PharmChem : 2nd Quarter - 6.30.2022 Financial Statements and OTCIQ Disclosure FINAL 8.17.2022

PHARMCHEM, INC.

BALANCE SHEETS

June 30, 2022 and December 31, 2021

		June 30,	December 31,
		2022		2021
Assets	(unaudited)	(audited)
Current assets:
Cash and cash equivalents	$	2,253,922	$	2,217,270
Accounts receivable, net of allowance for
doubtful accounts of $15,000 in 2022 and 2021		666,777		676,883
Income tax receivable		241,200		241,200
Inventories		319,737		68,009
Prepaid expenses and other current assets		41,721		20,124
Deferred tax asset, net		53,116		166,861
Total current assets		3,576,473		3,390,347
Office equipment and leasehold improvements, net		543		627
Total assets	$	3,577,016	$	3,390,974
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable	$	194,737	$	188,941
Accrued expenses and other liabilities		119,889		265,745
Deferred revenue		118,643		87,772
Total liabilities		433,269		542,458
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value, 25,000,000
shares authorized, 5,058,995 June 30, 2022 and
5,103,273 December 31, 2021 issued and
outstanding		5,059		5,103
Additional paid-in capital		13,696,917		13,819,663
Accumulated deficit	(10,558,229)	(10,976,250)
Total stockholders' equity		3,143,747		2,848,516
Total liabilities and stockholders' equity	$	3,577,016	$	3,390,974

1

PHARMCHEM, INC.

STATEMENTS OF INCOME

Six Months Ended June 30, 2022 and 2021

(unaudited)

	Six Months Ended	Six Months Ended
	June 30,	June 30,
		2022	2021
Sales, net	$	3,048,447	$	3,173,375
Cost of sales		1,105,164		1,193,313
Gross profit		1,943,283		1,980,062
Operating expenses:
Sales and marketing		487,071		218,565
General and administrative		916,735		782,373
Total operating expenses		1,403,806		1,000,938
Income from operations		539,477		979,124
Other income (expense):
Dividend and interest income		2,230		1,368
Forgiveness of PPP Loan		-		125,455
Other income (expense)		(63)		200
Total other income		2,167		127,023
Income before provision for income taxes		541,644		1,106,147
Provision for income taxes
Federal - Current		9,878		218,975
Federal - Deferred		113,745
Total provision for income taxes		123,623		218,975
Net income	$	418,021	$	887,172
Earnings per Share		$0.083		$0.152
Diluted Earnings per Share		$0.079		$0.127
Common shares outstanding		5,058,995		5,852,593
Diluted common shares outstanding		5,298,995		6,992,593

2

PHARMCHEM, INC.

STATEMENTS OF CHANGES IN STOCKHOLERS' EQUITY

Six Months Ended June 30, 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	-	-	418,021	418,021
Repurchase of Common Stock	(44)	(200,240)	-	(200,284)
Black Scholes Valuation of Issued
Stock Options	-	77,494	-	77,494
Balance at June 30, 2022	$5,059	$13,696,917	$(10,444,484)	$3,143,747

3

PHARMCHEM, INC.

STATEMENTS OF CASH FLOWS

Six Months Ended June 30, 2022 and 2021

(unaudited)

		June 30,	June 30,
		2022		2021
Operating Activities
Net income	$	418,021	$	887,172
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation		84		84
Forgiveness of PPP loan		-		(125,455)
Provision for doubtful accounts		-		-
Net realized (gain) on investments
in marketable securities		-		-
Deferred tax assets		113,745		-
Net changes in operating assets and liabilities:
Accounts receivable		10,461		(35,413)
Bad debt recoveries		(355)		-
Inventories		(251,728)		(1,258)
Prepaid expenses and other current assets		(21,598)		22,911
Accounts payable		4,028		13,171
Accrued expenses and other liabilities		(113,216)		(379,373)
Total Adjustments		(258,579)		(505,333)
Net cash provided by operating activities		159,442		381,839
Investing Activities
NetSuite Capitalization		-		(65,548)
Repurchase of Common Stock		(200,284)		-
Black Scholes Valuation of Issued
Stock Options		77,494		-
Net cash provided by (used in) investing activities		(122,790)		(65,548)
Financing Activities
Dividends paid		-		(702,311)
Net cash used in financing activities		-		(702,311)
Net (decrease)/increase in cash and equivalents		36,652		(386,020)
Cash and equivalents at beginning of year		2,217,270		7,854,649
Cash and equivalents at end of quarter	$	2,253,922	$	7,468,629
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for federal and state income
taxes	$	9,878	$	274,830

4

PHARMCHEM, INC.

NOTES TO FINANCIAL STATEMENTS

June 30, 2022 and 2021 (unaudited) and December 31, 2021 (audited)

1. Nature of Business

PharmChem, Inc. (the "Company" or "PharmChem") sells and distributes the PharmChek® Sweat Patch Device (the "Sweat Patch" or "PharmChek®"). PharmChek® is a system that uses sweat to detect the presence of illegal drugs. It consists of a transparent polyurethane outer covering, a small absorbent pad, and a release liner. A unique number is printed on the Sweat Patch for identification and anti- counterfeiting purposes. Unlike urinalysis, flushing or employing a diuretic to rid the body of drugs of abuse does not affect PharmChek® test results, since the drugs in the sweat simply collect on the absorption pad until the pad is removed for analysis.

The Food and Drug Administration ("FDA") has cleared PharmChek® for detecting the use of cocaine, opiates (including heroin), amphetamines (including methamphetamine), phencyclidine, and marijuana. Once the Sweat Patch is removed from the donor, it is sent to a third-party, certified laboratory for screening and, if necessary, confirmation. The Company's customers include federal, state, and local governments, state and local drug courts, as well as independent companies which provide drug rehabilitation and other related services.

PharmChek® is a registered trademark owned by the Company. PharmChem was incorporated in California in 1987 and reincorporated in Delaware in 2000. The Company's corporate offices are located in Fort Worth, Texas.

2. Summary of Significant Accounting Policies

A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows.

Basis of Accounting

The accounts are maintained and the financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP").

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from these estimates and assumptions.

5