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 SECURITIESEXCHANGE ACT OF 1934 |
For the quarterly period ended JanuaryJuly 31, 2018
or
☐ | 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 Dorado, Puerto Rico | 00646 | |
(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 class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant: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 | ☒ | |
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, 2018September 10, 2021 was 23,062,531.
PHARMA-BIO SERV, INC.
FORM 10-Q
FOR THE QUARTER ENDED JANUARYJULY 31, 2018
TABLE OF CONTENTS
Table of Contents |
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PHARMA-BIO SERV, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
January 31, 2018* | October 31, 2017** | |
ASSETS: | ||
Current assets | ||
Cash and cash equivalents | $13,176,240 | $11,751,714 |
Marketable securities | 25,056 | 26,600 |
Accounts receivable | 6,053,081 | 7,208,054 |
Other | 439,967 | 550,163 |
Total current assets | 19,694,344 | 19,536,531 |
Property and equipment | 2,291,912 | 2,390,545 |
Other assets | 423,180 | 422,925 |
Total assets | $22,409,436 | $22,350,001 |
LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||
Current liabilities | ||
Current portion-obligations under capital leases | $14,061 | $13,949 |
Accounts payable and accrued expenses | 1,467,663 | 1,526,904 |
Income taxes payable | 2,875 | 2,067 |
Total current liabilities | 1,484,599 | 1,542,920 |
US Tax Reform Transition Tax payable | 2,700,000 | - |
Obligations under capital leases | 56,397 | 59,795 |
Total liabilities | 4,240,996 | 1,602,715 |
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 | 2,333 |
Additional paid-in capital | 1,312,864 | 1,295,314 |
Retained earnings | 16,896,119 | 19,560,131 |
Accumulated other comprehensive income | 218,946 | 137,671 |
18,430,262 | 20,995,449 | |
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) |
Total stockholders' equity | 18,168,440 | 20,747,286 |
Total liabilities and stockholders' equity | $22,409,436 | $22,350,001 |
| July 31, 2021* |
|
| October 31, 2020** |
| |||
ASSETS |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 16,498,170 |
|
| $ | 17,137,924 |
|
Accounts receivable |
|
| 10,082,222 |
|
|
| 9,727,591 |
|
Current portion - promissory note receivable due from sale of assets from discontinued operations |
|
| 0 |
|
|
| 1,250,000 |
|
Prepaids and other assets |
|
| 818,576 |
|
|
| 468,703 |
|
Total current assets |
|
| 27,398,968 |
|
|
| 28,584,218 |
|
Property and equipment, net |
|
| 120,693 |
|
|
| 217,572 |
|
Operating lease right-of-use |
|
| 721,564 |
|
|
| 846,714 |
|
Other assets |
|
| 353,407 |
|
|
| 270,242 |
|
Total assets |
| $ | 28,594,632 |
|
| $ | 29,918,746 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Current portion-obligation under finance lease |
| $ | 0 |
|
| $ | 11,640 |
|
Loans-short term portion |
|
| 0 |
|
|
| 1,287,800 |
|
Current operating lease liabilities |
|
| 172,957 |
|
|
| 162,917 |
|
Accounts payable and accrued expenses |
|
| 1,810,987 |
|
|
| 1,938,305 |
|
Current portion of US Tax Reform Transition Tax and income taxes payable |
|
| 377,511 |
|
|
| 392,131 |
|
Total current liabilities |
|
| 2,361,455 |
|
|
| 3,792,793 |
|
|
|
|
|
|
|
|
|
|
US Tax Reform Transition Tax payable |
|
| 1,850,536 |
|
|
| 2,062,024 |
|
Loans-long term portion |
|
| 0 |
|
|
| 643,900 |
|
Long term portion - obligation under finance lease |
|
| 0 |
|
|
| 55,439 |
|
Long-term operating lease liabilities |
|
| 523,960 |
|
|
| 629,979 |
|
Other liabilities |
|
| 17,950 |
|
|
| 17,950 |
|
Total liabilities |
|
| 4,753,901 |
|
|
| 7,202,085 |
|
Stockholders' equity |
|
|
|
|
|
|
|
|
Preferred Stock, $0.0001 par value; authorized 10,000,000 shares; none outstanding |
|
| 0 |
|
|
| 0 |
|
Common Stock, $0.0001 par value; authorized 50,000,000 shares; 23,433,341 and 23,405,753 shares issued, and 23,029,215 and 23,001,627 shares outstanding at July 31, 2021 and October 31, 2020, respectively |
|
| 2,343 |
|
|
| 2,341 |
|
Additional paid-in capital |
|
| 1,458,244 |
|
|
| 1,423,954 |
|
Retained earnings |
|
| 22,580,045 |
|
|
| 21,523,990 |
|
Accumulated other comprehensive income |
|
| 194,377 |
|
|
| 160,654 |
|
|
|
| 24,235,009 |
|
|
| 23,110,939 |
|
Treasury stock, at cost; 404,126 common shares held at July 31, 2021 and October 31, 2020, respectively |
|
| (394,278 | ) |
|
| (394,278 | ) |
Total stockholders' equity |
|
| 23,840,731 |
|
|
| 22,716,661 |
|
Total liabilities and stockholders' equity |
| $ | 28,594,632 |
|
| $ | 29,918,746 |
|
* | Unaudited. |
** | Condensed from audited financial statements. |
See notes to the condensed consolidated financial statements.
