PharmChem, Inc. (PCHM) research, news, and more from GeoInvesting

Company description

Mon, 05 Dec 2016 15:22:54 GMT

PharmChem together with its Distributors are the sole source providers of the PharmChek® Sweat Patch used to detect drugs of abuse. For over 15 years, this device has been a successful and economical alternative to urine testing for cocaine, opiates, amphetamines, PCP and marijuana. As an alternative to urine testing, the The Sweat Patch:

Detects the drug metabolite and its parent drug -- instant urine tests detect only the metabolite
Cannot be diluted
Can be worn 24 hours per day, 7 – 10 days of continuous wear time, when applied properly
Acts as a deterrent to additional drug use
Is tamper-evident, and is
Gender indifferent

Research

Mon, 21 Jul 2025 16:06:18 GMT

Pharmchem Labs (PINK:PCHM) ($3.70; $17.1M market cap) announced it has been acquired by Alcohol Monitoring Systems for $3.75 per share. In January 2025 the company announced it was exploring strategic alternatives, the acquisition price is a 22% premium from that time, but near zero from Friday’s closing price of $3.70.

RIP PCHM Shareholders and Joe Halligan (Legacy CEO)

PCHM experiment is finally over; acquired at a shit premium. Are you fucking kidding me, at a P/E of 10x: “It is not every day that a deal is achieved that is a win for all stakeholders, but this is one of those days." ��

Everything the ousted CEO (by activists) said would happen, did. He saves the Co., returns capital to shareholders, as stock goes from 5c to $5.00. Never thought I’d see someone get fired with that performance. vs. activist price performance of -30% (since the AGM in 2021). I wouldn’t have written this post had the Co. not touted the 20% “premium” from closing price.

IMHO, activists used some silly corporate governance loophole to take over the company to experiment with an almost disastrous BS financial engineering game plan.

Since operation "Carl Icahn" was initiated, the new team churned through two CEOs, proved its inability to expand in ways the original CEO said they wouldn’t be able to expand and was seconds away from leveraging up the balance sheet (would have been a disaster).

This goes to show that in microcaps, it’s sometimes better to accept some of the caveats that go along with management teams (in this case, questionable options) who know a business better than anyone else will ever know the business.

The fired PCHM CEO intimately understood PCHM and its industry, as well as how nimbly one would have to execute a strategy amidst some very special risks and challenges to growth.

We’ll never know, but I think the old school CEO would’ve taken PCHM to some incredible heights.

PCHM is one of our longest tenured stocks, we wrote an article in December 2016 titled, “55 Cent Stock Declares 5 Cent Dividend, Garners Investor Attention”.

Shares end their tenure up 837%, reaching a peak return of 1350% in 2021.

Research

Fri, 07 Mar 2025 20:47:41 GMT

Pharmchem Labs (PINK:PCHM) ($3.15; $14.6M market cap) announced Q4 2024 results:

Sales of $1.52 million vs $1.40 million in the prior year
EPS of $0.06 vs EPS of $0.06
Full year 2024 $6.08 million vs $6.01 million
Full year EPS of $0.27 vs $0.17 in the prior year

“During 2024 we repurchased 27,000 shares at a total cost of $83,000. Shares outstanding declined to 4,621,187 at the end of the year. We also paid a special dividend in 2024 of $0.25 per share, or $1,162,000. During 2023 we repurchased 411,000 shares at a total cost of $1,028,000 and repurchased options on 240,000 shares for $311,000. In addition, in 2023 we paid a special dividend of $0.20 per share, or $1,012,000. Cash balances at the end of 2024 were $1,629,000, or $0.35 per share, versus $1,572,000, or $0.34 per share at the end of 2023.

On February 3, 2025, the Company announced that it was exploring strategic alternatives. A data room has been set up for interested parties.”

PharmChem together with its Distributors are the sole source providers of the PharmChek® Sweat Patch used to detect drugs of abuse

Research

Mon, 03 Feb 2025 17:06:15 GMT

Pharmchem Labs (PINK:PCHM) ($3.07; $14.2M market cap) announced that the board of directors has decided to explore strategic alternatives.

“The Company has not retained a financial advisor at this time based on its belief that the Board's experience and expertise can guide the company through the process. The Company will consider various options, including acquisitions, potential sale of the Company, merger, or a debt financed special dividend. The Company has set up a data room for interested parties.

The Board believes the Company and its products are well positioned in the industry and that the Company would be more valuable as part of a larger company than as a stand-alone entity, and also be better able to serve its customers”

As we’ve highlighted in the past, PCHM was one of our best performers as a Run to $1 Model Portfolio Holding in the medical device space, having at one time peaked at a 1350% return

PharmChem together with its Distributors are the sole source providers of the PharmChek® Sweat Patch used to detect drugs of abuse

Research

Wed, 02 Oct 2024 14:40:16 GMT

Pharmchem Labs (PINK:PCHM) ($3.40; $15.8M market cap) announced a special dividend of $0.25 to shareholders on record as of October 10, 2024 with an October 17, 2024 payable date.

“The board of PharmChem is committed to managing shareholder capital in a wise manner. Based on a number of factors, including the recent lack of liquidity in the stock and the large bid/ask spread, the board has determined that a special dividend is in the best interests of shareholders.”

PharmChem together with its Distributors are the sole source providers of the PharmChek® Sweat Patch used to detect drugs of abuse.

Research

Tue, 13 Aug 2024 17:31:25 GMT

Pharmchem Labs (PINK:PCHM) a drug detection company, announced Q2 2024 results:

Sales of $1.5 million vs $1.5 million in the prior year
EPS of $0.07 vs EPS of $0.03

As we noted in the past, our largest customer had significantly reduced orders in recent quarters. Excluding our former largest customer, patch sales in the first six months of 2024 increased 7.1% versus the first six months of 2023. Screens increased by 2.2%. We have redirected efforts in hopes of increasing our screen utilization

Research

Wed, 28 Feb 2024 16:34:27 GMT

Pharmchem Labs (PINK:PCHM) ($2.25; $11.2M market cap), a drug detection company, announced Q4 2023 results:

Sales of $1.43 million vs $1.37 million in the prior year
EPS of $0.04 vs EPS of $0.04

“The fourth quarter is typically our softest quarter due to the holidays. While revenue failed to grow sequentially from the third quarter, we are pleased that revenue grew from the prior year period. We are optimistic that revenue can grow in 2024.”

