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 March 31, 2015

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 x

The number of shares of Common Stock of the Registrant, par value $0.005 per share, outstanding at April 27, 2015 was 5,376,691.

PSYCHEMEDICS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2015

INDEX

		Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
	Condensed Balance Sheets as of March 31, 2015  and December 31, 2014	3
	Condensed Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014	4
	Condensed Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014	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	13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk		15
Item 4 - Controls and Procedures		15
PART II - OTHER INFORMATION
Item 1A - Risk Factors		16
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 6 - Exhibits		16
Signatures		16
Exhibit Index		17

2

PSYCHEMEDICS CORPORATION

CONDENSED BALANCE SHEETS

(UNAUDITED)

	March 31,			December 31,
	2015			2014
ASSETS
Current Assets:
Cash and cash equivalents	$	2,745,602		$	3,612,153
Accounts receivable, net of allowance for doubtful accounts of $74,557 in 2015 and $95,525 in 2014		4,489,866			4,078,133
Prepaid expenses and other current assets		1,016,748			689,995
Income tax receivable		831,158			1,819,743
Deferred tax assets		438,618			376,529
Total Current Assets		9,521,992			10,576,553
Fixed Assets, net of accumulated amortization and depreciation of $6,125,058 in 2015 and $5,788,551 in 2014		12,654,648			12,740,131
Other assets		742,958			761,025
Total Assets	$	22,919,598		$	24,077,709
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	474,953		$	845,071
Accrued expenses		1,281,829			1,351,333
Current portion of long-term debt		1,399,925			1,399,925
Total Current Liabilities		3,156,707			3,596,329
Long-term debt		4,498,177			4,848,158
Deferred tax liabilities, long-term		2,796,666			2,796,666
Total Liabilities		10,451,550			11,241,153
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 6,043,191 shares issued in 2015 and 2014		30,216			30,216
Additional paid-in capital		29,614,253			29,454,023
Accumulated deficit		(7,094,632	)		(6,565,894	)
Less - Treasury stock, at cost, 668,130 shares		(10,081,789	)		(10,081,789	)
Total Shareholders' Equity		12,468,048			12,836,556
Total Liabilities and Shareholders' Equity	$	22,919,598		$	24,077,709

See accompanying notes to condensed financial statements

3

PSYCHEMEDICS CORPORATION

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended
	March 31,
	2015			2014
Revenues	$	6,755,741		$	7,044,821
Cost of revenues		3,416,873			3,249,039
Gross profit		3,338,868			3,795,782
Operating Expenses:
General & administrative		1,144,090			1,184,147
Marketing & selling		1,288,481			1,098,600
Research & development		455,782			344,983
Total Operating Expenses		2,888,353			2,627,730
Operating income		450,515			1,168,052
Other income (expense)		(33,327	)		1,549
Net income before provision for income taxes		417,188			1,169,601
Provision for income taxes		139,666			413,442
Net income and comprehensive income	$	277,522		$	756,159
Basic net income per share	$	0.05		$	0.14
Diluted net income per share	$	0.05		$	0.14
Dividends declared per share	$	0.15		$	0.15
Weighted average common shares outstanding, basic		5,375,061			5,317,836
Weighted average common shares outstanding, diluted		5,401,998			5,371,418

See accompanying notes to condensed financial statements

4

PSYCHEMEDICS CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended
	March 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	277,522		$	756,159
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		343,115			218,019
Stock-based compensation		160,230			152,008
Changes in assets and liabilities:
Accounts receivable		(411,733	)		(449,799	)
Prepaid expenses, other current assets, and income tax receivable		661,832			(55,710	)
Accounts payable		(426,108	)		267,998
Accrued expenses		(69,504	)		(1,088,173	)
Deferred income taxes		(62,089	)		(58,608	)
Net cash provided by (used in) operating activities		473,265			(258,106	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements		(128,053	)		(1,524,432	)
Cost of internally developed software		(66,981	)		(147,192	)
Other assets		(62,143	)		(134,447	)
Write-off capitalized patent costs		73,602			--
Net cash used in investing activities		(183,575	)		(1,806,071	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options		--			47,564
Proceeds from long-term debt		--			1,052,943
Payments of long-term debt		(349,981	)		--
Cash dividends paid		(806,260	)		(798,054	)
Net cash provided by (used in) financing activities		(1,156,241	)		302,453
Net decrease in cash and cash equivalents		(866,551	)		(1,761,724	)
Cash and cash equivalents, beginning of period		3,612,153			3,970,512
Cash and cash equivalents, end of period	$	2,745,602		$	2,208,788
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes	$	2,870		$	-
Cash paid for interest	$	33,201		$	-
Purchases of equipment through accrued liabilities	$	55,990		$	1,083,948

