Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Risks and Uncertainties [Policy Text Block]

Risks and Uncertainties

The Company is subject to a number of risks and uncertainties similar to those of other companies, such as those associated with the continued expansion of the Company’s sales and marketing network, technological developments, intellectual property protection, development of markets for new products and services offered by the Company, the economic health of principal customers of the Company, financial and operational risks associated with possible expansion of testing facilities used by the Company, government regulation (including, but not limited to, Food and Drug Administration regulations), competition and general economic conditions.

Use of Estimates, Policy [Policy Text Block]

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, including those related to bad debts and income tax valuation, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash Equivalents

All highly liquid investments with original maturities of 90 days or less are considered cash equivalents. These consist of cash savings and U.S. government reserve money market accounts at December 31, 2012. While the money market account contains U.S. federal government backed issues, the account itself is not federally insured. As of December 31, 2012, $0.4 million was in U.S. federal government-backed money-market accounts, which is classified as cash equivalents.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

The Company follows the provisions of Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements and expands disclosures regarding fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

In accordance with ASC 820, the Company’s financial assets that are measured at fair value on a recurring basis as of December 31, 2012 and 2011are cash equivalents. Cash equivalents are measured using level one inputs. At December 31, 2012 and 2011, the Company had $0.4 million of level one cash equivalents for each period.

Inventory, Policy [Policy Text Block]

Inventory

The Company typically expenses consumables such as chemicals, antibodies and tubes as purchased.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are provided over the estimated useful lives of the assets, using the straight-line method. Repair and maintenance costs are expensed as incurred. The estimated useful lives of the assets are as follows:

Computer software	3 to 5 years
Office furniture and equipment	3 to 7 years
Laboratory equipment	5 to 7 years
Leasehold improvements	Lesser of estimated useful life or lease term

The Company recorded depreciation and amortization related to property and equipment of $573,712, $362,282, and $282,397 in 2012, 2011 and 2010 respectively.

In 2012, in connection with the transition to EIA from RIAH, the Company disposed of $7.2 million of RIAH and other equipment, all of which had been fully depreciated, and as result, had no impact on earnings or net assets.

Research, Development, and Computer Software, Policy [Policy Text Block]

Capitalized Software Development Costs  

We capitalize costs related to significant software projects developed or obtained for internal use. Costs incurred during the preliminary project work stage or conceptual stage, such as determining the performance requirements, system requirements and data conversion, are expensed as incurred. Costs incurred in the application development phase, such as coding, testing for new software and upgrades that result in additional functionality, are capitalized and are amortized using the straight-line method over the useful life of the software for 5 years. Costs incurred during the post-implementation/operation stage, including training costs and maintenance costs, are expensed as incurred. In accordance with Company policy, during the years ended December 31, 2012 and 2011, we capitalized internally developed software costs of $794,000 and $387,000, respectively. Depreciation expense related to software development costs was $98,301, $8,840, and $0 in 2012, 2011, and 2010, respectively. Determining whether particular costs incurred are more properly attributable to the preliminary or conceptual stage, and thus expensed, or to the application development phase, and thus capitalized and amortized, depends on subjective judgments about the nature of the development work, and our judgments in this regard may differ from those made by other companies. General and administrative costs related to developing or obtaining such software are expensed as incurred.

Other Assets [Policy Text Block]

Other Assets

Other assets primarily consist of capitalized legal costs relating to patent applications. The Company amortizes these costs over ten years from the date of grant of the applicable patent. As of December 31, 2012 and 2011, the Company had capitalized legal costs relating to outstanding patent applications of $299,389, and $194,704, respectively. Amortization expense was $13,256, $7,738, and $2,574 in 2012, 2011, and 2010, respectively. The amount of amortization related to patent applications is expected to remain below $20,000 per year for the next five years.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company is in the business of performing drug testing services and reporting the results thereof. The Company’s services include, drug testing, training for collection of samples and storage of positive samples for its customers for an agreed-upon fee per unit tested of samples. The revenues are recognized when the predominant deliverable, drug testing, is provided and reported to the customer.

The Company recognizes revenue under ASC 605, “Revenue Recognition” (“ASC 605”). In accordance with ASC 605, the Company considers testing, training and storage elements as one unit of accounting for revenue recognition purposes, as the training and storage costs are de minimis and do not have stand-alone value to the customer. The Company recognizes revenue as the service is performed and reported to the customer, since the predominant deliverable in each arrangement is the testing of the units.

The Company also provides expert testimony, when and if necessary, to support the results of the tests, which is generally billed separately and recognized as the services are provided.