Research

Thu, 27 Jul 2023 17:51:42 GMT

Pharmchem Labs (PINK:PCHM) ($2.25; $11.2M market cap), a drug detection company, announced Q2 2023 results:

Sales of $1.5 million vs $1.5 million in the prior year
EPS of $0.03 vs EPS of $0.03

“For the first time, we suspect that my longform narrative letters could be creating a negative effect on the operating results of the company in an overabundance of caution, please expect much less granular disclosure in these letters going forward; into our sales team, our new business verticals, et al In lieu of a blow-by-blow, I’d like to reiterate the following:

We treat the shareholders' capital as our own, because it is. The Board owns 36% of PharmChem.
We have a high hurdle rate when spending shareholder cash. We realize that all shareholders have alternative, high-return uses of this capital.
We will spend experimentally when we think odds are in our favor in our attempts to maximize long-term FCF per share.
We solely benefit from our proportionate ownership of this business through its shares. The

Board draws no compensation of any form.”

Research

Thu, 27 Apr 2023 14:57:19 GMT

Pharmchem Labs (PINK:PCHM) ($2.85; $14.4M market cap), a drug detection company, announced Q1 2023 results

Sales of $1.5 million vs $1.5 million in the prior year
EPS of $0.02 vs EPS of $0.05

Ongoing Partial Customer Disruption

“Our Chief Revenue Officer Kerri Wagner and our sales team, specifically our Senior Account Manager Matthew Hartley, have pulled off a phenomenal outcome saving our largest single customer relationship. As recently as Q3 2022, we feared this source of >10% of our revenue would no longer be a customer at all. This quarter, this customer is now at 2/3rds of its Q1 2022 revenue. This missing 1/3 is approximately 5% of our Q1 2023 sales. We tentatively expect this customer to stay in this range of dollar sales going forward. “

The Path Forward

“We are relieved to see revenue stabilize and rebound. Cash flow from our legacy criminal justice business provides us with the runway to make measured decisions about growth spend to apply our product to new customers and new markets. We continue to evaluate these expenditures as uses of shareholder capital, and hope to have some conclusions on core sales, Private Employer, and DTC, possibly by year end 2023.”

Research

Thu, 28 Jul 2022 18:31:36 GMT

Pharmchem Labs (PINK:PCHM) ($3.10; $15.6M market cap), a drug detection company announced Q2 2022 results

Sales of $1.5 million vs $1.5 million in the prior year
EPS of $0.02 vs EPS of $0.06

“Our Q2 2022 sales were slightly down vs. 2021 (down 2%). Without our ongoing salesforce efforts, revenue would have been down nearly 7% as we continue to decline off our COVID peak. Our expenses were much higher, including our continued efforts to grow revenue…

…Our single largest customer has notified us that their funding will not permit any purchases in Q3 2022. This customer represents approximately 10% of our revenue. This is a federal customer, and our degree of customer concentration with them is a historical anomaly of this business. Excluding this customer, federal sales are now a small percentage of our ongoing business. We have no further information on whether they will continue purchases in October 2022 when their funding resumes.”

Research

Tue, 03 May 2022 14:28:27 GMT

Pharmchem Labs (PINK:PCHM) ($3.31; $16.7M market cap), a drug detection company, announced a tender offer for up to $5 million of its common stock at a price between $3.25 to $3.75. Recall, the company announced a previous tender offer in October 2021 where they repurchased 1 million shares at an average price of $4.60.

Research

Mon, 25 Apr 2022 15:44:12 GMT

Pharmchem Labs (PINK:PCHM) ($4.50; $22.9M market cap), a drug detection company provided announced Q1 2022 results:

Sales of $1.54 million vs $1.64 million in the prior year
EPS of $0.06 vs $0.06 in the prior year

"We have hired five salespeople since October, but only three remain employed with the company at present. It is still not clear whether the gross margin dollars produced by new sales per salesperson justify the expense. You will see the sales force investment reflected in higher operating expenses in this quarter’s financials. For the quarter, sales were slightly down y.o.y., possibly reflecting an ongoing normalization from the COVID boom in demand for the PharmChek product. We hope to come to a quantitative result about the ROIC from our salesforce investment over the next 6-9 months.

While we are continuing to onboard many smaller new customers, we believe we have come to an agreement with a material new distribution customer (>10% of sales) resulting from our salesforce’s efforts. This relationship has not yet yielded an order, and we have no certainty if or when it will."

Research

Thu, 27 Jan 2022 18:25:43 GMT

Pharmchem Labs (PINK:PCHM) ($4.60; $23.4M market cap), a drug detection company provided Q4 and full year 2021 financials as well as a letter to shareholders.

Q4 2021 sales of $1.43 million vs $1.55 million in the prior year
Non-GAAP Q4 2021 EPS of $0.06 vs non-GAAP EPS of $0.05 in the prior year
Full year 2021 sales of $6.22 million vs $6.66 million in the prior year
Full year 2021 EPS of $0.28 vs $0.27 in the prior year

“It appears now that 2020 was an outlier year for PharmChem. COVID lockdowns may have driven customers to short-term use of our PharmChek product while social distancing measures were in effect. Customers may also have been pulling forward their patch purchases into 2020, increasing their inventory levels during uncertain times. Whatever the cause, sales in 2021 decreased by 6.7% over 2020. We note that 2021 sales are 12.3% higher than those in 2019. We believe this to be secularly growing business over time, although it’s our job to prove that.”

Comments from Board of Directors:

“One genuine failure of the Chairman has been the complete inability to obtain reasonable debt financing for PharmChem, although this hasn’t been for lack of effort. This company does not have real estate, manufacturing works, substantial receivables or inventory to borrow against: it is a gem of a business generating cash flow with little capital required. Lenders want hard assets as collateral; and without it request large equity grants, personal guarantees, nosebleed interest rates, or all three.

Your Board receives no cash salary, options, or compensation of any kind for its role at PharmChem. Our sole goal, the only way we make money here, is to increase the per-share value of this company for the shareholders. We are hopeful our sales efforts can show hard evidence of success in growing revenue in 2022. We look forward to our next report to you in April after Q1.”

–

Research

Wed, 27 Oct 2021 19:52:46 GMT

Pharmchem Labs (PINK:PCHM) ($4.49; $25.8M market cap), a drug detection company, held its annual meeting. tHEY announced a tender offer of up to $3 million in value for its common stock. The price will be no lower than $4.50 but no higher than $5.00 depending on how many shares are tendered.

It's nice to see the new Board’s desire to buy back stock continue, which falls in line with the old Board’s shareholder friendliness (through handsome dividends). However, we are not impressed with their tender price range proposal.

Research

Fri, 03 Sep 2021 14:51:20 GMT

Pharmchem Labs (PINK:PCHM) ($5.15; $30.1M market cap), a drug detection company, held its annual meeting where the company announced, as a result of a heated proxy battle, that shareholders voted for the election of Tice Brown, Thompson Clark and Tim Eriksen as the Board of Directors for the Company, all of whom have extensive backgrounds in the microcap stock universe and creating significant shareholder value with companies they take activist roles in. The new Board voted to elect new management, replacing the CEO and CFO positions with two verternan employees within the organization. The board also approved a $1 million share repurchase program, extending through August 2026.