-1- |
Table of Contents |
PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended January 31, | ||
2018 | 2017 | |
REVENUES | $4,212,378 | $4,046,291 |
COST OF SERVICES | 3,129,233 | 3,013,946 |
GROSS PROFIT | 1,083,145 | 1,032,345 |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 1,063,983 | 1,416,342 |
INCOME (LOSS) FROM OPERATIONS | 19,162 | (383,997) |
OTHER INCOME, NET | 17,849 | 3,612 |
INCOME (LOSS) BEFORE INCOME TAX AND US TAX REFORM TRANSITION TAX EXPENSE | 37,011 | (380,385) |
INCOME TAX AND US TAX REFORM TRANSITION TAX EXPENSE | 2,701,023 | 1,750 |
NET LOSS | $(2,664,012) | $(382,135) |
BASIC LOSSES PER COMMON SHARE | $(0.115) | $(0.017) |
DILUTED LOSSES PER COMMON SHARE | $(0.115) | $(0.017) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC | 23,063,997 | 23,051,349 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED | 23,065,290 | 23,088,560 |
|
| Three months ended July 31, |
|
| Nine months ended July 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
REVENUES |
| $ | 4,987,909 |
|
| $ | 6,278,370 |
|
| $ | 14,517,884 |
|
| $ | 16,539,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SERVICES |
|
| 3,732,847 |
|
|
| 4,424,151 |
|
|
| 10,656,840 |
|
|
| 11,230,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
| 1,255,062 |
|
|
| 1,854,219 |
|
|
| 3,861,044 |
|
|
| 5,309,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
| 894,572 |
|
|
| 1,037,529 |
|
|
| 2,916,654 |
|
|
| 3,235,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
|
| 360,490 |
|
|
| 816,690 |
|
|
| 944,390 |
|
|
| 2,073,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE), NET |
|
| 1,952,898 |
|
|
| (30,198 | ) |
|
| 1,976,390 |
|
|
| 63,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX |
|
| 2,313,388 |
|
|
| 786,492 |
|
|
| 2,920,780 |
|
|
| 2,137,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE |
|
| 38,270 |
|
|
| 94,378 |
|
|
| 137,359 |
|
|
| 231,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
| $ | 2,275,118 |
|
| $ | 692,114 |
|
| $ | 2,783,421 |
|
| $ | 1,906,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED EARNINGS PER COMMON SHARE |
| $ | 0.098 |
|
| $ | 0.030 |
|
| $ | 0.120 |
|
| $ | 0.083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC |
|
| 23,029,215 |
|
|
| 23,001,627 |
|
|
| 23,022,950 |
|
|
| 23,003,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED |
|
| 23,174,605 |
|
|
| 23,032,641 |
|
|
| 23,178,091 |
|
|
| 23,030,066 |
|
See notes to the condensed consolidated financial statements.
-2- |
Table of Contents |
PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Comprehensive Loss
(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 July 31, |
|
| Nine months ended July 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
NET INCOME |
| $ | 2,275,118 |
|
| $ | 692,114 |
|
| $ | 2,783,421 |
|
| $ | 1,906,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME , NET OF RECLASSIFICATION ADJUSTMENTS AND TAXES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain, net of tax |
|
| 5,232 |
|
|
| 78,730 |
|
|
| 33,723 |
|
|
| 37,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER COMPREHENSIVE INCOME |
|
| 5,232 |
|
|
| 78,730 |
|
|
| 33,723 |
|
|
| 37,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME |
| $ | 2,280,350 |
|
| $ | 770,844 |
|
| $ | 2,817,144 |
|
| $ | 1,943,838 |
|
See notes to the condensed consolidated financial statements.
-3- |
Table of Contents |
PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
| |||||||||||||||||||||
FISCAL YEAR 2021 |
| Common Stock |
|
| Preferred Stock |
|
| Additional Paid-in |
|
| Retained |
|
| Comprehensive Income |
|
| Treasury |
|
|
| ||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| (Loss) |
|
| Stock |
|
| Total |
| |||||||||
BALANCE AT NOVEMBER 1, 2020 |
|
| 23,405,753 |
|
| $ | 2,341 |
|
|
| - |
|
| $ | 0 |
|
| $ | 1,423,954 |
|
| $ | 21,523,990 |
|
| $ | 160,654 |
|
| $ | (394,278 | ) |
| $ | 22,716,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK-BASED COMPENSATION |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 11,430 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS |
|
| 27,588 |
|
|
| 2 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (2 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 268,032 |
|
|
| 0 |
|
|
| 0 |
|
|
| 268,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME, NET OF TAX |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 23,752 |
|
|
| 0 |
|
|
| 23,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDEND ($0.075 PER COMMON SHARE AT RECORD DATE) |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,727,364 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (1,727,364 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 31, 2021 |
|
| 23,433,341 |
|
|
| 2,343 |
|
|
| - |
|
|
| 0 |
|
|
| 1,435,384 |
|
|
| 20,064,656 |
|
|
| 184,406 |
|
|
| (394,278 | ) |
|
| 21,292,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK-BASED COMPENSATION |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 11,430 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 240,271 |
|
|
| 0 |
|
|
| 0 |
|
|
| 240,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME, NET OF TAX |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,739 |
|
|
| 0 |
|
|
| 4,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT APRIL 30, 2021 |
|
| 23,433,341 |
|
|
| 2,343 |
|
|
| - |
|
|
| 0 |
|
| 1,446,814 |
|
| 20,304,927 |
|
|
| 189,145 |
|
|
| (394,278 | ) |
|
| 21,548,951 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK-BASED COMPENSATION |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 11,430 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,275,118 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,275,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME, NET OF TAX |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,232 |
|
|
| 0 |
|
|
| 5,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JULY 31, 2021 |
|
| 23,433,341 |
|
| $ | 2,343 |
|
|
| - |
|
| $ | 0 |
|
| $ | 1,458,244 |
|
| $ | 22,580,045 |
|
| $ | 194,377 |
|
| $ | (394,278 | ) |
| $ | 23,840,731 |
|
See notes to condensed consolidated financial statements.
