PharmChem (PCHM) Announces Response To Opposition

FORT WORTH, Texas, Aug. 11, 2021 /PRNewswire/ -- You have most likely received a proxy statement and blue proxy card from Tice Brown and Tim Eriksen (Cedar Creek Partners). They have submitted three individuals as candidates for the Board of Directors (collectively referred to as "the opposition"). 

IN ORDER TO CONTINUE THE PERFORMANCE OF PHARMCHEM, WE HAVE URGED OUR STOCKHOLDERS TO VOTE THE WHITE PROXY CARD AND DISCARD THE BLUE PROXY CARD ENTIRELY.  

The opposition says, "The business is an exceptional one: cashflow generative, capital light, and growing."

The business is an "exceptional one"—why remove current and operational management, including the CEO? This idea is illogical. We have no absentee senior management.

They state further, "We believe the operating business can continue to prosper after removal of the current non-operational management and Board."

The current management and Board are the reasons PharmChem has prospered and will continue to do so if the opposition slate is defeated. Otherwise, the Company will not prosper. The inexperience of the opposition coupled with their objective to attack our cash will not benefit our stockholders.

They go on, "operational management appears to be outstanding."

Operational and senior management are synonymous, including the CEO. Replacing management is idiotic and unsound.

When we closed our lab, we outsourced lab services and reduced our payroll to six full-time employees. Today, they have robust relationships with our product and lab partners together with our customers.

The opposition slate (none of whom to our knowledge have any experience or contacts with our service partners or customers) wants to replace our entire board and two or more of our top three executives. We believe this would have disastrous consequences to our company.

The opposition states, "We believe management gained nearly 100% of their ownership by taking the company "dark," de-registering with the SEC…"

Nothing was done in the "dark." 

Also, Brown has filed suit against our Board challenging the 2015 Employee Stock Option Plan.   

Brown's suit against the Board is frivolous and without merit, and a motion to dismiss has been filed.

• The Company filed a Form 15 in 2004 to deregister from the SEC to save $200,000 per year which was done in conjunction with other cost reductions to conserve cash.
• The employee stock option plan was adopted by the Board of Directors in December 2015 (following the expiration of our predecessor plans) in accordance with Delaware corporate law – 11 years after we filed Form 15.
• The options were repriced in April 2016 in line with the then market price as quoted on the OTC Pink Sheets market. The difference between the original and re-priced options would, over ten years, have had a minimal annual cost of $37,000.

Our Company has been operating virtually for many years, long before it became the norm. Where we live has not affected the success of PharmChem.

We maintain sizable cash balances because our business carries risks that are unique to drug testing, including:

• There is one lab that screens our specimens. Should they terminate our arrangement, we would be required to suspend or close our business or buy another lab.
• Reagents used to screen the Sweat Patch are sourced from one or two suppliers. Should they cease production of a low volume product, the lab could not screen our Sweat Patch using the current cost-effective protocols.
• The FDA could require us to re-file our 510(k) submissions for review and clearance.
• We implemented the FDA mandated Unique Device Identification ("UDI") regulations which are aimed at making recalls efficient and timely.
• We are obligated to provide for a $1 million deductible (up from $100,000 last year) for certain liability coverages.

We believe it financially prudent to accumulate cash to guard against any or all of the risks we face – experienced managers know this.

The Board meetings are held telephonically to complement our philosophy of cost control. Only the chairman is compensated, but does not participate in the stock option plan. Our six employees have a combined 85 years with PharmChem. 

We believe our Board and the Company have developed a superb and successful business model which has proven beneficial to our stockholders. To our knowledge, none of the opposition have any background in forensic drug testing using sweat (our Board has over 75 years of experience). We began this journey in 2004 after closing our lab (the former entity) and obtaining stockholder approval authorizing the Board to voluntarily dissolve and liquidate, as it deemed appropriate.  From 2005 through 2020, we have:

• Settled claims with over 2,600 vendors with no major litigation and avoided liquidation;
• Grown sales from $769,000 to $6.7 million;
• Seen pre-tax income increase to $2.1 million from a pre-tax loss of $128,000;
• Collected nearly all $560,000 of the former entity's outstanding receivables;
• Paid off all debt, including subordinated debt with warrants, owed by the former entity;
• Increased sales per employee from $128,000 to $1.1 million;
• Reported cash flow from operations of $2.3 million versus a negative cash flow of $687,000; and
• Returned $2.9 million to our stockholders in the form of dividends.

In order for this performance to continue, current management and the Board must remain.

THE OPPOSITION SLATE (NONE OF WHOM TO OUR KNOWLEDGE HAVE ANY EXPERIENCE OR CONTACTS WITH OUR SERVICE PARTNERS) WANTS TO REPLACE OUR ENTIRE BOARD AND TWO OR MORE OF OUR TOP THREE EXECUTIVES. WE BELIEVE THIS WOULD HAVE DISASTROUS CONSEQUENCES TO OUR COMPANY.

All our releases to stockholders can be viewed at www.pharmchek.com or www.otcmarkets.com.

THE NOTION THAT THE OPPOSITION – AND, IN PARTICULAR, BROWN – A STOCKHOLDER FOR ONLY FOUR MONTHS – POSSESSES THE CAPACITY TO REPLACE SENIOR MANAGEMENT AND THE ENTIRE BOARD, AND OVERSEE THE BUSINESS SUCH THAT IT WILL CONTINUE TO "PROSPER" IS MISGUIDED AND MISINFORMED.

SOURCE PharmChem, Inc.