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, 2014, filed on February 27, 2015. 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 three months ended March 31, 2015 may not be indicative of the results that may be expected for the year ending December 31, 2015, 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 consisted exclusively of cash savings as of December 31, 2014 and March 31, 2015.

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. As of March 31, 2015, 146,885 shares remained available for future grant under the 2006 Incentive Plan.

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 all 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 three months ended March 31, 2015 is as follows:

	Number of Shares		Aggregate Intrinsic Value (1)
			(000s)
Unvested, December 31, 2014		121,625
Granted		-
Forfeited/expired		-
Converted to common stock		-
Unvested, March 31, 2015		121,625	$	2,018
Available for grant, March 31, 2015		146,885

(1) The aggregate intrinsic value on this table was calculated based on the closing market value of the Company’s stock on March 31, 2015 ($16.59).

Expired Plans

As of March 31, 2015, the Company also had outstanding an aggregate of 136,050 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 three months ended March 31, 2015 is as follows:

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value (2)
							(000s)
Outstanding, December 31, 2014		136,050	$	14.40
Granted		-		-
Exercised		-		-
Terminated/Expired		-		-
Outstanding, March 31, 2015		136,050	$	14.40		0.1 years	$	298
Exercisable, March 31, 2015		136,050	$	14.40		0.1 years	$	298
Available for grant, March 31, 2015		-

(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 March 31, 2015 ($16.59) 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 March 31, 2015, a total of 404,560 shares of common stock were reserved for issuance under the various stock option and stock-based plans. As of March 31, 2015, the unamortized fair value of awards relating to outstanding SUAs and options was $956 thousand, which is expected to be amortized over a weighted average period of 2.5 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 was 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
	March 31,		March 31,
	2015		2014
	(in 000’s)
Weighted average common shares outstanding, basic		5,375		5,318
Dilutive common equivalent shares		27		53
Weighted average common shares outstanding, dilutive		5,402		5,371

5. Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), 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.

8

PSYCHEMEDICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

5. Fair Value Measurements (continued)

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 and 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.

6. Subsequent Events

On April 27, 2015, the Company declared a quarterly dividend of $0.15 per share for an estimated total of $809 thousand, which will be paid on May 18, 2015 to shareholders of record on May 8, 2015.

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. Debt and Other Financing Arrangements

On March 20, 2014, the Company entered into an equipment financing arrangement with Banc of America Leasing & Capital, LLC (the “Lender”), which it amended on August 8, 2014, including a Master Loan and Security Agreement and related documentation (collectively the “Equipment Loan Arrangement”) which provided the Company with the ability to finance, at its option, up to $7.5 million of new and used equipment purchases. Each such purchase financed under the Equipment Loan Arrangement is documented by the execution of an equipment note. Each note has a maturity date of 60 months from the applicable loan date, and bears interest at the then current 30-day LIBOR rate + 2.00%. Principal and interest are payable over the 60-month repayment period and principal is repayable without premium or penalty. Borrowings under the Equipment Loan Arrangement are secured by a first priority security interest in the equipment acquired with the proceeds of the equipment notes. Under the Equipment Loan Arrangement, the Company is subject to a maximum quarterly funded debt to EBITDA ratio and a minimum fixed charge coverage ratio. The Company was in compliance with all loan covenants as of March 31, 2015.