Recall, when the company announced its first half 2021 results, we had mentioned that the company was in a proxy battle with investors that the incumbent Bard had opposed.

Research

Tue, 10 Aug 2021 18:19:54 GMT

Pharmchem Labs (PINK:PCHM) ($4.63; $27.0M market cap), a drug detection company, announced first half 2021 results:

Sales of $3.1 million vs $3.4 million in the prior year
EPS of $0.13 vs $0.16 in the prior year

“Product sales were lower by 27% revealing that 2020 was clearly an atypical year. Product sales during the first half of 2020 increased 47% (versus a three-year average increase of 10.6%), a culmination of the unavailability of the Sweat Patch at the end of 2019 stemming from late deliveries by our supplier following the conversion to the Unique Device Identification protocol as mandated by the F.D.A. Sales that normally would have occurred in 2019 spilled over into the first quarter of 2020. This was exacerbated by new customers purchasing the Sweat Patch during the height of the COVID-19 pandemic as other forms of drug testing were curtailed due to social distancing protocols of the pandemic, thereby inflating Sweat Patch sales.”

There is also a proxy battle in which investors are trying to nominate board members that the company opposes. The company will be holding its annual meeting on August 31, 2021. For more details on the first half of 2021 and the proxy battle, we encourage you to read the full letter to shareholders here.

Research

Fri, 23 Apr 2021 14:34:57 GMT

Pharmchem Labs (PINK:PCHM) ($5.00; $29.2M market cap), a drug detection company, announced year end 2020 results: (results via shareholder letter in proxy only as of now)

Sales of $6.6 million vs $5.5 million
EPS of $0.28 vs $0.25
$0.12 dividend declared; payable June 8, 2021

Comments on the past year:

“We enjoyed significant increases in our retail segment as existing and new customers expanded their use of the Sweat Patch, while other customer channels terminated testing due to the pandemic. In particular, federal probation and other government agency sales ceased during the first half of the year and continued to be weak during the second half as drug testing was curtailed.”

New government programs:

“During the fiscal 2020 grant cycle, eight states applied for funding under NHTSA’s (24/7 Sobriety) Section 405(d) Impaired Driving Countermeasures grant. As in the past, six states were awarded grant funding and two were not.

The President recently announced he is directing $2.5 billion to address mental health and addiction crises. This may include $1.65 billion (administered by SAMHSA) of additional funding block grants whereby states and territories would receive money to improve already existing treatment infrastructure, and create or improve current prevention treatment programs.”

Keystone Pipeline Cancellation:

“The cancellation of the Keystone XL Pipeline could have a negative impact on us in 2021 and beyond. The Interstate Compact, where workers under court-ordered drug testing in one state who transfer to another state (such as NE, MT, ND, SD and WY), would be subjected to the same drug testing requirements as the sending state.”

You can see our original article from 2016 here discussing why we went long the stock. Since then, the stock has increased 1,150% and declared dividends of $0.48 (including the one announced with this last report) , making this highly ignored OTC stock one of GEO's best performers.

We think that shares could trade at a trailing P/E of 25 to 30, implying a short-term price range of $7.00 to $8.40.

Research

Mon, 26 Oct 2020 11:52:21 GMT

Pharmchem Labs (PINK:PCHM), a drug detection company, is seeing its shares continue to inch higher, hitting a new 52 week high on Wednesday of $4.23. We issued the following tweet:

In his last Q&A video discussion, Maj addressed several member questions, and the PCHM discussion is around the 11 minute mark.

A September 2020 McHenry County audit shows two payments to PCHM for a total of near $9,000.00. While very small in size, it seems PCHM may be gaining traction county by county (there are over 3,000 counties in the U.S.)

This news comes on the heels of the early October note where we discussed that PCHM won a contract from Loudoun County, Virginia for $342,045.

Given how infrequent communication from the company is, we will have to continue to search for similar types of county awards until the company potentially issues an update.

Research

Fri, 02 Oct 2020 17:07:39 GMT

Pharmchem Labs (PINK:PCHM) ($3.35; $19.6M market cap), a drug detection company, is seeing its shares continue to inch higher, hitting a new 52 week high yesterday of $3.44 on very low volume. The company is not the most transparent company as the company only issues business updates bi-annually through shareholder letters on its website. Actually, until recently, the company only provided annual updates one year after a particular year ended!

For this reason, it is important to monitor other sources of information when it comes to OTC companies that offer sporadic public information.

Now, it is evident that PCHM was awarded a Sweat Patch contract for $342,045 from Loudoun County in Virginia. No press release was issued.

https://www.loudoun.gov/DocumentCenter/View/98663/Term-Contract-List-PDF?bidId=

Even though the contract is small compared to PCHM's annual revenue of about $5 million, the award signifies how large the market opportunity could be for PCHM if their Sweat Patch begins to take market share away from urine and saliva testing for drug detection due to the "social distancing" advantage the Patch has over other alternatives.

Again, since this contract is for one small county in VA., in our eyes the potential for this product is enormous.

Our July 2020 update covers the first half 2020 results and includes narrative on the Sweat Patch's potential role in a new normal, low contact/touch environment. You can also see our original article from 2016 here discussing why we went long the stock.

Research

Thu, 30 Jul 2020 14:55:16 GMT

Pharmchem Labs (PINK:PCHM) ($2.65; $15.5M market cap), a drug detection company, announced its first half 2020 financial results:

Sales of $3.4 million vs $2.8 million in the prior year
EPS of $0.16 vs $0.14 in the prior year
Dividends paid of $0.10 vs $0.06 in the prior year

Key takeaways from management comments:

Social distancing requirements led to increased demand for the company’s patch testing product as urine and saliva testing saw a decrease in light of the Covid-19 outbreak.
The company is working with the CDC to come up with alternative methods to applying and removing the Sweat Patch to further comply with social distancing suggestions.

Our thoughts:

It is our belief that the Sweat Patch test is used less frequently than the urine or saliva test, which in turn would lead to less staff required, and ultimately, to cost savings.
PCHM used to be a leader in the urine testing market. We feel major upside potential exists if they continue to grab market share from urine and saliva competitors. We think there is a very likely chance that they will be acquired if this does begin to occur more aggressively.
Currently, the patch is mainly used in court-induced probation situations, it will be interesting to see if private rehab centers begin to implement their product

See our original article from 2016 for more color on the story.

Research

Mon, 04 May 2020 15:52:56 GMT

Pharmchem Inc (OOTC:PCHM) (Medical Device To Test Levels of Narcotics) – The company posted its 2019 shareholder letter and financial update.

Sales for 2019 were $5.5 million vs $5.1 million in the prior year
EPS of $0.25 vs $0.23 in the prior year
Dividends of $0.12 vs $0.06 in the prior year
Declared a $0.10 dividend, representing a 25% increase over the prior year, not including the $0.04 special dividend.

