UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended January 31, 2018
April 30, 2019
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to ______________
 
Commission File No. 000-50956
 
PHARMA-BIO SERV, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
 Delaware 20-0653570
 (State or Other Jurisdiction of
Incorporation or Organization)
 (IRS  Employer
 Identification No.)
 
Pharma-Bio Serv Building,
# 6 Road 696
Dorado, Puerto Rico
00646
(Zip Code)
(Address of Principal Executive Offices) (Zip Code)
 
Registrant’s Telephone Number, Including Area Code 787-278-2709
N/A
  (Former name, former address and former fiscal year, if changed since last report)  
Securities registered pursuant to Section 12(b) of the Act:None
Title of each classTrading Symbol(s)Name of each exchange on which registered
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer ☐Accelerated filer ☐
 Non-accelerated filer ☐☒Smaller reporting company☒company ☒
  Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
 
The number of shares of the registrant’s common stock outstanding as of March 15, 2018June 12, 2019 was 23,062,531.22,996,281.
 


 
 
PHARMA-BIO SERV, INC.
FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 2018APRIL 30, 2019
 
TABLE OF CONTENTS
  Page 
PART I FINANCIAL INFORMATION   
    
Item 1 – Financial Statements 1 
    
Condensed Consolidated Balance Sheets as of January 31, 2018April 30, 2019 and October 31, 20172018 (unaudited)
1
 
 
  
Condensed Consolidated Statements of Operations for the three-month and six-month periods ended January 31,April 30, 2019 and 2018 and 2017 (unaudited)
2
 
 
  
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three-month and six-month periods ended January 31,April 30, 2019 and 2018 and 2017 (unaudited)
3
 
 
  
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three-month and six-month periods ended April 30, 2019 and 2018 (unaudited)
4
Condensed Consolidated Statements of Cash Flows for the three-month and six-month periods ended January 31,April 30, 2019 and 2018 and 2017 (unaudited)
4
5
 
 
  
Notes to Condensed Consolidated Financial Statements (unaudited)
5
7
 
 
  
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
13
14
 
 
  
Item 4 – Controls and Procedures
18
19
 
 
  
PART II OTHER INFORMATION
  
 
  
Item 1 – Legal Proceedings
19
20
 
 
  
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
19
20
 
 
  
Item 6 – Exhibits
19
20
 
 
  
SIGNATURES
20
21
 
 
 
 
 
 
 
  
PARTPART I – FINANCIAL INFORMATION
 
Item 1. FINANCIAL STATEMENTS
Item 1. FINANCIAL STATEMENTS
 
PHARMA-BIOPHARMA-BIO SERV, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
January 31,
2018*
 
 
October 31,
2017**
 
ASSETS:
 
 
 
ASSETS
 
April 30,
2019*
 
 
October 31,
2018**
 
Current assets
 
 
 
 
 
 
Cash and cash equivalents
 $13,176,240 
 $11,751,714 
 $15,433,111 
 $16,029,920 
Marketable securities
  25,056 
  26,600 
Accounts receivable
  6,053,081 
  7,208,054 
  6,663,424 
  5,193,385 
Other
  439,967 
  550,163 
Current portion - promissory note receivable due from sale of assets from discontinued operations
  1,250,000 
  1,750,000 
Prepaids and other assets
  316,209 
  438,492 
Total current assets
  19,694,344 
  19,536,531 
  23,662,744 
  23,411,797 
    
    
Promissory note receivable due from sale of assets from discontinued operations
  1,250,000 
Property and equipment
  2,291,912 
  2,390,545 
  322,536 
  298,020 
Other assets
  423,180 
  422,925 
  419,055 
  418,495 
Total assets
 $22,409,436 
 $22,350,001 
 $25,654,335 
 $25,378,312 
    
    
LIABILITIES AND STOCKHOLDERS’ EQUITY:
    
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
    
Current liabilities
    
    
Current portion-obligations under capital leases
 $14,061 
 $13,949 
 $10,737 
 $13,768 
Accounts payable and accrued expenses
  1,467,663 
  1,526,904 
  1,510,603 
  2,140,001 
Income taxes payable
  2,875 
  2,067 
Current portion of US Tax Reform Transition Tax and income taxes payable
  414,955 
  411,903 
Total current liabilities
  1,484,599 
  1,542,920 
  1,936,295 
  2,565,672 
    
US Tax Reform Transition Tax payable
  2,700,000 
  - 
  2,270,000 
  2,485,000 
Obligations under capital leases
  56,397 
  59,795 
  72,668 
  46,027 
Other liabilities
  17,950 
Total liabilities
  4,240,996 
  1,602,715 
  4,296,913 
  5,114,649 
    
Stockholders' equity:
    
Stockholders' equity
    
Preferred Stock, $0.0001 par value; authorized 10,000,000 shares;
none outstanding
  - 
  - 
Common Stock, $0.0001 par value; authorized 50,000,000 shares; 23,333,083 and 23,333,083 shares issued, and 23,062,531 and 23,089,631 shares outstanding at January 31, 2018 and October 31, 2017, respectively
  2,333 
Common Stock, $0.0001 par value; authorized 50,000,000 shares; 23,397,707 and 23,373,817 shares issued, and 22,996,481 and 23,058,413 shares outstanding at April 30, 2019 and October 31, 2018, respectively
  2,340 
  2,337 
Additional paid-in capital
  1,312,864 
  1,295,314 
  1,364,956 
  1,346,956 
Retained earnings
  16,896,119 
  19,560,131 
  20,289,611 
  19,111,111 
Accumulated other comprehensive income
  218,946 
  137,671 
  92,522 
  107,947 
  18,430,262 
  20,995,449 
  21,749,429 
  20,568,351 
Treasury stock, at cost; 270,552 and 243,452 common shares held at January 31, 2018 and October 31, 2017, respectively
  (261,822) 
  (248,163) 
Treasury stock, at cost; 401,226 and 315,404 common shares held at April 30, 2019 and October 31, 2018, respectively
  (392,007)
  (304,688)
Total stockholders' equity
  18,168,440 
  20,747,286 
  21,357,422 
  20,263,663 
Total liabilities and stockholders' equity
 $22,409,436 
 $22,350,001 
 $25,654,335 
 $25,378,312 
 
*Unaudited.
**Condensed from audited financial statements.
 
See notes to the condensed consolidated financial statements.
 

 
PHARMA-BIOPHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three months ended January 31,
 
 
Three months ended April 30,
 
 
Six months ended April 30,
 
 
 2018
 
 
2017
 
 
2019
 
 
2018
 
 
 2019
 
 
2018
 
REVENUES
 $4,212,378 
 $4,046,291 
 $5,150,344 
 $3,765,358 
 $9,716,541 
 $7,491,954 
    
    
COST OF SERVICES
  3,129,233 
  3,013,946 
  3,556,942 
  2,728,346 
  6,644,079 
  5,273,416 
    
    
GROSS PROFIT
  1,083,145 
  1,032,345 
  1,593,402 
  1,037,012 
  3,072,462 
  2,218,538 
    
    
    
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
  1,063,983 
  1,416,342 
  1,116,474 
  1,066,374 
  2,163,033 
  2,036,962 
    
    
INCOME (LOSS) FROM OPERATIONS
  19,162 
  (383,997)
INCOME (LOSS) FROM CONTINUING OPERATIONS
  476,928 
  (29,362)
  909,429 
  181,576 
    
    
OTHER INCOME, NET
  17,849 
  3,612 
  305,813 
  20,679 
  387,287 
  38,450 
    
    
INCOME (LOSS) BEFORE INCOME TAX AND US TAX REFORM TRANSITION TAX EXPENSE
  37,011 
  (380,385)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX AND US TAX REFORM TRANSITION TAX EXPENSE
  782,741 
  (8,683)
  1,296,716 
  220,026 
    
    
INCOME TAX AND US TAX REFORM TRANSITION TAX EXPENSE
  2,701,023 
  1,750 
  75,258 
  - 
  118,213 
  2,701,023 
    
    
NET LOSS
 $(2,664,012)
 $(382,135)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
  707,483 
  (8,683)
  1,178,503 
  (2,480,997)
    
    
DISCONTINUED OPERATIONS NET LOSS FROM OPERATIONS, NET OF TAX
  - 
  (119,665)
  - 
  (311,363)
    
    
BASIC LOSSES PER COMMON SHARE
 $(0.115)
 $(0.017)
NET INCOME (LOSS)
 $707,483 
 $(128,348)
 $1,178,503 
 $(2,792,360)
    
    
DILUTED LOSSES PER COMMON SHARE
 $(0.115)
 $(0.017)
BASIC AND DILUTED EARNINGS (LOSSES) PER COMMON SHARE (Continuing operations)
 $0.031 
 $(0.001)
 $0.051 
 $(0.108)
    
BASIC AND DILUTED LOSSES PER COMMON SHARE (Discontinued operations)
 $- 
 $(0.005)
 $- 
 $(0.013)
    
    
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC
  23,063,997 
  23,051,349 
  23,002,903 
  23,062,531 
  23,032,107 
  23,076,594 
    
    
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED
  23,065,290 
  23,088,560 
  23,068,923 
  23,062,531 
  23,105,166 
  23,078,143 
See notes to the condensed consolidated financial statements.

PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
 
Three months ended April 30,
 
 
Six months ended April 30,
 
 
 
2019
 
 
2018
 
 
 2019
 
 
2018
 
NET INCOME (LOSS)
 $707,483 
 $(128,348)
 $1,178,503 
 $(2,792,360)
 
    
    
    
    
OTHER COMPREHENSIVE INCOME (LOSS), NET OF
RECLASSIFICATION ADJUSTMENTS AND TAXES:
    
    
    
    
Foreign currency translation gain (loss)
  (23,267)
  (47,262)
  (10,950)
  35,557 
Available-for-sale securities:
    
    
    
    
Net unrealized gain
  - 
  11,163 
  - 
  9,619 
Other-than-temporary impairment included in net income
  - 
  - 
  (4,475)
  - 
 
    
    
    
    
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
  (23,267)
  (36,099)
  (15,425)
  45,176 
 
    
    
    
    
COMPREHENSIVE INCOME (LOSS)
 $684,216 
 $(164,447)
 $1,163,078 
 $(2,747,184)
See notes to the condensed consolidated financial statements.

PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Other
 
 
 
 
 
 
 
FISCAL YEAR 2018 
 
Common Stock
 
 
Preferred Stock
 
 
Paid-in
 
 
Retained
 
 
Comprehensive
 
 
Treasury
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Income (Loss)
 
 
 Stock
 
 
Total
 
BALANCE AT NOVEMBER 1, 2017
  23,333,083 
 $2,333 
  - 
 $- 
 $1,295,314 
 $19,560,131 
 $137,671 
 $(248,163)
 $20,747,286 
 
    
    
    
    
    
    
    
    
    
STOCK-BASED COMPENSATION
  - 
  - 
  - 
  - 
  17,550 
  - 
  - 
  - 
  17,550 
 
    
    
    
    
    
    
    
    
    
PURCHASE OF TREASURY STOCK (27,100 SHARES)
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (13,659)
  (13,659)
 
    
    
    
    
    
    
    
    
    
NET LOSS
  - 
  - 
  - 
  - 
  - 
  (2,664,012)
  - 
  - 
  (2,664,012)
OTHER COMPREHENSIVE INCOME, NET OF TAX
  - 
  - 
  - 
  - 
  - 
  - 
  81,275 
  - 
  81,275 
 
    
    
    
    
    
    
    
    
    
BALANCE AT JANUARY 31, 2018
  23,333,083 
  2,333 
  - 
  - 
  1,312,864 
  16,896,119 
  218,946 
  (261,822)
  18,168,440 
 
    
    
    
    
    
    
    
    
    
STOCK-BASED COMPENSATION
  - 
  - 
  - 
  - 
  17,550 
  - 
  - 
  - 
  17,550 
 
    
    
    
    
    
    
    
    
    
NET LOSS
  - 
  - 
  - 
  - 
  - 
  (128,348)
  - 
  - 
  (128,348)
 
    
    
    
    
    
    
    
    
    
OTHER COMPREHENSIVE LOSS, NET OF TAX
  - 
  - 
  - 
  - 
  - 
  - 
  (36,099)
  - 
  (36,099)
 
    
    
    
    
    
    
    
    
    
BALANCE AT APRIL 30, 2018
  23,333,083 
 $2,333 
  - 
 $- 
 $1,330,414 
 $16,767,771 
 $182,847 
 $(261,822)
 $18,021,543 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Other
 
 
 
 
 
 
 
FISCAL YEAR 2019
 
Common Stock
 
 
Preferred Stock
 
 
Paid-in
 
 
Retained
 
 
Comprehensive
 
 
Treasury
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Income (Loss)
 
 
 Stock
 
 
Total
 
BALANCE AT NOVEMBER 1, 2018
  23,373,817 
 $2,337 
  - 
 $- 
 $1,346,956 
 $19,111,111 
 $107,947 
 $(304,688)
 $20,263,663 
 
    
    
    
    
    
    
    
    
    
STOCK-BASED COMPENSATION
  - 
  - 
  - 
  - 
  9,000 
  - 
  - 
  - 
  9,000 
 
    
    
    
    
    
    
    
    
    
ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS
  3,442 
  1 
  - 
  - 
  - 
  - 
  - 
  - 
  1 
 
    
    
    
    
    
    
    
    
    
PURCHASE OF TREASURY STOCK (65,772 SHARES)
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (65,755)
  (65,755)
 
    
    
    
    
    
    
    
    
    
NET INCOME
  - 
  - 
  - 
  - 
  - 
  471,020 
  - 
  - 
  471,020 
OTHER COMPREHENSIVE INCOME, NET OF TAX
  - 
  - 
  - 
  - 
  - 
  - 
  7,842 
  - 
  7,842 
 
    
    
    
    
    
    
    
    
    
BALANCE AT JANUARY 31, 2019
  23,377,259 
  2,338 
  - 
  - 
  1,355,956 
  19,582,131 
  115,789 
  (370,443)
  20,685,771 
 
    
    
    
    
    
    
    
    
    
STOCK-BASED COMPENSATION
  - 
  - 
  - 
  - 
  9,000 
  - 
  - 
  - 
  9,000 
 
    
    
    
    
    
    
    
    
    
ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS
  20,448 
  2 
  - 
  - 
  - 
  (3)
  - 
  - 
  (1)
 
    
    
    
    
    
    
    
    
    
PURCHASE OF TREASURY STOCK (20,050 SHARES)
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (21,564)
  (21,564)
 
    
    
    
    
    
    
    
    
    
NET INCOME
  - 
  - 
  - 
  - 
  - 
  707,483 
  - 
  - 
  707,483 
 
    
    
    
    
    
    
    
    
    
OTHER COMPREHENSIVE LOSS, NET OF TAX
  - 
  - 
  - 
  - 
  - 
  - 
  (23,267)
  - 
  (23,267)
 
    
    
    
    
    
    
    
    
    
BALANCE AT APRIL 30, 2019
  23,397,707 
 $2,340 
  - 
 $- 
 $1,364,956 
 $20,289,611 
 $92,522 
 $(392,007)
 $21,357,422 
See notes to condensed consolidated financial statements

PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Three months ended April 30,
 
 
Six months ended April 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 $707,483 
 $(128,348)
 $1,178,503 
 $(2,792,360)
Add: net loss from discontinued operations
  - 
  119,665 
  - 
  311,363 
Net income (loss) from continuing operations
  707,483 
  (8,683)
  1,178,503 
  (2,480,997)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) continuing operating activities:
    
    
    
    
Gain on disposition of property and equipment
  (47,392)
  - 
  (47,392)
  - 
Stock-based compensation
  9,000 
  17,550 
  18,000 
  35,100 
Depreciation and amortization
  21,844 
  21,214 
  48,682 
  44,257 
Other-than-temporary impairment on available-for-sale securities
  - 
  - 
  (4,475)
  - 
(Increase) decrease in accounts receivable
  (1,212,558)
  (164,104)
  (1,473,845)
  986,459 
Decrease in other assets
  23,593 
  61,580 
  80,329 
  167,734 
Increase (decrease) in liabilities
  (324,887)
  232,020 
  (840,431)
  2,823,954 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF CONTINUING OPERATIONS
  (822,917)
  159,577 
  (1,040,629)
  1,576,507 
CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS:
    
    
    
    
Disposal of marketable securities
  - 
  - 
  44,475 
  - 
Acquisition of property and equipment
  (35,761)
  (6,649)
  (38,844)
  (57,764)
Proceeds from sale of property and equipment
  99,038 
  - 
  99,038 
  - 
Collection from promissory note receivable
  500,000 
  - 
  500,000 
  - 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS
  563,277 
  (6,649)
  604,669 
  (57,764)
CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS:
    
    
    
    
Repurchase of common stock
  (21,564)
  - 
  (87,319)
  (13,659)
Payments on obligations under capital lease
  (58,993)
  (3,327)
  (62,390)
  (6,613)
NET CASH USED IN FINANCING ACTIVITIES OF CONTINUING OPERATIONS
  (80,557)
  (3,327)
  (149,709)
  (20,272)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
  (25,218)
  (28,161)
  (11,140)
  (17,423)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS
  (365,415)
  121,440 
  (596,809)
  1,481,048 
DISCONTINUED OPERATIONS:
    
    
    
    
Net cash used in operating activities
  - 
  (277,995)
  - 
  (155,652)
Net cash used in investing activities
  - 
  - 
  - 
  - 
Net cash used in financing activities
  - 
  - 
  - 
  - 
CASH USED IN DISCONTINUED OPERATIONS
  - 
  (277,995)
  - 
  (155,652)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  (365,415)
  (156,555)
  (596,809)
  1,325,396 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
  15,798,526 
  13,073,499 
  16,029,920 
  11,591,548 
CASH AND CASH EQUIVALENTS – END OF PERIOD
 $15,433,111 
 $12,916,944 
 $15,433,111 
 $12,916,944 
 
See notes to the condensed consolidated financial statements.
 

 
PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Comprehensive LossCash Flows (Continued)
(Unaudited)
 
 
 
Three months ended January 31,
 
 
 
 2018
 
 
2017
 
NET LOSS
 $(2,664,012)
 $(382,135)
 
    
    
OTHER COMPREHENSIVE INCOME (LOSS), NET OF RECLASSIFICATION ADJUSTMENTS AND TAXES:
    
    
Foreign currency translation gain (loss)
  82,819 
  3,701 
Net unrealized gain on available-for-sale securities
  (1,544)
  1,686 
 
    
    
TOTAL OTHER COMPREHENSIVE INCOME
  81,275 
  5,387 
 
    
    
COMPREHENSIVE LOSS
 $(2,582,737)
 $(376,748)
 
 
Three months ended April 30,
 
 
Six months ended April 30,
 
 
 
2019
 
 
2018
 
 
2019  
 
 
2018
 
SUPPLEMENTAL DISCLOURES OF
CASH FLOWS INFORMATION:
 
 
 
 
 
 
 
  
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
 
  
 
 
 
 
Income taxes
 $326,898 
 $- 
 $326,898 
 $- 
Interest
 $1,425 
 $549 
 $1,904 
 $1,091 
 
    
    
    
    
SUPPLEMENTARY SCHEDULES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
    
    
    
    
Income tax withheld by clients to be used as a credit in the Company’s income tax return
 $17,411 
 $16,478 
 $24,000 
 $18,245 
Conversion of cashless exercise of options to shares of common stock and shares issued under restricted stock unit agreements
 $2 
 $- 
 $3 
 $- 
Obligations under capital lease incurred for the acquisition of a vehicle
 $86,000 
 $- 
 $86,000 
 $- 
Disposed property and equipment with accumulated depreciation of $86,773 for the three and six months ended April 30, 2019
 $138,419 
 $- 
 $138,419 
 $- 
 
See notes to the condensed consolidated financial statements.
 

PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Three months ended January 31,
 
 
 
2018
 
 
2017
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
Net loss
 $(2,664,012)
 $(382,135)
Adjustments to reconcile net loss to net cash provided by operating activities:
    
    
Stock-based compensation
  17,550 
  22,050 
Depreciation and amortization
  149,748 
  109,460 
Decrease in accounts receivable
  1,245,340 
  849,170 
Decrease in other assets
  121,079 
  178,378 
Increase (decrease) in liabilities
  2,612,143 
  (591,532)
NET CASH PROVIDED BY OPERATING ACTIVITIES
  1,481,848 
  185,391 
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES:
    
    
Acquisition of property and equipment
  (51,115)
  (280,722)
NET CASH USED IN INVESTING ACTIVITIES
  (51,115)
  (280,722)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES:
    
    
Repurchase of common stock
  (13,659)
  (1,882)
Payments on obligations under capital lease
  (3,286)
  (5,918)
NET CASH USED IN FINANCING ACTIVITIES
  (16,945)
  (7,800)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
  10,738 
  165 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  1,424,526 
  (102,966)
 
    
    
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
  11,751,714 
  13,773,582 
 
    
    
CASH AND CASH EQUIVALENTS – END OF PERIOD
 $13,176,240 
 $13,670,616 
 
    
    
SUPPLEMENTAL DISCLOURES OF CASH FLOWS INFORMATION:
    
    
Cash paid during the period for:
    
    
Income taxes
 $- 
 $40 
Interest
 $542 
 $635 
 
    
    
SUPPLEMENTARY SCHEDULES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
    
    
Income tax withheld by clients to be used as a credit in the Company’s income tax return
 $1,767 
 $14,230 
Conversion of cashless exercise of options to shares of common stock and shares issued under restricted stock unit agreements
 $- 
 $10 
Disposed property and equipment with accumulated depreciation of $30,034 for the three months ended January 31, 2017
 $- 
 $30,034 
See notes to the condensed consolidated financial statements.

PHARMA-BIO SERV, INC.
NotesNotes To Condensed Consolidated Financial Statements
January 31, 2018April 30, 2019
(Unaudited)
 
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
ORGANIZATION
 
Pharma-Bio Serv, Inc. (“Pharma-Bio”) is a Delaware corporation organized on January 14, 2004. Pharma-Bio is the parent company of Pharma-Bio Serv PR, Inc. (“Pharma-PR”), Pharma Serv, Inc. (“Pharma-Serv”), and Scienza Labs, Inc. (“Scienza Labs”), each a Puerto Rico corporation, Pharma-Bio Serv US, Inc. (“Pharma-US”), a Delaware corporation, Pharma-Bio Serv Validation & Compliance Limited (“Pharma-IR”), an Irish corporation currently inactive, Pharma-Bio Serv SL (“Pharma-Spain”), a Spanish limited liability company, and Pharma-Bio Serv Brasil Servicos de Consultoria Ltda. (“Pharma-Brazil”), a Brazilian limited liability company. Pharma-Bio, Pharma-PR, Pharma-Serv, Scienza Labs, Pharma-US, Pharma-IR, Pharma-Spain and Pharma-Brazil are collectively referred to as the “Company.” The Company operates in Puerto Rico, the United States, Ireland, Spain and Brazil under the name of Pharma-Bio Serv and is engaged in providing technical compliance consulting service, and until September 17, 2018 microbiological and chemical laboratory testing.testing (the “Lab”).
 
Scienza Labs is a wholly owned subsidiary, which was organized in Puerto Rico in April 2016. AsOn September 17, 2018 (the “Sales Closing Date”), the Company sold substantially all of January 31, 2018, this subsidiary was in development stage and has not incurred significant revenues or expenses.its Lab business assets (the “Laboratory Assets”).
 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
The condensed consolidated balance sheet of the Company as of October 31, 20172018 is derived from audited consolidated financial statements but does not include all disclosures required by generally accepted accounting principles. The unaudited interim condensed consolidated financial statements, include all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods. The results of operations for the threesix months ended January 31, 2018April 30, 2019 are not necessarily indicative of expected results for the full 20182019 fiscal year.
 
The accompanying financial data as of January 31, 2018,April 30, 2019, and for the three-month periodand six-month periods ended January 31,April 30, 2019 and 2018 and 2017 has been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally contained in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in our audited Consolidated Financial Statements and the notes thereto for the fiscal year ended October 31, 2017.2018.
 
Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. 
Segments
On the Sales Closing Date, the Company sold substantially all of its Laboratory Assets. As a result of the sale, the Company currently operates in three reportable business segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting. Accordingly, the accompanying consolidated financial statements are presented to show these three reportable segments as continuing operations, while the Lab is presented as a discontinued operation.
 
Use of Estimates
 
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from these estimates.

 
Fair Value of Financial Instruments
 
Accounting standards have established a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting standards have established three levels of inputs that may be used to measure fair value:
 
Level 1:
Quoted prices in active markets for identical assets and liabilities.

Level 2:
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Marketable securities available-for-sale consist of U.S. Treasury securities and an obligation from the Puerto Rico Government Development Bank valued using quoted market prices in active markets. Accordingly, these securities are categorized in Level 1.
Level 1:
Quoted prices in active markets for identical assets and liabilities.
Level 2:
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
 
The carrying value of the Company's financial instruments (excluding marketable securities and obligations under capital leases), cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, are considered reasonable estimates of fair value due to their liquidity or short-term nature. Management believes, based on current rates, that the fair value of its obligations under capital leases approximates the carrying amount.
 
Revenue Recognition
 
In May 2014, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services. The FASB subsequently issued additional, clarifying standards to address issues arising from implementation of the new revenue recognition standard. The new revenue recognition standard and clarifying standards require an entity to recognize revenue when control of promised goods or services is transferred to the customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this new standard as of November 1, 2018, by applying the modified-retrospective method to those contracts that were not completed as of that date. The results for reporting periods beginning after November 1, 2018, are presented in accordance with the new standard, although comparative information has not been restated and continues to be reported under the accounting standards and policies in effect for those periods.The adoption of this new standard had an immaterial impact on our reported total revenues and operating income as compared to what reported amounts would have been under the prior standard, and we expect the impact of adoption in future periods to also be immaterial.
Revenue is primarily derived from: (1) time and materials contracts (representing approximately 88%99% of total revenues), which is recognized by applying the proportional performance model, whereby revenue is recognized as performance occurs, and (2) short-term fixed-fee contracts or "not to exceed" contracts (representing approximately 1% of total revenues), which revenue is recognized similarly, except that certain milestones also have to be reached before revenue is recognized, and (3) laboratory testing revenue (representing approximately 11% of total revenues) is mainly recognized as the testing is completed and certified (normally within days of sample receipt from the customer).recognized. If the Company determines that a contract will result in a loss, the Company recognizes the estimated loss in the period in which such determination is made.
 
Cash Equivalents
 
For purposes of the consolidated statements of cash flows, cash equivalents include investments in a money market obligations trust that is registered under the U.S. Investment Company Act of 1940, as amended, and liquid investments with original maturities of three months or less.
Marketable Securities
We consider our marketable security investment portfolio and marketable equity investments as available-for-sale and, accordingly, these investments are recorded at fair value with unrealized gains and losses generally recorded in other comprehensive income; whereas realized gains and losses are included in earnings and determined based on the specific identification method.
We review our available-for-sale securities for other-than-temporary declines in fair value below their cost basis on a quarterly basis and whenever events or changes in circumstances indicate that the cost basis of an asset may not be materially recoverable. This evaluation is based on a number of factors including, the length of time and extent to which the fair value has been less than our cost basis and adverse conditions specifically related to the security including any changes to the rating of the security by a rating agency.
 
Accounts Receivable
 
Accounts receivable are recorded at their estimated realizable value. Accounts are deemed past due when payment has not been received within the stated time period. The Company's policy is to review individual past due amounts periodically and write off amounts for which all collection efforts are deemed to have been exhausted. Due to the nature of the Company’s customers, bad debts are mainly accounted for using the direct write-off method whereby an expense is recognized only when a specific account is determined to be uncollectible. The effect of using this method approximates that of the allowance method.
 
Income Taxes
 
The Company follows an asset and liability approach method of accounting for income taxes. This method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.
 

The Company follows guidance from the Financial Accounting Standards Board (“FASB”) related to Accounting for Uncertainty in Income Taxes, which includes a two-step approach to recognizing, de-recognizing and measuring uncertain tax positions. As of January 31, 2018,April 30, 2019, the Company had no significant uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.
 

Property and Equipment
 
Owned property and equipment, and leasehold improvements are stated at cost. Vehicles under capital leases are stated at the lower of fair market value or net present value of the minimum lease payments at the inception of the leases.
 
Depreciation and amortization of owned assets are provided for, when placed in service, in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, using straight-line basis. Assets under capital leases and leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the lease term, including renewals that have been determined to be reasonable assured. Major renewals and betterments that extend the life of the assets are capitalized, while expenditures for repairs and maintenance are expensed when incurred. As of January 31, 2018April 30, 2019 and October 31, 2017,2018, the accumulated depreciation and amortization amounted to $2,443,077$458,862 and $2,293,329,$496,953, respectively.
 
The Company evaluates for impairment its long-lived assets to be held and used, and long-lived assets to be disposed of, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Based on management estimates, no impairment of the operating properties was present.present as of April 30, 2019 and October 31, 2018.
 