-4- |
Table of Contents |
PHARMA-BIO SERV, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
| |||||||||||||||||||||
FISCAL YEAR 2020 |
| Common Stock |
|
| Preferred Stock |
|
| Additional Paid-in |
|
| Retained |
|
| Comprehensive Income |
|
| Treasury |
|
|
| ||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| (Loss) |
|
| Stock |
|
| Total |
| |||||||||
BALANCE AT NOVEMBER 1, 2019 |
|
| 23,397,707 |
|
| $ | 2,340 |
|
|
| - |
|
| $ | 0 |
|
| $ | 1,381,076 |
|
| $ | 19,473,069 |
|
| $ | 143,600 |
|
| $ | (392,579 | ) |
| $ | 20,607,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK-BASED COMPENSATION |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 11,430 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISSUANCE OF COMMON STOCK PURSUANT TO THE CASHLESS EXERCISE OF STOCK OPTIONS |
|
| 8,046 |
|
|
| 1 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (1 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PURCHASE OF TREASURY STOCK (2,300 SHARES) |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,699 | ) |
|
| (1,699 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 526,900 |
|
|
| 0 |
|
|
| 0 |
|
|
| 526,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS, NET OF TAX |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (11,734 | ) |
|
| 0 |
|
|
| (11,734 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 31, 2020 |
|
| 23,405,753 |
|
|
| 2,341 |
|
|
| - |
|
|
| 0 |
|
|
| 1,392,506 |
|
|
| 19,999,968 |
|
|
| 131,866 |
|
|
| (394,278 | ) |
|
| 21,132,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK-BASED COMPENSATION |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 11,430 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 687,561 |
|
|
| 0 |
|
|
| 0 |
|
|
| 687,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS, NET OF TAX |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (29,733 | ) |
|
| 0 |
|
|
| (29,733 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT APRIL 30, 2020 |
|
| 23,405,753 |
|
|
| 2,341 |
|
|
| - |
|
|
| 0 |
|
|
| 1,403,936 |
|
|
| 20,687,529 |
|
|
| 102,133 |
|
|
| (394,278 | ) |
|
| 21,801,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK-BASED COMPENSATION |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 11,430 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 692,114 |
|
|
| 0 |
|
|
| 0 |
|
|
| 692,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME, NET OF TAX |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 78,730 |
|
|
| 0 |
|
|
| 78,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JULY 31, 2020 |
|
| 23,405,753 |
|
| $ | 2,341 |
|
|
| - |
|
| $ | 0 |
|
| $ | 1,415,366 |
|
| $ | 21,379,643 |
|
| $ | 180,863 |
|
| $ | (394,278 | ) |
| $ | 22,583,935 |
|
See notes to condensed consolidated financial statements
-5- |
Table of Contents |
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 |
|
| Three months ended July 31, |
|
| Nine months ended July 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 2,275,118 |
|
| $ | 692,114 |
|
| $ | 2,783,421 |
|
| $ | 1,906,575 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposition of property and equipment |
|
| 0 |
|
|
| (8,409 | ) |
|
| (7,404 | ) |
|
| (13,327 | ) |
Stock-based compensation |
|
| 11,430 |
|
|
| 11,430 |
|
|
| 34,290 |
|
|
| 34,290 |
|
Depreciation and amortization |
|
| 18,183 |
|
|
| 23,203 |
|
|
| 58,438 |
|
|
| 65,814 |
|
Loans forgiveness |
|
| (1,956,291 | ) |
|
| 0 |
|
|
| (1,956,291 | ) |
|
| 0 |
|
Decrease (increase) in accounts receivable |
|
| 284,599 |
|
|
| (50,706 | ) |
|
| (336,467 | ) |
|
| (1,251,494 | ) |
Decrease (increase) in other assets |
|
| (552,175 | ) |
|
| (126,072 | ) |
|
| (302,324 | ) |
|
| (851,596 | ) |
Increase (decrease) in liabilities |
|
| 360,860 |
|
|
| 678,175 |
|
|
| (429,171 | ) |
|
| 1,287,785 |
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
|
| 441,724 |
|
|
| 1,219,735 |
|
|
| (155,508 | ) |
|
| 1,178,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
| (7,110 | ) |
|
| (10,462 | ) |
|
| (11,726 | ) |
|
| (49,336 | ) |
Proceeds from sale of property and equipment |
|
| 0 |
|
|
| 14,700 |
|
|
| 57,571 |
|
|
| 26,700 |
|
Collection from promissory note receivable |
|
| 0 |
|
|
| 0 |
|
|
| 1,250,000 |
|
|
| 0 |
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
|
| (7,110 | ) |
|
| 4,238 |
|
|
| 1,295,845 |
|
|
| (22,636 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loans |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,931,700 |
|
Repurchase of common stock |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,699 | ) |
Payments on obligations under finance lease |
|
| 0 |
|
|
| (2,776 | ) |
|
| (67,079 | ) |
|
| (8,217 | ) |
Cash dividends paid to shareholders |
|
| 0 |
|
|
| 0 |
|
|
| (1,727,364 | ) |
|
| (1,725,295 | ) |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
| 0 |
|
|
| (2,776 | ) |
|
| (1,794,443 | ) |
|
| 196,489 |
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
| (2,931 | ) |
|
| 10,847 |
|
|
| 14,352 |
|
|
| (28,033 | ) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 431,683 |
|
|
| 1,232,044 |
|
|
| (639,754 | ) |
|
| 1,323,867 |
|
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |
|
| 16,066,487 |
|
|
| 15,581,997 |
|
|
| 17,137,924 |
|
|
| 15,490,174 |
|
CASH AND CASH EQUIVALENTS – END OF PERIOD |
| $ | 16,498,170 |
|
| $ | 16,814,041 |
|
| $ | 16,498,170 |
|
| $ | 16,814,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOURES OF CASH FLOWS INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income taxes |
| $ | 67,550 |
|
| $ | 700 |
|
| $ | 574,757 |
|
| $ | 212,463 |
|
Interest |
| $ | 0 |
|
| $ | 951 |
|
| $ | 1,404 |
|
| $ | 2,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
| $ | 0 |
|
| $ | 1,120 |
|
