 companies, as well as small to mid-size corporations, schools and governmental entities located primarily in the United States. During the third quarter of 2012, the Company made a transition in hair testing technology from radioimmonoassy (RIAH) to a custom designed enzyme immunoassay (EIA). The financial impact on the third quarter results is included in the discussion below.

Revenues for the third quarter of 2012 were $6.5 million, an increase of 2% from the third quarter 2011 revenue of $6.3 million. The Company reported net income of $0.17 per diluted share for the three months ended September 30, 2012, compared to net income of $0.21 per share in the comparable period in 2011. At September 30, 2012, the Company had $3.7 million of cash and cash equivalents. The Company distributed $791 thousand or $0.15 per share of cash dividends to its shareholders in the three months ended September 30, 2012. The Company has paid sixty-four consecutive quarterly cash dividends.

10

RESULTS OF OPERATIONS

Revenues were $6.5 million for three months ended September 30, 2012 compared to revenues of $6.3 million for the three months ended September 30, 2011, representing an increase of 2%. The increase in revenues for the three months ended September 30, 2012 was a result of an increase in testing volume from new and existing clients of 5%. The average revenue per sample decreased 3% from the comparative period of 2011, which was primarily driven by the mix of customers. Revenues for the nine months ended September 30, 2012 were $19.6 million, representing an increase of 6% in revenues from the comparable period of 2011 of $18.5 million. The increase was primarily due to an increase in volume, as test samples increased 8% from the first nine months of 2011.

Gross profit was $3.7 million and $3.9 million for the three months ended September 30, 2012 and September 30, 2011, respectively. Direct costs increased by $370 thousand or 16% for the three months ended September 30, 2012 compared to the same period of 2011, due to a greater volume of samples and transition costs from our hair testing technology of RIAH to EIA. During the quarter, the Company capitalized $298 thousand of software development costs related to the new EIA process, $137 thousand of which was incurred in the third quarter, and $161 thousand which had been expensed in the first six months of 2012. The gross profit margin for the three month period ended September 30, 2012 was 58% compared to 62% for the comparable period in 2011. Gross profit for the nine months ended September 30, 2012 increased $187 thousand to $11.5 million compared to $11.3 million for the comparable period in 2011. Direct costs increased by $835 thousand or 12% for the nine months ended September 30, 2012 when compared to the same period in 2011, mostly due to a greater volume in samples and partly due to transition costs from RIAH to EIA. The gross profit margin for the nine month period ended September 30, 2012 was 59% compared to 61% for the comparable period in 2011.

General and administrative (“G&A”) expenses were $922 thousand and $1.0 million for the three months ended September 30, 2012 and 2011, respectively. As a percentage of revenue, G&A expenses were 14% and 16% for the three months ended September 30, 2012 and 2011, respectively. General and administrative expenses were $2.9 million for the nine months ended September 30, 2012 and 2011. As a percentage of revenue, G&A expenses were 15% and 16% for the nine months ended September 30, 2012 and 2011, respectively.

Marketing and selling expenses were $1.1 million for the three months ended September 30, 2012 as compared to $981 thousand for the three months ended September 30, 2011, an increase of 9%. Total marketing and selling expenses represented 17% of revenue for the three months ended September 30, 2012, compared to 16% for the comparable period of 2011. For the nine months ended September 30, 2012, marketing and selling expenses were $3.4 million, an increase of $468 thousand from the prior year at $2.9 million. The increase in marketing and selling expenses was primarily from additional sales positions, as well as higher information technology costs related to marketing programs.

11

Research and development (“R&D”) expenses for the three months ended September 30, 2012 were $297 thousand compared to $136 thousand for the comparable period of 2011, an increase of 118%. This increase is driven by R&D activities related to EIA analysis. R&D expenses represented 5% of revenue for the three months ended September 30, 2012, compared to 2% for the comparable period of 2011. Research and development expenses for the nine months ended September 30, 2012 were $679 thousand compared to $400 thousand in the prior year. R&D expenses represented 3% and 2% of revenue for the nine months ended 2012 and 2011, respectively.