Stock-based Compensation
 
Stock-based compensation expense is recognized in the consolidated financial statements based on the fair value of the awards granted. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period, and includes an estimate of awards that will be forfeited. The Company calculates the fair value of stock options using the Black-Scholes option-pricing model at the grant date, while for restricted stock units the fair market value of the units is determined by Company’s share market value at grant date. Excess tax benefits related to stock-based compensation are reflected as cash flows from financing activities rather than cash flows from operating activities. The Company has not recognized such cash flows from financing activities since there has been no tax benefit related to the stock-based compensation.
 
LossEarnings (Loss) Per Share of Common Stock
 
Basic lossearnings (loss) per share of common stock is calculated by dividing net lossearnings (loss) by the weighted average number of shares of common stock outstanding. Diluted loss per share includes the dilution of common stock equivalents, which include principally shares that may be issued upon the exercise of warrants, stock option and restricted stock unit awards.
 
The diluted weighted average shares of common stock outstanding were calculated using the treasury stock method for the respective periods.
 
Foreign Operations
 
The functional currency of the Company’s foreign subsidiaries is its local currency. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period. The cumulative translation effect for subsidiaries using a functional currency other than the U.S. dollar is included as a cumulative translation adjustment in stockholders’ equity and as a component of comprehensive income.
 
The Company’s intercompany accounts are typically denominated in the functional currency of the foreign subsidiary. Gains and losses resulting from the remeasurement of intercompany receivables that the Company considers to be of a long-term investment nature are recorded as a cumulative translation adjustment in stockholders’ equity and as a component of comprehensive income, while gains and losses resulting from the remeasurement of intercompany receivables from those international subsidiaries for which the Company anticipates settlement in the foreseeable future are recorded in the consolidated statements of operations.
 
Subsequent Events
 
The Company has evaluated subsequent events through the filing date of this report. The Company has determined that there are no events occurring in this period that required disclosure or adjustment.
 

Reclassifications
 
Certain reclassifications have been made to the January 31, 2017April 30, 2018 condensed consolidated financial statements to conform them to the January 31, 2018April 30, 2019 condensed consolidated financial statements presentation. Such reclassifications do not affect net loss as previously reported.
 

Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard that amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services. The FASB has subsequently issued additional, clarifying standards to address issues arising from implementation of the new revenue standard. The new standards are required to be adopted using either a full retrospective or a modified retrospective approach. We expect to adopt this standard using the modified retrospective approach beginning with our fiscal year 2019. Based on our preliminary assessment, we currently do not anticipate a material impact to our total revenues. We continue to review the impact that this new standard will have on our consolidated financial statements.implemented
 
In February 2016, the FASB issued a new accounting standard that amends the guidance for the accounting and disclosure of leases. This new standard requires that lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about their leasing arrangements. The new standard is effective for interim and annual periods beginning on January 1, 2019 and may be adopted earlier. We continueThis standard is effective for the Company’s first quarter of fiscal year 2020. The Company continues to evaluate the impact that this new standard will have on ourits consolidated financial statements. We doThe Company does not expect that this standard will have a material impact to ourits Consolidated Statements of Operations but expectexpects that this standard will have a material impact toon the assets and liabilities on ourits Consolidated Balance Sheets upon adoption.
 
Other recently issued FASB guidance and SEC Staff Accounting Bulletins have either been implemented, are not applicable to the Company, or will have limited effects upon the Company’s implementation.
NOTE B – MARKETABLE SECURITIES AVAILABLE FOR SALEPROMISSORY NOTE
 
The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair valuesOn September 17, 2018, the Company completed the sale of available-for-sale securities by type of security were as follows as of January 31, 2018 and October 31, 2017:
Type of security as of January 31, 2018
 
Amortized Cost
 
 
Gross
Unrealized Gains
 
 
Gross
Unrealized Losses
 
 
Estimated
Fair Value
 
U.S. Treasury securities
 $4,500,000 
 $— 
 $— 
 $4,500,000 
Other government-related debt securities:
    
    
    
    
Puerto Rico Commonwealth Government Development Bond
  40,000 
  — 
  (14,944)
  25,056 
Total interest-bearing and available-for-sale securities
 $4,540,000 
 $— 
 $(14,944)
 $4,525,056 
Type of security as of October 31, 2017
 
Amortized Cost
 
 
Gross
Unrealized Gains
 
 
Gross
Unrealized Losses
 
 
Estimated
Fair Value
 
U.S. Treasury securities
 $4,500,000 
 $- 
 $- 
 $4,500,000 
Other government-related debt securities:
    
    
    
    
Puerto Rico Commonwealth Government Development Bond
  40,000 
  - 
  (13,400)
  26,600 
Total interest-bearing and available-for-sale securities
 $4,540,000 
 $- 
 $(13,400)
 $4,526,600 
At January 31, 2018 and October 31, 2017, the above marketable securities included a 5.4% Puerto Rico Commonwealth Government Development Bank Bond in the amount of $95,000, purchased at par and maturing in August 2019.
The fair values of available-for-sale securities by classification in the Consolidated Balance Sheets were as follows as of January 31, 2018 and October 31, 2017:
Classification in the Consolidated Balance Sheets
 
January 31,
2018
 
 
October 31,
2017
 
Cash and cash equivalents
 $4,500,000 
 $4,500,000 
Marketable securities
  25,056 
  26,600 
Total available-for-sale securities
 $4,525,056 
 $4,526,600 

Cash and cash equivalents in the table above exclude cash in banks of approximately $8.6its Laboratory Assets for $5 million and $7.2received, as partial payment, a $3 million asPromissory Note from the purchaser. The Promissory Note is composed of January 31, 2018two tranches; (i) Tranche A for $2 million and October 31, 2017,secured with lab equipment and (ii) Tranche B for $1 million which is unsecured. The interest rate accrual is 3% for Tranche A and 5% for Tranche B. Interest is due semi-annually in arrears commencing on the six-month after the Sales Closing Date. Tranche A is due in two installments of $750,000 and $1,250,000, on September 17, 2019 and 2020, respectively.
The primary objectives Tranche B first installment of $500,000 was collected during the Company’s investment portfolio are liquidityquarter ended April 30, 2019, and safetya second installment of principal. Investments are made with the objective of achieving the highest rate of return consistent with these two objectives. Our investment policy limits investments to certain types of debt and money market instruments issued by institutions primarily with investment grade credit ratings and places restrictions$500,000 is due on maturities and concentration by type and issuer.
September 17, 2019.
 
NOTE C - INCOME TAXES
 
On December 22, 2017, Public Law 115-97, commonly known as the Tax Cuts and Jobs Act of 2017 (the “Tax Reform”), was enacted. The Tax Reform is applicable to ourthe Company commencing with ourits fiscal year 2018, including the Transition Tax provisions which establishes measurement dates for various computations, November 2, 2017, December 31, 2017 and October 31, 2018. The Tax Reform imposed a mandatory one-time transition tax (the “Transition Tax”) over foreign subsidiaries undistributed earnings and profits (E&Ps)(“E&Ps”) earned prior to a date set by the statute. Based on the Company’s E&Ps, the Transition Tax is estimated to be approximately $2.7 million. However, the final Transition Tax due must be assessed with our October 31, 2018 closing figures. The Transition Tax liability mightmay be paid over a period of eight years starting on February 28,with the Company’s fiscal year 2019. In the past, most of these E&Ps’ were not repatriated since such E&Ps’ were considered to be reinvested indefinitely in the foreign location, therefore no US tax liability was incurred unless the E&Ps were repatriated as a dividend. After December 31, 2017, the Tax Reform has established a 100% tax exemption on the foreign-source portion of dividends received attributable to E&Ps, with certain limitations.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Reform. SAB 118 provides a measurement period that should not extend beyond one year from the date of the Tax Reform enactment for companies to complete the accounting under Accounting Standards Codification 740—Income Taxes. In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but the company is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. As mentioned in the preceding paragraph, the Company’s accounting for certain elements of the Tax Reform is incomplete. However, the Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional tax obligation of approximately $2.7 million, as reflected in the condensed consolidated financial statements. The Company is continuing to gather additional information to more precisely compute the amount of Transition Tax, and whether it will be paid over an eight-year period.
 
In June 2011, Pharma-Bio, Pharma-PR and Pharma-Serv obtained a Grant of Industrial Tax Exemption pursuant to the terms and conditions set forth in Act No. 73 of May 28, 2008 (“the Grant”) issued by the Puerto Rico Industrial Development Company (“PRIDCO”). The Grant was effective as of November 1, 2009 and covers a fifteen yearfifteen-year period. The Grant provides relief on various Puerto Rico taxes, including income tax, with certain limitations, for most of the activities carried on within Puerto Rico, including those that are for services to parties located outside of Puerto Rico. Industrial Development Income (“IDI”) covered under the Grant are subject to a fixed income tax rate of 4%. In addition, IDI earnings distributions accumulated since November 1, 2009 are totally exempt from Puerto Rico earnings distribution tax.
 
Puerto Rico operations not covered in the exempt activities of the Grant are subject to Puerto Rico income tax at a maximum tax rate of 39% as provided by the 1994 Puerto Rico Internal Revenue Code, as amended. The operations carried out in the United States by the Company’s subsidiary was taxed in the United States at a maximum regular federal income tax rate of 35%. Among the Tax Reform provisions, effective with the Company’s fiscal year ending on October 31, 2018, is a provision whereby the regular federal income tax rate wasis reduced to 21%.
Distribution of earnings by the Puerto Rican subsidiaries to its parent are taxed at the federal level, however, the parent is able to receive a credit for the taxes paid by the subsidiary on its operations in Puerto Rico, to the extent of the federal taxes that result from those earnings. As a result, the income tax expense of the Company, under its present corporate structure, would normally be the Puerto Rico taxes on operations in Puerto Rico, federal taxes on operations in the United States, plus the earnings distribution tax in Puerto Rico from dividends paid to the Puerto Rican subsidiaries’ parent,23.5% blended rate and the parent’s federal income tax, if any, incurred upon the subsidiary’s earnings distribution.21% thereafter.
 