| $ | 4,046 |
|
| $ | 4,769 |
|
Conversion of cashless exercise of options to shares of common stock and shares issued under restricted stock unit agreements |
| $ | 0 |
|
| $ | 0 |
|
| $ | 2 |
|
| $ | 1 |
|
Disposed property and equipment with accumulated depreciation of $35,833 for the nine months ended July 31, 2021, and $20,670 and $38,583 for the three and nine months ended July 31, 2020, respectively. |
| $ | 0 |
|
| $ | 26,961 |
|
| $ | 86,000 |
|
| $ | 51,956 |
|
See notes to the condensed consolidated financial statements.
-6- |
Table of Contents |
PHARMA-BIO SERV, INC.
Notes To Condensed Consolidated Financial Statements
July 31, 2018
(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. (currently inactive) (“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, 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, SpainEurope and Brazil under the name of Pharma-Bio Serv and is engaged in providing technical compliance consulting service, and microbiological and chemical laboratory testing.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated balance sheet of the Company as of October 31, 20172020 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 threenine months ended JanuaryJuly 31, 20182021 are not necessarily indicative of expected results for the full 20182021 fiscal year.
The accompanying financial data as of JanuaryJuly 31, 2018,2021, and for the three-month periodand nine-month periods ended JanuaryJuly 31, 20182021 and 20172020 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.
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
The Company 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 condensed consolidated financial statements are presented to show these three reportable segments.
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.
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Fair Value of Financial Instruments
The carrying value of the Company's financial instruments (excluding marketable securities and obligations under capitalfinance 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 capitalfinance leases approximates the carrying amount.
Revenue Recognition
The Company records revenue under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. We evaluate our revenue contracts with customers based on the five-step model under ASC 606: (i) Identify the contract with the customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to separate performance obligations; and (v) Recognize revenue when (or as) each performance obligation is satisfied.
Revenue is primarily derived from: (1) time and materialsmaterial 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),. Time and material contracts are typically based on the number of hours worked at contractually agreed upon rates. These service contracts relate to work which have no alternative use and for which the Company has an enforceable right to payment for the work completed to date. As a result, revenue is recognized over time when or as the Company transfers control of the promised products or services (known as performance obligations) to its customers. Revenue for short term fixed fee contracts or “not to exceed” contracts 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.
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 accountbalance is determined to be uncollectible.uncollectible in full. 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 JanuaryJuly 31, 2018,2021, the Company had no significant uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.
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Property and Equipment
Owned property and equipment and leasehold improvements are stated at cost. Vehicles under capitalfinance 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 capitalfinance 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, whileterm. While expenditures for repairs and maintenance are expensed when incurred. As of JanuaryJuly 31, 20182021 and October 31, 2017,2020, the accumulated depreciation and amortization amounted to $2,443,077$524,094 and $2,293,329,$501,489, respectively.
Leases
We categorize leases at their inception as either operating or finance leases. The Company leases include an operating lease for office space and a finance lease agreement for a vehicle which was disposed in April 2021. Under the operating lease, as of July 31, 2021 and October 31, 2020, the total right-of-use assets were $721,564 and $846,714, respectively. As of July 31, 2021 operating lease liabilities current and non-current were approximately $172,957 and $523,960, respectively, while as of October 31, 2020 operating lease liabilities current and non-current were approximately $162,917 and $629,979, respectively. The finance lease was included in net property and equipment, current installments of long-term debt, and long-term debt in our condensed consolidated balance sheets.
Impairment of Long-Lived Assets
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 propertieslong-lived assets was present.
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.
Earnings Per Share of Common Stock
Basic lossearnings per share of common stock is calculated by dividing net lossearnings by the weighted average number of shares of common stock outstanding. Diluted lossearnings 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.
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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 JanuaryJuly 31, 20172020 condensed consolidated financial statements to conform them to the JanuaryJuly 31, 20182021 condensed consolidated financial statements presentation. Such reclassifications do not affect net lossincome as previously reported.