Under the Equipment Loan Arrangement, the Company executed notes on March 24, 2014, May 22, 2014, June 13, 2014 and August 8, 2014 in the amounts of $1.1 million, $1.9 million, $3.0 million and $1.0 million, respectively, for total borrowings of $7.0 million. The interest rate for these notes for the quarter ended March 31, 2015 was 2.17%, and represented $33,327 of interest expense. As of March 31, 2015, the interest rate was 2.17%. As of March 31, 2015, the Company had $5.9 million of outstanding debt related to these notes.

The annual repayment requirements for debt obligations as of March 31, 2015 were as follows (in 000’s):

2015	$	1,050
2016		1,400
2017		1,400
2018		1,400
2019		648
Total long-term debt		5,898
Less current portion of long-term debt		(1,400	)
Total long-term debt, net of current portion	$	4,498

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, foreign drug testing laws and regulations, required investments in plant, property and equipment, 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 employee hiring practices of the Company’s principal customers, development of markets for new products and services offered by the Company, costs associated with capacity expansion, government regulation (including, but not limited to, Food and Drug Administration regulations and foreign government regulation including Brazilian commercial drivers license drug test 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, debt service obligations, and other factors that the Board of Directors of the Company may take into account.

OVERVIEW

Revenues for the first quarter of 2015 were $6.8 million, a decrease of 4% from first quarter 2014 revenue of $7.0 million. The Company reported net income of $0.05 per diluted share for the three months ended March 31, 2015 and $0.14 for the same period in 2014. The decrease in earnings was primarily driven from lower revenue and additional costs related to an increase in capacity related to future business opportunities, including a significant opportunity in Brazil. At March 31, 2015, the Company had $2.7 million of cash. The Company distributed $806 thousand or $0.15 per share of cash dividends to its shareholders in the three months ended March 31, 2015. The Company has paid 74 consecutive quarterly cash dividends.

10

RESULTS OF OPERATIONS

Revenues were $6.8 million for three months ended March 31, 2015 compared to revenues of $7.0 million for the three months ended March 31, 2014, representing a decrease of 4%. The decrease in revenues for the three months ended March 31, 2015 was a result of a decrease in testing volume from existing clients. This reduction is from overall economic conditions in some sectors of the economy which have seen a slow-down in hiring. The average revenue per sample was the same for the first quarter as compared to the same period in 2014.

Gross profit decreased $0.5 million to $3.3 million for the three months ended March 31, 2015, compared to $3.8 million for the three months ended March 31, 2014. Direct costs increased by $168 thousand or 5% for the three months ended March 31, 2015 compared to the same period in 2014, mainly due to costs associated with an additional leased building. The gross profit margin was 49% and 54% for the three months ended March 31, 2015 and March 31, 2014, respectively. The lower sales and additional building costs were the primary drivers behind the lower margin.

General and administrative (“G&A”) expenses were $1.1 million and $1.2 million for the three months ended March 31, 2015 and 2014, respectively. As a percentage of revenue, G&A expenses were 17% for the three months ended March 31, 2015 and March 31, 2014.

Marketing and selling expenses were $1.3 million and $1.1 million for the three months ended March 31, 2015 and 2014, respectively. The increase was driven by additional sales personnel and from additional information system costs for systems that support new and current customers. Total marketing and selling expenses represented 19% of revenue for the three months ended March 31, 2015 and 16% for the comparable period of 2014.

Research and development (“R&D”) expenses for the three months ended March 31, 2015 were $456 thousand compared to $345 thousand for the comparable period of 2014, an increase of 32%. The increase in R&D expenses was primarily attributable to a $74 thousand patent expense from prior capitalized patents which were abandoned by the Company. R&D expenses represented 7% of revenue for the three months ended March 31, 2015 and 5% for the comparable period of 2014.

Other income (expense) for the three months ended March 31, 2015 decreased by $35 thousand to $34 thousand when compared to the same period of 2014. This primarily consisted of interest expense related to the equipment financing arrangement.

Provision for income taxes During the three months ended March 31, 2015 and 2014, the Company recorded income tax provisions of $140 thousand and $413 thousand, respectively. These provisions represented effective tax rates of 33% for the three months ended March 31, 2015 and 35% for the comparable period of 2014. The Company monitors the effective tax rate, and currently expects the annual 2015 rate to be between 34% and 35%.

