PharmChem Reports First Quarter 2002 Results


HALTOM CITY, Texas, May 15, 2002 (PRIMEZONE) -- PharmChem, Inc., (Nasdaq:PCHM) announced that its net sales from continuing operations for the first quarter ended March 31, 2002 were $7,476,000, or 22.4% lower than first quarter 2001's sales of $9,634,000.

The Company reported a net loss from continuing operations for the current quarter of $310,000, or $0.05 per share, versus a net loss from continuing operations of $992,000, or $0.17 per share, a year ago. Last year's results from continuing operations include $561,000 of nonrecurring costs associated with the Company's relocation of its headquarters and laboratory to Haltom City. The prior year results also include $32,000 of goodwill amortization, which under SFAS No. 142, adopted by the Company effective January 1, 2002, is no longer required.

Excluding these costs and the amortization of goodwill, the net loss from continuing operations for 2001's first quarter, on a pro forma basis, would have been $399,000, or $0.07 per share, as compared to this year's loss of $310,000, or $0.05 per share.

These amounts exclude the results of Medscreen, which, as described below, was sold in March of this year and are being reported as discontinued operations. All per share amounts included herein are on a diluted basis.

After including Medscreen's first quarter net income of $359,000 in 2002 versus $292,000 in 2001, and the net gain on the sale of Medscreen of $4,277,000, the Company reported net income of $4,326,000, or $0.74 per share, compared to net loss of $700,000, or $0.12 per share last year.

In this year's first quarter, laboratory specimen volume in the U.S. (excluding the 2001 volume of thin layer chromatography testing, which ceased in November 2001), fell by nearly 24% as the overall weakness in workplace drug testing which began in September of last year continues.

The impact of the lower specimen revenues versus last year, while significant, was mitigated by the Company's successful cost reduction program which began in September 2001. The move to Texas has now been completed so that the cost structure and operating efficiencies of the new facility should be positive factors in the future of the Company. Net sales of products and other non-laboratory services were not impacted as severely as specimen testing, and declined only 9.1% in this year's first quarter. These sales comprised 17% of net sales in the current quarter versus 15% last year.

Capital expenditures for the current quarter were $482,000 versus $867,000 in last year's first quarter; depreciation and amortization expenses were $540,000 this year compared to $502,000 last year; and EBITDA was $335,000 (4.5% of sales) in 2002 and $127,000 (1.3% of sales) in 2001. EBITDA for 2001 is before $561,000 of nonrecurring costs related to the Company's relocation.

On March 25, 2002, the sale of 100% of the share capital of Medscreen, the Company's London-based subsidiary, was completed for approximately $10.0 million. A portion of the proceeds has been used to pay down over $4 million of existing bank debt and the balance will be used for general corporate purposes.

On March 1, 2002, the Company entered into an Amendment and Forbearance Agreement with its primary lender providing, among other things, for a partial repayment of outstanding indebtedness following the sale of Medscreen. All conditions of this Agreement have been met. The Company was in compliance with all covenants under its loan agreement at the end of the first quarter. On May 6, 2002, the lender proposed a 30-day extension of the current loan agreement, which expires on May 31, 2002, to afford it time to prepare a new loan agreement. It is anticipated that the Company will enter into a new credit facility during such 30-day period.

As previously reported, the Company received a letter from the Nasdaq Stock Market, Inc. -- Nasdaq -- stating that it was out of compliance with the $5 million minimum market value requirement for its publicly held shares for continued listing on the National Market. Publicly held shares exclude shares held directly or indirectly by any officer or director of the Company and by any person who is the beneficial owner of more than 10% of total shares outstanding. On April 12, 2002, Nasdaq informed the Company that the price of its common stock had, for the prior 30 days, closed below the minimum of $1.00 per share, also subjecting the Company to the possibility of delisting. Alternatively, Nasdaq gave the Company the option of applying to transfer its shares to the Nasdaq Small Cap Market. On April 30, 2002, the Company submitted its transfer application, which is now pending.