Recent Accounting Pronouncements
Recent accounting pronouncements
NOTE B – PROMISSORY NOTE
On September 17, 2018, the Company sold substantially all of its Lab business assets (the “Laboratory Assets”). Upon the completion of the Laboratory Assets sale, the Company received, as partial payment, a $3 million Promissory Note from the purchaser. The Promissory Note was composed of two tranches: (i) Tranche A for $2 million and secured with lab equipment and (ii) Tranche B for $1 million which was unsecured. The interest rate accrual was 3% for Tranche A and 5% for Tranche B. The Promissory Note’s final payment installment of $1,250,000 from Tranche A was collected in November 2020.
NOTE C – LOANS FORGIVENESS
On April 23, 2020, Pharma-PR, Pharma-Serv, and Pharma-US (collectively, the “Borrowers”) entered into loan agreements and related promissory notes to ourreceive U.S. Small Business Administration Loans. These loans were originated pursuant to the Paycheck Protection Program (the “PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and in the aggregate amount of $1,931,700 (the “Loan Proceeds”). The Borrowers received the Loan Proceeds on April 23, 2020. These SBA Loans terms followed the CARES Act provisions and the corresponding regulations issued by the SBA. Under regulations established by the Small Business Administration and the CARES Act, in July 2021 the Company applied for and obtained the full forgiveness of the SBA Loans and the related accrued interests. The forgiveness of these loans and related interest for the aggregate amount of approximately $1,956,000 were recorded as other income on the Condensed Consolidated Statements of Operations but expect that this standard will have a material impact to assets and liabilities on our Consolidated Balance Sheets upon adoption.
NOTE B – MARKETABLE SECURITIES AVAILABLE FOR SALE
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 |
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 |
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 our Company commencing with our 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 estimatedwas determined 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 mightmust be paid over a period of eight years starting on February 28,which started with the Company’s second quarter of 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.
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%37.5% 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 wassubsidiaries, is 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, the regular federal income tax rate was reduced to 21%.
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.
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Pharma-Spain Pharma-IR, Pharma-Bio/Pharma-US, Pharma-PR and Pharma-Serv
The Company files income tax returns in the United States (federal and various states jurisdictions), Puerto Rico, Ireland, Spain and Brazil. The 2013 (20122016 (2015 for Puerto Rico) through 20162019 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 DE – WARRANTS
The following data shows the Company entered into an agreement with a firm for providing (i) business developmentamounts used in the calculations of basic and (ii) mergersdiluted earnings per share.
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| Three months ended July 31, |
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| Nine months ended July 31, |
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| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net income available to common equity holders - used to compute basic and diluted earnings per share |
| $ | 2,275,118 |
|
| $ | 692,114 |
|
| $ | 2,783,421 |
|
| $ | 1,906,575 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares - used to compute basic earnings per share |
|
| 23,029,215 |
|
|
| 23,001,627 |
|
|
| 23,022,950 |
|
|
| 23,003,125 |
|
Effect of options to purchase common stock |
|
| 145,390 |
|
|
| 31,014 |
|
|
| 155,141 |
|
|
| 26,941 |
|
Weighted average number of shares - used to compute diluted earnings per share |
|
| 23,174,605 |
|
|
| 23,032,641 |
|
|
| 23,178,091 |
|
|
| 23,030,066 |
|
For the three-month and acquisition services to the Company. Pursuant to the agreement terms, the Company issued warrantsnine-month periods ended July 31, 2021 and July 31 2020, options 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 vested80,000 and expire on December 1, 2019.
NOTE EF – 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. Since April 2020, the Company suspended purchases under the Repurchase Program. As of JanuaryJuly 31, 2018 and October 31, 2017, pursuant to the program,2021, a total of 270,552 and 243,452341,154 shares of the Company’s common stock were purchased under the Repurchase Program for an aggregate amount of $261,822 and $248,163, respectively.
On January 5, 2021 the amounts used inBoard of Directors of the calculationsCompany declared a cash dividend of basic and diluted losses$0.075 per share.
Three months ended January 31, | ||
2018 | 2017 | |
Net loss available to common equity holders - used to compute basic and diluted earnings per share | $(2,664,012) | $(382,135) |
Weighted average number of common shares - used to compute basic losses per share | 23,063,997 | ��23,051,349 |
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 |
Weighted average number of shares - used to compute diluted losses per share | 23,065,290 | 23,088,560 |
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.
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Accounts receivable and revenues
Management deems allestimates that the collectability of its accounts receivable to be fully collectible,is reasonably assured, and, as such, does not maintain any allowancesallowance 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 threefive customers, which accounted for 10% or more of its revenues in either of the three-month and nine-month periods ended JanuaryJuly 31, 20182021 and 2017.2020. During the three months ended JanuaryJuly 31, 2018,2021, revenues from these customers were 15.3%19.6%, 10.8%14.2%, 6.8%, 9.9% and 1.5%0.0%, or a total of 27.6%50.5%, as compared to the percentages for the same period last year of 9.3%13.3%, 0.0%9.9%, 10.3%, 4.4% and 13.8%15.7%, or a total of 23.1%53.6%, respectively. During the nine months ended July 31, 2021, revenues from these customers were 20.7%, 12.8%, 10.4%, 10.0% and 0.0%, or a total of 53.9%, as compared to the same period last year of 14.2%, 10.4%, 11.5%, 1.9% and 19.2%, or a total of 57.2%, respectively. At JanuaryJuly 31, 2018,2021, amounts due from these customers represented 28.6%22.3% of the Company’s total accounts receivable balance.