11

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2015, the Company had approximately $2.7 million of cash. The Company's operating activities generated net cash of $473 thousand for the three months ended March 31, 2015. Investing activities used $184 thousand of cash while financing activities used $1.2 million of cash during the first three months of 2015.

Cash provided by operating activities of $473 thousand reflected net income of $278 thousand adjusted for depreciation and amortization of $343 thousand and stock-based compensation of $160 thousand. This was affected by the following changes in assets and liabilities: an increase in accounts receivable of $412 thousand, a decrease in prepaid expenses, other current assets and income tax receivable of $662 thousand, a decrease in accounts payable of $426 thousand, a decrease in accrued expenses of $70 thousand and a decrease for deferred income taxes of $62 thousand.

Cash used in investing activities included equipment and leasehold improvements of $128 thousand which were purchased during the first quarter of 2015. We anticipate spending $0.5 million to $1.0 million in additional capital purchases for the remainder of 2015.

Cash used by financing activities of $1.2 million included cash dividends to shareholders of $806 thousand and $350 thousand from payments on long term debt. On April 27, 2015, the Company declared a quarterly dividend of $0.15 per share for an estimated total of $809 thousand, which will be paid on May 18, 2015 to shareholders of record on May 8, 2015.

Contractual obligations and other commercial commitments as of March 31, 2015 were as follows:

	Less Than One Year		1-3 Years		4-5 years		After 5 Years		Total
	(in thousands)
Debt principal	$	1,400	$	2,800	$	1,698	$	-	$	5,898
Operating leases		886		657		-		-		1,543
Total	$	2,286	$	3,457	$	1,698	$	-	$	7,441

At March 31, 2015, the Company's principal sources of liquidity included an aggregate of approximately $2.7 million of cash. 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 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.

12

CRITICAL ACCOUNTING POLICIES

Management believes the most critical accounting policies are as follows:

Revenue Recognition

The Company is in the business of performing drug testing services and reporting the results thereof. The Company’s drug testing services includetraining 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. 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.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, including bad debts, stock compensation expense, and income taxes, 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.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on management's assessment of the collectability of its customer accounts. Management reviews its accounts receivable aging for doubtful accounts and specifically identifies accounts that may not be collectible. 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. Bad debt expense has been within management’s expectations.

13

Capitalized Development Costs

The Company capitalizes 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. The Company capitalized internally developed software costs of $67 thousand and $147 thousand during the quarters ended March 31, 2015 and 2014, 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 is expensed as incurred.

Income Taxes

The Company accounts for income taxes using the liability method, which requires the Company to recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences between the financial statement and tax reporting bases of assets and liabilities to the extent that they are realizable. Deferred tax expense (benefit) results from the net change in deferred tax assets and liabilities during the year. A deferred tax valuation allowance is required if it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized.

The Company follows the guidance of ASC 740, Income Taxes (“ASC 740”). ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on an audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.

The Company operates within multiple taxing jurisdictions and could be subject to audit in these jurisdictions. These audits may involve complex issues, which may require an extended period of time to resolve. The Company has provided for its estimated taxes payable in the accompanying financial statements. Interest and penalties related to income tax matters are recognized as a general and administrative expense. The Company did not have any unrecognized tax benefits and did not have any interest or penalties accrued as of March 31, 2015 or December 31, 2014.

14

The above listing is not intended to be a comprehensive list of all of the Company’s accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity. The long-term debt agreement entered into in March 2014, is subject to the 30 day Libor rate, which changes the Company’s interest rate on a monthly basis. The Company does not expect any changes in this rate to materially affect the Company’s performance.

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-15. 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.

15

PART II OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in our 2014 Annual Report on Form 10-K.

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

There were no purchases of treasury stock in the first quarter of 2015.