Preparing for business shift due to new regulatory standards:

“The weakness in the federal probation segment appears to be the result of cuts in funding requiring certain districts to choose between urine and saliva testing, or the Sweat Patch. In addition, the First Step Act provides for full commutation of sentences of certain offenders thereby reducing the pool of those available for drug testing. Furthermore, revisions to the pretrial release standards suggest requiring offenders on pretrial supervision to pay for drug testing, in general, qualifies as a significant restraint of liberty. Clearly, our approach to this customer base will need to be greatly modified to restart growth in this important segment….

During 2019, we completed the implementation of the FDA mandated Unique Device Identification (“UDI”) regulations internally whereby a system is established to adequately identify a device such as ours through distribution and use, making recalls efficient and timely”

We are still reviewing the shareholder letter to assess risk and opportunity. Keep in mind that the company is often more negative than positive in its year end shareholder letters. What’s important is to read in between the lines to get an idea of where growth is heading.

Research

Mon, 12 Aug 2019 15:05:07 GMT

Pharmchem Labs (PINK:PCHM) ($1.30; $7.6M market cap), a drug detection company, recently provided full year 2018 and first half 2019 shareholder update. You can see our note here.

We're starting to get more excited about some of the potential growth opportunities that the company may be in a position to exploit.

Adding to our note from last week, we are maintaining our initial thoughts about something brewing at the company because of its dividend increase and its decision to putting out a six month financial update, which is atypical for PCHM

We're curious if government rehabilitation programs may be looking to use the company's patch in rehab centers. Currently, it drives most of its revenue from court orders stipulating that parolees have to wear the patch. This market is limited, so the company has been looking at ways to expand. We think working with rehab centers could be a very lucrative option and a natural fit. There's also some opportunity if the PCHM were able to gain FDA approval to expand the amount of drugs that the sweat patch is able to monitor, but this will be quite costly and tough to do unless they are able to secure a partner. Currently, the patch screens for cocaine, opiates, amphetamines, PCP, and marijuana.

We're actually going to contact companies that we think could be viable partners for PCHM and put them in touch with the company. We'll see how that goes.

Research

Tue, 06 Aug 2019 14:34:36 GMT

Pharmchem Labs (PINK:PCHM) ($1.14; $4.3M market cap), a drug detection company, released its full year 2018 and first half 2019 Shareholder letter.

Full year 2018 sales of $5.1 million vs $4.6 million in the prior year
Net income of $1.5 million vs $1.1 million (EPS* of $0.25 vs $0.19)
Six month 2019 sales of $2.8 million vs $2.6 million in the prior year
Six month net income of $0.94 million vs $0.78 million (EPS* of $0.16 vs $0.13 - see note)
Cash per share of $0.98 vs $0.77 in the prior year

Note - It appears there are roughly 5.8 million shares outstanding - with no recent filings we can only go based off of prior data, but had confirmed the count with management in the past. We anticipate a slight adjustment to shares outstanding, based on the recent issuance of shares to employees.

In addition to releasing the results, the company announced a dividend of $0.08 per shares as well as a special dividend of $0.04 per share. The $0.08 dividend is up from $0.06 last year. Both the annual and special dividend will be paid on October 1, 2019 to stockholders of record on September 17, 2019. The company began paying annual dividends in 2016 and with the upcoming dividend on October 1, 2019, the company will have paid cumulative dividends of $0.28.

The full letter can be read here, but below is a snapshot of some of the progress the Company is making:

“We remain committed to sharing the distinct advantages of the Sweat Patch over other testing methodologies. As such, in 2018, we were featured at 18 state and local conferences across the nation. Additionally, we have doubled our efforts to ensure success in identifying decision makers by attending 11 conferences and training sessions during the first half of 2019. We believe these efforts will reinforce our objectives to grow both product and lab services’ volume.

We opened 68 new accounts in 2018 and 41 during the first six months of 2019.”

You can see our original research note to learn more about the story here and our original article here. Please note that the stock is extremely illiquid.

Our Take On This Development

We believe management will only be more proactive with investor communications if they have something up their sleeves.

The fact that the company issued a semi annual letter is very significant. It normally just issues annual December letters for the prior-year. Essentially, they're always a year late on providing company updates to shareholders. However, now the company issued an annual letter earlier and for the first time issued a six-month letter, making it current with financials.

We believe this could be a sign that a significant development is in the cards. Could it have something to do with adding opioids that can be tested through its sweat patch technology or a partner relationship?

In the company's most recent previous annual letter, it talked about exploring product expansion opportunities, but in usual fashion expressed these goals with tempered tone:

"The recent passage of the SUPPORT for Patients and Communities Act is a wide-ranging bill designed to address the opioid crisis. The opportunities for our business to expand in this category appear to be limited. Rather, the major beneficiaries of this bill are geared towards the medical community where we cannot currently participate.

Our plans for 2019 include the expansion of our existing opioid panel by as many as four additional drugs (including fentanyl, buprenorphine, methadone and tramadol) and quite possibly six additional benzodiazepines. This work will also be costly and require FDA clearances. These clearances (known as lab determined tests or LTD’s) should not be as difficult, the time horizon should not be as lengthy, and the costs would be more manageable than those expected under the pain management processes described above. However, as is common with these types of processes, there is no assurance that FDA clearances will be obtained or if customers will accept the expanded panels and their higher pricing."

Today, we will reach out to management to learn more about the new growth initiatives. They are usually pretty good at getting back to us.

We are currently long PCHM

Research

Fri, 30 Nov 2018 16:59:25 GMT

Pharmchem Labs (PINK:PCHM) ($1.50; $4.3M market cap), a drug detection company, released its 2017 results and shareholder letter.

Full year 2017 results:

Sales of $4.69 million vs $4.17 million in the prior year
EPS of $0.20 vs $0.17 in the prior year (using 5.8 million shares outstanding)

Commenting on 2017 results, Mr. Joseph W. Halligan, President and CEO, said they were both challenging and, yet, quite successful. Sales, operating and net income increased 12%, 19% and 16%, respectively. This is the fourth consecutive year of double-digit growth in these metrics and our third dividend payment. As more fully described below, there continue to be risk factors, opportunities and investment requirements facing us.

Our growth in 2018 is expected to ease somewhat but still achieve growth comparable to that previously experienced.

The company increased its dividend by 20%, to $0.06 per share. With $0.20 trailing EPS, PCHM is trading at a P/E of 7.5x.