Provision for income taxes During the three months ended September 30, 2012 and 2011, the Company recorded tax provisions of $553 thousand and $709 thousand, respectively. These provisions represented effective tax rates of 39% for the three months ended September 30, 2012 and for the comparable period of 2011. During the nine months ended September 30, 2012 and September 30, 2011, the Company recorded tax provisions of $1.8 million and $2.0 million, respectively. These provisions represented effective tax rates of 39% and 40% for the nine month periods ended September 30, 2012 and 2011, respectively. The 39% represents the current estimate of the year-end tax rate. The Company continues to monitor the effective tax rate, but does not expect a significant change for the remaining three months of 2012. 

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2012, the Company had approximately $3.7 million of cash and cash equivalents. The Company's operating activities provided net cash of $2.5 million for the nine months ended September 30, 2012. Investing activities used $1.9 million of cash while financing activities (primarily dividends) used $2.5 million of cash during the first nine months of 2012.

Cash provided by operating activities of $2.5 million reflected net income of $2.7 million adjusted for depreciation and amortization of $419 thousand, stock-based compensation of $337 thousand, and a decrease for deferred income taxes of $136 thousand. This was affected by the following changes in assets and liabilities: an increase in accounts receivable of $852 thousand, a decrease in prepaid expenses and other current assets of $36 thousand, an increase in accounts payable of $305 thousand, and a decrease in accrued expenses of $337 thousand.

Cash used in investing activities included equipment and leasehold improvements of $1.9 million which were purchased during the nine months of 2012. We anticipate spending $400 thousand to $700 thousand in additional capital purchases for the remainder of 2012.

During the nine months ended September 30, 2012, the Company distributed $2.4 million in cash dividends to its shareholders.

12

Contractual obligations as of September 30, 2012 were as follows:

	Less Than One Year		1-3 Years		4-5 years		After 5 Years		Total
	(in thousands)
Operating leases	$	608	$	1,163	$	156	$	-	$	1,927
Purchase commitment		266		-		-		-		266
	$	874	$	1,163	$	156	$	-	$	2,193

In May 2012, the Company extended the lease of its Las Vegas facility for four years, to expire in April, 2016. This extension is reflected in the prior table. The Company has a supply agreement with a vendor which requires the Company to purchase isotopes used in its radioimmunoassay drug testing procedures from this sole supplier in exchange for variable annual payments based upon prior calendar year purchases. Purchases amounted to $457 thousand for the nine months ended September 30, 2012 as compared to $396 thousand for the comparable period of 2011. The Company expects to expend approximately $152 thousand for isotope purchases during the remainder of 2012. As of October 1^st, 2012, the Company has given its six month notice to terminate the isotope agreement in conjunction with the change from radioimmunoassay technology to enzyme immunoassay technology. 

At September 30, 2012, the Company's principal sources of liquidity included an aggregate of approximately $3.7 million of cash and cash equivalents. Management currently believes that such funds, together with cash generated from operations, should be adequate to fund anticipated working capital requirements and capital expenditures for at least the next 12 months. Depending upon the Company's results of operations and capital needs, the Company may use various financing sources to raise additional funds, although the Company does not have any such plans at this time. At September 30, 2012, the Company had no long-term debt.

13

CRITICAL ACCOUNTING POLICIES

In our Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 9, 2012, we disclosed our critical accounting policies and estimates upon which our financial statements are derived. There have been no changes to these policies since December 31, 2011. Readers are encouraged to review these disclosures in conjunction with the review of this quarterly report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity. The Company maintains cash and cash equivalents which consist of cash and money market funds with financial institutions. Due to the conservative nature and relatively short duration of our cash and cash equivalents interest rate risk is mitigated.

Based on our ability to access our cash and cash equivalents, our expected operating cash flows and our other sources of cash; we do not anticipate that any lack of liquidity will materially affect our ability to operate our business.