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: May 1, 2015	By:	/s/ Raymond C. Kubacki
		Raymond C. Kubacki
		Chairman and Chief Executive Officer
		(principal executive officer)
Date: May 1, 2015	By:	/s/ Neil L. Lerner
		Neil L. Lerner
		Vice President - Finance
		(principal accounting officer)

16

PSYCHEMEDICS CORPORATION

FORM 10-Q

March 31, 2015

EXHIBIT INDEX

		Page No.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
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

17

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)) and internal controls over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) 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:     May 1, 2015	/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)) and internal controls over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) 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:     May 1, 2015	/s/ Neil Lerner
	Neil 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 March 31, 2015, as filed with the Securities and Exchange Commission on May 1, 2015 (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:     May 1, 2015	/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 March 31, 2015, as filed with the Securities and Exchange Commission on May 1, 2015 (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:     May 1, 2015	/s/ Neil Lerner
	Neil Lerner
	Vice President - Finance
	(principal accounting officer)

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Basic and Diluted Net Income Per Share

3 Months Ended

Mar. 31, 2015

Earnings Per Share, Basic and Diluted [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 was 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
	March 31,		March 31,
	2015		2014
	(in 000’s)
Weighted average common shares outstanding, basic		5,375		5,318
Dilutive common equivalent shares		27		53
Weighted average common shares outstanding, dilutive		5,402		5,371

XML

Stock-Based Compensation

3 Months Ended

Mar. 31, 2015

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. As of March 31, 2015, 146,885 shares remained available for future grant under the 2006 Incentive Plan.

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 all 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 three months ended March 31, 2015 is as follows:

	Number  of Shares		Aggregate  Intrinsic  Value (1)
			(000s)
Unvested, December 31, 2014		121,625
Granted		-
Forfeited/expired		-
Converted to common stock		-
Unvested, March 31, 2015		121,625	$	2,018
Available for grant, March 31, 2015		146,885

(1) The aggregate intrinsic value on this table was calculated based on the closing market value of the Company’s stock on March 31, 2015 ($16.59).

Expired Plans

As of March 31, 2015, the Company also had outstanding an aggregate of 136,050 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 three months ended March 31, 2015 is as follows:

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average  Remaining Contractual Life	Aggregate  Intrinsic  Value (2)
						(000s)
Outstanding, December 31, 2014		136,050	$	14.40
Granted		-		-
Exercised		-		-
Terminated/Expired		-		-
Outstanding, March 31, 2015		136,050	$	14.40	0.1 years	$	298
Exercisable, March 31, 2015		136,050	$	14.40	0.1 years	$	298
Available for grant, March 31, 2015		-

(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 March 31, 2015 ($16.59) 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 March 31, 2015, a total of 404,560 shares of common stock were reserved for issuance under the various stock option and stock-based plans. As of March 31, 2015, the unamortized fair value of awards relating to outstanding SUAs and options was $956 thousand, which is expected to be amortized over a weighted average period of 2.5 years.

XML

CONDENSED BALANCE SHEETS (USD $)	Mar. 31, 2015	Dec. 31, 2014
Current Assets:
Cash and cash equivalents	$ 2,745,602	$ 3,612,153
Accounts receivable, net of allowance for doubtful accounts of $74,557 in 2015 and $95,525 in 2014	4,489,866	4,078,133
Prepaid expenses and other current assets	1,016,748	689,995
Income tax receivable	831,158	1,819,743
Deferred tax assets	438,618	376,529
Total Current Assets	9,521,992	10,576,553
Fixed Assets, net of accumulated amortization and depreciation of $6,125,058 in 2015 and $5,788,551 in 2014	12,654,648	12,740,131
Other assets	742,958	761,025
Total Assets	22,919,598	24,077,709
Current Liabilities:
Accounts payable	474,953	845,071
Accrued expenses	1,281,829	1,351,333
Current portion of long-term debt	1,399,925	1,399,925
Total Current Liabilities	3,156,707	3,596,329
Long-term debt	4,498,177	4,848,158
Deferred tax liabilities, long-term	2,796,666	2,796,666
Total Liabilities	10,451,550	11,241,153
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 6,043,191 shares issued in 2015 and 2014	30,216	30,216
Additional paid-in capital	29,614,253	29,454,023
Accumulated deficit	(7,094,632)	(6,565,894)
Less - Treasury stock, at cost, 668,130 shares	(10,081,789)	(10,081,789)
Total Shareholders' Equity	12,468,048	12,836,556
Total Liabilities and Shareholders' Equity	$ 22,919,598	$ 24,077,709

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Interim Financial Statements

3 Months Ended

Mar. 31, 2015

Organization, Consolidation and Presentation of Financial Statements [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, 2014, filed on February 27, 2015. 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 three months ended March 31, 2015 may not be indicative of the results that may be expected for the year ending December 31, 2015, or any other period.

