PharmChem : 2022 - 1st Quarter Financial Statements, Letter to Shareholder and OTCIQ Disclosure

April 22, 2022

Dear Shareholders,

Barring major news, we don't intend to have lengthy updates quarterly. Please feel free to reach out with any specific questions.

Our Sales Efforts

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.

We are eager to test the market response to our new offering of a fentanyl panel, an additional Add-On, available as of April 1st to test for this increasingly prevalent synthetic opioid.

The Market for our Stock

We were proud to achieve a partial up-listing to "Pink" status on the OTC Markets this quarter, from "Limited," recognizing our increased level of financial disclosure over the last seven months.

Our 10b-5 buyback continues in the open market. So far, we have bought in a small amount of shares outstanding (<1%) to date with the free cash flow generated from ongoing operations.

Our Annual Meeting will be held in Fort Worth, Texas, on August 31, with details to follow. We hope to see you there.

Thank you again for the trust you've put in us.

Tice Brown

Chairman of the Board

**Please read the Disclaimer on the Following Page.**

DISCLAIMER

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 andwww.pharmchem.comother 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.

To supplement our unaudited condensed consolidated financial statements presented on a GAAP basis, we disclose certain non-GAAP financial measures, including Return on Invested Capital (ROIC), free cash flow (FCF), steady-state free cash flow, and steady-state free cash flow per share that exclude certain amounts, one-time expenses from corporate actions and new sales force employee compensation costs. These non-GAAP financial measures are not in accordance with generally accepted accounting principles in the United States and should not be considered in isolation from or as a replacement for the most directly comparable GAAP financial measures. Further, other companies may calculate these non-GAAP financial measures differently than we do, which may limit the usefulness of those measures for comparative purposes.

We believe that presenting Return on Invested Capital, free cash flow, steady-state free cash flow, and steady-state free cash flow per share, in addition to the corresponding GAAP financial measures, provides investors greater transparency to the information used by management for its operational decision-making and allows investors to see our results "through the eyes" of management. We further believe that providing this information assists our investors in understanding our operating performance and the methodology used by management to evaluate and measure such performance.

BALANCE SHEETS

March 31, 2022 and December 31, 2021

Assets Current assets:Cash and cash equivalents

Accounts receivable, net of allowance for

doubtful accounts of $15,000 in 2021 and 2020 Income tax receivable

Inventories

Prepaid expenses and other current assets

Total current assets

March 31,

2022

(unaudited)December 31, 2021 (audited)

$

2,260,698

694,816 676,883

241,200 241,200

239,122 68,009

54,435 20,124

$

2,217,270

3,490,271

3,223,486

Office equipment and leasehold improvements, net Deferred tax asset, net

585 166,861

627 166,861

Total assets

Liabilities and Stockholders' Equity Current Liabilities:

Accounts payable

Accrued expenses and other liabilities Deferred revenue

Total liabilities

Commitments and contingencies

Stockholders' equity:

Common stock, $0.001 par value, 25,000,000 shares authorized, 5,103,273 issued and outstanding

Additional paid-in capital Accumulated deficit

Total stockholders' equity

$

3,657,717

$

3,390,974

$

228,193

139,355 265,745

99,112 87,772

$ 188,941

466,660 542,458

5,103 5,103

13,819,663 (10,633,709)

3,191,057

13,819,663 (10,976,250)

2,848,516

Total liabilities and stockholders' equity

$

3,657,717

$

3,390,974

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STATEMENTS OF INCOME

Three Months Ended March 31, 2022 and 2021

(unaudited)

Three Months Ended	Three Months Ended
March 31,	March 31,
2022	2021

Sales, net Cost of sales Gross profit

Operating expenses:

Sales and marketing

General and administrative

Total operating expenses

$

1,540,328 562,142 978,186

278,475 104,766

357,675 399,402

636,150

$

1,641,470 600,230 1,041,240

504,168

Income from operations

Other income (expense):

Dividend and interest income

Other income (expense)

Total other income

342,036

178 327 505

537,072

702

-

702

Income before provision for income taxes Provision for income taxes

342,541 537,774

- 118,980

Net income

$

342,541

$

418,794

Earnings per Share

Diluted Earnings per Share

$0.067 $0.064

$0.072 $0.060

Common shares outstanding

Diluted common shares outstanding

5,103,273 5,343,273

5,852,593 6,992,593

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PHARMCHEM, INC.

STATEMENTS OF CHANGES IN STOCKHOLERS' EQUITY

Three Months Ended March 31, 2022

(unaudited)

Additional

Common	Paid in	Accumulated
Stock	Capital	Deficit	Total
Balance at December 31, 2020	$5,853	$19,629,983	$(12,126,019)	$7,509,817
Net Income	1,852,080	1,852,080
Dividends Paid	(702,311)	(702,311)
Repurchase of Options	(2,282,619)	(2,282,619)
Repurchase of Common Stock	(750)	(3,527,701)	(3,528,451)
Balance at December 31, 2021	$5,103	$13,819,663	$(10,976,250)	$2,848,516
Net Income	342,541	342,541
Balance at March 31, 2022	$5,103	$13,819,663	$(10,633,709)	$3,191,057

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