Item 4. Controls and Procedures

As of the date of this report, our Chief Executive Officer and our Vice President - Finance performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Vice President - Finance concluded that the Company’s disclosure controls and procedures were effective for ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and disclosed within the time periods specified in the SEC’s rules and forms, and that its disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the Company’s principal executive and principal financial officers, to allow timely decisions regarding required disclosure. There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these internal controls over financial reporting subsequent to the date of the most recent evaluation.

14

PART II OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in our 2011 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 6. Exhibits

See Exhibit Index included in this Report

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:          November 9, 2012
	By:	/s/ Raymond C. Kubacki
	Raymond C. Kubacki
	Chairman and Chief Executive Officer
	(principal executive officer)
Date:          November 9, 2012
	By:	/s/ Neil L. Lerner
	Neil L. Lerner
	Vice President - Finance
	(principal accounting officer)

15

PSYCHEMEDICS CORPORATION

FORM 10-Q

September 30, 2012

EXHIBIT INDEX

		Page No.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	17
31.2	Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	18
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	19
32.2	Certification of Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	20

16

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Raymond C. Kubacki, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Psychemedics Corporation (“the registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 9, 2012	/s/ Raymond C. Kubacki
		Raymond C. Kubacki
		Chairman and Chief Executive Officer
		(principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Neil Lerner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Psychemedics Corporation (“the registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 9, 2012	/s/ Neil L. Lerner
		Neil L. Lerner
		Vice President - Finance
		(principal accounting officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Raymond C. Kubacki, Chairman and Chief Executive Officer of Psychemedics Corporation (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as the principal executive officer of the Company that:

(1) The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, as filed with the Securities and Exchange Commission on November 9, 2012 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 9, 2012	/s/ Raymond C. Kubacki
		Raymond C. Kubacki
		Chairman and Chief Executive Officer
		(principal executive officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Neil Lerner, Vice President - Finance of Psychemedics Corporation (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as the principal accounting officer of the Company that:

(1) The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, as filed with the Securities and Exchange Commission on November 9, 2012 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 9, 2012	/s/ Neil L. Lerner
		Neil L. Lerner
		Vice President - Finance
		(principal accounting officer)

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Basic and Diluted Net Income Per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

4. Basic and Diluted Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The number of dilutive common equivalent shares outstanding during the period has been determined in accordance with the treasury-stock method. Common equivalent shares consist of common stock issuable upon the exercise of outstanding options and common stock issuable upon the vesting of outstanding, unvested SUAs.

Basic and diluted weighted average common shares outstanding are as follows:

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2012		2011		2012		2011
	(in thousands)
Weighted average common shares		5,272		5,238		5,256		5,228
Common equivalent shares		18		3		10		7
Weighted average common shares outstanding, assuming dilution		5,290		5,241		5,266		5,235

For the three months ended September 30, 2012 and 2011, options to purchase 231 thousand and 269 thousand common shares, respectively, were outstanding but not included in the diluted weighted average common share calculation as the effect would have been antidilutive. The amounts for the nine month period ended September 30, 2012 and 2011 were 264 thousand and 265 thousand common shares, respectively.

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

3. Stock-Based Compensation

2006 Equity Incentive Plan

The Company’s 2006 Incentive Plan provides for the grant or issuance to officers, directors, employees and consultants of options with terms of up to ten years, restricted stock, stock unit awards (SUA’s), issuances of stock bonuses or other stock-based awards, covering up to 500,000 shares of common stock.

The Company granted stock unit awards (SUAs) covering 65,000 shares of common stock on May 22, 2012. There were no previously granted awards that terminated during the first nine months of 2012. The SUAs vest over a period of two years for non-employee board members and four years for employees and are convertible into an equivalent number of shares of the Company’s common stock provided that the director or employee receiving the award remains continuously employed throughout the vesting period. The Company records compensation expense related to the SUAs on a straight-line basis over the vesting term of the SUAs. Employees are issued shares upon vesting, net of tax withholdings, unless the employee chooses to receive shares and pay for the associated employment taxes. No other types of equity-based awards have been granted or issued under the 2006 Incentive Plan.