Deferred income tax assets and liabilities are computed for differences between the consolidated financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.
 

Pharma-Spain, Pharma-IR, Pharma-Bio/Pharma-US, Pharma-PR and Pharma-Serv have unused operating losses which result in a potential deferred tax asset. However, an allowance has been provided covering the total amount of such balance since it is uncertain whether the net operating losses can be used to offset future taxable income before their expiration dates. Realization of future tax benefits related to a deferred tax asset is dependent on many factors, including the company’s ability to generate taxable income. Accordingly, the income tax benefit will be recognized when realization is determined to be more probable than not. These net operating losses are available to offset future taxable income through 20322033 for Pharma-Spain; indefinitely for Pharma-IR; until 20372038 for Pharma-Bio/Pharma-US; until 2027 for Pharma-PR and Pharma-Serv.
The statutory income tax rate differs from the effective rate, mainly due to the effect of the non-recurring Transition Tax imposed by the Tax Reform over the Company’s E&Ps.
 
The Company files income tax returns in the United States (federal and various states jurisdictions), Puerto Rico, Ireland, Spain and Brazil. The 2013 (20122014 (2013 for Puerto Rico) through 20162017 tax years are open and may be subject to potential examination in one or more jurisdictions. Currently, the Company has no federal, state, Puerto Rico or foreign income tax examination.

 
NOTE D – WARRANTS
 
On December 2014, the Company entered into an agreement with a firm for providing (i) business development and (ii) mergers and acquisition services to the Company. Pursuant to the agreement terms, the Company issued warrants for the purchase of 1,000,000 common shares at an exercise price of $1.80 per share. The underlying common shares of the warrants are fully vested and expire on December 1, 2019.
 
NOTE E – CAPITALEQUITY TRANSACTIONS
 
On June 13, 2014, the Board of Directors of the Company authorized the Company to repurchase up to two million shares of its outstanding common stock.stock (the “Repurchase Program”). The timing, manner, price and amount of any repurchases under the Repurchase Program will be at the discretion of the Company, subject to the requirements of the Securities Exchange Act of 1934, as amended, and related rules. The programRepurchase Program does not oblige the Company to repurchase any shares and it may be modified, suspended or terminated at any time and for any reason. No shares will be repurchased under the Repurchase Program directly from directors or officers of the Company. As of January 31, 2018April 30, 2019 and October 31, 2017, pursuant to the program,2018, a total of 270,552338,254 and 243,452315,404 shares of the Company’s common stock were purchased under the Repurchase Program for an aggregate amount of $261,822$329,035 and $248,163,$304,688, respectively. Also, on November 26, 2018, the Company repurchased 62,972 shares of common stock, outside of the Repurchase Program, from the Company’s Chief Executive Officer at $1.00 per share. These shares were repurchased at a discount to market to provide for an orderly disposition of the shares.
 
NOTE F – EARNINGS (LOSSES) PER SHARE
 
The following data shows the amounts used in the calculations of basic and diluted lossesearnings (losses) per share.
 
 
Three months
ended January 31,
 
 
Three months ended April 30,
 
 
Six months ended April 30,
 
 
2018
 
 
2017
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Net loss available to common equity holders - used to compute basic and diluted earnings per share
 $(2,664,012)
 $(382,135)
Net income (loss) available to common equity holders - used to compute basic and diluted earnings (losses) per share (continuing operations)
 $707,483 
 $(8,683)
 $1,178,503 
 $(2,480,997)
Net income (loss) available to common equity holders - used to compute basic and diluted earnings (losses) per share (discontinued operations)
 $- 
 $(119,665)
 $- 
 $(311,363)
    
    
Weighted average number of common shares - used to compute basic losses per share
  23,063,997 
 ��23,051,349 
Weighted average number of common shares - used to compute basic earnings (losses) per share
  23,002,903 
  23,062,531 
  23,032,107 
  23,076,594 
Effect of warrants to purchase common stock
  - 
  - 
Effect of restricted stock units to common stock
  - 
  11,224 
  - 
Effect of options to purchase common stock
  1,293 
  25,987 
  66,020 
  - 
  73,059 
  1,549 
Weighted average number of shares - used to compute diluted losses per share
  23,065,290 
  23,088,560 
Weighted average number of shares - used to compute diluted earnings (losses) per share
  23,068,923 
  23,062,531 
  23,105,166 
  23,078,143 
 
WarrantsFor the three-month and six-month periods ended April 30, 2019 and 2018, warrants for the purchase of 1,000,000 shares of 1,000,000 common stock for the three-month periods ended in January 31, 2018 and 2017 were not includedconsidered in computing diluted earnings per share because their effects werethe effect was antidilutive. In addition, options for the purchase of 620,000 and 570,00080,000 shares of common stock for the three-month and six-month periods ended in January 31,April 30, 2019, and 700,000 and 620,000 shares of common stock for the three-month and six-month periods ended April 30, 2018, and 2017, respectively, were not included in computing diluted earnings (losses) per share because their effects were also antidilutive.
 

 
NOTE G - CONCENTRATIONS OF RISK
 
Cash and cash equivalents
 
The Company’s domestic cash and cash equivalents consist of cash deposits in FDIC insured banks (substantially covered by FDIC insurance by the spread of deposits in multiple FDIC insured banks), a money market obligations trust registered under the US Investment Company Act of 1940, as amended, and U.S. Treasury securities with maturities of three months or less. In the foreign markets we serve, we also maintain cash deposits in foreign banks, which tend to be not significant and have no specific insurance. No losses have been experienced or are expected on these accounts.
 
Accounts receivable and revenues
 
Management deems all of its accounts receivable to be fully collectible, and, as such, does not maintain any allowances for uncollectible receivables.
 
The Company's revenues, and the related receivables, are concentrated in the pharmaceutical industry in Puerto Rico, the United States, Ireland, Spain and Brazil. Although a few customers represent a significant source of revenue, the Company’s functions are not a continuous process, accordingly, the client base for which the services are typically rendered, on a project-by-project basis, changes regularly.
 
The Company provided a substantial portion of its services to threefour customers, which accounted for 10% or more of its revenues in either of the three-month and six-month periods ended January 31, 2018April 30, 2019 and 2017.2018. During the three months ended January 31, 2018,April 30, 2019, revenues from these customers were 15.3%26.6%, 10.8%11.1%, 12.2% and 1.5%9.9%, or a total of 27.6%59.8%, as compared to the percentages for the same period last year of 9.3%11.0%, 0.0%3.2%, 17.6% and 13.8%6.9%, or a total of 23.1%38.7%, respectively. During the six months ended April 30, 2019, revenues from these customers were 22.2%, 7.4%, 11.6% and 10.5%, or a total of 51.7%, as compared to the same period last year of 7.4%, 4.0%, 16.9% and 7.8%, or a total of 36.1%, respectively. At January 31, 2018,April 30, 2019, amounts due from these customers represented 28.6%65.9% of the Company’s total accounts receivable balance.
The This customer information related to major customers in the above paragraph is based on revenues earned from said customers at the segment level because in management’s opinion contracts by segments are totally independent of each other, and therefore such information is more meaningful to the reader. However, at
At the global level, four customersglobal groups of affiliated companies accounted for 10% or more of the Company’sits revenues in either of the three-month and six-month periods ended January 31, 2018April 30, 2019 and 2017.2018. During the three months ended January 31, 2018,April 30, 2019, aggregate revenues from these global groups of affiliated companies were 15.3%26.6%, 10.8%14.2%, 8.0%12.2%, and 1.5%9.9%, or a total of 35.6%62.9%, as compared to the same period last year for 9.3%11.0%, 0.0%5.3%, 10.8%17.6%, and 13.8%6.9%, or a total of 33.9%40.8%, respectively. During the six months ended April 30, 2019, aggregate revenues from these global group of affiliated companies were 22.2%, 10.7%, 11.6% and 10.5%, or a total of 55.0%, as compared to the same period last year for 7.4%, 6.7%, 16.9% and 7.8%, or a total of 38.8%, respectively. At January 31, 2018April 30, 2019, amounts due from these global groups of affiliated companies represented 38.9%67.7% of total accounts receivable balance.
 
As of January 31, 2018, one ofNOTE H – OTHER INCOME
During September 2017, the Company’s customers owesPuerto Rico operations were affected by hurricanes which severely impacted Puerto Rico (“Hurricanes”). The Hurricanes related insurance claim for business interruption losses and additional expenses incurred by the Company until electrical power and other basic utilities were restored was settled with the insurance carrier on April 2019 for the aggregate amount of approximately $1.3 million, which represents$199,000. Last fiscal year the insurance claim for property damages resulting from the Hurricanes was settled with the insurance carrier on July 2018 for the aggregate amount of approximately 7.3% of$148,000. Based on current accounting guidance, the Company’s total working capital. We are providing multiple services to this customer related to their construction ofinsurance proceeds were recognized upon collection, as a manufacturing facility in Puerto Rico. From this facility the customer will do the manufacturing and distribution of an existing product and an investigational new drug to be marketed to worldwide markets, once approved by regulators. A significant portion of the customer’s funding comes from different financing sourcing. Management estimates that collectability of the account is reasonably assured, accordingly, no provision for losses, if any, have been recordedgain contingency against other income in the accompanying condensed financial statements.statements for the applicable period.

 
NOTE HI - SEGMENT DISCLOSURES
 
The Company’s segments are based on the organizational structure for which financial results are regularly evaluated by the Company’s senior executive managementchief operating decision maker to determine resource allocation and assess performance. Each reportable segment is managed by its own management team and reports to executive management. The Company has fourthree reportable segments: (i) Puerto Rico technical compliance consulting, (ii) United States technical compliance consulting, and (iii) Europe technical compliance consulting, and (iv) a Puerto Rico microbiological and chemical laboratory testing division (“Lab”).consulting. These reportable segments provide services primarily to the pharmaceutical, chemical, medical device and biotechnology industries in their respective markets.
 