This letter continues to echo the theme of previous letters we’ve covered every year since 2013. The letters discuss steady growth while highlighting several risks the company faces as it attempts to grow and expand its market. One thing to keep in mind is that the company’s updates are basically a year behind. So, although it appears it will report strong 2018 numbers by the end of 2019, it is unclear to us what type of growth is expected for 2019, due to some of the risks management discussed in this letter. We have learned that we must read between the lines when dissecting management’s comments and analyzing this company. For example, before we ever aggressively bought the stock, management jestfully quipped to us that a printer they owned was worth more than the entire company. The stock was trading around $0.10 at that time.

We just now believe management is very conservative in their outlook and the fact that they were willing to raise their dividend 20% implies that they believe they can still grow through the challenges they are currently facing.

Interestingly, even though funding for the company’s legacy products appears to not be strong, it seems there may be opportunity to address other markets where funding could be more prevalent - especially if they develop products to target those markets (medical space). We intend to perform research on this to see what the size and growth potential of those markets might be. We think it is possible that if the growth and market size of these new markets are large enough that the company becomes more of an acquisition target than it already is, partly due to barriers to entry.

You can see our original research note to learn more about the story here and a prior article here. Please note the stock is extremely illiquid.

We are long PCHM

Shareholder Letters

Fri, 30 Nov 2018 15:01:34 GMT

"...

During 2017, we consistently communicated the unique features of the PharmChek® Sweat Patch to federal, state probation and parole offices, state drug courts, re-entry programs and various treatment and recovery courts throughout the U.S. Our message is to promote long-term and continuous monitoring of drugs of abuse with emphasis on the distinct advantages of the Sweat Patch. We attended 14 state conferences and seven prominent national conferences--in
each case highlighting our device and related lab services, thereby reinforcing our presence and awareness in these markets. Also, we serviced customers in 47 states and opened 83 new accounts. As customers take advantage of our online introduction and training modules, they become familiar and comfortable with our device and then commence the ordering process. We continued to concentrate our sales and marketing efforts among those states actively engaged
in a justice reinvestment model or those operating a recently funded 24/7 sobriety program. Thirteen states applied for grant determinations from NHTSA’s 2018 funding cycle, of which seven were awarded funding for drugs of abuse testing. Of these, we currently provide services to FL, MT, ND, and SD, and we expect IA, ID and WY to follow suit shortly. Five other states applied but were not funded.

Our growth in 2018 is expected to ease somewhat but still achieve growth comparable to that previously experienced. Nearly every segment of our customer base has slowed their testing due, we believe, to the uncertainty of continued federal funding and the impact of the lab price increase we announced in late 2017. Our price action followed cost increases taken by the lab which screens our customers’ specimens.

The recent passage of the SUPPORT for Patients and Communities Act is a wide-ranging bill designed to address the opioid crisis. The opportunities for our business to expand in this category appear to be limited. Rather, the major beneficiaries of this bill are geared towards the medical community where we cannot currently participate.

Sweat testing for drugs of abuse can be beneficial to medical professionals in the pain management field as the application of one patch provides continuous and cumulative monitoring for 7 to 14 days. Testing using urine or blood does not accomplish such an extended window of detection. However, the processes to enter this market would be quite involved as the development of new assays and protocols would be necessary. Further, it is likely a new device may be required. All of these steps would require FDA clearance, be time-consuming, quite expensive and not without risk.

Our plans for 2019 include the expansion of our existing opioid panel by as many as four additional drugs (including fentanyl, buprenorphine, methadone and tramadol) and quite possibly six additional benzodiazepines. This work will also be costly and require FDA clearances. These clearances (known as lab determined tests or LTD’s) should not be as difficult, the time horizon should not be as lengthy, and the costs would be more manageable than those expected under the pain management processes described above. However, as is common with these types of processes, there is no assurance that FDA clearances will be obtained or if customers will accept the expanded panels and their higher pricing.

The lack of other available certified laboratories could hamper these plans, but this issue will be carefully evaluated as we move forward. Updates on this and our expansion efforts will be forthcoming as they develop.

I appreciate your continued support and future updates will be made as conditions warrant.
Joseph W. Halligan

..."

Source: https://materials.proxyvote.com/Approved/717133/20181206/SHLTR_377151.PDF

Shareholder Letters

Mon, 11 Dec 2017 13:59:22 GMT

December 5, 2017

Dear Stockholder:

I am pleased to furnish you with the sixth update on PharmChem, Inc. (the “Company”), our results for
the year ended December 31, 2016 and to announce that the Board of Directors approved the declaration
of its second dividend of five cents per share to stockholders of record on December 21, 2017, payable on
January 8, 2018. As more fully described below, there continue to be several risk factors (as well as some
opportunities) and investment requirements facing us. However, after careful consideration of these
issues and our projection of future operations and cash flow, we believe this return to our stockholders is
appropriate at this time.

We continue to broadcast the attributes of our Sweat Patch for continuous and long-term monitoring of
drug dependent clients within federal and state community supervision programs, state managed drug
courts, re-entry courts and various treatment programs throughout the U.S.

During 2016, we concentrated our sales and marketing efforts among drug/mental health, tribal, veterans’
and re-entry courts and states operating National Highway Traffic Safety Administration (NHTSA)
funded 24/7 sobriety programs or those contemplating such sobriety programs. Four states were awarded
new funding under the 2018 NHTSA’s program and another three were awarded continued funding.

Attention to these specific customer channels together with our presence within the federal courts resulted
in another year of double digit sales growth. We attended 11 state conferences and presented our device
and related lab services at six prominent national conferences where our marketing efforts have reinforced
our presence and awareness in these markets. During 2016, we opened 83 new customer accounts.

Another opportunity for us would seemingly be in programs designed to confront the opioid epidemic
facing our country. However, many if not all the programs that would counter these addictions will rely
heavily on federal funding. The amount of such funding and to whom it will be directed is uncertain at
this time. If such funding is allocated to state and local treatment centers as opposed to the medical and
mental health communities, we could benefit.

Summary audited financial statements for 2016 and 2015 are attached. Sales increased 29%; operating
income rose 58%; net income was up 67%; and cash and cash equivalents increased $624,996. In 2016,
we sold our product and related services in 46 states and four foreign countries—the latter related mainly
to research. Our growth in 2017 is expected to ease somewhat but still achieve a double digit increase in
sales.

During 2017, we completed the installation of a new IT platform whereby all our computer operations
have been outsourced. Also, the complete revamping of our website went live in mid-2017.

The risk factors and challenges facing us continue. The Company needs to invest in further research and
development to keep abreast of current trends, new technologies and heavily regulated protocols to which
our business continues to be subjected. New FDA regulations relating to recalls and serialization may
affect us. However, the adoption by the FDA of regulations related to serialization have been delayed
indefinitely. Also, new screening assays will most likely be needed in the near future. We recently renewed our current laboratory contract which extends the agreement to the end of 2020 with automatic renewals thereafter.