A summary of activity for SUAs under the Company’s 2006 Incentive Plan for the nine months ended September 30, 2012 is as follows:

	Number of Shares			Aggregate Intrinsic Value (1)
				(000s)
Unvested, December 31, 2011		119,100
Granted		65,000
Shares withheld for taxes		(9,619	)
Converted to common stock		(37,006	)
Unvested, September 30, 2012		137,475		$	1,659
Available for grant, September 30, 2012		220,069

(1) The aggregate intrinsic value on this table was calculated based on the closing market value of the Company’s stock on September 30, 2012 ($12.07).

Expired Plans

As of September 30, 2012, the Company also had outstanding an aggregate of 199,838 options to acquire common stock under plans that had previously expired. A summary of stock option activity for the Company’s expired stock option plans for the nine months ended September 30, 2012 is as follows:

	Number of Shares			Weighted Average Exercise Price Per Share	Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value (2)
							(000	s)
Outstanding, December 31, 2011	221,239		$	13.62
Granted	-			-
Exercised	-			-	-
Terminated/Expired	(21,401	)	$	13.66
Outstanding, September 30, 2012	199,838		$	13.62	2.4 years	$	60
Exercisable, September 30, 2012	199,838		$	13.62	2.4 years	$	60
Available for grant, September 30, 2012	-

(2) The aggregate intrinsic value on this table was calculated based on the amount, if any, by which the closing market value of the Company’s stock on the September 30, 2012 ($12.07) exceeded the exercise price of the underlying options, multiplied by the number of shares subject to each option.

All Stock-Based Compensation Plans

As of September 30, 2012, a total of 557,382 shares of common stock were reserved for issuance under the various stock option and stock-based plans. As of September 30, 2012, the unamortized fair value of awards relating to outstanding SUAs and options was $1.1 million, which is expected to be amortized over a weighted average period of 3.0 years.

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CONDENSED BALANCE SHEETS (USD $)	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 3,663,499	$ 5,564,233
Accounts receivable, net of allowance for doubtful accounts of $131,218 in 2012 and $169,191 in 2011	5,343,338	4,490,976
Prepaid expenses and other current assets	1,093,408	565,508
Income tax receivable	0	564,083
Deferred tax assets	451,681	315,501
Total Current Assets	10,551,926	11,500,301
Fixed Assets, net of accumulated amortization and depreciation of $4,222,467 in 2012 and $11,026,278 in 2011	3,490,382	2,063,377
Other assets	309,717	237,174
Total Assets	14,352,025	13,800,852
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	1,266,603	961,844
Accrued expenses	984,465	1,321,856
Total Current Liabilities	2,251,068	2,283,700
Deferred tax liabilities, long-term	482,523	482,523
Total Liabilities	2,733,591	2,766,223
Commitments and Contingencies (Note 7)
Shareholders' Equity:
Preferred-stock, $0.005 par value, 872,521 shares authorized, no shares issued or outstanding	0	0
Common stock, $0.005 par value; 50,000,000 shares authorized 5,940,558 shares issued in 2012 and 5,903,552 shares issued 2011	29,703	29,518
Additional paid-in capital	28,338,280	28,095,946
Accumulated deficit	(6,667,760)	(7,009,046)
Less - Treasury stock, at cost, 668,130 shares	(10,081,789)	(10,081,789)
Total Shareholders' Equity	11,618,434	11,034,629
Total Liabilities and Shareholders' Equity	$ 14,352,025	$ 13,800,852

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Interim Financial Statements

9 Months Ended

Sep. 30, 2012

Quarterly Financial Information Disclosure [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Interim Financial Statements

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnote disclosure required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the financial statements and related notes of Psychemedics Corporation (“the Company,” “our Company,” “our” or “we”) as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 9, 2012. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations, and cash flows at the dates and for the periods presented have been included. The results of operations for the nine months ended September 30, 2012 may not be indicative of the results that may be expected for the year ending December 31, 2012, or any other period.

