Psychemedics (PMDI) 8-K Results of Operations and Financial Condition

EXHIBIT 99.1

NEWS RELEASE

Contact:	Raymond C. Kubacki
	Chairman, President and CEO
	(978) 206-8220

PSYCHEMEDICS CORPORATION ANNOUNCES 2nd QUARTER
RESULTS — RECORD QUARTERLY REVENUE
$.15 QUARTERLY DIVIDEND DECLARED

Acton, Massachusetts, August 6, 2007 — Psychemedics Corporation (AMEX: PMD) today announced second quarter results for the period ending June 30, 2007 hitting all-time revenue records for the quarter and six months. The Company also announced a quarterly dividend of $.15 per share, the second quarterly dividend of $.15 in 2007. This will be the Company’s 44^th consecutive quarterly dividend and will be paid on September 22, 2007 to shareholders of record on September 8, 2007.

The Company’s second quarter revenue was $6,497,290, up 5% as compared to $6,181,386 in the second quarter of 2006. Net income was $1,332,352 or $.25 per share, down 5% from $1,401,120 or $.27 per share for the same period in 2006.

Raymond C. Kubacki, Chairman and Chief Executive Officer, said, “We are pleased to report that our revenue for the second quarter and six months ended June 30, 2007 set new all-time records for Psychemedics. Our revenue increase, however, was below historical trends caused by a decline in our base business (accounts over one year). This was influenced by two major auto-related clients who were off from their spike in hiring in last year’s second quarter. Our new business remains healthy. Our gross margins remain strong and, in fact, increased to 63% from 62% for the same period last year.”

Mr. Kubacki continued: “While gross profits were up, expenses also increased at a rate above historical averages due to severance costs, higher than normal legal fees and extra R&D expenses. Pre-tax profits were relatively unchanged from the prior year period. Due largely to a change in the company’s effective tax rate from the rate used in 2006, net income was lower than the comparable period in 2006.”

Kubacki concluded, “We remain confident regarding our future growth and, therefore, we are confident in declaring our 44^th consecutive quarterly dividend, thus demonstrating our Directors’ continued commitment to rewarding shareholders and sharing the financial success of the Company with them as we

grow. We remain focused on building shareholder value while maintaining our dedication to operating a lean, profitable, dividend paying company. The Company’s balance sheet remains strong with over $8 million of cash and short-term investments, no long-term debt and approximately $12 million of working capital.”

Psychemedics is the world’s largest provider of hair testing for drugs of abuse with thousands of corporations relying on the patented Psychemedics drug testing services. Psychemedics’ clients include over 10% of the Fortune 500, some of the largest police departments in America and Federal Reserve Banks.

Financial Highlights:

• Record Revenue for the second quarter of $6,497,290, an increase of 5% over the prior year quarter.

• Record Revenue for the six month period of $12,213,896, an increase of 9% over the prior year period.

• Pretax Income for the second quarter of $2,214,152, a decrease of 1% over the prior year quarter.

• Pretax Income for the six month period of $3,940,663, an increase of 7% over the prior year period.

• Net Income for the second quarter of $1,332,352, or $.25 per diluted share, down $.02 or 5% per diluted share from the prior year quarter.

• Net Income for the six month period of $2,367,263, or $.45 per diluted share, up $.01 or 1% per diluted share from the prior year period.

The Psychemedics web site iswww.drugtestwithhair.com

Cautionary Statement for purposes of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995: From time to time, information provided by Psychemedics may contain forward-looking information that involves risks and uncertainties. In particular, statements contained in this release that are not historical facts (including but not limited to statements concerning growth, earnings, profit margins, earnings per share, revenues, dividends, future business, new accounts, customer base, market share, test volume and sales and marketing strategies) may be “forward looking” statements. Actual results may differ from those stated in any forward-looking statements. Factors that may cause such differences include but are not limited to risks associated with the expansion of the Company’s sales and marketing network, development of markets for new products and services offered, the economic health of principal customers of the Company, government regulation, including but not limited to FDA regulations, competition and general economic conditions and other factors disclosed in the Company’s filings with the Securities and Exchange Commission.

PSYCHEMEDICS CORPORATION
STATEMENTS OF INCOME

	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2007		2006		2007		2006
Revenue	$	6,497,290	$	6,181,386	$	12,213,896	$	11,248,116
Cost of Revenue		2,387,713		2,331,401		4,842,194		4,447,550
Gross Profit		4,109,577		3,849,985		7,371,702		6,800,566
Expenses:
General and administrative		1,028,602		836,679		1,861,055		1,600,660
Marketing and selling		807,287		731,607		1,511,930		1,397,174
Research and development		160,699		116,072		255,622		228,650
		1,996,588		1,684,358		3,628,607		3,226,484
Operating Income		2,112,989		2,165,627		3,743,095		3,574,082
Interest Income		101,163		63,493		197,568		122,203
Other Income		—		—		—		—
Income before Income Taxes		2,214,152		2,229,120		3,940,663		3,696,285
Provision for Income Taxes		881,800		828,000		1,573,400		1,373,000
Net Income	$	1,332,352	$	1,401,120	$	2,367,263	$	2,323,285
Basic Net Income Per Share	$	0.26	$	0.27	$	0.46	$	0.45
Diluted Net Income Per Share	$	0.25	$	0.27	$	0.45	$	0.44
Weighted Average Common Shares Outstanding, Basic		5,172,247		5,169,361		5,191,481		5,168,235
Weighted Average Common Shares Outstanding, Diluted		5,265,023		5,238,697		5,281,547		5,224,374

PSYCHEMEDICS CORPORATION
CONDENSED BALANCE SHEETS

	JUNE 30,			DECEMBER 31,
	2007			2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,231,995		$	4,180,235
Short-term investments		3,775,000			3,683,192
Accounts receivable, net of allowance for doubtful accounts of $283,281 in 2007 and $333,281 in 2006		4,165,934			3,196,384
Prepaid expenses and other current assets		918,817			818,693
Deferred tax assets		444,071			412,486
Total current assets		13,535,817			12,290,990
PROPERTY AND EQUIPMENT:
Equipment and leasehold improvements, at cost		10,678,739			10,376,718
Less-accumulated depreciation and amortization		(9,802,774	)		(9,630,190	)
		875,965			746,528
DEFERRED TAX ASSETS		183,555			183,555
OTHER ASSETS, NET		39,640			39,830
	$	14,634,977		$	13,260,903
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	445,395		$	499,420
Accrued expenses		768,235			865,575
Deferred revenue		363,642			392,403
Total current liabilities		1,577,272			1,757,398
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.005 par value; 872,521 shares authorized; none issued or outstanding		—			—
Common stock; $0.005 par value; 50,000,000 shares authorized; 5,799,381 shares and 5,756,044 shares issued in 2007 and 2006, respectively		28,997			28,780
Paid-in capital		26,226,997			25,609,800
Accumulated deficit		(4,075,598	)		(5,012,384	)
Less — Treasury stock, at cost; 583,797 shares		(9,122,691	)		(9,122,691	)
Total shareholders’ equity		13,057,705			11,503,505
	$	14,634,977		$	13,260,903