The foregoing includes certain 'forward-looking' statements, which involve risks and uncertainties including, without limitation, competitive conditions, economic conditions, credit availability, the possibility that contracts may be terminated or not renewed, customer acceptance of new products and regulatory issues. These and other factors affecting operating results are included in the Company's Form 10-K for the year ended December 31, 2001.

PharmChem is a leading independent laboratory providing integrated drug testing services to corporate and governmental clients seeking to detect and deter the use of illegal drugs. PharmChem operates a forensic drug-testing laboratory in Haltom City, Texas.


                          PHARMCHEM, INC.
            Condensed Consolidated Statements of Operations
       (000's omitted except per share amounts and percentages)
                              (unaudited)

                                                Three Months Ended
                                                     March 31,
                                                -------------------
                                                 2002        2001
                                                -------     -------
 Net sales                                      $ 7,476     $ 9,634
 Cost of sales                                    5,668       7,714*
                                                -------     -------
 Gross profit                                     1,808       1,920
                                                -------     -------

 Operating expenses                               2,013       2,824*
 Amortization of goodwill                          --            32
                                                -------     -------
                                                  2,013       2,856
                                                -------     -------
 Loss from operations                              (205)       (936)

 Interest expense                                   119          69
 Other expense (income)                              68         (13)
                                                -------     -------
                                                   (187)        (56)
                                                -------     -------

 Loss from continuing operations
  before income taxes                              (392)       (992)
 Benefit from income taxes                          (82)       --
                                                -------     -------
 Loss from continuing operations                   (310)       (992)
                                                -------     -------

 Discontinued operations:
 Income from operations of
  Medscreen, Ltd. (less income
  taxes of $184 in 2002 and $147 in 2001)           359         292
 Gain on sale of Medscreen (less
  income taxes of $1,116)                         4,277        --
                                                -------     -------
 Net income (loss)                              $ 4,326     $  (700)
                                                =======     =======
 Net income (loss) per common share**:

 Continuing operations                          $ (0.05)    $ (0.17)
 Discontinued operations                           0.79        0.05
                                                -------     -------
 Net income                                     $  0.74     $ (0.12)
                                                =======     =======
 Weighted average shares outstanding**            5,862       5,847
                                                =======     =======
 EBITDA:***

 Amount                                         $   335     $   127
                                                =======     =======
 Margin                                             4.5%        1.3%
                                                =======     =======

 *   Includes $476,000 in cost of sales and $85,000 in operating
     expenses of nonrecurring costs associated with relocating to
     Texas.

 **  Per share earnings and weighted average shares are on a diluted
     basis.

 *** Earnings from continuing operations before taxes, interest, other
     expense (income), depreciation and amortization, and, for 2001,
     before nonrecurring costs.

                            PHARMCHEM, INC.
                 Condensed Consolidated Balance Sheets
                            (000's omitted)
                              (Unaudited)

                                         March 31,    December 31,
                                           2002          2001*
                                          -------       -------
 Cash                                     $ 7,265       $   197
 Other current assets                       7,302         8,992
                                          -------       -------
 Total current assets                      14,567         9,189
 Property and equipment, net               12,857        12,915
 Non-current assets                           800         3,105
                                          -------       -------
 Total                                    $28,224       $25,209
                                          =======       =======

 Short-term debt                          $ 6,398       $ 7,212
 Other current liabilities                  7,661         8,229
                                          -------       -------
 Total current liabilities                 14,059        15,441

 Long-term debt                             2,822         3,030
 Stockholders' equity                      11,343         6,738
                                          -------       -------
 Total                                    $28,224       $25,209
                                          =======       =======


 *   The December 31, 2001 balance sheet has been reclassified to
     include Medscreen's excess of net current ($526) and non-current
     assets ($1,613) over liabilities in "other current assets" and
     "non-current assets" above.

            

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