The following table presents information about the reported revenue from services and earnings from continuing operations of the Company for the three-month and six-month periods ended in January 31, 2018April 30, 2019 and 2017.2018. There is no intersegment revenue for the mentioned periods. Corporate expenses that support the operating units have been allocated to the segments. Asset information by reportable segment is not presented, since the Company does not produce such information internally, nor does it use such data to manage its business.
 

 
 
Three months ended April 30,
 
 
Six months ended April 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
REVENUES:
 
 
 
 
 
 
 
 
 
 
 
 
Puerto Rico consulting
 $4,293,041 
 $3,214,364 
 $8,181,595 
 $5,912,729 
United States consulting
  661,356 
  341,196 
  1,188,001 
  627,831 
Europe consulting
  141,500 
  209,798 
  233,231 
  930,930 
Other segments¹
  54,447 
  - 
  113,714 
  20,464 
Total consolidated revenues
 $5,150,344 
 $3,765,358 
 $9,716,541 
 $7,491,954 
 
    
    
    
    
INCOME (LOSS) BEFORE TAXES:
    
    
    
    
Puerto Rico consulting
 $581,019 
 $(12,725)
 $956,289 
 $(14,740)
United States consulting
  14,230 
  (88,536)
  2,320 
  (175,701)
Europe consulting
  (8,014)
  (43,797)
  (57,925)
  177,805 
Other segments¹
  195,506 
  136,375 
  396,032 
  232,662 
Total consolidated income before taxes
 $782,741 
 $(8,683)
 $1,296,716 
 $220,026 
 
 
 
Three months ended January 31,
 
 
 
2018
 
 
2017
 
REVENUES:
 
 
 
 
 
 
Puerto Rico consulting
 $2,698,365 
 $2,790,020 
United States consulting
  286,635 
  347,200 
Europe consulting
  721,132 
  182,424 
Lab (microbiological and chemical testing)
  478,922 
  641,893 
Other segments¹
  27,324 
  84,754 
Total consolidated revenues
 $4,212,378 
 $4,046,291 
 
    
    
INCOME (LOSS) BEFORE TAXES:
    
    
Puerto Rico consulting
 $(2,015)
 $(150,840)
United States consulting
  (87,165)
  (238,643)
Europe consulting
  221,602 
  (26,750)
Lab (microbiological and chemical testing)
  (106,543)
  (87,617)
Other segments¹
  11,132 
  123,465 
Total consolidated income before taxes
 $37,011 
 $(380,385)

¹Other segments represent activities that fall below the reportable threshold and are carried out in Puerto Rico the United States and Brazil. These activities include a Brazilian compliance consulting division, technical seminars/training division, a calibrations division and corporate headquarters, as applicable.
 
 
Long lived assets (property and equipment and intangible assets)equipment) as of January 31, 2018April 30, 2019 and October 31, 2017,2018, and related depreciation and amortization expense for the three and six months ended January 31,April 30, 2019 and 2018, and 2017, were concentrated in the Labcorporate headquarters in Puerto Rico. Accordingly, depreciation expense and acquisition of property and equipment, as presented in the statementstatements of cash flows are mainly related to the Lab.corporate headquarters.
 

 
ITEM
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
The following discussion of our results of operations and financial condition should be read in conjunction with the financial statements and the related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto, and related Management’s Discussion and Analysis appearing in our Annual Report on Form 10-K for the year ended October 31, 2017.2018. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ from results discussed in the forward-looking statements, see “Forward Looking Statements” below and the “Risk Factors” section in our Annual Report on Form 10-K for the year ended October 31, 2017.2018.
 
Overview
 
We are a compliance and technology transfer services consulting firm with a laboratory testing facility with headquarters in Puerto Rico, servicing the Puerto Rico, United States, Europe and Brazil markets. The compliance consulting service sector in those markets consists of local compliance and validation consulting firms, United States dedicated validation and compliance consulting firms and large publicly traded and private domestic and foreign engineering and consulting firms. We provide a broad range of compliance related consulting services. We also provide microbiological testing services and chemical testing services through our Lab in Puerto Rico. We also provide technical training/seminars, which services are not currently significant to our operating results. We market our services to pharmaceutical, chemical, biotechnology, medical devices, cosmetics and food industries, and allied products companies in Puerto Rico, the United States, Europe and Brazil. Our consulting team includes experienced engineering and life science professionals, former quality assurance managers and directors, and professionals with bachelors, masters and doctorate degrees in health sciences and engineering.
 
We actively operate in Puerto Rico, the United States, Ireland, Spain and Brazil and pursue to further expand these markets by strengthening our business development infrastructure and by constantly realigning our business strategies as new opportunities and challenges arise.
 
We market our services with an active presence in industry trade shows, professional conventions, industry publications and company provided seminars to the industry. Our senior management is also actively involved in the marketing process, especially in marketing to major accounts. Our senior management and staff also concentrate on developing new business opportunities and focus on the larger customer accounts (by number of consultants or dollar volume) and responding to prospective customers’ requests for proposals.
 
WhileWe consider our core business is FDAto be Food and Drug Administration (“FDA”) and international agencies regulatory compliance consulting related services. Accordingly, based on a corporate strategy to refocus the Company on consulting services, on September 17, 2018, we feelsold substantially all of our laboratory business assets (the “Laboratory Assets”) and discontinued our efforts on pursuing businesses that our clients are in need of other services that we can provide and allow uswere not considered significant to present the company as a global solution provider with a portfolio of integrated services that will bring value added solutions to our customers. Accordingly, our portfolio of services includes a laboratory testing facilityCompany, including calibrations and a training center that provides seminars/training tosmall laboratory in Spain. The sale of the industry.
The Lab incorporates the latest technology and test methodologies meeting pharmacopoeia industry standards and regulations. It currently offers services to our core industries already serviced as well as the cosmetic and food industries.
We also provide technical seminars/training that incorporate the latest regulatory trends and standards as well as other related areas. A networkLaboratory Assets for $5 million generated a net tax gain of leading industry professional experts in their field, which include resources of our own, provide these seminars/training to the industry through our “Pharma Serv Academy” division. These services are provided in the markets we currently serve, as well as others, and position our Company as a key leader in the industry.
Duringapproximately $2.7 million for the year ended October 31, 2015, the Company started the development of a new Puerto Rico based Calibrations Services Division that provides lab and field calibration, verification and qualification of equipment and installations, readiness audits, heating/ventilation and air conditioning ("HVAC") and clean room qualification and related services. The Company signed a three-year strategic collaboration agreement with a Spain-based company specializing in calibrations, validation, HVAC and clean room qualification services to assist the Company in the development process. The collaboration agreement terminates October 2018. The Calibrations Division development was substantially completed during the year ended October 31, 2017.
In April 2015, we registered in Brazil our wholly owned subsidiary, Pharma-Brazil, which started providing consulting services last year.

In December 2014, the Company entered into an agreement with a firm to provide (i) mergers and acquisition and (ii) business development services to the Company. These services are aimed to improve and assist the expansion of our market reach and customer base, primarily to the United States consulting business.
 
In line with the strategy to further penetrate the United States and Puerto Rico markets, we submit annually for renewal the certification as a "minority-controlled company" as defined by the National Minority Supplier Development Council and Growth Initiative ("NMSDC"). This certification, which has been held by us since July 2008, allows us to participate in corporate diversity programs available from various potential customers in the United States and Puerto Rico.
 
The Company holds a tax grant issued by the Puerto Rico Industrial Development Company (“PRIDCO”), which provides relief on various Puerto Rico taxes, including income tax, with certain limitations, for most of the activities carried on within Puerto Rico, including those that are for services to parties located outside of Puerto Rico.
 
In December 2016, the Company obtained a license from the OFAC which authorizes the Company to perform certain services and transactions with a Cuban state-run organization. The license is not transferable and expires on January 31, 2019. The Company has not generated any significant activity from this license.
As more fully disclosed in our Annual Report on Form 10-K for the year ended October 31, 2017, during September 2017, our Puerto Rico operations were affected by hurricanes which severely impacted Puerto Rico (“Hurricanes”). Within a few days of the last hurricane affecting Puerto Rico in September, the Company resumed operations using a diesel power generator at its Puerto Rico facilities. The Company’s electrical power and other basic utilities were restored on November 22, 2017. As of the date of this report, the majority of our clients’ businesses in Puerto Rico have been restored. The Company’s insurance provider is currently assessing the extent of the damages to our facilities, as well as the business interruption losses and additional expenses incurred by the Company until electrical power and other basic utilities were restored. Based on current accounting guidance, the insurance proceeds will be recognized upon collection, as a gain contingency.
As more fully disclosed in Note C of the Company’s condensed consolidated financial statements included herewith, the Company is subject to the recent Tax Reform provisions, including an estimated one-time non-recurring Transition Tax of $2.7 million, payable within eight years starting on February 2019. The payment will beis being funded from our working capital.
 

The following table sets forth information as to our revenue for the three-month and six-month periods ended January 31,April 30, 2019 and 2018, and 2017, by geographic regions (dollars in thousands).
 
