PharmChem Laboratories Inc (PCHM)

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https://69232158b6ac9cf4fa7b-2b1af90ce01fe18d8b360f5b74719145.ssl.cf1.rackcdn.com/document-uploads/2016-Stockholder-Letter.pdf

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
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www.pharmchem.com
renewed our current laboratory contract which extends the agreement to the end of 2020 with 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
[e-mail]
* * * * * *
In 2003, the Company filed Form 15 with the Securities and Exchange Commission effectively
terminating its registration under the Securities Exchange Act of 1934. The Company has no plans to
revoke this filing.
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 (“Forwardlooking
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


PharmChem, Inc.
Summary Balance Sheets
December 31, 2016 and 2015
2016 2015
(Audited) (Audited)
Cash & Cash Equivalents $2,928,499 $2,303,503
Short-Term Securities 19,300 22,897
Receivables, Net 514,095 321,918
Other Current Assets 128,021 153,776
3,589,915 2,802,094
Proprety and Equipment, Net 22,770 12,154
Total Assets $3,612,685 $2,814,248
Accounts Payable $ 172,005 $ 229,876
Accrued Expenses 416,809 281,157
Total Liabilities 588,814 511,033
Stockholders' Equity 3,023,871 2,303,215
$3,612,685 $2,814,248


PharmChem, Inc.
Summary Statements of Operations
For The Twelve Months Ended December 31, 2016 and 2015
2016 2015
(Audited) (Audited)
Net Sales $4,168,305 $3,233,777
Cost of Goods Sold 1,580,472 1,241,589
Gross Profit 2,587,833 1,992,188
Selling, General & Administrative Expenses 1,555,040 1,338,727
Operating Income 1,032,793 653,461
Dividend Income and Unrealized Gain (Loss)
on Securities, Net 3,506 (29,078)
Net Profit Before Taxes 1,036,299 624,383
Provision for Taxes 20,995 16,389
Net Income $1,015,304 $ 607,994