This renewed agreement calls for, among other things, upward and downward pricing depending upon the
percentage of specimens screening positive over a certain number of consecutive months. Passing on
upward pricing to our customers may prove to be difficult.

Additionally, we renewed our contract with the manufacturer of our Sweat Patch which assures us the
ongoing supply of our device and includes automatic annual renewals.

We continue to explore opportunities to present PharmChem, its franchise and strategic value to those
companies that can benefit from acquiring us at the appropriate valuation.

Lastly, Dave Lattanzio, our Vice President of Finance, has announced he will wind down his involvement
in the day-to-day responsibilities after over 20 years with the Company. Most of his duties and
responsibilities will be assumed by our recently hired Vice President & Controller, Shana Veale. Dave
will continue to assist Shana and me in selected day-to-day operations while retaining his seat on the
Board of Directors.

I appreciate your continued support. Future updates will be made as conditions warrant.
Joseph W. Halligan
President & Chief Executive Officer
jhalligan@pharmchem.com

Research

Mon, 11 Dec 2017 13:59:10 GMT

Pharmchem Labs (PINK:PCHM) ($0.75; $4.3M market cap), a drug detection company, released its 2017 shareholder letter. Last week we discussed that the Company declared a $0.05 dividend and that the shareholder letter would likely be released soon.

“Summary audited financial statements for 2016 and 2015 are attached. Sales increased 29%; operating income rose 58%; net income was up 67%; and cash and cash equivalents increased $624,996. In 2016, we sold our product and related services in 46 states and four foreign countries—the latter related mainly to research. Our growth in 2017 is expected to ease somewhat but still achieve a double digit increase in sales.”

“We continue to explore opportunities to present PharmChem, its franchise and strategic value to those companies that can benefit from acquiring us at the appropriate valuation.”

We believe there are roughly 5.8 million shares outstanding - with no recent filings we can only go based off of prior data. Assuming the share count is 5.8 million, 2016 EPS would be roughly $0.17. At this level, the company is trading with a trailing P/E of 4. After some further due diligence, we do believe that PCHM is an excellent buyout candidate due to barriers to entry dealing with the cost of certain technologies related to their business. Thus we are adding the stock to our “Mock Takeover Candidates Portfolio.”

Following the format of previous letters, management continues to point out regulatory risks surrounding its business and industry.

Research

Tue, 05 Dec 2017 16:08:38 GMT

Pharmchem Labs (PINK:PCHM) ($0.90; $5.2M market cap), a drug detection company, declared a $0.05 dividend. Like many pinksheet stocks, there was no release or filing, only this image from otcmarkets.com:

It was roughly this time last year when we issued the following tweets on PCHM:

Our December 5, 2016 article, “55 Cent Stock Declares 5 Cent Dividend, Garners Investor Attention”, posed the question of whether investors would actually start to pay attention to the company given the rare circumstance of a stock trading under one dollar per share issuing a dividend. While it still seems the stock has continued to go unnoticed given the lack of volume, investors have slowly been bidding up shares. Shares were trading at $0.40 last year this time and are now trading at $0.90.

We will continue to monitor the Company’s site as the 2017 letter to shareholders will likely be posted in the coming weeks. With no press releases or filings, the year end shareholder update is the only real source of transparency the Company offers. However, we do believe the company will issue a annual shareholder letter like it has the last few years in December. And because the company has declared a dividend again, we think the overall tone will be positive. So there is a little information Arbitrage here.

Research

Thu, 03 Aug 2017 14:39:28 GMT

**PCHM Update (Speculative)

In late May we discussed that speculative play PCHM ($0.65) launched a new website, noting that:

“because the company doesn't put out press releases other than its annual shareholder letters, it’s often tough to get a grip on developments as a they arise, without actually calling management (which we have done in the past and will reach out again).

Maj (Geo Founder and President) had a chance to speak with management to get clarification on some concerns we had, mainly related to some of the Google searches that talk about false positives on their Patch product.

1. The study to discredit the Patch basically tested the efficacy in an environment that is unrealistic.

2. Defendants that have hired this individual (that conducted the test) as an expert witness have lost every battle in court.

3. This individual was a big reason the Patch was not adopted in the military years ago (they don't want accurate tests)

As far as competition goes, no labs are really equipped to accommodate the test and it is very expensive to build out. The Company claims their mechanism tests on multiple (2) end points vs. only one endpoint, competition’s method of testing. PCHM is not competing in the alcohol space. (PharmChek sweat patches tests for cocaine, opiates, amphetamines, PCP, and marijuana.)

Biggest risk still remains from potential regulatory hurdles the Company may face.

For more color on the PCHM story, see our December 5, 2016 article, “55 Cent Stock Declares 5 Cent Dividend, Garners Investor Attention”.

Research

Wed, 24 May 2017 14:55:36 GMT

PCHM ($0.61) launched a new website today. On December 2, 2015 we issued the following tweets:

Our December 5, 2016 article, “55 Cent Stock Declares 5 Cent Dividend, Garners Investor Attention”, posed the question of whether investors would actually start to pay attention to the company given the rare circumstance of a stock trading under one dollar per share issuing a dividend. We believe the new site could be good sign that business is progressing nicely. Because the company doesn't put out press releases other than its annual shareholder letters, it’s often tough to get a grip on developments as a they arise, without actually calling management (which we have done in the past and will reach out again).

PharmChem, Inc. provides PharmChek Sweat Patch that is used to detect drugs of abuse. Its PharmChek Sweat Patch uses sweat as the source and offers alternative to urine testing for cocaine, opiates, amphetamines, PCP, and marijuana.

Research

Mon, 05 Dec 2016 16:39:38 GMT

**Report on PCHM Forthcoming

On Friday (December 2, 2016) we issued the following tweets on $PCHM ($0.40):

We have calls into management, hoping to speak with them. We originally came across PCHM in 2014 (our original note here). PCHM together with its distributors are the sole source providers of the PharmChek® Sweat Patch used to detect drugs of abuse. An updated research note will be published shortly.

Shareholder Letters

Fri, 02 Dec 2016 05:00:00 GMT

December 2, 2016

Dear Stockholder:

I am pleased to provide you with the fifth update on PharmChem, Inc. (the “Company”), our results for the year ended December 31, 2015 and to announce that the Board of Directors approved the declaration of a five cents per share dividend to stockholders of record on December 13, 2016, payable on January 4, 2017. As more fully described below, there are a number of risk factors and investment requirements facing us. However, after careful consideration of these issues and our projection of future operations and cash flow, we believe this return to our stockholders is appropriate at this time, and, in the future, should conditions permit.

The Company continues to emphasize its product and services to state and local supervisory and rehabilitation programs where the ongoing monitoring attributes of our device have proven to be quite popular and cost effective.