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Debt and Other Financing Arrangements (Details) (USD $)	Mar. 31, 2015	Dec. 31, 2014
2015	$ 1,050
2016	1,400
2017	1,400
2018	1,400
2019	648
Total long-term debt	5,898
Less current portion of long-term debt	(1,400)
Total long-term debt, net of current portion	$ 4,498,177	$ 4,848,158

XML

Cash and Cash Equivalents

3 Months Ended

Mar. 31, 2015

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents Disclosure [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 consisted exclusively of cash savings as of December 31, 2014 and March 31, 2015.

XML

CONDENSED BALANCE SHEETS [Parenthetical] (USD $)	Mar. 31, 2015	Dec. 31, 2014
Allowance for doubtful accounts	$ 74,557	$ 95,525
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	$ 6,125,058	$ 5,788,551
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	6,043,191	6,043,191
Treasury stock, shares	668,130	668,130

XML

Stock-Based Compensation (Details) (Stock Unit Award [Member], Stock Incentive Plan 2006 [Member], USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015
Stock Unit Award [Member] | Stock Incentive Plan 2006 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Shares, Unvested	121,625
Number of Shares, Granted	0
Number of Shares Forfeited/expired	0
Number of Shares, Converted to common stock	0
Number of Shares, Unvested	121,625
Number of Shares, Available for grant	146,885
Aggregate Intrinsic Value, Unvested	$ 2,018	[1]

[1] The aggregate intrinsic value on this table was calculated based on the closing market value of the Company’s stock on March 31, 2015 ($16.59).

XML

Document And Entity Information	3 Months Ended
	Mar. 31, 2015	Apr. 27, 2015
Document Information [Line Items]
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		5,376,691
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2015
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2015

XML

Stock-Based Compensation (Details 1) (Employee Stock Option [Member], USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Shares, Outstanding - Beginning balance	136,050
Number of Shares, Granted	0
Number of Shares, Exercised	0
Number of Shares, Terminated/Expired	0
Number of Shares, Outstanding - Ending balance	136,050
Number of Shares, Exercisable	136,050
Number of Shares, Available for grant	0
Weighted Average Exercise Price per Share, Outstanding - Beginning balance	$ 14.40
Weighted Average Exercise Price per Share, Granted	$ 0
Weighted Average Exercise Price per Share, Exercised	$ 0
Weighted Average Exercise Price per Share, Terminated/Expired	$ 0
Weighted Average Exercise Price per Share, Outstanding - Ending balance	$ 14.40
Weighted Average Exercise Price Per Share, Exercisable	$ 14.40
Weighted Average Remaining Contractual Life, Outstanding	1 month 6 days
Weighted Average Remaining Contractual Life, Exercisable	1 month 6 days
Aggregate Intrinsic Value, Outstanding	$ 298	[1]
Aggregate Intrinsic Value, Exercised	$ 298	[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 March 31, 2015 ($16.59) exceeded the exercise price of the underlying options, multiplied by the number of shares subject to each option.