 
 Three months ended January 31,
 
 
 Three months ended April 30,
 
 
 Six months ended April 30,
 
Revenues by Region:
 
 2018
 
 
 2017
 
 
2019
 
 
2018
 
 
 2019
 
 
 2018
 
Puerto Rico
 $3,184 
  75.6%
 $3,515 
  86.8%
 $4,293 
  83.3%
 $3,214 
  85.4%
 $8,182 
  84.2%
 $5,913 
  78.9%
United States
  287 
  6.8%
  347 
  8.6%
  661 
  12.8%
  341 
  9.0%
  1,188 
  12.2%
  628 
  8.4%
Europe
  721 
  17.1%
  182 
  4.5%
  142 
  2.8%
  210 
  5.6%
  233 
  2.4%
  931 
  12.4%
Other
  20 
  0.5%
  2 
  0.1%
  54 
  1.1%
  - 
  -%
  113 
  1.2%
  20 
  0.3%
 $4,212 
  100%
 $4,046 
  100%
 $5,150 
  100%
 $3,765 
  100%
 $9,716 
  100%
 $7,492 
  100%
 
For the three-monthsix-month period ended January 31, 2018,April 30, 2019, the Company’s revenues for the Companyfrom continuing operations were $4.2$9.7 million, an increase of $0.2$2.2 million when compared to the same period last year. The revenue increase is mainly attributable to increases in projects in the EuropePuerto Rico and US consulting market for $0.5markets of $2.3 and $0.6 million, respectively, partially offset by a decline in the Puerto Rico Lab and theEuropean consulting market of $0.2 million and $0.1 million, respectively. Other Company divisions sustained minor revenue losses or remained constant, when compared to the same period last year. $0.7 million. When compared to the same period last year, gross margin increased 0.22.0 percentage points when compared to the same period last year.points. The net increase in gross margin is mainly attributable to the increase of 0.6 percentage points attained byfavorable consulting mostly from European projects partially offset by the decline of 0.4 percentage points in the Lab. Lab testing volume has not increased to absorb the costs associated with the Lab expansion sustained during fiscal years 2017 and 2016.Puerto Rico consulting market. Selling, general and administrative expenses were approximately $1,064,000,$2.2 million, a net decreaseincrease in expenses of $352,000 whenapproximately $126,000 as compared to the same period last year. The decreaseincrease is mainly attributable to cost reduction measuresexpenses geared to align ourincrease sales volume, either by promotions or operational supportsupport. During April 2019, we collected and recorded in other income approximately $0.2 million for the settlement of the Company’s insurance claim for business interruption losses and additional expenses toincurred resulting from the market conditions. These reductions include, among others, the closing of operational satellite offices and the net reduction of business development and global support personnel.Hurricanes. These factors contributed to ourresulted in a net income before income taxfrom continuing operations of approximately $1.2 million, and including last year’s non-recurring 2018 US Tax Reform $2.7 million Transition Tax be approximately $37,000, an increase incharge, this represented a net earnings improvement of approximately $417,000, when compared to the same period last year.$3.7 million. (See “Results of Operations” below.)
 
In September 2018, we sold the assets of our laboratory segment. Our net income for the three and six months ended April 30, 2019 had an improvement in earnings of approximately $0.8 and $4.0 million, respectively, including the effect of our discontinued laboratory segment.

The long-term impacts of the Hurricanes, the Puerto Rico government financial crisis, the Tax Reform, other tax reforms on the markets where we do business, and Puerto Rico Act 154-2010, all pose current and future challenges which may adversely affect our future performance. We believe that our future profitability and liquidity will be highly dependent on the effect the local economy and global economy, changes in tax laws and healthcare reform, and worldwide lifesciencelife science manufacturing industry consolidations will have on our operations, and our ability to seek service opportunities and adapt to the industry trends.
 
Results of Operations
 
TheOn September 17, 2018, the Company sold substantially all of its Laboratory Assets. Accordingly, the operations of the Lab are treated as a discontinued operation in the following table that sets forth our statements of operations for the three-month and six-month periods ended January 31,April 30, 2019 and 2018 and 2017, (dollars in thousands)thousands, and as a percentage of revenue:revenues for continuing operations only):
 
 
Three months ended January 31,
 
 
Three months ended April 30,
 
 
Six months ended April 30,
 
 
2018
 
 
2017
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Revenues
 $4,212 
  100.0%
 $4,046 
  100.0%
 $5,150 
  100.0%
 $3,765 
  100.0%
 $9,716 
  100.0%
 $7,492 
  100.0%
Cost of services
  3,129 
  74.3%
  3,014 
  74.5%
  3,557 
  69.1%
  2,728 
  72.4%
  6,644 
  68.4%
  5,273 
  70.4%
Gross profit
  1,083 
  25.7%
  1,032 
  25.5%
  1,593 
  30.9%
  1,037 
  27.6%
  3,072 
  31.6%
  2,219 
  29.6%
Selling, general and administrative costs
  1,064 
  25.2%
  1,416 
  35.0%
  1,117 
  21.6%
  1,066 
  28.3%
  2,163 
  22.3%
  2,037 
  27.2%
Other income (expense), net
  18 
  0.4%
  4 
  0.1%
Net income (loss) before income tax and US Tax Reform Transition Tax
  37 
  0.9%
  (380)
  -9.4%
Income tax and US Tax Reform Transition Tax expense
  2,701 
  64.1%
  2 
  0.0%
Net loss
  (2,664)
  -63.2%
  (382)
  -9.4%
Other income, net
  306 
  5.9%
  20 
  0.5%
  387 
  4.0%
  38 
  0.5%
Income (loss) from continuing operations before income taxes
  782 
  15.2%
  (9)
  -0.2%
  1,296 
  13.3%
  220 
  2.9%
Income tax and US Tax Reform transition tax expense
  75 
  1.5%
  - 
  118 
  1.2%
  2,701 
  36.1%
Net income (loss) from continuing operations
  707 
  13.7%
  (9)
  -0.2%
  1,178 
  12.1%
  (2,481)
  -33.2%
    
Discontinued operations net loss from operations, net of tax
  - 
    
  (119)
    
  - 
    
  (311)
    
    
Net income (loss)
  707 
    
  (128)
    
  1,178 
    
  (2,792)
    
    
 

Revenues. ForRevenues from continuing operations for the three and six months ended April 30, 2019 were $5.2 and $9.7 million, respectively, an increase of approximately $1.4 and $2.2 million, or 36.8% and 29.7%, respectively, when compared to the same periods last year.
The increase for the three months ended January 31, 2018, revenues for the Company were $4.2 million, an increase of $0.2 millionApril 30, 2019, when compared to the same period last year. The revenue increaseyear, is mainly attributable to projectsincreases in the Europe consulting market for $0.5 million, partially offset by a declineprojects in the Puerto Rico Lab and theUS consulting marketmarkets of $0.2 millionapproximately $1.1 and $0.1$0.3 million, respectively. Other Company divisions sustained minor revenue gains/losses or remained constant, when compared to the same period last year.
The increase for the six months ended in April 30, 2019, when compared to the same period last year, is mainly attributable to increases in projects in the Puerto Rico and US consulting markets of $2.3 and $0.6 million, respectively, partially offset by a decline in the European consulting market of $0.7 million. Other Company divisions sustained minor revenue gains/losses or remained constant.
 
Cost of Services; gross margin. Gross margin for the three and six months ended January 31, 2018April 30, 2019 increased 0.2by 3.3 and 2.0 percentage points when compared to the same period last year.
The net increase in gross margin is mainly attributable to the increase of 0.6 percentage points attained byfavorable consulting mostly from European projects partially offset by the decline of 0.4 percentage points in the Lab. Lab testing volume has not increased to absorb the costs associated with the Lab expansion sustained during fiscal years 2017 and 2016 (e.g. depreciation on equipment, improvements amortization, leased space, payroll, etc.).Puerto Rico consulting market.
 
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three and six months ended in January 31, 2018April 30, 2019 were approximately $1.1 and $2.2 million, aan increase of approximately $51,000 and $126,000 when compared to the same periods last year, respectively. The increase is mainly attributable to expenses geared to increase sales volume, either by promotions or operational support.
Other Income and Expense, net decrease of. Other income for both the three and six-months periods ended on April 30, 2019 increased by approximately $0.3 million, when compared to the same periodperiods last year. The decreaseincrease is mainly attributable to cost reduction measures geared to align our operational supportproceeds from the insurance claim for business interruption losses and additional expenses incurred resulting from the Hurricanes of approximately $0.2 million collected during April 2019. For additional information see Note H to the market conditions. These reductions include, among others, the closing of operational satellite offices and the net reduction of business development and global support personnel.Company’s condensed consolidated financial statements included herewith.
 
Income Tax and US Tax Reform Transition Tax Expense. The income tax expense is mainly attributable to (i) the effect to the effective tax rate attained considering the effect of the $2.7 million non-recurringPuerto Rico Act 73 Tax Grant, and (ii) the US Transition Tax imposed by the Tax Reform overwhich impacted our six months ended April 30, 2018. See Note C of the Company’s E&Ps.condensed consolidated financial statements included herewith for additional information on the US Tax Reform.
 
Net Loss.Income (Loss) from Continuing Operations. ForNet income from continuing operations for the three and six months ended January 31, 2018, our income before income tax and US Transition TaxApril 30, 2019 was approximately $37,000,$0.7 and $1.2 million, respectively, an improvement of $417,000$0.7 and $3.7 million when compared to the same periodperiods last year. The varianceyear, respectively. After considering last year’s non-recurring 2018 US Tax Reform $2.7 million Transition Tax charge, the increase in net income from continuing operations is mainly attributable to a slightthe improvement in revenue and related gross margin, plus savingsmargin. Net income from continuing operations for the three and six months ended April 30, 2019 was also offset by an increase in other operational support expenses. After considering the Tax Reform $2.7 million Transition Tax, the Company sustained a net lossselling, general and administrative expenses of approximately $2.7 million, a decrease in earnings of $2.3 million when compared$51,000 and 126,000, respectively, to the same period last year.increase sales volume, either by promotions or operational support.
 
For the three and six months ended January 31, 2018, earnings beforeApril 30, 2019, net income tax and Transition Taxfrom continuing operations per common share for both basic and diluted was $0.002, a commonwere $0.031 and $0.051, an improvement of $0.032 and $0.159 per share, basic and diluted increase for each one of $0.018 when compared to the same periodperiods last year. After considering income taxyear, respectively.
Net Loss from Discontinued Operations.The Company completed the sale of its Laboratory Assets on September 17, 2018. The net loss from this discontinued operation for the three and six months ended April 30, 2018 was approximately $120,000 and $311,000, respectively. Discontinued operations net losses per share for the US Tax Reform Transition Tax, loss per common sharethree and six months ended April 30, 2018, for both basic and diluted was $0.115, a common share basic$0.005 and diluted decrease for each one of $0.098 when compared to the same period last year.$0.013, respectively.
 