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Subsequent Events (Details Textual) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Dividends Payable, Date Declared, Day, Month and Year	Nov. 05, 2012
Dividends Payable, Date to be Paid, Day, Month and Year	Nov. 28, 2012
Dividends Payable, Date of Record, Day, Month and Year	Nov. 15, 2012
Dividend Declared [Member]
Subsequent Event Per Share Amount (in dollars per share)	0.15
Subsequent Event, Amount (in dollars)	791

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Cash and Cash Equivalents

9 Months Ended

Sep. 30, 2012

Cash and Cash Equivalents [Abstract]

Cash Cash Equivalents Short-Term Investments [Text Block]

2. Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash equivalents consist of cash savings and a bank money market account.

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CONDENSED BALANCE SHEETS [Parenthetical] (USD $)	Sep. 30, 2012	Dec. 31, 2011
Allowance for doubtful accounts (in dollars)	$ 131,218	$ 169,191
Fixed Assets, net of accumulated amortization and depreciation of $4,222,467 in 2012 and $11,026,278 in 2011	$ 4,222,467	$ 11,026,278
Preferred stock, par value (in dollars per share)	$ 0.005	$ 0.005
Preferred stock, shares authorized	872,521	872,521
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.005	$ 0.005
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	5,940,558	5,903,552
Treasury stock, shares	668,130	668,130

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Stock-Based Compensation (Details 1) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Outstanding, Number of Shares (in shares)	221,239
Granted, Number of Shares (in shares)	0
Exercised, Number of Shares (in shares)	0
Terminated/Expired, Number of Shares (in shares)	(21,401)
Outstanding, Number of Shares (in shares)	199,838
Exercisable, Number of Shares (in shares)	199,838
Available for grant, Number of Shares (in shares)	0
Outstanding, Weighted Average Exercise Price Per Share (in dollars per share)	$ 13.62
Granted, Weighted Average Exercise Price Per Share (in dollars per share)	$ 0
Exercised, Weighted Average Exercise Price Per Share (in dollars per share)	$ 0
Terminated/Expired, Weighted Average Exercise Price Per Share (in dollars per share)	$ 13.66
Outstanding, Weighted Average Exercise Price Per Share (in dollars per share)	$ 13.62
Exercisable, Weighted Average Exercise Price Per Share (in dollars per share)	$ 13.62
Outstanding, Weighted Average Remaining Contractual Life (in years)	2 years 4 months 24 days
Exercisable, Weighted Average Remaining Contractual Life (in years)	2 years 4 months 24 days
Outstanding, Aggregate Intrinsic Value (in dollars)	$ 60	[1]
Exercisable, Aggregate Intrinsic Value (in dollars)	$ 60	[1]

[1] The aggregate intrinsic value on this table was calculated based on the amount, if any, by which the closing market value of the Company's stock on the September 30, 2012 ($12.07) exceeded the exercise price of the underlying options, multiplied by the number of shares subject to each option.

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DOCUMENT AND ENTITY INFORMATION	9 Months Ended
	Sep. 30, 2012	Nov. 09, 2012
Entity Registrant Name	PSYCHEMEDICS CORP
Entity Central Index Key	0000806517
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	pmd
Entity Common Stock, Shares Outstanding		5,272,428
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012

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Stock-Based Compensation (Details Textual) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended	9 Months Ended
	May 22, 2012	Sep. 30, 2012
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Outstanding Options, Weighted Average Remaining Contractual Term (in years)		10 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)		500,000
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted (in shares)	65,000
Available for grant, Number of Shares (in shares)		0
Common Stock Closing Value Per Share (in dollars per share)		$ 12.07
Share Based Compensation Arrangement By Share Based Payment Award Outstanding Number		557,382
Share-based Compensation Arrangement By Share-based Payment Award Outstanding Fair Value (in dollars)		$ 1.1
Share-based Compensation Arrangement By Share-based Payment Award, Exercise Price Range, Outstanding, Weighted Average Remaining Contractual Term (in years)		3 years