Research and Development Expense, Policy [Policy Text Block]

Research and Development Expenses

The Company charges all research and development expenses to operations as incurred.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company accounts for income taxes using the liability method pursuant to ASC 740, Income Taxes. Under this method, the Company recognizes deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. The Company evaluates uncertain tax positions annually and considers whether the amounts recorded for income taxes are adequate to address the Company’s tax risk profile. The Company analyzes the potential tax liabilities of specific transactions and tax positions based on management’s judgment as to the expected outcome.

Concentration Risk Credit Risk and Off Balance Sheet Credit Exposure [Policy Text Block]

Concentration of Credit Risk and Off-Balance Sheet Risk

The Company has no significant off-balance-sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash and cash equivalents, short-term investments and accounts receivable. The Company places its cash and cash equivalents and short-term investments in highly rated institutions. These include money market accounts holding U.S. federal government reserve securities. While the underlying securities are federally issued, the account itself is not insured. Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom the Company makes substantial sales. To reduce risk, the Company routinely assesses the financial strength of its customers and, as a consequence, believes that its accounts receivable credit risk exposure is limited. The Company maintains an allowance for potential credit losses but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. The Company does not require collateral.

Significant Customer [Policy Text Block]

Significant Customers

The Company did not have any individual customers that exceeded 10% of revenue for the years ended December 31, 2012 and 2011 or accounts receivable as of December 31, 2012 and 2011.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income

The Company’s comprehensive income was the same as its reported net income for the years ended December 31, 2012, 2011 and 2010.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

The Company accounts for equity awards in accordance with ASC 718, Compensation — Stock Compensation (”ASC 718”). ASC 718 requires employee equity awards to be accounted for under the fair value method. Accordingly, share-based compensation is measured at the grant date based on the fair value of the award. It also requires the measurement of compensation cost at fair value on the date of grant and recognition of compensation expense over the service period for awards expected to vest. The Company uses the straight-line method to recognize share-based compensation over the service period of the award, which is generally equal to the vesting period.

Under ASC 718, the Company recorded $458,167, $418,077, and $394,972 of stock compensation expense in the accompanying statements of income for the years ended December 31, 2012, 2011 and 2010, respectively.

Stock compensation expense by income statement account is as follows:

	2012		2011		2010
Cost of revenues	$	91,118	$	85,731	$	83,286
General & administrative		282,375		266,915		258,916
Marketing and selling		81,819		65,431		52,770
Research and development		2,855		—		—
Total stock compensation	$	458,167	$	418,077	$	394,972

See Note 7 for additional information relating to the Company’s stock plans.

Earnings Per Share, Policy [Policy Text Block]

Basic and Diluted Net Income per Share

Basic net income per share is computed by dividing net income available to common shareholders 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 shares and dilutive common stock equivalents outstanding during the period. The number of dilutive common stock equivalents 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 the unvested portion of stock unit awards (“SUAs”).

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

	2012		2011		2010
Weighted average common shares outstanding		5,260,320		5,229,646		5,207,244
Dilutive common equivalent shares		12,222		6,294		19,210
Weighted average common shares outstanding, assuming dilution		5,272,542		5,235,940		5,226,454

For the years ended December 31, 2012, 2011, and 2010, options to purchase 191,597, 264,088, and 298,390 common shares, respectively, were outstanding but not included in the dilutive common equivalent share calculation as their effect would have been anti-dilutive.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Financial Instruments

Financial instruments include cash equivalents and accounts receivable/payable. Estimated fair values of these financial instruments approximate carrying values due to their short-term nature.

Segment Reporting, Policy [Policy Text Block]

Segment Reporting

The Company manages its operations as one segment, drug testing services. As a result, the financial information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment. Substantially all of the Company’s revenues and assets are in the United States.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

The Company evaluated all events and transactions that occurred after December 31, 2012 through the time of filing with the Securities and Exchange Commission of the Company’s annual report on Form 10-K for the year ended December 31, 2012. On February 25, 2013, the Company declared a quarterly dividend of $0.15 per share for a total of $791 thousand, which will be paid on March 21st, 2013 to shareholders of record on March 7th, 2013. On February 28th, 2013, the Company announced an agreement to market TruTouch Technologies’ rapid optical alcohol detection and biometric test in the US. Psychemedics will exclusively distribute the TruTouch solutions to targeted organizations within the United States. The Company did not have any other material recognizable subsequent events.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”. In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”. Both ASU’s are effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. ASU 2011-12 defers the changes in ASU 2011-05 that pertain to how, when and where reclassification adjustments are presented. The Company’s adoption of these standards is not expected to have a material impact on the financial statements.