At the global level, four customersfive global groups of affiliated companies accounted for 10% or more of the Company’sits revenues in either of the three-month and nine-month periods ended JanuaryJuly 31, 20182021 and 2017.2020. During the three months ended JanuaryJuly 31, 2018,2021, aggregate revenues from these global groups of affiliated companies were 15.3%19.6%, 10.8%14.2%, 8.0%7.5%,9.9% and 1.5%0.0%, or a total of 35.6%51.2%, as compared to the same period last year for 9.3%13.3%, 0.0%9.9%, 10.8%12.2%, 4.4% and 13.8%15.7%, or a total of 33.9%55.5%, respectively. During the nine months ended July 31, 2021, aggregate revenues from these global group of affiliated companies were 20.7%, 12.8%, 12.1%, 10.0% and 0.0%, or a total of 55.6%, as compared to the same period last year for 14.2%, 10.4%, 14.0%, 1.9% and 19.2%, or a total of 59.7%, respectively. At JanuaryJuly 31, 20182021, amounts due from these global groups of affiliated companies represented 38.9%24.2% of total accounts receivable balance.
As of JanuaryJuly 31, 2018,2021, one of the Company’s customers (representing 4.5% of revenues during the nine months ended July 31, 2021) owes the Company approximately $1.3$5.2 million, which represents approximately 7.3%20.7% of the Company’s total working capital. We are providing multiple services to this customer related to their construction of 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 is actively monitoring this account and currently estimates that collectability of the account is reasonably assured, accordingly, no provision for losses if any, havehas been recorded in the financial statements.
NOTE H - 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 operations of the Company for the three-month and nine-month periods ended in JanuaryJuly 31, 20182021 and 2017.2020. 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 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) |
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|
| Three months ended July 31, |
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| Nine months ended July 31, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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REVENUES: |
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Puerto Rico consulting |
| $ | 3,749,071 |
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| $ | 4,989,964 |
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| $ | 10,861,147 |
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| $ | 14,287,556 |
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United States consulting |
|
| 622,669 |
|
|
| 939,421 |
|
|
| 1,546,889 |
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|
| 1,723,774 |
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Europe consulting |
|
| 579,793 |
|
|
| 310,974 |
|
|
| 1,785,115 |
|
|
| 466,924 |
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Other segment¹ |
|
| 36,376 |
|
|
| 38,011 |
|
|
| 324,733 |
|
|
| 61,050 |
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Total consolidated revenues |
| $ | 4,987,909 |
|
| $ | 6,278,370 |
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| $ | 14,517,884 |
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| $ | 16,539,304 |
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INCOME (LOSS) BEFORE TAXES: |
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Puerto Rico consulting |
| $ | 2,011,030 |
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| $ | 692,906 |
|
| $ | 2,159,988 |
|
| $ | 2,186,327 |
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United States consulting |
|
| 149,837 |
|
|
| 85,381 |
|
|
| 135,952 |
|
|
| 33,242 |
|
Europe consulting |
|
| 154,937 |
|
|
| 1,781 |
|
|
| 534,981 |
|
|
| (59,903 | ) |
Other segment¹ |
|
| (2,416 | ) |
|
| 6,424 |
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|
| 89,859 |
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|
| (22,011 | ) |
Total consolidated income before taxes |
| $ | 2,313,388 |
|
| $ | 786,492 |
|
| $ | 2,920,780 |
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| $ | 2,137,655 |
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_____________________
¹ | Other division which falls below the reportable |
Long lived assets (property and equipment and intangible assets)equipment) as of JanuaryJuly 31, 20182021 and October 31, 2017,2020, and related depreciation and amortization expense for the three and nine months ended JanuaryJuly 31, 20182021 and 2017,2020, 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.
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ITEM 2.
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, 2017.2020. 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.
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, SpainEurope 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.
We consider our core business is FDAto be Food and Drug Administration (“FDA”) and international agencies regulatory compliance related services, we feel that our clients are in need of other services that we can provide and allow us 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 facility and a training center that provides seminars/training to the industry.
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.
The following table sets forth information as to our revenue for the three-month and nine-month periods ended JanuaryJuly 31, 20182021 and 2017,2020, by geographic regions (dollars in thousands).