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CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues	$ 6,459,775	$ 6,315,142	$ 19,565,350	$ 18,542,666
Cost of revenues	2,742,072	2,371,255	8,079,141	7,243,474
Gross profit	3,717,703	3,943,887	11,486,209	11,299,192
Operating Expenses:
General & administrative	921,891	1,018,967	2,921,880	2,898,426
Marketing & selling	1,067,768	981,197	3,413,388	2,945,492
Research & development	297,090	136,281	679,031	399,785
Total Operating Expenses	2,286,749	2,136,445	7,014,299	6,243,703
Operating income	1,430,954	1,807,442	4,471,910	5,055,489
Interest income	447	773	1,442	4,790
Net income before provision for income taxes	1,431,401	1,808,215	4,473,352	5,060,279
Provision for income taxes	552,920	708,830	1,766,336	2,009,184
Net income and comprehensive income	$ 878,481	$ 1,099,385	$ 2,707,016	$ 3,051,095
Basic net income per share (in dollars per share)	$ 0.17	$ 0.21	$ 0.52	$ 0.58
Diluted net income per share (in dollars per share)	$ 0.17	$ 0.21	$ 0.51	$ 0.58
Dividends declared per share	$ 0.15	$ 0.12	$ 0.45	$ 0.36
Weighted average common shares outstanding, basic (in shares)	5,272,428	5,237,603	5,256,240	5,227,699
Weighted average common shares outstanding, diluted (in shares)	5,289,808	5,240,895	5,266,237	5,234,577

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

7. Commitments and Contingencies

The Company is subject to legal proceedings and claims, which arise in the ordinary course of its business. The Company believes that based upon information available to the Company at this time, the expected outcome of these matters would not have a material impact on the Company’s results of operations or financial condition.

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Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events [Abstract]

Subsequent Events [Text Block]

6. Subsequent Events

On November 5, 2012, the Company declared a quarterly dividend of $0.15 per share for a total of $791 thousand, which will be paid on November 28, 2012 to shareholders of record on November 15, 2012.

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Fixed Asset Disposals (Details Textual) (USD $)	9 Months Ended
	Sep. 30, 2012
Asset Disposal Value	$ 7,200,000
Fixed Asset Net Book Value	$ 0

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Basic and Diluted Net Income Per Share (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Weighted average common shares (in shares)	5,272,428	5,237,603	5,256,240	5,227,699
Common equivalent shares	18,000	3,000	10,000	7,000
Weighted average common shares outstanding, assuming dilution (in shares)	5,289,808	5,240,895	5,266,237	5,234,577

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Basic and Diluted Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Schedule of Earnings Per Share Reconciliation [Table Text Block]

Basic and diluted weighted average common shares outstanding are as follows:

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2012		2011		2012		2011
	(in thousands)
Weighted average common shares		5,272		5,238		5,256		5,228
Common equivalent shares		18		3		10		7
Weighted average common shares outstanding, assuming dilution		5,290		5,241		5,266		5,235

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Fixed Asset Disposals

9 Months Ended

Sep. 30, 2012

Asset Retirement Obligation Disclosure [Abstract]

Asset Retirement Obligation Disclosure [Text Block]

8. Fixed Asset Disposals

During the quarter, primarily in connection with the transition of the Company’s RIAH technology to EIA technology, the Company disposed of approximately $7.2 million of fixed assets.  These assets had a net book value of zero at the time of disposal.

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Schedule of Nonvested Performance-based Units Activity [Table Text Block]

A summary of activity for SUAs under the Company’s 2006 Incentive Plan for the nine months ended September 30, 2012 is as follows:

	Number of Shares			Aggregate Intrinsic Value (1)
				(000s)
Unvested, December 31, 2011		119,100
Granted		65,000
Shares withheld for taxes		(9,619	)
Converted to common stock		(37,006	)
Unvested, September 30, 2012		137,475		$	1,659
Available for grant, September 30, 2012		220,069

(1) The aggregate intrinsic value on this table was calculated based on the closing market value of the Company’s stock on September 30, 2012 ($12.07).