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CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Revenues	$ 6,755,741	$ 7,044,821
Cost of revenues	3,416,873	3,249,039
Gross profit	3,338,868	3,795,782
Operating Expenses:
General & administrative	1,144,090	1,184,147
Marketing & selling	1,288,481	1,098,600
Research & development	455,782	344,983
Total Operating Expenses	2,888,353	2,627,730
Operating income	450,515	1,168,052
Other income (expense)	(33,327)	1,549
Net income before provision for income taxes	417,188	1,169,601
Provision for income taxes	139,666	413,442
Net income and comprehensive income	$ 277,522	$ 756,159
Basic net income per share (in dollars per share)	$ 0.05	$ 0.14
Diluted net income per share (in dollars per share)	$ 0.05	$ 0.14
Dividends declared per share (in dollars per share)	$ 0.15	$ 0.15
Weighted average common shares outstanding, basic (in shares)	5,375,061	5,317,836
Weighted average common shares outstanding, diluted (in shares)	5,401,998	5,371,418

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2015

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

3 Months Ended

Mar. 31, 2015

Subsequent Events [Abstract]

Subsequent Events [Text Block]

6. Subsequent Events

On April 27, 2015, the Company declared a quarterly dividend of $0.15 per share for an estimated total of $809 thousand, which will be paid on May 18, 2015 to shareholders of record on May 8, 2015.

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Debt and Other Financing Arrangements (Details Textual) (USD $)	3 Months Ended	1 Months Ended
	Mar. 31, 2015	Mar. 20, 2014	Aug. 08, 2014	Jun. 13, 2014	May 22, 2014	Mar. 24, 2014
Debt Instrument, Interest Rate, Effective Percentage	2.17%
Interest Expense	$ 33,327
Long-term Debt and Capital Lease Obligations, Total	5,898
Equipment Loan Arrangement [Member]
Debt Instrument, Unused Borrowing Capacity, Amount	$ 7,000,000	$ 7,500,000	$ 1,000,000	$ 3,000,000	$ 1,900,000	$ 1,100,000
Long-term Debt, Description		Each note has a maturity date of 60 months from the applicable loan date, and bears interest at the then current 30-day LIBOR rate + 2.00%. Principal and interest are payable over the 60-month repayment period and principal is repayable without premium or penalty.
Debt Instrument, Interest Rate, Effective Percentage	2.17%

XML

Stock-Based Compensation (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common Stock, Capital Shares Reserved for Future Issuance	404,560
Stock Unit Award [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Unamortized Fair Value (in dollars)	$ 956
Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Unamortized Fair Value Period For Amortization	2 years 6 months
Stock Incentive Plan 2006 [Member] | Stock Unit Award [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	500,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	146,885
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 16.59
Expired Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 16.59
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	136,050

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Basic and Diluted Net Income Per Share (Tables)

3 Months Ended

Mar. 31, 2015

Earnings Per Share, Basic and Diluted [Abstract]

Schedule of Weighted Average Number of Shares [Table Text Block]

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

	Three Months Ended
	March 31,		March 31,
	2015		2014
	(in 000’s)
Weighted average common shares outstanding, basic		5,375		5,318
Dilutive common equivalent shares		27		53
Weighted average common shares outstanding, dilutive		5,402		5,371

XML

Debt and Other Financing Arrangements

3 Months Ended

Mar. 31, 2015

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

8. Debt and Other Financing Arrangements

On March 20, 2014, the Company entered into an equipment financing arrangement with Banc of America Leasing & Capital, LLC (the “Lender”), which it amended on August 8, 2014, including a Master Loan and Security Agreement and related documentation (collectively the “Equipment Loan Arrangement”) which provided the Company with the ability to finance, at its option, up to $7.5 million of new and used equipment purchases. Each such purchase financed under the Equipment Loan Arrangement is documented by the execution of an equipment note. Each note has a maturity date of 60 months from the applicable loan date, and bears interest at the then current 30-day LIBOR rate + 2.00%. Principal and interest are payable over the 60-month repayment period and principal is repayable without premium or penalty. Borrowings under the Equipment Loan Arrangement are secured by a first priority security interest in the equipment acquired with the proceeds of the equipment notes. Under the Equipment Loan Arrangement, the Company is subject to a maximum quarterly funded debt to EBITDA ratio and a minimum fixed charge coverage ratio. The Company was in compliance with all loan covenants as of March 31, 2015.

Under the Equipment Loan Arrangement, the Company executed notes on March 24, 2014, May 22, 2014, June 13, 2014 and August 8, 2014 in the amounts of $1.1 million, $1.9 million, $3.0 million and $1.0 million, respectively, for total borrowings of $7.0 million. The interest rate for these notes for the quarter ended March 31, 2015 was 2.17%, and represented $33,327 of interest expense. As of March 31, 2015, the interest rate was 2.17%. As of March 31, 2015, the Company had $5.9 million of outstanding debt related to these notes.