Three months ended January 31, | ||||
Revenues by Region: | 2018 | 2017 | ||
Puerto Rico | $3,184 | 75.6% | $3,515 | 86.8% |
United States | 287 | 6.8% | 347 | 8.6% |
Europe | 721 | 17.1% | 182 | 4.5% |
Other | 20 | 0.5% | 2 | 0.1% |
$4,212 | 100% | $4,046 | 100% |
|
| Three months ended July 31, |
|
| Nine months ended July 31, |
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Revenues by Region: |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
Puerto Rico |
| $ | 3,749 |
|
|
| 75.2 | % |
| $ | 4,990 |
|
|
| 79.4 | % |
| $ | 10,861 |
|
|
| 74.8 | % |
| $ | 14,287 |
|
|
| 86.4 | % |
United States |
|
| 623 |
|
|
| 12.5 | % |
|
| 939 |
|
|
| 15.0 | % |
|
| 1,547 |
|
|
| 10.7 | % |
|
| 1,724 |
|
|
| 10.4 | % |
Europe |
|
| 580 |
|
|
| 11.6 | % |
|
| 311 |
|
|
| 5.0 | % |
|
| 1,785 |
|
|
| 12.3 | % |
|
| 467 |
|
|
| 2.8 | % |
Brazil |
|
| 36 |
|
|
| 0.7 | % |
|
| 38 |
|
|
| 0.6 | % |
|
| 325 |
|
|
| 2.2 | % |
|
| 61 |
|
|
| 0.4 | % |
|
| $ | 4,988 |
|
|
| 100.0 | % |
| $ | 6,278 |
|
|
| 100.0 | % |
| $ | 14,518 |
|
|
| 100.0 | % |
| $ | 16,539 |
|
|
| 100.0 | % |
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For the three-monthnine-month period ended JanuaryJuly 31, 2018,2021, the Company’s total revenues for the Company were $4.2 million, an increaseapproximately $14,518,000, a net decrease of $0.2 millionapproximately $2,021,000 when compared to the same period last year. The Puerto Rico and US consulting markets had a revenue increase is mainly attributable todecrease in projects in the Europe consulting market for $0.5 million,of approximately $3,426,000 and $177,000, respectively, which were partially offset by a declinethe increase in the Puerto Rico Labprojects revenue in Europe and the consulting marketBrazil markets of $0.2 millionapproximately $1,318,000 and $0.1 million,$264,000, respectively. Other Company divisions sustained minor revenue losses or remained constant, when compared to the same period last year. When compared to the same period last year, gross profit decreased by 5.5 percentage points. The net decrease in gross margin increased 0.2 percentage points is mainly attributable to some projects in the Puerto Rico market for the nine-month period ended July 31, 2020, for which the gross margin was higher than usual. Selling, general and administrative expenses were approximately $2,917,000, a decrease of approximately $318,000. The net decrease is mainly attributable to the decrease of consulting fees and other administrative expenses of approximately $326,000 and $100,000, respectively, partially offset by an increase in non-recurring legal fees of approximately $108,000. Other income increased by approximately $1,912,000, mainly as the result of the forgiveness of principal and accrued interest of the SBA Loans for the aggregate amount of approximately $1,956,000, partially offset by the decline in interest income because of lower interest rates. These factors resulted in a net income of approximately $2,783,000 for the nine-month period ended July 31, 2021, or a increase of approximately $876,000 when compared to the same period last year.
While we have not identified any material adverse effect resulting from the coronavirus (COVID-19) pandemic, we continue to actively monitor the pandemic and any potential future impact it may have on our business and results of operations. The net increase in gross margin is mainly attributableextent to the increase of 0.6 percentage points attained by consulting, mostly from European projects, partially offsetwhich our operations will be impacted by the decline of 0.4 percentage points inpandemic will depend largely on unknown developments which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning our customers, the Lab. Lab testing volume has not increased to absorb the costs associated with the Lab expansion sustained during fiscal years 2017 and 2016. Selling, general and administrative expenses were approximately $1,064,000, a net decrease of $352,000 when compared to the same period last year. The decrease is mainly attributable to cost reduction measures geared to align our operational support expenses 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. These factors contributed to our net income before income tax and Transition Tax be approximately $37,000, an increase in earnings of approximately $417,000, when compared to the same period last year. (See “Results of Operations” below.)
The coronavirus pandemic, the Puerto Rico government financial crisis, the Tax Reform, other tax reforms on the markets where we do business, bio-pharmaceutical industry consolidations, trends on managing contract resources, and the 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, including any impacts of the coronavirus pandemic, changes in tax laws, and healthcare reform, and worldwide lifesciencelife science manufacturing industry consolidations, operational constraints imposed by our customers due to the coronavirus pandemic and resources management trends will have on our operations, and our ability to seek service opportunities and adapt to the industry trends.
Results of Operations
The following table that sets forth our statements of operations for the three-month and nine-month periods ended JanuaryJuly 31, 20182021 and 2017,2020 (dollars in thousands)thousands, and as a percentage of revenue:
Three months ended January 31, | ||||
2018 | 2017 | |||
Revenues | $4,212 | 100.0% | $4,046 | 100.0% |
Cost of services | 3,129 | 74.3% | 3,014 | 74.5% |
Gross profit | 1,083 | 25.7% | 1,032 | 25.5% |
Selling, general and administrative costs | 1,064 | 25.2% | 1,416 | 35.0% |
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% |
|
| Three months ended July 31, |
|
| Nine months ended July 31, |
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|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
Revenues |
| $ | 4,988 |
|
|
| 100.0 | % |
| $ | 6,278 |
|
|
| 100.0 | % |
| $ | 14,518 |
|
|
| 100.0 | % |
| $ | 16,539 |
|
|
| 100.0 | % |
Cost of services |
|
| 3,733 |
|
|
| 74.8 | % |
|
| 4,424 |
|
|
| 70.5 | % |
|
| 10,657 |
|
|
| 73.4 | % |
|
| 11,230 |
|
|
| 67.9 | % |
Gross profit |
|
| 1,255 |
|
|
| 25.2 | % |
|
| 1,854 |
|
|
| 29.5 | % |
|
| 3,861 |
|
|
| 26.6 | % |
|
| 5,309 |
|
|
| 32.1 | % |
Selling, general and administrative expenses |
|
| 895 |
|
|
| 17.9 | % |
|
| 1,038 |
|
|
| 16.5 | % |
|
| 2,917 |
|
|
| 20.1 | % |
|
| 3,235 |
|
|
| 19.6 | % |
Other income (expense), net |
|
| 1,953 |
|
|
| 39.1 | % |
|
| (30 | ) |
|
| (0.5 | )% |
|
| 1,976 |
|
|
| 13.6 | % |
|
| 64 |
|
|
| 0.4 | % |
Income before income taxes |
|
| 2,313 |
|
|
| 46.4 | % |
|
| 786 |
|
|
| 12.5 | % |
|
| 2,920 |
|
|
| 20.1 | % |
|
| 2,138 |
|
|
| 12.9 | % |
Income tax expense |
|
| 38 |
|
|
| 0.8 | % |
|
| 94 |
|
|
| 1.5 | % |
|
| 137 |
|
|
| 0.9 | % |
|
| 231 |
|
|
| 1.4 | % |
Net income |
|
| 2,275 |
|
|
| 45.6 | % |
|
| 692 |
|
|
| 11.0 | % |
|
| 2,783 |
|
|
| 19.2 | % |
|
| 1,907 |
|
|
| 11.5 | % |
Revenues
.The decrease for the three months ended JanuaryJuly 31, 2018, revenues for the Company were $4.2 million, an increase of $0.2 million2021, when compared to the same period last year. The revenue increaseyear, is mainly attributable to projectsthe decrease in the Europe consulting market for $0.5 million, partially offset by a declineprojects in the Puerto Rico, LabUS and Brazil markets of approximately $1,241,000, 316,000 and $2,000, respectively, partially offset by the consultingincrease in project revenue in the Europe market of $0.2 million and $0.1 million, respectively. Other Company divisions sustained minor revenue losses or remained constant,approximately $269,000.