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block]

A summary of stock option activity for the Company’s expired stock option plans for the nine months ended September 30, 2012 is as follows:

	Number of Shares			Weighted Average Exercise Price Per Share	Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value (2)
							(000	s)
Outstanding, December 31, 2011	221,239		$	13.62
Granted	-			-
Exercised	-			-	-
Terminated/Expired	(21,401	)	$	13.66
Outstanding, September 30, 2012	199,838		$	13.62	2.4 years	$	60
Exercisable, September 30, 2012	199,838		$	13.62	2.4 years	$	60
Available for grant, September 30, 2012	-

(2) The aggregate intrinsic value on this table was calculated based on the amount, if any, by which the closing market value of the Company’s stock on the September 30, 2012 ($12.07) exceeded the exercise price of the underlying options, multiplied by the number of shares subject to each option.

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Stock-Based Compensation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Unvested, Number of Shares (in shares)	119,100
Granted, Number of Shares (in shares)	65,000
Shares withheld for taxes (in shares)	(9,619)
Converted to common stock, Number of Shares (in shares)	(37,006)
Unvested, Number of Shares (in shares)	137,475
Unvested, Aggregate Intrinsic Value (in dollars)	$ 1,659	[1]
Available For Grant, Number Of Shares (in shares)	220,069

[1] The aggregate intrinsic value on this table was calculated based on the closing market value of the Company's stock on September 30, 2012 ($12.07).

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Fair Value Measurements (Details Textual) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Dec. 31, 2010
Cash and cash equivalents	$ 3,663,499	$ 5,564,233	$ 3,501,525	$ 3,720,488

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CONDENSED STATEMENTS OF CASH FLOWS (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 2,707,016	$ 3,051,095
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	419,541	258,708
Stock-based compensation	337,078	304,408
Deferred income taxes	(136,180)	(122,322)
Changes in operating assets and liabilities:
Accounts receivable	(852,362)	(2,291,612)
Prepaid expenses, other current assets, and income tax receivable	36,183	(135,247)
Accounts payable	304,759	(405,903)
Accrued expenses	(337,391)	138,616
Deferred revenue	0	(16,605)
Net cash provided by operating activities	2,478,644	781,138
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of short-term investments	0	(13,198,341)
Sales of short-term investments	0	15,216,793
Purchases of equipment and leasehold improvements	(1,837,200)	(912,620)
Other assets	(81,889)	(113,939)
Net cash (used in) provided by investing activities	(1,919,089)	991,893
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from issuance of stock, net of tax withholding	(94,559)	(86,992)
Acquisition of treasury stock	0	(22,391)
Cash dividends paid	(2,365,730)	(1,882,611)
Net cash used in financing activities	(2,460,289)	(1,991,994)
Net decrease in cash	(1,900,734)	(218,963)
Cash and Cash Equivalents, beginning of period	5,564,233	3,720,488
Cash and Cash Equivalents, end of period	3,663,499	3,501,525
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes	$ 1,208,800	$ 1,729,000

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Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

5. Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, provides guidance for using fair value to measure assets and liabilities. It also responds to investors’ requests for expanded information about the extent to which companies’ measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances.

It establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy prioritizes the inputs in three broad levels as follows:

· Level 1 inputs are unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities.

· Level 2 inputs are quoted prices for similar assets and liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

· Level 3 inputs are prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level of any input that is significant to the fair value measurement.

The financial assets of the Company measured at fair value on a recurring basis are cash and cash equivalents. The Company’s cash equivalents are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices that are accessible at the measurement date for identical assets and liabilities. The cash equivalents were $3.7 million as of September 30, 2012 and $5.6 million as of December 31, 2011.

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Basic and Diluted Net Income Per Share (Details Textual) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)	231	269	264	265