During 2015 (and in 2016, as well), we continue to focus our sales and marketing efforts on state and local drug courts, related rehabilitation centers, 24/7 sobriety programs and evidence-based programs. These programs coupled with the resurgence of our business with U.S. Courts, have resulted in a greater presence and awareness of our Sweat Patch, thereby driving our double digit sales growth. Further, our marketing and training programs have successfully reinforced our emphasis in these markets and our expectations are to continue similar programs in the future. As an example of our commitment, in 2015 we attended 12 state and local conferences and presented the Sweat Patch to community stakeholders at five prominent national conferences.

A number of states have or are contemplating the adoption of sobriety programs mirroring somewhat those currently in place in Montana, and North and South Dakota, where we currently enjoy a significant presence. We are, of course, optimistic about this expansion and are planning specific marketing, training and other programs to enhance the use of the Sweat Patch by these states. However, there is no assurance these states will utilize our device as part of their protocols.

Summary audited financial statements for 2015 and 2014 are attached. From 2014 to 2015, sales increased 28%; operating income rose 38%; net income was up 40%; and cash and cash equivalents increased $682,637. In 2015, we sold our product and related services in 46 states and seven foreign countries—the latter related mainly to research. And, we are seeing similar sales growth in 2016.

Merger and acquisition activity remains one of the Company’s priorities to further optimize stockholder value. We continue to explore opportunities to present PharmChem and its strategic value to those companies that can benefit from acquiring us at the appropriate valuation. We are also looking at acquiring businesses where synergies would be beneficial.

There has been little change in the risk factors and challenges facing us. The Company needs to invest in further research and development in order to keep abreast of current trends and heavily regulated protocols to which our business continues to be subjected. Also, new FDA regulations relating to recalls and serialization may affect the Company’s performance. We will also likely need new screening assays in the near future. And, the Company must continue to address the dilemma of developing other certified laboratories capable of testing its Sweat Patch.

We are in the preliminary stages of converting our current contractual forensic toxicologist to a full-time position to complement our sales growth, evaluate our research into using our Sweat Patch to screen for other substances and the initial assessment of developing new screening assays. These efforts would require a considerable investment. Further, the Company is investing in a new IT platform and related software to support our growth and we will launch a major revamp to our web site in early 2017 to support current and potential new customers.

Potential buyers likely view these regulatory and risk factors as impediments to acquiring the Company. However, given our sales growth, the initiation of research and development into new screening assays and the screening of other substances, it is believed that the Company’s franchise has an inherent value not yet reflected in the market.

I appreciate your continued support. Future updates will be made as conditions warrant.

Joseph W. Halligan
President & Chief Executive Officer
jhalligan@pharmchem.com

Shareholder Letters

Mon, 23 Nov 2015 05:00:00 GMT

November 23, 2015

Dear Stockholder

I am pleased to provide you with the fourth update on PharmChem, Inc. (the “Company”) as well as the Company’s results for the year ending December 31, 2014.

As discussed in last year’s update, the Company has shifted its customer base from those customers who are federally directed to state-funded Drug Court monitoring programs, including rehabilitation facilities. In concert with this shift, the Company further committed and fashioned its marketing efforts to demonstrate that its PharmChek® Sweat Patch would provide valuable assistance in the monitoring of offenders on probation or seeking help.

This commitment has been further emphasized by the Company’s hiring of Kerri S. Wagner as President of the PharmChek® Sweat Patch Division. In this position, Ms. Wagner is responsible for sales, customer service, marketing, and training, as well as managing the Company’s growth and expansion efforts. Ms. Wagner began a 13-year career as a Police Officer in South Dakota in 1992, before transferring in 2005 to the South Dakota Department of Corrections. In 2006, Ms. Wagner was charged with the management and oversight of the Department’s 24/7 Sobriety Program, where the Sweat Patch technology is actively utilized. In 2013, she was promoted to Senior Parole Agent for the Department of Corrections. Ms. Wagner has provided consulting, training and related services to the Company since 2011.

The Company estimates that the number of Drug Courts (as well as those dealing with DWI/DUI’s and the treatment of veterans) now number approximately 2,900. The Company estimates that these Drug Courts receive approximately $104 million in federal funding and $260 million in state funding. This funding, complemented by the requirement of participants to provide financial assistance for their treatment, has accelerated the use of the Sweat Patch when drugs of abuse are a concern.

The Company’s 2014 results reflect the successes it has experienced by building upon the shift in its customer base, thereby improving financial results and growing market share.

Some of the Company’s accomplishments include: sales were $2,522,857, an increase over 2013 of 42%; operating income more than tripled to $471,809; net income grew to $433,995; and cash and cash equivalents increased $563,906. Over the past two years, we’ve secured 133 new customers and, in 2014, we sold our product and related services in 42 states and six foreign countries—the latter related mainly to research.

Also, the Company completed an audit of its 2014 financial statements as well as an independent FDA compliance review.

Attached are summary financial statements for 2014 and 2013.

As previously discussed, merger and acquisition activity remains one of the Company’s highest priorities. The Company is not waiting for an exit opportunity to arise; rather, it is proactively seeking to present PharmChem, Inc. and its strategic value to the few larger entities that can benefit from acquiring the Company at the appropriate valuation. However, the industry’s appetite for acquisitions has dampened—particularly for those which are priced fairly.

Going forward, certain risk factors and challenges remain. The Company needs a sizeable investment for further research and development in order to keep abreast of current trends and heavily regulated protocols to which the Company’s business continues to be subjected. Also, new FDA regulations relating to recalls and serialization may affect the Company’s performance. The Company will also likely need new screening assays in the near future. Moreover, PharmChem continues to monitor certain contractual disputes inherited by the Company years ago. Finally, the Company must continue to address the dilemma of developing other certified laboratories capable of testing its Sweat Patch.

Potential buyers likely view these regulatory and risk factors as impediments to acquiring the Company. However, given the Company’s sales growth of 8% in 2013, 42% in 2014, and an expected double-digit increase in 2015, it is believed that the Company’s franchise has an inherent value not yet reflected in the market.

I appreciate your continued support. Future updates will be made as conditions warrant.

Joseph W. Halligan
President & Chief Executive Officer
jhalligan@pharmchem.com

Research

Wed, 04 Jun 2014 04:00:00 GMT

Pharmchem(OOTC:PCHM) ($0.07) - PCHM together with its Distributors are the sole source providers of the PharmChek® Sweat Patch used to detect drugs of abuse. For over 15 years, this device has been a successful and economical alternative to urine tests for cocaine, opiates, amphetamines, PCP and marijuana.

PCHM’s stock soared 133% in yesterday’s trading session reaching $0.07, its highest level since its deregistration in 2004.

Since its form 15(deregistration) was filed in March of 2004, PCHM has not had any filings and has been self-liquidating its remaining assets. However, the sole remaining asset is the Sweat Patch Business which the company has not been able to sell.