The decrease for the nine months ended in July 31, 2021, when compared to the same period last year.
Cost of Services; gross margin
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Selling, General and Administrative Expenses
. Selling, general and administrative expenses for the three and nine months endedThe decrease for the three months ended July 31, 2021, when compared to the same period last year. The decrease is mainly attributable to cost reduction measures geared to align our operational support expenses 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.
The decrease for the $2.7 million non-recurring Transition Tax imposed by the Tax Reform over the Company’s E&Ps.
Other Income, net. For the three-month and nine-month periods ended on July 31, 2021, other income, net was approximately $1,953,000 and $1,976,000, a slight improvementnet increase of approximately $1,983,000 and $1,912,000 when compared to the same periods last year. The net increase is mainly attributable to the forgiveness of principal and accrued interest of the SBA Loans in the aggregate amount of approximately $1,956,000, partially offset by the decline in interest income because of lower interest rates.
Net Income. Net income for the three and nine months ended July 31, 2021 was approximately $2,275,000 and $2,783,000, an increase of approximately $1,583,000 and $876,000 when compared to the same periods last year, respectively. The increase in net income is mostly attributable to the (i) decrease in revenue and related gross margin, plusprofit, (ii) partially offset by net savings on selling, general and administrative expenses, and (iii) the forgiveness of principal and accrued interest of the SBA Loans, partially offset by the decline in other operational support expenses. After considering the Tax Reform $2.7 million Transition Tax, the Company sustained a net lossinterest income because of approximately $2.7 million, a decrease in earnings of $2.3 millionlower interest rates, when compared to the same periodperiods last year.
For the three and nine months ended JanuaryJuly 31, 2018, earnings before2021, net income tax and Transition Tax per common share for both basic and diluted was $0.002, a commonwere $0.098 and $0.120, an increase of $0.068 and $0.037 per share, basic and diluted increase for each one of $0.018 when compared to the same periodperiods last year. After considering income tax and the US Tax Reform Transition Tax, loss per common share for both basic and diluted was $0.115, a common share basic and diluted decrease for each one of $0.098 when compared to the same period last year.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including planned capital expenditures. As of JanuaryJuly 31, 2018,2021, the Company had approximately $18$25.0 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"Repurchase Program"). During the three-month period ended January 31, 2018,April 2020, the Company repurchased 27,100suspended purchases under the Repurchase Program to conserve cash due to the economic uncertainty caused by the coronavirus pandemic. We may resume repurchases in the future; however, we can provide no assurance when we will resume the Repurchase Program. As of July 31, 2021, the Company has 1,658,846 shares of its common stock.
Our primary cash needs consist of the payment of compensation to our consulting team, overhead expenses, and statutory taxes, (including the Transition Tax).taxes. 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”).expenses. 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 beare 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,market, 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, as described above, management is not aware of any other 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 threenine months ended JanuaryJuly 31, 2018.
Critical Accounting Policies and Estimates
There were no material changes during the threenine months ended JanuaryJuly 31, 20182021 to the critical accounting policies reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2017.
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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, 2017,2020, 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:
· | Any outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business operations, financial condition and results of operations. | |
· | Because our business is concentrated in the life science 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 impact of hurricanes or any other natural disasters, including recent earthquakes, may affect the willingness of businesses to commence or expand operations in Puerto Rico, or may also consider closing operations located in Puerto Rico. | |
· | 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. | |
· | 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. | |
· | The collectability of our account receivables may be subject to our customers funding sources. | |
· | 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. | |
· | We may be harmed if we do not penetrate markets and grow our current business operations. | |
· | 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 to expand their Puerto Rico operations. | |
· | 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 CARES Act loan may be subject to regulatory review. | |
· | 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. |
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· | 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 | |
· | 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 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.
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Table of Contents |
PART II– OTHER INFORMATION
ITEM 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There have been no material changes to the Company of its shares of common stock duringRisk Factors previously disclosed in our Annual Report on Form 10-K for the three-month periodyear ended JanuaryOctober 31, 2018:
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 |
ITEM 6. EXHIBITS
(a)
Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
Certification of chief financial officer pursuant to Section 302 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 |
_________________
* | Furnished herewith. |
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SIGNATURES
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: September 14, 2021 |