The annual repayment requirements for debt obligations as of March 31, 2015 were as follows (in 000’s):

2015	$	1,050
2016		1,400
2017		1,400
2018		1,400
2019		648
Total long-term debt		5,898
Less current portion of long-term debt		(1,400)
Total long-term debt, net of current portion	$	4,498

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2015

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 three months ended March 31, 2015 is as follows:

	Number  of Shares		Aggregate  Intrinsic  Value (1)
			(000s)
Unvested, December 31, 2014		121,625
Granted		-
Forfeited/expired		-
Converted to common stock		-
Unvested, March 31, 2015		121,625	$	2,018
Available for grant, March 31, 2015		146,885

(1) The aggregate intrinsic value on this table was calculated based on the closing market value of the Company’s stock on March 31, 2015 ($16.59).

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

A summary of stock option activity for the Company’s expired stock option plans for the three months ended March 31, 2015 is as follows:

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average  Remaining Contractual Life	Aggregate  Intrinsic  Value (2)
						(000s)
Outstanding, December 31, 2014		136,050	$	14.40
Granted		-		-
Exercised		-		-
Terminated/Expired		-		-
Outstanding, March 31, 2015		136,050	$	14.40	0.1 years	$	298
Exercisable, March 31, 2015		136,050	$	14.40	0.1 years	$	298
Available for grant, March 31, 2015		-

(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 March 31, 2015 ($16.59) exceeded the exercise price of the underlying options, multiplied by the number of shares subject to each option.

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Debt and Other Financing Arrangements (Tables)

3 Months Ended

Mar. 31, 2015

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments [Table Text Block]

The annual repayment requirements for debt obligations as of March 31, 2015 were as follows (in 000’s):

2015	$	1,050
2016		1,400
2017		1,400
2018		1,400
2019		648
Total long-term debt		5,898
Less current portion of long-term debt		(1,400)
Total long-term debt, net of current portion	$	4,498

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Subsequent Events (Details Textual) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		1 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Apr. 27, 2015
Common Stock, Dividends, Per Share, Declared	$ 0.15	$ 0.15
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared			$ 0.15
Dividends Payable			$ 809

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CONDENSED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 277,522	$ 756,159
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	343,115	218,019
Stock-based compensation	160,230	152,008
Changes in assets and liabilities:
Accounts receivable	(411,733)	(449,799)
Prepaid expenses, other current assets, and income tax receivable	661,832	(55,710)
Accounts payable	(426,108)	267,998
Accrued expenses	(69,504)	(1,088,173)
Deferred income taxes	(62,089)	(58,608)
Net cash provided by (used in) operating activities	473,265	(258,106)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements	(128,053)	(1,524,432)
Cost of internally developed software	(66,981)	(147,192)
Other assets	(62,143)	(134,447)
Write-off capitalized patent costs	73,602	0
Net cash used in investing activities	(183,575)	(1,806,071)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options	0	47,564
Proceeds from long-term debt	0	1,052,943
Payments of long-term debt	(349,981)	0
Cash dividends paid	(806,260)	(798,054)
Net cash provided by (used in) financing activities	(1,156,241)	302,453
Net decrease in cash and cash equivalents	(866,551)	(1,761,724)
Cash and cash equivalents, beginning of period	3,612,153	3,970,512
Cash and cash equivalents, end of period	2,745,602	2,208,788
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes	2,870	0
Cash paid for interest	33,201	0
Purchases of equipment through accrued liabilities	$ 55,990	$ 1,083,948

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Fair Value Measurements

3 Months Ended

Mar. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

5. Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), 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 and 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.

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Basic and Diluted Net Income Per Share (Details)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Weighted average common shares outstanding, basic	5,375,061	5,317,836
Dilutive common equivalent shares	27,000	53,000
Weighted average common shares outstanding, dilutive	5,401,998	5,371,418