In a letter to shareholdersfrom the company’s website, the company provides financial information for its year ended 2013:

Sales were $1,778,500, an improvement of 8% over 2012.
Operating income was $130,792, up 132% over 2012’s level.
Currently trading at P/E of 3.5 and below its Tangible book value of $0.22

It is unclear if the stock is being pumped, but with what looks to be only 5.8 million shares outstanding and improving financials, we will keep a close eye on potential third party promotional campaigns. We will try and take a closer look into the company’s capital structure for possible future dilution.

Shareholder Letters

Thu, 01 May 2014 04:00:00 GMT

May 01, 2014

Dear Stockholder:

I am pleased to provide you with an update on the performance of PharmChem, Inc. (PharmChem) for the year ending December 31, 2013.

As I prepared to write this update, I reviewed the previous letters to stockholders. Generally, I spoke about how PharmChem was dealing with the self-liquidation and complexities of monetizing its last remaining asset -- the PharmChek® Drugs of Abuse Sweat Patch Business.

We have made significant progress on the self-liquidation as we have settled amounts owed to secured and unsecured creditors, and have reached the end of the required record keeping time frame as mandated for federal drug testing contracts.

Clearly, a self-liquidation can take several forms including a sale, wind down or a combination thereof. The Board of Directors continues to be committed to an exit strategy which will maximize stockholders’ value. Thus far, our efforts to sell the Sweat Patch Business have been unsuccessful.

PharmChem exited 2013 facing a shift in its customer base from federally directed programs to state-funded initiatives as the emphasis on drugs of abuse testing at the federal level waned. For example federal probation sales have decreased from 45% to just 27% of our total sales.

Our 2013 results, in my opinion, reflect the success we experienced by building upon this shift in our customer base thereby improving financial results and growing market share.

Please note a few of our accomplishments:

Over the past several years, the Company has successfully targeted the Sweat Patch Business to the state and local level as drug testing by federal probation has, in our view, become a lower level priority resulting from either change in philosophy, funding, or both.
The Company expanded its sales and marketing efforts to focus more closely on state and local agencies where drug testing in general, and the Sweat Patch Business in particular, have demonstrated growth opportunities. The Company began emphasizing professional training, attendance at shows and seminars, and has revamped its web site and related marketing material.
As a result of this effort, the Company secured 121 new customers during the past two years.
In March 2014, the Company announced it would expand its drug testing panel to include certain so-called “synthetic opiates” – hydrocodone, hydromorphone, oxycodone and oxymorphone. There is no assurance this action will be well received by our customers.
Finally, I was very pleased with our financial results. A few highlights are as follows:
a.) Sales were $1,778,500, an improvement of 8% over 2012.
b.) Operating income was $130,792, up 132% over 2012’s level.
c.) Year over year, cash and securities increased $105,041.
We’ve attached summary financial statements for 2013 and 2012.
Again, I am very pleased with our operational and financial performance this past year. Where do we go from here? First, we need to continue our growth and enhance market share in state and local-sponsored testing; second, grow the sales of our current product offering with our newly expanded opiate testing panel; third, focus on continuing our evaluation of strategic alliances that may enable more diverse sales; and fourth, continue our objective to cultivate an exit opportunity.

As mentioned above, we have been unable to successfully sell the Sweat Patch Business—our last remaining asset. We believe this is due to previously discussed issues including provisions in certain contracts that would affect a sale; the small niche market in which the Sweat Patch operates; the heavily-regulated protocols to which the Business is subject; the likelihood that a potential buyer of the Business would have to invest in further research and development to keep pace with current trends and regulatory compliance; and the unavailability of certified laboratories capable of testing the Sweat Patch.

I appreciate your continued support. Future updates will be made as conditions warrant.

Joseph W. Halligan
President & Chief Executive Officer
jhalligan@pharmchem.com

Shareholder Letters

Wed, 15 May 2013 04:00:00 GMT

Dear Stockholder:

On November 16, 2004, PharmChem, Inc. (the “Company”) held a special meeting of the stockholders, at which the following resolution was adopted:

RESOLVED, that in accordance with the provisions of the Delaware General Corporation Law, the Company be voluntarily dissolved and liquidated, and the Company’s business and affairs be wound up at such time, if any, as the Board of Directors should determine.

The Company has previously consummated the sale of all its assets, except for those assets relating directly to the PharmChek® Sweat Patch division (the “PharmChek Division”). The PharmChek Division has continued to operate while the Company has sought to market the division as a going concern in an effort to maximize the value of the division for the benefit of its stockholders.

To date, the Company has been unable to enter into a suitable sale arrangement for the PharmChek Division for a number of reasons, including (i) provisions in certain contracts that affect the sale of the PharmChek Division; (ii) the small, niche market in which the PharmChek Division operates; (iii) the heavily-regulated protocols to which the PharmChek Division is subject, and (iv) the likelihood that a potential buyer of the PharmChek Division would have to invest in further research and development to keep pace with current trends and regulatory compliance.

At this time, the PharmChek Division continues to generate revenue, which has been used to satisfy the Company’s debts and obligations (including those debts and obligations arising out of the continued operation of the PharmChek Division) and build cash reserves. As it is anticipated that the Company will continue to generate revenue, the Company believes that it is in the best interest of its stockholders to continue to operate the PharmChek Division until the earlier to occur of (i) the sale of the PharmChek Division or (ii) such time as the operation of the PharmChek Division ceases to be profitable or the required regulatory compliance becomes untenable. Upon the occurrence of either of these events, the Company will file Articles of Dissolution and consummate the final dissolution of the Company or take such other actions as it deems appropriate based on the facts and circumstances at that time. The Company shall continue to operate (and the board shall act) pursuant to the November 16, 2004, stockholder resolutions. In the event the board determines it is in the best interest of the Company to abandon dissolution, it will notice a meeting of stockholders in accordance with applicable law.

It should be noted that in March of 2013, the federal judiciary’s policy arm reduced by 20% or $350 million the account used to pay for drugs of abuse treatments as well as other related services. The Company is unable to predict at this time the impact the sequestration will have on the approximately 36% of its revenue generated by the Federal Probation Department within the federal judiciary.

The Company does not believe that it is subject to the Securities Exchange Commission’s reporting requirements. Nonetheless, this letter contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933 (“Forward-looking Statements”), which are subject to the “safe harbor” created by these Sections. Forward-looking statements are statements about future financial results, future products or services and other events that have not yet occurred. These forward-looking statements contain words such as, but not limited to, “expect”, “anticipate”, “estimate”, “believe”, “will”, “may” or “might”. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties about the future. We will not necessarily update the information in this letter if any forward-looking statement later turns out to be inaccurate.

Future updates will be made as conditions warrant.

Joseph W. Halligan
President & Chief Executive Officer
joe_halligan@pharmchem.com