 
Liquidity and Capital Resources
 
Liquidity is a measure of our ability to meet potential cash requirements, including planned capital expenditures. As of January 31, 2018,April 30, 2019, the Company had approximately $18$21.7 million in working capital.
 
On June 13, 2014, the Board of Directors of the Company authorized the Company to repurchase up to two million shares of its common stock (the "Company Stock Repurchase Program"). During the three-monthsix-month period ended January 31, 2018,April 30, 2019, the Company repurchased 27,100an aggregate of 85,822 shares of its common stock.stock, of which 22,850 were purchased within the repurchase program.
 
Our primary cash needs consist of the payment of compensation to our consulting team, overhead expenses, and statutory taxes (including the Transition Tax). Additionally, we may use cash for the repurchase of our common stock under the Company Stock Repurchase Program, capital expenditures and business development expenses (as described above on “Results of Operations”).  Management believes that based on the current level of working capital, operations and cash flows from operations, and the collectability of high qualityhigh-quality customer receivables will be sufficient to fund anticipated expenses and satisfy other possible long-term contractual commitments for the next twelve months.
 
To the extent that we pursue possible opportunities to expand our operations, either by acquisition or by the establishment of operations in a new locale, we will incur additional overhead, and there may be a delay between the period we commence operations and our generation of net cash flow from operations.
 
While uncertainties relating to the current local and global economic condition, competition, the industries and geographical regions served by us and other regulatory matters exist within the consulting services industry, management is not aware of any trends or events likely to have a material adverse effect on liquidity or its financial statements.
 
Off-Balance Sheet Arrangements
 
We were not involved in any significant off-balance sheet arrangement during the threesix months ended January 31, 2018.April 30, 2019.
 
Critical Accounting Policies and Estimates
 
There were no material changes during the threesix months ended January 31, 2018April 30, 2019 to the critical accounting policies reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2017.2018.
 
New Accounting Pronouncements
 
There were no new accounting standards issued since our filing of the Annual Report on Form 10-K for the fiscal year ended October 31, 2017,2018, which could have a significant effect on our condensed consolidated financial statements.
 
Forward-Looking Statements
 
Our business, financial condition, results of operations, cash flows and prospects, and the prevailing market price and performance of our common stock, may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this Quarterly Report on Form 10-Q, as well as other written or oral statements made from time to time by us or by our authorized executive officers on our behalf, constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These statements include all statements other than those made solely with respect to historical fact and identified by words such as “believes”, “anticipates”, “expects”, “intends” and similar expressions, but such words are not the exclusive means of identifying such statements. We intend for our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we set forth this statement and these risk factors in order to comply with such safe harbor provisions. You should note that our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q or when made and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Although we believe that the expectations, plans, intentions and projections reflected in our forward-looking statements are reasonable, such statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks, uncertainties and other factors that our stockholders and prospective investors should consider include the following:
 

●
Because our business is concentrated in the lifescience and medical devices industries in Puerto Rico, the United States, Europe and Brazil, any changes in those industries or in those markets could impair our ability to generate revenue and realize a profit.
●
Puerto Rico’s economy, including its governmental financial crisis and the impacts of the Hurricanes Irma and Maria, may affect the willingness of businesses to commence or expand operations in Puerto Rico, or may also consider closing operations located in Puerto Rico.
●
Puerto Rico government enacted ACT 154-2010 may adversely affect the willingness of our customers to do business in Puerto Rico and consequently adversely affect our business.
●
US Federal Tax Reform may affect the willingness of companies to continue or expand their operations in Puerto Rico.
●
Further changes in tax laws in Puerto Rico or in other jurisdictions may adversely impact the willingness of our customers to continue or expand their Puerto Rico operations.
●
Our business and operating results may be adversely impacted if we are unable to maintain our certification as a minority-controlled company. 
●
Because our business is dependent upon a small number of clients, the loss of a major client could impair our ability to operate profitably.
●
Customer procurement and sourcing practices intended to reduce costs could have an adverse effect on our margins and profitability.
●
We may be unable to pass on increased labor costs to our clients.
● 
Consolidation in the pharmaceutical industry may have a harmful effect on our business.
● 
Changes in public policy impacting the industries we serve could adversely affect our business.
● 
Because the pharmaceutical industry is subject to government regulations, changes in government regulations relating to this industry may affect the need for our services.
● 
Since our business is dependent upon the development and enhancement of patented pharmaceutical products or processes by our clients, the failure of our clients to obtain and maintain patents could impair our ability to operate profitably.
●
We may be unable to pass on increased labor costs to our clients.
●
Consolidation in the pharmaceutical industry may have a harmful effect on our business.
●
Changes in public policy impacting the industries we serve could adversely affect our business.
●
Because the pharmaceutical industry is subject to government regulations, changes in government regulations relating to this industry may affect the need for our services.
●
Our reputation and divisions may be impacted by regulatory standards applicable to our customer products.
●
If we are unable to protect our clients’ intellectual property, our ability to generate business will be impaired.
●
We may be subject to liability if our services or solutions for our clients infringe upon the intellectual property rights of others.
●
We may be held liable for the actions of our employees or contractors when on assignment.
●
To the extent that we perform services pursuant to fixed-price or incentive-based contracts, our cost of services may exceed our revenue on the contract.
●
Because most of our contracts may be terminated on little or no advance notice, our failure to generate new business could impair our ability to operate profitably.
●
Because we are dependent upon our management and technical personnel, our ability to develop our business may be impaired if we are not able to engage skilled personnel.
●
Our cash could be adversely affected if the financial institutions in which we hold our cash fail.
●
WeOur growth strategy may be harmed if we do not penetrate markets and grow our current business operations.
●
Because there is a limited market in our common stock, stockholders may have difficulty in selling our common stock and our common stock may be subject to significant price swings.
●
Our revenues, operating results and profitability will vary from quarter to quarter, which may result in increased volatility of our stock price.
●
The Company Stock Repurchase Program could affect the market price of our common stock and increase its volatility. 
●
The issuance of securities, whether in connection with an acquisition or otherwise, may result in significant dilution to our stockholders.
 

 
ITEM
ITEM 4. CONTROLS AND PROCEDURES.
 
Evaluation of Disclosure Controls and Procedures
 
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.
 
Changes in Internal Control Over Financial Reporting
 
Based on an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, there has been no change in our internal control over financial reporting during our last fiscal quarter identified in connection with that evaluation that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 

 
PARTPART II– OTHER INFORMATION
 
ITEMITEM 1.  LEGAL PROCEEDINGS.
 
From time to time, we may be a party to legal proceedings incidental to our business. We do not believe that there are any proceedings threatened or pending against us, which, if determined adversely to us, would have a material effect on our financial position or results of operations and cash flows.
 
ITEMITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
(c) The following table provides information about purchases by the Company of its shares of common stock during the three-month period ended January 31, 2018:April 30, 2019:
 
Period
 
Total Number of Shares
Purchased (1)  
 
 
Average Price Paid per Share   
 
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs  
 
 
Maximum
Number of Shares
that May Yet Be
Purchased Under the Plans or
Programs (1)
 
November 1, 2017 through November 30, 2017
  27,100 
 $0.50 
  27,100 
  1,729,448 
December 1, 2017 through December 31, 2017
  - 
 $- 
  - 
  1,729,448 
January 1, 2018 through January 31, 2018
  - 
 $- 
  - 
  1,729,448 
Total
  27,100 
 $0.50 
  27,100 
    
Period
 
Total Number of Shares Purchased  
 
 
Average Price Paid per Share  
 
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)  
 
 
Maximum
Number of Shares
that May Yet Be
Purchased Under the Plans or
Programs (1)
 
February 1, 2019 through February 28, 2019
  7,650 
 $1.09 
  7,650 
  1,674,146 
March 1, 2019 through March 31, 2019
  10,300 
 $1.06 
  10,300 
  1,663,846 
April 1, 2019 through April 30, 2019
  2,100 
 $1.07 
  2,100 
  1,661,746 
Total
  20,050 
 $1.08 
  20,050 
    
 
(1)On June 13,6, 2014, the Board of Directors of the Company approvedannounced the Company Stock Repurchase Program authorizing the Company to repurchase up to two million shares of its outstanding common stock.stock (the “Repurchase Program”). The timing, manner, price and amount of any repurchases under the Repurchase Program will be at the discretion of the Company, subject to the requirements of the Securities Exchange Act of 1934, as amended, and related rules. The Company Stock Repurchase Program does not oblige the Company to repurchase any shares and it may be modified, suspended or terminated at any time and for any reason. No shares will be repurchased under the Repurchase Program directly from directors or officers of the Company. The Repurchase Program does not have an expiration date.
 
ITEMITEM 6.  EXHIBITS
 
(a)
Exhibits:
 
10.1
Consulting Agreement Amendment, dated January 8 2018, by and among Pharma-Bio Serv, Inc., Strategic Consultants International, LLC and Elizabeth Plaza, effective January 1, 2018 (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 8, 2018 and incorporated herein by reference).+
31.1
 Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
 Certification of the chief executive officer and chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
———————
+ Management contracts or compensatory plans, contracts or arrangements.
*
*Furnished herewith.
 

 
SIGNATURESSIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
PHARMA-BIO SERV, INC.
  
 /s/ Victor Sanchez
 Victor Sanchez
 Chief Executive Officer and President Europe Operations
 (Principal Executive Officer)
  
 /s/ Pedro J. Lasanta
 Pedro J. Lasanta
 Chief Financial Officer and Vice President Finance and Administration
 
(Principal Financial Officer and Principal Accounting
Officer)
  
Dated: March 19, 2018June 14, 2019 
 
 
 
2021